SIVB (2021 - Q3)

Ladies and gentlemen, thank you for standing by and welcome to the SVB Financial Group Third Quarter 2021 Earnings Call. Thank you. I would now like to turn the conference over to Meghan O’Leary, Head of Investor Relations. Meghan O

Thank you, Paula and thank you everyone for joining us today. Our President and CEO, Greg Becker and our CFO, Dan Beck, are here to talk about our third quarter 2021 financial results and will be joined by other members of our management team for the Q&A. Our current earnings release, highlight slides and CEO letter have been filed with the SEC and are available on the Investor Relations section of our website. We will 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, maybe found in our SEC filings and in our earnings release. And now, I will turn the call over to our President and CEO, Greg Becker.

Thanks, Meghan and thanks everyone for joining us today. It’s great to be here with you to talk about another quarter of exceptional growth and profitability marked by continued strong balance sheet growth, strong net interest income, robust fee and market-related income and solid credit. Our earnings release, presentation slides and CEO letter, which we filed this afternoon, are available on the Investor Relations section of our website. Before we start the Q&A, I want to call out that we raised our 2021 growth outlook for the third time this year. We also introduced our preliminary 2022 outlook, which calls for continued strong growth as well as further acceleration of key investments in our business. We believe the additional net interest income generated by our larger balance sheet will more than offset this additional investment while the investments we are making will drive increased growth and improved operating leverage. And with that, I will ask the operator to open up the lines for questions.

Thank you. The floor is now open for your questions. Your first question comes from the line of Ebrahim Poonawala at Bank of America.

Hey, good afternoon.

Hey, Ebrahim.

Two questions. One, Greg, your letter sounded extremely bullish and you mentioned about the 2022 outlook being stronger than any preliminary outlook in years. I guess just unpack that for us in terms of how much of that optimism is built on what’s purely happening in markets and how much of that is tied to SVB and your larger balance sheet, a larger investment bank, more global presence? To the extent, you can give us a breakdown between those two components that informs your outlook?

Yes, it’s a great question, Ebrahim. So I’d break it down this way. Clearly, the growth that we have had in 2021 so far and what we would expect to finish the year based on the guidance that we have given creates a lot of momentum into 2022. So there is a huge amount of benefit to the expansion of the balance sheet, the growth of core fee income, the investments we are making in investment banking and headcount, private banking and wealth, all that momentum clearly carries forward. And so there is kind of a tailwind, number one. Number two, we certainly expect the markets that we serve in innovation economy to continue to perform well, although not quite at the accelerated pace that we see right now, nothing that we are seeing is causing that point of view. It’s more of just – it’s hard to fathom that it will stay at this pace. And maybe a third category is this, I am more convinced than ever that the strategy that we have laid out over the last couple of years, these four pillar businesses: the commercial bank, the private bank, SVB Capital and the investment bank, all working together is incredibly compelling for our clients. I am hearing that firsthand. Our teams are hearing that. And just having that broad product set just becomes really compelling and being the only player in the market who has kind of all four of those capabilities, exclusively focused on the innovation economy. So, it’s really – it’s a combination of those three things, Ebrahim, that’s giving us kind of that optimistic view rolling into 2022.

Got it. And I guess just a separate question I am trying to really get to how you are thinking about Boston Private here. When you look at your loan growth guidance for next year, fee guidance, how are you thinking about the contribution, just the mix of that loan book and how that loan growth looks looking out and what do you – where do you think assets under management grow in 2022?

Yes, I will start and Dan may want to add some comments to it as well. I really – I guess the most important part is it’s really early days, right. We just – we closed the acquisition July 1. And really, these last 90 days has been all about making sure that we are syncing up the teams. We have the right plans in place, because as you know, there is only so much you can do before the deal is actually closed to really sync up. But I will tell you what I have found, what the team has found is a lot of positive – I would say – I wouldn’t call them surprises, but validation of what we assume was going to play out, both on people and technology and so many other things. So I am, again, going back to your first question that caused me to be bullish. And what we always believed was the case, the reason that we wanted to bring Boston Private on to a platform is because the opportunity was so great. And that I would say has shown up in spades. The excitement, the energy from the teams on the commercial banking side and the private banking side and basically saying what the opportunity is, is truly incredible. So, it’s – we haven’t got to a place yet. We forecast exactly what that assets under management will be like for 2022, but you should expect to see when we get to January and we release our numbers there, but we are going to give you a lot more details as we usually do across our guidance levels and that will be one of those things that we comment more. But I would say it’s early, but feeling very good about what we are and definitely where we are headed. Dan, I don’t know if you…

Understood. And remind us – go ahead, yes, sorry.

I just said if Dan had anything to add to that?

Yes. The only other thing to add is we are seeing some positive momentum. You will see it in the materials. We have added 10 advisers since the closing of the deal, so already off to a good start based on the attractiveness of the platform. So that’s a positive fact. And I think as we get into, as Greg mentioned, the more detailed guidance here in January, we will start to talk more about building out the private bank, see more from a mortgage lending and some to a private stock lending perspective as a part of the growth, won’t clearly get to a level of private equity, global funds banking, but you will start to see the green shoots of growth in that guidance.

And just remind us, Dan, what’s the timeline for systems conversion when you get all the tech infrastructure kind of on board and won?

Yes. Ebrahim, the vast majority of the systems conversions that need to occur are going to occur in 2022. So, the vast majority will be done, let’s call it, Q3 into Q4 in terms of the transition. You will have some stragglers, but the things that we need more to manage the enterprise, to manage the opportunity across our businesses, Q3 is the target.

And does that restrict your ability, Dan, to really go to market in terms of how you would like to penetrate that $400 billion opportunity?

No, I think it actually allows us to take a step back and understand the information that we are going to need, to understand how to manage those opportunities and to do it in the best way. So, we are working, as Greg mentioned, we are working through that right now and then with that, can build out the platforms to scale it. So, I don’t think that gets in the way of us making progress towards that objective.

Yes. And I would add on to that part, let me just add on to that part, because I actually think that the technology side is one of those areas that we were pleasantly surprised how strong the technology was at Boston Private. And so it actually doesn’t slow us down at all. In fact, new clients as they are added, we are adding them on to the legacy Boston Private systems. And actually, that will be the main systems – client-facing systems that we engage in the market. So, I feel really good, but it’s not going to slow us down and the fact, I believe it’s going to actually enhance our ability to add clients under the platform.

Okay. Thanks for taking my questions.

Yes.

Your next question comes from the line of Casey Haire of Jefferies.

Yes, thanks. Good afternoon, guys. A question on the deposit growth guide, if I layer in ‘21 and ‘22, it looks like it’s about $10 billion a quarter, which is obviously very conservative with – relative to what you’ve seen this quarter or this past year. I am just wondering the distributions, which happened at year end, is that something like after a banner year, you are expecting an outsized distribution at the end of the year this year?

Hey, Casey, it’s Greg. I will start. I am sure Dan or Mike would want to add to it. So, I would say that’s a part of it, but the main part is what we have been adding this year roughly is $20 billion a quarter. And what our outlook says is that we just believe that it’s a reasonable assumption that it’s going to be tempered from the incredible growth that we have seen quarter-over-quarter. And so we are not seeing anything that really indicates that. Our teams are still bullish. But I would say we have kind of sat back and said just from our own standpoint that pace – continue with that pace seems overly aggressive. And so our outlook, we brought back to the range that you just described from a deposit growth. Now, we have a high confidence in that. And is there upside? Sure, there is upside but it’s preliminary guidance and we will clearly be able to give you a lot more color as we cross the year. And we will see if there are higher levels of distributions than we have seen in other – in prior years or anything else that would maybe be a little bit of an anomaly. So, I will see if Dan or Mike wants to add anything to that?

Yes, Greg, this is Mike Descheneaux here. So, when Greg was describing it, you can kind of break it down into two areas, the macro features as well as what we are doing to execute. And so when you look at the macro pictures, the fundamentals are still extraordinarily strong. I mean, we see the flows of funds come in. You see the amount of dry powder that’s out there, some accounts, it’s $2 trillion, $2.5 billion, $3 trillion tremendous amount of money. The amount of money being deployed into the space from BCs continues to grow the sizes the funds are growing multiple sources. So that – those things just have not changed. And then on the execution front, I mean, if you look at our client acquisition count when you go into the deck that we have here, we continue to bring those on, increase record numbers of clients. And what happens is it takes some time for them to get funded and so you are seeing us accumulating effect. So, we all believe that the fundamentals are in place. But as Greg says, I mean what we have been growing at is just such an extraordinary high pace. But I will tell you, I am really, really happy with kind of what you implied there in terms of if we can grow $10 billion, $11 billion per quarter I think that’s just a sensational growth as well, too. So again, nothing has fundamentally changed in our outlook.

Great. Thanks. And on the liquidity deployment to Slide 24, looks like you guys are expecting new purchase yields around the 150 level. I am just curious, what is the – what kind of the 10-year up 20 bps from the last week? I am just wondering how up to-date that number is and what kind of rate backdrop you guys are assuming on reinvestment rates?

Yes, Casey, it’s Dan. Those reinvestment rates were based on forward curve at 930. So you are right, we obviously sold off from there. I think the way to look at it is in the 3 to 5-year part of the curve. For every, let’s call it, 15 basis points on an annualized basis, we should get about another percentage point annualized of net interest income. So, that’s just a rule of thumb if we see that 3 to 5-year part of the curve increased by 15 basis points, that’s about a percentage point of pre-tax net interest income, so since September 30, if you have seen a sell-off in that kind of 15 basis point range. Now we’ll see how that’s sustained. Again, that’s annualized and is upside to the guidance.

Okay, great. Good rule of thumb. Last one for me, so capital management, you guys have lived at the bank Tier 1 leverage ratio at 7% to 8% forever. As you guys get bigger and hit that $250 billion mark. What – do you have any – what’s your confidence level that you will be able to continue to live at that capital floor going forward?

Yes, Casey. As I think we look at the requirements of capital planning and stress testing to our Category 4, Category 3 bank. We fashioned those original capital targets based on what we would anticipate. So, I think number one we had already built the structure based on that. Number two, if we then just look at the overall risk in the balance sheet, we have half the – more than half of the balance sheet is being investment securities and then we have got a substantial amount of high credit quality lending, how that translated into the stress test is, to some degree, lower credit losses. So, we don’t see incremental pressure to that Tier 1 leverage target as a part of moving into the Category 4, Category 3 from a capital perspective.

Great. Thanks.

Thanks, Casey.

Your next question comes from Ken Zerbe of Morgan Stanley.

Alright. Great. Thanks. Definitely no question, your guidance was incredibly strong. So, I will definitely give you kudos for that, but just let’s flip it over to the other side. If things do go right, like where is the biggest risk factors to your guidance, like what could be the areas where we see the most potential downside volatility if things don’t go as planned?

Ken this is Greg. Again, I will start. I think valuations and just flow – the flows of venture capital and some disruption occurring, where things have a dramatic slowdown, that’s probably the biggest ripple effect that you would see. You could see at that point investment values, warrant values drop, credit quality maybe challenged. So, if you see an economic – a true economic change, that’s really the biggest driver. Now, so that’s the risk, but let’s talk about what are the – and Mike did a great job of describing the things that are kind of pushed against that risk. The one place that is we are out in the market and it’s both in the United States and it’s also international, if you go to the UK and Europe and you are in South America or you are in Asia, there is such momentum around the innovation economy in every market. And that, to me, what we have seen, even when there is a slowdown, so even when you go back to ‘15 or ‘16 and there was a temporary slowdown, even when you saw it at the beginning of the COVID crisis last year, you saw a quick downturn, but the return was incredibly fast. And people looked at it as an opportunity to say, gosh, I was hesitant to jump in at these valuations and now I want to come in, because I want to be in the innovation economy. So there is – that’s the risk, but there is so many things that are tailwinds to offset that risk that we certainly see on a daily basis.

Understood. Definitely understood. Yes, the tailwinds are very positive. I agree. I guess maybe just a separate question. In terms of expenses, you guys have done I am going to say a great job of investing your sort of, let’s say, excess revenues into growing the business. And it – I don’t want to imply that 20% expense growth is not reinvesting in the business, but it feels like there is a lot of revenue growth coming over the next couple of years and you are slowing the expense growth. Is that just a function of not having, I am going to say, additional opportunities to invest in new verticals or I am trying to make sure I understood why revenue growth so vastly outpaces expense growth, because presumably, there is still opportunities for you to grow or reinvest in the business, if that makes sense? Thanks.

So, Ken, I think I have been on 56 straight earnings calls and that’s the first time I’ve ever heard somebody say that your expenses may not be growing as fast as I’d like them to. But let me take a stab at it. As we look at this and there is a couple of slides in here, there is Slide 12 and I want to say it’s Slide 35 and what they talk about is where we are investing investments across the platform, and you can look at breaking down the expense growth. And so I would say we feel good about those numbers. But clearly, if we see – as we roll into next year, if the numbers start to play out as good and maybe even better than what you see, we’re certainly going to look at putting more money into those investments because I agree with you, and I know the team agrees that we have lots of opportunities. So we’re trying to balance as you would expect us to always do. What’s that operating leverage? What’s the right investment level for the growth? And we’ve done a good job of that historically, and we will take that same approach as we go into 2022. And so if we feel good about the revenue and the growth and the outlook or even better than what we have in our forecast, don’t be surprised if we continue to add more to the investment portfolio.

Alright. Thank you very much.

Yes. Thanks.

Your next question comes from Steven Alexopoulos of JPMorgan.

Hi, everyone.

Hey, Steve.

Not to beat a dead horse on the preliminary ‘22 guidance. But Greg, one thing I wanted to flush out with you, I know it’s not the situation that X dollars of VC investment equals Y dollars of financial results. But from a big picture view, it’s still not clear to me. What type of year are you assuming with this guidance? Is it a more normal year, call that $100 billion, much better than that? Because I’m trying to get a sense if things do continue as we see them. What does that mean for the outlook?

Yes. Here’s how I would describe it, and Dan or Mike may want to add. Prior to, I would say, 2020 and 2021, where we’ve seen truly incredible growth, and I would say the second half of ‘20 was just going to start there, we’ve had, as you know, had incredibly strong growth. It’s just been outside the last really five quarters. So what I view is the outlook we have for next year is being somewhere in between the two. So at a faster pace than what you’d historically see from an average but not quite as fast as you would see this year. And Mike went through and described the reasons why it could be at the same pace. We’re trying to be, I would say, a little tempered in the sense of it’s been so incredibly strong. Again, this quarter, $80 billion of venture capital flows. And if it stays at that pace or accelerate, you could clearly see higher deposits and total client funds growth. So I wouldn’t call it conservatism. I would say it is a – what our crystal ball says just based on how long that period of exceptional growth could continue at that pace and just the belief that it will temper.

Okay. So said another way, you are assuming a fairly material step down in what we’re seeing right now with the preliminary guide.

Yes. I think an earlier comment or question is if you go back and look at the last several quarters, we were at about a $20 billion deposit growth rate, and now it’s in that range that was articulated roughly 10%. So if we stay at the pace we are, clearly, there is going to be a material upside to what you see in the forecast. So we haven’t seen anything that would cause us to, I just would say the belief – I’ve been doing this a long time and so is Mike and others that it rarely stays at that pace for an indefinite period of time. Usually, it’s 4 or 5 quarters and then it goes back to what I’d say is more of a normalized growth rate, but certainly hoping that it stays at this pace.

Okay.

Okay. Maybe one thing to consider, Steve. I mean look at some of the numbers coming out here, venture capital did, what, about $83 billion in capital deployed in Q3 huge amount. It’s just one quarter. When you look at exits, right, it’s just massive excess of something like $187 billion in Q3. The fundraising, I think this is a really important point to kind of digest in the fundraising. We’re already at – DCs are at $96 billion year-to-date, which is a record for a full year. It’s already exceeding. Just the 9 months to date has already exceeded the record that we already have. So when we look at – again, coming – we talked about earlier, the fundamentals and the sources of capital going there, they are going to – those are going to get deployed, and so the war chest are certainly there. So again, as Greg said, I mean, I think we’re being very sensible at this moment because, again, again, it should revert back to meet, but we’re still at extraordinary levels here for sure.

Yes. Okay. Greg, regarding the line in the CEO letter where you say the balance sheet has reached the size or you can generate strong, sustainable NII growth without the help from rates, typically, a larger balance sheet tons growth potential at a bank. It doesn’t make it better. How does this create a more sustainable NII growth outlook?

Yes, it’s a great question, and maybe that should have been worded. The growth rate of the balance sheet, and that’s what’s driving it. So to your point, if you just have a static size balance sheet and it doesn’t grow in a low rate environment, you’re not – or flat rate environment, you’re not going to get a lot of lift out of it. But I think the point is we’ve seen, and that’s what’s created the massive tailwind going into 2022 for net interest income, it is the acceleration of the growth of the balance sheet that we’ve seen. So it’s really the combination. It’s really – that is the way it should have been worded. Now what you didn’t ask and – but I will answer is this, which is what we’re really excited about is, at some point, we certainly believe that there will be some rate increases. And we have a slide in the deck that goes through and talks about how spring loaded the balance sheet actually is for additional NII if we do see rate increases in Slide 19, and you can go through that and look at every 25% increase in the balance sheet the way it is right now is $106 million, again, modeled in on an annualized pretax basis for each 25 basis point increase. But in addition to that, with the first 25 basis point increase, we also expect somewhere between $195 million and $225 million of increased core fee income generated from the large balance sheet funds that we have. So again, 125 basis point increase, you could see revenue growth of roughly $311 million to – I’m sorry, yes, $311 million to roughly $325 million or $330 million. So normalize after this, when the second rate increase happens, but the balance sheet is clearly spring loaded. So we’re happy that we can continue to grow NII in a low-rate environment, but we’re even more bullish when we do start to see some rate increases.

Okay. Final question, the inclusion of the long-term targets in the CEO letter, including 10% EPS growth in a low rate environment that definitely caught some attention, I think we last saw that in 2019. What was your motivation to reintroduce that at this point?

Well, a lot has changed, Steven. I think one of the things that we wanted to go back to is kind of how we think about what we’re driving to over the long run. And as we sat back and looked at where we are with rates, looked at where we are with the size of the balance sheet, looked at kind of a bunch of different things and building these kind of four pillars together, we wanted to give some long-term guidance. I think everybody is very focused on the next quarter or the next few quarters. What we wanted to do is say what we’re driving to over the long run, and that’s why we put in place years ago. And we just felt it was time to kind of bring them back so that everyone knew what we were headed to, where we were headed over the long-term.

Okay. Fair enough. Thanks for taking the question.

Dan – I think Dan want to add something on that one.

Yes, Steven, the other thing to think about is as we had a larger balance sheet, we’re growing net interest income we wanted to reinforce the fact that profitability is really important over the long-term. You see the addition of the businesses in SVB Leerink, in Boston Private and the investments there. We believe that’s going to continue even at the size and scale of the balance sheet to generate that strong return in both a flat rate environment as well as a higher rate environment. So we just thought it was time to reinforce the profitable growth, and strong growth is important to us.

Okay. Thanks for the follow-up, Dan.

Your next question comes from Bill Carcache of Wolfe Research.

Hi, everyone. Thank you for taking my question. I wanted to ask a clarification on the long-term financial targets for growth and profitability that you laid out. Do those ROE targets contemplate core fee income only or do they also include non-core fee income as well, curious how to think about that?

Yes, Bill, this is Dan. That incorporates really all of our revenues, including some of the non-core items. And I think the reason for that is as we move forward and go ahead, private bank wealth management, what we’re doing in SVB Leerink, plus some of the benefits that we continue to see in investment and warrant gains are really a part of the story. So it’s meant to be a more inclusive measure on a go-forward basis.

Understood. That’s a helpful clarification. Completely separate topic. On the Platt announcements, can you frame what client pain points you’re addressing through that partnership? What’s the key value add for your clients? And should we think of that as an incremental service that just enhances the stickiness of the relationship? Or is there also a notable revenue opportunity?

I’ll take that. This is Mike Descheneaux. It’s a little bit of everything, right? And so the partnership arrangement or utilization of the flat it enables our clients to be able to use the service there and connect into SES. Again, connecting with us is really, really important. Now later, once you’re able to do that and capture that information together, then there certainly can build some revenue opportunities that we will work with, but again, still very, very early. But again, we are very, very proud of our ability to partner with Platt.

Understood. And I guess maybe as an extension of that, can we expect to see you guys participate more broadly in the payment space through the addition of the technology investment banking team? Would that be sort of under their umbrella? Just curious if that’s an area that we could see you expand into as well.

So the way I think about it, this is Greg, our product team, which is under Mike, they have an entire strategic plan around payments, and it’s very broad-based. And so you’ll see additional partnerships like Platt. You’ll see additional capabilities that are built in-house without partnerships. And I feel really good about that and really focused on delivering for our clients. On the investment banking side, for technology investment banking, as we add more capabilities, it’s going to be very broad-based across really all categories of innovation. Will they be able to add value to our payments team? Yes, probably, I think they will, but they are distinct in the standpoint of what they are focused on. As you can see on Slide 13, it kind of goes through the different categories we have in investment banking in the technology side. And while we have – we expect to be making some near-term announcements on the fin-tech capabilities. But the payments business, the product is in one category, one area and then investment banking is another.

I see. Okay. That’s very helpful. And I guess maybe, Greg, as a follow-up final one for me. Have the new investment bankers that you hired already – are they – have they joined the platform at this point? Or are some of them still on garden leave? And maybe could you frame how conservative or aggressive that $150 million to $250 million of incremental should be Leerink revenue is in terms of how soon they’ll be able to hit the ground running and impactful after they joined the platform versus – does that contemplate, giving you a little time to ramp on the new platform? Just how you’re taking...

Maybe I’ll – yes. Maybe I’ll start with the second question first and then go back to the first one. So we feel good about the numbers that we talked about in the deck as far as the guidance for 2022. You clearly see a significant uplift in those numbers, and it’s a combination of we have a world-class biotech healthcare team, ECM and building out M&A capabilities. We have a world-class healthcare services team in health tech and now have and are building out even more of a world-class technology investment banking team or innovation investment banking team, and so they are hitting the ground running. We have hired 43 technology and 44 healthcare services and health tech investment bankers year-to-date, which is effectively doubling the number of investment bankers we had on the SVB Leerink platform, and they are already on the platform and winning mandates. Now those mandates, as you know, especially for M&A and even for some of the IPOs, they take a little while from a green on signing something up until it closes. So some will happen this year, but we will start to see that rolling into 2022, but feel very good about the outlook for next year. As we said, we still expect that next year, we will be adding somewhere between 35 and 50 additional hires in technology, equity capital markets, fin-tech, equity research, etcetera. So we are still looking to add to it. But by the end of next year, we will be more doing what I’ll call incremental adds as opposed to what we’ve done last year or this year and next year. So really feel good about where we are. I’ve been on some client calls with some of the investment bankers, and they are just being incredibly well received, landing new deals already and feel really good about the outlook.

That’s super helpful color. Thank you for taking my questions.

Yes.

Your next question comes from Chris McGratty of KBW.

Hi, good afternoon.

Hi, Chris.

Regarding the growth that you’ve laid out, the $10 billion a quarter roughly on balance sheet, what are your assumptions within your fee guidance of the off-balance sheet relative to 2021?

Dan, do you want to cover that?

Yes. Hey, Chris, so we don’t guide to off-balance sheet. But I think what we have been seeing in terms of overall liquidity growth is roughly, let’s call it, 50% of liquidity ending up on the balance sheet and then the rest of the liquidity going off the balance sheet. So around the margins, I think that’s a pretty good assumption. But again, we don’t guide specifically to the off-balance sheet client funds.

Okay. That’s helpful, though. Maybe the follow-up would be regarding capital with the momentum in earnings, the downstream that occurred in the quarter, the raise in August. How are you guys thinking about just capital levels given the guide that you’ve given?

Yes, Chris, we come out in the quarter in solid shape from a Tier 1 leverage perspective sitting at 7.3% at the bank, so feeling good about exiting the quarter. That being said, there is always – we do have the growth forecast and the preliminary guidance heading into next year. So as we did in the previous quarter, a common equity raise. What we’ve done after those common equity raises to be able to support growth is to go back to preferred, go back to senior debt to be able to support Tier 1 leverage. So we did, obviously, in the third quarter, do a common equity raise and feel good to the extent that growth continues that we can go back to the market and potentially look to preferred, look to senior to the extent that we need to bolster the capital position. So that’s the way we’re thinking about it.

Great. Very helpful. Thanks, Dan.

Thanks, Chris.

Your next question comes from John Pancari of Evercore ISI.

Good afternoon.

Hi, John.

On the long-term financial targets, I wanted to see if you could maybe help us with some of the other assumptions behind that because just knowing that in a higher rate environment, certainly, there could be different balance sheet dynamics that we’re looking at. We could be looking at balance sheet growth slowing in an environment like that. We could be looking at credit costs higher and possibly lower warrant gains, etcetera. So, just wanted to see if you could maybe help unpack that a little bit? Thanks.

Yes. Yes, John, it’s Dan. And again, when we look at these targets, these are obviously not sitting in the annual guidance for the year ahead. These are just, more generally speaking, as we’ve seen the franchise over a long period of time be able to produce these returns. So when we think of a higher rate environment and when we think of the returns and the EPS growth, to the extent you see some less liquidity in the market, we’ve traditionally been able to continue to grow core fee income. And at the same time, we have these alternative businesses in what we have acquired in Boston Private Wealth Management and Private Banking as well as the investment bank to continue to support the earnings growth rate. So looking ahead, we think that we’ve got the earnings power and the balance sheet growth in a higher rate scenario to be able to continue to support the strong EPS growth and ROE target because of these tools that we have been able to generate in the past in terms of profitable growth and these additional capabilities to be able to support clients across private bank, wealth management as well as the investment bank. So, that – generally speaking, obviously these are not forecasted targets. These are how we are thinking about the business over the long-term.

Got it. Okay. Thanks Dan. And then on the comp expense this quarter, the increase – the linked quarter increase in the comp expense, can you help us size up how much of that is performance related and tied to the better core fee and possibly warrant performance versus headcount growth or hiring, for example?

Yes. In terms of comps, I think you could break it into two pieces. One, let’s call it, in the 60% to 70% range being incentive-driven both from better performance and warrants. And then the rest is we continue to invest in the technology, investment banking initiative and add these great group of bankers on the Leerink side, adding additional compensation there. So, I would say they two really make up the largest components of the increase.

Got it. Okay, alright. Thanks. And then in the investment banking business, as you are building out the business and certainly see the long-term opportunity there, what is the long-term returns that you are expecting for that business in terms of ROE? And then what is the efficiency ratio that you are seeing in the business now? And what are you forecasting longer term?

Yes, John, it’s a good question. I think as we look at the business and you think about what we have been doing in adding world-class healthcare services team, adding technology investment banking, that’s starting to shift the revenue more to advisory over the long-term versus equity capital markets. And with that comes some better margin opportunities. So, the way to think of the business, I think over the long-term is less from an ROE perspective. More thinking about it in pretax profit and thinking about it kind of range 18% to 20%, maybe a bit more than that on a pretax basis for the business. And I think that’s a good place to look and we will see how this continues to evolve with the addition of advisory business for Leerink.

Thanks. This is Greg. Let me just add on to it. What I think is important – and so Dan gave you the standalone business metrics. But what we are building here, and this is the power of it, is when all the pieces work together. So, I will give you an example. So, having the investment banking capabilities in healthcare, life sciences and technology, that technology investment banking allows us to retain clients longer, to add more value to existing clients and it also generates additional client activity for the private bank. And so when you think about what we are building, and we are seeing it, we are seeing it’s early, but you certainly see the power of where it’s going is when all four of those businesses work together. And to me, that’s – I mean it’s – each one of these businesses on a standalone basis is exciting. They are all doing really well. But what really gets me excited over the long run is when they all work together, right. We are the only institution that has these four businesses that are exclusively focused on the innovation economy. And you see how well they are working together and the potential and that to me is where the real upside is over the long run.

Got it. Alright. Great. Thanks. I have one more question and it’s on competition. I guess if you look – if you compare where you are at now in your business dynamics versus maybe even not too long ago, or maybe 2 years ago versus now, what are the changes you are seeing in competition? And then how is that – the competitive landscape change in terms of are you seeing new players digging deeper into capital call lending, or are you seeing the new entrants from any of the bigger money centers? I mean can you just help us understand the more recent competitive dynamics and how they have been changing?

Yes, I will start and I am confident Michael will want to add to it. The – how I think about it is – the answer is – the short answer is yes. We are seeing competition increase across all different areas. But here is the part – I have been asked this question which is, how are you building the moat? What are you guys doing to protect against this franchise that you have. And how I answered is a little bit differently, which is we have been going on offense of building out our capabilities to not play defense, but to actually add more value to our clients. And I will go back to what I just kind of I answered with. That’s the main reason why we have been pushing so hard to create all four of these businesses and build them out and have them scalable and competitive in the market. And when they all work together, that is hard to compete with. Now, there is still competition. We wake up every day, realizing that, and it’s only getting more competitive. But our ability to compete has never been stronger. And I think that’s a really important message to deliver. And we are also spending more money, as we talked about earlier on the call earlier, in digital transformation, which is a requirement. We are spending more money on, again, helping our teams become more efficient. And we still have a long way to go, which is why we are continuing to accelerate that investment. But we are definitely, I believe in the best competitive position we have ever been. Mike, anything you would add to that?

No, Greg. I think you summed it quite nicely as well, too, as you alluded to and talked about. We are – we have expanded our capabilities so much. I mean as you know, we have been around for many, many years at this bank. And to now see all the capabilities and the tools and the platform that we have to bring to our clients, there is no one else out there that can bring all this together for our clients, at least in the innovation sector as well, too. So, it’s only opening up even more possibilities for us to go after and be extremely competitive. But again, having said all that, yes, there is competition in various segments where you have a lot of debt funds as well, too. And people see it’s a very attractive area to lend, too, as well, too. So no doubt, those have been proliferating as well. Some of these big box banks are coming down into trying to get smaller as well because they know that we are going even more up-market in terms of size as well, too. So, it’s there. But again, we have never been better equipped today than we have ever been before. And I can tell you going forward, it’s only going to get stronger from our competitive position.

Got it. Alright. Thank you, Greg. Thank you, Dan. Thanks a lot.

Your next question comes from Jared Shaw of Wells Fargo Securities.

Hey guys. Thanks very much for the insight you have given us already. Just maybe a couple of questions. How should we be thinking about the pace of incremental securities purchases or cash deployment from here? And I know you are pretty aggressive this quarter. Are we at a good level, or should we still think cash can come down?

Jared, it’s Dan. I still think we have got opportunity in the materials. We talk about a target in the $8 billion to $10 billion range. So, we have got opportunity to continue to put money to work based on how we ended the quarter and obviously with the liquidity and deposit forecast included in the guidance. So, will the pace be the same as what we saw in the last couple of quarters. Obviously, the guidance would imply slower investment rates, but we have opportunity with what’s on the balance sheet and with the deposit guidance to continue to deploy liquidity in the rate environment in a good spot for us to continue to do that with the recent sell-offs.

Okay. Great. Thanks. And then looking at the Boston Private addition, any additional thoughts or any updated thoughts around your view or approach to crypto? Is there an opportunity there to be more active in that space? And would you ever consider, I guess lending against crypto positions through the private bank?

Yes, this is Greg. I will start. Obviously, the crypto market is getting more and more attention and we are spending time on it. We do obviously have some clients that are involved in the crypto space. But on that part, the bar is pretty high. As you know and you read about it, we certainly pay attention to compliance issues around crypto companies. And so we want to make sure that any clients we do bring on board are ones that are at that high bar level for compliance. And we are all on the same page on that. At the same time, in our innovation team – strategy and innovation team, we are spending time figuring out what is that game plan to approach that market and how do we want to invest and how do we want to play. So, we are certainly looking at that. There isn’t anything imminent to announce. But certainly at some point, we are going to be leaning in more in this space given the attention that it’s getting in the market.

Great. Thanks so much.

At this time, there are no further questions. I will now turn the floor back over to Greg Becker for any additional or closing remarks.

Great. Thanks. So thank you, everyone for joining us today. We are obviously really happy with our continued growth and excited about the opportunities ahead. We are making real, incredible progress on these four businesses and how they all work together. And I just couldn’t be more proud about how the teams are working together, the strategy build-out, the execution, the commercial bank, especially in what we are seeing from the investment bank, not only just in the investment bank, the biotech team, the healthcare team is doing so well, but the addition of the tech team really across the board, the integration of Boston Private. So, I am certainly optimistic as you can tell. As we bring people on-board, we are committed to keeping the culture that we have at SVB, which is incredibly client-centric that is a culture of really embracing the innovation economy and helping those clients be successful. It’s all part of what has made us successful to-date and certainly what we believe is going to continue to allow us to be successful in the future. As always, I want to say thanks to our incredible employees, in my view, the best in the industry. They do such an incredible job taking care of our clients and thinking about the future and collaborating with their colleagues. And as you can tell, we have added a lot of new colleagues in different businesses, and that collaboration has been exceptional. So, I couldn’t be more pleased with their dedication and inspiration they give to all of us every day. And clearly, the clients, we wouldn’t have a business that wasn’t for the most interesting, compelling, fastest growing companies in the entire world. And then we all certainly appreciate the fact that they trust us to partner with us and thanks to all of you guys for joining us today to hear our story and the continuation of the strategy that we have been building. So, thanks to everyone and have a wonderful day. Thank you.

Thank you. This concludes today’s call. Thank you for your participation. You may now disconnect.