Q1 2023 First Citizens BancShares Earnings Call

May 10, 2023

Frank B. Holding, Jr.: Clients and associates are essential. To that end, I'd like to briefly touch on some recent departures that have been reported. As with any combination of this kind, some level of associate turnover in deposit and client churn is expected. However, we're confident that FC-FZF-SVB has one of the deepest and most experienced benches of any financial institution serving the innovation economy. We're committed to maintaining and growing SVB's market by leveraging this deep-seated talent and strength as we move forward. Importantly, the combined organization is very well-positioned financially and is operating from a position of strength. In addition to significant TBV accretion, our liquidity remains strong, driven by conservative asset liability management, and was enhanced by this transaction with the creation of on-balance-sheet funding and access to significant contingency funding.

Frank Holding: Clients and associates are essential. To that end, I'd like to briefly touch on some recent departures that have been reported. As with any combination of this kind, some level of associate turnover in deposit and client churn is expected. However, we're confident that FC-FZF-SVB has one of the deepest and most experienced benches of any financial institution serving the innovation economy. We're committed to maintaining and growing SVB's market by leveraging this deep-seated talent and strength as we move forward. Importantly, the combined organization is very well-positioned financially and is operating from a position of strength. In addition to significant TBV accretion, our liquidity remains strong, driven by conservative asset liability management, and was enhanced by this transaction with the creation of on-balance-sheet funding and access to significant contingency funding.

And to that end I'd like to briefly touch on some recent departures that have been reported.

As with any combination of this kind of some level of associate turnover in deposit and client churn as expected. However, we are confident that FC F F F.

Yes.

<unk>.

<unk> has one of the deepest and most experienced benches of any financial institution, serving the innovation economy.

And we're committed to maintaining and growing sbb's market by leveraging this deep seeded talent and strength as we move forward.

Importantly, the combined organization is very well positioned financially and is operating from a position of strength.

In addition to significant TBB accretion our liquidity remains strong driven by our conservative asset liability management and was enhanced by this transaction with the creation of on balance sheet funding and access to significant contingency funding.

Frank B. Holding, Jr.: Turning to legacy First Citizens performance, we delivered another quarter of deposit and loan growth as positive momentum continued across all lines of business. The strong quality loan growth we've experienced this quarter, in tandem with the positive asset repricing that we experienced throughout 2022, helped generate favorable operating leverage, leverage year over year. We, like most companies, face some economic headwinds, including the increasing possibility of recession. However, we have not seen meaningful increases of stress in our credit portfolio. Overall, we remain encouraged by the resiliency of our clients in the face of elevated inflation and rising interest rates, and we look forward to continuing to support them. Turning to page six, we remain focused on the long-term, sustainable shareholder value driven by our core strategic priorities, which haven't changed other than the addition of a new strategic priority related to the acquisition of SVB.

Frank Holding: Turning to legacy First Citizens performance, we delivered another quarter of deposit and loan growth as positive momentum continued across all lines of business. The strong quality loan growth we've experienced this quarter, in tandem with the positive asset repricing that we experienced throughout 2022, helped generate favorable operating leverage, leverage year over year. We, like most companies, face some economic headwinds, including the increasing possibility of recession. However, we have not seen meaningful increases of stress in our credit portfolio. Overall, we remain encouraged by the resiliency of our clients in the face of elevated inflation and rising interest rates, and we look forward to continuing to support them. Turning to page six, we remain focused on the long-term, sustainable shareholder value driven by our core strategic priorities, which haven't changed other than the addition of a new strategic priority related to the acquisition of SVB.

Turning to legacy <unk> citizens performance.

We delivered another quarter of deposit and loan growth as positive momentum continued across all lines of business.

With strong quality loan growth, we've experienced this quarter in tandem with the positive asset repricing that we experienced throughout 2022 helped generate favorable operating leverage leverage year over year.

We like most companies face some economic headwinds, including the increasing possibility of recession. However, we have not seen meaningful increases of stress in our credit portfolio.

Overall, we remain encouraged by the resiliency of our clients in the face of elevated inflation and rising interest rates and we look forward to continuing to support them.

Turning to page six we remained.

<unk> focused on the long term sustainable shareholder value driven.

By our core strategic priorities, which haven't changed other than the addition of a new strategic priority related to the acquisition of SCB.

Frank B. Holding, Jr.: Long-term benefits can be achieved by harnessing SVB's legacy businesses and leveraging these to attract and retain new clients to our franchise. SVB continues to support its clients day in and day out. In fact, several clients recently announced new deals with SVB that are supporting the growth of their businesses. In addition, SVB's Premium Wine division currently has all-time high loan outstandings. SVB's Community Development Finance group closed its largest ever affordable housing facility, and this week is celebrating the grand opening as the lead construction lender of new housing in San Francisco for formerly unhoused military veterans. To successfully integrate SVB, we are focused on the following: The first, running SVB as SVB to maintain the competitive advantage it has in the innovation economy, while at the same time, infusing the cost discipline and risk management that has defined First Citizens for 125 years.

Frank Holding: Long-term benefits can be achieved by harnessing SVB's legacy businesses and leveraging these to attract and retain new clients to our franchise. SVB continues to support its clients day in and day out. In fact, several clients recently announced new deals with SVB that are supporting the growth of their businesses. In addition, SVB's Premium Wine division currently has all-time high loan outstandings. SVB's Community Development Finance group closed its largest ever affordable housing facility, and this week is celebrating the grand opening as the lead construction lender of new housing in San Francisco for formerly unhoused military veterans. To successfully integrate SVB, we are focused on the following: The first, running SVB as SVB to maintain the competitive advantage it has in the innovation economy, while at the same time, infusing the cost discipline and risk management that has defined First Citizens for 125 years.

Long term benefits can be achieved by harnessing STB legacy businesses and leveraging these to attract and retain new clients to our franchise.

<unk> continues to support its clients day in and day out in fact, several clients recently announced new deals with SBB.

That are supporting the growth of their businesses.

In addition, Suvs premium wine Division currently has all time high loan Outstandings.

Sdb's community development Finance group closed its largest ever.

Portable housing facility and this week is celebrating the grand opening as the lead construction lender of new housing in San Francisco for formerly.

Formerly Unhoused military veterans.

To successfully integrate SBB, we are focused on the following.

First running SBB as SBB to maintain the competitive advantage. It has in the innovation economy, while at the same time infusing the cost discipline and risk management that has defined for citizens for 125 years.

Frank B. Holding, Jr.: Secondly, continuing our high-touch approach, demonstrating to legacy SVB clients that we're committed to helping their businesses succeed. Third, embracing our SVB colleagues to create synergies that enhance our client relationships and further drive the innovation of our products and services. And lastly, continue to articulate our vision with SVB associates to proactively retain key revenue-generating employees and the staff to support them. While we are clearly in the early days of the SVB acquisition, we already have begun to integrate our teams, and we continue to actively prioritize our efforts to support SVB and its clients. As a combined team, we remain committed to our long-term strategic focus, our relationship client-focused model, delivering solid results while operating with strong liquidity and capital positions, and effectively managing risk within our defined risk appetite.

Frank Holding: Secondly, continuing our high-touch approach, demonstrating to legacy SVB clients that we're committed to helping their businesses succeed. Third, embracing our SVB colleagues to create synergies that enhance our client relationships and further drive the innovation of our products and services. And lastly, continue to articulate our vision with SVB associates to proactively retain key revenue-generating employees and the staff to support them. While we are clearly in the early days of the SVB acquisition, we already have begun to integrate our teams, and we continue to actively prioritize our efforts to support SVB and its clients. As a combined team, we remain committed to our long-term strategic focus, our relationship client-focused model, delivering solid results while operating with strong liquidity and capital positions, and effectively managing risk within our defined risk appetite.

Secondly, continuing our high touch approach demonstrating the legacy SBB clients that we're committed to helping their businesses succeed.

Third embracing our STB colleagues to create synergies and enhance our client relationships and further drive the innovation of our products and services.

And lastly continue to articulate our vision with SBB associates to proactively retained key revenue generating employees.

And the staff to support them.

While we are clearly in the early days of SBB acquisition.

We already have begun to integrate our teams and we continue to actively prioritize our efforts to support SBB and its clients.

As a combined team we remain committed to our long term strategic focus.

Our relationship client focused model.

Delivering solid results, while operating with strong liquidity and capital positions and effectively managing risk within our defined risk appetite.

Frank B. Holding, Jr.: I would like to close my comments by recognizing all our associates at FCB and SVB for coming together over the past month to move us forward as a combined company. We still have work to do, but your hard work provides us the real opportunity to unlock the strategic and financial value of this partnership. And I'll turn it over now to our president, Peter Bristow, to further discuss areas of focus on the SVB acquisition. Peter?

Frank Holding: I would like to close my comments by recognizing all our associates at FCB and SVB for coming together over the past month to move us forward as a combined company. We still have work to do, but your hard work provides us the real opportunity to unlock the strategic and financial value of this partnership. And I'll turn it over now to our president, Peter Bristow, to further discuss areas of focus on the SVB acquisition. Peter?

I would like to close my comments by recognizing all of our associates at FCB and SBB for coming together over the past month to move us forward as a combined company.

We still have work to do.

But your hard work provides us a real opportunity to unlock the strategic and financial value of this partnership.

And I'll turn it over now to our President Peter Bristow to further discuss areas of focus on the SBB acquisition Peter.

Peter Bristow: Thank you, Frank, and good morning, everyone. On page eight, I want to touch on the potential growth opportunities the SVB combination unlocks for First Citizens. With the addition of approximately $100 million in total assets, SVB adds meaningful financial scale to First Citizens. While we did experience some level of deposit outflows since the acquisition date, about half of which was expected on day one, we have begun to see some signs of stabilization. This acquisition built on First Citizens' solid foundation by adding significant scale, geographic diversity, exceptional talent, and, most importantly, valuable solutions for clients throughout their financial life cycle. First, the addition of SVB meaningfully advances our presence in the innovation and technology sectors. SVB's historic leadership position in these sectors ensures First Citizens is better positioned to serve venture-backed companies and tech startups in our backyard and across the nation.

Thank you Frank and good morning, everyone.

On page eight I want to touch on the potential growth opportunity. The SBB combination unlocks for first citizens.

With the addition of approximately $100 million in total assets SBB adds meaningful financial scale to first citizens while.

While we did experience some level of deposit outflow since the acquisition date about half of which was expected on day, one we have begun to see some signs of stabilization.

This acquisition builds on first citizens solid foundation by adding significant scale and geographic diversity exceptional talent and most importantly valuable solutions for clients throughout their financial life cycle.

First the addition of SBB meaningfully advances our presence in the innovation and technology sectors.

These historic leadership position in <unk> and <unk>.

These sectors and serves for citizens is better positioned to serve venture back companies in tech startups in our backyard and across the nation.

Peter Bristow: Second, it opens new business opportunities while driving incremental top-line growth. By leveraging the existing offerings of First Citizens and SVB, we can better serve our combined client base. Third, SVB Private has enormous potential to accelerate the growth of our wealth business, adding new digital capabilities, talent, and solutions to our already growing franchise. Fourth, SVB increases our presence in attractive, high-growth markets on the West Coast and in the Northeast, positioning us to capture new clients while diversifying our footprint. Finally, as Frank mentioned, this acquisition is compelling financially, both immediately and in the long term. On page nine, we dive deeper into the entities we acquired, the SVB Commercial and Private Banks. The commercial arm of SVB is the banking leader in the innovation economy, with a powerful network of relationships across entrepreneurs, investors, and influencers.

Second it opens new business opportunities, while driving incremental top line growth.

Leveraging the existing offerings of first citizens and FCB, we can better serve our combined client base.

Third STB private has enormous potential to accelerate the growth of our wealth business, adding new digital capabilities talent and solutions to our already growing franchise.

Fourth SCB increases our presence in attractive high growth markets on the west coast and in the northeast.

Positioning us to capture new clients, while diversifying our footprint.

Finally, as Frank mentioned this acquisition has compelling financial era, both immediately and in the long term.

On page nine we dive deeper into the entities, we acquired the SV SBB commercial and private banks.

The commercial arm of SBB is the banking leader in the innovation economy with a powerful network of relationships across entrepreneurs investors and influencers their focus on technology life Sciences, and healthcare and global fund banking combined with their best in class model for delivering too.

Peter Bristow: Their focus on technology, life sciences and healthcare, and global fund banking, combined with their best-in-class model for delivering to those clients, truly sets them apart from the rest of the industry. SVB provides tailored commercial banking solutions to clients at every life stage, from startup and early-stage companies, to venture-backed growth companies, on up to large corporate entities. These solutions include business banking, treasury services, card, digital banking, FX, liquidity management, and venture debt through the various stages, as well as a comprehensive package of banking products to support venture capital and PE fund clients. SVB Private is an established wealth advisory franchise with private banking solutions tailored to the needs of innovation clients. SVB serves these clients both professionally and personally. SVB's private wealth capabilities include lending solutions to address equity compensation, concentrated stock positions, and non-liquid assets.

Those clients truly sets them apart from the rest of the industry.

FCB provides tailored commercial banking solutions to clients at every life stage from startup and early stage companies to venture backed growth companies on up to large corporate entities. These.

These solutions include business banking Treasury services card digital banking, FX liquidity management and venture debt through the various stages as well as a comprehensive package of banking products to support venture capital and PE Fund clients.

SPV private as an established wealth advisory franchise ties with private banking solutions tailored to the needs of innovation clients.

SBB serves these clients both professionally and personally.

Sbb's private wealth capabilities include lending solutions to address equity compensation concentrated stock positions and non illiquid assets.

Peter Bristow: SVB Private also works with Premium Wine producers to provide working capital and vineyard loans. I'm not going to cover page 10 in detail, but we have included it for your reference to provide a snapshot of all of First Citizens Bank business segments, along with on- and off-balance sheet financial data as of March 31, 2023. Turning to page 11. While we are in the early stages, our integration efforts are underway. Our approach is to seek out the best minds and most experienced people who can develop our go-forward business model. We are formalizing integration plans that we will share in the future. Meanwhile, we are diligently working to address our immediate priorities and goals, which include: first, maintaining our position as a key partner in the innovation economy. We are committed to continuing to help innovators, enterprises, and investors move bold ideas forward.

Stevie private also works with premium wine producers to provide working capital and then your lines.

I'm not going to cover page 10 in detail, but we have included for your reference to provide a snapshot of all of first citizens bank business segments, along with on and off balance sheet financial data as of March 31 2023.

Turning to page 11, while we are in the early stages, our integration efforts are underway.

Our approach is to seek out the best minds and most experienced people who can develop our go forward business model.

We are formalizing integration plans that we will share in the future. Meanwhile, we are diligently working to address our immediate priorities and goals which include.

First maintaining our position.

As a key partner in the innovation economy.

We are committed to continuing to help innovators enterprises and investors move bold ideas forward.

Peter Bristow: Despite the recent turmoil, we believe there are long-term secular tailwinds supporting the technology and healthcare sectors that will continue to drive future growth. Second, supporting clients and working to regain trust. Our goal is to maintain seamless functionality that SVB clients are accustomed to and have come to expect. We have already met with many key clients to hold initial discussions around the transition and reinforce our commitment to them. We plan to continue that communication and ensure that feedback can be received quickly and effectively addressed. Third, retaining key revenue-generating talent and staff to support them. One of the most important priorities has been the retention of key SVB talent. We have provided a budget for meaningful amount of retention to retain this key talent. As Frank mentioned, we have had some attrition since this acquisition date.

Despite the recent turmoil. We believe there are long term secular tailwind supporting the technology and healthcare sectors that will continue to drive future growth.

Second supporting clients and working to regain trust.

Our goal is to maintain seamless functionality that SPD clients are accustomed to and have come to expect.

We have already met with many key clients to hold initial discussions around the transition and reinforce our commitment to them.

We plan to continue that communication and ensure that feedback can be received quickly and effectively address.

Third retaining key revenue generating talent and staff to support them.

One of the most important priority has been the retention of key SBB talent.

We've provided a budget for meaningful amount of retention to retain this key talent.

As Frank mentioned, we have had some attrition sensus acquisition date. However, we have been pleased that our succession plans internal talent pools and external recruiting resources have allowed us to backfill key positions.

Peter Bristow: However, we have been pleased that our succession plans, internal talent pool, and external recruiting resources have allowed us to backfill key positions. On page 12, we show the composition of our loan portfolio at quarter-end, including the impact of the SVB acquisition. The transaction provides diversification across our loan portfolio. In this way, legacy SVB's commercially focused portfolio complements First Citizens' client strategy by bringing on strong private equity and venture capital relationships. Moving to page 13, we provide an overview of the legacy SVB credit portfolios, and they are divided into risk categories. The acquired portfolio has a low loss history, which aligns well with First Citizens' credit culture and risk management strategy. As you can see, approximately 70% of SVB loans fall into the low credit risk portfolios, including Global Fund Banking and the private bank.

On page 12, we show the composition of our loan portfolio at quarter end, including the impact of the STB acquisition.

The transaction provides diversification across our loan portfolio in this way legacy Sbb's commercially focused portfolio complements first citizens client strategy by bringing on strong private equity and venture capital relationships.

Moving to page 13, we provide an overview of the legacy SPV credit portfolios and they are divided into risk categories.

Acquired portfolio has a low loss history, which aligns well with first citizens credit culture and risk management strategy.

As you can see approximately 70% of SBB loans fall into the low credit risk portfolios, including Global fund banking and the private bank.

Peter Bristow: We will continue to manage these portfolios prudently and effectively, while maintaining consistent and strong underwriting standards. The efforts already executed by the legacy SVB team in this area have positioned the bank well from a credit quality standpoint. On page 14, we show our deposit composition at quarter end, including the impact of the SVB acquisition. One of the most immediate benefits is the shift in deposit mix, as 62% of SVB's deposits are non-interest bearing, bringing the consolidated non-interest bearing ratio to 39%, up 11% from what we reported in Q4. Further, the transaction provides a more geographically diverse deposit base, which we believe will help position us to compete in the current deposit rate environment by growing our core deposit base.

We will continue to manage these portfolios prudently and effectively while maintaining consistent and strong underwriting standards. The efforts already executed by the legacy FCB team in this area have positioned the bank well from a credit quality standpoint.

On page 14, we show our deposit composition at quarter end, including the impact of the STB acquisition.

One of the most immediate benefits as the shift in deposit mix of 62% of stds deposits are noninterest bearing bringing the consolidated noninterest bearing ratio to 39% up 11% from what we reported in the fourth quarter.

Further the transaction provides a more geographically diverse deposit base, which we believe will help position us to compete in the current deposit rate environment by growing our core deposit base.

Peter Bristow: We continue to focus on client outreach, and I believe that some of the legacy SVB clients will move business that left back to us, as depositors realize that their deposits are safe with First Citizens. In the meantime, we've successfully been leveraging our nationwide digital direct bank to quickly add balances through competitive product offerings. I will now turn it over to Craig Nix to discuss the preliminary purchase accounting in our first quarter financial results. Craig?

We continue to focus on client outreach and I believe that some of the legacy FCB clients will move business that left back to us as depositors realizes their deposits are safe with first citizens.

In the meantime, we successfully been leveraging our nationwide digital direct bank to quickly add balances through competitive product offerings.

I will now turn it over to Craig next to discuss the preliminary purchase accounting in our first quarter financial results, Greg. Thank you Peter and good morning, everyone.

Craig Nix: Thank you, Peter, and good morning, everyone. Page seventeen provides a view of the acquired balance sheet prior and post, purchase accounting impacts. After preliminary purchase accounting, we acquired approximately $107 billion in assets, comprised of $35 billion in cash and $71 billion in loans. We assumed $56 billion in deposits and $35 billion in borrowing. The FDIC received a value appreciation instrument payable in cash of up to $500 million. On 28 March, the FDIC exercised its option, and in April, we paid the FDIC $500 million. Page eighteen shows that the acquisition resulted in significant TBV accretion.

Page 17 provides a view of the acquired balance sheet prior imposed.

Purchase accounting impact after preliminary purchase accounting, we acquired approximately $107 billion in assets comprised of $35 billion in cash and 71 billion in loans, we assumed 56 billion in deposits and $35 billion in borrowings.

<unk>.

The FDIC received a value appreciation instrument payable in cash of up to $500 million.

March 28 with.

With FDIC exercised its options option and in April we paid the FDIC $500 million.

Page 18 shows that the acquisition resulted in significant TBD accretion.

Craig Nix: Starting with the standalone First Citizens tangible book value of $590 per share, estimated day one accretion was 112%, or an increase of $9.6 billion to $1,250 per share. After the impacts of CDI and day two CECL, estimated accretion was 106%, or an increase of $9.1 billion to $1,214 per share. Assuming fully phased in acquisition costs, estimated at $650 million, PBV accretion was 100%. Continuing to page 19, pre-tax purchase accounting adjustments were $2.8 billion. The most significant adjustment included a 3.9% credit and liquidity mark on loans.

Starting with the Standalone first citizens tangible book value of $590 per share.

Estimated day, one accretion was 112% or an increase of $9 $6 billion to one.

$1250 per share.

After the impacts of CDI and <unk> seasonal estimated accretion was 106% or an increase of $9 1 billion to $1214 per share assuming fully phased in acquisition costs estimated at $650 million TBD.

Accretion was 100%.

Continuing to page 19, pre tax purchase accounting adjustments for $2 $8 million. The most significant adjustment included a three 9% credit and liquidity Mark on loans after consideration of other adjustments, including $253 million for commitments to land.

Craig Nix: After consideration of other adjustments, including $253 million for commitments to lend and $230 million for CDI, the asset discount of $16.45 billion was reduced to $13.6 billion. After recognizing the $500 million paid to the FDIC, we recognized an after-tax gain of $9.8 billion on the acquisition. Our current estimate for the PCD ACL gross up is $200 million, and our day two CECL non-PCD provision is $462 million. In addition to day two provision, we recorded $254 million in provision expense for commitments to lend, bringing the after-tax of day two provision expense to $536 million.

And $230 million for CDI, the asset discount of $16 $45 billion is reduced to $13 6 billion. After recognizing the $500 million paid to the FDIC. We recognized an after tax gain of $9 $8 billion on the ACA.

Position.

Our current estimate for the PCB ACL gross up is $200 million and our day two seasonal non PCB provision.

$462 million in.

In addition to day two provision we recorded $254 million of provision expense for commitments to land, bringing the after tax day, two provision expense to $536 million.

Craig Nix: On page 20, we present the estimated impact of preliminary purchase accounting marks on EPS, NIM, and income statement line items. Please note that the fair value adjustments presented exclude fair value adjustments that will not impact future earnings. The impact of the fair market value adjustments is estimated to be accretive to 2023 EPS by $28.95, and to 2023 NIM by 36 basis points. The day two CECL adjustments for non-PCD loans and reserve for unfunded commitments will have a negative impact on estimated 2023 EPS of $26.97. Page 21 shows that of the $71.3 billion in loans acquired, approximately $2.5 billion were determined to be PCD loans.

On page 20, we present the estimated impact of preliminary purchase accounting marks on EPS NIM and income statement line items. Please note that the fair value adjustments presented exclude fair value adjustments that will not impact future earnings.

The impact of the fair market value adjustments is estimated to be accretive to 2023 EPS by $28 95.

And to 2023, NIM by 36 basis points.

The day, two seasonal adjustments for non PCB lines and reserve for unfunded commitments will have a negative impact on estimated 2023, EPS EPS of $26 97.

Page 21 says then of the $71 $3 billion in loans acquired approximately $2 5 billion were determined to be PCB lines.

Craig Nix: After recording the ACL on PCD loans totaling $200 million, we estimate $2.6 billion of interest income accretion to be recognized over the remaining lives of the loans. The ACL ratio on the acquired SVB loans is 1%, resulting in a combined ACL of $1.6 billion, or 1.16% of total loans at 31 March 2023. Next, on page 22, it was especially important to us that post-acquisition, we maintain a fortress balance sheet marked by strong liquidity, both on and off balance sheet, manage to a low risk appetite with respect to our investment portfolio, maintain strong credit quality, and provide appropriate ACL coverage. All capital ratios are above our current target operating ranges, the CET1 at 12.53%.

After recording the ACL on PCB lines totaling $200 million, we estimate to $6 billion of interest income accretion to be recognized over the remaining lives of the loans.

The ACL ratio on the acquired SBB lines is 1%, resulting in a combined ACL ACL of one 6 billion a one 6% of total loans at March 31 2023.

Next on page 22, it was especially important to us that post acquisition, we maintain a fortress balance sheet strong liquidity, both on and off balance sheet managed with a low risk appetite with respect to our investment portfolio maintained strong credit quality and provide a.

Appropriate ACL coverage.

All capital ratios are above our current target operating ranges.

One at 12, 3% when adjusting the CET one ratio for Aici unrealized losses on our securities portfolio that dropped to 12, 1% and then further adding unrealized losses on the HTM portfolio it drops to 11, 4%.

Craig Nix: When adjusting the CET1 ratios for AOCI unrealized losses on our securities portfolio, it drops to 12.1%, and when further adding unrealized losses on the HTM portfolio, it drops to 11.4%. Both of these pro forma ratios remain above regulatory well-capitalized limits and our internal target ranges. We have strong on and off-balance sheet liquidity positions totaling $51.4 billion in cash and high-quality liquid securities, and $79.5 billion in contingent sources. Total liquidity covered uninsured deposits by 198% as of 31 March, and by 219% as of 30 April. Although net charge-offs increased in the first quarter, credit performance was strong, and we remain well reserved. Now turning to first quarter results, I'm going to anchor my comments to the takeaways on page 24.

Both of these pro forma ratios remain above regulatory well capitalized limits and our internal target ranges.

We have strong on and off balance sheet liquidity positions totaling $51 $4 billion in cash and high quality liquid securities.

And $79 $5 billion in contingent sources total liquidity covered uninsured deposits by 198% as of March 31, and by 219% as of April 30 <unk>.

Although net charge offs increased in the first quarter credit performance was strong and we remain well reserved.

Now turning to first quarter results I'm going to anchor my comments to the takeaways on page 24.

Craig Nix: In the interest of time, I will not cover pages 25 through 41 in detail, but have included them for your reference. We posted another quarter of strong reported and adjusted financial results. Reported net income for the quarter was obviously boosted by the gain on acquisition, but we were pleased with adjusted net income as well. Adjusted year-over-year PPNR increased by 35% and by 21% without the first quarter impact of SVB. Linked-quarter net interest income grew, and margin expanded by 5 basis points to 3.41%. Non-interest income held up well, increasing over the linked-quarter with and without SVB's contribution. Our efficiency ratio improved on a year-over-year basis, but was up slightly from the linked-quarter due to higher seasonal personnel costs and the industry-wide increase in FDIC assessment rates. Overall, we feel good about where we are on expenses.

In the interest of time I will not cover pages 25 through 41 in detail, but have included them for your reference.

We posted another quarter of strong reported and adjusted financial results reported net income for the quarter was obviously boosted by the gain on acquisition, but we were pleased with adjusted net income as well.

Adjusted year over year, <unk> increased by 35% about 21% without the first quarter impact SBB.

Linked quarter net interest income grew and margin expanded by five basis points to 341%.

Noninterest income held up well increasing over the linked quarter with and without SBB contribution.

Our efficiency ratio improved on a year over year basis, but was up slightly from the linked quarter due to higher seasonal personnel cost in the industry wide increase in FDIC assessment rate.

All we feel good about where we are on expenses.

Craig Nix: Legacy FCB loan and deposit growth was strong during the quarter. Annualized loan and deposit growth was 7.7% and 6.3%, respectively. Moving to credit, even though we are seeing an uptick in net charge-offs towards more historic levels, we are pleased with our credit quality and the strength of our clients. Outside of the general office and small ticket leasing, equipment leasing, we have not seen new areas of stress in the portfolio. Our nonaccrual ratio declined by 26 basis points with the SVB acquisition and 5 basis points without it. As I mentioned earlier, our capital position remains strong. We are experiencing a burn down of AOCI losses as our securities portfolio matures and rates have come off recent highs. Starting on page 43, I will highlight our financial areas of focus.

Legacy FCB loan and deposit growth was strong during the quarter annualized loan and deposit growth was seven 7%.

Six 3% respectively.

Moving to credit even though we are seeing an uptick in net charge offs towards more historic levels.

We are pleased with our credit quality and the strength of our client outside of the general office and small ticket leasing equipment leasing we are not seeing new areas of stress in the portfolio are non accrual or nonaccrual ratio declined by 26 basis points with the FCB acquisition and five basis points without it.

As I mentioned earlier, our capital position remains strong we are experiencing a burn down of Ci losses, as our securities Securities portfolio matures and rates have come off recent highs.

Starting on page 43 that will highlight our financial areas of focus.

Craig Nix: First, we are focused on maintaining a solid base of core deposits to fund our balance sheet. General bank deposits totaled $86 billion, over 60% of our total deposit base, consisting primarily by our branch network and our nationwide Direct Bank. 80% of these deposits are insured or collateralized, and the average account size is $36,000. The deposits noted below the general bank are in our commercial bank from legacy CIT and represent a much smaller portion of our total funding. Corporate segment deposits consist primarily of broker deposits. SVB deposits of $49.3 billion represented 35% of our deposit base and have an average size of $360,000. 14% of these deposits are insured. Putting it all together, 53% of our deposits were insured at 31 March 2023.

We are focused on maintaining a solid base of core deposits.

Our balance sheet.

General Bank deposits totaled $8 86 billion.

Over 60% of our total deposit base, consisting primarily of our branch network and our nationwide direct bank, 80% of these deposits are insured are collateralized and the average account size is $36000.

The deposit noted below the general banker in our commercial bank from legacy <unk> and represent a much smaller portion of our total funding corporate segment deposits consist primarily of broker deposits SBB deposits of $49 3 billion represented 35% of our deposit base and have an average.

Size of $360000, 14% of these deposits are insured putting it altogether, 53% of our deposits are insured at March 31 2023.

Craig Nix: Continuing to page 44, we show weekly deposit trends post-acquisition. On the FCB side, deposits have grown by $2.6 billion, primarily in the direct bank. On the SVB side, after seeing initial outflows of $7 billion and a $5 billion outflow that was expected at the acquisition date related to a sweep repro product coming back online, deposit balances have begun to stabilize. We are monitoring deposit outflows at SVB closely and will continue to use our direct bank to offset future outflows of deposits at SVB. Page 45 shows that as of 31 March and 30 April, liquidity covered our uninsured deposits by approximately 2 times. On pages 46 and 47, we highlight our total CRE exposure, which was under 12% of total loans at quarter end.

Continuing to page 44, we said weekly deposit trends post acquisition on.

On the FCB side deposits have grown by $2 6 billion, primarily in the direct bank on.

On the BD side after seeing initial outflows of $7 billion.

A $5 billion outflow that was expected at the acquisition date related to a sweep repo product coming back online deposit balances deposit balances have begun to stabilize we are monitoring deposit outflows at FCB closely and will continue to use our direct bank to offset future outflows.

The deposits at FCB.

Page 45 says that as of March 31, and April 30.

Liquidity covered our uninsured deposits by approximately two times.

On pages $46 47.

Highlight our total CRE exposure, which was under 12% of total loans at quarter end.

Craig Nix: General office loans total $2.8 billion, or 2.1% of total loans. Page 47 includes information on the general office portfolio, which is well diversified geographically, with limited exposure to some of the hardest hit markets, including San Francisco, Chicago, and New York. As we shared on our last call, of the $2.8 billion in general office loans, our largest area of concern is in our commercial bank, with general office loans totaling $1.3 billion, or less than 1% of total loans. This portfolio consists of Class B reposition and bridge loans, and is where we have seen deterioration in the in past due criticized assets and charge-offs.

General office loans totaled $2 8 billion or two 1% of total loans.

Page 47 includes information on the General office portfolio, which is well diversified geographically with limited exposure to some of the hardest hit markets, including San Francisco, Chicago, and New York.

As we shared on our last call.

The $2 8 billion and general office lines, our largest areas of concern in our commercial bank with general office loans totaling $1 $3 billion or less than 1% of total loans. This portfolio consist of class B reposition and bridge lines and is where we are seeing deterioration in the <unk>.

Criticized assets and charge offs, we are carrying an ACL on these loans of five 3% versus an ACL on the overall general office portfolio of 267%.

Craig Nix: We are carrying an ACL on these loans of 5.23%, versus an ACL on the overall general office portfolio of 2.67%. The general office loans in the commercial bank were originated with strong loan-to-values in the 60 to 65% range. We acknowledge that current market conditions could bring these higher, depending on the location and specific property. As these loans approach maturity, we are working with our clients on an individual basis to assess potential concerns and ensure we are addressing them quickly. So while we expect some additional downward migration in this portfolio, we do believe the issues are manageable. Most of the remaining general office exposure is in the general bank. This portfolio is much more granular in nature, with a smaller average loan size, and we have, to date, not seen deterioration.

The general office loans in the commercial bank were originated with strong loan to values in the 60% to 65% range. We acknowledged that current market conditions could bring these higher depending on the location and specific property.

As these loans approach maturity, we are working with our clients on an individual basis to assess potential concerns and ensure we are addressing them quickly. So while we expect some additional downward migration in this portfolio. We do believe the issues are manageable.

Of the remaining general office exposure is in the general Bank portfolio.

Portfolio is much more granular in nature with a smaller average loan size and we have to date not seeing deterioration.

Craig Nix: To close the loop on this, we are not originating new loans in this space and are diversifying to other performing property types. On pages 48 and 49, our investment portfolio strategy is to purchase stable, cash flowing securities that act as a source of liquidity and do not take on significant duration risk. This is evidenced by the short duration of our portfolio of approximately 4.2 years, and importantly, extending to only 4.3 years in an up 100 basis points rate shock. 95% of the portfolio is directly or indirectly guaranteed by the US government. Turning to page 50, we expect to receive 22% of our investment portfolio cash flows over the next 7 quarters. Over that same time horizon, we expect a 39% burn down of our investment portfolio related AOCI losses.

To close the loop on this.

We are not originating new loans in this space and are diversifying to other performing property types.

On pages 48, and 49, our investment portfolio strategy is to purchase stable cash flowing securities that act as a source of liquidity and do not take on significant duration risk. This is evidenced by the short duration of our portfolio of approximately four two years.

And importantly, extending to only for three years in an up 100 basis points rate shock.

95% of the portfolio is directly or indirectly guaranteed by the U S government.

Turning to page 15, we expect to receive 22% of our investment portfolio cash flows over the next seven quarters.

Over that same time horizon, we expect a 39% burn down of our investment portfolio related.

OCI losses.

Craig Nix: On page 51, our interest rate sensitivity increased during the quarter due to the SVB acquisition. The primary drivers were the fixed rate Purchase Money Note, increasing liability duration, while variable rate loans and cash acquired shortened asset duration. We are prioritizing the management of liquidity risk and are keeping a larger cash balance as a percentage of assets due to the current uncertainty in the banking environment. The main drivers of our asset sensitivity are our variable rate loan portfolio, which represents approximately 65% of total loans, and our cash position of $38 billion, equating to 20% of earning assets as of 31 March 2023. On page 52, we provide information on our actual and expected deposit betas. 58% of our deposits exhibit lower betas, and 42% exhibit moderate to higher betas.

On page 51, our interest rate sensitivity increase during the quarter due to the SCB acquisition. The primary drivers were the fixed rate purchase money notes increasing liability duration.

While variable rate loans and cash acquired shortened asset duration.

We are prioritizing the management of liquidity risk and are keeping a larger cash balance as a percentage of assets due to the current uncertainty in the banking environment.

The main drivers of our asset sensitivity, our variable rate loan portfolio, which represents approximately 65% of total loans and our cash position of $38 million equating to 20% of earning assets as of March 31 2023.

On page 52, we provide information on our actual and expected deposit data, 58% of our deposits exhibit lower betas and 42% exhibit moderate to higher betas.

Craig Nix: Our cumulative beta through Q1 was 22%, in line with our projection last quarter. We expect cumulative beta to increase to 28% by the end of Q2, as deposits continue to catch up from recent rate increases. Over the interest rate hiking cycle, we forecast our cumulative beta will be in the 30 to 35% range. Turning to page 54, I'll conclude with our outlook for the remainder of 2023. While we believe that our projections are achievable and reasonable, as we prepared our outlook, we noted several sources of uncertainty surrounding it. Number one, we are a little over a month into the acquisition of SVB, so we still have a lot to digest there. Number two, we assume any recessionary impacts will be mild.

Sure.

Our cumulative data through the first quarter was 22% in line with our projections last quarter, we expect cumulative beta to increased to 28% by the end of the second quarter as deposits continue to catch up from recent rate increases.

The interest rate hiking cycle, we forecast our cumulative beta will be in the 30% to 35% range.

Turning to page 54, I'll conclude with our outlook for the remainder of 2023.

While we believe that our projections are achievable and reasonable.

As we prepared our outlook we noted several sources.

Certainty surrounding it number one we're a little over a month into the acquisition of SCB. So we still have a lot to digest there number two we assume any recessionary impacts will be mild number three the impact of policy changes, including the path of the fed funds rate and the pace of quantity quantitative.

Craig Nix: Number three, the impact of policy changes, including the path of the Fed Funds Rate and the pace of quantitative easing, could impact our projections. And four, the impact of competition and client behavior could drive our deposit betas higher. The first column on the page lists our Q1 2023 results. The numbers for non-interest income and expense are adjusted for notable items. Column two provides our guidance for Q2 2023, and column three for the full year. On loans, we expect a low single-digit percentage decline in the second quarter as pay down in the Global Fund Banking business from slowed market activity are offset by annualized low- to mid-single-digit percentage growth in legacy FCB.

Easing.

Impact our projections.

For the impact of competition in client behavior could drive our deposit beta is higher.

The first column on the page with our first quarter 2023 results the numbers for noninterest income and expense our adjusted for notable items.

Column two provides our guidance for the second quarter of 2023 and column three for the full year.

On loans, we expect a low single digit percentage decline in the second quarter as pay down in.

And the global fund banking business from slowed market activity are offset by annualized low to mid single digit percentage growth in legacy FCB we.

Craig Nix: We expect the same trend to continue through year-end, with the legacy FCB portfolio moderating to approximately $60 billion, and legacy FCB achieving mid-single digits percentage growth. For deposits, we expect a low to mid-single digit percentage decline in Q2. While we are encouraged by the stabilization of FCB deposits since the first week of April, we are projecting an $8 billion decline through the end of the year. With lower absolute levels of funding in the marketplace, we anticipate that FCB clients will continue to experience some level of cash burn. We are expecting this to be offset by $10 billion in growth in our Direct Bank. With respect to SVB deposits and loans, we have engaged in an expansive calling effort to reach out to over 30,000 clients.

We expect the same trend to continue through year end with the legacy FCB portfolio moderating to approximately $60 billion and legacy FCB, achieving mid single digit percentage growth.

For deposits, we expect a low to mid single digit percentage decline in the second quarter. While we are encouraged by the stabilization of Sci Fi deposit since the first week of April we are projecting an $8 billion declined through the end of the year with lower absolute levels of funding in the marketplace, we anticipate that SBB clients.

We continue to experience some level of cash burn.

We're expecting that to be offset by $10 billion in growth in our direct bank.

With respect to SBB deposits and loans, we have engaged in an expansive calling effort to reach out to over 30000 clients.

Craig Nix: While it is early, we have seen initial positive results in the first clients we have contacted. We are cautiously optimistic that we will not see the level of loan or deposit runoff included in our projections, but this will depend on the extent to which clients return or the absolute funding in the marketplace returns. If this happens, we feel there could be upside to our projections. Our interest rate forecast follows the implied forward curve. We forecast that the Fed Funds Rate has peaked at the 5 to 5.25% range. From there, we anticipate 325 basis points rate cuts in the back half of the year. The SVB acquisition will be accretive not only to net interest income, given the sizable balance sheet, but also to net interest margin.

While it is early we are seeing initial positive results in the first clients. We have contacted we are cautiously optimistic that we will not see the level of loan or deposit runoff included in our projections.

But this will depend on the extent to which clients return or the absolute funding in the marketplace returns. If this happens we feel there could be upside to our projections.

Our interest rate forecast follows the implied forward curve, we forecast that the fed funds rate has peaked at $5 to $5 25% range.

From there, we anticipate $3 25 basis points rate cuts in the back half of the year.

The sdd acquisition will be accretive not only to net interest income given the sizable balance sheet, but also to net interest margin.

Craig Nix: We expect an estimated purchase accounting impact to net interest income of $604 million, and an accretive impact to NIM of 36 basis points in 2023. While we are not providing 2024 guidance at this time, we do expect the pace of accretion to moderate in 2024, as detailed previously in the purchase accounting slides. If rate cuts materialize on the back half of the year, we do anticipate net interest income declining from current levels. We anticipate full cycle beta to be 31%, up from our previous estimate of 25%, due primarily to declines in non-interest-bearing deposits, as well as volume increases in the more expensive Direct Bank channel. We expect Q2 annualized net charge-offs to be in the 35 to 45 basis points range.

We expect an estimated purchase accounting impact to net interest income of $604 million in an accretive impact on NIM of 36 basis points in 2023.

While we are not providing 2020 for guidance at this time, we do expect the pace of accretion to moderate in 2024 as detailed previously and the purchase accounting slides if rate cuts materialize on the back half of the year. We do anticipate net interest income declining from current levels.

We anticipate full cycle beta to be 31% up from our previous estimate of 32, 5% due primarily to declines in noninterest bearing deposits as well as volume increases and the more extensive direct bank channel.

Yes.

We expect second quarter annualized net charge offs to be in the 35 to 45 basis points range.

Craig Nix: The uptick is primarily related to a $45 million charge-off in the SVB portfolio that was fully reserved for in day one purchase accounting. We view that charge-off as idiosyncratic in nature. Absent that charge-off, we would expect net charge-offs to be in the mid-20s annualized. For the full year 2023, we expect net charge-offs in the 25 to 35 basis points range. On an adjusted basis, we expect $430 to $460 million in non-interest income in Q2. We expect legacy SVB to generate close to $130 million to $150 million per quarter.

The uptick is primarily related to a $45 million charge off in the FCB portfolio that was fully reserved for in day, one purchase accounting review that charge off as idiosyncratic in nature absent that charge off we would expect net charge offs to be in the mid <unk> annualized for the full year 2023, we expect net charge offs in the <unk>.

25 to 35 basis points range.

On an adjusted basis, we expect 430 to $6 $460 million and noninterest income in the second quarter.

We expect legacy SBB.

SBB to generate close to $130 million to $150 million per quarter on an apples to apples basis of the SBB businesses that were acquired this was closer to $300 million per quarter. In 2022. So we are expecting the run rate to be slightly less than half of that given client attrition, especially in some of the off.

Craig Nix: On an apples-to-apples basis of the SVB businesses that were acquired, this was closer to $300 million per quarter in 2022, so we are expecting the run rate to be slightly less than half of that, given client attrition, especially in some of the off-balance sheet suite products. With respect to legacy First Citizens, we still have momentum in our wealth merchant card and rail businesses. While maintenance expenses are expected to increase in rail, utilization is almost 98%, and in the past two quarters, renewal rates have been at or above 130% of the previous quarter's rates. Non-interest expense projections do not include expected acquisition expenses related to SVB, estimated at $650 million, with 50% recognized over the remainder of 2023, and the other half in 2024.

Balance sheet suite product.

With respect to legacy for citizens, we still have momentum in our wealth merchant card and rail businesses, while maintenance expenses are expected to increase in rail utilization is almost 98% and in the past two quarters renewal rates have been at or above 130% of the previous quarters right.

<unk>.

Noninterest expense projections do not include expected acquisition expenses related to SBB estimated at 650 million with 50% recognize of the remainder of 2023 and the other half in 2024.

Craig Nix: We expect non-interest expense in the range of $1.25 to 1.3 billion in Q2. The SVB pre-merger annual run rate was approximately $2.6 billion or $650 million per quarter. We anticipate 25% to 30% cost synergies to be in the run rate by the end of 2024, equating to $650 to 780 million. Most of the synergies will be driven by consolidation of redundant or duplicate back-office processes and systems, as we do remain focused on supporting the existing front line of business and their clients. On an FCB standalone basis, we expect expenses to be down low single-digit percentage points compared to Q1, due to elevated seasonal benefits, partially offset by merit increases, as well as heightened marketing expenses related to the digital bank.

We expect noninterest expense in the range of one to five to $1 3 billion in the second quarter.

Yeah.

The sdd pre merger annual run rate was approximately $2 6 billion or $650 million per quarter, we anticipate 25% to 30% cost synergies to be in the run rate by the end of 2024, equating to $650 to $780 million.

Most of the synergies will be driven by consolidation of redundant or duplicate back office processes and systems as we do remain focused on supporting the existing front line of business and their clients.

On an FCB stand alone basis, we expect expenses to be down low single digits percentage points compared to the first quarter due to elevated seasonal benefits, partially offset by merit increases as well as heightened marketing expenses related to the digital bank.

Craig Nix: We expect to maintain an efficiency ratio in the mid-50s, with upside to the low 50s, if rates remain higher for longer. If rates begin to decline as forecasted, we feel comfortable in our ability to maintain it in the mid-50s, as decreases in net interest income are offset by recognition of cost synergies. Finally, we expect our corporate tax rate to be in the 26.5 to 27% range, an increase from the previous range of 24.5% to 25%, as our revenue distribution is more heavily weighted to higher tax jurisdictions, such as California, and our pre-existing tax benefits are spread amongst a larger pre-tax income base. Page 55 shows our EPS forecast for 2023 and significant EPS accretion from the SVB acquisition. The forecast does not include the impact of acquisition expenses.

We expect to maintain an efficiency ratio in the mid fifties with upside to the low $50 if rates remain higher for longer.

If rates begin to decline as forecasted we feel we feel comfortable in our ability to maintain it in the mid fifties as decreases in net interest income were offset by recognition of cost synergies.

And finally, we expect our corporate tax rate to be in the 26, 5% to 27% range an increase from the previous range of 24, 5% to 25%.

As our revenue distribution is more heavily weighted to higher taxes.

Jurisdictions, such as California and.

Our pre existing tax benefits are spread amongst a larger pre tax income base.

Yes.

Page 55 shows our EPS forecast for 2023 and significant EPS accretion from the STB acquisition. The forecast does not include the impact of acquisition expenses.

Craig Nix: It assumes that 50 to 60% of the cost synergies are in the run rate by the end of 2023. Starting from the left side of the page, we begin with FCB's estimated standalone 2023 EPS range of $85 to 90 per share. Moving to the gray bar on the right, the impact of the base combination with FCB prior to cost synergies adds twenty-seven to 31 dollars per share, bringing the range for the base combination EPS to 112 to 121 dollars per share. Continuing to the right, cost synergies in 2023 are estimated to add another $9 to 11 to EPS. Note that if we were to assume estimated fully phased-in cost synergies in this projection, they would be accretive to EPS by $33 to 39 per share.

It means that $50 to 60% of the cost synergies are in the run rate by the end of 2023.

Starting from the left side of the page we begin with Fcb's estimated stand alone 2023, EPS range of 85 to $90 per share.

Moving to the Gray bar on the right the impact of the base combination with SBB prior to cost synergies as 21, 27% to $31 per share, bringing the range for the based combination EPS grew 112 to $121 per share.

<unk> to the right cost synergies in 2023 are estimated to add another 9% to $11 to EPS note that if we were to assume estimated fully phased and cost synergies and this projection there would be accretive to EPS by 33 to $39 per share.

Craig Nix: The next two gray boxes to the right show that purchase accounting impacts are accretive to EPS by $31 per share, and that amortization of CDI reduces that impact by $2 per share. Actual results could differ materially, particularly with respect to accretion, depending on loan prepayment. The $31 per share assumes loans pay off based on contractual maturities. Thus, we end at an estimated range for EPS between $150 and $161 per share, representing 67% to 89% accretion. With fully phased-in cost synergies, accretion would be between 93% and 122%.... Note that the EPS walk includes estimated SVB operating results from the acquisition date through 31 December 2023. And with that, I will turn it back over to Frank for closing comments.

The next two gray boxes to the right so that purchase accounting impacts or accretive to EPS by $31 per share in the amortization of CDI reduces that impact by $2 per share.

Actual results could differ materially, particularly with respect to accretion depending on loan prepayments.

$31 per share assumes loans pay pay off based on contractual maturities.

Thus we ended an estimated range for EPS.

Between $150 and $161 per share representing 67% to 89% accretion with fully phased in cost synergies accretion would be between 93% and 122%.

Note that the EPS wall includes estimated SBB operating results from the acquisition acquisition date through December 31 2023.

And with that I will turn it back over to Frank for closing comments.

Frank B. Holding, Jr.: Wow! I know we, we, we've thrown a lot at you today, but I'd like to sort of end with some takeaways. Call it sort of headlines of all the material that we've thrown at you this morning. First of all, the SVB acquisition was a home run financially in terms of immediate TBV accretion and future EPS accretion. Secondly, our fortress balance sheet enabled us to do the SVB deal, and we intend to maintain it post-acquisition. Also, SVB clients should take great comfort in our safety and stability, and we're hopeful that the recent reduction in runoff and deposit runoff is a sign of their confidence in us. Next, we're committed to SVB's strategic approach to the technology and innovation sector, and believe that it represents the, the opportunity for significant upside for First Citizens and shareholders.

Frank Holding: Wow! I know we, we, we've thrown a lot at you today, but I'd like to sort of end with some takeaways. Call it sort of headlines of all the material that we've thrown at you this morning. First of all, the SVB acquisition was a home run financially in terms of immediate TBV accretion and future EPS accretion. Secondly, our fortress balance sheet enabled us to do the SVB deal, and we intend to maintain it post-acquisition. Also, SVB clients should take great comfort in our safety and stability, and we're hopeful that the recent reduction in runoff and deposit runoff is a sign of their confidence in us. Next, we're committed to SVB's strategic approach to the technology and innovation sector, and believe that it represents the, the opportunity for significant upside for First Citizens and shareholders.

Okay.

Wow.

We've thrown a lot at you today.

But.

I'd like to sort of.

And with some takeaways call. It saw the headlines of all the materials will be thrown at you. This morning.

First of all the STB acquisition was a homerun financially in terms of immediate TBD accretion and future EPS accretion.

Secondly, our fortress balance sheet enabled us to do the SBB deal and we intend to maintain.

<unk> acquisition.

Also this will be clients should take great comfort in our safety and stability and we're hopeful that the recent reduction in run off of deposit runoff as a sign of their confidence in us.

Next we're committed to SBB strategic approach to the technology and innovation sector and believe that it represents the opportunity for significant upside for <unk> shareholders.

Frank B. Holding, Jr.: And finally, moving forward, we are positioned to perform well in a broad range of economic scenarios, given our capital and liquidity positions, talented associates, focus on our clients, an increasingly diverse business mix, and our strong risk management culture. And with that, I'll turn it over to the operator for instructions for the question and answer portion of the call.

Frank Holding: And finally, moving forward, we are positioned to perform well in a broad range of economic scenarios, given our capital and liquidity positions, talented associates, focus on our clients, an increasingly diverse business mix, and our strong risk management culture. And with that, I'll turn it over to the operator for instructions for the question and answer portion of the call.

And finally moving forward, we are positioned to perform well in a broad range of economic scenarios, given our capital and liquidity positions talented associates.

Focus on our clients and increasingly diverse business mix and our strong risk management risk management culture.

And with that I'll turn it over to the operator for instructions for the question and answer portion of the call.

Operator: Ladies and gentlemen, if you have a question or a comment at this time, please press star, then the one key on your touch-tone telephone. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up, and then return to the call queue if you have additional questions. If your question has been answered and you wish to remove yourself from the queue, please press the pound key. We'll pause for one moment to compile our Q&A roster. The first question comes from the line of Stephen Scouten with Piper Sandler. You may proceed.

Ladies and gentlemen, if you have a question or comment at this time please.

Press Star then the one key on your Touchtone telephone as a courtesy to others on the call. We ask that you limit yourself to one question and one follow up and then return to the call queue. If you have additional questions. If your question has been answered and wish to remove yourself from the queue. Please press the pound key.

Pause for one moment to compile our Q&A roster.

The first question comes from the line of.

Stephen Scouten with Piper Sandler you May proceed.

Stephen Scouten: Hey, good morning. Thanks, everyone. Appreciate all the color. Frank, like you said, it's, it's a lot, but it's all really positive, so we appreciate all the detail there. I guess one, one thing maybe I'd be curious about is around the this migration of that $8 billion in deposit outflows. You said you expect through year end into the $10 billion in the direct bank. Kind of how we can think about that from a, from a mix perspective and a cost perspective, and how, how you, how you think about that longer term?

Hey, good morning, Thanks, everyone I appreciate all the color Frank like you said, it's a lot, but it's all really positive. So we appreciate all the detail there.

I guess, one thing maybe I'd be curious about.

Is around the migration of that $8 billion in deposit outflows. You said you expect through year end into the $10 billion in the direct bank kind of how we can think about that from a.

From a mix perspective, and a cost perspective, how you how you think about that longer term.

Craig Nix: You're talking about the $8 billion from where we are in May to the end of this year?

You're talking about the 8 billion from.

From where we are in may to the end of this year.

Stephen Scouten: Yeah. I think you said you expect $8 billion to flow out from SVB and then replace it with $10 billion from the Direct Bank, if I heard you correctly.

Yes, I think you said you expect $8 million of blowout from cerave and replace it with 10 billion from the direct bank if I heard you correctly.

Craig Nix: That's correct. And really, it's just more related to the nature of the SVB business and the cash burn that we continue to expect. Now, if inflows come into the marketplace, we could be being very conservative there. But it's just really a continuation of cash burn throughout the remainder of the year. Elliot can provide some of the industrial logic that we went through in developing that specific number, so we didn't just pull that number out of the air. So Elliot, why don't you talk about how we built that projection?

That's correct and really its just its more related to the nature of the SPD business.

The cash burn that we continue to expect inflows come in inflows come into the marketplace, we could be being very conservative conservative there, but it's just really.

Continuation of cash burn throughout the remainder of the year.

Can provide some of the industrial logic.

Went through in developing that specific number so we didnt just pull that number out of the air. So Elliot once you talked about how we built that projection.

Elliot Howard: Yeah. Absolutely. So, you know, a few things. As far as call spaces, it really is, kind of embedded in our, deposit beta slide there, so we factor that in. And if you look at kind of our offering rates in the direct bank, really, that marginal cost is coming in, you know, somewhere kind of a 4.75 type range. The overall Silicon Valley book right now, blending kind of the non-interest bearing and interest bearing is around 1.50. So certainly a delta there, that we're replacing, you know, kind of a, what we'd call a conservative $8 billion decline in the Silicon Valley book with kind of the incremental, you know, on, the direct bank.

Absolutely.

A few things.

As far as cost basis has really.

Embedded in our deposit beta slide there so we've talked about.

If you look at kind of our offering rates in direct bank really that marginal cost is coming in somewhere in kind of a 475 type range.

Overall Silicon Valley book right now when they kind of are noninterest bearing and interest bearing is around $150. So certainly a delta there that we're replacing.

What we'd call it conservative $8 billion decline in the Silicon Valley book with kind of the incremental.

On the direct bank.

Elliot Howard: You know, I'd say, you know, as Craig mentioned, kind of industrial logic, I, I think, you know, we've seen the stabilization here. I think, you know, when we look at the amount of, really kind of new funding capture and absolute levels of that being lower right now in the economy, that's really kind of what's leading us to that $8 billion decline. I think with, you know, positive initial steps that we've seen, in client outreach, the stabilization we've seen, we, we are hopeful that's a conservative number and optimism to the upside there.

I'd say, it's Greg I should kind of industrial logic I think we've seen a stabilization here I think when we look at the amount of wells.

<unk> got a new funding capture and absolute levels of that being lower right now in the economy, that's really kind of.

What's leading us about $8 billion decline.

Positive initial steps that we've seen and client outreach. The stabilization. We've seen we are hopeful that a conservative number and obviously to the upside there.

Stephen Scouten: Okay, extremely helpful. And then-

Okay extremely helpful.

Frank B. Holding, Jr.: This is Peter Bristow. Let me make a quick comment about it as well. You know, one of the things that could potentially influence that is again, because of the sort of the lack of transactional volume that's going on in the VC and the PE space, that drives balances down in our global fund business. So that's sort of a you know. And as that cash burn continues, we think that, which we think it will, but that could turn around quickly if there was some sort of change in sort of the tenor in the environment. So that's part of that as well.

Peter Bristow: This is Peter Bristow. Let me make a quick comment about it as well. You know, one of the things that could potentially influence that is again, because of the sort of the lack of transactional volume that's going on in the VC and the PE space, that drives balances down in our global fund business. So that's sort of a you know. And as that cash burn continues, we think that, which we think it will, but that could turn around quickly if there was some sort of change in sort of the tenor in the environment. So that's part of that as well.

And then this is Peter Bristow, let me make a quick comment about it as well one of the things that could potentially influence that.

Again, because of the sort of the lack of transactional volume that's going on in the VC and PE space that drives balances down and our global fund business, So thats sort of an <unk>.

Is that cash burn continues.

We think that which we think it will but that can turnaround quickly. If there were some sort of change in sort of the tenor and the environment.

Craig Nix: So, the punchline here is that we could be being conservative if market dynamics change.

So thats part of that as well so the punch line here is that we could be being conservative.

Market dynamics change.

Stephen Scouten: Absolutely. Yeah, I have no doubt you're probably on the conservative end of that, so I appreciate that. Okay. I guess, you know, obviously, this is massively capital accretive as well, CET1, you know, well north of your targeted range. I guess kind of two questions around that. One, where do we stand on the potential for a buyback announcement later this year? Has anything changed there? And then, you know, even though your deposits are stabilizing from Silicon Valley, the market's clearly assuming that there's a lot more outflows to come, and there's some distressed banks kind of in your footprint. Do you think about additional M&A with all your capital, or do you kind of digest Silicon Valley and see where you land down the road?

Yes.

Absolutely, yes, I have no doubt you're probably on the conservative end of that so I appreciate that.

Okay. I guess, obviously this is massively capital accretive as well.

One.

Well north of your targeted range I guess kind of two questions around that one where do we stand on the potential for a buyback announcement. Later this year has anything changed there and then even though your deposits are stabilizing from Silicon Valley markets clearly.

Feeling that there's a lot more outflows to come and there is some distressed banks kind of in your footprint do you think about additional M&A with all your capital or do you kind of Digest Silicon Valley and <unk> down the road.

Craig Nix: Well, we always think about M&A, but we do need to digest SVB, so I'll mention your second question first. But we certainly acknowledge that our capital ratios are well above our target ranges right now, and we project them to remain elevated in 2023 and 2024. One thing that everyone needs to keep in mind is that Loss Share coverage provided about a 2% benefit to all of our risk-based capital ratios. So without Loss Share, we'd be over our target CET1 range, near the top on Tier 1, and towards the bottom of total capital. Now, earnings will replenish those and continue them growing well above our target ratios going forward.

Well, we always think about M&A, but we didn't need to digest FCB as I mentioned your second question first.

But we certainly acknowledge that our capital ratios are well above our target range is right now and we projected that remain elevated and 23 and 24, one thing that everyone needs to keep in mind is that loss share coverage.

<unk> at about a 2% benefit to all of our risk based capital ratios.

So without loss share we'd be over.

Our target CET, one range near the top on tier one and towards the bottom of total capital now earnings will replenish those and continue growing well above our target ratio is going forward. So.

Craig Nix: So, you know, as we've stated previously, it's part of our capital planning process to assess capital, and to assess capital actions, including share repurchases, which remain an important part of our toolkit to manage capital. We are currently slated to take a combined capital plan to our board, for approval in late July. And this plan will contemplate all of our capital actions after we have considered the external environment, the behavior and capital needs of the SVB portfolio, as well as the dynamics on risk-weighted assets of this loss share. So a lot going on there. So at this sitting, given that our combined capital plan is under construction, it's too early to provide timing of an SRP.

As we've stated previously it's part of our capital planning process to assess capital.

To assess capital actions, including share repurchases, which remain an important part of our toolkit to manage capital.

Currently slated to take a combined capital plan to our board.

For approval in late July .

And this plan will contemplate all of our capital actions. After we have considered the external environment, the behavior and capital needs of the SBB portfolio.

As well as the dynamics on risk weighted assets of the ball share so a lot going on there.

This said and given that our combined capital plan is under construction, it's too early to provide timing.

Of and SRP.

Stephen Scouten: Got it. Got it. Okay.

Craig Nix: Got it.

Stephen Scouten: And then last one for me is just around the $650 million in kind of merger charges you noted and noted investments to try to retain the people from SVB. Is the cost of attempting to, you know, retain, incentivize those employees, is that kind of contained within that $650 million, or could that be, I guess, incremental, and how do you think about those investments?

Got it got it Okay, and then last one for me.

Around $650 million and kind of merger charges, you noted and as noted investments to try to retain the people from SBB.

The cost of attempting to retain and incentivize those employees does that kind of contained within that $650 million or could that be I guess incremental and how do you. How do you think about those investments.

Craig Nix: No, that, that is 60% of that $650 million is personnel related.

No that is 60% of that $650 million.

Is personnel related.

Stephen Scouten: Okay, perfect. Extremely helpful. Thanks so much for the color, and congrats on the deal in the quarter.

Okay.

Okay perfect extremely helpful. Thanks, so much for the color and congrats again.

On the deal in the quarter.

Craig Nix: Thank you, Dave.

Thanks, Dave.

Operator: Thank you, Mr. Scouten. The next question comes from Brady Gailey with KBW. You may now proceed.

Thank you Mr. Scott.

The next question comes from Brady.

Brady Gailey with <unk> you May now proceed.

Brady Gailey: Thank you. Good morning, guys.

Thank you good morning, guys.

Craig Nix: Good morning.

Brady Gailey: So I wanted to start with one more question on the Common Equity Tier 1. I think in the past, you guys have, you know, talked about, you know, internally at First Citizens, a 9 to 10% target. You know, it feels like the world has kind of changed over the last quarter. So what, what's the new range? Like, how should we think about where your target's gonna be? Like, knowing that, you know, AOCI could eventually get embedded in Common Equity Tier 1, how do you think about that new range?

So I wanted to start with.

One more question on the common equity tier one I think in the past you guys have.

And you talked about your inter.

Internally.

First it assumes a 9% to 10% target. So it feels like the world has kind of changed over.

Over the last quarter, so whats the new range like how shall we think about where your target is going to be like knowing that RCI could eventually get embedded in common equity tier one.

How do you think about that new range.

Craig Nix: Well, we don't have any plans currently to change it. That obviously would be contemplated in the capital plan, because as the ratios sat at the end of the first quarter, even including HTM and AOCI, losses, unrealized losses in the ratio, we were over the target, over the target range by 1%, with HTM and AFS losses, and by 2% with just AFS losses included. So at this sitting, we don't contemplate changing the range, but obviously, those types of things will be considered in our capital plan. But keep in mind, too, you know, the loss share coverage is providing a little bit of boost with these ratios. So we're gonna take all of that into consideration in developing our plan going forward. Tom, do you have any comments to add on that?

Well we.

We don't have any plans currently to change it that obviously would be contemplated in the capital plan.

Because as the ratios.

At the end of the first quarter, even including HTM and Aici.

Losses unrealized losses in the ratio.

Over the target over the target range by 1% with HCM and <unk> losses and by 2% with.

Just hff's losses included.

At this stage, we don't contemplate changing the range, but obviously those types of things will be considered in our capital plan.

Keep in mind too the loss share coverage is providing a little bit of both of these ratios. So we're going to take all of that into consideration in developing our plan going forward. Tom do you have any comments to add on that no I mean I think it's.

Tom Eklund: No, I mean, I think it's important to note, I mean, we're building this very similar to how other large banks do it. You know, we go through sort of our internal stress test methodology, look at what potential capital burn to be could be, and sort of build up from there. So unless we see a material change in risk profile, we don't expect material changes to our overall capital ranges.

To note we are building very similar to how other large banks do it we'd go through sort of our internal stress test methodologies to look at potential capital burn to be it could be and sort of buildup from there. So unless we see a material change in risk profile, we don't expect material changes to our overall capital range.

Brady Gailey: Okay. And then just back to the buyback comment, you know, I know it's according to your plan, and you got to go to the board. But what does your gut tell you? Do you think First Citizens will buy back stock in the back half of the year? I know you did about 1.5 million shares last year. I mean, do you think that's likely?

Yes.

Okay.

And then just back to the buyback comment.

According to your plan and you got to go to the board.

What does your gut tell you think first citizens will buy back stock in the back half of the year. I know you did about one 5 million shares last year I mean, do you think that's likely.

Craig Nix: I can't comment on that at this time.

I can't comment on that at this time.

Brady Gailey: Okay. All right, and then, so the loan-to-deposit ratio, you know, historically, it's been pretty low at First Citizens. I know with Silicon Valley, it's up near 100%. Do you work to get that down over time? And what's the kind of longer term target for loan-to-deposit ratio?

Okay, Alright, and then so the.

Loan to deposit ratio.

Storage, it's been pretty low at first citizens with Silicon Valley, It's up near 100% do you work to get that down.

Now over time, and what's the kind of longer term targets for loan deposit ratio.

Craig Nix: We obviously don't believe that 100% is sustainable long term. However, in the short term, given that we took a purchase money note and have the FDIC LOC in place, we have time to get it back in line. Longer term, Frank and I just talked about this this morning, so it's a very relevant question. We'd like to see an 8 handle on the loan-to-deposit ratio. So that's sort of our, that's sort of where we feel like it should be, considering our earning asset mix, cash, et cetera, on the balance sheet. So around having an 8 handle on this, we'll be more comfortable over the long term.

We obviously, we don't believe that 100% is sustainable long term. However in the short term given that we took a purchase money note and have the FDIC LLC in place we have time to get it back in line longer term.

Frank and I will start out with this morning. So it's very relevant question wed like to see an eight handle on the loan to deposit ratio.

So that's sort of that's sort of where we feel like it should be considering our earning asset net cash et cetera on the balance sheet. So around.

Having an eight handle on this will be more comfortable over the long term.

Brady Gailey: ... Okay. All right, and then finally, for me, I know historically, First Citizens has been asset sensitive. You know, what once you layer in Silicon Valley, can you just talk about the sensitivity to interest rates of the new company?

Okay, Alright, and then finally, you probably don't know historically first citizens has been asset sensitive.

Once you layer in Silicon Valley can you just talk about the sensitivity to interest rates of the new company.

Craig Nix: Yeah, the addition of cash and variable rate loans on the asset side and the Purchase Money Note on the liability side fairly significantly increased our asset sensitivity. But we are very accepting of the downside risk here, because number one, liquidity is our top priority in the current operating environment. And number two, the cost of hedging to mitigate downside risk make cost-effective hedging difficult. So for example, if we tried to swap the Purchase Money Note to floating, it'd cost us about 150 basis points. So we're comfortable where we sit. We're also comfortable where our margin lands after rate cuts. So we, as we sit here right now, we're pretty pleased where we are from an interest rate risk standpoint.

Yes.

The addition of cash and variable rate loans on the asset side and the purchase money note on the liability side.

Fairly significantly increased.

Our asset sensitivity.

But we are very accepting of the downside risk here because number one.

Quiddity is our top priority in the current operating environment and number two the <unk>.

Cost of hedging to mitigate downside risk.

Make cost effect cost effective hedging difficult. So for example, if we tried that.

The purchase money floating it costs us about 150 basis points.

So we're comfortable where we sit with also comfortable where our margin land.

After rate cuts.

So as we sit here right now we're pretty pleased where we are from an interest rate risk standpoint.

Brady Gailey: Okay, thanks for the color. Thanks for the color.

Okay. Thanks for the color.

Operator: Thank you, Mr. Gailey. The next question comes from the line of Kevin Fitzsimmons with D.A. Davidson. You may now proceed.

Thank you Mr Galan.

The next question comes from the line of Kevin Fitzsimmons with D. A Davidson you May now proceed.

Kevin Fitzsimmons: Hey, good morning, everyone.

Hey, good morning, everyone.

Craig Nix: Good morning.

Kevin Fitzsimmons: We was just wondering on Brady's, just dovetailing on Brady's question there. If we look at the percentage net interest margin, Craig, any way to kind of best describe, you know, whether you want to talk core X purchase accounting or, or all in, versus the, what was it? About 3.41% margin this quarter, where to kind of think about the trajectory of that as it's baked into your guidance on NII?

Good morning.

I was just wondering on Brady just just dovetailing on Brady's question there.

If we look at the percentage net interest margin.

Any way to kind of.

Best described.

Whether you want to top core ex purchase accounting or all in.

<unk>.

What was about $3 four one margin in this quarter, where we are at a kind of think about the trajectory of that as its baked into your guidance on NII.

Craig Nix: Yes. Are you asking with and without accretion?

Yes are you asking with and without accretion.

Kevin Fitzsimmons: I mean, yeah. But if you can give it both, but maybe all in-

I mean.

Yes.

Craig Nix: Yeah.

Kevin Fitzsimmons: with accretion, like how you see that

Craig Nix: Yeah.

Kevin Fitzsimmons: with accretion, like how you see that

Give it both but maybe all in weighted accretion like how you see that year GAAP margin trend.

Craig Nix: Yeah.

Kevin Fitzsimmons: Gap margin trending?

Craig Nix: So, right, I got you. So if you just look at, when I talk about purchase accounting, in fact, there's still some residual impact from CIT out there, but it's fairly immaterial to the impact of SVB. So if you look at our margin at the end of Q1, we were at 3.41, and that was 14 basis points was purchase accounting related. So without it, it would've been 3.26. We looked at the margin migrating upward in Q2 to 4%, 52 basis points of which is purchase accounting accretion.

Right.

So if you look at if you just look at the and I'm going to when I talk about purchase accounting impact Theres still some residual impact from city out there, but it's fairly immaterial to the impact of SCB.

If you look at our margin at the end of the first quarter.

We were at $3 41.

That was 14 basis points, so as purchase accounting related.

So without it within 302006, we looked at the margin.

Migrating upward in the second quarter to.

A 4% up 52 basis points of which is purchase accounting accretion and then given that we have a rate cut starting.

Craig Nix: And then given that we have a rate cut starting in July, we have another one in September, one in December, margin falls to 3.86% in Q3 2023, and then 3.70% in Q4. So we see a migration down as rates decline, which would be expected given our asset sensitivity. But still, feel like the 3.80% margin for the year will be very strong.

In July .

Another one in September one and December margin, Paul to $3 86 in the third quarter of 'twenty, three and then $3 70 in the fourth quarter. So we see a <unk>.

Integration down as rates.

Decline, which would be expected given our asset sensitivity, but still feel like the three.

<unk> hundred 80, <unk> margin for the year will be very strong.

Kevin Fitzsimmons: Okay. Now, so you are pegging that off the 326, Craig, or are you off of the 341, going to 4?

Okay.

So could you were pegging that ultimately youre pegging that offered a 326 Craig are you offered a $3 41, outgrowing it or taking it off the $3 four pegging it off of the $3 40.

Craig Nix: I'm pegging it off of the 340.

Kevin Fitzsimmons: Got it. Okay, very helpful. And then on that topic, like I know, you know, what the forward curve says, but if we... I think you kind of alluded to it in your comments, if we do have more of a higher for longer environment, given the asset sensitivity you spoke of, then there's likely upside to that margin projection as well as NII. Is that a fair way to think of it?

Got it okay very helpful and then.

On that topic like I know.

What the forward curve says, but if we I think you've kind of alluded to it in your comments, if we do have more of a higher for longer.

Environment, given the asset sensitivity you spoke of then there is likely.

Likely upsides that margin projection as well as NII.

Is that fair way to think of it.

Craig Nix: Yes, there is. I think for this year-

Yeah.

Yes, there is.

Kevin Fitzsimmons: In other words, if your asset cuts don't happen,

I think for this year.

Craig Nix: Yeah, I think that's right. I mean, if we didn't get rate cuts this year, I think we'd have a 7 basis points higher margin. Obviously, it takes time for those impacts to follow through. So the impact on 2024 will be a little higher, and about $6 on the EPS. But then, next year, higher for longer would be even more significant.

Don.

Yes, I think thats right I mean, if we don't if we didn't get rate cuts. This year I think you'd have a seven basis points higher margin. Obviously it takes time for those impacts the fall through impact on 24 below higher.

And about $6.

On the EPS so that in next year.

Higher for longer.

Even more significant.

Kevin Fitzsimmons: Okay. One question on deposits. You mentioned the diversity by region, that the increased diversity by region. But how do you plan to curb or put guardrails in on, you know, the large lumpy deposits, larger customers that was a case that, you know, was evident at SVB? How do you... You know, I know you want a lot of their customers and a lot of their deposits coming in, but how do you prevent that from becoming an issue at the broader First Citizens?

Okay.

Question.

Yes.

On deposits, you mentioned that diversity by region.

Kris diversity by region, but how did you how.

Do you plan to curb or put guardrails in on.

The large.

Lumpy deposits larger customers that was.

It was the case.

It was evident that SPD, how do you.

You want a lot of their customers on their deposits coming in but how do you.

Burnt back from becoming <unk>.

An issue.

The broader for systems.

Craig Nix: Well, I mean, in terms of our large commercial depositors or large depositors, many of them have long-term relationships with us, and when we break this down, some of them for decades. So we stay in touch with them, and they know we're strong and stable, as Frank mentioned. So I don't anticipate that we're going to see an outflow there, even with what's going on in the external environment. We have seen some customers move money into secured suites or interest-bearing accounts for diversification and ease of mind, but it has not been widespread. And we just stay in the front of our customers and have long relationships with them, so we don't really see that as being a big issue for us.

Well I mean in terms of our large commercial depositors are large depositors many of them have long term relationships with us and when we break down some of them for a decade.

So we stay in touch with them and they are they know we're strong and stable Frank Frank mentioned, so I don't anticipate that we're going to see an outflow there.

Even with what's going on the external environment.

We have seen some customers move money into secured suites.

Or interest bearing accounts for diversification and ease of mind, but it has not been widespread.

And we're just staying in front of our customers and have long relationships with them. So we don't really see that as being a big issue for us.

Yeah.

Brody Preston: Okay. And one last one. Just on the borrowing, you know, the presence of the borrowing, you have the FDIC line. Are the intentions to keep that in place for the foreseeable future, just given the focus on maintaining a liquid and fortress balance sheet?

Okay.

Last one just on the.

On the borrowing.

The presence of the borrowing the FDIC line.

Or the intention to keep that in place for the foreseeable future just given.

The focus on maintaining a liquid and fortress balance sheet.

Craig Nix: We would certainly, longer term, like to shift our funding mix to core deposits, but that's not gonna happen rapidly. So what we're envisioning is replacing the Purchase Money Note with some level of long-term debt, TLAC-type borrowing, and then a portion being paid off through increases in core deposits over that five-year period. So it would be we have a gradual Burn Down of the Purchase Money Note, shifting to other wholesale sources of funding or deposits over time. Tom, anything?

We would certainly longer term ship.

Like to shift our funding mix to core deposits, but that's not going to happen.

Rapidly so what we're envisioning is replacing the purchase money note with some level of <unk>.

Long term debt T lab type borrowings and then and then a portion.

Being paid off through increases in core deposits over that five year period. So it would be we have a gradual burn down of the purchase money.

Shifting to other wholesale sources of funding for deposits over time.

Tom Eklund: No, I think that's well put. I mean, really, really focusing on getting that on. And on the FDIC line that's there for contingency purposes to support the transaction is obviously something we'll keep in place here in the intermediate future.

Pardon me.

No I think thats that.

But I mean, we're really focusing on getting that off and on the FDIC.

Line that therefore contingency purposes to support that transaction is obviously something we'll keep in place here in Sydney.

Intermediate future.

Brody Preston: Okay. Thanks very much, guys.

Okay. Thanks, very much Scott.

Craig Nix: Thank you.

Thank you.

Operator: Thank you, Mr. Fitzsimmons. The next question comes from the line of Christopher Marinac with Janney Montgomery Scott. You may now proceed.

Thank you Mr Fitzsimmons.

The next question comes from the line of Christopher <unk> with Janney Montgomery Scott You May now proceed.

Christopher Marinac: Thanks. Good morning, and thank you for all the disclosures today. I wanted to ask about the,

Thanks, Good morning, and thank you for all the disclosures today I wanted to ask about the CIP.

Craig Nix: Good morning

Christopher Marinac: - CIT Bank and the, and the online channel. How has that been evolving, and how do you see that playing out? Is there a different mix that, that can contribute, therefore impact, the funding base going forward?

CIT bank and the online channel.

How has that been evolving and how do you see that playing out is there a different mix that that can contribute therefore impact there.

The funding base going forward.

Craig Nix: Do you want me to hit it?

Tom Eklund: Yeah, I think we mentioned we're obviously gonna use that as a growth channel and continue to add core deposits. You know, obviously, it comes at a higher marginal cost, like Elliot discussed earlier. But some of the benefits there is, obviously, it's a well-diversified deposit portfolio. You know, over 90% of it is insured, and it's truly sort of that retail deposit base that we found through this, you know, last weeks or I guess it's months now, of sort of bank stress, have been very stable and sort of a very solid funding source for us. So plan there is to continue to augment growth with that.

Okay.

Nominated Yeah, I think we mentioned, we're obviously going to use that as a growth channel and continued to add core deposits. Obviously it comes at a higher marginal cost like Elliot discussed earlier with some of the benefits. There is obviously, it's a well diversified deposit portfolio over 90% of it is insured and it's truly sort of that retail deposit base.

But we found through this last week.

I guess, it's months now of sort of stress have been very stable and sort of a very solid funding source for us.

Plan there is to continue to augment growth with that before the acquisition. The direct bank made up about 18% to 20% of our total deposits and we sort of see that coming back to that in an aggregate level for the combined company.

Tom Eklund: Before the acquisition, the Direct Bank made up about 18 to 20% of our total deposits, and we sort of see that coming back to that in an aggregate level for the combined company.

Craig Nix: Yeah, we expect-- I think, Tom, we're expecting it to increase by about 22% from about 18-

Yes, we expect I think Tom where it spending increased by about 22% from that 18.

Tom Eklund: Yeah.

Craig Nix: and then normalize in 2024.

Normalized in 'twenty four yep, that's right.

Tom Eklund: Yep, that's right.

Christopher Marinac: Got it. Thank you for that. And then I just want to dig a little bit deeper on the office CRE and all the disclosures there. So the high level of criticized loans in the office, how much of that is your internal rating system and just being an abundance of caution versus expectations that there are defaults out there?

Got it. Thank you for that and then I just wanted to dig a little bit deeper on the office CRE and all the disclosures there. So the high level of criticized loans in the office how much of that is your internal rating system and just being an abundance of caution.

Versus expectations that there are defaults out there.

Craig Nix: Andy, can you take that one?

Andy can you take that one.

Andy Giangrave: Sure. It is, you know, we do a deep dive on the portfolio monthly, and so it is a combination of, we believe our credit ratings are accurate and timely, as well as individually evaluating each property type.

Sure.

Yes.

It is we do a deep dive on the portfolio.

And so it is a combination of we.

We believe our credit ratings are accurate and timely.

As well as individually evaluate each property type.

Christopher Marinac: Great. And would you envision that the same level of office exposure looking out a year or two would be the same? I know it's not high, but just curious if that would incrementally come down as we roll forward.

Great and would you envision that the same level of office exposure looking out a year or two would be the same although it is not high but just curious if that would incrementally come down as we roll forward.

Andy Giangrave: In terms of, criticized levels?

In terms of.

Criticized levels.

Christopher Marinac: Really, just the percentage of the book altogether of the total loan composition.

Really just a percentage of the book altogether, the total loan competition.

Andy Giangrave: Oh, sorry. Yeah, we are not originating any new office. So I would imagine, in terms of an absolute dollars in office exposure, that would come down.

Oh, sorry, yes, we are not originating any new office.

So I would imagine in terms of absolute dollars and office exposure that would come down.

Okay.

Christopher Marinac: Great. Then any other just overall credit trends from the criticized perspective, this quarter, you know, beyond the office information that you broke out?

Great and then any other just overall credit trends from the criticized perspective this quarter.

Beyond the office information that you broke out.

<unk>.

Andy Giangrave: As Craig noted, we did see some migration in our equipment finance small ticket leasing portfolio, and then some migration in the commercial bank, but not much.

Okay.

Andy Giangrave: As Craig noted, we did see some migration in our equipment finance small ticket leasing portfolio, and then some migration in the commercial bank, but not much.

As.

Craig noted, we did see some migration and our.

Equipment finance small ticket leasing.

Portfolio.

And then.

Some migration in.

In the commercial bank.

But not much.

Christopher Marinac: Great. Thank you for that clarity. I appreciate the time this morning.

Great. Thank you for that clarity.

Appreciate the time this morning.

Craig Nix: Thank you.

Thank you.

Operator: Thank you, Mr. Marinac. The next question comes from the line of Brody Preston with UBS. You may now proceed.

Thank you Mr Marron.

The next question comes from the line of Brody Preston with UBS you May now proceed.

Brody Preston: Hey, good morning, everyone.

Hey, good morning, everyone.

Craig Nix: Good morning.

Brody Preston: Craig, I just wanted to follow up on the expenses. It sounded like the expense base that you're working off of is $2.6 billion for legacy SVB, and then 25% to 30% cost savings. I think I heard you correctly, you said by year-end 2024. I guess, could you help us better understand the cadence of the cost savings? You know, where you expect the exit run rate on non-interest expense to be, you know, for Q4 2023, and then, you know, how much is left for 2024?

Good morning.

Craig I just wanted to follow up on the expenses it sounded like the expense base that you're working off of as is $2 6 million for legacy <unk>, and then 25% to 30% cost savings I think I heard you correctly, you said by year end 2020 for I guess can you help us better understand the cadence.

The cost savings, where you expect the exit run rate.

Noninterest expense to be for the fourth quarter of 'twenty three and then.

How much is left for 2024.

Craig Nix: Yeah. We are projecting a range of $650 million to $780 million, so that's 25% to 30% of the baseline, coming into the acquisition, and we would expect that of that $650 to $780, that roughly half of it would be in the run rate at the end of 2023, and then 100% of it would be in the run rate by the end of 2024.

Yes, we are projecting.

A range of $650 million to $780 million, so that's 25% to 30% of the baseline.

Coming into the acquisition and we would expect that of that $6 50 to 780 that roughly half of it would be in the run rate at the end of 2023.

And then 100% of it would be in the run rate by the end of 2024.

Brody Preston: Got it. Okay.

Brody Preston: Got it. Okay. Got it.

Craig Nix: Got it.

Got it okay.

Brody Preston: And could you help me, could you give us what the loan yields and what the deposit costs were from SVB when they came over?

And could you help me.

Can you give us what the loan yield and what the deposit costs were from from <unk> when they came over.

Craig Nix: Okay, so loan yield for this year, pre-purchase accounting, would be 6.02, so that's the 2023 projection. It was 5.49 in Q1. I mean, it was 6.57 for Q1, I'm sorry. And so for the year, 6.66, with... And then combined with 6.62, so we're pretty close on yields for Citizens and SVB there. Deposit cost, and I'm talking about interest-bearing, or cost of interest-bearing deposits. Let me see if I have this handy. Okay, cost of deposit. I don't have SVB broken out separately, but we were at 1.24 in Q1. And Elliot, I think I recall SVB was, like, at 1.06.

Okay. So loan yield for this year pre purchase accounting.

With the 600 too so that's the 23 projections.

It was $5 49 in the first quarter.

657% for the first quarter I'm sorry.

And.

So for the year 666.

And then combined with 662, so we're pretty close on yields for citizens and FCB their deposit costs and I'm talking about.

Interest bearing cost of interest bearing deposits.

If I have it handy, okay cost of deposit I don't have FCB broken out separately.

But we were at $1 44 in the first quarter of <unk> I think I recall SCB was 106.

Craig Nix: So very similar to ours, and we have that escalating to 159 or 169 by Q4, so 159 for the year. So SVB was slightly-

So very similar to ours, and we have that escalated to 159 or 169 by the fourth quarter for $1 59 for the year.

Brody Preston: Got it. Okay.

Craig Nix: Cost of deposit, slightly. So they were accretive to margin and slightly higher than us on loan yield and lower than us on cost of deposit.

So SUV with Sly got it okay.

So they were accretive to margin and slightly higher than us on loan yield.

Lower than us on cost of deposits.

Brody Preston: Got it. And,

Brody Preston: Got it. And, Do you happen to have what the mix of SVB's deposits were between non-interest bearing and interest bearing at April 30? And then with the projected runoff that you have, do you, do you have what the mix of those deposits look like, you know, going forward?

Craig Nix: Got it.

Brody Preston: Do you happen to have what the mix of SVB's deposits were between non-interest bearing and interest bearing at April 30? And then with the projected runoff that you have, do you, do you have what the mix of those deposits look like, you know, going forward?

Got it.

And do you happen to have what the mix of Suvs deposits, where between noninterest bearing and interest bearing at April 30th and then would the projected runoff that you have do you.

Do you have what the mix of those deposits look like.

Craig Nix: Not 30 April. No, it's 60 48. Hold on 1 second. I think we have that. As of, as of 31 March.

Going forward.

Got it.

No.

Yes.

Hold on one second I think we have that.

As of March 31.

Frank B. Holding, Jr.: You asked for April 30, we would only talk about March 31.

Frank Holding: You asked for April 30, we would only talk about March 31.

Okay.

You asked for April 30, we would only talk about March 31.

Brody Preston: Okay. Okay.

Okay. Okay.

Tom Eklund: Yeah, Brody, this is Elliot Howard. So in kind of our assumptions, you know, at 31 March was roughly 62%. We see that kind of migrating down to kind of the mid- to low 50s of non-interest bearing the total.

Elliot Howard: Yeah, Brody, this is Elliot Howard. So in kind of our assumptions, you know, at 31 March was roughly 62%. We see that kind of migrating down to kind of the mid- to low 50s of non-interest bearing the total.

Yes.

This is Elliott Howard.

And kind of our assumptions.

At March 30 loans, roughly 62%, we see that kind of migrating down to kind of the mid to low fifties noninterest bearing to total.

Brody Preston: All right, great. That's, that's helpful. And then I did want to ask just on the capital ratios. You know, I understand that for most of them, you're, you're pretty well above your operating range. But I did notice that on the, on the Tier 1 leverage, if you adjust for the day count, you're kind of right in the middle. And so I did want to ask, just as we think about buybacks going forward, and I understand that you have your, your capital planning later in July. You know, which ratio should we view as, as more constraining from a buyback perspective? Should we focus on the CET1, or should we should it be, you know, all of them? And so, you know, would, would Tier 1 leverage play a role there as well?

Alright, great. That's that's helpful.

And then I did want to ask just on the capital ratios.

Understand that for most of them, you're pretty well above your operating range, but I did notice that on the on.

On the tier one leverage.

You adjust for the day count you are kind of right in the middle and so I did want to ask one so as we think about buybacks going forward and I understand that you have your capital planning later in July .

Which ratio should we view as more constraining from a buyback.

Should we focus on the CET, one or should we should it be all of them and so.

Tier one leverage play a role there as well.

Craig Nix: Well, Tier 1 leverage certainly was the one that was at 9% would be dead middle of our range, you're right. It's going to migrate up to over 10 and over 11, 2023 and 2024. So it's going to be at the-

Tier one leverage certainly was the one that was at 9% would be dead middle of our range right.

It is going to migrate up to over 10 and over 11, 23 and 24, so it's going to be at the top of the range by the end of the year and then well over it in terms of binding constraints I'll, let Tom talk a little bit to that.

Brody Preston: Got it

Craig Nix: ... top of the range by the end of the year, and then well over it. In terms of binding constraints, I'll let Tom talk a little bit to that.

Tom Eklund: But what I'll say there, too, is it's important to consider as you look at those ratios, you can see that Tier 1 and total are more constraining than CET1, and that's obviously due to the bargain purchase gain boosting CET1, but no Tier 1 instruments or Tier 2 instruments coming over. As we look at capital planning and looking out into the future, those are obviously things that we will consider, not in the short term with ratios where they are, but as some of these loans roll off a Loss Share, we would expect to, you know, maybe rightsize the slope in those ratios a little more through potential future capital raises, if that makes sense, with Tier 1 and subordinated debt.

What I'll say there too it's important to consider as you look at those ratios you can see that tier one and total are more constraining the CET, one and Thats, obviously due to the bargain purchase gain boosting CET, one, but no tier one instruments <unk> instruments coming over as we look at capital planning and looking out into the future those are obvious.

They think that we will consider not in the short term with ratios, where they are but as some of these loans roll off of loss share we would expect to.

Maybe right size, the slope and those ratios a little more through.

Potential future capital raises if that makes sense.

One subordinated debt.

Brody Preston: Okay, great. I'll just try to rattle off a couple more quickly here. I did want to ask, just when we think about, you know, the size of the balance sheet now, and this is a couple part question. You know, what, you know, spend, you know, I, I guess, what additional expenses, you know, do you need to kind of have, now that you're a larger bank? You know, I was thinking about it from a regulatory perspective. And then, you know, when you think about some of the things that have been stated by the regulators in the wake of, of some of the bank failures, it feels like some of the tailoring rules might be going away, and, you know, the line in the sand might be getting pushed back to $100 billion in assets.

Okay great.

I'll just try to rattle off a couple of more quickly here.

I did want to ask.

Just when we think about the size of the balance sheet now and this is a couple part question.

What spend I guess, what additional expenses do you need to kind of have now that you are a larger bank I was thinking about it from a regulatory perspective, and then when you think about some of the things that have been stated by the regulators in the wake of some of the bank failures.

It feels like some of the tailoring rules might be going away in the line in the sand might be getting push back to a $100 billion in assets and so have you contemplated what youre needs will be from a from a total loss absorbing capacity perspective.

Brody Preston: And so have you contemplated, you know, what your needs will be from a total loss-absorbing capacity perspective, you know, TLAC? And then, you know, help us think about, you know, where you are in being prepared for LCR.

And then help us think about where you are and being prepared for LCR.

Craig Nix: Yeah, Tom had just briefly mentioned TLAC, and capital stock mix. So we do contemplate, if we were subject to those rules, that we would expect some mix of preferred subdebt and senior debt. And right now, that range for us is probably somewhere in the $7 to 10 billion range, with a heavy portion of that in senior debt, and in the smaller portions in preferred stock and subdebt. But we definitely are monitoring regulatory changes to capital and liquidity, tailoring rules, and areas that impact us. And I think we're going to have more stringent regulatory oversight, obviously, here, and we're ready for that, and we've prepared for it.

Yes.

Tom It just briefly mentioned.

<unk>.

And capital stack mix. So we do contemplate if we were subject to those rules that we would expect some mix of preferred sub debt and senior debt and right now that range for us is probably somewhere in the 7% to $10 billion.

Dollar range.

With a heavy portion of that and in senior debt.

The smaller portions and preferred stock and sub debt.

We definitely are monitoring regulatory changes to capital and liquidity tailoring rule.

And in areas that impact us.

I think we're going to have more stringent regulatory oversight obviously here.

And we are ready for that and we prepare for it I'll, let lorie talk a little bit about our investment and risk management.

Craig Nix: I'll let Lori talk a little bit about our investment in risk management, which we think we're well positioned to absorb SVB within our risk management framework.

We are well positioned to absorb SBB within our risk management framework. Thanks, Greg what I would say is over the last year. We've built a risk management program as a result of the <unk> integration to meet regulatory expectations from a large bank perspective, so that's in place today.

Deanna Hart: ... Thanks, Craig. What I would say is, over the last year, we've built a risk management program as a result of the CIT integration to meet regulatory expectations from a large bank perspective. So that's in place today. We have begun our alignment of the SVB businesses and processes into that risk management program. We'll expect to, you know, fully invest from a technology and a people perspective to ensure our risk management program aligns with our current size, and it's scalable for any future growth.

Lorie Rupp: ... Thanks, Craig. What I would say is, over the last year, we've built a risk management program as a result of the CIT integration to meet regulatory expectations from a large bank perspective. So that's in place today. We have begun our alignment of the SVB businesses and processes into that risk management program. We'll expect to, you know, fully invest from a technology and a people perspective to ensure our risk management program aligns with our current size, and it's scalable for any future growth.

And we have.

Begun our alignment.

And the SBB.

<unk> and processes into that risk management program and will.

Back to fully invest from a technology and a people perspective to ensure our risk management program aligned with our current size and scalable for any future growth.

Marc Cadieux: Got it. I'll just ask-

Got it as an add on top of SaaS.

Brody Preston: Yeah, go ahead.

Marc Cadieux: No, I was just gonna make a comment on the liquidity side. I mean, there's a lot of talk about LCR and liquidity buffers and everything. We believe we're coming in from a position of strength there, obviously, which, with a lower concentration in investment securities, higher concentration in cash. So we believe we're well prepared from that perspective.

I was just going to make a comment on the liquidity side I mean, there's a lot of talk about LCR and liquidity buffers and everything we believe we're coming in from a position of strength. There obviously with the lower concentration in investment securities higher concentration in cash.

So we believe we are well prepared from that perspective.

Brody Preston: Yeah, that's a fair point. I'll ask one more and then leave it, leave it there. I did just want to ask just, you know, on the loans, on managing the balance sheet, you know, a couple questions here within this. Could you give us a sense for what the loans from SVB that had run off following the acquisition were? And then within your projections, right, for 2023, and I know, Craig, it'll probably be a longer, a longer term kind of thing, to get back down to an 8 handle on the loan-to-deposit ratio. But, you know, where do you see kind of loan balances, you know, kind of going longer term?

Yes, that's a fair point.

I'll ask one more and then leave it leave it there.

Just wanted to ask just on the loans.

Managing our balance sheet.

Couple of questions here within this.

Could you give us a sense for what the loans from SBB.

Run off following the acquisition were and then within your projections for.

For 2023, and I know Craig it will probably be a longer a longer term kind of thing to get back down to an eight handle on the loan to deposit ratio.

<unk>.

Where do you see kind of loan balances.

Kind of going longer term and is there are there any portfolios that you've kind of circled as Juan said more likely have runoff capacity.

Brody Preston: Is there -- are there any portfolios that you've kind of circled as, you know, ones that more likely have runoff capacity, going forward through 2024, just, just given that the deposit environment is, is likely to remain challenging, for a little bit for the industry?

Going forward through 2024, just just given that the deposit environment is likely to remain challenging.

Or a little bit for the industry.

Craig Nix: Yeah, I'll let Elliot talk about our forecast, but I'll make some broad comments. Just in terms of this year, we're expecting from Q1 of this year for loans to decline by 2%. That's an 8% decline in SVB and a 3% increase in the FCB portfolio. Within FCB, we think that the growth will be broad-based, as it has been in the branch network, and the industry verticals, but down from Q1 levels as we expect demand to soften with Fed tightening and as customers become a little more cautious, given the potential for a recession. So we backed off of the current level of growth, which was 8% annualized in Q1.

I'll, let Elliot talk about our forecast, but I'll make some broad comments.

In terms of this year.

We're expecting from the first quarter of this year for the loans declined by 2%.

And that's an 8% decline in FCB and a 3% increase in the FCB portfolio.

And.

We didnt FCB.

I think that because of the broad based as it has been in the branch network in the industry verticals, but down from first quarter levels as we expect.

<unk> soften the fed tightening.

Customers become a little more cautious given the potential for a recession. So we backed off of the current level of growth, which was 8% annualized in the first quarter.

Craig Nix: In terms of SVB, we are projecting an 8% decline, which would settle loans down to about $61 billion. And the expectation there is public and private markets will remain muted for the remainder of 2023. As Peter mentioned, there could be some upside if that's not the case, and we certainly hope so. That's my comment. Elliot, do you have anything to add to that?

In terms of FCB, we are projecting an 8% decline, which had set of lines down to about 61 billion.

And the expectation there is public and private markets will remain muted for the remainder of 'twenty three as Peter mentioned, there could be some upside if thats not the case and we certainly hope so.

And.

Thats My comment do you have anything to add to that yes.

Elliot Howard: Yeah, Brody, I would just echo kind of what Craig said. I think when you look at it, you know, the largest portion of the Silicon Valley Bank is the global funds banking. And so that's the part that's, you know, we expect to decline a little bit here, and that's really a reflection, not of kind of losing market share. It's really of the underlying, you know, just market activity. And so that's, you know, private bank, pretty stable. Same with the tech and healthcare.

Brady I would just echo kind of like Greg said I think when you look at it.

The largest portion of the Silicon Valley Bank as the global funds banking and so that's that's the part of the.

We expect to decline a little bit here and Thats really reflection.

Kind of losing market share is really the underlying.

Just market activity.

So thats it.

I'm proud of the bank pretty stable.

Health care.

Brody Preston: Got it. Thank you very much for taking all my questions, everyone. I appreciate it.

Sure.

Got it. Thank you very much for taking all my questions everyone I appreciate it.

Craig Nix: Thank you, Brody.

Thank you Barry.

Deanna Hart: Thank you, Mr. Preston. I'm not showing any further questions at this time. I'd like to turn the call back over to our host, Deanna Hart, for any closing remarks.

Operator: Thank you, Mr. Preston. I'm not showing any further questions at this time. I'd like to turn the call back over to our host, Deanna Hart, for any closing remarks.

Thank you Mr. Preston.

I'm not showing any further questions at this time I'd like to turn the call back over to our house, Dan Hart for any closing remarks.

Marc Cadieux: Thank you, everyone, for participating in our call today. We appreciate your ongoing interest in our company, and if you have any further questions or need additional information, please feel free to reach out to the investor relations team.

Deanna Hart: Thank you, everyone, for participating in our call today. We appreciate your ongoing interest in our company, and if you have any further questions or need additional information, please feel free to reach out to the investor relations team.

Thank you to everyone for participating in our call today. We appreciate your ongoing interest in our company and you have any further questions or need additional information. Please feel free to reach out to the Investor Relations team.

Yes.

Deanna Hart: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.

Ladies and gentlemen. This concludes today's conference call. You may now disconnect have a wonderful day.

Okay.

Q1 2023 First Citizens BancShares Earnings Call

Request a DemoDemo

FCN

First Citizens BancShares

Earnings