SVB Financial Group (SIVB) Q2 2021 Earnings Call Transcript

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SVB Financial Group (SIVB.Q)
Q2 2021 Earnings Call
Jul 22, 2021, 6:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the SVB Financial Group Q2 2021 Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your first speaker today, Meghan O'Leary, Head of Investor Relations. Thank you. Please go ahead.

Meghan O'Leary -- Head of Investor Relations

Thank you everyone for joining us today. Our President and CEO, Greg Becker; and our CFO, Dan Beck are here to talk about our second 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'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

Thanks, Meghan, and thank you all for joining us today. As you can see from our earnings announcement and slides which we filed a few hours ago, we had another quarter of exceptional growth and profitability marked by continuing trends of outstanding balance sheet growth, strong net interest income, robust fee and market related income and solid credit. As a result of our outperformance, we once again increased our 2021 growth outlook. We were also thrilled to close our Boston Private acquisition on July 1st, and I'm sure you have lots of questions about that.

In the meantime, we try to make modeling a little easier for all of you, we've included a high level breakout of our expectations for the incremental impact on our 2021 outlook. When we start talking about our 2022 outlook next quarter, we'll wrap those impacts into our overall outlook as we've always done with our private bank. And now as is our practice, we'll go right into Q&A and I'll ask the operator to open up the lines for questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question is from the line of Steven Alexopoulos with JPMorgan. Your line is open.

Steven Alexopoulos -- JPMorgan -- Analyst

Hi, everybody.

Greg Becker -- President and Chief Executive Officer

Hey, Steve.

Steven Alexopoulos -- JPMorgan -- Analyst

Greg, I wanted to start with a big picture view, in all of the years you've been doing this, have you ever seen the business this strong even dating back to the pre-dotcom period?

Greg Becker -- President and Chief Executive Officer

Well, so the straight answer is no. And, but Steve, we -- you and I've talked about this a lot over the years, which goes back to the basis of our business and what our focus is. So being exclusively focused on technology and life sciences, and we've always said that market is what we believe is the best market to be into.

And especially during the pandemic, what we thought was going to be an issue ended up being, really being a catalyst for growth in the innovation economy, it slowed down for a brief period of time. And then when there really weren't a lot of other alternatives from an investment perspective, money really flowed into the market that was incredibly strong for the second half of 2020 and clearly, as you can see for the first half of 2021, it has been exceptional. But really technology and healthcare are really taking over really the growth from my standpoint from a global perspective and a lot of people are investing in that and we're benefiting from that.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay, that's helpful. If we look at the growth in total client funds, how should we think about this, like how much is coming from new customers? We know new customers continue to go up each quarter, and how much is just larger rounds and IPO proceeds, and basically is the off-balance sheet just becoming a parking lot for IPO proceeds basically?

Greg Becker -- President and Chief Executive Officer

Yeah, let me -- Steve, I'll start and I think certainly, Mike may want to add to it, but the growth in funds has actually been pretty balanced. So the IPO market and public market activity has been more of a catalyst and it has been because it obviously picked up in the second or in the second quarter. So that's a percentage, but it's not a huge percentage. Most of the growth has come from new financings from existing clients. And then clearly, given that we added 1,700 new clients in the quarter, at the early stage mostly that adds to it, but the biggest driver is coming from existing clients raising increasingly larger rounds of financing.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay, perfect, that's really helpful.

Michael Descheneaux -- President, Silicon Valley Bank

Maybe...

Steven Alexopoulos -- JPMorgan -- Analyst

Go ahead, Mike [Phonetic].

Michael Descheneaux -- President, Silicon Valley Bank

Steve, maybe I'll just add a little bit of color to what Greg is saying. When you think about like new clients, go back to our new client acquisition engine, I mean it's -- it's one of the best, obviously it is the best out there, and this quarter we hit record quarters as well too in terms of new client acquisition. Now the thing to keep in mind, a lot of those are new, new, and so it takes a couple of months for the math that really [Phonetic] to start to ramp up their deposit flow taking.

So think about it is like an engine that you start to seed it here and then that gives good flow, whether it's three months, four months, five months, six months down the road, and then going back to what Greg was talking about earlier on in terms of this unprecedented flow of activities, when you're seeing again as you know the dry powder is just sensational, but what you're also seeing is people crossing over and more going into the BC, they're seeing the great returns, you see the SPAC [Phonetic] phenomenon as well, those that starting to pick back up again, I know it dropped down in April, and you have non-traditional investors, the corporate venturing ones, the sovereign wealth funds, there's just a lot of funds going in.

And going back to what Greg is saying as well too is, this acceleration phenomenon because of COVID, you have a lot of good ideas and business models that are being formed, you have a lot of good talent that's been attracted to the market. So no doubt the tailwinds are incredibly strong here right now.

Greg Becker -- President and Chief Executive Officer

Okay. You had a second part to your question, Steve, which is where is it going. And when you have such a low rate environment and you will recall this just from not too long ago when rates were back at a very, very low level, you have this -- because there's really nothing or very little yield you can get off-balance sheet, you end up in the spot where it's kind of split between on and off-balance sheet, and it's about 50-50 and it was that way not that long ago. And when rates start to pick up, more of that starts to move off-balance sheet, but right now and again for the foreseeable future, we're going to be in this low rate environment. So I think it's a good gauge to expect where they're going to be.

Steven Alexopoulos -- JPMorgan -- Analyst

Yeah. Greg, just a final question on that point, why has the -- and maybe this is for Dan, why is the expected fee income benefit from higher rates picked up so much on the off-balance sheet compared to last quarter, it looks like it's almost double? Thanks.

Daniel Beck -- Chief Financial Officer

Yeah, let me...

Greg Becker -- President and Chief Executive Officer

Dan, you maybe go ahead, yes.

Daniel Beck -- Chief Financial Officer

Yeah, go ahead in time [Phonetic]. So Steve, if you take a step back and think about what's been happening, repo rates have actually been negative throughout the quarter, and as a result, that's been eating some of the existing spread and the off-balance sheet client funds. So one positive development during the quarter is that the interest on excess reserves has increased. So we should see a small improvement going into next quarter and at least a bottoming of the reduction in margin and client fund fee income. So that's the driver and I think we've hit the bottom.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay, great, thanks for taking my questions.

Greg Becker -- President and Chief Executive Officer

Yeah.

Operator

The next question is from the line of Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim Poonawala -- Bank of America -- Analyst

Good afternoon. I guess, Dan, just to round out Steve's question on the off-balance sheet deposits, you mentioned the 9 bps to 11 bps slides for the first 25 basis points hike, is that at this point contractual where we should expect that if rates go up, the first 9 bps or 11 bps reset will happen immediately?

Daniel Beck -- Chief Financial Officer

Yeah, that's a structure of those products. We -- it depends on the competitive situation, there may be some blend where you give up a basis point or so, but contractually once we get that 25 basis points that spreads to return.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. And I guess throughout your letter, Greg and in the slide deck, you talk about accelerated investments. I was wondering if you can give a little bit more color around these investments and payoffs, both in terms of what you're seeing at Leerink and building out the investment bank there and then in terms of your plans with Boston Private over the next year?

Greg Becker -- President and Chief Executive Officer

Yeah, Ebrahim, I'll jump in on that. What we tried to do is described on Slide 12 just a breakdown of all the different areas where we see investments, and so it's a pretty broad portfolio. You asked specifically about two areas, one is investment banking, and so I would say a couple of things about that. One is the existing business is doing exceptionally well. They're moving up the lead tables [Phonetic], they're getting incredible accolades, and I would say they're definitely a world-class investment bank in the life sciences area.

And we basically said, we and we've said this from the day that we brought Leerink on to the platform that we didn't want to just stay in healthcare, we wanted to actually build it out across other areas, healthcare services and healthtech, which we brought Barry Blake and a bunch of other people, and again building out healthcare services into a world-class team. And now and I've said this many times over the last 12 months, building out our technology investment banking side. So we're, I would say expect to hear announcements from us formally in middle of August, around the middle of August to give you a lot more clarity on that, but there is no question, we believe this is a big opportunity.

And it really stems from the core business which is the commercial bank and how deep those relationships are, the market share that we have, the relationships we have with those clients, and it's just a natural fit to then leverage into technology investment banking. So, and that's going to be broad. It's going to be sponsor finance being a big driver of it. It's going to be traditional M&A. It's also going to be ECM. So we expect all those businesses to be built out and be built out later this year.

Now from a return perspective, we expect that we're going to be continuing to make money this year on investment banking. And next year as revenues start to pick back up or pick up from both our core business, the healthcare business, technology and healthcare services that we would expect that to see very nice growth. What could it look like, I think we would expect, although it's early that on the low end maybe roughly $100 million of additional revenue from the new initiatives up to maybe $150 million. But again, it's very early and the market is really going to dictate that along with how fast the teams get up to speed, but more to come on the investment banking side.

Your second question was on private banking. And I just go back to the slide that really is about our strategy and that's really on Slide 11, which really lays out where we're headed as a company and how important that is. And on 11, you can see that again the strength of Silicon Valley Bank is really the catalyst to then take clients in the directions [Phonetic] to the private bank, to Leerink and to SVB Capital. And in the private bank with the closing of Boston Private, you've dramatically upsized what our capabilities are. So we were just having a conversation today at our Board meeting, where really we had the entire product set, now the entire product set to take care of our clients and it's the first time in our history.

So we expect nice growth in that business, that growth is built into our forecast for the balance of '21. And next quarter as we always do, we'll then take those forecasts and then start to give you a first-hand look and what we expect in 2022. So more to come in the next 90 days, Ebrahim.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. And just one quick one on the NASDAQ Private Market investment. Is that a client acquisition tool or is that one way you further enhance your relationship with the existing clients, I'm just wondering the thought process around that investment?

Greg Becker -- President and Chief Executive Officer

Yeah, they're both true, but if you were to say what's the primary driver, the primary driver is helping the commercial banking clients, that's the primary driver. We said this all along, we want to be the one-stop shop. We want to be able to take care of our clients' needs, no matter what those are. And when you think about the length of time companies are staying private, they're staying private longer, but one of the catalysts to allow companies to stay private longer is making sure that employees and investors have liquidity, have access to liquidity, and we believe NASDAQ Private Market and this consortium it's being built is going to be a great solution for that. So very excited to be it to be a solution for our clients.

And as we've laid out in some of the other investments that we've made, we've kind of highlighted other groups that will benefit, so the private bank will benefit because they're going to have more liquidity being generated from these individuals who are clients of ours, that will be Leerink, we'll be able to provide investors to that platform, who will then look to purchase the stock of the private companies who are looking to sell or the individuals. So again, we believe it's for our clients, but it services the whole platform.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. Thanks for taking my questions.

Greg Becker -- President and Chief Executive Officer

Yeah.

Operator

The next question is from the line of Ken Zerbe with Morgan Stanley. Your line is open.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Hi, great, thank you.

Greg Becker -- President and Chief Executive Officer

Hi, Ken.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Maybe start off -- good morning or good evening. Maybe start off with the guidance, say in terms of the expenses, I think you're now looking for a mid-30s growth rate. I haven't run all the numbers quite yet, but it feels like the jump up in expenses or the expense outlook seems a little higher than the revenue increases like the NII and the core fee increases. Is it -- was that intentional in terms of like are you -- I'm just trying to figure out like there is like additional investments being made beyond what you originally thought maybe three months ago?

Greg Becker -- President and Chief Executive Officer

So I'll start, Ken and then I know Dan will get into a lot more, a lot more detail. What I would look at is the pre-integration of Boston Private, and so one of the things that we did as I said in my opening comments is breaking the expenses down into two different areas. And so part of this is incentive compensation, so for paying for performance, part of this relates to investing in the business. And so those are the two biggest things, and the third one is the investment we're making in investment banking and we expect to make an investment banking specifically in the technology investment banking area. So that's how I would break it down. We tried to give that detail on Slide 33, where you kind of have those different sections, but to give you more details, I'll turn it over to Dan.

Daniel Beck -- Chief Financial Officer

Yeah, Ken, generally speaking, it should be pretty close to offsetting. If you look at our annual guidance, we increased that outlook by 10% and that excludes Boston Private and those integration costs, and Greg and I went through where those areas are, but there's clearly a lot going on in expenses. And for this quarter, we're going to at least give a little bit more detail on Q3 and Q4 just so everybody is on the same page. So in Q3, our expenses will likely be in a range of $725 million to $750 million, and that includes Boston Private, but excludes the restructuring charges, and that will drop back into the $720 million to $740 million range in Q4, again, including Boston Private and excluding the restructuring.

Q3 is going to be elevated because that's the quarter that we expect to recognize a significant amount of the tech investment banking team hire. So that at least should give you a sense of where that run rate is, Q3 and Q4. When we look at the integration and the integration of restructuring costs, we think that's going to be roughly about $100 million pre-tax in 2021 with roughly 80% to 90% of that coming through in Q3. But back to your original question, largely speaking, excluding the restructuring costs, we should come pretty close to offsetting the increase in the investment within the guidance.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it, understood, OK. And the revenue or the associated revenue of the technology investment banking piece, is that also in these numbers or does that really start to pick up more next year?

Greg Becker -- President and Chief Executive Officer

There is a little bit, Ken, in the expectations for the second half of the year, but it's a de minimis number. So if it comes, if it happens, it will be upside, which is a possibility in the second half of the year. But again, if all things play out, the team will be hitting the ground in August and then we've got work to do to start to generate revenue. And so that's why I tried to give some idea of a range, and this is a very high level range of what 2022 could look like from a generation from both technology investment banking and healthcare services investment banking revenue.

Kenneth Zerbe -- Morgan Stanley -- Analyst

Got it, OK. And then if I could just ask one final question, in terms of securities, in terms of, obviously, I saw you added, I don't know $18 billion more to your securities portfolio this quarter, can you just talk about like what you're investing in, is it including duration of that, I'm just wondering how it splits out? Thank you.

Daniel Beck -- Chief Financial Officer

Yeah. So the vast majority of what we're adding, we're adding agency issued mortgage-backs, commercial mortgage-backed securities as well as some municipal bonds in the quarter. We added a small amount of corporate as well. So generally speaking, that's where we're adding, duration wise in the quarter, we spent most of the time adding out and that can afford a five-year duration in those products. So that -- that's where you're seeing the pick up at least in the yield and we also had a good quarter just in the acquisition and municipal bonds.

When we're acquiring, we've put about $2 billion to work in the available-for-sale portfolio or buying much shorter-dated treasury securities. So obviously not picking up a ton there from a yield perspective. We're just making sure that we're continuing to build out that high -- highly liquid part of the investment securities book. But all-in, looking ahead, Ken, when we put money to work, we think that purchase yield on an all-in basis will be kind of 1.20% to 1.30% based on today's environment with a substantial or the vast majority of the purchases we're making in our held-to-maturity. So think that three-year to five-year duration just based on today's rates.

Kenneth Zerbe -- Morgan Stanley -- Analyst

All right, perfect. Thank you very much.

Daniel Beck -- Chief Financial Officer

Thanks, Ken.

Operator

The next question is from Jennifer Demba with Truist Securities. Your line is open.

Jennifer Demba -- Truist Securities -- Analyst

Thank you. Good evening.

Greg Becker -- President and Chief Executive Officer

Hi, Jennifer.

Jennifer Demba -- Truist Securities -- Analyst

Congratulations on a great -- hi, congratulations on a great quarter. My question is on Boston Private. Greg, can you remind us of the retention packages you may put in place for key employees there, just want to make sure that, that operation can hit the ground running when you guys wanted to?

Greg Becker -- President and Chief Executive Officer

Yeah, yeah, yeah. So it's a great question. We did have retention packages putting in place and it was in the, I'll call it $30 million to $40 million range, but there is also -- there is many ways to think about retention. So one is rolling over the incentive options and things like that, that are part of that, that continue to invest and where would be in the money given the appreciation in the stock price, the other retention. And the third part is again the reason for the acquisition of Boston Private as we've said many times, it wasn't about cost savings as the primary objective or even a secondary objective. It was building on what they had and adding it to what we had in our private bank to kind of build something unique.

And so when you -- if you were to sit down and talk to the employees that are coming over, they want to be part of this platform. There is a high level of excitement. I think the number that I saw I think from a employee retention perspective so far, I think it was 98% coming over. So we feel really good about it. And I even feel better about it as we closed and we're getting together and talking and spending more time together and engaging clients very optimistic that our cultures fit, the people are feeling good and that we're going to keep this talented group of people on both our private bank that existed before and Boston Private together for the long run.

Jennifer Demba -- Truist Securities -- Analyst

Greg, is there any scenario where you could see more another bank acquisition to -- for SVB, is there something else that could fit for you?

Greg Becker -- President and Chief Executive Officer

Jennifer, that we've -- I didn't think there was one to start with. We talked about that over the years. So the fact that Boston Private was something that we had talked about for many, many years and it came true. That's one of a -- maybe the only one that could fit. So you never say never, but it is incredibly unlikely and certainly not anything in the short run. If we were to do additional things over time that would be inorganic, that could be around the private bank where it's looking at some RIAs, but I would look at those almost more as aqua [Phonetic] hires as opposed to anything material. We feel really good about the platform we have right now in all four businesses and so that just isn't likely. And the final point is when you look at our core business and the growth that we have, acquisitions at least right now don't need to be a key part of our growth. I think we're doing OK on our own.

Jennifer Demba -- Truist Securities -- Analyst

Thanks so much.

Greg Becker -- President and Chief Executive Officer

Yeah, absolutely.

Operator

The next question is from Bill Carcache with Wolfe Research. Your line is open.

Bill Carcache -- Wolfe Research -- Analyst

Hi, thank you. I wanted to ask if you guys could give a little bit of additional color on some of the biggest changes you expect to face when you eventually become a Category III Bank?

Greg Becker -- President and Chief Executive Officer

Yeah, I'll start at a high level and I know, Dan, for sure, want to add some commentary on it. When you head to a Category III, Dan will get into the capital and the liquidity and what are the requirements around that, but I just would say overall, the bar is raised across all facets, facets of risk controls, and we -- and this isn't -- this isn't a surprise to us. We certainly expected to be crossing LFI status. We had working groups and plans that we're building around that.

Now it became faster than we expected at the end, but we are certainly preparing for it, but the two biggest areas that we need to be ready for and are getting ready for and working hard at it is in just overall risk and controls. Dan, do you want to add more context to that specifically in our liquidity and capital?

Daniel Beck -- Chief Financial Officer

Yeah, the -- you picked the two areas, Greg, that will be the focus under both Level 4 and Level 3. Under Level 3 will be exposed to stress testing in the supervisory assessment on an annualized basis. But I think you're looking at the other requirements, but the liquidity requirements and having to be able to process liquidity ratios on a daily basis and the systems required for that are going to be a big part of the effort on a go-forward basis.

As I step back and I just look at the fundamental financial ratios over time, we'll come to grips with 100% of what they look like, but looking at our balance sheet and looking at our capital structure, I don't see significant changes and the liquidity that we hold and the securities that we hold, I think we'll go to service a long way as a Category IV and a Category III institution going forward. So I think the majority of the lift is around risk, risk practices, systems and things along those lines. And we've embedded those costs in our guidance here when we look at where we are in 2021.

Bill Carcache -- Wolfe Research -- Analyst

That's very helpful. Thank you. And last one for me, my other questions were covered up, but can you speak to how you guys have positioned the securities portfolio, how are you thinking about incremental hedges and just overall positioning for whatever ultimately direction rates end up taking?

Daniel Beck -- Chief Financial Officer

Yeah, so it's Dan. I think as we look at the investment securities portfolio, a much bigger part of the bank's balance sheet today than it was 12 months ago. We've been positioning and really haven't changed the thought about it since last quarter to continue to buy excess liquidity in safe agency mortgage-backs, CMBS and municipal bonds and that let's call it for three-year or five-year duration and to continue to invest in treasury -- shorter treasury securities and shorter securities and available for sale that allows for us to continue to put money to work and as good of a yield as we can possibly get and at the same time protect the available-for-sales portfolio and the OTI risk there from a capital perspective.

So that's really the strategy that's going to translate at least based on how rates look today at purchases in the, let's call it 1.20% to 1.30% perspective for the remainder of the year. But let's hope to see that we see some improvement in rates from here, but at today's rates we think 1.20% to 1.30% makes sense.

Bill Carcache -- Wolfe Research -- Analyst

Thank you for taking my questions.

Operator

The next question is from the line of Chris McGratty with KBW. Your line is open.

Christopher McGratty -- Keefe, Bruyette & Woods, North America -- Analyst

Greg, good afternoon.

Greg Becker -- President and Chief Executive Officer

Hey, Chris.

Christopher McGratty -- Keefe, Bruyette & Woods, North America -- Analyst

I'm looking -- Greg, I'm looking at Slide 13 just on Boston Private, come back that for a moment, yeah, appreciating the deal was certainly more strategic than financial. You referenced the $400 billion opportunity over time in the market. I guess I'm interested, I covered Boston Private for years and one of the challenges was flows. I'm just, I'm kind of interested in how your rolodex of customers can help turn that tide and perhaps bring that revenue recognition sooner? Thanks.

Greg Becker -- President and Chief Executive Officer

Yeah, it's a great question, Chris. We spent a lot of time on that as we did our evaluation. And one of the things that I look at that, Anthony and his team and all the people he brought on board plus the existing team, to me it wasn't a question of capabilities. It was actually, as you said, it's a question of where you're going after, what is your target market. And as I think about Boston Private, their target market generally speaking was the same target market that most traditional private banking groups were going after and that's a competitive space.

What we bring to the table is a wealth creation group of individuals that is like no other one. And when you take care of them at a very early time in their wealth creation cycle and you add value to them and you spend time understanding specifically what they need, we believe we're going to be able to add a lot of deal flow to the wealth team and the private banking team that exists now in the combined teams. So that's what we have to prove out.

I would tell you, we did a lot of research. We talked to a lot of our clients on what they were looking for, and there was definitely a very high receptivity to it and now we have to prove that out. But even though it's been early, it's only been a few weeks, I would tell you the energy, the excitement and the quality of people that are on board and part of this combined private bank, I'm very bullish on. So that -- that was the investment thesis or the acquisition thesis, and it's up to us now prove it out.

Christopher McGratty -- Keefe, Bruyette & Woods, North America -- Analyst

That's great color. Thanks, Greg.

Greg Becker -- President and Chief Executive Officer

Yeah.

Operator

[Operator Instructions] Our next question is from the line of John Pancari with Evercore ISI. Your line is open.

John Pancari -- Evercore ISI -- Analyst

Good afternoon.

Greg Becker -- President and Chief Executive Officer

Hey, John.

John Pancari -- Evercore ISI -- Analyst

Just on the -- one quick clarification, on your tech investment banking announcements that -- that's expected, just to confirm that -- that's organic right in terms of hiring or team hiring or primarily organic, not talking about an acquisition?

Greg Becker -- President and Chief Executive Officer

Yeah, it's all people, it will all be people.

John Pancari -- Evercore ISI -- Analyst

Okay, got it, OK. Just wanted to confirm. And then secondly, this a little bit higher level, but want to get your thoughts on the impact to your bank to your business more specifically from an inflationary environment, we saw inflation expectations ratchet higher earlier on in the quarter and tech sector took a hit and your stock took a hit with it in general and the questions came in about how SVB would be impacted, aside from a positive from a higher rate environment and potential Fed action given your asset sensitivity, can you discuss your view of what the negatives would be to your business in an inflationary environment, would the biggest negatives be the impact of loan growth from the pullback in business volume in the tech sector or would it be -- would warrant gains be a bigger factor or credit, so wanted to get your take on that?

Greg Becker -- President and Chief Executive Officer

So, John, it's -- I appreciate the question, but I also don't want to dismiss the first part, the positive part of the question, which is we would benefit significantly from increasing rates, and we've got several slides in the deck that actually show the net interest income expansion, as well as the fee-based expansion because of the size of the portfolio and additional basis points we would get on those funds.

So I don't want to move past that too quickly. But where could they be -- there be risk, to me one of the areas in securities and warrants, you could see risk there. You could see a slowdown in the pace of investment, which has been very, very, very rapid as people start to think there may be an alternative to investing in high growth stocks. Here's why I think it could happen, but at least I think the benefits are going to greatly outweigh the negatives. I think one of the things that this last 18 months have showed is that again, I repeat this many times, the innovation space is the place to be.

And although when you look at the number, the amount of money that's going into venture capital this year over $180 billion in the first half, it is a massive number and it's a big number compared to where it has been. So when you think about that number relative to the global market and funds flows, right, it's still a small number. So I still believe that while there will be bumps along the way that the venture capital and funds flow and the innovation is still going to be up into the right, and as we get bigger, we can support companies longer and that target market, that available market will only get bigger and it's only getting bigger.

And so the second part that is on the warrants and securities gains and things like that, and as we've said, I mean that's a volatile number, you do have to pay attention to IPOs, you do have to pay attention to M&A, but actually I think if you saw IPO start to slow down, I believe you're going to start to see more M&A. And so what's nice about having a business that on the investment banking side that does both M&A and ECM is that if ECM starts to be slow, M&A hopefully will pick up or we expect it to pick up.

So, I mean those are things to pay attention to, but I don't believe they'll be as significant, if it's just in some level of inflation. And I guess I'm going to get my final, my bias, which is if we do see inflation, I actually think it's going to be modest. I don't think it's going to be something that would be a fundamental change that would cause the market to get overly spooked. But again something to pay attention to and that's just my own opinion.

John Pancari -- Evercore ISI -- Analyst

No, it's very helpful, Greg. Thank you. And then lastly, your capital call portfolio, I know originally it was heavily concentrated in tech and life science, but it's become much more diversified as you -- as you've grown I believe by industry. Can you just update us on that just generally, the industry concentrations within the portfolio or just some way to help us with the diversification?

Greg Becker -- President and Chief Executive Officer

Yeah, I'll go on and give credit to our Investor Relations team, Meghan and Anna, because the information is included in the deck, and I wouldn't expect you going through it so quickly. But I would take a look at Slide 44, we actually break that down into great detail. So by industry, technology is roughly 36%, and you work your away around the next largest one is would be debt funds and then you have life sciences, consumer. So it's a very broad swath of industry segments that we're part of. And a part of it is because the LPs are similar that it go after this market, and the team has done such a great job in approaching the market, strengthening credit underwriting, adding more value, and that's really been a great fuel of growth.

John Pancari -- Evercore ISI -- Analyst

Yeah, thanks for clarifying that, sorry. The -- and then one last one on that, what is that mix, what was the technology mix, let's go with like five years ago, 36% current, what was it five years ago?

Greg Becker -- President and Chief Executive Officer

No, I don't -- I don't have that off the top of my head. But if I were to speculate, I'd probably say you were probably closer to 45% or maybe 50%.

John Pancari -- Evercore ISI -- Analyst

Okay, all right. Thank you for taking my questions. Appreciate it.

Greg Becker -- President and Chief Executive Officer

Absolutely. Have a great day.

Operator

The last question is from the line of David Chiaverini with Wedbush Securities. Your line is open.

David Chiaverini -- Wedbush Securities -- Analyst

Hi, thanks. I had a question on capital. Can you comment on the pro forma impact on your leverage ratio from the Boston Private acquisition? And as a follow up, could you comment on your capital raising needs in light of your strong growth?

Daniel Beck -- Chief Financial Officer

Yeah, this is Dan. I'll start with the second question first and then get to Boston Private's impact. So when we think about capital, we really think about two things and one you saw it in the quarter just a continued strong profitability that we're generating north of 20% from an ROE perspective. So we're certainly with the strong growth clearing that cost of capital, and second support strong balance sheet growth going forward. This exceptional growth that we've seen over the last three quarters to four quarters continues to put pressure on the ratio that we pay attention to the most, which is our Tier 1 leverage ratio at the bank.

If you think about it, holding our client liquidity for us is absolutely key. We've been talking about it all day about the profitability and the growth for us to deepen with our clients, holding those deposits is really the key to our long-term profitability. So in the quarter from a capital markets transaction perspective, we raised additional capital through preferred and senior debt and that really help support that Tier 1 leverage ratio. So the markets have been open to us, and those transactions have been providing very low cost of regulatory capital to allow us to continue that excellent growth.

So overall, we're really confident with our capital ratios. The risk-based measures, 12% at the quarter-end are in really good shape. And considering the substantial liquidity and low risk securities that we have on the balance sheet, we're really confident with the capital levels overall. That said, we're a growth company and if growth continues at the pace or rate that we've seen over the last four quarters, all options will be open to us. We think that would be a good thing that, that growth continues, and we do what we need to do to support that growth.

On to your second question on Boston Private, we determined at the deal that it was an accretive transaction from a capital perspective and it is playing out that way. It is going to provide not a significant amount of support, but it is going to be accretive to Tier 1 leverage, as well as to the core capital ratio based on their capitalization and ultimately where the purchase accounting played out. So it'll be a small improvement slightly accretive to the overall capital position.

David Chiaverini -- Wedbush Securities -- Analyst

Great, thanks very much.

Operator

And that concludes the Q&A session. I will now turn the call back to Greg Becker for closing remarks.

Greg Becker -- President and Chief Executive Officer

Thanks, Paul. Just want to thank everyone for joining us today. We're obviously pleased with our results and even more pleased to welcome our new colleagues from Boston Private to SVB. Private banking and wealth management is obviously a critical area of focus for us. One of the four key pillars of our strategy along with commercial banking, investment banking and SVB Capital. And we certainly believe that what you're going to hear more and more about on a quarterly basis is how we pull all four of these pillars together to build an incredible story for our clients.

We're focused on strong execution to being the best partner possible to our clients, while doing the right thing for our employees. And that really informs how we're approaching our return to office and the future of work at SVB with thinking about our client, our employees and making sure they're safe and taking care of them. So we're doing return to office trials right now, and the future work at SVB is going to be one that is going to be flexible.

We've listened to our employees, we've listened to our clients and we believe that a flexible work environment is going to be the best thing for them and the best for our clients and quite honestly be a competitive advantage for us. As always, I want to call out and thank our incredible team. I'm so proud of what they've done, how they've done it, doing it virtually for the last 18 months and it looks like a few more months to go, and for our amazing clients for giving us a great reason to come to work every day albeit virtually. Thanks a lot, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Meghan O'Leary -- Head of Investor Relations

Greg Becker -- President and Chief Executive Officer

Michael Descheneaux -- President, Silicon Valley Bank

Daniel Beck -- Chief Financial Officer

Steven Alexopoulos -- JPMorgan -- Analyst

Ebrahim Poonawala -- Bank of America -- Analyst

Kenneth Zerbe -- Morgan Stanley -- Analyst

Jennifer Demba -- Truist Securities -- Analyst

Bill Carcache -- Wolfe Research -- Analyst

Christopher McGratty -- Keefe, Bruyette & Woods, North America -- Analyst

John Pancari -- Evercore ISI -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

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