Q4 2023 First Citizens BancShares Earnings Call

January 26, 2024

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Q4 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you need to press star one on your telephone keypad. If you require operator assistance during the program, please press star, then zero. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Miss Deanna Hart, Senior Vice President of Investor Relations. You may begin.

Ladies and gentlemen, thank you for standing by and welcome to the citizens Bancshares fourth quarter 2023 on each conference call.

At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during this session you need to press star one on your telephone keypad.

If you require operator assistance during the program. Please press Star then zero as a reminder, today's conference is being recorded.

I'd like to introduce the host of this conference call. Mr. Lerner Hart Senior Vice President of Investor Relations you may begin.

Deanna Hart: Good morning, everyone. Welcome to our Q4 earnings call. Our Chairman and Chief Executive Officer, Frank Holding, and Chief Financial Officer, Craig Nix, will provide Q4 business and financial updates today. During the call, we will reference our investor presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined for you on page 3. We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in section 5 of the presentation. Finally, First Citizens is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties. I will now turn it over to Frank.

Okay.

Good morning, everyone welcome to our fourth quarter earnings call, our chairman and Chief Executive Officer, Frank coding and Chief Financial Officer, Craig next will provide fourth quarter business and financial update today during.

During the call we will reference our investor presentation, which you can find on our website.

Craig Next: Comments will include forward looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations.

We assume no obligation to update such statements. These risks are outlined for you on page three.

Craig Next: We will also reference non-GAAP financial measures reconciliations of these measures against the most directly comparable GAAP measures can be found in section five of the presentation.

Craig Next: Finally, first citizens is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties.

Frank Coding: I'll now turn it over to Frank.

Frank B. Holding, Jr.: Thank you, Deanna, and good morning, everyone. I'm going to focus my comments today on our fourth quarter accomplishments and our 2024 strategic priorities before turning it over to Craig to cover our fourth quarter financial results and outlook for 2024. Let's start on page 5. The fourth quarter capped off another exciting and successful year at First Citizens. We kicked off the year, one year into our successful merger with CIT and rang out the year combined with SVB, all as we celebrated our 125th year anniversary. I'm really proud of what we accomplished in 2023 and believe we have tremendous opportunity ahead of us.

Frank Holding: Thank you, Deanna, and good morning, everyone. I'm going to focus my comments today on our fourth quarter accomplishments and our 2024 strategic priorities before turning it over to Craig to cover our fourth quarter financial results and outlook for 2024. Let's start on page 5. The fourth quarter capped off another exciting and successful year at First Citizens. We kicked off the year, one year into our successful merger with CIT and rang out the year combined with SVB, all as we celebrated our 125th year anniversary. I'm really proud of what we accomplished in 2023 and believe we have tremendous opportunity ahead of us.

Frank: Thank you Diana and good morning, everyone.

Frank Coding: I'm going to focus my comments today on our fourth quarter accomplishments and our 2024 strategic priorities before turning it over to Craig to cover our fourth quarter financial results and outlook for 2024.

Frank: Oh, let's start on page five.

Frank Coding: Fourth quarter capped off another exciting and successful year for citizens.

Craig: We kicked off the year.

Craig Next: One year into our successful merger with CIP and rang out the year combined with SBB, all as we celebrated our 125th year anniversary.

Craig Next: I'm really proud of what we accomplished in 2023 I believe we have tremendous opportunity ahead of us.

Frank B. Holding, Jr.: There is an undeniable sense of momentum at First Citizens, and our ambition is to serve our clients in ways never imagined 125 years ago. We're well positioned for the future, thanks to continued focus on our clients and customers and our solid financial results. We delivered another quarter of solid financial results, driven by a strong net interest margin and adjusted efficiency ratio of 48%. We're pleased that both our general and commercial bank segments grew loans by double-digit percentage points in 2023. Due to strong deposit growth during the year, we improved our liquidity position significantly and ended the year with a strong capital position marked by a CET1 ratio of 13.36%.

Frank Holding: There is an undeniable sense of momentum at First Citizens, and our ambition is to serve our clients in ways never imagined 125 years ago. We're well positioned for the future, thanks to continued focus on our clients and customers and our solid financial results. We delivered another quarter of solid financial results, driven by a strong net interest margin and adjusted efficiency ratio of 48%. We're pleased that both our general and commercial bank segments grew loans by double-digit percentage points in 2023. Due to strong deposit growth during the year, we improved our liquidity position significantly and ended the year with a strong capital position marked by a CET1 ratio of 13.36%.

Craig Next: There is an undeniable sense of momentum at first citizens.

Craig Next: And our ambition is to serve our clients in ways never imagined the 125 years ago.

Craig Next: And we are well positioned for the future. Thanks to continued focus on our clients and customers and our solid financial results.

Craig Next: We delivered another quarter of solid financial results driven by.

Craig Next: Our strong net interest margin and adjusted efficiency ratio of 48%.

Craig Next: We're pleased that both our general and commercial bank segments grew loans by double digit percentage points in 2023.

Craig Next: Due to strong deposit growth during the year, we improved our liquidity position significantly and ended the year with a strong capital position marked by CET one ratio of 13 three 6%.

Frank B. Holding, Jr.: We recently announced two major additions to our team, which will help us to continue to successfully navigate the ever-changing landscape for large financial institutions. First, David Leach was appointed to the board of directors in January. David is a distinguished leader, executive, and attorney, and he brings extensive experience and valuable insight to our board. He retired from Bank of America in 2022, where he served as vice chair from 2021 to 2022, and its global general counsel from 2016 to 2021. We're excited to have David join the board. Second, we announced that Greg Smith will join our executive leadership team as the bank's Chief Information and Operations Officer.

Frank Holding: We recently announced two major additions to our team, which will help us to continue to successfully navigate the ever-changing landscape for large financial institutions. First, David Leach was appointed to the board of directors in January. David is a distinguished leader, executive, and attorney, and he brings extensive experience and valuable insight to our board. He retired from Bank of America in 2022, where he served as vice chair from 2021 to 2022, and its global general counsel from 2016 to 2021. We're excited to have David join the board. Second, we announced that Greg Smith will join our executive leadership team as the bank's Chief Information and Operations Officer.

Craig Next: We recently announced two major additions to our team, which will help us to continue to successfully navigate the ever changing landscape for large financial institutions.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to First Citizens Bankshare's fourth quarter 2023 earnings conference call. At this time, all participants are in listen-only mode.

David Leitch: First David Leitch.

David Leitch: Was appointed to the board of Directors in January David has a distinguished leader executive at Ekati and he brings extensive experience and valuable insight our board. He retired from bank of America in 2022, where he served as vice chair from 2021 2022.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one on your telephone keypad. If you require operator assistance during the program, please press star then zero.

Operator: As a reminder, today's conference call is being recorded. I would now like to introduce the host of this conference call, Miss Deanna Hart, Senior Vice President of Investor Relations. You may begin. Good morning, everyone.

David Leitch: And its global General Counsel from 2016 to 2021, and we're excited to have David join the board.

Greg Smith: Second we announced that Greg Smith will join our executive leadership team as the banks Chief information and operations Officer.

Welcome to our fourth quarter earnings call. Our Chairman and Chief Executive Officer, Frank Holding, and Chief Financial Officer, Craig Nix, will provide fourth quarter business and financial updates. During the call, we will reference our investor presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined for you on page.

Frank B. Holding, Jr.: Greg joins our team from TD Bank Financial Group in Toronto, Canada, where he served as Head of Transformation and Corporate Operations. In this leadership role, he set the vision and built key capabilities to drive end-to-end transformational change. He was also responsible for managing corporate projects and technology platforms. In the CIOO role at First Citizens, he will be responsible for the strategic enablement of technology, operations, cyber, and data functions across the enterprise. Greg's extensive background and depth of experience will make him well suited to take on these important responsibilities, and we're excited to have him on board. Moving to page six. We remain intently focused on our core strategies, and I'll highlight a few of them for 2024. First, we remain focused on our clients and customers.

Frank Holding: Greg joins our team from TD Bank Financial Group in Toronto, Canada, where he served as Head of Transformation and Corporate Operations. In this leadership role, he set the vision and built key capabilities to drive end-to-end transformational change. He was also responsible for managing corporate projects and technology platforms. In the CIOO role at First Citizens, he will be responsible for the strategic enablement of technology, operations, cyber, and data functions across the enterprise. Greg's extensive background and depth of experience will make him well suited to take on these important responsibilities, and we're excited to have him on board. Moving to page six. We remain intently focused on our core strategies, and I'll highlight a few of them for 2024. First, we remain focused on our clients and customers.

Greg Smith: Greg joins our team from TD Bank financial group in Toronto, Canada, where he served as head of transformation and corporate operations.

Greg Smith: And this leadership role he set the vision and build key capabilities to drive end to end transformational change.

Greg Smith: He was also responsible for managing corporate projects and technology platforms.

Greg Smith: And the C. I O O role for citizens he will be responsible for the strategic enablement of technology operations cyber.

We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable gap measures can be found in Section 5 of the presentation. Finally, Her Citizens is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by Her Citizens.

Greg Smith: And data functions across the enterprise.

Greg Smith: Greg has extensive background in depth of experience will make him well suited to take on these important responsibilities and we're excited to have him on board.

I will now turn it over to you. Thank you, Deanna, and good morning everyone. I'm going to focus my comments today on our fourth quarter accomplishments and our 2024 strategic priorities before turning it over to Craig to cover our fourth quarter financial results and outlook for 2024. Starting on page 5, the fourth quarter capped off another exciting and successful year at First Citizens. We kicked off the year one year into our successful merger with CIT and rang out the year combined with SVB, all as we celebrated our 125th anniversary. I'm really proud of what we accomplished in 2023 and believe we have tremendous opportunities ahead of us. There is an undeniable sense of momentum at First Citizens.

Greg Smith: Moving to page six.

Greg Smith: We remain intently focused on our core strategies.

And I'll highlight a few of them for 2024.

Greg: First we remain focused on our clients and customers.

Frank B. Holding, Jr.: Our combinations with CIT and SVB introduced us to new strategic markets that allow us to deliver expanded products and solutions across our diversified lines of business. We continue to support SVB's innovation economy clients and are focused on capturing synergies with the commercial businesses we acquired from CIT. In the general bank, we have enhanced our deposit campaigns to continue to grow quality core deposits. As we noted last quarter, we continue to expand our wealth business across our geographic footprint and are expanding advisory and self-service options for our clients in that space. Developing our associates and adding talent to support growth remain important priorities. Our integration efforts are centered on ensuring that we retain our culture and which emphasizes a relationship-based approach to banking, a client-centric, customer-client- and customer-centric service delivery model, a long-term focus, and strong risk management.

Frank Holding: Our combinations with CIT and SVB introduced us to new strategic markets that allow us to deliver expanded products and solutions across our diversified lines of business. We continue to support SVB's innovation economy clients and are focused on capturing synergies with the commercial businesses we acquired from CIT. In the general bank, we have enhanced our deposit campaigns to continue to grow quality core deposits. As we noted last quarter, we continue to expand our wealth business across our geographic footprint and are expanding advisory and self-service options for our clients in that space. Developing our associates and adding talent to support growth remain important priorities. Our integration efforts are centered on ensuring that we retain our culture and which emphasizes a relationship-based approach to banking, a client-centric, customer-client- and customer-centric service delivery model, a long-term focus, and strong risk management.

Greg: Our combinations with <unk> and SBB introduced us to new strategic markets and allow us to deliver <unk>.

Greg: Expanded products and solutions across our diversified lines of business.

Craig Next: We continue to support Suvs innovation economy clients that are focused on capturing synergies with the commercial businesses, we acquired from <unk>.

Craig Next: And the general Bank, we have enhanced our deposit campaigns to continue to grow quality core deposits.

Craig Next: As we noted last quarter, we continue to expand our wealth business across our geographic footprint Arctic and our expanding advisor in self service options for our clients in that space.

And our ambition is to serve our clients in ways never imagined 125 years ago. And we're well positioned for the future thanks to our continued focus on our clients and customers and our solid financial results. We delivered another quarter of solid financial results driven by a strong net interest margin and an adjusted efficiency ratio of 48 percent. We're pleased that both our general and commercial bank segments grew loans by double digit percentage points in 2023.

Craig Next: Developing our associates and adding talent to support growth remain important priorities.

Our integration efforts are centered on ensuring that we retain our culture and.

Craig Next: Emphasizes a relationship based approach to banking.

Craig Next: Our client centric.

Craig Next: Customer of client and customer centric service delivery model.

Craig Next: A long term focus and strong risk management.

Frank B. Holding, Jr.: Operational efficiency is very important to us. In addition to disciplined expense management, we are managing our balance sheet to optimize our liquidity and capital positions to support continued profitable growth. Core deposit growth will be a major priority as we continue to increase deposits as a percentage of our total funding mix. We also continue to make regulatory readiness a top strategic priority. We have made meaningful progress on our efforts thus far, but acknowledge we need to continue to refine and mature our processes to support the change in the company's size and complexity. We will be intently focused on these efforts in 2024. Now let's look at page seven. We continue to make good progress on SVB's integration. Our efforts there have been extremely important, helping us retain clients, stabilize deposit balances, and develop strategic priorities for the combined organization.

Frank Holding: Operational efficiency is very important to us. In addition to disciplined expense management, we are managing our balance sheet to optimize our liquidity and capital positions to support continued profitable growth. Core deposit growth will be a major priority as we continue to increase deposits as a percentage of our total funding mix. We also continue to make regulatory readiness a top strategic priority. We have made meaningful progress on our efforts thus far, but acknowledge we need to continue to refine and mature our processes to support the change in the company's size and complexity. We will be intently focused on these efforts in 2024. Now let's look at page seven. We continue to make good progress on SVB's integration. Our efforts there have been extremely important, helping us retain clients, stabilize deposit balances, and develop strategic priorities for the combined organization.

Craig Next: Operational efficiency is very important to us.

Craig Next: In addition to disciplined expense management, we are managing our balance sheet to optimize our liquidity and capital positions to support continued profitable growth.

Due to strong deposit growth during the year, we improved our liquidity position significantly and ended the year with a strong capital position marked by a CET1 ratio of 13.36%. We recently announced two major additions to our team, which will help us to continue to successfully navigate the ever-changing landscape for large financial institutions. First, David Leach was appointed to the Board of Directors in January.

Craig Next: Core deposit growth will be a major priority as we continue to increase deposits as a percentage of our total funding mix.

Craig Next: Yeah.

We also continue to make regulatory readiness a top strategic priority.

Craig Next: We have made meaningful progress on our efforts thus far.

Craig Next: But acknowledge we need to continue to refine and mature our processes to support the change in companies in the company size and complexity.

David is a distinguished leader, executive, and attorney, and he brings extensive experience and valuable insight to our board. He retired from Bank of America in 2022, where he served as vice chair from 2021 to 2022 and its global general counsel from 2016 to 2021. And we're excited to have David join the board. Second, we announced that Greg Smith will join our executive leadership team as the bank's chief information and operations officer. Greg joins our team from TD Bank Financial Group in Toronto, Canada, where he served as Head of Transformation and Corporate Operations. In this leadership role, he set the vision and built key capabilities to drive end-to-end transformational change. He was also responsible for managing corporate projects and technology platforms. In the CIOO role at First Citizens, he will be responsible for the strategic enablement of technology operations, cyber, and data functions across the enterprise.

Craig Next: We will be intently focused on these efforts in 2024.

Craig Next: Now, let's look at page seven.

Craig Next: We continue to make good progress on STB is integration.

Craig Next: Efforts they have been extremely important helping us retain clients stabilized deposit balances.

Craig Next: And develop strategic priorities for the combined organization.

Frank B. Holding, Jr.: As we discussed on the last call, we developed an integration roadmap, and we expect the majority of those efforts to be completed in 2024. Our goal remains to support the acquired lines of business, maintain their unique capabilities, all while improving efficiency and risk management, positioning us for future growth. We acknowledge the headwinds in the innovation economy as well as the increased competition in this space.... However, we remain encouraged by the strength and value the SVB franchise brings to its client base and its unwavering commitment to providing relationship-focused service that is unmatched in the innovation ecosystem. To conclude, I am very pleased with our performance in 2023 and excited about growth opportunities as we enter 2024.

Frank Holding: As we discussed on the last call, we developed an integration roadmap, and we expect the majority of those efforts to be completed in 2024. Our goal remains to support the acquired lines of business, maintain their unique capabilities, all while improving efficiency and risk management, positioning us for future growth. We acknowledge the headwinds in the innovation economy as well as the increased competition in this space.... However, we remain encouraged by the strength and value the SVB franchise brings to its client base and its unwavering commitment to providing relationship-focused service that is unmatched in the innovation ecosystem. To conclude, I am very pleased with our performance in 2023 and excited about growth opportunities as we enter 2024.

Craig Next: As we discussed on the last call.

Craig Next: We developed an integration roadmap and we expect the majority of those efforts to be completed in 2024.

Craig Next: Our goal remains to support the acquired lines of business.

Craig Next: Maintain their unique capabilities.

All while improving efficiency and risk management positioning us for future growth.

Craig Next: We acknowledge the headwinds in the innovation economy as well as the increased competition in this space. However, we remain encouraged by the strength and value. The SBB franchise brings to its client base and its unwavering commitment to providing relationship focused service.

Craig Next: That is unmatched in the innovation ecosystem.

Greg's extensive background and depth of experience will make him well suited to take on these important responsibilities, and we're excited to have him on board. Moving to page six, we remain intently focused on our core strategy, and I'll highlight a few of them for 2024. First, we remain focused on our clients and customers. Our combinations with CIT and SVB introduce us to new strategic markets and allow us to deliver expanded products and solutions across our diversified lines of business. We continue to support SVB's innovation economy clients that are focused on capturing synergies with the commercial businesses we acquired from CIT.

Craig Next: To conclude I am very pleased with our performance in 2023 and excited about growth opportunities as we enter 2024.

Frank B. Holding, Jr.: Despite industry adversity in 2023, we were able to protect and grow customer relationships, stabilize deposits at SVB, grow core deposits and loans in our general and commercial bank segments, and build upon our strong capital and liquidity positions. I'd like to thank all of our associates for making 2023 a successful, and positioning the bank for a successful future. With that, I'll turn it over to Craig Nix. Craig?

Frank Holding: Despite industry adversity in 2023, we were able to protect and grow customer relationships, stabilize deposits at SVB, grow core deposits and loans in our general and commercial bank segments, and build upon our strong capital and liquidity positions. I'd like to thank all of our associates for making 2023 a successful, and positioning the bank for a successful future. With that, I'll turn it over to Craig Nix. Craig?

Frank Coding: Despite industry adversity in 2023, we were able to protect and grow customer relationships stabilized deposits at Seb.

Frank Coding: Grow core deposits and loans in our general and commercial bank segments.

Frank Coding: And build upon our strong capital and liquidity positions.

Frank Coding: I'd like to thank all of our associates for making 2023 a successful.

Frank Coding: Oh and positioning the bank for a successful future.

Craig: With that I'll turn it over to Craig mix Greg.

Craig Nix: Thank you, Frank, and thank all of you for joining us today. I'm going to anchor my comments regarding our Q4 financial results to the takeaways outlined on page 9. Pages 10 through 29 provide more detail supporting the results for your reference. Our return metrics remain solid and in line with our expectations. ROE and ROA, adjusted for notable items, were 13.53% and 1.28% respectively. Compared to Q3, these metrics were impacted by an expected 3.9% sequential decline in net interest income, driven by a reduction in accretion income and higher deposit costs. These impacts were partially offset by higher loan and investment portfolio yields, which benefited from maturity and replacement of lower yielding assets during the quarter.

Craig Next: Thank you Frank and thank all of you for joining us joining us today.

In the general bank, we have enhanced our deposit campaigns to continue to grow quality core deposits. As we noted last quarter, we continue to expand our wealth business across our geographic footprint and are expanding advisory and self-service options for our clients in that space. Developing our associates and adding talent to support growth remain important priorities.

Craig Next: I'm going to anchor my comments regarding our fourth quarter financial results to the takeaways outlined on page nine pages 10 through 29 provide more detail supporting the results for your reference.

Craig Next: I'll return metrics remained solid and in line with our expectations Although E.

Craig Next: Adjusted for notable items of $13, five, 3% and one 8% respectively compared to the third quarter. These metrics were impacted by an expected three 9% sequential decline in net interest income driven by a reduction in accretion income and higher depart.

Our integration efforts are centered on ensuring that we retain our culture, which emphasizes a relationship-based approach to banking, a client-centric, customer-focused, and customer-centric service delivery model, a long-term focus, and strong risk management. Operational efficiency is very important to us. In addition to disciplined expense management, we are managing our balance sheet to optimize our liquidity and capital positions to support continued profitable growth. Core deposit growth will be a major priority as we continue to increase deposits as a percentage of our total funding mix. We also continue to make regulatory readiness a top strategic priority.

Craig Next: What costs do.

Craig Next: These impacts were partially offset by higher loan and investment portfolio yields, which benefited from maturity and replacement of lower yielding assets during the quarter.

Craig Nix: These higher yields, offset by higher deposit costs, drove net interest income ex accretion to be essentially flat with the sequential quarter. NIM contracted by 21 basis points during the quarter to 3.86%, driven primarily by the same factors affecting the decline in net interest income I just discussed. Ex accretion, NIM declined by 5 basis points to 3.46%. Adjusted non-interest income was down modestly by 3% sequentially. A majority of the decrease related to a decline in the fair value of customer derivative positions as a result of lower interest rates. Additionally, as we previously guided, our rail business experienced a decline in net rental income due to higher maintenance expenses.

Frank Coding: These higher yields offset by higher deposit costs drove net interest income ex accretion to be essentially flat.

Once a quarter.

Frank Coding: NIM contracted by 21 basis points during the quarter to 386% driven primarily by the same factors affecting the decline in net interest income I just discussed.

This decrease in NIM declined by five basis points to 346%.

Frank Coding: Adjusted non interest income was down modestly by three.

We have made meaningful progress on our efforts thus far but acknowledge we need to continue to refine and mature our processes to support the change in the company's size and complexity. We will be intently focused on these efforts in 2024.

Craig Next: 3% sequentially.

Craig Next: A majority of the decrease related to a decline in the fair value of customer derivative positions as a result of lower interest rates. Additionally, as we previously guided our rail business experienced a decline in net rental income due to higher maintenance expenses.

Craig Nix: As a reminder, given strong utilization rates and positive repricing trends, we made the strategic decision to pull forward regulatory requalification programs in order to increase the number of available cars for leasing in 2024. These updates position us well to continue to provide our customers with the equipment they need. While we expect some normalization to historically high utilization levels in 2024, we believe that our well-diversified fleet positions us well for the future. A bright spot in the quarter was an increase in capital market fees, as our capital markets business had its highest fee year on record, as we were able to take advantage of market dislocation as many banks pulled back. Adjusted non-interest expense was largely in line with expectations, increasing sequentially by less than 1%.

Craig Next: Reminder, given strong utilization rates and positive repricing trends, we made the strategic decision to pull forward regulatory re qualification programs in order to increase the number of available cars for leasing in 2024.

We continue to make good progress on SBB's integration. Our efforts there have been extremely important, helping us retain clients, stabilize deposit balances, and develop strategic priorities for the combined organization. As we discussed on the last call, we developed an integration roadmap, and we expect the majority of those efforts to be completed in 2024.

Craig Next: These updates position us well to continue to provide our customers with the equipment they need.

Craig Next: While we expect some normalization historically high utilization levels in 2024, we believe that our well diversified fleet positions us well for the future.

Our goal remains to support the acquired lines of business, maintain their unique capabilities, all while improving efficiency and risk management, positioning us for future growth. We acknowledge the headwinds in the innovation economy as well as the increased competition in the space. However, we remain encouraged by the strength and value the SVB franchise brings to its client base and its unwavering commitment to providing relationship-focused service that is unmatched in the innovation ecosystem.

Craig Next: A bright spot in the quarter with an increase in capital market fees as our capital markets business had the highest year on record as we were able to take advantage of market dislocation and many banks pulled back.

Craig Next: Adjusted noninterest expense was largely in line with expectations, increasing sequentially by less than 1%.

Craig Nix: We experienced expense growth during the quarter in consulting and project costs related to strategic investments we had delayed earlier in the year. As we noted on the third quarter call, consulting and project costs were lower in the second and third quarters as we assessed and reprioritized areas of focus heading into 2024. In addition, fourth quarter expenses reflected our expanded CRA commitment as part of our integration efforts to assist communities in Northern California and Eastern Massachusetts. These increases were almost completely offset by lower FDIC insurance and personnel expenses. We remain very cognizant of the importance of expense discipline as we head into 2024, given headwinds to net interest income facing us and many in the industry.

Craig Next: We experienced expense growth during the quarter and consulting and project costs related to strategic investments, we had delayed earlier in the year.

To conclude, I am very pleased with our performance in 2023 and excited about growth opportunities as we enter 2024. Despite industry adversity in 2023, we were able to protect and grow customer relationships. We stabilized deposits at SEB, grew core deposits and loans in our general and commercial bank segment, and built upon our strong capital and liquidity position. I'd like to thank all of our associates for making 2023 a successful year and positioning the bank for a successful future. With that, I'll turn it over to Craig Nix. Craig?

Craig Next: As we noted on the third quarter call consulting and project costs were lower in the second and third quarters as we have SaaS and re prioritized areas of focus heading into 2024.

Craig Next: In addition, fourth quarter expenses reflected our expanded CRA commitment as part of our integration efforts to assist community in northern California in Eastern Massachusetts.

Craig Next: These increases were almost completely offset by lower FDIC insurance and personnel expenses.

Craig Next: We remain very cognizant of the importance of expense discipline as we head into 2024, given headwind to net interest income facing us and many in the industry.

Craig Nix: Credit continues to normalize and track with our expectations for the quarter, with net charge-offs coming in at the lower end of our guidance range of 50 to 60 basis points. Net charge-offs were $177 million during the quarter, representing a ratio of 0.53% of average loans, basically flat compared to Q3. Losses were largely in the same portfolios where we experienced charge-offs in previous quarters. Within the commercial bank, net charge-offs were concentrated in the general office and small-ticket equipment leasing portfolios. We also experienced an idiosyncratic loss in the energy portfolio quarter that we believe is not indicative of broader concerns in the portfolio.

Craig Next: Credit continues to normalize and trades with our expectations for the quarter with net charge offs coming in at the lower end of our guidance range of 50 to 60 basis points.

Thank you, Frank, and thank all of you for joining us today. I'm going to anchor my comments regarding our fourth quarter financial results on the takeaways outlined on page 9. Pages 10 through 29 provide more detail supporting the results for your rep. Our return metrics remain solid and in line with our expectations. ROE and ROA adjusted for notable items were 13.53 percent and 1.28 percent, respectively.

Craig Next: Net charge offs were $177 million during the quarter, representing a ratio of five 3% of average loans basically flat compared to the third quarter.

Craig Next: Losses were largely in the same portfolio experience charge offs in previous quarters.

Craig Next: Within the commercial bank net charge offs were concentrated in the general office and small ticket equipment leasing portfolios.

Compared to the third quarter, these metrics were impacted by an expected 3.9 percent sequential decline in net interest income driven by a reduction in accretion income and higher deposit costs. These impacts were partially offset by higher loan and investment portfolio yields, which benefited from maturity and replacement of lower yielding assets during the quarter. These higher yields offset by higher deposit costs drove net interest income execution to be essentially flat with a sequential quarter. MIM contracted by 21 basis points during the quarter to 3.86%, driven primarily by the same factors affecting the decline in net interest income I just discussed. Excecration NEM declined by five basis points to 3.46 percent. Adjusted non-interest income was down modestly, by 3% sequentially.

Craig Next: Also experienced an idiosyncratic loss in the energy portfolio quarter that we believe is not indicative of broader deeper arms in the portfolio.

Craig Nix: While we continue to see stress in our general office portfolio in the commercial bank due to continued inflationary pressure, elevated interest rates, and market dislocation, we have limited exposure, which totaled $1.2 billion, or roughly 1% of loans at the end of Q4. As a reminder, this portfolio is concentrated in Class B repositioned bridge loans and is where we have seen deterioration in past dues, criticized assets, and charge-offs. General office CRE continues to be carefully monitored, and we are carrying an ACL on these loans of 9.37%, compared to 4.77% on the overall general office portfolio. Net charge-off in the SVB segment remained elevated due to continued stress in the investor-dependent portfolio, but did decline sequentially by $35 million.

Craig Next: We continue to see strength in our general office portfolio and the commercial bank due to continued inflationary pressure elevated interest rates and market dislocation, we have limited exposure, which totaled $1 $2 billion of roughly 1% of lines at the end of the fourth quarter.

Craig Next: As a reminder, this portfolio is concentrated in class B reposition bridge lines and is where we have seen deterioration in past dues criticized assets and charge offs.

Craig Next: General office see R&D continues to be carefully monitored and we are carrying an ACL.

Craig Next: These lines of $9, three 7% compared to $4, 77% on the overall general office portfolio.

Craig Next: Yeah.

Craig Next: Net charge offs in the SBB segment remained elevated due to continued strength in the investor dependent portfolio.

A majority of the decrease related to a decline in the fair value of customer derivative positions as a result of lower interest rates. Additionally, as we previously guided, our real business experienced a decline in net rental income due to higher maintenance expenses. As a reminder, given strong utilization rates and positive repricing trends, we made the strategic decision to pull forward regulatory requalification programs in order to increase the number of available cars for leasing in 2024. These updates position us well to continue to provide our customers with the equipment they need. While we expect some normalization to historically high utilization levels in 2024, we believe that our well-diversified fleet positions us well for the future. A bright spot in the quarter was an increase in capital market fees, as our capital markets business had its highest fee year on record as we were able to take advantage of market dislocation as many banks pulled back. Adjusted non-interest expense was largely in line with expectations, increasing sequentially by less than 1%.

Craig Next: But did decline sequentially by $35 million.

Craig Nix: At quarter end, this portfolio totaled $4.3 billion, or approximately 3% of total loans, with the highest risk category, early-stage companies totaling $1.4 billion, or just over 1% of total loans. The allowance for credit losses increased sequentially by 5 basis points to 1.31% due to some adverse credit migration in our commercial portfolio and higher specific reserves on loans individually reviewed. Under the current macroeconomic backdrop, we continually look for indicators of portfolio stress by reviewing delinquency trends and grading migration by industry and/or geography to identify areas of concern. While credit quality remains within our risk appetite, we anticipate elevated net charge-off in the innovation, general office, and equipment finance portfolios this year.

Craig Next: At quarter end, the portfolio totaled $4 $3 billion or approximately 3% of total lines with the highest risk category early stage companies totaling $1 4 billion.

Craig Next: Just over 1% of total loans.

Craig Next: The allowance for credit losses increased sequentially by five basis points to 131%.

Craig Next: Some adverse credit migration in our commercial portfolio and higher specific reserves on loans individually reviewed.

Craig Next: Under the current macroeconomic backdrop, we continually look for indicators of portfolio of SaaS by reviewing delinquency trends and grading migration by industry <unk> geography to identify areas of concern.

While credit quality remains within our risk appetite.

Frank Coding: Dissipate elevated net charge off in the innovation General office and equipment finance portfolios. This year.

Craig Nix: We have taken proactive steps to help limit losses, and we feel that we are properly balancing our growth and underwriting strategies, emphasizing opportunities that build upon our expertise and provide an appropriate risk-adjusted return. Now moving to the balance sheet. Loans were up $100 million over the third quarter. The general and commercial bank segments grew loans by $1.3 billion and $716 million, respectively, while the SVB segment experienced a decline of just under $2 billion. In the general bank, growth was concentrated in small business and commercial loans in our branch network as we continue to grow our customer base and deepen relationships. We are focused on executing our strategy of growing our customer base and supporting existing clients where we have a relationship and a proven history.

Frank Coding: We have taken proactive steps to help limit losses, and we feel that we are properly balancing our growth and underwriting strategy emphasizing opportunities that build upon our expertise and provide an appropriate risk adjusted return.

We experienced expense growth during the quarter and consulting and project costs related to strategic investments we had delayed earlier in the year. However, as we noted on the third quarter call, consulting and project costs were lower in the second and third quarters as we assessed and reprioritized areas of focus heading into 2024. In addition, fourth-quarter expenses reflected our expanded CRA commitment as part of our integration efforts to assist communities in Northern California and Eastern Massachusetts.

Frank Coding: Now moving to the balance sheet.

Craig Next: Loans were up a $100 million over the third quarter General and commercial Bank segment grew loans about $1 $3 billion and $716 million, respectively. While the SUV segment experienced a decline of just under $2 billion.

Craig Next: And the general Bank growth was concentrated in small business and commercial loans in our branch network as we continue to grow our customer base and deepen relationships.

These increases were almost completely offset by lower FDIC insurance and personnel expenses. We remain very cognizant of the importance of extensive discipline as we head into 2024, given the headwinds and net interest income facing us and many in the industry. Credit continues to normalize and track with our expectations for the quarter. The net charge-offs came in at the lower end of our guidance range of 50 to 60 basis. Net charge-offs were $177 million during the quarter, representing a ratio of 0.53% of average loans, basically flat compared to the third quarter.

Craig Next: We are focused on executing our strategy of growing our customer base and supporting existing clients, where we have a relationship and a proven history <unk>.

Craig Nix: We believe this relationship banking approach will continue to serve us well. In the commercial bank, growth was driven by strong production in our industry verticals and middle-market banking. Within the industry verticals, growth was concentrated in TMT, healthcare, and energy. Growth in our TMT vertical continues to be driven by strong demand for new data centers. Our energy vertical is benefiting from the power infrastructure and renewable energy markets. As for middle market, the team continued its expansion strategy in 2023, adding bankers in Boston, New York, Santa Monica, Atlanta, and Dallas, contributing to increased loan production during the year. The reduction in SVB segment loans was driven primarily by a decline in global fund banking, but to a smaller extent, we saw a reduction in our technology and healthcare banking business.

Craig Next: Believed this relationship banking approach will continue to serve us well.

Craig Next: And the commercial bank.

Greg Smith: Growth was driven by strong production in our industry verticals and middle market banking within the industry verticals growth was concentrated in TMT healthcare and energy.

Greg Smith: Growth in our TMT vertical continues to be driven by strong demand for new data centers, our energy vertical is benefiting from the power infrastructure and renewable energy markets.

Losses are largely in the same portfolios where we experienced charge-offs in previous quarters. Within the commercial bank, net charge-offs were concentrated in the general office and small-ticket equipment leasing portfolios. We also experienced an idiosyncratic loss in the energy portfolio order that we believe is not indicative of broader concerns in the portfolio.

Craig Next: For middle market. The team continued its expansion strategy in 2023, adding bankers in Boston, New York, Santa Monica, Atlanta, and Dallas contributing to increased loan production during the year.

Craig Next: The reduction in SCV segment lines was driven primarily by a decline in global fund banking.

Craig Next: Smaller extent, we saw a reduction in our technology and healthcare banking business.

While we continue to see stress in our general office portfolio in the commercial bank due to continued inflationary pressure, elevated interest rates, and market dislocation, we have limited exposure, which totaled $1.2 billion or roughly 1% of loans at the end of the fourth quarter. As a reminder, this portfolio is concentrated in Class B repositioned bridge loans and is where we have seen deterioration in past dues, criticized assets, and charge-offs. General Office CRE continues to be carefully monitored, and we are carrying an ACL on these loans of 9.37 percent compared to 4.77 percent on the overall General Office portfolio. Net charge-off in the SVD segment remained elevated due to continued stress in the investor-dependent portfolios but did decline sequentially by $35 million, quarter end of portfolio total $4.3 billion or approximately 3% of total loans with the highest risk category early stage companies totaling $1.4 billion or just The allowance for credit loss has increased sequentially by 5 basis points to 1.31 percent due to some adverse credit migration in our commercial portfolio and higher specific reserves on loans individually reviewed.

Craig Nix: Despite a slowdown in private equity and venture capital markets, we are encouraged by a strengthening loan pipeline in Global Fund Banking, which expanded by approximately 40% quarter, as the team continues to support our existing clients as well as add new relationships. Global Fund Banking closed on $4.8 billion in new deals in Q4, a 129% increase over Q3. While utilization remains depressed due to the macroeconomic environment, we have the largest fund finance team in the market, and total approved exposure on the loan book has stabilized and has started to ramp up as the team continues to execute. We remain the primary banking partner for the vast majority of our GFB clients, which positions us well to ramp up both loans and deposits quickly when the macroeconomic environment improves.

Craig Next: Despite a slowdown in private equity and venture capital markets. We are encouraged by strengthening loan pipeline and global fund banking, which expanded by approximately $40.

Craig Next: Quarter.

Craig Next: As the team continues to support our existing clients as well as add new relationships.

Craig Next: Global Fund banking closed on $4 8 billion in new deals in the fourth quarter, a 129% increase over the third quarter.

Craig Next: Utilization depressed due to the macroeconomic environment, we have the largest fund finance team in the market in total have pretty good exposure on the loan book has stabilized and is starting to ramp up as the team continues to execute.

Craig Next: We remain the primary banking partner for the vast majority of our DSP clients, which positions us well to ramp up both loans and deposits quickly when the macroeconomic environment improves.

Craig Nix: The decline in technology and healthcare banking was driven by paydowns outpacing new fundings, as the private market investment landscape continued to face headwinds, resulting in a difficult exit environment, lower fundraising numbers, and fewer deals. Deposits were down a modest 0.3% sequentially, driven by a $1.5 billion decline in the SVB segment due to continued client cash burn and muted fundraising activity. Importantly, though, investment inflows increased from Q3, while outflows from burn declined, which helped us beat our Q3 forecast of an approximate $5 billion decline. The branch network declined by $492 million due to expected seasonal outflows. These declines were partially offset by a $2 billion increase in direct bank deposits.

Craig Next: The decline in technology, and healthcare banking was driven by pay downs outpacing new fundings at the private market investment landscape continues to face headwinds, resulting in a difficult exit environment lower fund raising numbers and fewer deals.

Craig Next: Deposits were down a modest <unk>, 3% sequentially driven by $1 5 billion decline in the.

Craig Next: <unk> segment.

Craig Next: Due to continued client cash burn and needed fund raising activity importantly, though investment inflows increased from the third quarter, while outflows from burn declined which helped us beat our third quarter forecast.

Under the current macroeconomic backdrop, we continually look for indicators of portfolio stress by reviewing delinquency trends and grading migration by industry and or geography to identify areas of concern. While credit quality remains within our risk appetite, we did participate in an elevated net charge off in the innovation, general office, and equipment finance portfolios this year. We have taken proactive steps to help limit losses, and we feel that we are properly balancing our growth and underwriting strategies, emphasizing opportunities that build upon our expertise and provide an appropriate risk-adjusted return. Now, moving to the balance sheet. Loans were up $100 million over the third quarter.

<unk> 5 billion decline.

Craig Next: Network declined by $492 million due to expected seasonal outflows.

Craig Next: These declines were partially offset by $2 billion increase in direct bank deposits.

Craig Nix: While the direct bank channel is higher cost and now accounts for 26% of our deposit base, it is an additional lever we continue to use to remain resilient through a turbulent environment and is a strong source of insured consumer deposits, supporting our liquidity base. It also enabled us to pay down higher-cost FHLB debt earlier in the year, and most recently, redeemed some of our smaller subordinated debt issuances, given excess capital and liquidity positions. Moving to capital, we continued to maintain a position of strength as our CET1 ratio increased by 11 basis points sequentially, ending the quarter at 13.36%, which remains well above our internal target range of 9% to 10%.

Craig Next: While the direct bank channel is higher cost and now accounts for 26% of our deposit base.

Craig Next: It is an additional lever we continue to use to remain resilient through a turbulent environment and is a strong source of insured consumer deposit supporting our liquidity base.

Craig Next: It also enabled us to pay down higher cost <unk> debt earlier in the year and most recently redeemed some of our smaller subordinated debt issuances, given excess capital and liquidity positions.

The general and commercial bank segments grew loans by $1.3 billion and $716 million, respectively, while the SVB segment experienced a decline of just under $2 billion. In the general bank, growth was concentrated in small business and commercial loans in our branch network as we continue to grow our customer base and deepen relationships. We are focused on executing our strategy of growing our customer base and supporting existing clients where we have a relationship and a proven history. We believe this relationship banking approach will continue to serve us well in the commercial bank. Growth is driven by strong production and our industry verticals and middle market banks. Within the industry verticals, growth was concentrated in TMT, healthcare, and energy.

Moving to capital we continue to maintain a position of strength as our CET one ratio increased by 11 basis points sequentially.

Craig Next: Ending the quarter at $13, three 6%, which remains well above our internal target range of 9% to 10% <unk>.

Craig Nix: The impact from our loss share agreement continues to provide for higher capital levels and contributed approximately 120 basis points to our CET1 ratio this quarter, down from 140 basis points last quarter. Even without this benefit to our ratios, we remain well above our target capital ranges and anticipate operating at an elevated level in the near term. We are currently in our annual capital planning process, which includes reassessment of our goals and targets for consideration of both SVB and future regulatory changes. This process includes a full stress test, including the acquired SVB portfolios. Additionally, we continue to monitor the proposed Basel III rules, but remained well-positioned for any changes, including the inclusion of AOCI marks.

The impact from our loss share agreement continues to provide for higher capital levels and contributed approximately 120 basis points to our CET one ratio this quarter down from a 100 basis 240 basis points last quarter.

Craig Next: Even without this benefit to our ratios.

Craig Next: We remained well above our target capital ranges and anticipate operating at an elevated level in the near term.

Growth in our TMP vertical continues to be driven by strong demand for new data centers. Our energy vertical is benefiting from power infrastructure and renewable energy. For the middle market, the team continued its expansion strategy in 2023, adding bankers in Boston, New York, Santa Monica, Atlanta, and Dallas, contributing to increased loan production during the year. The reduction in SVB segment loans was driven primarily by a decline in global fund banking, but to a smaller extent, we saw a reduction in our technology and healthcare banking business.

Craig Next: We are currently in our annual capital planning process, which includes reassessment of our goals and targets for consideration of both SBB and keep the regulatory changes.

Craig Next: This process includes a full stress test, including the acquired FCB portfolios. Additionally, we continue to monitor the proposed Basel III rules that remained well positioned for any changes, including the inclusion of OCI marks are.

Craig Nix: Our CET1 ratio at the end of Q4 is estimated at 11.8% when these AOCI marks are included, and the impact from the loss share agreement is removed. We have confidence in the rate that we are accreting capital and our absolute capital levels relative to our internal targets, our capacity to handle balance sheet growth, our SVB integration efforts, and our positioning with respect to the Basel III end game. Therefore, we do anticipate that our 2024 capital plan will include a share repurchase plan, which once approved, will commence in the second half of this year. We also anticipate beginning a programmatic issuance of long-term debt in 2024 to ensure compliance with the proposed long-term debt requirements by the expected phase-in deadlines.

Craig Next: CET one ratio at the end of the fourth quarter is estimated at 11, 8%. When these <unk> are included in the impact from the loss share agreement.

Despite a slowdown in private equity and venture capital markets, we were encouraged by a strengthening loan pipeline in global fund banking, which expanded by approximately 40 percent. Pullover, as the team continues to support our existing clients as well as add new relationships. Global fund banking closed on $4.8 billion in new deals in the fourth quarter, a 129% increase over the third quarter.

Craig Next: Renewed.

Craig Next: We have confidence in the rate that we are creating capital and our absolute capital levels relative to our internal targets.

Craig Next: Our capacity to handle balance sheet growth.

Craig Next: Seb integration efforts and our positioning with respect to the Basel III end game.

Craig Next: Therefore, we do anticipate that our 2024 capital plan will include a share repurchase plan, which once approved will commence in the second half of this year.

While utilization rooms are pressed due to the macroeconomic environment, we have the largest fund finance team in the market, and total approved exposure on the loan book has stabilized and has started to ramp up as the team continues to execute. We remain the primary banking partner for the vast majority of our GFB clients, which positions us well to ramp up both loans and deposits quickly when the macroeconomic environment improves. The decline in technology and health care banking was driven by paydowns outpacing new funding as the private market investment landscape continues to face headwinds resulting in a difficult exit environment, lower fundraising numbers, and fewer deals. Deposits were down a modest 0.3% sequentially, driven by a $1.5 billion decline in the SBB segment due to continued client cash burn and muted fundraising activity. Importantly though, investment inflows increased from the third quarter, while outflows from burn declined, which helped us beat our third quarter forecast of an approximate $5 billion decline. The branch network declined by $492 million due to expected seasonal outflows.

Craig Next: We also anticipate beginning of programmatic issuance of long term debt in 2024 to ensure compliance with the proposed long term debt requirements by the expected phase and deadlines.

Craig Nix: We expect our binding constraint to be risk-weighted assets to long-term debt and estimate our long-term debt shortfall to be approximately $8 to 11 billion. While this strategy is partly dictated by regulatory requirements, we anticipate these funding actions, along with our deposit growth strategies, will support the replacement of some portion of the FDIC Purchase Money Note, which matures in March 2028. I will close today on page 31 by discussing our Q1 and full year outlook for 2024. We anticipate that loans will remain flat to modestly increase in the first quarter, driven by low single-digit percentage commercial banking segment due to continued strong performance in our industry verticals. We anticipate SVB loan balances to remain flat in the mid $50 billion range.

Craig Next: We expect our binding constraint to be risk weighted assets of long term debt and estimate our long term debt shortfall to be approximately 8% to $11 billion.

Craig Next: While this strategy is partly dictated by regulatory requirement. We anticipate these funding actions along with our deposit growth strategies will support.

Craig Next: The replacement of some portion of the FDIC purchase money note, which matures in March of 2028.

Craig Next: I'll close today on page 31 by discussing our first quarter and full year outlook for 2024.

Craig Next: Okay.

We anticipate that loan will remain flat to modestly increase in the first quarter driven by low single digit percentage.

Craig Next: Banking segment due to continued strong performance in our industry verticals.

Craig Next: We anticipate SBB loan balances to remain flat in the mid $50 billion range.

Craig Nix: As mentioned earlier, the global fund banking business is benefiting from a strong pipeline due to being back in the market for clients during the second half of 2023, following the pause prior and immediately after the acquisition. This growth, however, will continue to be pressured by headwinds in the private equity and venture capital markets. We also anticipate a modest decline in the technology and healthcare banking business as lower levels of new fundings and line draws, coupled with increased loan payoffs, result in loan portfolio contraction. Looking at the full year, we expect loans to end in the $139 billion to 143 billion range or mid-single digit percentage growth. We foresee increased volumes in our global fund banking business as a result of increased outreach beginning in the second quarter of 2023 and our increased pipeline.

These declines were partially offset by a $2 billion increase in direct bank deposits. While the direct bank channel is higher cost and now accounts for 26% of our deposit base. It is an additional lever we continue to use to remain resilient through a turbulent environment and is a strong source of insured consumer deposits supporting our liquidity base. It has also enabled us to pay down higher-cost FHLB debt earlier in the year and most recently redeemed some of our smaller subordinated debt issuances given excess capital and liquidity positions. Moving to capital, we continue to maintain a position of strength as our CET one ratio increased by 11 basis points sequentially into the quarter at 13.36%, which remains well above our internal target range of 9 to 10%. The impact from our law share agreement continues to provide for higher capital levels and contributed approximately 120 basis points to our C.E.T. one ratio this quarter down from 100 and 140 basis points last quarter. However, even without this benefit to our ratios.

Craig Next: The earlier the global fund banking business is benefiting from a strong pipeline due to being back in the market for clients. During the second half of 2023, following the pause prior and immediately after the acquisition.

Craig Next: This growth. However, we will continue to be pressured by headwinds in the private equity and venture capital markets.

Craig Next: We also anticipate a modest decline in the technology and healthcare banking business has lower levels of new fundings and line draw coupled with increased loan payoffs result in loan portfolio contraction.

Craig Next: Looking at the full year.

We expect loans to end in the 139 billion to $143 billion range or mid single digit percentage growth.

Craig Next: We foresee increased volumes in our global fund banking business as a result of increased outreach beginning in the second quarter of 2003, and our increased pipeline.

Craig Nix: Additionally, we continue to see strong growth in our general and commercial bank segments. However, we do expect moderation to mid-single-digit percentage growth in these segments in 2023. Turning to deposits, we expect a low single-digit percentage point increase in Q1, primarily due to growth in the branch network, driven by leveraging new products and initiatives to deepen client relationships that emphasize deposit growth as well as seasonal growth prior to April tax outflows. We are also focused on increasing our customer base by building deposits through proactive sales, associate outreach, centralized marketing campaigns, and increased community connectivity.

Craig Next: Additionally, we continue to see strong growth in our general and commercial bank segments. However, we do expect moderation to mid single digit percentage growth in these segments in 2023.

Craig Next: Turning to deposits, we expect a low single digit percentage point increase in the first quarter.

We remain well above our target capital ranges and anticipate operating at an elevated level in the near term. We are currently in our annual capital planning process, which includes a reassessment of our goals and targets for consideration of both SVB and future regulatory changes. This process includes a full stress test, including the acquired FVD portfolios.

Craig Next: Merely due to growth in the branch network, driven by leveraging new products and initiatives to deepen client relationships that emphasize deposit growth as well as seasonal growth prior to April tax outflows.

Craig Next: We are also focused on increasing our customer base by building deposits through proactive sales associate outreach centralized marketing campaign and increased community connectivity.

Additionally, we continue to monitor the proposed FOSIL 3 rules, which remain well positioned for any changes, including the inclusion of AOCI marks. The CET1 ratio at the end of the fourth quarter is estimated at 11.8% when these AOCI marks are included and the impact from the loss share agreement is removed. We have confidence in the rate that we are creating capital and our absolute capital levels relative to our internal target, our capacity to handle balance sheet growth, our SVD integration efforts, and our positioning with respect to the Basel III endgame. Therefore, we do anticipate that our 2024 capital plan will include a share repurchase plan, which once approved, will commence in the second half of this year. We also anticipate beginning a programmatic issuance of long-term debt in 2024 to ensure compliance with the proposed long-term debt requirements by the expected phase-in deadline.

Craig Nix: For the full year, we anticipate low- to mid-single-digit percentage growth, primarily related to growth in the general bank previously discussed, and a mid-single-digit percentage growth in SVB deposits, as market activity and the impacts of customer outreach begin to help produce deposit growth in the back half of 2024. With respect to SVB deposits, we expect the venture capital environment to remain challenging, particularly in the first half of 2024. Since April, we've seen SVB deposits remain largely stable, despite continued cash burn exceeding funds sourced from fundraising activities. Encouragingly, we also added over 60 new primary operating business clients between April and November of 2023. We believe our emphasis on client engagement, coupled with better fundraising in the back half of 2024, will help propel modest growth in this segment. We'll continue to raise deposits in our direct bank.

Craig Next: For the full year, we anticipate low to mid single digit percentage growth primarily related to growth in the general Bank previously discussed and a mid single digit percentage growth in FCB deposit as market activity and the impact of customer outreach begin to help reduce deposit growth in the back half of 2024.

Craig Next: With respect to SBB deposits, we expect the venture capital environment to remain challenging challenging, particularly in the first half of 2024 since April we've seen seb deposits remained largely stable.

Craig Next: Despite continued cash burn exceeding fund stores from fund raising activities Encouragingly. We also added over 60, new primary operating business clients between April and November of 2023, we believe our emphasis on client engagement, coupled with better fund raising in the back half of 'twenty 'twenty four will help her.

Craig Next: Modest growth in this segment.

Craig Next: We will continue to raise deposits and our direct bank.

Craig Nix: However, given the excess liquidity on our balance sheet, this pace will be moderated from the growth we experienced in 2023, with a growth rate of less than 10% anticipated in the channel. This obviously could change if we have unexpected deposit outflows elsewhere. Our interest rate forecast follows the implied forward curve, which includes 6 rate cuts in 2024, with the effective Fed funds rate declining from 5.5% to 4% by the end of the year. The implied curve currently diverges from the Fed dot plot expectation, which includes 3 rate cuts, with the effective Fed funds rate declining to 4.75%.

We expect our binding constraint to be risk-weighted assets for long-term debt and estimate our long-term debt shortfall to be approximately $8 to $11 billion. While this strategy is partly dictated by regulatory requirements, we anticipate these funding actions, along with our deposit growth strategies, will support the replacement of some portion of the FDIC purchase money note, which matures in March of 2028. I will close today on page 31 by discussing our first quarter and four year outlook for 2024. We anticipate that loans will remain flat to modestly increase in the first quarter driven by a low single digit percentage. Herschel Banking segment due to continued strong performance and our industry vertical. We anticipate SBB loan balances to remain flat in the mid $50 billion. As mentioned earlier, the global fund banking business is benefiting from a strong pipeline due to being back in the market for clients during the second half of 2023, following the pause prior and immediately after the acquisition. This growth, however, will continue to be pressured by headwinds in the private equity and venture capital markets.

Craig Next: However, given the excess liquidity on our balance sheet. This pace will be moderated from the growth we experienced in 2023 with a growth rate of less than 10% anticipated in the channel with.

Craig Next: This obviously could change if we have unexpected deposit outflows elsewhere.

Our interest rate forecast follows the implied forward curve, which includes six rate cuts in 2024 for the effective fed funds rate declining from five 5% to 4% by the end of the year.

Craig Next: The implied curve currently diverge a divergence from the fed dot plot expectation, which includes three rate cuts with the effective fed funds rate declining to 475%.

Craig Nix: It is our belief that we will see closer to 3 or 4 rate cuts given the continued strength in the labor market and the fact that inflation remains stubbornly above the Fed's target rate. Therefore, for our net interest income guidance, we provide a range with the top end assuming 3 rate cuts and the low end assuming 6 rate cuts. For Q1, we expect net interest income to be down in mid-single digit percentage points range, with and without accretion. The decline in headline net interest income will be driven by the impact of lower accretion and higher deposit costs, only partially offset by higher investment yields. For the full year, we expect net interest income in the range of $6.9 to 7.1 billion, with the low end assuming 6 rate cuts and the high end assuming 3 rate cuts.

It is our belief that we will see closer to three or four rate cuts given the continued strength in the labor market and the fact that inflation remains stubbornly above the fed's target rate.

Craig Next: And therefore for our net interest income guidance, we provide a range with the top end, assuming three rate cuts and the low end assuming six rate cuts.

Craig Next: For the first quarter, we expect net interest income to be down in mid single digit percentage points range with and without accretion.

Craig Next: The decline in headline net interest income will be driven by the impact of lower accretion and higher deposit costs, only partially offset by higher investment yields for the full year. We expect net interest income in the range of $6 nine to $7 $1 billion with the low end, assuming fixed rate debt and the high.

We also anticipate a modest decline in the technology and healthcare banking business as lower levels of new funding and line draws, coupled with increased loan payoffs, result in loan portfolio contraction. Looking at the full year, we expect loans to end in the $139 billion to $143 billion range for mid-single-digit percentage growth. We foresee increased volumes in our global fund banking business as a result of increased outreach beginning in the second quarter of 2023 and our increased pipeline. Additionally, we continue to see strong growth in our general and commercial bank segments.

Speaker Change: Assuming three rate cuts in either case.

Craig Nix: In either case, we project accretion income close to $485 million for the year, which is a decline from $725 million in the last three quarters of 2023, as loan discounts on some of the shorter portfolios have been fully recognized. Isolating net interest income for the Q2 through Q4 period to take into account the timing of the SVB merger, with 6 rate cuts, we expect headline net interest income to be low double digits percentage points and ex accretion by high single digits percentage points. With 3 rate cuts, we expect headline to be down high single digits percentage points and ex accretion down low to mid single digits percentage points. We anticipate our full cycle beta to be approximately 44%, which is materially in line with our previous estimate of 43%.

Craig Next: Project accretion income close to $485 million for the year, which is a decline from $725 million in the last three quarters of 'twenty three.

Craig Next: <unk> loan discount on some of the solar portfolio had been fully recognized.

Craig Next: Isolated net interest income for the second through fourth quarter period to take into effect the timing of the SBB Burger with fixed rate debt, we expect headline net interest income to be.

However, we do expect moderation to mid-single-digit percentage growth in these segments in 2023. Turning to deposits, we expect a low single-digit percentage point increase in the first quarter, primarily due to growth in the branch network driven by leveraging new products and initiatives to deepen client relationships that emphasize deposit growth, as well as seasonal growth prior to April tax outflow. We are also focused on increasing our customer base by building deposits through proactive sales, associate outreach, centralized marketing campaigns, and increased community connectivity.

Greg Smith: Low double digit percentage point and ex accretion by high single digit percentage points.

Greg Smith: With three rate cuts, we expect headline could be down high single digits percentage points in ex accretion down low to mid single digit percentage points.

Greg Smith: Anticipate our full cycle beta to be approximately 44%, which is materially in line with our previous estimate of 43%.

Craig Nix: Moving on to adjusted non-interest income. We expect the first quarter to be relatively in line with the fourth quarter in the $440 to 460 million range. Looking at the full year and isolating for only the second through fourth quarters, we anticipate being flat as continued growth in net operating lease, rental, wealth management, and mortgage income are offset by a decline in client investment fees due to the anticipated lower interest rate environment. We expect full year non-interest income to be in the range of $1.8 to 1.9 billion. As Frank mentioned in his comments, we are excited for the continued build-out of and momentum in our wealth platform, and we look to fully convert the legacy Silicon private businesses in 2024.

Greg Smith: Okay.

Greg Smith: Moving on to adjusted Noninterest income, we expect the first quarter to be relatively in line with the fourth quarter.

Greg Smith: And the $440 million to 600 $460 million range.

For the full year, we anticipate low to mid-single-digit percentage growth, primarily related to growth in the general bank previously discussed, and a mid-single-digit percentage growth in SVB deposits as market activity and the impacts of customer outreach begin to help reduce deposit growth in the back half of 2024. With respect to SBB deposits, we expect the venture capital environment to remain challenging, particularly in the first half of 2020. Since April, we've seen SVB deposits remain largely stable despite continued cash burn exceeding fund sources from fundraising activity.

Greg Smith: Looking at the full year at isolating for only the second through fourth quarters, we anticipate being flat as continued growth in net operating lease rental wealth management and mortgage income are offset by a decline in client investment fees due to anticipated lower <unk>.

Craig Next: We anticipated lower interest rate environment.

Craig Next: We expect full year noninterest income to be in the range of one eight to $1 9 billion.

Frank Coding: As Frank mentioned in his comment.

Frank Coding: We're excited for the continued build out and momentum in our wealth platform and we'll look to fully convert the legacy silicon private businesses in 2024.

Craig Nix: Moving to expenses, we expect a modest increase from Q4 due to seasonal increases in personnel expense from higher benefits and incentives, and software costs due to continued build-out of product capabilities that will help us be the premier partner in the innovation economy in areas such as cash management, FX, and payments, as well as continued investment in our wealth capabilities that will help us sell deeper into our new national reach. Furthermore, we will continue the modernization of our platforms and consumer, equipment finance, and factoring to ensure we are well equipped to scale in the future. We also have a few regulatory projects we will be completing this year related to ISO Payments and Dodd-Frank. In addition, as Frank alluded to earlier, we are focused on building out our capabilities in the large bank and regulatory spaces, which will require some focused builds.

Frank Coding: Moving to expenses, we expect a modest increase from the fourth quarter due to seasonal increases in personnel expense from higher benefits and incentives and software costs. Due to continued build out of product capabilities that will help us with a premier partner in the innovation economy and areas such as cash management.

Encouragingly, we also added over 60 new primary operating business clients between April and November of 2023. We believe our emphasis on client engagement, coupled with better fundraising in the back half of 2024, will help propel modest growth in this segment. We'll continue to raise deposits in our direct bank. However, given the excess liquidity on our balance sheet, this pace will be moderated from the growth we experienced in 2023, with a growth rate of less than 10 percent anticipated in the channel. This obviously could change if we have unexpected deposit outflows elsewhere. Our interest rate forecast follows the implied Ford curve, which includes six rate cuts in 2024, with the effective Fed funds rate declining from 5.5% to 4% by the end of the year.

Craig Next: Next in payments as well as continued investment in our wealth capabilities that will help us sell deeper.

Craig Next: Into our new National reach Furthermore, we will continue the modernization of our platforms and consumer equipment finance and factoring teams to ensure we are well equipped to scale in the future.

We also have a few regulatory projects, we will be completing this year related to ISO payments and Dodd. Frank In addition, as Frank alluded to earlier, we are focused on building out our capabilities in the large bank and regulatory spaces, which will require some focus builds.

Craig Nix: All of this will be partially offset by continued acquisition synergies. Looking at the full year and isolating for Q2 through Q4, we anticipate non-interest expense to be flat to up low single digits percentage point, which equates to an adjusted non-interest expense target for the year of between $4.6 and 4.7 billion. While we expect to achieve the lower 25% band of our cost base goal by the end of 2024, these savings will be offset by continued capability build-out for large bank expectations, as well as costs related to the strategic priorities I just mentioned. Our adjusted efficiency ratio is expected to be in the low 50% range in 2024, up slightly from 49% for full year 2023.

Frank Coding: As of this.

Frank Coding: All of this will be partially offset by continued.

Frank Coding: Acquisition synergies.

Looking at the full year and isolating for the second through fourth quarters, we anticipate noninterest expense to be flat to up low single digits percentage points, which equates to an adjusted noninterest expense target for the year of between four six and $4 7 billion.

The implied curve currently diverges from the Fed's dot plot expectations, which include three rate cuts, with the effective Fed funds rate declining to 4.75%. It is our belief that we will see closer to three or four rate cuts during the period due to the continued strength in the labor market and the fact that inflation remains stubbornly above the Fed's target rate. Therefore, for our Net Interest Income guidance, we provide a range with the top end assuming three rate cuts and the low end assuming six rate cuts. For the first quarter, we expect net interest income to be down in the mid-single-visit percentage points range, with and without appreciation. The decline in headline net interest income will be driven by the impact of lower accretion and higher deposit costs, only partially offset by higher investment yields.

Frank Coding: While we expect to achieve the lower 25% band of our cost saves goal by the end of 2020 for these savings will be offset by continued capability build out for large bank expectations as well as costs related to the strategic priorities I just mentioned our adjusted efficiency ratio is expected to be in the low 50% range in <unk>.

24 up slightly from 49% for full year 2023.

Craig Nix: On credit, we anticipate net charge-offs to remain in the 50 to 60 basis points range in Q1, given continued pressure in the general office real estate, small ticket equipment leasing, and innovation portfolios. For the year, we expect net charge-offs in the 45 to 55 basis points range, as we expect some of the pressure in the investor-dependent portfolio to soften in the back half of the year, as well as some of the changes we made in underwriting small ticket leases in 2022 begin to favorably impact the net charge-off ratio. For both Q1 and full year of 2024, we expect our tax rate to be in the 27% to 28% range, which is exclusive of any discrete items.

Frank Coding: On credit, we anticipate net charge offs to remain in the 50 to 60 basis points range in the first quarter given continued pressure and the general office real estate small ticket equipment leasing and innovation portfolios for the year, we expect net charge offs in the 45 to 55 basis points range.

Frank Coding: As we expect some of the pressure in the investor dependent portfolio. It has softened in the back half of the year as well as some of the changes we made in underwriting small ticket leases in 2020 to begin to favorably impact the net charge off ratio.

For the full year, we expect net interest income in the range of $6.9 to $7.1 billion, with the low end assuming fixed rate cuts and the high end assuming three rate cuts. In either case, we project accretion income close to $485 million for the year, which is a decline from $725 million in the last three quarters of 2023, as loan discounts on some of the shorter portfolios have been fully recognized, isolating net interest income for the second to fourth quarter period to take into effect the timing of the SVB merger with six rate cuts. We expect headline net interest income to be low double-digit percentage points, and With three rate cuts, we expect the headline could be down high single digit percentage points and X accretion down low to mid single digit percentage points.

For both the first quarter and full year of 2024, we expect our tax rate to be in the 27% to 28% range, which is exclusive of any discrete items.

Craig Nix: In closing, we have accomplished a lot in 2023, including the transformational acquisition of SVB, which brought significant scale to our business and new product offerings to our geographically diverse client base. While economic and geopolitical uncertainties remain, we believe the strength of our diversified businesses, our strong capital and liquidity positions, and our hardworking and dedicated associates will help us continue to take care of our customers and clients and deliver meaningful returns to our shareholders. As we've proven during previous economic downturns, our business model is resilient and recession-ready, in large part due to our disciplined through-the-cycle credit underwriting standards and robust risk management infrastructure. In 2024,... We will remain focused on allocating capital where we can drive deeper relationship business with the goal of continuing to deliver, to deliver top-tier financial returns.

In closing, we accomplished a lot in 2023, including the transformational acquisition of SBB, which brought significant scale to our business and new product offerings to our geographically diverse client base.

Frank Coding: While economic and geopolitical uncertainties remain we believe the strength of our diversified businesses, our strong capital and liquidity positions and our hard working and dedicated associates will help us continue to take care of our customers and clients and deliver meaningful returns to our shareholders as.

Frank Coding: As we've proven during previous economic downturns, our business model is resilient and recession ready in large part due to our disciplined through the cycle credit underwriting standards and robust risk management infrastructure.

We anticipate our full cycle data to be approximately 44%, which is materially in line with our previous estimate of 43%. Moving on to adjusted non-interest income, we expect the first quarter to be relatively in line with the fourth quarter, in the $440 million to $460 million range. Looking at the full year and isolating for only the second through fourth quarters, we anticipate being flat as continued growth and net operating lease rental, wealth management, and mortgage income are offset by a decline in client investment fees due to the anticipated lower interest rate environment. You expect full-year non-interest income to be in the range of $1.8 to $1.9 billion. As Frank mentioned in his comment, we are excited for the continued build out and momentum in our WELC platform, and we look to fully convert the legacy silicon private businesses by 2024.

Frank Coding: In 2024, we will remain focused on allocating capital, where we can drive deeper relationship business with the goal of continuing to deliver to deliver top tier financial returns.

Craig Nix: I will now turn it over to the operator for instructions for the question and answer portion of the call.

Frank Coding: I'll now turn it over to the operator for instructions for the question and answer portion of the call.

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star and 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 any additional questions. If your question has been answered and you wish to remove yourself from the queue, please press star followed by two. We'll pause here for one moment as we compile the Q&A roster. The first question today comes from the line of Steven Alexopoulos from JP Morgan. Please go ahead. Your line is now open.

Yeah.

Frank Coding: Thank you.

Frank Coding: Ladies and gentlemen, if you have a question or a comment at this time. Please press star and then the one key on your Touchtone telephone.

Frank Coding: Each others on the call we ask that you limit yourself to one question and one follow up and then return to the Cookie I'd be.

Frank Coding: Have any additional questions.

Frank Coding: Your question has been on since you wish to me just from the key.

Frank Coding: Please press star followed by two.

Well, let's say for one moment as we compile the Q&A roster.

Frank Coding: The first question today comes from the line of Steven Alexopoulos from Jpmorgan. Please go ahead. Your line is now open.

Steven Alexopoulos: Hey, good morning, everyone.

Moving to expenses, we expect a modest increase from the fourth quarter due to seasonal increases in personnel expense due to higher benefits and incentives and software costs due to the continued build-out of product capabilities that will help us be the premier partner in the innovation economy in areas such as cash management, FX, and payments, as well as continued investment in our wealth capabilities that will help us sell deeper into our new national reach. Furthermore, we will continue to modernize our platforms and consumer equipment finance and factoring to ensure we're well equipped to scale in the future. We also have a few regulatory projects we will be completing this year related to ISO payments and Dodd-Frank. In addition, as Frank alluded to earlier, we are focused on building out our capabilities in the large bank and regulatory spaces, which will require some focus building. As of this, all of this will be partially offset by continued acquisition synergy. Looking at the full year and excluding for the second through fourth quarters, we anticipate non-interest expense to be flat to up low single-digit percentage points, which equates to an adjusted non-interest expense target for the year of between $4.6 and $4.7 billion.

Craig Nix: Good morning.

Steven Alexopoulos: Good morning. I want to start on asset sensitivity and the net interest income guidance. So part of what makes you guys so asset sensitive, right, is the outsized cash position. How do you guys see cash balances trending through 2024? You know, what's in the guidance? And if the Fed does start cutting rates, is that the time to start putting more cash to work, or you're still more focused on SVB deposits and other issues?

Steven Alexopoulos: Good morning, I wanted to start this morning, I'd like to start on asset sensitivity and net interest income guidance. So part of what makes you guys. So asset sensitive right is the outsized cash position, how do you guys see cash balances trending through 2024.

Steven Alexopoulos: What's in the guidance.

Steven Alexopoulos: Does start cutting rates is that the time to start putting more cash to work are you still more focused on SBB deposits and other issues.

Craig Nix: Well, first of all, right now cash is around 17% of earning assets, and ideally, over time, we'd like to see that migrate to 10 to 12%, replaced with either loans or investments. So, but at this point in time, where we are in the cycle, we believe we have time to get that down, especially given the purchase money note. I'll let Tom talk a little bit about the rate sensitivity and the cash balance and what we may be looking for doing to position ourselves going forward.

Craig Next: Well first of all right now cash is around 17% of earning assets and ideally over time, we'd like to see that migrate to 10% to 12% replace with either loans or investments.

Craig Next: So.

Craig Next: But at this point in time, where we are in the cycle.

Craig Next: We believe we have time to get that down, especially given the purchase money now I'll, let Tom talk a little bit about the.

Craig Next: The rate sensitivity in the cash balance and what we may be looking for doing to position ourselves going forward.

[Company Representative] (First Citizens BancShares): Yeah, Steve, during the second half of last year, we put about $8 billion worth of migrated from cash to securities, and we expect that to continue into 2024. Really, what we're doing is we're taking a methodical approach, not trying to buy the curve on any one day, but sort of do it over time, and we'll continue to do that. We also put on about $1 billion worth of fair value hedges, where we moved some of our fixed rate borrowings to floating rates, and you can expect to see that sort of continue to mitigate that asset sensitivity over time.

Tom Eklund: Yeah, Steve, during the second half of last year, we put about $8 billion worth of migrated from cash to securities, and we expect that to continue into 2024. Really, what we're doing is we're taking a methodical approach, not trying to buy the curve on any one day, but sort of do it over time, and we'll continue to do that. We also put on about $1 billion worth of fair value hedges, where we moved some of our fixed rate borrowings to floating rates, and you can expect to see that sort of continue to mitigate that asset sensitivity over time.

Tom Smith: Yes, Dave.

Tom Smith: During the second half of last year, we put about $8 billion worth of migrated from cash to securities and we expect that to continue into 2024 really what we're doing is we're taking a methodical approach not trying to buy the curve on any one day, but sort of do it over time and we'll continue to do that we also put on about $1 billion.

Tom Smith: The fair value of hedges, where we moved some of our fixed rate borrowings to floating rates and you can expect to see that sort of continue to mitigate that asset sensitivity over time.

Steven Alexopoulos: Okay, got it. But generally expecting cash balances to stay fairly elevated in terms of what's in the NII guidance, right? That's what you're saying.

While we expect to achieve the lower 25 percent band of our cost-based goal by the end of 2024, these savings will be offset by continued capability build out for large bank expectations, as well as costs related to the strategic priorities I just mentioned. Our adjusted efficiency ratio is expected to be in the low 50 percent range in 2024, up slightly from 49 percent for the full year 2023. On credit, we anticipate net charge-offs to remain in the 50 to 60 basis points range in the first quarter, given continued pressure on the general office real estate, small ticket equipment leasing, and innovation portfolio. For the year, we expect net charge-offs to be in the 45 to 55 basis points range. As we expect, some of the pressure in the investor-dependent portfolio to soften in the back half of the year, as well as some of the changes we made in underwriting small ticket leases in 2022, began to favorably impact the net charge operation. For both the first quarter and full year of 2024, we expect our tax rate to be in the 27 to 28 percent range, which is exclusive of any discrete item.

Dave: Okay got it generally expecting cash balances.

David Leitch: Fairly elevated in terms of what's in the NII guidance right, that's what you're saying.

Craig Nix: Yeah, I think that's true, although I think the percentage might drop some, but not into that 12-- 10 to 12% band-

Craig Next: I think that's true, although I think that percentage might drop some but not into that 12, 10% to 12% band at the end of 2024.

Steven Alexopoulos: Yep.

Craig Nix: At the end of 2024.

Steven Alexopoulos: Got it. Okay, and then my follow-up question, I don't know if Marc's on the line, but in terms of the SVB business, last quarter you guys talked about some green shoots, positive signs, right, new account openings. Curious, what do you see in the most recent quarter in terms of clients or prospects coming back to the bank? And what's your assessment of the state of the market right now? I saw early-stage losses up a bit, capital calls down, pipeline up. Just what's like the view on the current ecosystem at the moment? Thanks.

Craig Next: Yes.

Craig Next: Okay and then my follow up question on of Mark's on the line, but in terms of the STB business last quarter, you guys talked about some green shoots positive signs right new account openings curious what do you see the most recent quarter in terms of clients prospects coming back to the bank.

David Leitch: And what's your assessment of the state of the market right now is our early stage losses up a bit capital calls down pipeline up.

David Leitch: The view on the current ecosystem at the moment.

Craig Nix: Hey, Marc, you want to take that one?

Marc Cadieux: Sure. Yep, happy to jump in there. Good morning, Steve. It's Marc Cadieux. And the Q4 was really, in this regard, a lot like the Q3. Continued momentum with new clients, new lending, winning back business that had departed to other financial institutions, et cetera. And so very encouraged by that as we look ahead to 2024. At the same time, as I think Craig already mentioned, our target markets, the innovation economy, continues to go through a the reset, its own downturn. And as mentioned, we expect that's going to continue in 2024. And so, you know, our intention is to keep doing what we were doing in 2023. And, and, you know, hoping that 2025 and ahead is better conditions.

David Leitch: Hey, Mark do you want to take that.

David Leitch: Sure.

David Leitch: Yes happy to jump in there good morning, Steve It's Marc Cadieux.

Marc Cadieux: In the fourth quarter. It was really in this regard a lot like the third quarter continued momentum with new clients new lending.

Marc Cadieux: Winning back business that had departed to other financial institutions et cetera, and so very encouraged by that as we look ahead to 2004 at the same time.

Marc Cadieux: I think.

Craig: Craig already mentioned.

Craig Next: Our target market is the innovation economy continues to go through.

Operator: In closing, we accomplished a lot in 2023, including the transformational acquisition of SVB, which brought significant scale to our business and new product offerings to our geographically diverse client base. While economic and geopolitical uncertainties remain, we believe the strength of our diversified businesses, our strong capital and liquidity positions, and our hardworking and dedicated associates will help us continue to take care of our customers and clients and deliver meaningful returns to our shareholders. As we've proven during previous economic downturns, our business model is resilient and recession-ready, in large part due to our discipline through the cycle credit underwriting standards and robust risk management infrastructure. In 2024, we will remain focused on allocating capital where we can drive deeper relationship business with the goal of continuing to deliver top-tier financial returns.

The reset its own downturn and as mentioned, we expect that's going to continue in 'twenty four and so our intention is to keep doing what we're doing in 'twenty three and.

Craig Next: Hoping that 25% ahead is.

Marc Cadieux: But again, feel good about the momentum we've got in going into 2024, notwithstanding that, we still have market headwinds.

Craig: Better conditions, but again feel good about the momentum we've got in going into 'twenty four notwithstanding that we still have market headwinds.

Steven Alexopoulos: Got it. Thanks for the color, and I'll go back to the queue. Thanks.

Craig: Got it thanks for the color and I'll go back.

Craig: Thanks.

Operator: Thank you. The next question today comes from the line of Brody Preston from UBS. Please go ahead. Your line is now open.

Craig: Okay.

Craig: Thank you.

Craig: The next question today comes.

Craig: From the line of Brody Preston from UBS. Please go ahead. Your line is now open.

Brody Preston: Hey, good morning, everyone.

Craig: Hey, good morning, everyone.

Craig Nix: Morning.

Brody Preston: Craig, I just wanted to follow up on the cash comment. So if you're using the forward curve, which has the Fed funds ending at 4% on the high end of the target range for 2024, so like 3.875% at the midpoint, you know, why not use the cash at the end of the year or sometime in the first quarter of 2025, maybe, to pay back that FDIC note? I mean, you'd just be earning, like, 35 to 40 basis points on it at that time, so it's pretty NIM dilutive, and I'm assuming that you all feel like you have a pretty decent handle on the SVB deposits now. Like, is that contemplated in your thought process at all?

Craig: Good morning, Craig.

Craig: Hey, guys just wanted to follow up on the cash comment. So if we're if you're using the forward curve, which has a fed funds ending at 4% on the high end of the target range for 2024 so.

Craig: Three in <unk>.

Craig: <unk> at the midpoint.

Craig Next: Why not use the cash at the end of a year or some time in the first quarter of 25, maybe to payback that FDIC note.

Operator: I will now turn it over to the operator for instructions for the question and answer portion of the call. Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star and 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 any additional questions. If your question has been answered and you wish to remove yourself from the queue, please press star followed by, We'll pause here for one moment as we compile the Q&A.

Craig Next: <unk> in like 35 to 40 basis points on it at that time, so it's pretty.

Craig Next: Pretty NIM dilutive and I'm, assuming that you all feel like you have a pretty decent handle on the SME deposits now is that contemplated in your thought process at all.

Craig Nix: Yeah, I'm going to let Tom amplify what I'm going to say here, but right now, where rates are, there's a positive arbitrage in there. And while it's dilutive to NIM, it's accretive to net interest income. Obviously, as we move into more rate cuts, it becomes less attractive to leave that purchase money note out there. And with the excess liquidity we have, we would have some optionality of pulling that down. Tom, would you, would you like to amplify that anything?

I'm going to let Tom amplify what I'm going to say here, but right now where rates are there is a positive arbitrage in there while it's dilutive to NIM, it's accretive to net interest income obviously as we move into more rate cuts.

Tom Smith: Becomes less attractive.

The first question today comes from the line of Stephen Alexopoulos from J.P. Morgan. Please go ahead; your line is now open. Good morning, everyone.

Tom Smith: I believe that purchase money note out there and the excess liquidity, we have we would have some optionality of pulling that down.

Morning, I wanted to start on asset sensitivity and the net interest income guidance. Part of what makes you guys so asset sensitive, right, is the outsize cash. Do you see cash balances trending? Do you know what's in the guidance, and if the Fed does start cutting rates, is that the time to start putting more cash to work, or are you still more focused on?

Tom Smith: Tom would you like to amplify that.

[Company Representative] (First Citizens BancShares): No. I mean, I think the only comment I'd make is that, again, that excess liquidity and having that cash provides that option for us, should rates follow the forecasted path in the forward rate code. So that's where we are.

Tom Eklund: No. I mean, I think the only comment I'd make is that, again, that excess liquidity and having that cash provides that option for us, should rates follow the forecasted path in the forward rate code. So that's where we are.

Tom Smith: I think the only comment I'd make is that again that excess liquidity and having that cash provides that option for us.

<unk>, followed that forecasted path to move forward rate curve.

Brody Preston: Okay, got it. And then I did wanna, I did wanna circle back. I think I heard you earlier, Craig, that you said you expected the SVB loans to remain flat, you know, around like in the 50s, you know, billion-ish kind of area for this year. I guess I wanted to ask like a little bit of a two-part question here. What is, what is kind of like the mix that you're assuming within that? Just because I saw that the cash flow dependent balances were up, you know, about $1 billion this quarter. And then, two, like, how do you think about, you know, the components of growth and what it does to the multiple? Because, you know, you kind of have these two divergent paths, right?

Tom Smith: Okay.

Got it and then I did want us I did want to circle back.

Craig Next: I think I heard you earlier, Craig that you said.

Craig Next: Do you expect that the SMB loans.

Well, first of all, right now, cash is around 17% of earning assets. And ideally, over time, we'd like to see that migrate to 10 to 12%, replaced with either loans or investment. So, at this point in time where we are in the cycle, we believe we have time to get that down, especially given the purchase money note. I'll let Tom talk a little bit about the rate sensitivity and the cash balance and what we may be looking for during the position ourselves going forward. Yeah, Steve, during the second half of last year, we put about $8 billion worth of assets migrated from cash to securities, and we expect that to continue into 2024. Really, what we're doing is we're taking a methodical approach, not trying to buy the curve on any one day, but sort of do it over time, and we'll continue to do that.

Craig Next: To remain so.

Craig Next: Around like in the <unk> one.

Craig Next: $1 billion ish kind of area for this year.

Speaker Change: I guess I wanted to ask a little bit of a two part question.

Craig Next: Here, what is kind of like the mix that you're assuming within that just because I saw that the cash flow dependent balances were up about $1 billion this quarter and then.

Craig Next: To like how do you think about the components of growth and what it does to the multiple because you kind of have these two divergent paths right. If you can grow 70.

Brody Preston: If you can grow SIBB, you know, that should naturally come with higher DDA balances, and that's really enhancing to your multiple over the long term, versus kind of growing the higher yielding commercial bank and maybe funding it more with, you know, your savings product. You know, it is great for balance sheet growth, but I think investors would view that as less multiple enhancing. Like, how, how do you think about those two paths?

Craig Next: That should naturally come with higher DDA balances and that's really enhancing to your multiple over the long term versus kind of growing the higher yielding commercial bank and maybe funding it more with your savings product.

Craig Next: It is great for balance sheet growth, but I think investors would view that as the last multiple enhancing like how do you think about those two paths.

[Company Representative] (First Citizens BancShares): Yeah, Bernie, this is Elliot Howard. I think on, you know, the SVB growth, we're expected to be up, you know, slightly from kind of that mid-50s range this year, and a lot of that in the global fund banking. Craig mentioned that our pipeline was up, you know, $1.5 billion in the Q4 from where it was, just really the result of kind of being back in the market more fully in the Q2. I think we're still seeing headwinds, as, you know, Mark mentioned, in tech sector, just given the overall kind of loan environment. Long-term, I think we're bullish, you know, on the SVB growth. As market activity returns, just with the strength of our clients and the outreach to new clients.

Elliott Howard: Yeah, Bernie, this is Elliot Howard. I think on, you know, the SVB growth, we're expected to be up, you know, slightly from kind of that mid-50s range this year, and a lot of that in the global fund banking. Craig mentioned that our pipeline was up, you know, $1.5 billion in the Q4 from where it was, just really the result of kind of being back in the market more fully in the Q2. I think we're still seeing headwinds, as, you know, Mark mentioned, in tech sector, just given the overall kind of loan environment. Long-term, I think we're bullish, you know, on the SVB growth. As market activity returns, just with the strength of our clients and the outreach to new clients.

Craig Next: Yes.

Howard: I only have Howard I think that would.

We also put on about $1 billion worth of fair value hedges where we need some of our fixed rate borrowings to floating rates, and you can expect to see that sort of continue to mitigate that asset positivity over time, but you're generally expecting the cash balance to be fairly elevated, the NII. Yeah, I think that that's true, although I think the percentage might drop some, but not into that 10 to 12 percent band at the end of 2024. Then, my follow-up question: I don't know if Mark... But in terms of the S. Last quarter, you guys talked about some great shoots, positive. Curious, what do you see?

Howard: The growth.

Howard: We're expecting to be up slightly from kind of that mid 50 range. This year and a lot of that in the mobile phone banking.

Howard: As Greg mentioned the pipeline.

Howard: One of that $1 billion in the fourth quarter from where it was really the result of kind of being back in the market more fully in the second quarter.

Howard: I see.

Howard: You'll see that Mark mentioned second out there just given the overall kind of environment.

Howard: I think we're both homelessness.

Howard: This is the growth market.

Howard: Market activity returns with the goodwill of our clients and the outreach to new clients.

[Company Representative] (First Citizens BancShares): Yeah, I think with that, you know, certainly with the loan growth, we'd expect more deposit growth to come as well as that returns. That's going to be, you know, cheaper rates than what we have, certainly kind of in our savings products and direct banks. The more that we can grow the SVB, you know, we do think that'll be kind of, you know, better for the overall bank and earnings.

Tom Eklund: Yeah, I think with that, you know, certainly with the loan growth, we'd expect more deposit growth to come as well as that returns. That's going to be, you know, cheaper rates than what we have, certainly kind of in our savings products and direct banks. The more that we can grow the SVB, you know, we do think that'll be kind of, you know, better for the overall bank and earnings.

Mark Smith: Yes, I think with that certainly with the loan growth, we would expect more deposit growth to come as well as that returns.

Mark Smith: Cheaper rate than what we have certainly done a nurse savings product and broadband access.

recent quarter in terms of clients' prospects coming back to the bank, and what's your assessment of the state of the market? Right now, I saw early-stage losses up a bit, capital calls down, and pipeline up. Just what's the view on the current? Hey Mark, you want to take that? Yep, happy to jump in there. Good morning, Steve. It's Mark Caddier. And the fourth quarter was, in this regard, a lot like the third quarter.

Mark Smith: The more that we can grow.

Mark Smith: We do think that will be better for the overall bank of earnings.

Yes.

Brody Preston: Got it. So just to confirm, though, for 2024, it does sound like we're leaning more into the commercial bank and maybe kind of funding that with higher cost savings deposits. Is that fair?

Got it so just to confirm no for 2024, it does sound like we're leaning more into the commercial bank and maybe kind of funding that with higher cost savings deposits is that fair.

Craig Nix: Well, we're also projecting mid-single-digit growth in the general bank as well, so it's just pretty spread across the loan portfolios.

Mark Smith: We're also projecting mid single digit growth in the general bank as well, so it's pretty spread across the loan portfolios.

Continued momentum with new clients, new lending, winning back business that had departed to other financial institutions, et cetera. And so, very encouraged by that as we look ahead to 24. At the same time, as Craig already mentioned our target markets, the innovation economy continues to go through its own downturn. And as mentioned, we expect that's gonna continue in 24.

Brody Preston: Okay, I'll step back in the queue.

Mark Smith: Okay I'll step back in the queue.

Mark Smith: Yes.

[Company Representative] (First Citizens BancShares): Thank you. The next question today comes from the line of Christopher Marinac from Janney Montgomery Scott. Please go ahead. Your line is now open.

Tom Eklund: Thank you. The next question today comes from the line of Christopher Marinac from Janney Montgomery Scott. Please go ahead. Your line is now open.

Mark Smith: Yeah.

Mark Smith: Thank you.

Christopher <unk>: The next question today comes from the line of Christopher <unk> from Janney Montgomery Scott. Please go ahead. Your line is now live.

Christopher Marinac: Thanks. Good morning. Just wanted to ask more about the general criticized loan trends, you know, beyond what we saw on the deck on office and the SVB portfolio.

And so our intention is to keep doing what we were doing in 23 and hoping that 25 and ahead are better conditions, but again, feel good about the momentum we've got and going into 24, notwithstanding that we still have market headwinds. Thank you. The next question today comes from the line of Brodie Preston from UBS. Please go ahead; your line is now open. Hey, good morning, everyone. Morning, Craig. I just want Craig.

Christopher <unk>: Thanks. Good morning, just wanted to ask more about the general criticized loan trends beyond what we saw on the deck on office in the FCB portfolio.

Deanna Hart: Yeah, sure. This is Andy Johngraves. Obviously, it's the trends we are seeing are concentrated in general office and innovation. I think we have seen a moderate migration in CNI, but nothing at this point of any concern.

Andy Gianggrave: Yeah, sure. This is Andy Johngraves. Obviously, it's the trends we are seeing are concentrated in general office and innovation. I think we have seen a moderate migration in CNI, but nothing at this point of any concern.

Christopher <unk>: Yes sure this is Andy John Graves.

Christopher <unk>: Obviously, it's the.

Christopher <unk>: Trend we are seeing are concentrated in general office and innovation I think we are seeing.

Christopher <unk>: Moderate.

Christopher <unk>: Migration in C&I.

Christopher <unk>: But nothing at this point of of any concern.

Christopher Marinac: Great. And then the charge-off guide being a little higher now in Q1 and then a little lower for the whole year, does that indicate the sort of kind of past sort of cleanup or cleanup from past issues, or do you see sort of, I guess, some greener shoots that that credit can improve as this year goes on?

Christopher <unk>: Great and then the charge offs guide being a little higher now in Q1, and a little lower for the whole year does that indicate to sort of kind of past sort of cleanup or cleanup from past issues or do you see sort of I guess, some green shoots that credit can improve as this year goes on.

Brodie Preston: I just wanted to follow up on the cash comment. So if we're using the forward curve, which has the Fed funds ending at 4% of the high end of the target range for 2024, so, three and seven eights at the midpoint, why not use the cash at the end of the year or sometime in the first quarter, maybe to pay back that FDIC note. I mean, you'd just be earning like 35 to 40 basis points on it at that time. So it's pretty, pretty nimb dilutive.

Deanna Hart: Yeah, I think it's going to be the continued theme that we spoke about last quarter and this quarter. It's going to be concentrated in office, innovation, and our equipment finance. Obviously, there's the secular shift in office that's still a challenge, especially in this interest rate environment. On the innovation, I think Marc highlighted well the challenges in the market. And then the equipment finance side, it's really working through some of those older vintages. But we feel like the tightening of our underwriting in that portfolio and some of the increase in collection efforts should start to show some benefits in the back half of the year.

Andy Gianggrave: Yeah, I think it's going to be the continued theme that we spoke about last quarter and this quarter. It's going to be concentrated in office, innovation, and our equipment finance. Obviously, there's the secular shift in office that's still a challenge, especially in this interest rate environment. On the innovation, I think Marc highlighted well the challenges in the market. And then the equipment finance side, it's really working through some of those older vintages. But we feel like the tightening of our underwriting in that portfolio and some of the increase in collection efforts should start to show some benefits in the back half of the year.

Craig Next: Yes, I think it's going to be due to continued theme that we spoke about last quarter and this quarter.

It's going to be concentrated in.

<unk> innovation and our equipment finance.

Craig Next: Obviously, there's the secular shift in office, that's still a challenge.

Craig Next: Especially in this interest rate environment.

Brodie Preston: And I'm assuming that you feel like you have a pretty decent handle on the SIVB deposits now, like is that contemplated in your thought process at all? Yeah, I'm gonna let Tom amplify what I'm gonna say here, but right now, where rates are, there's a positive arbitrage in there, and while it's deleted from NEM, it's accreted to net interest income. Obviously, as we move into more rate cuts, it becomes less attractive to leave that purchase money note out there, and with the excess liquidity we have, we would have some optional Tom, would you like to amplify that?

Craig Next: The innovation.

Craig Next: Highlighted well the challenges.

Craig Next: In the market and then the equipment finance side.

Craig Next: Its really.

Craig Next: Working through some of those older vintages.

Craig Next: But we feel like the tightened.

Craig Next: Tightening of our underwriting in that portfolio and some of them.

Craig Next: The increase in collection efforts should start to show some benefits in the back half of the year.

Christopher Marinac: Great. Thank you very much for taking my questions.

Craig Next: Great. Thank you very much for taking my questions.

I mean, I think the only comment I'd make is that, again, that excess liquidity and having that cash provides that option for us, should rates follow the forecasted path in the forward rate curve. OK. Got it. And then I did want to, I did want to circle back.

[Company Representative] (First Citizens BancShares): Thank you. Our next question today comes from the line of Brian Foran from Autonomous. Please go ahead. Your line is now open.

Tom Eklund: Thank you. Our next question today comes from the line of Brian Foran from Autonomous. Please go ahead. Your line is now open.

Craig Next: Thank you.

Craig Next: Our next question today comes from the line of Brian Foran from Autonomous. Please go ahead. Your line is now open.

Brian Foran: Hi, maybe to follow up on credit and these four kind of main portfolios, the plus the office, the two investor dependent, and then the small ticket equipment finance. So I think they total about $6.5 billion now, and you give us the reserves on most, but then I guess you also have pretty heavy charge-offs already and some purchase accounting marks. I don't know if it's easier to talk about them as a group or some of them separate, but is there any way to, like, frame between the allowance, the charge-offs to date, and the purchase accounting? Like, what is the cumulative loss you've now recognized on these portfolios?

Craig Next: Hi, maybe a follow up on credit and.

Craig Next: These four kind of main portfolios.

Craig Next: Class B office.

Craig Next: Investor dependent and then the small ticket equipment finance.

Craig Next: I think they total about $6 5 billion now and you would give us the reserves on most.

Craig Next: And I guess, you also have a pretty heavy charge offs already and some purchase accounting marks.

Brodie Preston: I think I heard you earlier, Craig, that you said you expected the CIVB loans to remain flat, you know, around like in the 50s, you know, billion-ish kind of area for this year. I guess I wanted to ask you a little bit of a two part question here. What is the kind of like the mix that you're assuming within that just because I saw that the cash flow-dependent balances were up, you know, about a billion dollars this quarter? And then, too, how do you think about the components of growth and what it does to the multiple? Because you kind of have these two divergent paths, right?

Craig Next: I don't know if its easier to talk about them as a group or some of them separate and is there any way to frame between the allowance charge offs to date and the purchase accounting like what is the cumulative loss cheap now recognized on these portfolios.

Craig Nix: ... Brian, this is Craig. I'll take those individually and in aggregate because I think it's important to really size that portfolio relative to the overall loan portfolio. If you take those three components, commercial, general office, equipment finance, and the investor-dependent loans, whether they're growth stage or early stage, those total about $11.3 billion, which is 8% of the loan portfolio. If you look at and so on those portfolios, we have total loss absorbing capacity of around 6.06% on net charge-offs for the year of around 3.6. So if you aggregate those portfolios, our coverage is 1.9 times.

Craig: Brian This is Craig I'll take those individually and in aggregate, but because I think it is important to really.

Craig: Size that portfolio relative to the overall loan portfolio. If you take those three components commercial general office equipment finance and the investor dependent lines, whether the growth stage early stage. Those total about 11 $3 billion, which is 8% of the loan portfolio.

If you look at it.

Craig: And so all of those portfolios we have.

Craig: Total loss absorbing capacity of around $6, 86%.

Craig: Net charge offs for the year at around three six.

Craig: If we aggregate those portfolios our coverage is one nine times.

If you can grow SIBV, that should naturally come with higher DDA balances. And that's really enhancing your multiple over the long term versus kind of growing the higher yielding commercial bank and maybe funding it more with your savings product. It's great for balance sheet growth, but I think investors would view that as less multiple enhancing. Like, what do you think about those two paths? Yeah, Bernie. This is Elliott Howard.

Craig Nix: If we slice it down to the individual portfolios, commercial, general office, we have a coverage ratio of 1.1, an allowance of 7.99% on a charge-off ratio of 7.48. On the equipment finance, the allowance is 3.52%, and charge-off's 1.87, so around 1.9 coverage. And then on investor-dependent, we have an allowance of 5.21 and a purchase discount of 3.58, which totals the total loss absorbing capacity of 8.79. So the allowance itself covers the charge-off of 4.66, but when including that purchase discount, which is available to absorb losses, takes it to 1.9 times.

Speaker Change: We slice it down to the individual portfolios commercial general office.

Speaker Change: Have a coverage ratio of one one allowance of 799% on a charge off question is 748 on the equipment finance.

Speaker Change: The allowance is 352%.

Speaker Change: And charge offs of $1 87 to around $1 nine coverage and then on Investor dependent we have an allowance of five to one and a purchase discount of three 5%.

I think I'm, you know, this should be gross, expected to be up by the mid-50s range this year, and a lot of that in the global fund. Craig mentioned that our pipeline was up. One and a half billion dollars in the fourth quarter from where it was, really the result of kind of being back in the market more forward. Um, you know, I think we're still getting headwinds of, you know, Mark mentioned, uh, second health care, just getting the overall kind of living environment. Long term, I think we're bullish on this as we grow, you know, market activity returns. I think with that, certainly with the loan growth, we would expect more deposit growth to come as well if that returns, and that's at a cheaper rate than what we have in our savings product. The more that we can grow them, we do think that'll be better for the overall bank and earnings. I got it. So just to confirm, though, for 2024, it does sound like we're leaning more into the commercial bank and maybe kind of funding that with higher-cost savings deposits. Is that fair?

Speaker Change: Total <unk> total loss absorbing capacity of $8 79, so the allowance itself covers the charge offs of $4 66, but when including that purchase discount which is available to absorb losses takes it to one nine times. So we feel really good about both our protections there and about our coverage.

Craig Nix: So we feel really good about both our projections there and about our coverage, in terms of charge-offs, both that we've incurred and that we expect to occur, moving forward.

Speaker Change: In terms of charge off the.

That we've incurred and that we expect to occur moving forward.

Brian Foran: That's really helpful. I guess, on the buyback, you know, I'm assuming you're not going to answer the obvious question of sizing it for the second half of the year. But maybe can you just remind us, you know, as we've moved through this year, there's been CET1, there's been CET1 extra loss share, there's been the leverage. You know, it seems like some of the divergent metrics are starting to converge, but, you know, when you look at kind of your excess capital position, what number are you focused on? Is it, is it the roughly 12 pro forma CET1 versus the 9 to 10 target? You know, with the different capital metrics, what's the focus right now as you move to midyear?

That's really helpful.

Speaker Change: I guess on the buyback.

I assume youre not going to answer the obvious question of <unk>.

Speaker Change: <unk> for the second half of the year.

Speaker Change: But maybe can you just remind us.

Speaker Change: As we've moved through this year, there's been CET, one theres been CET, one extra loss share theres been the leverage.

It seems like some of the divergent metrics are starting to converge, but when you look at kind of your excess capital position what number you're focused on is it is it roughly 12 pro forma CET, one versus the 9% <unk> target.

Speaker Change: Yeah.

Craig Next: With the different capital metrics, what's the focus right now as you move to mid year.

Craig Nix: Yeah, we look at it sort of. I mean, if we do an asset test as of 31 December 2023, with Basel III, it's around 12. If we do an asset test with Basel III ex loss share, it's around 11. So that range of 11 to 12, sort of an asset test as of 31 December 2023, leaves us well above our target ranges. And then, obviously, as time goes on, we're accreting earnings at about 36 basis points a quarter, and our risk-weighted assets are taking around 27. So we look, it's going to continue. Our capital position is going to continue to build.

Craig Next: We look at it we look at it sort of.

We're also projecting mid-single-digit growth in the general bank as well, so it's pretty spread across the loan portfolio. OK, I'll step back and thank you. The next question today comes from the line of Christopher Maranac from Janey Montgomery Scott. Please go ahead, your line is now open.

We do an acid test.

Craig Next: As of 12, 31, 2003 with Basel III, it's around 12, if we do an acid test with Basel III at loss share it's around 11.

Craig Next: That range of 11 to 12.

Craig Next: <unk>.

At the past two years.

Craig Next: 31 23.

David Leitch: Leaves us well above our target ranges and then obviously as time goes on recruiting.

Thanks, good morning. Just wanted to ask more about the general criticized loan trends beyond what we saw on the deck for Office and the SBB portfolio. Yeah, sure. This is Andy John Graves.

David Leitch: Earnings at about 36 basis points, a quarter in risk weighted assets were taken around 27%.

David Leitch: It's going to continue our capital position is going to continue.

Obviously, the trends we are seeing are concentrated in general office and innovation. I think we've seen a moderate migration in CNI, but nothing at this point of any concern. Great. And then the charge-up guy being a little higher now in Q1 and a little lower for the whole year.

Craig Nix: So we do think that share repurchases are going to, we feel confident about share repurchases, not only in the, the rate we're accreting capital, but just the absolute levels of capital, our capacity to handle our balance sheet growth, SVB integration efforts, and our positioning with respect to Basel III, all give us confidence in a share repurchase plan. And you're right, I really can't speak to the size of that until we get through our internal stress testing, which is being conducted now as part of our capital plan. We do expect the timing, subject to necessary internal and regulatory approvals to be in the second half of this year. So I hope that's helpful.

David Leitch: To build so we do think that share repurchases are going to do.

David Leitch: We feel confident about share repurchases not only.

David Leitch: And the rate premium capital, but just the absolute levels of capital or capacity to handle our balance sheet.

Does that indicate some sort of past sort of cleanup or cleanup from past issues? Or do you see sort of, I guess, some greener shoots that credit can improve as this year goes on? Yeah, I think it's going to be the continued theme that we spoke about last quarter, and this quarter, it's going to be concentrated in faucet, innovation, and our equipment finance. Obviously, there's the secular shift in office that's still a challenge, especially in this interest rate environment, for innovation.

David Leitch: Seb integration efforts.

David Leitch: And our positioning with respect to Basel III, all give us confidence in our share repurchase plan and you are right I really can't speak to.

Craig Next: The size of that until we get through our internal stress testing, which is being conducted now as part of our capital plan. We do expect the timing subject to necessary internal and regulatory approvals to be in the second half of this year.

Brian Foran: Okay.

Craig Nix: But we are looking at-

So I hope that's helpful. But we're looking at definitely target our capital ratios are well above our target ranges.

Brian Foran: That's very helpful.

Craig Nix: Hopefully, confident that our capital ratios are well above our target ranges, looking at it in a myriad of different ways.

I think Mark highlighted well the challenges in the market. And then on the equipment finance side, it's really working through some of those older vintages, but we feel like the tightening of our underwriting in that portfolio and some of the increase in collection efforts should start to show some benefits in the back. Great. Thank you very much for taking my questions.

Craig Next: Looking at it in a myriad of different ways.

Brian Foran: Thank you. That's great.

Craig Next: Thank you that's great.

Craig Next: Yeah.

Craig Nix: Yep, you're welcome.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today is a follow-up question from Steven Alexopoulos from JP Morgan. Please go ahead. Your line is now open.

Craig Next: You're welcome thank you.

Craig Next: As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.

Craig Next: The next question today is a follow up question from Steven Alexopoulos from Jpmorgan. Please go ahead. Your line is now open.

Steven Alexopoulos: Hey, guys. Thanks for taking my follow-up. So the market's pretty happy with the news of buybacks coming back in the second half. My question is, so given that tangible book value growth is such a key focus for the senior team, at this valuation, I'm sure you'd love to be buying back the stock today. But at what valuation do buybacks become less attractive, right? I mean, if the stock is trading, you know, multiple of what we think at SVB, just saying it's 1.5 or something like that this year, do you still buy back in the second half? Like, where's the line in the sand where you don't find buybacks as attractive?

Thank you. Our next question today comes from the line of Brian Foran from Autonomous. Please go ahead; your line is now open.

Steven Alexopoulos: Hey, guys. Thanks for taking my follow up.

Steven Alexopoulos: So the market is pretty happy with the news of buybacks coming back in the second half. My question is so given the tangible book value growth is such a key focus for the senior team.

Brian Foran: I do the follow-up on credit and these four kinds of main portfolios: Plexi Office, the two investor-dependent, and then the small ticket equipment finance. I think they total about $6.5 billion now, and you give us the reserves on most. But then I guess you also have pretty heavy charge-offs already and some purchase accounting marks. I don't know if it's easier to talk about them as a group or, or some of them separately.

Steven Alexopoulos: Evaluation I'm sure you'd love to be buying back the stock today.

What valuation do buybacks become less attractive right.

Steven Alexopoulos: The stock is trading mark deliveries, but we think that FCB, just saying, it's one five or something like that.

Or do you still buy back in the second half, whereas like the line in the sand, where you don't find buybacks as attractive.

Brian Foran: Is there any way to, like, frame the difference between the allowance, the charge off the data, and the purchase accounting? Like, what is the cumulative loss you've now recognized on these portfolios? Brian, this is Craig.

Craig Nix: Well, well, we look at it just like we would any other acquisition, so there are a myriad of payback periods and tangible dilution payback periods that we look at. I'm not going to get into our modeling on it, but we certainly scrutinize repurchases just like we would scrutinize purchasing, you know, another bank in the open market. Tom, do you have anything else? Tom, Tom's responsible for some of the modeling we do there, but I think that's generally our approach. I don't think I left anything out there.

Steven Alexopoulos: Well.

Steven Alexopoulos: We look at it just like we would any other acquisition. So there are a myriad of <unk>.

I'll take those individually and in aggregate because I think it's important to really size that portfolio relative to the overall loan portfolio. If you take those three components, commercial, general office, equipment, finance, and the investor-dependent loans, whether they're growth stage or early stage, those total about $11.3 billion, which is 8% of the loan portfolio. If you look at – and so on those portfolios, we have total loss-absorbing capacity of around 6.06%. On net charge-offs for the year, they're around 3.6%. So if you aggregate those portfolios, our coverage is 1.9 times. If we slice it down to the individual portfolios, commercial, and general office, we have a coverage ratio of 1.1, an allowance of 7.99% on the charge-off ratio of 7.48. On the equipment finance – The allowance is 3.52%, and charge-offs are 1.87, so around 1.9 coverage. And then on investor-dependent, we have an allowance of 5.21 and a purchase discount of 3.58, which totals the total loss-absorbing capacity of 8.79. So the allowance itself covers the charge-offs of 4.66, but when including that purchase discount, which is available to absorb losses, takes it to 1.9 times.

Steven Alexopoulos: Payback periods and tangible volution payback periods that we look at I'm going to get into our modeling on it but we certainly scrutinize repurchases just like we would scrutinize purchasing another bank in the open market.

Tom do you have anything else Tom Tom Tom is responsible for some of the modeling we do there, but I think that generally.

Tom Smith: Our approach something I left anything out there no I think that's exactly right I mean, we bought back about tangible book value in the past and you really have to do with sort of what our earnings trajectory looks like and sort of what other opportunities are out there. So yes, it varies but it's not like the farm field.

[Company Representative] (First Citizens BancShares): No, I think that's exactly right. I mean, we bought back above tangible book value in the past, and it really has to do with sort of what our earnings trajectory looks like and sort of what other opportunities are out there. So, yeah, it varies, but it's not like there's a firm feeling.

Tom Eklund: No, I think that's exactly right. I mean, we bought back above tangible book value in the past, and it really has to do with sort of what our earnings trajectory looks like and sort of what other opportunities are out there. So, yeah, it varies, but it's not like there's a firm feeling.

Steven Alexopoulos: Got it. Okay. Thanks. Just one other one. On the NII guide, do you guys include the expected costs of this $8 to 11 billion debt issuance? Is that in there, or if you issue, will that then impact the NII guide?

Tom Smith: Got it okay. Thanks.

Tom Smith: And just one other one.

Tom Smith: And then I guess.

Tom Smith: This includes the expected costs of this 811 billion debt issuance is that and there are a few issue will that then impact.

Impact the NII guide.

Craig Nix: Yeah, it's in there, but the issuance this year would be muted, so it won't have a significant impact on this year's NIM. But going forward, it will, based on where our costs are today and what the costs are anticipated on that, probably be a headwind moving forward.

Tom Smith: It's in there, but the issuance this year would be needed. So it won't have a significant impact on this year's NIM going forward.

David Leitch: It will.

David Leitch: Based off.

David Leitch: Based on where our costs are today and what the costs, we anticipate on that will probably be a headwind moving forward.

Steven Alexopoulos: Yep. Yep, got it. Okay.

Craig Nix: Yep.

David Leitch: Yes got it okay.

Steven Alexopoulos: Thanks for taking my follow-up.

David Leitch: Thanks for taking my follow up.

Craig Nix: Yep. You're welcome.

Brian Foran: So we feel really good about both our projections there and about our coverage in terms of charge-offs both that we've incurred and that we expect to incur moving forward. That's really helpful. I guess on the buyback, you know, I'm assuming you're not going to answer the obvious question of sizing it for the 2nd half of the year. Um, but maybe you could just remind us.

David Leitch: Yes.

David Leitch: Welcome.

Operator: Thank you. The next question today is a follow-up question from Brody Preston from UBS. Please go ahead. Your line is now open.

Speaker Change: Thank you. The next question today is a follow up question from Brody Preston from UBS. Please go ahead. Your line is now open.

Brody Preston: Hey, thanks, guys. I just had a couple of clarifying questions that I wanted to ask. The first one was just on the innovation C&I and cash flow dependent portfolio. As I said earlier, that was up $1 billion in balances. Was there any, like, movement from, like, the growth stage portfolio there, or was that kind of like true growth within that portfolio? And if so, do you happen to kind of have a read on, you know, what the industry verticals were that drove that growth?

Brody Preston: Hey, Thanks, guys I just had a couple of clarifying questions that I wanted to ask.

Brody Preston: The first one was just on.

Brody Preston: The innovation C&I and cash flow dependent.

You know, as we've moved through this year, there was 1, there was the law share, there was the leverage, you know, it seems like some of the divergent metrics are starting toconverge, but, you know, when you look at kind of your excess capital position, what number are you focused on? Is it the roughly 12 pro forma CT1 versus the 9 to 10 target, you know, with the different capital metrics? What's the focus right now as you move to mid-year? Yeah, we look at it. We look at it sort of, I mean, if we do an acid test.

Brody Preston: <unk> as I said earlier that was up $1 billion in balances.

Brody Preston: Was there any like movement from like.

Craig Next: The gross stage portfolio, there or was that kind of like true growth within that portfolio and if so do you happen to kind of have.

Craig Next: Our read on what the industry verticals.

Were that drove that growth.

Craig Next: Sure.

Craig Nix: Mark, do you have any insights on that? I don't have that right in front of me here.

Craig Next: Mark do you have any insights on that I don't have that right in front of me here.

As of 12-31-23, with Basel III, it's around 12. If you do an acid test with Basel III, X law share, it's around 11. So that range of 11 to 12 is sort of a, asset test asset 1231 23 uh leaves us well above our target ranges and then obviously as time goes on we're creating earnings at about 36 basis points a quarter and this way the assets are taken around 27 so we look it's going to continue our capital position is going to continue uh to be to build so we do think that sherry purchases are going to uh we feel confident about sherry purchases not only um and the rate we're creating capital but just the absolute levels of capital our capacity to handle our balance sheet growth uh seb integration efforts and and our positioning with respect to basel 3 all give us confidence in a very purpose plan and you're right i really can't speak to uh the size of that until we get through our internal stress testing which is being conducted now as part of our capital plan we do expect the timing subject to necessary internal and regulatory approvals to be in the second half, So I hope that's helpful, but we are looking at, we are definitely cognizant that our capital ratios are well above our target ranges, looking at it in a myriad of different ways. Thank you. That's great.

Craig Next: Yeah.

Marc Cadieux: Yeah. So for the SVB portion of the portfolio, the cash flow dependent growth would have been largely centered in sponsor finance and our project finance portfolios. And where, you know, we've continued in sponsor to have some elevated criticized, but on the new loan production. And, you know, generally speaking, these are loans that fund pretty close to inception. We're seeing, you know, really nice opportunities there, notwithstanding the broader backdrop. Hope that's helpful.

Yes, so for the FCB portion of the portfolio.

Mark Smith: The cash flow dependent growth would've been largely centered in sponsor finance in our project finance portfolios and where we've continued.

Mark Smith: And sponsor to have some elevated criticized but on the new loan production.

Mark Smith: Generally speaking these are loans that are pretty close to inception.

Seeing really nice opportunities there notwithstanding the broader backdrop.

Brody Preston: Okay, great. No, that's helpful. And Craig, do you happen to have what the unfunded commitment balances for the, for the bank were at 31 December 2023?

Mark Smith: I hope that's helpful.

Mark Smith: Okay great.

Craig Next: That's helpful.

Craig Next: And Craig do you happen to have.

Craig Next: Have what the unfunded commitment balances for the bank were at 12 31.

Craig Nix: Not offhand. We can, we'll take that offline.

Not all hand, we can we'll take that offline, yes, but already I can follow up with Dan on those numbers.

Deanna Hart: Yeah, Brody, I can follow up with you; this is Deanna, on those numbers.

Brody Preston: Okay, great. Thank you. And, Deanna, just last one while I got you. That 198 loan accretion number, does that include any PAA that's related to the, the unfunded commitment, book?

Craig Next: Okay, great. Thank you and Deanna just last one while I got you that 198 loan accretion number does that include any PAA that's related to the.

The unfunded commitment.

Craig Next: Book.

Deanna Hart: Yes, it would. It would be inclusive of both, both the on-balance sheet and off-balance sheet.

Deanna: Yes, it would be inclusive of both.

Deanna: Both the on balance sheet and off balance sheet.

Brody Preston: Awesome. Thank you very much, everyone. I appreciate it.

Deanna: Awesome. Thank you very much everyone I appreciate it.

Craig Nix: Yep. Thank you.

Deanna: Thank you.

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

Deanna: Thank you.

Deanna: I'm showing any further questions at this time, so I'd like to turn the call back over to our host John Hart for any closing remarks.

Deanna Hart: Thank you. Thanks everyone for joining 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 our investor relations team. We hope you have a great rest of your day.

Okay.

You're welcome. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. The next question today is a follow-up question from Stephen Alexopoulos from J.P. Morgan. Please go ahead; your line is now open.

Deanna: Thank you and thanks to everyone for joining our call today.

John Hart: 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 our Investor Relations team. We hope you have a great rest of your day.

John Hart: Okay.

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

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

Hey guys, thanks for taking my follow. So the market's pretty happy with the dues of buybacks coming back in the second half. My question is, so given the tangible bulk value growth. At this valuation, I'm sure you'd love to be buying back the stock today, but at what valuation do buybacks become less attractive, right? I mean, if the stock is trading, Mark delivers what we think at S&P, saying it's one and a half or something like that this year. Do you still buy back in the second half? Where's the line of the sand where you don't find buybacks as a track? Well, we look at it just like we would any other acquisition, so there are a myriad of payback periods and tangible dil I'm not going to get into our modeling on it, but we certainly scrutinize repurchases just like we would scrutinize purchasing, you know, another bank in the open market.

John Hart: [music].

Sure.

John Hart: [music].

John Hart: Sure.

John Hart: Okay.

John Hart: Sure.

John Hart: [music].

Tom, do you have anything else? Tom's responsible for some of the bottling we do there, but I think that's it. I probably don't think I left anything out there. No, I think that that's exactly right. I mean, we bought back over $10 billion in the past, and it really has to do with sort of what our earnings trajectory looks like and sort of what other opportunities are out there. So, yeah, it varies, but it's not like it's a firm feeling.

Tom: Just one other one, on the NII guide, do you guys include the expected cost? billion debt issuance. Is that in there, or if you issue it, will that impact the NII? It's in there, but the issuance this year would be muted, so it won't have a significant impact on this year's NIM, but going forward, it will, based on where our costs are today and what the costs are anticipated on that, will probably be ahead when we go forward.

Yep, got it. Bye. You're welcome. Thank you. The next question today is a follow-up question from Brodie Preston from UBS. Please go ahead, your line is now open.

Brodie Preston: Hey, thanks guys. I just had a couple of clarification questions that I wanted to ask. The first one was just on the innovation C&I and cash flow dependent portfolio. As I said earlier, that was up a billion in balances. Was there any like movement from like, a growth stage portfolio there? Was that kind of like true growth within that portfolio? And if so, do you happen to kind of have a read on what the industry verticals were that drove that growth?

Martin: Martin, do you have any insights on that? I don't have that right in front of me here. Yeah, so for the SVB portion of the portfolio, the cash flow-dependent growth would have been largely centered in sponsor finance and our project finance portfolios. And where we've continued to have some elevated criticism, but on the new loan production, and generally speaking, these are loans that fund pretty close to inception, we're seeing really nice opportunities there, notwithstanding the broader backdrop.

Martin: I hope that's helpful. Okay, great. No, that's helpful. And Craig, do you happen to have what the unfunded commitment balances for the bank were at 1231? Not offhand; we can. We'll take that offline. Yeah, Brady.

Brodie Preston: I can follow up with you, Deanna, on those numbers. Okay, great. Thank you. And Deanna, just last one while I've got you, that 198 loan accretion number, does that include any PAA that's related to the unfunded commitment book? Yes, it would.

It would be inclusive of both the on balance sheet and all. Awesome. Thank you very much, everyone. I appreciate it. Thank you.

I'm not showing any further questions at this time, so I'd like to turn the call back over to our host, Deanna Hart, for any closing remarks. Thank you, and thanks, everyone, for joining 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 our investor relations team. We hope you have a great rest of your day. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day!

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