Q2 2O24 First Citizens BancShares Inc Earnings Call

July 25, 2024

Operator: This is a holding announcement for the First Citizens BancShares Q2 2024 Earnings Conference Call. The call will begin in approximately two minutes time. Thank you for your patience.

This is a holding announcement for the First Citizens BancShares second quarter 2024 earnings conference call. The call will begin in approximately two minutes time. Thank you for your patience.

Operator: The call will begin in approximately two minutes time. Thank you for your patience.

Unnamed Participant: [inaudible]

Frank Holding: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Q2 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star followed by one on your telephone keypad. If you require operator assistance during the program, please, please press star followed by zero. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Q2 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star followed by one on your telephone keypad. If you require operator assistance during the program, please, please press star followed by zero.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens Bancshares second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press a star followed by one on your telephone keypad. If you require operator assistance during the program, please press star followed by zero. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Mr. Deanna Hart. Head of Investor Relations, you may begin.

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the First Citizens BancShares second quarter 2024 earnings conference call.

Speaker Change: At this time, all participants are in a 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 followed by one on your telephone keypad. If you require operator assistance during the program, please press star followed by zero. As a reminder, today's conference is being recorded.

Operator: As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin.

I would now like to introduce the host of this conference call, Mr. Deanna Hart, Head of Investor Relations. You may begin.

Deanna W. Hart: Good morning, and welcome to First Citizens' second quarter earnings call. Joining me on the call today are our Chairman and Chief Executive Officer, Frank Holding, and Chief Financial Officer, Craig Nix.

Deanna Hart: Good morning, and welcome to First Citizens Second Quarter Earnings Call. Joining me on the call today are our Chairman and Chief Executive Officer, Frank Holding, and Chief Financial Officer, Craig Nix. They will provide second quarter business and financial updates, referencing our earnings 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 actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on page three. 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. 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.

Deanna W. Hart: Good morning, and welcome to First Citizens' second quarter earnings call. Joining me on the call today are our Chairman and Chief Executive Officer Frank Holding and Chief Financial Officer Craig Nix. They will provide second quarter business and financial updates referencing our earnings presentation, which you can find on our website.

Deanna W. Hart: Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations.

Deanna Hart: We assume no obligation to update such statements. These risks are outlined on page three. 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. 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.

Speaker Change: We assume no obligation to update such statements. These risks are outlined on page 3.

Speaker Change: 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.

Speaker Change: 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.

Deanna W. Hart: They will provide second-quarter business and financial updates referencing our earnings 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 actual results to differ materially from expectations. We assume no obligation to update such dates. These risks are outlined on page. We will also reference non-Gap Financial Measures. Reconciliations of these measures against the most directly comparable gap 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 you.

Frank Brown Holding: Thank you, Deanna. Good morning, everyone, and welcome to our earnings call. Starting on page 6.

Frank Holding: Thank you, Deanna. Good morning, everyone, and welcome to our earnings call. Starting on page 6, and this is the Q2 snapshot slide. We delivered another quarter of solid financial results, including peer-leading return on assets, net interest margin, adjusted efficiency ratio, loan growth, CET1 ratio, and loan portfolio yield. Our board has approved a share repurchase plan, allowing us to repurchase shares in an aggregate amount up to $3.5 billion, and Craig will speak to those details later. I'd like to point out that we were recently included in the Fortune 500 list for the first time. Continuing on to page 7, I'll take a look at, well, I'll take a moment to focus on our business segment performance as well as their outlooks moving forward.

Frank Holding: Thank you, Deanna. Good morning, everyone, and welcome to our earnings call. Starting on page six, and this is the Q2 snapshot slide. We delivered another quarter of solid financial results, including peer-leading return on assets, net interest margin, adjusted efficiency ratio, loan growth, CET1 ratio, and loan portfolio yield. Our board has approved a share repurchase plan, allowing us to repurchase shares in an aggregate amount up to $3.5 billion, and Craig will speak to those details later.

Frank: Thank you, Deanna. Good morning, everyone, and welcome to our earnings call.

Frank Brown Holding: And this is the second quarter snapshot slide. We delivered another quarter of solid financial results, including peer-leading return on assets, net interest margin, adjusted efficiency ratio, and loan growth. CET 1 Ratio, and Loan Portfolio Yield. Our board has approved a share repurchase plan allowing us to repurchase shares for an aggregate amount of up to $3.5 billion, and Craig will speak to those details later. And I'd like to point out that we were recently included in the Fortune 500 list for the first time. Continue on to page 7. I'll take a look at...

Frank: Starting on page 6.

Frank: And this is the second quarter snapshot slide. We delivered another quarter of solid financial results, including peer-leading return on assets, net interest margin, adjusted efficiency ratio, loan growth,

Frank: CET-1 Ratio, and Loan Portfolio Yield.

Craig: Our board has approved a share repurchase plan, allowing us to repurchase shares in an aggregate amount up to $3.5 billion. Craig will speak to those details later.

Frank Holding: I'd like to point out that we were recently included in the Fortune 500 list for the first time. Continuing on to page seven, I'll take a look at, well, I'll take a moment to focus on our business segment performance as well as their outlooks moving forward.

Craig: And I'd like to point out that we were recently included in the Fortune 500 list for the first time.

Craig: Continuing on to page 7.

Frank Brown Holding: I'll take a moment to focus on our business segment performance as well as their outlooks moving forward. Starting with the general bank, we saw positive loan trends as growth remained particularly resilient in business and commercial loans within our branch network. We also experienced strong growth in our SBA, SBB Private, and Wealth Channel. Importantly, we have not made any significant changes in our risk appetite or client selection to chase growth as we feel our expertise and deep client relationships position us well to continue to grow prudently.

Craig: I'll take a moment to focus on our business segment performance as well as their outlooks moving forward. Thank you.

Frank Holding: Starting with the general bank, we saw positive loan trends as growth remained particularly resilient in business and commercial loans within our branch network. We also experienced strong growth in our SBA, SVB Private, and wealth channels. Importantly, we have not made any significant changes in our risk appetite or client selection to chase growth, as we feel our expertise and deep client relationships position us well to continue to grow prudently. Deposit growth in our branch network during the first half of the year exceeded our expectations. Looking forward, we see new production and client acquisition contributing to further balance sheet growth. We also see growth coming from deepening our relationships with existing customers, including SVB-acquired customers. On the downside, we recognize that reductions in interest rates will cause margin compression.

Craig: Starting with the general bank, we saw positive loan trends as growth remained particularly resilient in business and commercial loans within our branch network.

Craig: We also experience strong growth in our SBA, SBB Private, and Wealth Channels.

Craig: Importantly, we have not made any significant changes in our risk appetite or client selection to chase growth as we feel our expertise and deep client relationships position us well to continue to grow prudently.

Frank Brown Holding: Deposit growth in our branch network during the first half of the year exceeded our expectations. Looking forward, we see new production and client acquisition contributing to further balance sheet growth. We also see growth coming from deepening our relationships with existing customers, including SBB-acquired customers. On the downside, we recognize that reductions in interest rates will cause margin compression.

Frank Holding: Deposit growth in our branch network during the first half of the year exceeded our expectations. Looking forward, we see new production and client acquisition contributing to further balance sheet growth. We also see growth coming from deepening our relationships with existing customers, including SVB-acquired customers. On the downside, we recognize that reductions in interest rates will cause margin compression.

Craig: Deposit growth in our branch network during the first half of the year exceeded our expectations.

Craig: Looking forward, we see new production and client acquisition contributing to further balance sheet growth.

Craig: We also see growth coming from deepening our relationships with existing customers, including SBV acquired customers.

Frank Brown Holding: However, we are building strategies to mitigate the expected negative impact, including a focus on the mix of our deposits by targeting operating accounts, growing quality loans, and improving non-interest income from all sources. Our commercial bank segment continued to deliver strong loan growth driven by several of our specialized industry verticals, primarily in project financing for Energy and Data Center. CRE volume remains challenged, driven by the higher for longer interest rate environment. Deal volume is expected to remain muted during the second half of the year.

Frank Holding: However, we're building strategies to mitigate the expected negative impact, including a focus on the mix of our deposits by targeting operating accounts, growing quality loans, and improving non-interest income from all sources. Our commercial bank segment continued to deliver strong loan growth, driven by several of our specialized industry verticals, primarily in project financing for energy and data centers. CRE volume remains challenged, driven by the higher-for-longer interest rate environment. Deal volume is expected to remain muted during the second half of the year. While portfolio stress is expected to remain above historic levels in equipment finance, we expect loss rates to decline in the second half of the year and into 2025.

Craig: However, we are building strategies to mitigate the expected negative impact, including a focus on the mix of our deposits by targeting operating accounts, growing quality loans, and improving non-interest income from all sources.

Craig: Our commercial bank segment continued to deliver strong loan growth driven by several of our specialized industry verticals, primarily in project financing for energy and data centers.

Craig: CRE volume remains challenged driven by the higher for longer interest rate environment.

Frank Holding: Deal volume is expected to remain muted during the second half of the year. While portfolio stress is expected to remain above historic levels in equipment finance, we expect loss rates to decline in the second half of the year and into 2025.

Craig: Deal volume is expected to remain muted during the second half of the year.

Frank Brown Holding: While portfolio stress is expected to remain above historic levels in equipment finance, we expect loss rates to decline in the second half of the year and into 2025. From a production standpoint, we expect this segment to continue to benefit first from liquidity concerns, bringing the market rates on a greater number of transactions into our target range, and second, from a focus on originating larger, higher quality transactions. Funding for The Commercial Bank is aided by our nationwide online direct bank with more than 700,000 core deposit accounts. We plan to continue to use the direct bank as a lever to grow core deposits. Now, turning to SVB commercials.

Frank Holding: From a production standpoint, we expect this segment to continue to benefit, first, from liquidity concerns, bringing the market rates on a greater number of transactions into our target range, and second, from a focus on originating larger, higher-quality transactions. Funding for the commercial bank is aided by our nationwide online direct bank with more than 700,000 core deposit accounts. We plan to continue to use the direct bank as a lever to grow core deposits in the current environment, where pricing pressure and competition remain high. Turning to SVB Commercial, we achieved quarter-over-quarter loan growth, driven by high-quality loans in our Global Fund Banking or capital call lending business. The uptick in loans reflects both the increased level of investment activity, driving up utilization, and Global Fund Banking's continued success in winning the fund banking business of active VC and PC investors.

Craig: Funding for the Commercial Bank is aided by our nationwide online direct bank with more than 700,000 core deposit accounts.

Craig: We plan to continue to use the direct bank as a lever to grow core deposits in our

Craig: in the current environment where pricing pressure and competition remain high.

Frank Holding: Turning to SVB Commercial, we achieved quarter-over-quarter loan growth, driven by high-quality loans in our Global Fund Banking or capital call lending business. The uptick in loans reflects both the increased level of investment activity, driving up utilization, and Global Fund Banking's continued success in winning the fund banking business of active VC and PC investors.

Frank Brown Holding: We achieved quarter-over-quarter loan growth driven by high-quality loans in our Global Fund Banking, or Capital Call Limit. The uptick in loans reflects both the increased level of investment activity driving up utilization and Global Fund Banking's continued success in winning the fund banking business of active DC and PC investors. It is encouraging that we also witnessed a quarter over quarter increase in SBB commercial total client funds for the first time since the fourth quarter of 2021. FDB commercial deposits increased for the first time since the first quarter of 2022.

Speaker Change: Turning to SBB Commercial.

Speaker Change: We achieved quarter-over-quarter loan growth driven by high-quality loans in our global fund banking.

Speaker Change: or Capital Call Lending Business.

Speaker Change: The uptick in loans reflects both the increased level of investment activity driving up utilization

Frank Holding: Encouragingly, we also witnessed a quarter-over-quarter increase in SVB Commercial total client funds for the first time since Q4 2021. SVB Commercial deposits increased for the first time since Q1 2022. These increases were driven by slight improvement in the macroeconomic environment and client acquisition. As we look ahead, it's too early to call an innovation economy turnaround, despite increasing deal counts and encouraging investment trends. We are encouraged that the rebound will be significant, as high levels of VC dry powder remain a strong catalyst for future growth. We expect the positive trends that we saw in the second quarter could continue to result in gradual improvement in the second half of this year, but remain guarded about the absolute levels of deposit growth, given the continued headwinds in the environment.

Speaker Change: We also witnessed a quarter-over-quarter increase in SVB commercial total client funds for the first time since the fourth quarter of 2021.

Speaker Change: SBB commercial deposits increased for the first time since the first quarter of 2022. These increases were driven by slight improvement in the macroeconomic environment and client acquisition.

Frank Brown Holding: These increases were driven by a slight improvement in the macroeconomic environment and client acquisition. However, as we look ahead, it's too early to call an innovation economy turnaround despite increasing deal counts and encouraging investment trends. We are encouraged that the rebound will be significant as high levels of BC dry powder remain a strong catalyst for future growth. We expect a positive trend. The positive trends that we saw in the second quarter could continue to result in gradual improvement in the second half of this year, but we remain guarded about the absolute levels of deposit growth, given the continued headwinds in the environment. Our SBB team remains the bank of choice for the innovation economy. Moving on to page eight,

Speaker Change: As we look ahead, it's too early to call an innovation economy turnaround, despite increasing deal counts and encouraging investment trends.

Frank Holding: We are encouraged that the rebound will be significant, as high levels of VC dry powder remain a strong catalyst for future growth. We expect the positive trends that we saw in the second quarter could continue to result in gradual improvement in the second half of this year, but remain guarded about the absolute levels of deposit growth, given the continued headwinds in the environment.

Speaker Change: We are encouraged that the rebound will be significant as high levels of BC dry powder remain a strong catalyst for future growth.

Speaker Change: We expect a positive trend.

Speaker Change: The positive trends that we saw in the second quarter could continue to result in gradual improvement in the second half of this year.

Speaker Change: But remain guarded about the absolute levels of deposit growth given the continued headwinds in the environment. Our SBB team remains the bank of choice for the innovation economy.

Frank Holding: Our SVB team remains the bank of choice for the innovation economy. Moving on to page eight. Our strategic priorities have not changed. Given our growth over the past few years, we have been focused on maturing our risk management framework and overall regulatory environment. We have made significant enhancements, not only to meet Category Four large financial institution requirements, but to develop those capabilities in ways that are scalable through Category Three expectations. To conclude, we're continuing to see positive momentum in our businesses. While we recognize uncertainty remains in the current macroeconomic environment, we are committed to deepening customer relationships, prudently growing core deposits and loans, and allocating capital. We remain in a position of strength, and I'm excited about the opportunities ahead of us in 2024 and beyond.

Frank Brown Holding: Our strategic priorities have not changed. Given our growth over the past few years, we have been focused on maturing our risk management framework and overall regulatory environment. We have made significant enhancements, not only to meet Category 4 large financial institution requirements but to develop those capabilities in ways that are scalable through Category 3 expectations. To conclude, we're continuing to see positive momentum in our business. While we recognize that uncertainty remains in the current macroeconomic environment.

Speaker Change: Moving on to page 8, our strategic priorities have not changed.

Speaker Change: Given our growth over the past few years, we have been focused on maturing our risk management framework and overall regulatory environment.

Speaker Change: We have made significant enhancements not only to meet Category 4 large financial institution requirements, but to develop those capabilities in ways that are scalable through Category 3 expectations.

Speaker Change: To conclude, we're continuing to see positive momentum in our businesses.

Frank Holding: While we recognize uncertainty remains in the current macroeconomic environment, we are committed to deepening customer relationships, prudently growing core deposits and loans, and allocating capital. We remain in a position of strength, and I'm excited about the opportunities ahead of us in 2024 and beyond.

Speaker Change: While we recognize uncertainty remains in the current macroeconomic environment, we are committed to deepening customer relationships, prudently growing core deposits and loans, and allocating capital.

Frank Brown Holding: We are committed to deepening customer relationships, prudently growing core deposits and loans, and allocating capital. We remain in a position of strength, and I'm excited about the opportunities ahead of us in 2024 and beyond. Craig, I'll turn it over to you. Thank you, Frank.

Speaker Change: We remain in a position of strength, and I'm excited about the opportunities ahead of us in 2024 and beyond. Craig, I'll turn it over to you. Thank you, Frank, and all of you joining us today.

Frank Holding: Craig, I'll turn it over to you.

Craig Lockwood Nix: Thank you, Frank, and all of you joining us today. My comments will be anchored to the key takeaways found on page 10. Pages 11 through 28 provide more details underlying our second quarter results. I will start with the $3.5 billion share repurchase plan that Frank just mentioned. Using capital to support organic growth remains our top priority, but strong earnings have led to an excess capital position. Share repurchases provide an opportunity for us to return capital to our shareholders, to more efficient capital levels over time. We manage capital ratios excluding any benefit from the Shared Loss Agreement, and all planned capital activities are assessed in this contract.

Craig Nix: Thank you, Frank, and all of you, joining us today. My comments will be anchored to the key takeaways found on page 10. Pages 11 through 28 provide more details underlying our second quarter results. I will start with the $3.5 billion share repurchase plan that Frank just mentioned. Using capital to support organic growth remains our top priority, but strong earnings have led to an excess capital position. Share repurchases provide an opportunity for us to return capital to our shareholders and to more efficient capital levels over time... We manage capital ratios excluding any benefit from the Shared Loss Agreement, and all planned capital activities are assessed in this context.

Craig: My comments will be anchored to the key takeaways found on page 10. Pages 11 through 28 provide more detail underlying our second quarter results.

Craig: I will start with the $3.5 billion share repurchase plan that Frank just mentioned.

Craig: Using capital to support organic growth remains our top priority, but strong earnings have led to an excess capital position. Share repurchases provide an opportunity for us to return capital to our shareholders and to a more efficient capital level over time.

Craig Nix: Share repurchases provide an opportunity for us to return capital to our shareholders and to more efficient capital levels over time... We manage capital ratios excluding any benefit from the Shared Loss Agreement, and all planned capital activities are assessed in this context.

Speaker Change: We manage capital ratios excluding any benefit from the shared loss agreement and all planned capital activities are assessed in this context.

Craig Lockwood Nix: We intend to supplement organic capital use with methodical share purchases with the ultimate goal of managing our adjusted P-E-T-1 ratio down to the 10.5% range by the end of 2025. This repurchase plan puts us on that path. Moving forward, we will assess capital management strategies based on balance sheet growth expectations, earnings trajectories, and economic and regulatory environments. This will be reflected in our next capital plan, which will be completed in the first quarter of 2025. To the extent that capital accretion from earnings continues to outpace organic growth, we expect sherry purchases to continue beyond this point.

Craig Nix: We intend to supplement organic capital use with methodical share repurchases, with the ultimate goal of managing our adjusted CET1 ratio down to the 10.5% range by the end of 2025. This repurchase plan puts us on that path. Moving forward, we will assess capital management strategies based on balance sheet growth expectations, earnings trajectories, and economic and regulatory environment. This will be reflected in our next capital plan, which will be completed in Q1 2025. To the extent that capital accretion from earnings continues to outpace organic growth, we expect share repurchases to continue beyond this plan. Turning to Q2 results, all of our return metrics exceeded our expectations. ROE and ROA, adjusted for notable items, were 14.05% and 1.39% respectively.

Speaker Change: We intend to supplement organic capital use with methodical sharing purchases with the ultimate goal of managing our adjusted P-E-T-1 ratio down to the 10.5% range by the end of 2025.

Speaker Change: This repurchase plan puts us on that path.

Speaker Change: Moving forward, we will assess capital management strategies based on balance sheet growth expectations, earnings trajectories, and economic and regulatory environments.

Speaker Change: This will be reflected in our next capital plan, which will be completed in the first quarter of 2025. To the extent that capital accretion from earnings continues to outpace organic growth, we expect share repurchases to continue beyond this plan.

Craig Nix: To the extent that capital accretion from earnings continues to outpace organic growth, we expect share repurchases to continue beyond this plan. Turning to Q2 results, all of our return metrics exceeded our expectations. ROE and ROA, adjusted for notable items, were 14.05% and 1.39% respectively.

Craig Lockwood Nix: Turning to second quarter results, all of our return metrics exceeded our expectations, ROE and ROA adjusted for notable items, 14.05% and 1.39%, respectively.

Speaker Change: Turning to second quarter results, all of our return metrics exceeded our expectations. ROE and ROA adjusted for notable items.

Speaker Change: were 14.05% and 1.39% respectively.

Craig Lockwood Nix: Headline net interest income increased slightly over the week quarter as higher interest income was partially offset by lower accretion and higher deposit costs. While modest, the increase in headline net interest income followed three quarters of sequential declines where interest expense on deposits was increasing at a faster pace than interest income. During the second quarter, while interest expense on deposits increased, the pace slowed. Given the likelihood of Fed rate cuts, we continue to mitigate a portion of our asset sensitivity profile by moving an additional $5 billion of cash into a short-duration security, the Investment Portfolio.

Craig Nix: Headline net interest income increased slightly over the linked quarter, as higher interest income was partially offset by lower accretion and higher deposit costs. While modest, the increase in headline net interest income followed three quarters of sequential declines, where interest expense on deposits was increasing at a faster pace than interest income. During Q2, while interest expense on deposits increased, the pace slowed. Given the likelihood of Fed rate cuts, we continued to mitigate a portion of our asset sensitivity profile by moving an additional $5 billion of cash into short-duration securities in the investment portfolio. Headline NIM contracted modestly by three basis points to 3.64%. Ex accretion, NIM increased by one basis point to 3.36%, signaling that deposit pressures, while still present, continued to stabilize and were more than offset by the benefit of strong loan origination.

Speaker Change: Headline net interest income increased slightly over the week quarter as higher interest income was partially offset by lower accretion and higher deposit costs.

Speaker Change: While modest, the increase in headline net interest income followed three quarters.

Speaker Change: A sequential decline for interest expense on deposits was increasing at a faster pace than interest income. During the second quarter, while interest expense on deposits increased, the pace slowed.

Craig Nix: Given the likelihood of Fed rate cuts, we continued to mitigate a portion of our asset sensitivity profile by moving an additional $5 billion of cash into short-duration securities in the investment portfolio. Headline NIM contracted modestly by three basis points to 3.64%. Ex accretion, NIM increased by one basis point to 3.36%, signaling that deposit pressures, while still present, continued to stabilize and were more than offset by the benefit of strong loan origination.

Speaker Change: Given the likelihood of Fed rate cuts, we continue to mitigate a portion of our asset sensitivity profile by moving an additional $5 billion of cash into short-duration securities in the investment portfolio.

Craig Lockwood Nix: Headline No, contracted modestly by 3 basis points and 3.64%. Exacretion increased by one basis point to 3.36%, signaling that deposit pressures, while still present, continued to stabilize and were more than offset by the benefit of strong loan origination. Before the second quarter, minimum execution had declined in the previous three quarters.

Speaker Change: Headline No, contracted modestly by 3 basis points to 3.64%.

Speaker Change: Exacretion increased by one basis point to 3.36% signaling that deposit pressures, while still present, continued to stabilize and were more than offset by the benefit of strong loan origination.

Craig Nix: Before Q2, NIM ex accretion had declined in the previous three quarters. Adjusted non-interest income was slightly better than expected due to higher client investment fees, aided by an increase in average balances in SVB Commercial, off-balance sheet client funds, offsetting the expected decrease in net mill income on rail-operated lease equipment. Rental income was negatively impacted by a return to more normalized maintenance expenses, in line with expectations we laid out last quarter. Adjusted non-interest expense came in at the lower end of our guidance range, increasing sequentially by approximately 1%. Expense growth was concentrated in equipment expenses related to accelerated depreciation on assets that will no longer be used following the SVB acquisition and favorable variances in prior periods related to reimbursement from third parties.

Speaker Change: Before the second quarter, NIMH execution had declined in the previous three quarters.

Craig Lockwood Nix: Adjusted non-interest income was slightly better than expected due to higher client investment fees, aided by an increase in average balances, an FBB commercial, and off-balance sheet liaisons, all setting the expected decrease in net mill income on rail-operated lease equipment. Rental income was negatively impacted by a return to more normalized maintenance expenses, in line with expectations we laid out last quarter. The adjusted non-interest expense came in at the lower end of our guidance range, increasing sequentially by approximately 1%.

Speaker Change: Adjusted non-interest income was slightly better than expected due to higher client investment fees, aided by an increase in average balances, an SEB commercial, off-balance sheet client funds, offsetting the expected decrease in net mill income on rail operating lease equipment.

Speaker Change: Rental income was negatively impacted by a return to more normalized maintenance expenses in line with expectations we laid out last quarter.

Craig Nix: Adjusted non-interest expense came in at the lower end of our guidance range, increasing sequentially by approximately 1%. Expense growth was concentrated in equipment expenses related to accelerated depreciation on assets that will no longer be used following the SVB acquisition and favorable variances in prior periods related to reimbursement from third parties.

Speaker Change: Adjusted Non-Interest Expense

Speaker Change: came in at the lower end of our guidance range.

Craig Lockwood Nix: Expense growth was concentrated in equipment expenses related to accelerated depreciation on assets that will no longer be used following the FVD acquisition and favorable variances in prior periods related to reimbursement for third parties. Second quarter expenses also reflected higher marketing expenses as we increased focus on retaining clients in the direct bank channel to help offset expected maturity in their time deposits and in brochure deposits. We continue to execute on cost savings from the acquisitions and maintain vigilance on overall expense management. We are now close to achieving the lower end of our cost savings estimate and anticipate achieving it by the end of the year.

Speaker Change: Increasing sequentially by approximately 1%, expense growth was concentrated in equipment expenses related to accelerated depreciation on assets that will no longer be used following the FVD acquisition and favorable variances in prior periods related to reimbursement.

Craig Nix: Second quarter expenses also reflected higher marketing expense as we increased focus on retaining clients in the direct bank channel to help offset expected maturities in their time deposits and investor deposits. We continued to execute on cost savings from the acquisition and maintain vigilance on overall expense management. We are now close to achieving the lower end of our cost savings estimate and anticipate achieving it by the end of the year. Credit continued to stabilize during the quarter. Net charge-offs at $132 million, or 0.38%, were on the low end of our guidance range, and nonperforming loans remained relatively stable. While losses increased modestly over the linked quarter, they were largely in the same portfolios as previous quarters, and we noted no emerging problems outside of those pressure points.

Speaker Change: …from third parties.

Speaker Change: Second quarter expenses also reflected higher marketing expense.

Speaker Change: As we increase focus on retaining clients in the direct bank channel to help offset expected maturities in their time deposits and in broker deposits.

Speaker Change: We continue to execute on cost savings from the acquisition and maintain vigilance on overall expense management.

Speaker Change: We are now close to achieving the lower end of our cost savings estimate and anticipate achieving it by the end of the year.

Craig Lockwood Nix: Credit continues to stabilize during the quarter, with net charge-offs at $132 million or 0.38%, we're on the low end of our guidance range, and non-performing loans remain relatively stable. While losses increased modestly over the lean quarter, they were largely in the same portfolios as previous quarters, and we noted no emergent problems outside of those pressure points. Encouragingly, while we saw continued stress in the small-ticket leasing portfolios and the investor-dependent portfolios, we saw modest improvement in our general office portfolios.

Craig Nix: Credit continued to stabilize during the quarter. Net charge-offs at $132 million, or 0.38%, were on the low end of our guidance range, and nonperforming loans remained relatively stable. While losses increased modestly over the linked quarter, they were largely in the same portfolios as previous quarters, and we noted no emerging problems outside of those pressure points.

Speaker Change: Credit continued to stabilize during the quarter, net charge off at $132.38 million, while on the low end of our guidance range and non-performing loans remained relatively stable.

Speaker Change: While losses increased modestly over the lean quarters, they were largely in the same portfolios as previous quarters, and we noted no emergent problems outside of those pressure points.

Craig Nix: Encouragingly, while we saw continued stress in the small ticket leasing portfolios and the investor dependent portfolios, we saw modest improvement in our general office portfolios. While this is a good sign given the continued focus on CRE, particularly CRE office, we do not believe this is indicative of any shift in current stress within that portfolio and really more of a function of loan resolution timing. We continue to be well reserved, with an allowance of 11.84% on the commercial bank office portfolio, covering Q2 net charge-offs 2 times. Overall, the allowance ratio decreased 6 basis points to 1.22%, with the most significant factor related to a mix shift from recent growth in the Global Fund Banking portfolio, which carries a lower reserve percentage.

Speaker Change: Encouragingly, while we saw continued stress in the small-ticket leasing portfolios and the investor-dependent portfolios, we saw modest improvement in our general office portfolios.

Craig Lockwood Nix: While this is a good sign given the continued focus on CRE, and particularly CRE Office, we do not believe this is indicative of any shift in current stress within that portfolio and really more of a function of one resolution time. We continue to be well-reserved with an allowance of 11.84% on the Commercial Bank Office portfolio covering second quarter debt charge-offs twice. Overall, the allowance ratio decreased six basis points to 1.22%, the most significant factor related to a mixed shift from recent growth in the Global Fund Banking Portfolio, which carries a low reserve percentage. The decrease was also driven by lower statistical reserves on individually evaluated monitors, reasonably consistent credit quality trends, and positive changes in macroeconomic forecasts.

Speaker Change: While this is a good sign given the continued focus on CRE, particularly CRE office, we do not believe this is indicative of any shifts in current stress within that portfolio and really more of a function of one resolution timing.

Craig Nix: We continue to be well reserved, with an allowance of 11.84% on the commercial bank office portfolio, covering Q2 net charge-offs two times. Overall, the allowance ratio decreased 6 basis points to 1.22%, with the most significant factor related to a mix shift from recent growth in the Global Fund Banking portfolio, which carries a lower reserve percentage.

Speaker Change: We continue to be well-reserved with an allowance of 11.84% on the Commercial Bank Office portfolio covering second quarter debt charge offs two times.

Craig Nix: The decrease was also driven by lower specific reserves on individually evaluated loans, reasonably consistent credit quality trends, and positive changes in macroeconomic forecast. All these factors were partially offset by an increase in loan volume. While the allowance did decline this quarter, we feel good about our overall reserve coverage as well as coverage on the portfolios experiencing stress. Moving to the balance sheet, loans grew by $4 billion over the linked quarter, an annualized growth rate of 11.8%. Growth was led by a $2.1 billion increase in SVB Commercial, driven by the Global Fund Banking capital call lending business. These increases were partially offset by expected declines in technology and healthcare banking, given continued payoff and increased competition. The general bank and commercial bank segments also grew loans by $1.5 billion and $386 million respectively.

Speaker Change: The decrease was also driven by lower statistic reserves on individually evaluated minorities.

Speaker Change: Reasonably Consistent Credit Quality Trends and Positive Changes in Macroeconomic Forecasts.

Craig Lockwood Nix: All these factors are partially offset by an increase in loan volume. While the allowance did decline this quarter, we feel good about our overall reserve coverage as well as coverage on the portfolios experiencing stress. Moving to the balance sheet, loans grew about $4 billion over the length of the quarter, an annualized growth rate of 11.8%. This was led by a $2.1 billion increase in SBB commercial loans, driven by the Global Fund Banking Capital Call lending system. These increases were partially offset by expected declines in technology and healthcare banking, giving continued payoff and increased competition. General banks and commercial bank segments also agreed loans of $1.5 billion and $386 million, respectively.

Speaker Change: All these factors were partially offset by an increase in loan volume.

Speaker Change: While the allowance did decline this quarter, we feel good about our overall reserve coverage as well as coverage on the portfolios experiencing stress.

Speaker Change: Moving to the balance sheet, loans grew about $4 billion over the length quarter, an annualized growth rate of 11.8%.

Speaker Change: Gross was led by a $2.1 billion increase in SBB commercials driven by the Global Fund Banking Capital Call lending business.

Craig Nix: These increases were partially offset by expected declines in technology and healthcare banking, given continued payoff and increased competition. The general bank and commercial bank segments also grew loans by $1.5 billion and $386 million respectively.

Speaker Change: These increases were partially offset by expected declines in technology and healthcare banking, giving continued payoff and increased competition.

Speaker Change: The general bank and commercial bank segments also agree loans of $1.5 billion and $386 million respectively.

Craig Lockwood Nix: While the broader industry continues to experience tepid line growth, we continue to see broad-based expansion across our business segments, as Frank mentioned earlier. Turning to the right-hand side of the balance sheet, deposits grew at an annualized rate of 4% for about $1.5 billion due to strong core deposit growth in the FCD commercial and in the general bank. The SCB commercial, in the SCB commercial, we saw the profit score of about $1.9 million

Craig Nix: While the broader industry continues to experience tepid loan growth, we continue to see broad-based expansion across our business segments, as Frank mentioned earlier. Turning to the right-hand side of the balance sheet, deposits grew at an annualized rate of 4% or by $1.4 billion - $1.5 billion, due to strong core deposit growth in the SVB Commercial and in the general bank. In SVB Commercial, we saw deposits grow by $1.9 billion. A $329 million increase in the general bank was driven by our continued emphasis on expanding relationships with current customers and attracting new ones. These increases were partially offset by expected declines in broker deposits and in direct bank deposits of $527 million and $145 million, respectively. The decline in the direct bank was due to a $1.9 billion decrease in time deposits, partially offset by a $1.8 billion increase in savings accounts.

Speaker Change: While the broader industry continues to experience tepid long growth, we continue to see broad basic expansion across our business segment, as Frank mentioned earlier.

Frank: Turning to the right-hand side of the balance sheet, deposits grew at an annualized rate of 4% for about $1.5 billion due to strong core deposit growth in the SEB commercial and in the general bank.

Frank: The SCB commercial, in the SCB commercial, we saw deposits grow by $1.9 million, a $329 million increase in the general bank was driven by our continued emphasis on expanding relationships with current customers and attracting new ones.

Craig Lockwood Nix: A $329 million increase in the general bank was driven by our continued emphasis on expanding relationships, current customers, and attracting new ones. These increases were partially offset by expected declines in broker deposits and in direct bank deposits of $527 and $145 million, respectively. The decline in direct banking is due to a $1.9 billion decrease in time deposits, partially offset by a $1.8 billion increase in savings. With pricing on CDEs and the expectation that rates will decline in the second half of 2024, we made the strategic decision to let these roll off and will continue to grow quarter positive. All set, 6 o'clock.

Craig Nix: A $329 million increase in the general bank was driven by our continued emphasis on expanding relationships with current customers and attracting new ones. These increases were partially offset by expected declines in broker deposits and in direct bank deposits of $527 million and $145 million, respectively. The decline in the direct bank was due to a $1.9 billion decrease in time deposits, partially offset by a $1.8 billion increase in savings accounts.

Speaker Change: These increases were partially offset by expected declines in broker deposits and in direct bank deposits of $527 and $145 million respectively.

Speaker Change: The decline in the direct bank is due to a $1.9 billion decrease in time deposits, partially offset by a $1.8 billion increase in savings accounts.

Craig Nix: Given pricing on CDs and the expectation that rates will decline in the second half of 2024, we made the strategic decision to let these roll off and will continue to grow core deposits to offset this decline. Moving to capital, our CET1 ratio declined by 11 basis points sequentially, ending the quarter at 13.33%. This was driven by a continued decline in the benefit provided by the Shared Loss Agreement, which added approximately 85 basis points to the ratio this quarter, down 22 basis points from the first quarter. The CET1 ratio, excluding the benefits of the Shared Loss Agreement, increased 11 basis points from the linked quarter as earnings growth again outpaced organic growth. I will close on page 28 with our Q3 2024 and full year outlook.

Speaker Change: Given pricing on CDs and the expectation that rates will decline in the second half of 2024, we made the strategic decision to let these roll off and will continue to grow toward a positive.

Craig Lockwood Nix: Moving to capital, our CET1 ratio declined by 11 basis points sequentially, ending the quarter at 13.33%. This was driven by a continued decline in the benefit provided by the Shared Loss Agreement, which added approximately 85 basis points to the ratio this quarter, down 22 basis points from the first quarter. The CEQ1 ratio, excluding the benefits of the share vault agreement, increased 11 basis points from the lead quarter, and earnings growth again outpaced organic growth.

Speaker Change: to offset this decline.

Speaker Change: Moving to capital, our CET1 ratio declined by 11 basis points sequentially, ending the quarter at 13.33%.

Craig Nix: This was driven by a continued decline in the benefit provided by the Shared Loss Agreement, which added approximately 85 basis points to the ratio this quarter, down 22 basis points from the first quarter. The CET1 ratio, excluding the benefits of the Shared Loss Agreement, increased 11 basis points from the linked quarter as earnings growth again outpaced organic growth. I will close on page 28 with our Q3 2024 and full year outlook.

Speaker Change: This was driven by a continued decline in the benefit provided by the Shared Loss Agreement, which added approximately 85 basis points to the ratio this quarter, down 22 basis points from the first quarter.

Speaker Change: The CEQ1 ratio, excluding the benefits of the share vault agreement, increased 11 basis points from the lead quarter, and earnings growth again outpaced organic growth.

Craig Lockwood Nix: I will close on page 28 with our third quarter 2024 and full year outlook. On Lowe's, we move our expectations higher, giving a starting point at the beginning of the third quarter and solid momentum in our pipeline. A high single-digit annualized percentage growth in the third quarter, driven broadly across our business sectors. We anticipate that SBB Commercial will benefit from growth in the Global Fund Banking business, where we seek success in client outreach.

Speaker Change: I will close on page 28 with our third quarter of 2024 and full year outlook.

Craig Nix: On loans, we move our expectations higher, given the starting point at the beginning of Q3 and solid momentum in our pipeline. We anticipate high single-digit annualized percentage growth in Q3, driven broadly across our business segments. We anticipate SVB Commercial will benefit from growth in the Global Fund Banking business, where we see success in client outreach. While Q2 benefited from increased activity in commercial real estate funds, M&A, and debt activity, the market continues to be challenged and remains somewhat unpredictable. While we do expect to see a modest increase in VC investments compared to 2023, we believe our growth will continue to be pressured by headwinds in the private equity and venture capital markets. We also expect continued growth in our business and commercial loan portfolio within the general bank.

Speaker Change: On loans, we move our expectations higher, giving a starting point at the beginning of the third quarter and solid momentum in our pipeline.

Speaker Change: We anticipate high single-digit annualized percentage growth in the third quarter driven broadly across our business segments.

Speaker Change: We anticipate SBB Commercial will benefit from growth in the Global Fund Banking business, where we seek success in client outreach.

Craig Lockwood Nix: While the second quarter benefited from increased activity and commercial real estate funds, M&A, and debt activity, the market continues to be challenged and remains somewhat unpredictable. While we do expect to see a modest increase in DC investment compared to 2023, we believe our growth will continue to be pressured by headwinds in the private equity and venture capital markets. We also expect continued growth in our business and commercial loan portfolios within the general bank.

Speaker Change: While the second quarter benefited from increased activity and commercial real estate funds, M&A, and debt activity, the market continues to be challenged and remains somewhat unpredictable.

Craig Nix: While we do expect to see a modest increase in VC investments compared to 2023, we believe our growth will continue to be pressured by headwinds in the private equity and venture capital markets. We also expect continued growth in our business and commercial loan portfolio within the general bank.

Speaker Change: While we do expect to see a modest increase in DC investment compared to 2023, we believe our growth will continue to be pressured by headwinds in the private equity and venture capital markets.

Speaker Change: We also expect continued growth in our business and commercial loan portfolios within the General Bank.

Craig Lockwood Nix: In the commercial bank, we anticipate our specialty verticals will be key contributors to continued loan growth. We also continue to expand our middle market banking business, and we expect to see positive momentum from these strategic moves. Looking at the full year, we expect loans to end in the $143 to $146 billion range, or mid-to-high single-digit percentage growth on a year-over-year basis. We anticipate this growth to be concentrated across all free banking segments for the reasons previously discussed.

Craig Nix: In the commercial bank, we anticipate our specialty verticals will be key contributors to continued loan growth. We also continue to expand our middle-market banking business and expect to see positive momentum from these strategic moves. Looking at the full year, we expect loans to end in the $143 to 146 billion range, or mid- to high-single-digits percentage growth on a year-over-year basis. We anticipate this growth to be concentrated across all three banking segments for the reasons previously discussed. We expect deposits to be up slightly in the $152 to 154 billion range in Q3 due to growth in the general bank. We expect relatively flat balances in SVB Commercial due to continued cash burn in the still muted fundraising environment.

Speaker Change: In the commercial bank, we anticipate our specialty verticals will be key contributors to continued loan growth. We also continue to expand our middle market banking business and expect to see positive momentum from these strategic moves.

Speaker Change: Looking at the full year, we expect loans to end in the $143 to $146 billion range, or mid-to-high single-digit percentage spread on a year-over-year basis.

Craig Nix: We anticipate this growth to be concentrated across all three banking segments for the reasons previously discussed. We expect deposits to be up slightly in the $152-$154 billion range in Q3 due to growth in the general bank. We expect relatively flat balances in SVB Commercial due to continued cash burn in the still muted fundraising environment.

Speaker Change: We anticipate this book to be concentrated across all three banking segments for the reasons previously discussed.

Craig Lockwood Nix: We expect deposits to be up slightly in the $152-$154 billion range in the third quarter due to growth in the general bank. However, we expect relatively flat balances in SBB commercial due to continued cash burn and still muted fundraising and buyers. We anticipate growth in the branch network as we benefit from increasing our customer base by building deposits through the successful execution of our organic growth and relationship banking strategy. For the full year, we anticipate deposits in the $153-$155 billion range primarily related to growth in the general bank, previously discussed, flat to modestly increasing balances in SBB commercial, supplemented by growth in the direct bank if needed.

Speaker Change: We expect deposits to be up slightly in the $152-$154 billion range in the third quarter due to growth in the general bank.

Speaker Change: We expect relatively flat balances in SBB commercials due to continued cash burn in the still-used fundraising environment.

Craig Nix: We anticipate growth in the branch network as we benefit from increasing our customer base by building deposits through successful execution of our organic growth and relationship banking strategy. For the full year, we anticipate deposits in the $153 to 155 billion range, primarily related to growth in the general bank previously discussed, flat to modestly increasing balances in SVB Commercial, supplemented by growth in the direct bank if needed. We anticipate the direct bank remaining flat to modestly higher through the end of the year, as expiring time deposits are offset by money market and savings growth. This is in line with our strategy of reducing higher-cost CDs.

Speaker Change: We anticipate growth in the branch network as we benefit from increasing our customer base by building deposits through successful execution of our organic growth and relationship banking strategies.

Speaker Change: For the full year, we anticipate deposits in the $153-$155 billion range primarily related to growth in the general bank previously discussed.

Speaker Change: Flats modestly increasing balances in SBB commercial supplemented by growth in the direct bank if needed.

Craig Nix: We anticipate the direct bank remaining flat to modestly higher through the end of the year, as expiring time deposits are offset by money market and savings growth. This is in line with our strategy of reducing higher-cost CDs.

Craig Lockwood Nix: We recommend remaining flat to modestly higher through the end of the year as expiring time deposits are offset by money markets and savings growth. This is in line with our strategy of reducing higher-cost CDs. In the direct bank, we have the option to bring down rates quicker should the Fed's cut cycle be more aggressive than anticipated, while providing a strong source of insured consumer deposits in our funding. The current implied forward curve indicates a 98% probability of two rate cuts in the second half of this year.

Speaker Change: We anticipate the direct bank remaining flat to modestly higher through the end of the year as expiring time deposits are offset by money markets and savings grow.

Speaker Change: This is in line with our strategy of reducing higher cost CDs.

Craig Nix: In the direct bank, we have the option to bring down rates quicker should the Fed cut cycle be more aggressive than anticipated, while providing a strong source of insured consumer deposits in our funding base. The current implied forward curve indicates a 98% probability of two rate cuts in the second half of this year. Our interest rate forecast covers a range of 1 to 3 rate cuts, with the effective Fed funds rate declining from 5.50 currently to a range of 4.75 to 5.25 by the end of the year. These projections do include the impact of planned share repurchase activity in the back half of 2024.

Craig Nix: In the direct bank, we have the option to bring down rates quicker should the Fed cut cycle be more aggressive than anticipated, while providing a strong source of insured consumer deposits in our funding base. The current implied forward curve indicates a 98% probability of two rate cuts in the second half of this year. Our interest rate forecast covers a range of one-three rate cuts, with the effective Fed funds rate declining from 5.50 currently to a range of 4.75-5.25 by the end of the year. These projections do include the impact of planned share repurchase activity in the back half of 2024.

Speaker Change: In the direct bank, we have the option to bring down rates quicker, should the Fed cut cycle be more aggressive than anticipated, while providing a strong source of insured consumer deposit in our funding base.

Speaker Change: The current implied forward curve indicates a 98% probability of two rate cuts in the second half of this year.

Craig Lockwood Nix: This race forecast covers a range of 1 to 3 race cuts, with the effective set funds rate declining from $5.50 currently to a range of $4.75 to $5.25 by the end of the year. These projections do not include the impact of planned share repurchase activity in the back half of 2024. For the third quarter, if we get one rate cut, we expect headline net interest income to be relatively flat for the second quarter, given that our forecast calls for the rate cut in September.

Speaker Change: Our interest rate forecast covers a range of 1 to 3 rate cuts, with the effective set funds rate declining from $5.50 currently to a range of $4.75 to $5.25 by the end of the year.

Speaker Change: These projections do include the impact of planned share repurchase activity in the back half of 2024.

Craig Nix: For Q3, if we get 1 rate cut, we expect headline net interest income to be relatively flat with Q2, given that our forecast calls for the cut in September. We expect that lower accretion, slightly higher deposit costs, and a slightly lower loan yield will be offset by higher investment securities yield. For the full year, we expect headline net interest income in the range of $7.2 to 7.3 billion, up from our previous guide of $7.1 to 7.3 billion, reflecting the higher for longer rate environment, as well as potential rate cuts in the updated forecast occurring later in 2024.

Craig Nix: For Q3, if we get one rate cut, we expect headline net interest income to be relatively flat with Q2, given that our forecast calls for the cut in September. We expect that lower accretion, slightly higher deposit costs, and a slightly lower loan yield will be offset by higher investment securities yield. For the full year, we expect headline net interest income in the range of $7.2-$7.3 billion, up from our previous guide of $7.1-$7.3 billion, reflecting the higher for longer rate environment, as well as potential rate cuts in the updated forecast occurring later in 2024.

Speaker Change: For the third quarter, if we get one rate cut, we expect headline net interest income to be relatively flat for the second quarter, given that our forecast calls for the cut in September .

Speaker Change: We expect that lower accretion, slightly higher deposit costs, and a slightly lower loan yield will be offset by higher...

Craig Lockwood Nix: We expect that lower accretion, slightly higher deposit costs, and a slightly lower loan yield will be offset by higher... Tiger Investment Securities. For the full year, we expect headline net interest income in the range of $7.2 to $7.3 billion, up from our previous guide of $7.1 to $7.3 billion, reflecting the higher-for-longer rate environment, as well as potential rate cuts in the updated forecast occurring later in 2024. In either case, we continue to project loan accretion of just over $500 million for the year, with a $200 million decline for 2023, as loan discounts on the shorter portfolios will have been fully recognized.

Speaker Change: and Tiger Investment Securities and Yields.

Speaker Change: In the range of $7.2 to $7.3 billion, up from our previous guide of $7.1 to $7.3 billion, reflecting the higher-for-longer rate environment.

Speaker Change: as well as potential rate cuts in the updated forecast occurring later in 2024.

Craig Nix: In either case, we continue to project loan accretion of just over $500 million for the year, over a $200 million decline for 2023, as loan discounts from the shorter portfolios will have been fully recognized. On credit losses, while we have experienced positive trends in recent quarters, we do anticipate continued elevated net charge-off in the investor-dependent general office and equipment finance portfolios. We anticipate Q3 net charge-off in the 35 to 45 basis points range, but are lowering this full year range to 35 to 40 basis points, given lower losses during the first half of the year. We do caution that many of our portfolios in the commercial bank and FCB commercial have large hold sizes, and one or two of these loans deteriorating unexpectedly could influence this range.

Speaker Change: In either case, we continue to project loan accretion of just over $500 million for the year, over a $200 million decline for 2023, as loan discounts on the shorter portfolios have been fully recognized.

Craig Lockwood Nix: On credit losses, while we have experienced positive trends in recent quarters, we do anticipate continued elevated net part costs in the investor-dependent, general office, and equipment finance portfolios. We anticipate third quarter net chargeoffs in the 35 to 45 basis points range, but are lowering the school year range to 35 to 40 basis points given lower losses during the first half of the year. We do caution that many of our portfolios in the commercial banks and SBV commercials have large hold sizes, so one or two of these ones failing unexpectedly should influence this ranking.

Speaker Change: On credit losses, while we have experienced positive trends in recent quarters, we do anticipate continued elevated net part costs in the investor-dependent, general office, and equipment finance portfolios.

Craig Nix: We anticipate Q3 net charge-off in the 35-45 basis points range, but are lowering this full year range to 35-40 basis points, given lower losses during the first half of the year. We do caution that many of our portfolios in the commercial bank and FCB commercial have large hold sizes, and one or two of these loans deteriorating unexpectedly could influence this range.

Speaker Change: We anticipate third quarter net charge-offs in the 35 to 45 basis points range, but are lowering the school year range to 35 to 40 basis points given lower losses during the first half of the year.

Speaker Change: We do caution that many of our portfolios in the commercial banks and FCB commercials have large hold sizes, and one or two of these ones curating unexpectedly should influence this range.

Operator: In commercial real estate, higher prolonger rates continue to have an effect on value, being felt most heavily in the general office sector, where market liquidity and support refinancing remain scarce. We expect these market dynamics will continue to elevate losses within this portfolio for the remainder of 2024. We see some green shoots in the investor-dependent portfolio, and we believe that continued market optimism and a greater consensus on valuation is an encouraging sign that should help reduce some pressure.

Craig Nix: In commercial real estate, higher for longer rates continue to have effect on value, being felt most heavily in the general office sector, where market liquidity support refinancing remains scarce. We expect these market dynamics will continue to elevate losses within this portfolio for the remainder of 2024. We're seeing some green shoots in the investor-dependent portfolio, and we believe that continued market optimism and a greater consensus on valuations is an encouraging sign that should help reduce some pressure. Still, given the uncertainty in the innovation economy, we do expect continued stress throughout 2024. Moving to adjusted non-interest income, we expect Q3 to be materially in line to down low single digits from the linked quarter.

Speaker Change: In commercial real estate, higher prolonger rates continue to have an effect on value, being felt most heavily in the general office sector where market liquidity and support refinancing remain scarce. We expect these market dynamics will continue to elevate losses within this portfolio for the remainder of 2024.

Speaker Change: We're seeing some green shoots in the investor-dependent portfolio, and we believe that continued market optimism and a greater consensus on valuation is an encouraging sign that should help reduce some pressure.

Operator: Still, given the uncertainty in the innovation economy, we do expect continued stress throughout 2024. Moving to adjusted non-interest income, we expect the third quarter to be materially in line to down low single digits from the lean quarter. We expect full-year adjusted non-interest income to be in the range of $1.85 to $1.9 billion. This is driven by our rail outlook, as we expect a continuation of healthy fundamental trends in the near term from a supply-driven recovery, which is generating strong demand for existing railcars, resulting in a stronger-for-longer scenario.

Craig Nix: Still, given the uncertainty in the innovation economy, we do expect continued stress throughout 2024. Moving to adjusted non-interest income, we expect Q3 to be materially in line to down low single digits from the linked quarter.

Speaker Change: Still, given the uncertainty in the innovation economy, we do expect continued stress throughout 2024.

Speaker Change: Moving to adjusted non-interest income, we expect the third quarter to be materially in line to down low single digits from the lean quarter. We expect full year adjusted non-interest income to be in the range of $1.85 to $1.9 billion.

Craig Nix: We expect full year adjusted non-interest income to be in the range of $1.85 to 1.9 billion, which is slightly higher than our previous guidance. This is driven by our rail outlook, as we expect a continuation of healthy fundamental trends in the near term from a supply-driven recovery, which is generating strong demand for existing rail cars, resulting in a stronger for longer scenario. We are also expecting higher fee income on service charges, resulting from higher lending-related fees as loan volumes continue to be strong. Moving to expenses, we expect a modest increase from Q2 due to marketing expenses to help replace time deposit, time deposit runoff in the direct bank, as well as professional fees and temporary manpower as we ramp up project spend related to a few regulatory items.

Craig Nix: We expect full year adjusted non-interest income to be in the range of $1.85-$1.9 billion, which is slightly higher than our previous guidance. This is driven by our rail outlook, as we expect a continuation of healthy fundamental trends in the near term from a supply-driven recovery, which is generating strong demand for existing rail cars, resulting in a stronger for longer scenario. We are also expecting higher fee income on service charges, resulting from higher lending-related fees as loan volumes continue to be strong.

Speaker Change: which is slightly higher than our previous guidance.

Speaker Change: This is driven by a rail outlook, as we expect a continuation of healthy fundamental trends in the near term from a supply-driven recovery, which is generating strong demand for existing railcars, resulting in a stronger-for-longer scenario.

Operator: We are also expecting higher C-income on service charges, resulting from higher lending-related fees and loan volume, to be strong. Moving to expenses, we expect a modest increase from the second quarter due to marketing expenses to help replace time-deposit runoff in the direct bank, as well as professional fees and temporary manpower as we ramp up project spend related to a few regulatory items. Furthermore, as Frank mentioned earlier, we continue to focus on building out our risk and technology capability and continue to make some strategic hires on these themes, resulting in higher salaries and benefits.

Speaker Change: We are also expecting higher fee income on service charges, resulting from higher lending-related fees as loan volume.

Craig Nix: Moving to expenses, we expect a modest increase from Q2 due to marketing expenses to help replace time deposit, time deposit runoff in the direct bank, as well as professional fees and temporary manpower as we ramp up project spend related to a few regulatory items.

Speaker Change: to continue to be strong.

Speaker Change: Moving to expenses, we expect a modest increase from the second quarter due to marketing expenses to help replace time-deposit runoff in the direct bank, as well as professional fees and temporary manpower as we ramp up project spend related to a few regulatory items.

Craig Nix: Furthermore, as Frank mentioned earlier, we continue to focus on building out our risk and technology capabilities. We continue to make some strategic hires on these teams, resulting in higher salaries and benefit expenses. All of this will be partially offset by continued acquisition synergies, which I spoke to earlier. We expect to achieve the lower 25% band of our cost base goal by the end of 2024, but these savings will be offset by continued capability build-out for regulatory capability, as well as costs related to the strategic priorities to maximize growth in our core lines of business and optimize our systems and processes. Our adjusted efficiency ratio is expected to remain in the low 50% range in 2024.

Speaker Change: Furthermore, as Frank mentioned earlier, we continue to focus on building out our risk and technology capability and continue to make some strategic hires on these themes, resulting in higher salaries and benefit expenses.

Operator: All of this will be partially offset by continued acquisition synergies, which I spoke to earlier. We expect to achieve the lower 25% band of our cost savings goal by the end of 2024, but these savings will be offset by continued capability to build out regulatory capability, as well as cost-related strategic priorities to maximize growth in our core lines of business and optimize our systems and processes. Efficiency Ratio is expected to remain in the low 50% range in 2024.

Frank: All of this will be partially offset by continued acquisition synergy, which I spoke to earlier.

Craig Nix: We expect to achieve the lower 25% band of our cost base goal by the end of 2024, but these savings will be offset by continued capability build-out for regulatory capability, as well as costs related to the strategic priorities to maximize growth in our core lines of business and optimize our systems and processes. Our adjusted efficiency ratio is expected to remain in the low 50% range in 2024.

Speaker Change: We expect to achieve the lower 25% band of our cost savings goal by the end of 2024, but these savings will be offset by continued capability to build out for regulatory capability, as well as cost-related strategic priorities to maximize growth in our core lines of business and optimize our systems and processes.

Speaker Change: Our adjusted efficiency ratio is expected to remain in the low 50% range in 2024.

Operator: Longer term, especially if we enter a set rate cycle, we expect it to gravitate towards the mid-50s as our net interest margin compresses and we continue to make investments in new areas that will help us scale efficiently in the future and be ready for Category 3 status when we cross that threshold. Looking for the full year, we anticipate an adjusted non-interest expense of in the range of $4.65 to $4.7 billion, in line with our previous guidance.

Craig Nix: Longer term, especially if we enter a Fed rate step cycle, we expect it to gravitate towards the mid-fifties as our net interest margin compresses, and we continue to make investments into areas that will help us scale efficiently in the future and be ready for Category Three status when we cross that threshold. Looking at the full year, we anticipate adjusted non-interest expense to be in the range of $4.65 to 4.7 billion, in line with our previous guidance. For both the Q3 and full year 2024, we expect our tax rate to be in the range of 27% to 28%, which is exclusive of any discrete items. In summary, we are very pleased with our performance this quarter and will begin our share repurchase plan shortly.

Speaker Change: Longer term...

Speaker Change: Especially if we enter a set rate cycle, we expect it to gravitate towards the mid-fifties as our net interest margin compresses and we continue to make investments in new areas that will help us scale efficiently in the future and be ready for Category 3 status when we cross that threshold.

Craig Nix: Looking at the full year, we anticipate adjusted non-interest expense to be in the range of $4.65-$4.7 billion, in line with our previous guidance. For both the Q3 and full year 2024, we expect our tax rate to be in the range of 27%-28%, which is exclusive of any discrete items. In summary, we are very pleased with our performance this quarter and will begin our share repurchase plan shortly.

Speaker Change: Looking at the full year, we anticipate adjusted non-interest expense to be in the range of $4.65 to $4.7 billion in line with our previous guidance.

Operator: For both the third quarter and four-year period 2024, we expect our tax rate to be in the range of 27 to 28 percent, which is exclusive of any discrete item. In summary, we are very pleased with our performance this quarter and will begin our share repurchase plan shortly. Frank's comments earlier indicate we will continue to grow in a prudent manner and allocate capital in alignment with our long-term focus and strong risk management framework. I will now turn it over to the operators for instructions for the Q&A portion of the call.

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

Speaker Change: In summary, we are very pleased with our performance this quarter and will begin our share repurchase plan shortly.

Craig Nix: As Frank's comments earlier indicate, we will continue to grow in a prudent manner and allocate capital in alignment with our long-term focus and strong risk management framework. I will now turn it over to the operator for instructions for the Q&A portion of the call.

Speaker Change: As Frank's comments earlier indicate, we will continue to grow in an improved manner and allocate capital in alignment with our long-term focus and strong risk management framework.

Operator: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star followed by one on your telephone keypad now. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up and then return to the call queue if you have additional questions. If your question has been answered and you wish to remove yourself from the queue, please press star followed by 2. We'll pause for one moment to compile our Q&A roster. Our first question comes from Stephen Alexopoulos from J.P. Morgan. Stephen, please go ahead; your line is open.

Speaker Change: I will now turn it over to the operators for instructions for the Q&A portion of the call.

Operator: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press Star followed by one on your telephone keypad now. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up, and then return to the call queue if you have additional questions. If your question has been answered and you wish to remove yourself from the queue, please press Star followed by two. We'll pause for one moment to compile our Q&A roster. Our first question comes from Steven Alexopoulos from JP Morgan. Steven, please go ahead. Your line is open.

Operator: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star followed by one on your telephone keypad now. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up, and then return to the call queue if you have additional questions. If your question has been answered and you wish to remove yourself from the queue, please press Star followed by two. We'll pause for one moment to compile our Q&A roster. Our first question comes from Steven Alexopoulos from JP Morgan. Steven, please go ahead. Your line is open.

Speaker Change: Thank you. Ladies and gentlemen, if you have a question or comment at this time, please press star followed by one on your telephone keypad now. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up and then return to the call queue if you have additional questions.

Speaker Change: If your question has been answered and you wish to remove yourself from the queue, please press star followed by two. We'll pause for one moment to compile our Q&A roster.

Speaker Change: Our first question comes from Stephen Alexopoulos from JP Morgan. Stephen, please go ahead, your line is open.

Stephen Scouten from Piper Sandler: Hi, good morning everyone. Good morning.

Steven Alexopoulos: Hi, good morning, everyone.

Craig Nix: Morning.

Steven Alexopoulos: Good morning. I want to start on the stock buyback, and I heard you that you want to get to the 10.5% CET1 target by the end of 2025. By our math, $3.5 billion in 2025 will lead, through 2025 will leave you above 10.5%? Just curious, by your math, if $3.5 billion of buybacks through the end of 2025 get you to 10.5% CET1?

Stephen Scouten from Piper Sandler: Hi, good morning everyone.

Stephen Scouten from Piper Sandler: Let's start on the stock buyback. And I heard you say that you want to get to the 10.5% CET1 target by the end of 2025. By our math, $3.5 billion through 2025 would leave you above 10.5%. Just curious, by your math, would $3.5 billion of buybacks through the end of 2025 get you to 10.5% CET1?

Stephen Scouten from Piper Sandler: Morning. I want to... Morning.

Stephen Scouten from Piper Sandler: I want to start on the stock buyback, and I heard you that you want to get to the 10.5% CET1 target by the end of 2025.

Stephen Scouten from Piper Sandler: By our math, $3.5 billion in 2025 through 2025 would leave you above 10.5%. Just curious, by your math, is $3.5 billion of buybacks through the end of 2025 get you to 10.5% CET1?

Craig Lockwood Nix: Steve, this plan puts us on a path to achieve V1 in the 10.5% range by the end of 2025. And we anticipate the plan will be executed over the next four to five quarters, and we will be updating our capital plan in the first half of next year. So you're right, and the ratios would be elevated, all things being equal right now. But to the extent that earnings accretion continues to outpace organic growth, we do contemplate another share repurchase plan in the back half of 2025.

Craig Nix: Steve, this plan puts us on a path to CET1 in the 10.5% range by the end of 2025. And we anticipate the plan will be executed over the next 4 to 5 quarters, and we will be updating our capital plan in the first half of next year. So you're right in the ratios would be elevated, all things being equal right now. But to the extent that earnings accretion continues to outpace organic growth, we do contemplate another share repurchase plan in the back half of 2025. So, so yes, they would be. If we stop here, they would be there, but we are giving ourselves room for organic growth.

Craig Nix: Steve, this plan puts us on a path to CET1 in the 10.5% range by the end of 2025. And we anticipate the plan will be executed over the next 4-5 quarters, and we will be updating our capital plan in the first half of next year. So you're right in the ratios would be elevated, all things being equal right now.

Speaker Change: Steve, this plan puts us all on a path.

Speaker Change: to 51 in the 10.5% range by the end of 2025.

Speaker Change: And we anticipate the plan will be executed over the next four to five quarters.

Speaker Change: And we will be updating our capital plan in the first half of next year.

Speaker Change: So, you're right, and the ratios would be elevated, all things being equal right now. But to the extent that earnings accretion continues to outpace organic growth, we do contemplate another share repurchase plan in the back half of 2025.

Craig Nix: But to the extent that earnings accretion continues to outpace organic growth, we do contemplate another share repurchase plan in the back half of 2025. So, so yes, they would be. If we stop here, they would be there, but we are giving ourselves room for organic growth.

Craig Lockwood Nix: So yes, if we stopped here, they would be there, but we are giving ourselves room for organic growth. We will assess our capital plan, and if we are, again, accruing earnings faster than organic growth, we would contemplate another plan to guide us down to that 10.5% range by the end of 2020.

Speaker Change: So, yes, if we stopped here, they would be there, but we are giving ourselves room for organic growth. We will assess our capital plan, and if we are, again, accruing earnings faster than organic growth, we would contemplate another plan to guide us down to that 10.5% range by the end of 2025.

Craig Nix: We will assess our capital plan, and if we are, again, accreting earnings faster than organic growth, we would contemplate another plan to guide us down to that 10.5% range by the end of 2025.

Stephen Scouten from Piper Sandler: Got it. And just given the valuation of the stock here, how do you think about front-loading? Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES

Steven Alexopoulos: Got it. And just given the valuation of the stock here, how do you think about front-loading the buybacks? Like, do you think it'll be pretty even? I mean, I know your—the incentive system is tangible book value growth based. What are your thoughts on that?

Steven Alexopoulos: Got it. And just given the valuation of the stock here, how do you think about front-loading the buybacks? Like, do you think it'll be pretty even? I mean, I know your the incentive system is tangible book value growth based. What are your thoughts on that?

Speaker Change: Got it. And just given the valuation of the stock here, how do you think about front-loading?

Speaker Change: the buybacks. Do you think it will be pretty even? I know the incentive system is tangible book value growth based. What are your thoughts on that?

Craig Lockwood Nix: Well, we would obviously plan to front-load, especially as we anticipate stock prices to continue to increase. Over time, as our tangible book value increases, so our plan is hierarchical, but it does have a heavier emphasis on the last half of 24, so it's really not a straight line. But it is expected to occur over the next four to five quarters.

Craig Nix: Well, we would obviously plan to front-load, obviously, given especially if we anticipate the stock price to continue to increase over time as our tangible book value increases. So our plan is periodical, but does have a heavier emphasis on the last half of 2024. So it's really not a straight line, but it is expected to occur over the next four to five quarters.

Speaker Change: Well, we would obviously plan to front load, especially if we anticipate stock prices continue to increase.

Speaker Change: Over time, as our tangible book value increases, so our plan is methodical, but does have a heavier emphasis on the last half of 24, so it's really not a straight line.

Speaker Change: But it is expected to occur over the next four to five quarters.

Stephen Scouten from Piper Sandler: And then for my follow-up question, I'm curious, so the NII outlook, and we know there are positives and negatives, right? Growth and loan growth are helping NII, and you have purchased accounting accretion, and now we have rate cuts in the forecast. But if I look, so you're 1.8 billion NII for 2Q24, basically implying the same for 3Q and 4Q. And Craig, if I look at the consensus for 2025, it basically has 1.8 billion sort of being the run rate for the next, let's call it, six quarters or so.

Steven Alexopoulos: Got you. Okay. And then for my follow-up question, I'm curious, so the NII outlook, and we know there's positives and negatives, right? Growth is, and loan growth is helping NII, and you have purchase accounting accretion, and now we have rate cuts in the forecast. But if I look, so you're at $1.8 billion NII for Q2 2024, basically implying the same for Q3 and Q4. And Craig, if I look at consensus for 2025, it basically has the $1.8 billion sort of being the run rate for the next, call it, 6 quarters or so. I'm just curious, given the strategies you're looking at, you talked about maybe mitigating some of the asset sensitivity. Given all of the puts and takes, do you see that as reasonable, that NII sort of trends just flattish over the next several quarters?

Speaker Change: Positives and negatives right growth is and loan growth is helping and I have purchased accounting accretion and now we have rate cuts in the forecast

Speaker Change: But if I look, so you're 1.8 billion NII for 2q24, basically implying the same for 3q and 4q.

Steven Alexopoulos: And Craig, if I look at consensus for 2025, it basically has the $1.8 billion sort of being the run rate for the next, call it, 6 quarters or so. I'm just curious, given the strategies you're looking at, you talked about maybe mitigating some of the asset sensitivity. Given all of the puts and takes, do you see that as reasonable, that NII sort of trends just flattish over the next several quarters?

Speaker Change: And Craig, if I look at consensus for 2025, it basically has the $1.8 billion sort of being the run rate for the next, let's call it, six quarters or so. I'm just curious, given the strategies you're looking at, you talk about maybe mitigating some of the asset sensitivity.

Stephen Scouten from Piper Sandler: I'm just curious, given the strategies you're looking at, you talked about maybe mitigating some of the asset sensitivity, given all of the puts and takes, do you see that as reasonable, that NII sort of trends just flattish over the next several quarters? I'm just curious, actually, what you see, and how you see this playing out. Thank you.

Speaker Change: Give it all the puts and takes. Do you see that as reasonable that NII sort of trends just flattish?

Steven Alexopoulos: Just curious directly what you see, how you see this playing out. Thank you.

Speaker Change: Over the next several quarters. I'm just curious to actually what you see how you see this playing out

Craig Lockwood Nix: If we're looking at the exit margin in the fourth quarter, with zero rate cuts, we would be up, and this is an excretion, we would be up low to mid-single digits with zero rate cuts; with one, we would be up low-single digits, and with three, we would be up low-single digits. Fast forward to 25, that's it; with zero cuts, we'd be up mid-high single digits; with one cut and four next year, we would be up low single digits, and then if we had three this year and four next year, we would be down low to mid-single digits.

Craig Nix: Well, if we're looking at the exit margin in Q4, with 0 rate cuts, we would be up, and this is net interest income, ex accretion, we would be up low to mid single digits with 0 rate cuts. With 1, we would be up low single digits, and with 3, we would be up low single digits. Fast forward to 2025 exit, with 0 cuts, we would be up mid- to high-single digits. With 1 cut and 4 next year, we would be up low single digits. And then if we have 3 this year and 4 next year, we would be down low to mid single digits in terms of net interest income.

Craig Nix: Well, if we're looking at the exit margin in Q4, with 0 rate cuts, we would be up, and this is net interest income, ex accretion, we would be up low to mid single digits with 0 rate cuts. With one, we would be up low single digits, and with three, we would be up low single digits. Fast forward to 2025 exit, with 0 cuts, we would be up mid- to high-single digits. With one cut and four next year, we would be up low single digits. And then if we have three this year and four next year, we would be down low to mid single digits in terms of net interest income.

Speaker Change: Thank you.

Speaker Change: With zero rate cuts, we would be a, and this is...

Speaker Change: And that's just become excretion. We'd be up loads of those single digits with zero, rate cuts with one. We'd be up low single digits, and with three we'd be up low single digits.

Speaker Change: Fast forward to 25, that's it, with zero cuts, we'd be up mid-high single digits.

Speaker Change: With one cut and four next year, we would be up low single digits. And then if we have three this year and four next year, we would be down low to mid single digits.

Stephen Scouten from Piper Sandler: Got it, so just so I understand, so if we get 2, follow the forward curve, which is 2 this year and 4 next year, where does that leave NII?

Steven Alexopoulos: Got it. So just so I understand, so if we get 2, follow the forward curve, which is 2 this year and 4 next year, what, where does that leave NII?

Steven Alexopoulos: Got it. So just so I understand, so if we get two, follow the forward curve, which is two this year and four next year, what, where does that leave NII?

Speaker Change: In terms of the net interest income.

Speaker Change: Got it, so just so I understand, so if we get two, follow the forward curve, which is two this year and four next year, where does that leave NII?

Craig Lockwood Nix: It leaves NII down low in single digits from the fourth quarter, 24th exit. Got it. And that's next to Crescent Bank in Dallas. Yep, got it. With appraisal, it would be down mid-single.

Craig Nix: It leaves NII down low to mid-single digits from the Q4 2024 exit to the Q4 2025 exit.

Speaker Change: It leaves NII down low than single digits from the 4th quarter, 24th exit.

Steven Alexopoulos: Got it.

Craig Nix: That's ex accretion.

Speaker Change: Got it. All right.

Steven Alexopoulos: Okay.

Craig Nix: Yeah, it is.

Steven Alexopoulos: Yep, got it.

Craig Nix: With accretion, it would be down mid to mid-single digits.

Speaker Change: [inaudible]

Craig Nix: With accretion, it would be down mid to mid-single digits.

Speaker Change: With appraisal it would be down to mid-single digits.

Steven Alexopoulos: Got it.

Stephen Scouten from Piper Sandler: Thanks for taking my question. Yep, I got it. Thank you.

Craig Nix: And that's the scenario.

Steven Alexopoulos: Thanks for taking the question.

Craig Nix: That's the hardest scenario. Yep.

Steven Alexopoulos: Yep. Got it. Thank you.

Speaker Change: Thanks for taking my question. Yep, got it. Thank you.

Craig Nix: Thank you, Steve.

Operator: The next question comes from Christopher Marinac from Janney Montgomery Scott. Christopher, your line is open. Please go ahead.

Operator: The next question comes from Christopher Marillac of Channing Montgomery Scott. Christopher, your line is open, please go ahead.

Speaker Change: Thank you for doing this.

Speaker Change: The next question comes from Christopher Marillac from Channing Montgomery Scott. Christopher, your line is open, please go ahead.

Chris Marinac from Jamie Montgomery Scott: Thanks. I just wanted to talk about capital levels and kind of what the lower bound may be as the buyback gets executed. And, you know, would you revisit that as next year unfolds?

Christopher Marinac: Thanks. Just wanted to talk about the capital levels and kind of what the lower bound may be as the buyback gets executed, and, you know, would you revisit that as next year unfolds?

Speaker Change: https://www.bancshares.com

Chris Marinac from Jamie Montgomery Scott: Thanks, just wanted to talk about the capital levels and kind of what the lower bound may be as the buyback gets executed and you know would you revisit that as next year unfolds?

Craig Lockwood Nix: So, as we would anticipate if we just executed this plan, the CQ1 ratio would be in the mid-eleven X ball share, but we would intend to, if that's the case, and our capital plan holds, we would intend to execute another plan and manage those ratios down to the ten and a half percent level at the end of 2020.

Craig Nix: So, as if we just executed this plan, what we would anticipate, CET1 ratio in the mid-11 ex full share, but we would intend to, if that's the case and our capital plan holds, we would intend to execute another plan and manage those ratios down to the 10.5% level at the end of 2025.

Speaker Change: So, as, if, if we, what we would anticipate if we just executed this plan, CQ1 ratio in the mid-11 X-Loss Share,

Speaker Change: But we would intend to, if that's the case, and our capital plan holds, we would intend to execute another plan and manage those ratios down to the 10.5% level at the end of 2025.

Chris Marinac from Jamie Montgomery Scott: Great. And the timing for now, today's authorization is to do this in the next 12 months, Craig, or would it really be 18?

Christopher Marinac: Great. And the timing for now, for today's authorization is to do this in the next 12 months, Craig, or would it be really 18?

Speaker Change: Great, and the timing for now, for today's authorization, is to do this in the next 12 months, Craig, or would it be really 18?

Craig Lockwood Nix: Well, we're looking at four to five quarters in our proforma. Tom, do you want to comment on that? Yeah. No.

Craig Nix: Well, we're looking at 4 to 5 quarters in our pro forma. Tom, do you want to comment on that?

Craig Nix: Well, we're looking at 4-5 quarters in our pro forma. Tom, do you want to comment on that?

Tom: Well, we're looking at four to five quarters in our proforma. Tom, do you want to comment on that? Yeah, no, and Craig mentioned we're slightly front-loaded in the plan, but still trying to space it out over sort of the next four to five quarters and wrap it up and really get on that large bank capital planning cycle.

Unnamed Participant: Yeah, no, and Craig mentioned we're slightly front-loaded in the plan, but still trying to space it out over sort of the next four, four to five quarters and wrap it up and really get on that North Bank capital planning cycle and sort of reassess again in the first half of next year and then hopefully come back with a new plan.

Tom Eklund: Yeah. No, and Craig mentioned, we're slightly front loaded in the plan, but still trying to space it out over sort of the next 4 to 5 quarters and wrap it up. And really get on that large bank capital planning cycle and sort of reassess again the first half of next year, and then hopefully come back with a new plan.

Tom Eklund: Yeah. No, and Craig mentioned, we're slightly front loaded in the plan, but still trying to space it out over sort of the next 4-5 quarters and wrap it up. And really get on that large bank capital planning cycle and sort of reassess again the first half of next year, and then hopefully come back with a new plan.

Speaker Change: and sort of reassess again first half of next year and then hopefully come back with a new plan.

Chris Marinac from Jamie Montgomery Scott: Great, thank you for that. And just a quick follow-up on the venture capital space, and do you see any improvement there as you look through the next steps?

Christopher Marinac: Great. Thank you for that. And just a quick follow-up on the venture capital space, and do you see any improvement there as you look through the next few quarters?

Speaker Change: Great, thank you for that and just a quick follow-up on the on the venture capital space and do you see any improvement there as you look through the next few quarters?

Operator: Andrew, did you hear that question?

Craig Nix: Tom Sanders, did you hear that question?

Speaker Change: Andrew, did you hear that question?

Marc Cadieux: ... Sure, happy to take that. This is Marc Cadieux. As we've alluded to, it remains a bit mixed in terms of the outlook for venture investment. We saw a nice uptick this quarter to $55.6 billion, which was initially encouraging. You peel that number apart, there were two very big ones, big investments in there, that net of those makes for a quarter that looks a lot like 2023 and the first quarter of 2024. And so there's certainly a lot of optimism out there. Have not yet seen it translate, and it's really unclear if we'll see that over the next couple of quarters at this time.

Mark Cadger: Sure, happy to take that. This is Mark Cadger.

Mark Kadjar: Sure, happy to take that. This is Mark Kadjar. As we've alluded to, it remains a bit mixed in terms of the outlook for venture investment. We saw a nice uptick this quarter to $55.6 billion, which was initially encouraging.

Mark Cadger: As we've alluded to, the outlook for venture investment remains a bit mixed. We saw a nice uptick this quarter, $55.6 billion, which was initially encouraging. You peel that number apart, and there were two very big ones, big investments in them. That net of those... makes for a quarter that looks a lot like 23 and the first quarter of 24. And so there's certainly a lot of optimism out there, but we have not yet seen it translate. And it's really unclear if we'll see that over the next couple of quarters at this rate.

Speaker Change: You peel that number apart, there were two very big ones, big investments in there that none of those.

Mark Kadjar: makes for a quarter that looks a lot like 23 and the first quarter of 24. And so there's certainly a lot of optimism out there. Have not yet seen it translate, and it's really unclear if we'll see that over the next couple of quarters at this time.

Marc Cadieux: Have not yet seen it translate, and it's really unclear if we'll see that over the next couple of quarters at this time.

Chris Marinac from Jamie Montgomery Scott: Great. Thank you for that background. I appreciate it.

Christopher Marinac: Great. Thank you for that background. I appreciate it.

Speaker Change: Great. Thank you for that background. I appreciate it.

Operator: The next question comes from Casey Herr from Jefferies. Casey, your line is open, please go ahead.

Operator: Question comes from Casey Haire from Jefferies. Casey, your line is open. Please go ahead.

Speaker Change: The next question comes from Casey Hare from Jefferies. Casey, your line is open, please go ahead.

Casey Herr: Great, thanks. Good morning, everyone.

Casey Haire: Great. Thanks. Good morning, everyone. Wanted to touch on the loan-to-deposit ratio. It did tick up here a little bit in the quarter on some pretty nice loan growth. Just, I know you guys have a long-term goal to drive that lower. If SVB kind of returned to form from the 165% level currently, obviously, that would go a long way. Just wondering, can you comment on how, you know, the SVB depositors, you know, are behaving? Like, your ability to drive that loan-to-deposit ratio back to what was a very deposit-rich vertical and help you achieve these targets.

Casey Hare: Great, thanks. Good morning, everyone. I wanted to touch on the loan-to-deposit ratio. It did tick up here a little bit in the quarter on some pretty nice loan growth. I know you guys have a...

Casey Herr: Wanted to touch on the loan to deposit ratio. It did tick up here a little bit in the quarter on some pretty nice loan growth. Just wanted to let you know you guys have a long-term goal to drive that lower. If SVB kind of returned to form from the 165% level currently, obviously, that would go a long way. Just wondering.

Speaker Change: a long-term goal to drive that lower. If SVB kind of returned to form from the 165% level currently, obviously that would go a long way. Just wondering...

Unnamed Participant: Can you comment on how, you know, the SVB depositors, you know, are behaving, like your ability to drive that loan-to-deposit ratio back to what was a very deposit-rich vertical and help you achieve these targets?

Speaker Change: Can you comment on how the SVB depositors are behaving, your ability to drive that loan-to-deposit ratio back to what was a very deposit-rich vertical and help you achieve these targets?

Unnamed Participant: Yeah, I'll start, let Tom maybe anticipate here. We started the acquisition at around 99%, one deposit. It did pick up from 90 to 92, so we're making really good progress, getting it to our sort of mid-80s target range, and we feel confident that over the next three and a half years, as we work down this purchase money note from the FDIC, we can achieve that range. All of the things I'd add on the SGB side, we're obviously encouraged to sell deposit growth during the quarter.

Craig Nix: Yeah, I'll start, and then Tom maybe amplify here. We started the acquisition around 99% loan deposit. It did tick up from 90 to 92, so we're making really good progress getting it to our sort of mid-80s target range. We feel confident that over the next 3.5 years, as we work down this purchase money note from the FDIC, that we can achieve that range. Tom, do you have any comment there?

Craig Nix: Yeah, I'll start, and then Tom maybe amplify here. We started the acquisition around 99% loan deposit. It did tick up from 90-92, so we're making really good progress getting it to our sort of mid-80s target range. We feel confident that over the next 3.5 years, as we work down this purchase money note from the FDIC, that we can achieve that range. Tom, do you have any comment there?

Speaker Change: Yeah, I'll start and let Tom maybe anticipate here. We started the acquisition around 99%, one deposit.

Tom: It did pick up from 90 to 92, so we're making really good progress getting it to our sort of mid-80s target range, and we feel confident that over the next three and a half years as we work down this Purchase Money Note from the FDIC that we can achieve that range.

Tom Eklund: Only thing I'd add on sort of the SVB side, I mean, we're obviously encouraged. We saw deposit growth during the quarter. You know, that being said, we're looking holistically at the client relationship there, making sure we put them in the right products, UCL balance sheet products, when they're better suited for the client. So we're not, you know, binarily focused on the deposit growth there, and also looking to, like mentioned earlier, general bank to drive a portion of that deposit growth needed as well.

Tom: [inaudible]

Speaker Change: The only thing I'd add on sort of the S&P side, I mean, we're obviously encouraged. We saw the positive growth during the quarter. You know, that being said, we're looking holistically at the client relationship there, making sure we put them in the right products, use the off-balance sheet products when they're better suited for the client, so we're not, you know,

Unnamed Participant: That being said, we're looking holistically at the client relationship there, making sure we put them in the right product, use the off-balance sheet products when they're better suited for the clients. We're not binarily focused on the deposit growth there but also looking to, Craig mentioned earlier, allow general banks to drop a portion of that deposit growth as well. Keep in mind, given that SGB deposits can be sort of transitory, especially in this environment, the direct bank is a level we can pull as well.

Speaker Change: that's binarily focused on the deposit growth there and also listening to Craig mentioned earlier.

Craig: General Bank to drop a portion of that deposit growth needed as well. Keep in mind, given that SVD deposits can be sort of transitory, especially in this environment, the direct bank is a level we can pull as well.

Craig Nix: Keep in mind, given that SVB deposits can be sort of transitory, especially in this environment, the direct bank is a lever we can pull as well.

Casey Herr: Got it. Thank you. And then just my follow-up. Yeah, you guys mentioned that you've moved, uh, $5 billion into the, uh... On the bond portfolio, to sort of dampen the asset sensitivity profile. Is there anything more that you can do on that front to mitigate the impact of Fed cuts?

Casey Haire: Got it. Thank you. And then just my follow-up on the, you guys mentioned that you've moved $5 billion into the bond portfolio to sort of dampen the asset sensitivity profile. Is there anything more that you can do on that front to mitigate the impact from Fed cuts?

Speaker Change: got it thank you and and then just my follow-up

Speaker Change: You guys mentioned that you've moved $5 billion into the...

Speaker Change: bond portfolio to sort of dampen the asset sensitivity profile. Is there anything more that you can do on that front to mitigate the impact from Fed cuts?

Unnamed Participant: Uh, we, uh... Our Asset Sensitivity, we embarked on this four quarters ago, our Asset Sensitivity is around 20%, and the 200 basis point rate shot, we've gotten that down to around 14% with these actions. That's about two-thirds of the path to where we'd like to be, which is somewhere in the 10-12% range. So we're very close to that as we sit here today, and that 10-12% range is where we were pre-SVD. We're making good progress there, and as you know, we're TBD-focused. So what happens there breaks good health, too, on our basis points.

Craig Nix: Our asset sensitivity, we embarked on this 4 quarters ago. Our asset sensitivity was around 20% and a 200 basis point rate shock. We've gotten that down to around 14% with these actions. That's about two-thirds of the path to where we'd like to be, which is somewhere in the 10 to 12% range. So we're very, we're very close to that as we sit here today. And that 10 to 12% range is where we were pre-SVB. I think we're making good progress there. And as you know, we're TBV focused, so what happens there, if rates go down 200 basis points, about a billion-dollar shock to net interest income.

Craig Nix: Our asset sensitivity, we embarked on this 4 quarters ago. Our asset sensitivity was around 20% and a 200 basis point rate shock. We've gotten that down to around 14% with these actions. That's about two-thirds of the path to where we'd like to be, which is somewhere in the 10%-12% range. So we're very, we're very close to that as we sit here today. And that 10%-12% range is where we were pre-SVB. I think we're making good progress there. And as you know, we're TBV focused, so what happens there, if rates go down 200 basis points, about a billion-dollar shock to net interest income.

Speaker Change: We...

Speaker Change: Our Asset Sensitivity, we embarked on this four quarters ago, our Asset Sensitivity is around 20%, and a 200 basis point rate shot. We've gotten that down to around 14% with these actions.

Speaker Change: That's about two-thirds of the path to where we'd like to be, which is somewhere in the 10-12% range.

Unnamed Participant: Our shot to net interest income, however, on the AOCI side, it was more than compensating for the increased value of the investment portfolio at the TBD, where our balance sheet position would be neutral. Tom, is there anything else you'd like to add to that? The only thing I'd add is, tactically, we did add some hedges during the quarter as well. We put on $2.5 billion for cash flow hedging on the variable rate numbers and moved some of that pricing out over the next 12 weeks.

Craig Nix: However, on the AOCI side, it would more than compensate with increased value of the investment portfolio to TBV, where our balance sheet position would be neutral. Tom, is there anything else you'd like to add to that?

Tom Eklund: The only thing I'd add is, tactically, we did add some hedges during the quarter as well. We put on $2.5 billion worth of cash flow hedging on the variable rate loan book and moving some of that pricing out over the next 12 to-

Speaker Change: Tom, is there anything else you'd like to add to that? The only thing I'd add is, tactically, we did add some hedges during the quarter as well. We put on two and a half billion dollars for the cash flow hedging on the variable rate loan book and moving some of that pricing out over the next 12 weeks. Can you bring this to four billion?

Craig Nix: I bring this to $4 billion?

Unnamed Participant: And then there are interest rate hedges, cash flow, and fair value interest rate hedges.

Tom Eklund: Yeah, total. Total hedges, yeah.

Craig Nix: They're interest rate hedges, cash flow and fair value interest rate hedges?

Tom Eklund: Yeah.

Operator: As a reminder, if you'd like to ask a question on today's call, please press star followed by 1 on your telephone keypad now. As we have no further questions, I'll hand the call back to Deanna Hart for any concluding remarks.

Operator: As a reminder, if you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now. As we have no further questions, I'll hand the call back to Deanna Hart for any concluding remarks.

Speaker Change: As a reminder, if you'd like to ask a question on today's call, please press star followed by 1 on your telephone keypad now.

Speaker Change: As we have no further questions, I'll hand the call back to Deanna Hart for any concluding remarks.

Deanna W. Hart: Thank you, everyone, for joining us today, and we hope you have a great day.

Marc Cadieux: Thank you everyone for joining us today, and we hope you have a great day. Thanks.

Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.

Deanna W. Hart: Thank you, everyone, for joining us today, and we hope you have a great day. Thanks.

Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Speaker Change: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Q2 2O24 First Citizens BancShares Inc Earnings Call

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