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SVB Financial Group (NASDAQ:SIVB)
Q3 2020 Earnings Call
Oct 22, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the SVB Financial Group Third Quarter 2020 Earnings Call. My name is Darrell, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

I'll now turn the call over to Meghan O'Leary, Head of Investor Relations. Meghan, you may begin.

Meghan O'Leary -- Head of Investor Relations

Thank you, Darrell, 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 2020 financial results and will be joined by other members of management for the Q&A.

Our current earnings release, slides and summary CEO letter have been filed in an 8-K and are available on the Investor Relations section of our website at svb.com.

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.

And now, I will turn the call over to our President and CEO, Greg Becker.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Great. Thanks, Meghan, and thank all of you for joining us today. You can see from the materials we filed earlier today that we had another terrific quarter with continued outstanding balance sheet growth, outsized warrant and investment gains from client IPOs, improved core fee income, strong investment banking revenue, low cost credit including a reserve release. I'd also like to acknowledge the great work that Dan Beck, our CFO and our Investor Relations team, Meghan O'Leary and Anna Vu have done in putting the investor deck together. We tried to really give you a lot of information so that you guys are really informed about what's going on.

So now, I'd like to move right into Q&A. So I'll ask the operator to open up the lines.

Questions and Answers:

Operator

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ken Zerbe from Morgan Stanley. Go ahead, Ken.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right. Great. Thanks. Good evening, guys. I wanted to start-off. Just in terms of capital, your bank leverage ratio is, I guess now just under 6.5%. Are you getting any pressure from either regulators or your Board to raise equity and how low could actually go before you would need to raise equity?

Daniel Beck -- Chief Financial Officer

Hey, Ken. It's Dan. If we look at the bank leverage ratio, we've got the flexibility to continue to manage through without a capital raise. And that's primarily because of our holding company cash position, so we exited the quarter with something close to $1.3 billion in cash at the holding company, of which a large or a decent portion is available for downstream. So I think the combination of that and the fact that we continue to have good profitability at the bank level will allow us to continue to manage through and manage the growth without a capital raise. I feel confident about that.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right. Great. And then maybe turning to credit with the reserve release. Can you just walk us through that? I mean, obviously it was a pretty sizable release in reserves of your negative provision expense, like what are you seeing? And then how is your model changing that that is actually driving the reserve release? Thanks.

Marc Cadieux -- Chief Credit Officer

Sure. It's Marc. I'll start. Dan may want to add. And so the release starts with the improved economic scenarios from Moody's that we and so many others rely on. The outlook improved quarter-over-quarter and that's a significant driver. The rest is our private bank or the other main drivers are Private Bank segment. And what we've noticed about the model and the extreme volatility in GDP, in particular, and unemployment is that it resulted in some very unintuitive results that were frankly significantly higher, expected losses over the life of the loan than we thought was likely to occur. And that was further reinforced in the third quarter with the continued strong performance in that segment. And in particular, the few clients that had enrolled in our payment deferral program, largely the vast majority of them resume making their payments in the third quarter, further supporting that continued strong performance.

And so in light of that, we did elect to make a qualitative adjustment to effectively smooth out the volatility created or the effect that the volatility was having on the model to arrive at a lower reserve for that particular segment of 1.73%. So we think a adequate reserve for what we expect our credit experience to be. Having said that, we do continue to expect strong credit quality experience from that segment, and so, while not yet confident enough to do any more releasing, we did think that was appropriate this quarter. And that really is the bulk of the story behind the release and net provision benefit.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Okay. That makes sense. And if I could just squeeze in one last question. Your deposit growth has been just outstanding. How much of that excess liquidity are you investing versus just keeping in cash? And how might that change over the next couple of quarters?

Daniel Beck -- Chief Financial Officer

This is Dan. I'll start. And our treasurer goes home tired, and his team goes home tired every single day. They've been working very hard to put that money to work. And you saw in the quarter that we put close to $10 billion worth of money to work in an investment security. So the bucket continues to be refilled with additional liquidity and we plan on continuing to deploy it, and that leads us into the margin. And if you think about the margins stability, that's really shown into the next quarter and into next year, that's really the remixing effect of us moving from cash into investment securities and getting back down to that, let's call it, $7 billion to $9 billion target that we've set out there in terms of total cash. So we're actively working to invest it. And again, our treasurer and treasury team are tired after doing that.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right. Great. Thank you very much.

Operator

And our next question comes from Ebrahim Poonawala from Bank of America. Go ahead, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Thank you. I guess, just first, Dan to follow-up on the margin outlook, the guidance for next year also implies relative stability. Just talk to us in terms of -- it feels like deposit funding cost leverage is maxed out for the most part. Where are you seeing new loan yields coming at relative to where the book is and how much more repricing is there to go as we think about through 2021, like, should the margin be -- will fourth quarter 2021 again, be a low point in the margin relative to the full-year guidance that you've given?

Daniel Beck -- Chief Financial Officer

Yeah. Ebrahim, just a couple of factors. On the deposit side of the equation, yes, I agree. We're probably at a low, but looking ahead into '21, don't see a major change in terms of the overall deposit cost might see a creep up a basis point or two just based on movements in money market versus non-interest bearing. So that there's relative stability there.

If we look at the second big component, like you said, lending, our expectation is clearly we're going to be in a competitive environment. But if we think of the big changes in loan yields, it was really driven by the rate reset. So that's been largely priced through. And we'll see really a remixing of the portfolio next year as we've got $1.8 billion of paycheck protection lending that rolls off largely, now the expectation is in the first quarter being replaced throughout the year with higher yielding loans. So net-net, there's a stability there, plus or minus a few basis points on the lending side of the equation.

And then finally you get to the investment securities. So investment securities certainly are seeing with the addition of investment securities at the 100 basis point to 110 basis point level, some pressure on the yields there. And we would expect as we go through the rest of next year to continue to see 2 basis points to 3 basis points declines on those yields quarter-over-quarter. So net-net, those are the components of how you get to that more stable margin range next year.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. And I guess, Greg in the past, you have quoted number of clients acquired, I think the number has been around 1,000 to 1,200. In your prepared statement, you talk about investments accelerating client acquisition. Just to give us some sense of like, it's easy to say that biotech, healthcare tech have done extremely well in terms of how they behave in the pandemic, but just give us a sense of where you're investing today in terms of, as we look out from a growth standpoint and where's growth coming from? Are these the same areas the growth was coming in the last five years or have there been new opportunities that you've been able to tap? Just talk to us as we think about just the medium-term outlook for the company?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. Ebrahim, I'll start. I'm going to ask Mike Descheneaux to add some commentary as well. So there's kind of -- at least my view, two parts to the question. First part is on a new client acquisition of where that's coming from. It is mostly in early stage and that's historically where it is head us come. So the investments we've been making, it is mainly been in client service and relationship management, and our start-up banking team. So we've added a lot of resources there and we're then building and layering in digital technology, digital onboarding, a better user interface, better digital online banking to make it a lot easier. So we're mirroring those two together, but it's an investment in both of those.

And then I would also say the third point is our programming. The team has done an exceptional job in programming in ways to help those start-ups navigate the pandemic, navigate this difficult time, think about fundraising and really end of the day, help them be more successful. So that's been the catalyst, the main catalyst to drive the nice pickup in new client acquisition, which you got to acknowledge as well in a pandemic is also the team has done an incredible job, everyone working remotely. So feel really, really good about that.

The second part is just investments overall. And I would just have you take a look at slide 10 in the deck that we submitted. And there's really those four buckets and we have been making investments in those first four categories and we're going to continue to add investments in those four categories. And it's to help sustain the long-term growth of the business and to support our clients today and over the coming years. So we feel really good about where we're making our investments and we're going to just look at making more.

So with that, Mike, you may want to add a little more color in the early stages in the client acquisition.

Michael Descheneaux -- President, Silicon Valley Bank

Sure, Greg. Now this is Mike Descheneaux here. The only thing I would add or maybe I'll add two points to it is, Greg is absolutely correct on the early stage, the strength there has just been astounding with our teams refocusing and really just navigating this -- the COVID environment just exceptionally well. But what -- it's also been extremely helpful of lately as well too, is even at our accelerated growth stage where we actually are starting to capture clients directly into that as opposed to necessarily always coming up from the start-up banking stage and so that's happening in terms of, again, as Greg was saying, the more of the outreach we've been doing, but also some of the digital leads as well too. So that's been really strong for us as well.

And then getting -- switching over to kind of where we're investing again, we're investing and trying to make it easier to do business with us, the digitization, eliminating friction and how you engage with us to make sure that much better experience coupled with the fact by continuing expanding our product set as well too. And all the combination of that is why you are seeing that we continue to have strong levels of client acquisition, as well as the quality of converting them into deposit accounts in products and so forth. So it's just incredibly strong quarter.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And when you see like headcount went up 10% quarter-over-quarter, is that a lot of frontline hiring or is it to support your digital initiatives? Just talk to any color around the hiring that we've seen? It was pretty strong in the third quarter.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

So Ebrahim, I'll start at a high level and I'm going to give -- Dan will give you the more detailed answer. At a high level, it's really been across the board. It has been in product areas, as Mike said, we're really doubling down, tripling down on the digital transformation and we are adding a lot of incredible people in our product area. That product area has to be married up by strong talent both the team we already have and the team we're bringing onboard in the technology side. So we're adding in both of those areas. And then the rest is spread pretty evenly across the organization with one exception.

We are doing some conversion or in-sourcing of some of the things that we have outsourced historically. So we're taking the consultants and contractors, in some cases that we've done it through third-party and then converting them to FTEs. And so that actually is a net-net economic or expensive benefit to us when you bring them on as a full-time employee versus the overhead costs you'd have with consulting firms. So the combination of all those things is what's been driving the headcount growth and we still expect we're going to be seeing headcount growth into 2021.

Daniel Beck -- Chief Financial Officer

Yes. Greg, just to put a finer point on it. About -- over the last year, about 50% of our hiring has gone to this product and digitization effort, another 30% to those in-sourcing efforts where we are utilizing our Bangalore development center as a place to hire, and then the other 20% just relative to the growth across the organization. So that gives you a bit more detail there.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks for taking my questions. And great job on the slide deck. Very comprehensive. Thanks.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Thanks, Ebrahim.

Operator

[Operator Instructions] And our next question comes from Steven Alexopoulos from JPMorgan. Go ahead, Steven.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

Hi, everyone.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Hey, Steve.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

So I wanted to start with a big picture question. So given that we're in the middle of a pandemic, the unemployment rate is 8%, there's turmoil just about everywhere. What in your opinion would explain $43 billion of client inflows over the past two quarters?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

It's a great question, Steve. The highest level, I would put it into two categories. Clearly, one is the wind at our back from the innovation economy. And what I mean by that is, it's the venture capital flowing into the market. It's the fact that there's few places for investors to put their money and you can't put it in fixed income, commercial real estate isn't looking very attractive right now. And so when you think about where you're deploying money, people are looking at growth. And one of the only places you can invest for real growth is in the innovation economy. And so you see that in venture capital fundings, you see that in venture funds being raised and then you marry that along with growth in the public markets to include IPOs and follow-on financings.

And so when you think about even the public markets, the public markets drove roughly $13 billion of client funds in the quarter, right. We have 62% market share of the venture-backed IPOs in the quarter and 73% of the venture-backed IPOs on health and tech over the course of the year. So you've got the wind at our back from the innovation economy and you marry that then with execution, again where we're investing in people, where we're investing in technology. So it's executing our strategy with the wind at our back and the economy, and the combination of those two things is driving incredible total client funds growth.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

Okay. That's helpful.

Michael Descheneaux -- President, Silicon Valley Bank

Steve, this is Mike Descheneaux. Maybe add on just a few things to what Greg is saying. To put it in perspective kind of the step back from the industry standpoint, we have record levels of dry powder for VC. In terms of fundraising, year-to-date here versus year-to-date last year, we're ahead toward record highs of fundraising for VC. The investment levels, as you're seeing, going into the innovation sector are on pace with 2019, which is incredible if you think about it, right, because of the pause that we had a little bit of slowdown as we entered into the COVID and shutting down, but then you kind of marry that with this. There's still a lot of opportunities being created here, like overnight you're having industries that are just being resurgent and a lot of great opportunities for people to invest and deploy the money and exactly what Greg is saying. There is such a low rate environment.

And then we start to look more specifically with some of the companies in general. Their burn rates are all shutdown, right. So in a sense, in some sense, they're being more efficient or they have less of an operating expense burden. So for example, travel, no doubt as lower people working from home. In some sense, maybe efficiency is even up as well, too, right, because we're not having to commute to work. And there's just a lot of solid companies out there. And so that's why I think you're continuing to see such strong things despite the challenges in the broader economy. And plus, as we all know, tech is and life sciences is a great enabler. We need these things to help us get through this. So that's why we -- again, we're all startled and kind of wondering like, wow, this is just an amazing run. But when you step back and think about all the positive things, it starts to make sense. And again, as Greg said, execution and team has just done an incredible job.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

Yeah. That's helpful color. And then given the really strong capital growth, it looks like the larger deals resumed. Are you guys starting to now see deals closing or resume?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. This is Greg. I'll start, and then Mike may add. We're definitely seeing that. This goes back. When the pandemic first hit, I was on a number of Zoom calls with venture capitalist and the first call, which was probably three weeks into, two weeks into the COVID crisis, there were 20 venture capitalists on the Zoom call and there was one that was considering doing it. We had one a few weeks ago and everyone was doing it. Everyone was doing it and they were just talking about how efficient it was and how this maybe a new normal and allow them to look at investments more broadly in different markets where it's easier to kind of connect with those founders, the executive team of those companies. And the same, obviously, is holding true in private equity as well a little bit slower. But as we said in the note, it is definitely picking up. So there's no question that deals are being done over Zoom and I actually think that they're feeling really good about it.

Michael Descheneaux -- President, Silicon Valley Bank

We, no doubt, are seeing strong momentum as we enter here into Q4. I mean, the pipelines are at record levels. The team has really been out and about there. And so, yeah, we are starting to see people are doing more and more deals. I mean, initially they were comfortable doing kind of the follow-ons doing with people that they already knew, right. So those deals were closing and being finalized. And then as you got more into it, you are starting to see just new deals being done on Zoom, people recognizing that you're going to have to do this in order to be able to deploy the capital coupled with just some really interesting opportunities. And so I would say that as we move here into the fourth quarter here, definitely the level of comfort to be able to do Zoom is really increasing. And so that's why we feel pretty good going into Q4 and into 2021.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

But Mike and Greg, when you think about where we were, right, to how many clients are now willing to do deals on Zoom, you look at record IPO issuance, there's a record number of specs out there now. Is this starting to feel like a bubble to you?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

It's a good question, Steve. And there's no question that more companies are elevated in valuations relative to their actual performance. And so I would say valuations. And this -- my comment is going to take you back to several years ago when I was making the same comment, these companies are starting to become price for perfection. But I would say there's two factors. One is people are looking for growth and the companies are performing very, very well. The growth rates are really nice.

And then the other part is there just aren't other places, meaningful places to invest. Now when does that shift? How long will it take for that to change? And how much of a drop, if any, could come out of the valuations if that were to take place? And I don't know the answer to that question. I think, we're going to be in a low rate environment for a while. And I think when you look at the transformation that many of these -- both healthcare and tech companies have done to create this growth trajectory, I think people are going to buy into the growth rates and believe it in holdup valuations. But is it a risk that we could see some deflation from people being nervous about valuations? Yeah. That's definitely a risk to pay attention to.

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

Okay. Terrific. Thanks for taking my questions.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. Thanks, Steve.

Operator

And our next question comes from Jennifer Demba from Truist Securities.

Jennifer Demba -- Truist Securities, Inc. -- Analyst

Thank you. Good evening. Following up on that theme, Greg, what is SVB's propensity to move more of your workforce to remote working? I know culture is really important to you. So what are your thoughts on maintaining productivity and culture in a more work-from-home environment to bring everybody back to the office? Thanks.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. Jennifer, it's a great question. We have this debate weekly about. And I'll first start with the comment that you're exactly right. The culture and how we operate, how we engage each other is a key part of our success because we have to be able to work really collaboratively across the organization to get stuff done. So we're absolutely thinking about that and making sure we're doing that the right way. We are working, as we said in our note, almost exclusively working from home. We have a very small group of people that are in the office. And while that's effective, we clearly are going to have when the dust settles and we get to a vaccine, we're going to have more people back in the office. But for sure, our workforce strategy is going to be changed forever.

Exactly what the balance is going to be of people, how many are going to be in five days a week versus thinking about fully remote. We haven't decided that yet, but there's no question that we're going to have a higher mix of people that are working from home and will only be coming in the office periodically. We do a lot of surveys to our employees and we get that feedback and the feedback was pretty clear. It was really a smaller percentage that wanted to come in five days a week and the full kind of 40 plus, 50 hours a week. It was more a smaller percentage, but there was a fair number that were one to three days a week, one to four days a week. And so we'll look to factor that in.

As we said in our note, when you look at the expense guidance, one of the comments we made about potential expense -- higher expenses in the fourth quarter was actually taking a hit on kind of getting out of some of our real estate leases. Not many, it's a few. But we believe that's prudent in the direction that we're headed. So we're working on ways to make sure we're engaging with our employees. We actually have setup a small team in our HR department where the only thing they're focused on is between now and when we get a vaccine and we actually go back to whatever that new normal will be to make sure we're building on culture, taking care of our employees, making sure they're safe, helping with them with their mental health, everything else that they need in this environment. Then the future of work, we have another team of people that are working on that, and that gets to where I said, we're going to be coming up with a model around that, that we expect we'll be announcing before year-end, but clearly culture and factoring that into it is going to be a critical component of it.

Jennifer Demba -- Truist Securities, Inc. -- Analyst

Thanks so much.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah.

Operator

And our next question comes from Jared Shaw from Wells Fargo. Go ahead, Jared.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Hi. Good evening, everybody.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Hey, Jared.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Just looking at the Leerink line item, from following what we were thinking was the deal activity for third quarter, we would have thought that revenue in there would have been higher. Was there something especially large in second quarter that drove an out-sized revenue figure for that or was there some element in third quarter that we should be aware of that impacted revenue?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yes. This is Greg. The answer is no to that. And it's kind of hard when you have the best quarter in history by a wide, wide, wide margin. You're almost always going to see a smaller number behind that. I look at the results and I'm just absolutely thrilled at what the team is doing. I feel that they are executing exceptionally well. They're looking to add more people to the team to kind of continue to take advantage of the opportunity that they see, but there's nothing unique about the second quarter. They were just -- activity levels were a little bit higher. Their share of the market is going up and they're doing a great job. So nothing to read into it, great results.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Okay. Thanks. And then I guess, given the lower fees quarter-over-quarter there, I would've thought that it was showing up more in comp. I guess, can you go through the, maybe the puts and takes on comp given the lower banking fees and then maybe the new hires that you referenced as well? And is this a good baseline for comp going into fourth quarter, assuming investment banking revenues stayed flat?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. I'll let Dan give you the detail. He's closer to that exact breakdown. So Dan.

Daniel Beck -- Chief Financial Officer

Yeah. Jared, as I think about Q3 and just getting to your question on the baseline, there are really three things on Q3 expenses. One, just a bank performance, if we look at what's been happening from a balance perspective, the amazing growth and the work that the teams are doing, including the warrants and incentives that's embedded in our Q3 numbers. Leerink's performance, were lower, again, than what we saw in the second quarter was still very strong and we've been spending a bit more on some of the digital investments that Mike and Greg were referencing. So Q3 costs relative to what we had in the previous guidance is mostly performance-based story.

As we look at the fourth quarter, largely those three factors are in there. We still expect Leerink to have probably an equally strong quarter in the fourth quarter, so their comp levels will be elevated in the fourth quarter. We'll also see the potential donation on the Paycheck Protection Program. So there's another roughly $20 million there and the real estate charges of $10 million to $15 million that Greg was talking about. So when we step back from all that, and we look at normalizing for the strong Leerink performance, the Paycheck Protection Program and real estate, you get to something closer as a baseline for the fourth quarter of around $460 million to $470 million. So you see what we have in there in the Q4 guidance. $460 million to $470 million is really the baseline that we're coming out of the year in that.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Okay. That's good color. Thanks. And then maybe shifting back over to the deposit side, deposit growth has been so strong over the last two years. I guess what's making you think that that rate slows in 2021? And then do you think maybe that growth is just moving more off balance sheet or is the expectation that total client fund growth moderates?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. I'll start Jared, and then, Mike and Dan may want to add. Yeah, we've seen exceptional growth, and it's been -- it continues to be strong right now. I think as we look into next year, what you don't have is you don't have obviously the government money flowing in. So that's one area that is part of it. The other part of it, to be honest, is just that it's been up so much. We just can't look into next year and assume it's going to be like this, if it happens great, but we're not expecting it. And so we give a range on guidance. And if it continues if we finish the fourth quarter and we continue to see this super strong growth, we're going to be -- have to up guidance into 2021. And so what we try to do is give a wider range.

And then in the deck, I think the team does a really, really good job, giving clarity on what are the drivers that could take it up higher and what are the things that could pull it down below the ranges that we have for the coming year in '21? So I would really look into that that detail. Those are really the drivers that are kind of dictating the direction, but I do think it's -- those factors is really driving our guidance.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Okay. Thanks. And then just finally from me, Dan, you had referenced the $7 billion to $9 billion cash target. How aggressive we -- or how quickly do you think you'll try to get there or is that more of a longer-term aspiration at this point just given some of the flows?

Daniel Beck -- Chief Financial Officer

I think it's mostly dependent on what we're seeing in the market and opportunities that are out there. We continue to look obviously, what we've done historically with the treasuries, agency mortgage back, CMBS, things along the agency CMBS, things along those lines. But we're also trying to build more of our municipal bond portfolio. So it's opportunity based on what we're seeing in those spaces and we are actively putting that money to work. So you'll see us continue probably not at the same $10 billion pace that we saw last quarter, but continue to actively put money to work as we find those opportunities.

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Thanks so much.

Operator

And our next question comes from Chris McGratty from KBW. Go ahead, Chris.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Thanks for the question. Dan, I want to talk about everyone's favorite topic taxes. Given the comments you made on the munis and what's being proposed in Washington, can you just walk us through what the sensitivity might be if we do get a tax hike under an administration or is it as simple as looking at what happened after the 2016 election and just prorating that?

Daniel Beck -- Chief Financial Officer

Yeah. Chris, I'll start. I mean, I think that as we look at -- it's hard to tell exactly where the tax rate is going to play out. But one thing is clear with an increasing tax rate that will put some pressure at least on the post-tax earnings as we get into next year. Looking back what happened during the tax decrease, we kind of split what went to the bottom line with employees and the rest we let it flow through. I think we'll obviously work to optimize as much as possible, but I think, paying for performance and making sure that we have the right people is probably the most important thing for us on a go-forward basis. So we'll see where the ultimate tax rate ends up. If the tax rate goes back up to 28%, the all-in impact from an ROE perspective could be something close to a three quarters to the point to a point, but we'll play that out as we get there. I think the most important thing is for us to take care of our employees and continue to invest and grow in that space.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. If I could ask one more on the fee income outlook. Can you speak to some of the businesses, cards, FX, those that have been somewhat impacted by COVID, what you're seeing in the market, and kind of what could surprise you one way or the other with the outlook in your guide?

Michael Descheneaux -- President, Silicon Valley Bank

This is Mike. So I'll go ahead and start. Maybe Dan will jump in. Can you hear me now? [Indecipherable] thumbs up.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Yeah.

Michael Descheneaux -- President, Silicon Valley Bank

So when we think about some of the new key impacts that are driving fee income, right, we talked about client investment fees, which had clearly been impacted by the rates. And so there's been a significant drag on that. And so, obviously that's going to -- the full-year effect of that going into 2021 was certainly impacted. Then when you start to think about the card fee income, that has no doubt been impacted. We've probably seen drop-offs in spending by about 30%, a lot of that is due to travel. So when you think about travel coming back, that will certainly be helpful as well as entertainment expenses and things like that as well.

FX, we did see a nice rebound here in Q3, and again, you're starting to see more deal activity as well too and more cross-border spend. And so as we go into Q4 and into 2021, so we still -- we see those kind of rebounding. So having said all that, again, setting aside the travel wild card, we are starting to see a trend back up. And so that's why we're saying for 2021 is basically on par with 2020 because you got to kind of absorb kind of the pullback that we saw here in 2020. So those are kind of the three main areas.

I don't know if Dan would want to add some additional color on that.

Daniel Beck -- Chief Financial Officer

Well, I think you covered it, Mike. At the same time as we continue to talk about investing, we just talked about the number of people are adding in digital, in product, that's going to help us continue to expand our reach to our clients to be able to reduce friction as Mike was saying earlier, which will help also sustain growth rate. And so obviously, the client investment fees are a drag as we get into the next year because of rates, but we've got the new client additions and we're also building these new product capabilities on a digital basis to be able to continue to grow that earning streams going forward.

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. Thank you for the color.

Operator

And our next question comes from Chris Kotowski. Go ahead, Chris.

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Yeah. Good evening. I just wanted to understand -- make sure I'm understanding slide 24 correctly because the private bank and wine deferrals basically pretty much vanished this quarter. Is that slide meant to suggest that we should exceed the same kind of declines in the venture debt program in the fourth quarter?

Marc Cadieux -- Chief Credit Officer

Hi. It's Marc. I'll take this one. And generally speaking, that's correct. We started out with roughly $2.9 billion across three deferral programs. Wine and private banks made up roughly $800 million of the $2.9 billion and almost all of the participants in both of those programs and those were 90-day programs, there's also a six-month program for wine that has a few clients in it. But those payments largely all resumed in the third quarter. We are cautiously optimistic that the vast majority of venture debt deferral program clients will similarly resume their payments starting in the fourth quarter. November 1st is really the date to watch. That's roughly two thirds of the population. And so again, we expect the vast majority to resume. Don't at the same time expected to be quite as clean as what we saw in private bank and wine. And as we note elsewhere in the deck, that could be a catalyst for non-performing loans with the related point being that, generally speaking, participants in this program are relatively granular loans. And so to the extent that, again, the vast majority resume, while we may have some NPLs, the hope is that it won't be too much of a NPL driver in the fourth quarter or beyond.

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Okay. And then secondly, I mean, it's been nearly two years now with the Leerink acquisition and it's worked as you said incredibly well, and one would think that on paper, at least the kind of the single most obvious extension of your business would be to extend your securities business into info technology. And I'm wondering now that you've got some experience with it all, do you think you could build that on -- does that need to be built with another platform acquisition or can that be built team by team by team?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. This is Greg. I'll take it. So two things. One is, clearly we are thrilled with how well SVB Leerink is doing. It's been fantastic both in their performance and I would also say the people, the team, how they operate, how they engage, all those things are incredibly positive. So that's really good. First, we want to make sure we're investing in that platform. We want to make sure we're adding the resources and capabilities to continue to build-out the healthcare investment banking platform. So that's, first and foremost, the most important thing.

The second part and we're watching this, we're actively engaging in and I've talked about this before. We're looking at the technology investment banking market. And as I've said, it is unlikely to be a platform because we already have a platform. So we already have infrastructure and investment banking. So my view is, it'll likely be -- people will be adding people from the technology side more than likely in software to the platform, and more than likely than in M&A. And so we're looking at that. We're actively talking to people, but nothing definitive at this point. So short answer to your question is, unlikely to be a platform purchase.

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Okay. Great. That's it from me. Thank you.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Okay. Thank you.

Operator

And our next question comes from Bill Carcache from Wolf Research. Go ahead, Bill.

Bill Carcache -- Wolf Research -- Analyst

Thank you. Good afternoon, everyone. At a high level, the inability of other banks to replicate your offerings is integral to the sustainability of your competitive advantage, but can you drill into the capital call lending business specifically and discuss what you view as the durability of that business? And why it's not just about having a balance sheet in capital call lending specifically, that topic has come up in conversations with some investors, and would just love to hear your thoughts.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah. I'll start at a high level, Bill, and then Mike is going to want to add to it. So the capital call business for us has been -- we've been doing this for longer than I think almost anybody else. We have the deepest team, the broadest team, most experienced team. And so that knowledge, that experience goes a long way. You marry that with the client experience, which I would put up against anybody is a secondary part.

The third area, again, well not every private equity firm or venture capital evolve, venture capitalist, but not every private equity firm is in the innovation economy. More and more private equity firms are winning connectivity into the innovation economy and so how we operate and all the different clients we have in that space is definitely appealing. What we are spending time doing is thinking about what are those other services that we can bring to bear that adds just additional, I guess, stickiness to those relationships. And so we're looking at those things and I would expect over the next 12 months or so, we'll be adding to that more arrows to the quiver in that industry. But right now, it's the team, it's their expertise, and it's also our client service and our approach, and technology is actually a key part of it as well, which I think has been helpful to them.

So Mike, I'll let you add onto that.

Daniel Beck -- Chief Financial Officer

Mike, do you want to add to --

Michael Descheneaux -- President, Silicon Valley Bank

No. I think he covered it extremely well. I have nothing to add.

Bill Carcache -- Wolf Research -- Analyst

Okay. That was super helpful. Thank you. I appreciate it. And stay tuned or any bit of a preview on other services that can be brought to bear at this point?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

We are looking across the Board at a whole variety of different things. So nothing close enough to talk about right now.

Bill Carcache -- Wolf Research -- Analyst

Okay. Understood. Thank you. That's super helpful color. And then switching gears to a completely different topic. I was hoping that you could discuss your hedging philosophy. There's a view that hedging can cut both ways. You can certainly benefit from hedging at times, but it can also be hurt by it. And you guys have such strong asset growth that it gives you the ability to outpace margin compression over any reasonable period of time such that you would continue to generate healthy NII growth, even if you didn't engage in hedging? And I would just love to hear your overall thoughts on this broad hedging philosophy? And as we emerge from this and eventually if the rate environment starts to normalize, your view on putting on more hedges as we look out further to the future?

Daniel Beck -- Chief Financial Officer

Yeah. This is Dan. I'll take it. So as we look at our hedging strategy, the way we've always looked at it was to make sure that we had protection in place in the case of what we would consider to be something unfortunate, which would be a pretty material reduction in short-term rates. So think of it as disaster protection. So that's the way that we looked at it. And thankfully, we put on a good amount of interest rate swaps. We extended duration on the investment securities portfolio and now to this day, continue to put forwards in place, at least on the lending side of the equation.

So I think, you're right, as we look ahead, clearly, we're in a lower rate environment. And on a go-forward basis, what we'd be doing is to some degree opening up the position over-time, waiting for the next improvement in the rate environment. So hedging more from here doesn't necessarily make sense. We might take on some additional duration in the investment securities just to bridge the gap here over the next year or so. But ultimately, the goal would be over the next couple of years to open up the position, so that we're ready to the extent that our rates started to move. And we actively watched that on a monthly, quarterly basis to make sure that we're positioned correctly.

Bill Carcache -- Wolf Research -- Analyst

That's very helpful. Thank you very much for the color.

Daniel Beck -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Now we'll go ahead with John Pancari from Evercore. Go ahead John.

John Pancari -- Evercore ISI -- Analyst

Good afternoon.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Hi John.

John Pancari -- Evercore ISI -- Analyst

Hi. On the credit side, I know you flagged several investor dependent clients as drivers of the increase in non-accruals. And you also flagged investor dependent clients as drivers of the higher charge-offs in the quarter. So just want to see if you can give us a little more detail on the types of borrowers or any other granularity you can give us on that? Sorry, if I missed that earlier, I hopped on late.

Marc Cadieux -- Chief Credit Officer

No worries. This is Marc. I'll start. Going to the charge-offs, and again, while higher in the third quarter, still relatively low on an annualized basis and pretty consistent so far with pre-COVID levels. In terms of composition, it was similarly very typical quarter, relatively granular credits. I think there was a population of 34 in total with the largest of those being roughly $5 million. Stage of development, it was a little over half early stage, the rest mid and later stage, and spread around in terms of sector and sub-sector and so really no discernible trends or segments that are deteriorating in any way is really, again, pretty diversified.

Moving into non-performing loans. I'd say that, and perhaps this is reflective of the environment. The new non-performing loans, roughly $62 million was on the higher side. But again, similar to quarters we've seen where there is one large one, in this case, one loan was roughly a third of new NPLs, and it gets relatively granular after that. And again, a pretty consistent from a stage of development standpoint from an industry sector and sub-sector standpoint fairly diversified.

John Pancari -- Evercore ISI -- Analyst

Okay. Got it. Thanks Marc. And then one more follow-up on that. It looks like you released reserves in the early stage investor-dependent portfolio, so just want to get a little bit of color on that. But also interestingly, you added to your reserves in the later stage investor-dependent. So any thing going on there in terms of a dynamic that is worth flagging, given the difference in the treatment of the reserves?

Marc Cadieux -- Chief Credit Officer

Here, I'll say, not really. As noted earlier, the improved economic scenarios was a driver coupled with continued relatively strong credit quality. And when you look at the movement, early stage is probably the most pronounced, but at the same time, the coverage relative to historical charge-offs, I think remains pretty strong there. And again, I think, when you sort of zoom out, I feel like we remain pretty adequately reserved for where we think we are at present.

John Pancari -- Evercore ISI -- Analyst

Okay. Thanks. And then just lastly, do you have what your total criticized assets did for the quarter?

Marc Cadieux -- Chief Credit Officer

I don't believe that is something we have historically released, although it might be -- I can't remember if that's in earnings or not. Dan, do you recall?

Daniel Beck -- Chief Financial Officer

I can off the top of my head. It will be -- certainly be in the 10-Q.

John Pancari -- Evercore ISI -- Analyst

Okay. All right. Got it. All right. Thanks Dan. Thanks Marc.

Operator

And we have a follow-up question from Chris Kotowski from Oppenheimer. Go ahead, Chris.

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Yeah. Thanks for taking the follow-up. Just on the occasion of the BigCommerce day, and I'd be curious if there's a story out how such a big gain came about. But I'm also just kind of wondering, if you can just share with us your risk parameters and how much of the firm's cash equity as opposed to your say, sweat equity. Are you willing to put into any one deal and are there other big chunky investments in there that could pose either risk or opportunity?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

I'll start, Chris at a high level, I'm going to ask Marc to jump in. So this loan -- the main gain was really driven by a convertible loan that we did roughly three years ago. We do very few of these and I would say, it operates similarly to what we would see in a mezzanine loans that we've done for the last decade. So there is a little bit of difference, but not much. And if you think about the biggest difference, it's this, you trade basically a very, very low coupon rate for a convertible feature. And when it works, it really, really works well. And that obviously is the case is what happened with BigCommerce. So when we did the convertible loan and we structured, there's two components to it, two pieces. We did one a little while back and we did one more recently.

Obviously, the market has driven a lot of valuation expansion. So the combination of the structure of the loan and also, the market really drove a very, very large outcome. Now, again, the risk tolerance that we put in place in this one, I would argue wasn't that different from what we've done for many, many years. And so I think that's a really important point that we're not taking a different risk in deals like that. It's just a structure as the company trades a lower coupon for a convertible feature where when things go well, you can get a lot of upside. So pretty straightforward, obviously we're thrilled with it. And if we can find more at BigCommerce, we are certainly looking for them. So hopefully there'll be more to come.

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Okay. Thank you.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah.

Operator

And we have a follow-up question from Ebrahim Poonawala from Bank of America. Go ahead, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Hey, just a very quick follow-up, Dan. To your earlier response around the expense run rate, I think you mentioned core expenses, if you back out some of the one-offs, should be $460 million to $470 million in the fourth quarter. Should we use that as the base for applying the 2021 growth rate that you've given?

Daniel Beck -- Chief Financial Officer

No, the growth rate should be off of our actual expenses. So the low to mid-single digits growth rate is off of the actual.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Okay. And just very quickly on the last question, does the change in the Volcker Rule earlier this year change how you are thinking about investing in new funds or not?

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Ebrahim, it's Greg. For the benefit of the Volcker Rule, first of all, there's the benefit without putting any new money to work, there was a positive because we still had, if you go all the way back to 2010, when the Volcker Rule came into place, we basically over a long period of time with the investments we made pre-2010, if we didn't have them basically run-off by a certain date, which is coming up, we would have actually had to sell them and we would have to sell them at a discount. So the first benefit is it actually allows us to let those funds continue to pay out over-time without having to sell them at a discount. So that's a nice advantage, not a big number, but it's a nice thing to have.

The second part to your question is, is it changing our view of investments off our balance sheet? And I would say the short answer is not really. We may do a little bit of it, but it's going to be very selective. The main part of our business in investing in funds is in SVB Capital and in SVB Capital, we really put -- we have for the last decade, put almost no money of our own SVB money into it, and it's almost LLP money. So the one advantage we would have as we raise new funds, we may put a little of our own money into it, 2%, 3%, 4%, 5%, and that'll actually help us in the fundraising, but I don't see a dramatic change with the Volcker Rule coming out.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Yeah.

Operator

We have no more questions at this time. I'd like to turn it back to Greg Becker for some brief closing comments.

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Great. Well, I just want of first thank everyone for joining us today. We're obviously thrilled with the results from Q3. And the first question, I think or one of the questions I think from Steve asked about, how is this really happening, all the liquidity. Again, I'll go back to, we have in this kind of crazy times right now and the COVID crisis, the pandemic we have got wind at our back, because of the market that we are targeting, the markets that we serve and all the amazing clients that are doing such incredible things. So that part combined with execution by nearly 4,000 employees that I would say, I have been proud of the employees kind of in any environment, but I'm super proud of them right now because not only are they're taking care of this incredible growth that we're having, they're dealing with working remotely, they're dealing with all the other things that people are dealing with being parents, and having to deal with parents and in small apartments in some cases. And so all those things are just really hard to deal with.

And to deliver these results, I just want to say thank you to all our employees for doing such a phenomenal job, taking care of our clients. And then of course, to our clients, for continuing to put their trust in us and we just want to do everything we can to be supportive of them again, especially in this environment. So thanks to all of you guys for joining us, and stay safe and healthy. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Meghan O'Leary -- Head of Investor Relations

Greg Becker -- President and Chief Executive Officer and Chief Executive Officer of Silicon Valley Bank

Daniel Beck -- Chief Financial Officer

Marc Cadieux -- Chief Credit Officer

Michael Descheneaux -- President, Silicon Valley Bank

Kenneth Zerbe -- Morgan Stanley -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Steven Alexopoulos -- JPMorgan Chase & Co. -- Analyst

Jennifer Demba -- Truist Securities, Inc. -- Analyst

Jared Shaw -- Wells Fargo Securities, LLC -- Analyst

Christopher McGratty -- Keefe, Bruyette & Woods, Inc. -- Analyst

Christoph Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Bill Carcache -- Wolf Research -- Analyst

John Pancari -- Evercore ISI -- Analyst

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