Q2 2025 First Citizens BancShares Inc Earnings Call

July 25, 2025

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Q2 2025 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 one on your telephone keypad. If you require operator assistance during the program, please press star then zero. As a reminder, today's conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. You may begin.

Ladies and gentlemen, thank you for starting by, welcome to the First Citizens Bank shares. Second quarter 2025 earnings conference call.

Speaker Change: 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 1 on your telephone keypad, if you require operator assistance, during the program, please press star then zero.

Speaker Change: As a reminder, today's conference is being recorded, I would now like to introduce the host of this conference call Mr. Hart head of investor relations, you may begin.

Deanna Hart: Thank you. 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 call presentation, which you can find on our website. Our comments today 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 3 of the presentation. We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in section 5 of the presentation. Finally, First Citizens is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties.

Speaker Change: Thank you. 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 Nicks

They will provide second quarter business and financial updates referencing. Our earnings call presentation, which you can find on our website.

Speaker Change: Our comments today will include 4 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 3 of the presentation.

Deanna Hart: I will now turn it over to Frank.

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. Finally, for 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.

Frank B. Holding, Jr.: Thank you, Deanna. Good morning, everyone. Welcome to our quarterly earnings call, and thank you for joining us this morning. I will start by providing brief comments on our second quarter results before turning it over to Craig Nix to review our performance in more detail. Starting on page 5, our key earnings metrics were solid, marked by net interest income growth, net charge-offs at their lowest level since the second quarter of 2024, and adjusted non-interest expense at the low end of our guidance range. We reported adjusted earnings per share of $44.78, or an adjusted ROE of 11.00% and an ROA of 1.07%.

I will start by providing brief comments on our second quarter results before turning it over to Craig next.

Speaker Change: To review our performance in more detail.

Speaker Change: Starting on page 5, our key earnings metrics were solid marked by net interest income growth.

Net charge offs at their lowest level since the second quarter of 2024

Speaker Change: And adjusted non-interest expense at the low end of our guidance range.

Speaker Change: We reported adjusted earnings per share of 44.78.

Speaker Change: Or an adjusted Roe of 11.000% and an Roa of 1.07%.

Frank B. Holding, Jr.: We maintained strong capital and liquidity positions, supporting balance sheet growth and allowing us to return another $613 million to our shareholders through share repurchases during Q2. Upon the successful completion of our annual capital planning activities. This week, our board approved a new $4 billion share repurchase plan to commence upon completion of the current plan. Craig will address additional details regarding the new plan in his comments on the quarter. But first, I'd like to take a moment to highlight progress on our 2025 strategic priorities and the positive results we are seeing in our business segments. During the quarter, we continued consolidating platforms and relationship teams to ensure a seamless client experience, and we're beginning to see positive momentum from these activities.

Speaker Change: We maintain strong capital and liquidity positions supporting balance sheet growth and allowing us to return another 613 million to our shareholders through share repurchases. During the second quarter.

Speaker Change: Upon the successful completion of our annual capitals planning activities this week. Our board approved a new $4 billion share, repurchase plan to commence upon completion of the current plan.

Speaker Change: Craig will address additional details regarding the new plan and his comments on the quarter.

Speaker Change: But first, I'd like to take a moment to highlight progress on our 2025 strategic priorities and the positive results we are seeing in our business segments.

Frank B. Holding, Jr.: We're also seeing tangible benefits from the way our teams are working together, resulting in new business and deepening existing relationships. Whether it's a middle-market company needing capital markets expertise, a high-net-worth client looking for integrated advice, or a multinational company navigating complex treasury needs, we're not just delivering solutions, we're listening to our clients' needs and helping them succeed. We were recently excited to announce the appointment of Diane Morais to our board of directors. Diane is a distinguished leader and executive with more than 30 years financial services experience, and most recently served as President of Consumer and Commercial Banking at Ally Bank. Over the course of her distinguished career, Diane has become known as a results-oriented executive with a customer-centric vision, which aligns nicely with the relationship-based long-term focus at First Citizens.

Speaker Change: During the quarter, we continued to consolidating platforms and relationship teams to ensure a seamless client experience and we're beginning to see positive momentum from these activities.

We're also seeing tangible benefits from the way our teams are working together, resulting in new business and deepening existing relationships.

Speaker Change: whether it's a middle Market company needing Capital, markets expertise,

A high net worth client looking for integrated advice or a multinational company. Navigating complex treasury needs. We're not just delivering Solutions. We're listening to our clients needs and helping them succeed.

We were recently excited to announce the appointment of dime array to our board of directors. Dye is a distinguished leader and executive with more than 30 years Financial Services experience.

Speaker Change: And most recently served as president of consumer and Commercial Banking at Ally Bank.

Frank B. Holding, Jr.: Her knowledge and experience complement our board, and we're excited to have her on our team. Looking at page six, our strategic priorities are unchanged from the prior quarter and are outlined for you on this slide. We continue to demonstrate the strength of our diversified lines of business and remain dedicated to our client-first focus. I like our positioning to capitalize on growth opportunities while continuing to optimize our balance sheet and enhance our processes and systems to maximize efficiency and productivity. As always, we remain vigilant on the macro and geopolitical landscape, which remains somewhat uncertain due to tariff policy and negotiations, interest rates, and regulatory change. While we recognize some elements of the landscape too could represent tailwinds, while others contribute to headwinds, we are pleased that our capital and liquidity positions allow us to operate from a position of strength.

Speaker Change: Over the course of her distinguished career. D has become known as a results-oriented executive with a customer Centric Vision, which aligns nicely with the relationship base. Long-term focus at First Citizens,

Speaker Change: Her knowledge and experience complement, our board, and we're excited to have her on our team.

Looking at Page 6.

Speaker Change: Our strategic priorities are unchanged from the prior quarter and are outlined for you on this slide.

Speaker Change: We continue to demonstrate the strength of our Diversified lines of business and remain dedicated to our client first Focus.

Speaker Change: I like our positioning to capitalize on growth opportunities while continuing to optimize our balance sheet and enhance our processes and systems to maximize efficiency and productivity.

Speaker Change: As always, we remain vigilant.

On the macro and geopolitical Landscape which remains somewhat uncertain you to tariff. Policy and negotiations, interest rates and Regulatory change.

Speaker Change: While we recognize some elements of the landscape to could represent Tailwind While others contribute to headwinds. We are pleased that our capital and liquidity positions allow us to operate from a position of strength.

Frank B. Holding, Jr.: To close, I'm very optimistic about our future as we remain committed to our customers and clients, investing for the long term, and delivering sustained shareholder value. With that, Craig, please take us through the financial results for the quarter and forward-looking guidance for the remainder of the year. Craig?

Speaker Change: To close. I'm very optimistic about our future as we remain committed to our customers and clients.

Speaker Change: Investing for the long term and delivering sustained shareholder value.

With that.

Speaker Change: Correct. Please take us through the financial results for the quarter and forward-looking guidance for the remainder of the Year. Greg

Craig Nix: Thank you, Frank. I appreciate everyone joining us today. I will anchor my comments to the Q2 key takeaways outlined on page 8. Pages 9 through 26 provide more details underlying our results and are there for your reference. As Frank mentioned, our Q2 return metrics were solid. Adjusted net income was $607 million, exceeding our expectations, buoyed by better-than-expected net interest income growth, lower than expected credit costs, and expenses in the low end of our guidance range. As a result of our financial performance, tangible book value per share increased by 10.4% over the prior year and 2.7% sequentially, despite share repurchases totaling $2.9 billion over the last 12 months and $613 million in Q2.

uh, thank you Frank. Uh, I appreciate everyone joining us today. Uh, I will anchor my comments, uh to the second quarter key, takeaways out long outlined on page 8 Pages 9, through 26, provide more details. Underlying our results and are there for your reference. As Frank mentioned, our second quarter return metrics were solid adjusted, net income with 607 million.

Speaker Change: Expectations boyed by better than expected, net interest income growth, lower than expected, credit costs and expenses in the low end of our guidance range.

Craig Nix: The unrealized loss on our AFS portfolio improved 27.1% sequentially, and if rates do move lower as the forward curve projects, we anticipate that the AOCI burn down will continue to benefit our tangible book value per share growth. After three quarters of sequential declines and declines in five of the last eight quarters, headline net interest income was up 2% sequentially and in the upper half of our guidance range. Net interest income, ex-accretion, which had also declined in five of the past eight quarters, also grew sequentially by 2.6% after three sequential quarters of declines. Growth in both headline and ex-accretion net interest income was due to a higher day count and average earning asset base.

Speaker Change: As a result of our financial performance tangible book, value per share increased by 10.4% over the prior year, and 2.7% sequentially, despite Sherry purchases totaling 2.9 billion over the last 12 months, and 613 million in the second quarter.

Speaker Change: The unrealized loss on our AFS portfolio, improved, 21, 227.1% sequentially. And if rates do move lower as the forward curve projects, we anticipate that the aoci burned down will continue to benefit our tangible book, value per share growth

Speaker Change: After 3 quarters of sequential declines and declines, in 5 of The Last 8 quarters, headline, net interest income was up 2% sequentially and in the upper half of our guidance range.

Speaker Change: Net interest income execution which had also declined in 5 of the past. 8 quarters also, grew sequentially by 2.6% after 3 sequential quarters of the decline.

Speaker Change: Growth in both headline and execution. Net interest income was due to a higher day count and average earning asset base.

Craig Nix: Headline NIM was 3.26%, matching the linked quarter, while NIM ex-accretion was 3.14%, up 2 basis points sequentially, as we were able to continue to manage deposit costs down, while the earning asset yield remained relatively stable. While we were pleased to see an expansion of ex-accretion NIM, should there be further monetary easing in the back half of 2025 and into 2026, our trough will be further out. Adjusted non-interest income came in just above our guidance range, increasing by $34 million or by 7.2%.

Speaker Change: Headline, Nim was 3.26% matching, the link quarter. While Nim execution was 3.14% up 2 basis points sequentially. As we were able to continue to manage deposit costs down while the earning asset yield remained relatively stable.

Speaker Change: While we were pleased to see an expansion of execution Nim should there be further, monetary easing in the back half of 25 and into 26.

Our trough will be further out.

Craig Nix: The primary drivers of the increase were favorable changes in the fair value of customer derivative positions and other non-marketable investments, as well as the first quarter write-down on a held for sale asset, which did not impact the current quarter. Adjusted rental income in our rail business increased by $5 million sequentially, resulting from higher rental income and lower maintenance costs. The underlying fundamentals in the rail business continue to perform well as utilization remains high at 96.9%, and we achieved the 15th consecutive quarter of positive repricing trends. Given these trends, we believe there continues to be a solid runway throughout 2025 and beyond for continued growth, assuming performance is not impacted by significant changes in the macroeconomic environment.

Speaker Change: adjusted non-interest income came in just above our guidance range, increasing by 34 million, or by 7.2%

Speaker Change: The primary drivers of the increase were favorable changes in the fair market. So in the fair value of customer derivative positions and other non-marketable, Investments, as well as the first quarter right down

Speaker Change: On a helper sale asset, which did not impact the current quarter.

Adjusted rental income and our rail. Business increased by 5 million sequentially resulting from higher rental, income and lower maintenance costs.

Speaker Change: The underlying fundamentals in the rail business continued to perform well as utilization remains high at 96.9% and we achieved the 15th consecutive quarter of positive re-pricing trends.

Craig Nix: However, given that only around 30% of the portfolio expires in 2025 and 2026, there is some protection against near-term disruption. Adjusted non-interest expense came in at the lower end of our guidance, increasing sequentially by less than 1%. The low sequential growth rate was impacted by seasonal items in Q1 related to incentive payments and the reset of payroll taxes and 401(k) contributions. These increases, adjusting for the impact of these seasonal items, the increase over the sequential quarter was primarily driven by an increase in salaries and wages due to merit increases and higher professional fees and net occupancy expenses. These increases were partially offset by a decline in equipment expense. However, we expect this trend will reverse in the back half of 2025 as additional risk and technology projects are placed into service.

Given these Trends, we believe their continues to be a solid Runway throughout 2025, and beyond for continued growth. Assuming performance is not impacted by significant changes in the macroeconomic environment.

Speaker Change: However, given that only around 30% of the portfolio of expires in 25 and 26, there is some protection against near-term. Disruption,

Speaker Change: Adjusted. Non-interest expense came in at the lower end of our guidance, increasing sequentially by less than 1%. The low sequential growth rate was impacted by seasonal items. In the first quarter related to incentive payments and the reset of payroll taxes and 401K contributions.

Speaker Change: These increases.

Speaker Change: Uh, adjusting for the, for the impact of these seasonal items, the increase over the sequential quarter was primarily driven by an increase, in salaries, and wages, due to Merit increases and higher, professional fees, and net occupancy expenses.

Craig Nix: I will discuss further in our outlook, but we expect quarterly expenses to remain in the $1.28 to 1.32 billion range in Q3 and Q4. Moving to the balance sheet, loans declined modestly by $89 million, or about 0.1% sequentially, with modest growth in Global Fund Banking within the SVB commercial segment and in the general and commercial bank segments, offset by a decline in Tech and Healthcare portfolio within the SVB commercial segment. Tech and Healthcare banking loan outstandings were down approximately $300 million from the linked quarter. This was in line with our expectations as loan payoffs and paydowns continue to outpace new loan fundings in the current environment.

Speaker Change: These increases were partially offset by a decline in equipment expense. However, we expect this trend will reverse in the back half of 25 as additional risks and Technology projects are placed into service.

Speaker Change: I will discuss further in our Outlook but we expect quarterly expenses to remain in the 1.28 to 1.32 billion range in the third and fourth quarters.

Speaker Change: Moving to the balance sheet. Loans decline modestly by 89 million or by 0.1% sequentially, with modest growth in global fund banking within the svb commercial segment. And then the general and Commercial Bank said, segments offset by a decline in Tech and Healthcare portfolio within the Seb commercial segment.

Craig Nix: Positively, loan commitments were flat over Q1, reversing recent trends, and new loan originations were at their highest level in the last 12 months, demonstrating our continued commitment to the innovation economy. Global Fund Banking experienced just over $100 million in growth despite lower utilization levels as we continue to see new loan originations. The pipeline remains strong, totaling $9.5 billion at the end of the quarter. While we remain guarded on overall asset growth levels in this business, we are seeing early signs that the second half of the year could spark additional activity, which could be a positive driver with respect to line utilization as VC and PE capital is deployed. General bank loans grew $140 million, driven primarily by our wealth business, which saw both increased originations and higher line utilization in Q2.

Speaker Change: Tech and Healthcare banking loan outstanding were down approximately $300 million from the link quarter. This was in line with our expectations as loan payoffs and pay Downs. Continue to outpace new loan fundings in the current environment.

Speaker Change: Positively loan. Commitments were flat over the first quarter. Reversing recent Trends and new loan originations were at their highest level in the last 12 months demonstrating our continued commitment to The Innovation economy.

Speaker Change: Cards and growth despite lower utilization levels as we continue to see new loan. Originations

Speaker Change: the pipeline remains strong totaling 9.5 billion dollars at the end of the quarter.

While we remain guarded on overall asset growth levels in this business. We are seeing early signs that the second half of the Year could spark additional activity, which could be a positive driver with respect to line utilization as VC and PE capital is deployed.

Craig Nix: These increases were partially offset by declines in our business and commercial portfolios within the branch network, as competition for new business remains fierce and loan originations have been muted the past two quarters. While the decline was not ideal, we have been steadfast in our loan pricing approach and are not changing our credit standards despite increased competition and rate pressure from competitors. We believe that macroeconomic uncertainty is leading to decreased demand, which is helping to drive these competitive pressures. Our pricing discipline was reflected in our loan yield, as the loan yield execution improved 1 basis point to 6.25 from the linked quarter, despite the impacts of the declining yield curve. Within the general bank specifically, the loan yield was up 5 basis points from the linked quarter.

Speaker Change: General bank loans grew 140 million driven, primarily by our wealth business, which saw both increased originations and higher line. Utilization in the second quarter, these increases were partially offset by declines, in our business and Commercial portfolios within the branch. Network is competition for new business, remains Fierce and Loan. Originations have been muted the past 2 quarters. While the decline was not ideal, we have been steadfast in our loan pricing approach and are not changing our credit standards, despite increased competition and rate pressure from competitors.

Speaker Change: We believe that macroeconomic uncertainty is leading to decreased demand which is helping to drive these competitive pressures. Our pricing discipline was reflected in our loan yield as the loan yield execution. Improved 1 basis point to 625 from the link quarter, despite the impacts of the decline in yield curve within the general Bank, specifically, the loan yield was up 5,

Speaker Change: Basis points from the link quarter.

Craig Nix: Commercial bank growth was concentrated in real estate finance and equipment finance and was partially offset by a decline within our industry verticals, driven by loan maturities and higher prepayments. The growth in real estate finance was primarily due to slower paydowns. Turning to the right-hand side of the balance sheet, deposits were up $610 million, or about 4.4% sequentially, as we experienced growth in both the Direct Bank and SVB Commercial. The Direct Bank was the largest contributor to the increase, growing by $941 million, as we continue to see solid elasticity in these deposits despite lowering rates. We were also encouraged by our ability to keep the non-interest-bearing deposit mix flat from the linked quarter, despite growth in the Direct Bank channel.

Speaker Change: Commercial Bank growth, Wisconsin concentrated in real estate finance and Equipment finance and was partially offset by a decline within our industry. Verticals driven by loan maturities and higher prepayments.

The growth in real estate Finance was primarily due to slower. Paid outs.

Speaker Change: Turning to the right hand side of the balance sheet deposits were up 610 million dollars or by 4.4% sequentially. As we experience growth in both the direct bank and svb Commercial, the direct Bank was the largest contributor to the increase growing by 941 million, as we continue to see solid elasticity in these deposits despite lowering rates.

Craig Nix: Since year-end, demand deposits were up $2.2 billion, representing an annualized growth rate of 11.6%. Growth was concentrated in SVB Commercial and the general bank. In SVB Commercial, we experienced end-of-period growth of $778 million due to an increased deposit flow in the back half of the quarter. We were encouraged by growth in tech and healthcare banking, which was driven by new client acquisition, despite continued challenges in the overall fundraising environment. Average deposit balances and average total client funds, or TCF, were down from the sequential quarter due to larger outflows in April and May. Encouragingly, we did see higher levels of TCF inflows in June. These increases were partially offset by declines of $810 million and $95 million in the general bank and commercial bank, respectively.

We were also encouraged by our ability to keep the non-interest bearing deposit mixed flat from the link quarter despite growth in the direct Bank Channel. Since year, end demand deposits were up. 2.2 billion representing an annualized growth. Rate of 11.6% growth was concentrated in svb commercial and the general Bank.

Speaker Change: And svb Commercial, we experienced in the period growth of 778 million due to an increased deposit flow in the back half of the quarter. We were encouraged by growth in Tech and Healthcare banking which was driven by a new client acquisition despite or was driven by new client acquisition despite continued challenges in the overall fundraising environment.

Speaker Change: Average deposit balance is an average total client funds are TCF. We're down from the sequential quarter due to larger outflows in April and May encouragingly. We did see higher levels of TCF inflows in June.

Speaker Change: These increases were partially offset by declines of 810 and 95 million in the general bank and Commercial Bank respectively.

Craig Nix: The decline in the general bank was driven by lower balances in the branch network and CAB due to seasonal outflows and lower net growth. Within the general bank, we have implemented new deposit growth tactics to help identify both near- and long-term opportunities to accelerate growth through deepening relationships, encouraging more local decision-making, and improving digital capabilities. Moving to credit, net charge-offs declined by eight basis points sequentially, and we're below our guidance range, as a few of the larger deals we anticipated would pull through this quarter were delayed as we continue to work through resolution with our clients. Consistent with prior quarters, net charge-offs were mostly concentrated in the general office, investor-dependent, and equipment finance portfolios. There were a couple of sizable charge-offs in the broader SVB innovation portfolio and within our commercial finance business, most of which were previously reserved for.

Speaker Change: The decline in the general Bank was driven by lower balances in the branch Network and cab due to seasonal, outflows and lower. Net growth within the general Bank. We have implemented new deposit growth tactics to help identify both near and long-term opportunities, to accelerate growth through, deepening relationships, encouraging more local decision-making, and improving digital capabilities.

Speaker Change: Moving to credit, net charge offs declined by 8 basis, points sequentially and were below our guidance range. As a few of the larger deals. We anticipated will pull through this quarter were delayed as we continue to work through resolution with our clients.

Speaker Change: Consistent, with prior quarters. Net, charge offs, were mostly concentrated in the general office, investor dependent and Equipment Finance portfolios.

Craig Nix: As we have noted on past calls, net charge-offs can be lumpy quarter over quarter, given the hold sizes of some of our larger credits. While we will continue to monitor these portfolios, we are not seeing any further trends that would signal wider credit quality concerns and believe we are well reserved. The allowance ratio was down one basis point to 1.18%. We feel good about our overall reserve coverage, as well as the coverage on the portfolios experiencing stress. Ultimately, our strong risk management framework, rigorous underwriting standards, and diversified portfolio help safeguard against losses. Moving to capital, Frank mentioned that we continue to make progress on our 2024 share repurchase plan.

Speaker Change: there were a couple of sizable charge offs in the broader svb Innovation portfolio and within our commercial Finance business, most of which were previously reserved for

As we have noted on past calls net charge offs can be lumpy quarter over quarter, given the hold sizes of some of our larger credits.

Speaker Change: While we will continue to monitor these portfolios, we are not seeing any further trends that would signal wider credit quality concerns and believe we are well reserved

Speaker Change: Standards and diversified portfolio. Help Safeguard against losses.

Craig Nix: As of close of business on July 22, we had repurchased 10.96% of Class A common shares, or 10.2% of total common shares outstanding, for a total price of $2.9 billion. This represents approximately 63% of our board-approved $3.5 billion repurchase plan from 2024. In July 2025, the board approved an incremental repurchase plan for up to $4 billion in Class A common shares through the end of 2026. We expect to complete the 2024 plan during Q3, and immediately following its completion, begin repurchasing shares under the $4 billion plan. During the past year, repurchases have ranged from approximately $600 to 900 million per quarter.

Speaker Change: Moving to Capital. Frank mentioned that we continue to make progress on our 2024, Sherry purchase plan.

Speaker Change: As a close of business on July 22nd.

Speaker Change: We had repurchased 10.96 percent of class a common shares or 10.2% of total. Common shares outstanding for a total price of 2.9 billion. This represents approximately 63% of our board approved 3.5 billion repurchase plan from 2024.

Speaker Change: In July 2025, the board approved, an incremental repurchase plan for up to 4 billion dollars in class. A common shares through the end of 2026.

Speaker Change: We expect to complete the 2024 plan during the third quarter and immediately following its completion, begin repurchasing shares under the 4 billion dollar plan.

Craig Nix: We expect that repurchases through the end of 2025 and into 2026 will be near the higher end of this range as we manage CET1 towards our target range. The pace will likely slow down when CET1 is closer to our target range, assuming earnings and RWA growth are in line with our forecasts. Share repurchases will continue to be a tool to support capital management activities, providing us with an opportunity to return capital to our shareholders and to be more capital efficient over time.

Speaker Change: During the past year repurchases, have ranged from approximately 600 to 900 million per quarter. We expect that repurchases through the end of 2025, and into 2026 will be near the higher end of this range as we manage cet1 towards our target range. The pace will likely slow down. When cet1 is closer to our target range. Assuming earnings and rwa growth are in line with our forecasts.

Craig Nix: Although we expect that CET1 will remain above our target range of 10.5% to 11% in 2025, given our current growth expectations and where our capital ratios were to start the year, we believe the new repurchase plan will enable us to methodically manage CET1 down to that level over time, as we regularly assess our growth outlook, economic uncertainty, potential regulatory changes, and overall capital deployment. Given the termination of the FDIC Shared Loss Agreement, or SLA, early in Q2, our reported regulatory capital ratios are lower on an absolute basis. Recall that while the SLA benefited our capital ratio, we always managed capital without the benefit of the SLA, knowing that it only provided a temporary lift. As a result, the termination does not impact our approach to capital management or related actions.

Cherry purchases will continue to be a tool to support Capital Management, activities providing us with an opportunity to return Capital, to our shareholders, and to be more Capital efficient over time.

Speaker Change: Although we expect that C1 will remain above our target range of 10 and a half, to 11% in 2025, given our current growth expectations and where our Capital ratios were to start the year. We believe the new repurchase plan will enable us to methodically manage C1 down to that level over time as we regularly assess our growth outlook economic uncertainty potential, regulatory changes and overall Capital deployment

Speaker Change: Given the termination of the FDIC shared loss, agreement or SLA.

Craig Nix: The Q2 CET1 ratio was 12.12%, a decrease of 7 basis points from the Q1 adjusted CET1 ratio, as the impact from share repurchases slightly outpaced earnings and the modest loan decline I discussed earlier. I will close on page 28 with our Q3 and full year 2025 outlook. We continued to monitor the overall macroeconomic environment, but acknowledge that the fluidity of changes makes it difficult to narrow the range of potential impacts on the broader economy and on our business lines and clients. Accordingly, we have not made significant changes to our guidance, but do continue to monitor the environment and how it can impact our performance. If we find that the impacts are likely to have a significant impact on our earnings or growth prospects, we will reflect that within our guidance in future quarters.

Speaker Change: Early in the second quarter, our regulator, our reported regulatory Capital ratios are lower on an absolute basis. Recall that while the that while the SLA benefited, our Capital ratio, we always managed Capital without the benefit of the SLA knowing that it only provided a temporary lift. As a result, the termination does not impact our approach to Capital management or related actions.

Speaker Change: The second quarter, cet1 ratio was 12.12%.

Speaker Change: A decrease of 7 basis points from the first quarter adjusted. Cet1 ratio is the impact from Sherry purchases slightly outpaced earnings and the modest loan decline. I discuss I discussed earlier.

Speaker Change: I will close on page 28 with our third quarter and full year 2025 Outlook.

Speaker Change: We can continue to monitor the overall macroeconomic environment, but acknowledged that the fluidity of changes makes it difficult to narrow the range of potential impacts on the broader economy and on our business lines and clients.

Speaker Change: Accordingly. We have not made significant changes to our guidance, but do continue to monitor the environment and how it can impact our performance. If we find that the impacts are likely to have a significant impact on our earnings or growth prospects, we will reflect that within our guidance and future quarters

Craig Nix: Starting with the balance sheet, we anticipate loans in the $141 to 144 billion range in Q3, driven primarily by growth in the general and commercial banks and SVB commercial. In the general bank, we expect recent trends to abate and are projecting growth in business and commercial loans within the branch network as we move through the back half of 2025. We noted earlier that competition in this space has increased in recent quarters, with competitors lowering spreads while overall demand continues to be soft. We continue to work through shifts and strategies to ensure we remain competitive in this space and anticipate higher balances over the next few quarters.

Speaker Change: starting with the balance sheet.

Speaker Change: We anticipate loans in the 141 to 144 billion range. In the third quarter driven, primarily by growth in the general and Commercial Banks and S svb commercial

Speaker Change: in the general Bank, we expect recent Trends to Abate and are projecting growth in business and Commercial loans within the branch Network, as we move through the back, half of 2025,

Speaker Change: We noted earlier that competition in this space has increased in recent quarters with competitors lowering spreads while overall demand continues to be soft.

Craig Nix: We expect commercial bank growth will come from our industry verticals, as we expect the idiosyncratic pay downs we saw in Q2 to slow and project origination levels to remain strong... in the SVB commercial business, we believe we will continue to benefit from growth in the global fund banking business, thanks to the strong pipeline it maintains. But we do remain cautious on the absolute level of growth, driven in part to lower line utilization in recent quarters due to the market backdrop. For the full year, we pulled down our guidance range modestly and are projecting loans in the $143 to 146 billion range, as we remain cautiously optimistic on absolute loan levels, given lower growth in the first half of the year.

Speaker Change: We continue to work through shifts and strategies to ensure we remain competitive in the space and anticipate higher balances over the next few quarters.

Speaker Change: We expect Commercial Bank, growth will come from our industry verticals. As we expect the idiosyncratic pay downs, we saw in the second quarter to slow and project origination levels to remain strong.

Speaker Change: In the svb commercial business, we believe we will continue to benefit from growth in the global fund banking business. Thanks to the strong pipeline. It maintains,

To lower line utilization in recent quarters, due to the market backdrop.

Craig Nix: We expect growth to be driven by the same factors I just mentioned, but we believe that we could see growth pick up in Q4 if the Fed's monetary easing cycle begins to take effect and we see increased levels of VC investment and capital markets activity. We expect deposits to be in the $159 to 162 billion range in Q3, driven primarily by growth in the Direct Bank as we continue to leverage this channel to drive growth in insured core deposits. While the Direct Bank is a higher cost channel, we will benefit here from falling interest rates and believe it will provide us with the strategic agility to continue optimizing our deposit funding base. Encouragingly, we have continued to lower costs in the Direct Bank the past two quarters without a decline in total balances.

Speaker Change: for the full year we pulled down our guidance range modestly in a projecting loans in the 143 to 146 billion range as we remain cautiously optimistic on absolute loan levels, giving lower growth in the first half of the year,

We expect growth to be driven by the same factors. I just mentioned.

Speaker Change: But we believe that we could see growth pickup in the fourth quarter. If the fed's monetary easing cycle begins to take effect, and we see increased levels of VC investment and capital markets activity.

Speaker Change: We expect deposits to be in the 159 to 162 billion range in the third quarter driven, primarily by growth in the direct Bank as we continue to leverage this channel to drive growth and insured poor deposits.

Speaker Change: While the direct bank is a higher cost Channel, we will benefit here from falling interest rates and believe it will provide us with the Strategic agility to continue optimizing. Our deposit funding base,

Speaker Change: encouragingly, we have continued to lower costs in the direct Bank, the past 2 quarters, without a decline in total balance is

Craig Nix: We expect that this growth will be partially offset by a decline in SVB commercial, as continued cash burn and muted public and private investment activity pressures absolute levels of growth. Additionally, we do anticipate some large outflows in the global fund banking business, given known client activities, so this could contribute to a muted balance growth. We also continue to look at strategies to reduce funding and liquidity costs within this channel by optimizing the mix of funds, both on and off balance sheet, which could impact absolute deposit growth levels. Lastly, while we are encouraged by a few recent and successful IPOs, we would discourage drawing a line between these successes and an overall change in the industry.

Speaker Change: We expected this growth will be partially offset by a decline in s svb commercial as continued cash, burn and muted. Public and private investment activity. Pressures, absolute levels of growth.

Additionally, we do anticipate some large outflows in the global fund banking business, given known client activities so this could contribute it to a muted loan to muted balanced growth.

Speaker Change: We also continue to look at strategies to reduce funding and liquidity costs within this channel. By optimizing, the mix of funds both on and off balance sheet, which could impact absolute deposit growth levels. Lastly, while we are encouraged

Speaker Change: by a few recent and successful IPOs, we would discourage drawing a line between these successes and an overall change in the industry.

Craig Nix: For the full year, we are revising our deposit guidance lower to the $161 to 166 billion range, given the lower jump-off point in Q2 and our shift in loan growth expectations. We expect full year growth to be driven by similar factors to what I just mentioned, and acknowledge we have a broad range of possible outcomes on deposit levels, which in part, will be driven by overall earning asset growth. Our interest rate forecast covers a range of 0 to 225 basis points rate cuts in the second half of 2025, with the effective Fed funds rate range declining from 4.25 to 4.50 currently, to as low as 3.75 to 4 by the end of the year.

For the full year, we are revising. Our deposit guidance, lower to the 161 to 166 billion range. Given the lower jump off point in the second quarter and our shift and Loan growth expectations. We expect full year growth to be driven by similar factors to what I just mentioned. Acknowledge we have a broad range of possible outcomes on the positive levels, which in part will be driven by overall earning asset growth.

Speaker Change: Our interest rate forecast uh covers a range of 0 to 225 basis points, rate, Cuts in the second half of 2025.

Speaker Change: With the effective fed funds rate range declining.

Speaker Change: From 4.25 to 4.5 currently to as low as 3.75 to 4 by the end of the year.

Craig Nix: While our baseline forecast includes one rate cut, we believe there is a possibility that a broader economic slowdown could lead to additional cuts. However, given stubborn inflationary metrics and possible impacts of macroeconomic policy, we recognize these cuts may not occur. Therefore, we believe it is prudent to provide a range of expectations for the year. We expect Q3 headline net interest income to be relatively stable compared to Q2. Our guidance does include the planned impact of share repurchase activity for 2025 under our current share repurchase plan, as well as the incremental share repurchase plan that will begin upon its completion. For the full year, we are tightening our headline net interest income guidance to be in the range of $6.68 to 6.88 billion, from $6.55 to 6.95 billion.

Speaker Change: While our Baseline forecast includes 1 rate cut, we believe there is a possibility that a broader economic slowdown could lead to additional Cuts. However, given stubborn and inflationary metrics and possible impacts of macroeconomic policy.

Speaker Change: We recognize these Cuts may not occur. Therefore, we believe it is prudent to provide a range of expectations for the year.

Speaker Change: We expect third quarter headline, net interest income to be relatively stable compared to the second quarter. Our guidance does include the plan impact of Sherry purchase activity for 2025 under our current Sherry purchase plan as well as the incremental Sherry purchase plan that will begin upon its completion.

Speaker Change: For the full year, we are tightening our headline. Net interest income guidance, to be in the range of 6.688 to 6.88 billion from 6.55 to 6.95 billion.

Craig Nix: The revision reflects the new interest rate curve, as well as the jumping-off point from Q2. In either case, as expected, we project that loan accretion will be down by over $200 million for the year compared to 2024. On credit losses, we anticipate Q3 net charge-offs in the range of 35 to 45 basis points, down modestly from the range we provided in Q2, but slightly above our Q2 results. While Q2 net charge-offs were lower than expected, we did not have one or two large charge-offs pull through, which would have pushed our net charge-off ratio higher.

Speaker Change: The revision reflects the new interest rate curve as well as the jumping off point from the second quarter.

Speaker Change: In either case, as expected, we project that loan accretion will be down by over million dollars for the year compared to 2024.

Speaker Change: On credit losses, we anticipate third quarter, net, charge offs, in the range of 35 to 45 basis points down. Modestly from the range, we provided in the second quarter, but slightly above our second quarter results,

Speaker Change: While second quarter, net charge offs were lower than expected. We did not have 1 or 2 large charge offs pulled through which would have pushed our net charge off.

Craig Nix: In commercial real estate, while rate cuts could ease some of the pressure on borrowers in the general office sector, we do believe losses will remain elevated in the second half of the year, even as market disruption may lessen as more companies begin to reinstate office attendance requirements. We also anticipate continued stress in the investor-dependent portfolio for the remainder of 2025. Overall, VC investment activity was down compared to the prior quarter, but if you remove deals greater than $1 billion, which we believe are outside of our service addressable market, activity levels were relatively stable during the quarter. While additional rate cuts would be a welcome change for this business, and there have been a handful of large IPOs, we believe it is still too early to call a bottom in the cycle.

Speaker Change: Ratio higher and Commercial Real Estate, while rate Cuts could ease some of the pressure on bars in the general office sector. We do believe losses will remain elevated in the second half of the Year. Even as Market, disruption May lessen, as more companies, begin to reinstate office attendance requirements.

Speaker Change: We also anticipate continued stress in the investor dependent for portfolio for the remainder of 2025.

Speaker Change: Activity was down compared to the prior quarter, but if you remove deals greater than 1 billion dollars, which we believe are outside of our service, addressable Market activity levels. Were relatively stable during the quarter

Craig Nix: The catalyst for buyers to become more inquisitive and for public investors to have an improved appetite for IPOs remains elusive, and continued macroeconomic uncertainty is weighing on activity. With respect to the full year range, we are maintaining our guide of 35 to 45 basis points despite the lower jump-off point. This is because we continue to see some lumpiness and losses in the portfolio, full of large deals swinging the ratio, and timing-wise, they can easily fall into one quarter or another. It's important to note that our net charge-off guidance does not include an estimate for the long-term impact of tariffs, given the continued shifts in expectations and the difficulty in determining the full impact on our asset quality. While higher tariffs could drive economic stress in the form of inflation and/or lower growth, we believe the credit risk is manageable.

Speaker Change: Well, additional rate Cuts would be a welcome change for this business and there have been a handful of large IPOs. We believe, it is still too early to call a bottom in the cycle. The Catalyst for buyers to become more inquisitive and for public investors to have an improved appetite for IPOs remain Elusive and continued macroeconomic uncertainty is Weighing on activity.

Speaker Change: With respect to the full year range. We are maintaining our guide of 35 to 45 basis points. Despite the lower jump off point. This is because we continue to see some lumpiness and losses in the portfolio.

Speaker Change: Full of large deals swing. The ratio and timing wise, they can easily fall into 1 quarter or another

It's important to note that our net charge off guidance. Does not include an estimate for the long term impact of terrorists. Giving the continued shift in expectations and the difficulty in the full impact on our asset quality.

Craig Nix: We will continually assess the potential impact on our portfolio, but we do believe its diversity is a strength in this environment. Moving to adjusted non-interest income, we expect to be in the $480 to 510 million range in Q3, aligned with a typical quarter for us. Overall, we continue to see strength in many of our core lines of business, such as rail, merchant, card, and wealth. Given that we have two quarters behind us, we have tightened our full year adjusted non-interest income range to $1.97 to 2.05 billion. Year-over-year growth continues to be driven by our rail outlook, which includes a balanced rail car portfolio and a strategic exploration ladder.

Speaker Change: While higher tariffs could drive economic stress in the form of inflation Andor lower growth, we believe the credit risk is manageable. We will continually assess the potential impact on our portfolio, but we do believe it's diversity is a strength in this environment.

Speaker Change: Moving to adjusted non-interest income, we expect to be in the 480 to 510 million range in the third quarter, aligned with a typical quarter for us. Overall, we continue to see strength in many of our core lines of business, such as rail, Merchant card, and wealth.

Craig Nix: We also expect continued solid growth in wealth and international fees, thanks to new client acquisition and an increase in flow of funds. I do want to caution that given the changing rate environment, our client derivative positions can fluctuate between quarters, causing some lumpiness in our non-interest income results. Moving to adjusted non-interest expense, we expect the third quarter to be up modestly compared to the second quarter, as some large projects are placed in service, and we continue to invest in our risk and technology capabilities to ensure Category Three readiness and to help simplify and optimize our platforms to allow us to scale efficiently in the future. Looking at the full year, we tightened our adjusted non-interest expense range to $5.1 to 5.2 billion.

Given that we have 2 quarters behind us. We have tightened our full year, adjusted non-interest income range to 1.97 to 2.05 billion. Year-over-year growth continues to be driven by our rail Outlook, which includes the balance rail car portfolio and a strategic expiration ladder. We also expect continued solid growth and wealth and international fees. Thanks to new client acquisition and an increase in flow of funds.

Speaker Change: I do want to caution that given the changing rate environment, our client derivative positions can fluctuate between quarters causing some lumpiness in our non-interest, income results.

Speaker Change: Moving to adjusted non-interest expense. We expect the third quarter to be up modestly compared to the second quarter as some large projects are placed in service and we continue to invest in our risk and Technology capabilities to ensure Category 3 Readiness and to help simplify and optimize our platforms to allow us to scale efficiently in the future.

Craig Nix: Exercising disciplined expense management while making opportunistic investments through the cycle and technology risk management and our associates is a top priority for us, given headwinds to net interest income. Our adjusted efficiency ratio is expected to remain in the upper 50% range in 2025, as the impact of the Fed rate cut cycle puts downward pressure on net interest margin, and we continue to make investments into areas that will help us scale to Category Three status when we cross that threshold. Longer term, our goal remains to operate in the mid-50s. Finally, both for Q3 and the full year 2025, we expect our tax rate to be in the range of 25% to 26%, which is exclusive of any discrete items.

Speaker Change: Looking at the full year, we tightened our adjusted non-interest expense range to 5.1 to 5.2 billion exercising this 1 exp management while making opportunistic Investments through the cycle and Technology risk management and our Associates is a top priority for us giving headwinds to net interest income.

Speaker Change: Our adjusted efficiency ratio is expected to remain in the upper 50% range in 2025. If the impact of Fed rate cycle, the impact of the Fed rate, cut cycle puts downward pressure on net, interest margin and we continue to make investments in the areas that will help us scale to Category 3 status. When we cross that threshold longer term, our goal remains to operate in the mid-50s.

Finally, both for the third quarter and the full year 2025, we expect our tax rate to be in the range of 25 to 26%, which is exclusive of any discrete items.

Craig Nix: To conclude, our second quarter results are reflective of the strength and resilience of our diversified business model. Thanks to our long-term focus, continued investments in our business, and strong risk management framework, we're well positioned to continue delivering value to our clients, customers, communities, and shareholders. I will now turn it over to the operator for instructions for the Q&A portion of the call.

Speaker Change: To conclude our second quarter results are reflective of the strength and resilience of our Diversified business model. Thanks to our long-term Focus continued investments in our business and strong risk management framework. We're well positioned to continue, delivering value to our clients customers, communities and shareholders.

Speaker Change: I will now turn it over to the operator 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 and then the one key on your touchtone telephone. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up, and then return to the call queue if you have additional questions. If your question has been answered and you wish to remove yourself from the queue, please press star followed by two. Our first question comes from Casey Haire from Autonomous Research. Casey, your line is open. Please go ahead.

Speaker Change: Thank you, ladies and gentlemen, if you have a question or comment at this time, please press star and then the 1 keys to others on the call. We offer, you limit yourself to 1 question and 1, follow-up and then return to the cool queue. If you have additional questions, if your question has been answered and you wish to remove yourself from the queue, please press star for like 2.

Casey: Our first question comes from Casey have autonomous research. Casey your line is open, please go ahead.

Casey Haire: Great, thanks. Good morning, guys. So I guess, first question would just be, on the loan growth. Obviously, the paydowns are tough to forecast, but, if I heard you correctly, I thought—I think you said the SVB pipeline was up.

Deanna Hart: Guys, give us just one second. We're having some audio issues on our side.

So, I guess, um, first question would just be, um, on the, on the long growth. Um, obviously, the pay Downs, uh, are tough to forecast. But, um, if I heard you correctly, I thought I think you said the the SUV pipeline was up. Yeah, it's just 1. Second we're having some audio issues on our side.

Casey Haire: Just wondering-

Operator: Just going to have a brief pause here while we adjust this issue. Please stand by. ... when you are ready.

Casey: Just going to have a brief pause here while we adjust this issue. Please stand by

When you were ready.

Marc Cadieux: Yeah, great. Thanks. So, just question on the loan growth outlook. If I heard you correctly, I think you said SVB pipelines are $9.5 billion, and yet you have, you know, loans running either flat or up modestly in Q3. Just a little more color on what’s driving that, what seems to be a conservative outlook?

Casey Haire: Yeah, great. Thanks. So, just question on the loan growth outlook. If I heard you correctly, I think you said SVB pipelines are $9.5 billion, and yet you have, you know, loans running either flat or up modestly in Q3. Just a little more color on what’s driving that, what seems to be a conservative outlook?

Casey: Yeah, great thanks. So, uh, just a question on the, on the, uh, on the loan growth Outlook. If I heard you correctly, I think you said, sue svb pipelines are 9 and a half billion. Um, and yet you have

Casey: You know, loans running, either flat or up modestly in the third quarter, just just a little more color on on.

Casey: The what's driving? That what seems to be a conservative Outlook

Elliot: Yeah, on the, the $9.5 billion, that's true, related to Global Fund Banking. So that, pipeline is actually up from what we saw in the first quarter. So we're very optimistic on the development there. Yeah, I think utilization has pulled in slightly. And so I think we're being, you know, a little bit, conservative on kind of what that growth might portend into. But the underlying really fundamentals are really strong in that business. Yeah, I think elsewhere, you know, we saw some elevated prepayments, kind of idiosyncratic in nature in industry verticals. But, you know, we're feel really good on where we're positioned in, yeah, tech, media, telecom, energy, and healthcare.

[Company Representative] (First Citizens BancShares): Yeah, on the, the $9.5 billion, that's true, related to Global Fund Banking. So that, pipeline is actually up from what we saw in the first quarter. So we're very optimistic on the development there. Yeah, I think utilization has pulled in slightly. And so I think we're being, you know, a little bit, conservative on kind of what that growth might portend into. But the underlying really fundamentals are really strong in that business. Yeah, I think elsewhere, you know, we saw some elevated prepayments, kind of idiosyncratic in nature in industry verticals. But, you know, we're feel really good on where we're positioned in, yeah, tech, media, telecom, energy, and healthcare.

Casey: Yeah, on the uh the 9 and a half billion, that's true related to the global fund banking, so that pipeline is actually all from what we saw in the first quarter. Uh so we're very optimistic on the development there. Yeah, I think utilization has pulled in slightly. Um and so I think we're being, you know, a little bit um conservative on kind of what that growth might portend then to. But underlying really fundamentals are really strong in that business.

Yeah, I think elsewhere you know we saw some elevated prepayments um kind of idiosyncratic in nature in the industry verticals. Um but you know we're feel really good when we're a position that Tech media Telecom energy and Healthcare.

Marc Cadieux: Okay, great. And then can we get some updated thoughts on the FDIC purchase money note? I know Fed cuts kind of keep getting pushed out, but, I mean, the forward curve does have, you know, at that, you know, 100 basis points by the end of next year. So just, you know, what is the, how do you guys envision this, this playing out? Like, and, and how much FHLB capacity do you, do you intend to use in terms of retiring this, this funding source?

Casey Haire: Okay, great. And then can we get some updated thoughts on the FDIC purchase money note? I know Fed cuts kind of keep getting pushed out, but, I mean, the forward curve does have, you know, at that, you know, 100 basis points by the end of next year. So just, you know, what is the, how do you guys envision this, this playing out? Like, and, and how much FHLB capacity do you, do you intend to use in terms of retiring this, this funding source?

Okay, great. Um and then can we get someone to get the thoughts on?

Casey: The FDIC purchase money note. Um, I know we've had to kind of keep getting pushed out but um I mean look, forward curve does have you know, at that, you know, 100 BS by the end of next year. So just, you know, what is the how do you guys Envision this this playing out like and and how much fhlb capacity you uh, you intend to use in terms of retiring this, uh,

Casey: This funding source.

Craig Nix: Okay, I'll, I'll take that one, and we'll let Tom amplify here. But, declining interest rates, especially to the extent that the forward curve is implying, would precipitate some pay down of the note in, 2026. We don't really anticipate any of that in 2025. So once that arbitrage is alleviated, it would precipitate a pay down. And in terms of just order of preference, we would certainly like to first use excess liquidity, generated by preferably core deposit growth, as the first source of repayment. Then we would move down to broker deposits, and then we'd move to FHLB advances, and then finally, long-term debt. But we feel really good about our positioning there, our liquidity and ability with contingent funding sources, to pay that note off.

Speaker Change: Okay, I'll I'll take that 1 and we'll let Tom amplify here. But uh, declining interest rates, especially to the extent. That the forward curve is implying would precipitate some pay down.

Craig Nix: Tom, would you like to add anything to that?

Tom Eklund: No, I would, I would say to, to sort of amplify that, you know, since, since the acquisition of SVB, we paid off, you know, just under $10 billion worth of home loan bank advances, as we took on the purchase money notes. So obviously, we have capacity there. That being said, we'd prefer to use deposits. I think at this point, we've built excess liquidity in sort of the $11 billion range today. To Craig's point, we're still earning a positive arbitrage. We don't really see a purpose to pay the purchase money note down early, but as we look out over time, and rates change, that may change.

Speaker Change: Debt. But we feel really good about our positioning their our liquidity and ability with contingent funding sources. Uh, to pay that note off. Tom would you like to add anything to that?

Tom: No. I I would say to, to sort of amplify that, you know, since since the acquisition uh of SUV we paid off, you know, just under 10 billion dollars worth of home remedies.

Tom Eklund: I think over time, we'd like to keep deposits, get that back up to funding sort of 90 to 95% versus the 81% that it is today, as a percentage of total funding.

Speaker Change: That we have capacity there that being said, we'd prefer to use deposits. I think, at this point we've built excess liquidity and sort of the 11 billion dollar range today to Craig's point. We're still learning and positive Arbitrage, or don't really see a purpose to pay the purchase money enough down early. But as we look out over time and rates change, uh, that may change, I think over time we'd like to keep the positives get that back up to funding, sort of 90 to 95% versus the 81% that it is today, uh, as a percentage of total funding

Marc Cadieux: Great. Thanks.

Casey Haire: Great. Thanks.

Speaker Change: Great, thanks.

Operator: The next question comes from Steven Alexopoulos from TD Cowen. Steven, your line is open. Please go ahead.

The next question comes from Stephen alexopoulos. From TD Cowen, Steven, your line is open, please go ahead.

Steven Alexopoulos: Hey, good morning, everyone. I want to first start and follow up on Craig's comments on SVB. Maybe, hopefully, Mark's on the call. It sounds like you guys are pretty cautious with the outlook for SVB, and when I look at what the equity markets did in Q2, historically, that's a very positive leading indicator for the SVB business. And when you combine that with what we're seeing with AI more broadly, I was curious, are you seeing an increase in terms of the number of term sheets out in the market? And are your VC clients starting to get a bit more bullish here when it comes to putting all of that dry powder to work?

Hey, good morning, everyone.

Stephen Alexopoulos: I want to, I want to first start and follow up on Craig's comments on svb, maybe hopefully, marks on the call. It sounds like you guys are pretty cautious with the outlook for svb, and when I look at what the equity markets did in 2q, historically, that's a very positive leading indicator for SUV business. And when you combine that with what we're seeing with, AI more broadly, I was curious. Are you seeing an increase in terms of the number of term sheets out in the market? And are your VC clients starting to get a bit more bullish here? When it comes to putting all of that dry powder to work,

Craig Nix: Mark, you want to take that one?

Tom Eklund: Craig, would you like me to take that?

Craig Nix: Yes, go ahead, Mark.

Mark you want to take that 1? Would you like me to take that?

Tom Eklund: Happy to take that.

Marc Cadieux: Happy to take that.

Stephen Alexopoulos: Yeah, go ahead, Mark.

Marc Cadieux: Good morning, Steve. Great to hear from you. Sorry about that. I appeared to have put myself on mute accidentally. Getting back to your question, Steve. The activity in the second quarter, June was definitely, as noted by Craig, an encouraging uptick, particularly the IPO activity I think you referenced there. At the same time, I think there is cautious optimism as to whether this is truly the beginning of something, and you see that caution, I think, reflected in our continued guidance and our comments today. The window for IPOs certainly seems to be partially open, but at the same time, the bar to go out remains pretty high. It's expensive to be public, and capital clearly, as evidenced by venture investment in the second quarter, remains available for good later-stage companies. And so...

Stephen Alexopoulos: to take that, uh,

Good morning, Steve. Uh, great to hear from you.

Stephen Alexopoulos: The uh,

Sorry about that, it appear to have uh, quite myself on need accidentally.

Stephen Alexopoulos: The.

Steve: Uh, getting back to your question, Steve.

Speaker Change: The activity in the second quarter. Uh June was definitely uh as noted by Craig, a encouraging uptick particularly the IPO activity. I think you referenced there at the same time. I think there is cautious optimism as to whether this is truly the beginning of something. And you see that, uh, caution, I think reflected in our continued guidance and our comments today.

the window for IPO certainly seems to be

Speaker Change: partially open.

Marc Cadieux: unclear whether this will really be the start of a, you know, more IPOs. I think it reasonable to think that we could see as many in the second half as we saw in the first half, but not really expecting a lot there. And then to your point about term sheets, and again, as evidenced by the investment in Q2, there is activity in putting that dry powder to work, but most of that activity is very much skewed towards later stage deals. And as mentioned earlier, the mega $1 billion-plus financings that generally aren't really our target. At the same time, on the earlier stage end of the spectrum, the pace remains muted as it has for going on 3 years now.

Speaker Change: But at the same time, the bar to go out remains pretty high. It's expensive to be public and capital uh clearly as evidenced by Venture investment and the second quarter remains available for good. Later stage companies. And so

Speaker Change: unclear, whether this will really be the start of a, you know,

Speaker Change: More IPOs. I think, uh, it reasonable to think that we could see as many in the second half as we saw in the first half. But not really expecting a lot there. And then to your point about term sheets. And again, as evidenced by the investment in the second quarter, there is activity in putting that dry powder to work. But a most of that activity is very much skewed towards later stage deals. And as mentioned earlier, the mega 1 billion dollar plus financing that generally aren't really our Target.

Marc Cadieux: And so, again, I think there is hope, if you will, among the venture community and certainly ourselves, that spring is springing, and we're going to see gradual improvement from here. But there, again, are so many mixed signals, so much economic uncertainty hanging over everything that we remain on balance cautious, though somewhat encouraged.

Speaker Change: At the same time on the earlier stage, end of the spectrum, the pace remains muted, as it has for, uh, going on 3 years now. And so,

Speaker Change: Again, I think there is hope. Um, if you will among the Venture community and certainly ourselves that spring is springing and we're going to see um gradual improvement from here,

Speaker Change: But there again are so many mixed signals so much, uh,

Economic uncertainty hanging over everything. That we remain on balance, uh, cautious, uh, though. Someone encouraged.

Steven Alexopoulos: Got it. That's, that's great color, Mark. And maybe to follow up, for Craig. So it, it sounded like the deposit growth that you're guiding to include an assumption for SVB deposits to decline. Could you-- which demonstrates that conservatism and the outflow you talked about. Craig, could you just size for us what you're looking for for SVB deposits? Like, what's inside of that deposit guide for the rest of this year? Thanks.

Great color Mark and maybe to follow up um, for Craig. So it sounds like the deposit growth that you're guiding to included an assumption for svb deposits to decline. Could you? Which demonstrates that conservatism and the outflow you talked about Craig. Can you just size?

Speaker Change: We be deposits like what's inside of that deposit guide for the rest of this year.

Craig Nix: Good. I'm going to let Elliot address that one.

Okay, I'm going to let Elliott address that 1.

Elliot: Yeah, Steve, I mean, I-

[Company Representative] (First Citizens BancShares): Yeah, Steve, I mean, I-

Yeah, Steve, I mean, I

Craig Nix: There you go. He got it.

There you go, you got it.

Elliot: Yeah, Steve, I think on, you know, kind of the SVB guide for deposits, really kind of want to reiterate what Mark said. I think we're cautiously optimistic. You know, as we kind of landed in the second quarter, just looking at, you know, some larger deals, you know, funded on the GFB side, we do expect some outflows. And so I think that is reflected, you know, in some of that deposit guidance. Yeah, I'd say otherwise, I mean, client acquisition has been good. We've actually seen an uptick over the past few quarters. So, you know, generally, you know, pretty flatish, for the rest of the year with a little bit of growth. But I, I would color that as, you know, cautiously optimistic.

[Company Representative] (First Citizens BancShares): Yeah, Steve, I think on, you know, kind of the SVB guide for deposits, really kind of want to reiterate what Mark said. I think we're cautiously optimistic. You know, as we kind of landed in the second quarter, just looking at, you know, some larger deals, you know, funded on the GFB side, we do expect some outflows. And so I think that is reflected, you know, in some of that deposit guidance. Yeah, I'd say otherwise, I mean, client acquisition has been good. We've actually seen an uptick over the past few quarters. So, you know, generally, you know, pretty flatish, for the rest of the year with a little bit of growth. But I, I would color that as, you know, cautiously optimistic.

Yeah, Steve I think on um, you know, kind of the SUV guide for deposits, really kind of want to read it reiterate. What Mark said? I think we're cautiously optimistic. Um, you know, as we kind of landed in the second quarter, just looking at, you know, some larger deals. Uh, you know, funded on gfb side, we do expect some outflows, um, and so I think that is reflected, you know, in some of that deposit guidance. Um,

Speaker Change: Yeah, I'd say otherwise. I mean client acquisition has been good. Uh, we've actually seen an uptick over the past few quarters. Um so you know generally you know, pretty flat-ish uh for the rest of the year with a little bit of growth. Uh but I I would color that as you know, costly optimistic.

Steven Alexopoulos: Got it. So flat inside the guidance. Perfect. Thanks for taking my questions.

Speaker Change: So flat inside the guidance.

Speaker Change: Perfect. Thanks for taking my questions.

Craig Nix: Thank you. The next question.

Speaker Change: Thank you.

Operator: Next question comes from Chris McGratty from KBW. Chris, your line is open. Please go ahead.

Next question comes from Chris McCarthy from KBW. Chris, your line is open. Please go ahead.

Chris McGratty: So great, good morning. A lot of talk about deregulation in the markets. I'm interested what that means for your company over the near to medium term. And Craig, I think you've talked in the past about building the cost to be Cat 2 compliant. But is that mid-single digit still kind of expense growth about what you're thinking? Thanks.

Christopher McGratty: So great, good morning. A lot of talk about deregulation in the markets. I'm interested what that means for your company over the near to medium term. And Craig, I think you've talked in the past about building the cost to be Cat 2 compliant. But is that mid-single digit still kind of expense growth about what you're thinking? Thanks.

Chris Mccarthy: Oh, great. Good morning, um, lot of talk about deregulation in the markets. I'm interested what that means. Uh, for for your company, over the near to medium-term. And Craig, I think you've talked in the past about build to the cost to, to be c c, to compliant. Um, but is that mid single digit? Still kind of expense growth about what you're thinking. Thanks.

Craig Nix: Well, I missed the last part of the question, Chris. Do you mind repeating that?

Chris Mccarthy: I I missed the last part of the question. Chris, can you you mind repeating that?

Chris McGratty: Oh, sure. The mid-single digit expense outlook that you've talked about as you get ready for Cat 2.

Christopher McGratty: Oh, sure. The mid-single digit expense outlook that you've talked about as you get ready for Cat 2.

Craig Nix: Yes, I think you can expect year-over-year expenses to range in that mid- to year-over-year mid- to high-single-digit percent growth. I think we're maintaining that level of guidance. And really, the incremental expenses that we've incurred over the last year or so are directly related to improving our risk management and technology capabilities, commensurate with a Category Three firm. So we expect we don't expect that our expenses will be flat like they were in first and second quarters, that they would probably move up in that mid- to high-, mid- to upper-single-digit range moving forward, annualized, as we ready for Category Three.

For sure, the mid single digit expense out, look that you've talked about, as you get ready for Cat 2.

Chris Mccarthy: Yeah, so I think, I think you can expect, uh, year-over-year expenses, uh, to to range in that mid to up year-over-year, mid to high single-digit percent growth. I think we're maintaining, uh, that level of guidance and really the incremental expenses that we've incurred over the last, uh, year or so are directly related to, uh, in improving our risk management and Technology capabilities. Commit to it with a category 3 firm. So we do it. We expect, we don't expect that our expenses, will be flat. Like they were in first and second quarters that they would, they would probably move up in that mid to high mid to Upper single digit range. Moving forward annualized, as we ready for Category 3.

Chris McGratty: Okay. And then there was obviously a large deal in your market overnight. Any thoughts on deposit opportunity? I know it's early, but any strategic thoughts you might have? Thanks.

Christopher McGratty: Okay. And then there was obviously a large deal in your market overnight. Any thoughts on deposit opportunity? I know it's early, but any strategic thoughts you might have? Thanks.

Speaker Change: Okay. And then, there was obviously a large deal in your Market overnight. Any thoughts on, um, deposit opportunity. I know it's early, but any, any strategic thoughts you might have?

Craig Nix: Well, I would just say, Chris, we do well picking our spots with deposits. We've exhibited over time that we can grow deposits on a consistent basis. So I don't really see that transaction as necessarily hindering our ability to do that. Although just generally with the M&A market, we're encouraged that there's an uptick in activity there. But we feel really good about our deposit growth prospects based on our ability to grow deposits on a sustained basis, regardless of competition.

Chris Mccarthy: Thanks. Well I I'll just say Chris, we we do well picking our spots with the deposits. We've exhibited over time that we can grow deposits on the consistent basis so I don't really see that transaction as necessarily hindering, our ability to do that although just generally with the m&a market we're encouraged that there's an uptick in activity there.

Chris Mccarthy: Uh, but we, uh, we feel really good about our deposit growth prospects, based on our ability to grow deposits on a sustained basis, regardless of competition.

Operator: The next question comes from Bernard Von Gieske from Deutsche Bank. Bernard, your line is open. Please go ahead.

The next question comes from Deutsche Bank, your line is open, please go ahead.

Marc Cadieux: Hi, guys. Good morning.

Bernard von Gizycki: Hi, guys. Good morning.

Craig Nix: Good morning.

Marc Cadieux: Just on the NIM, could you just talk to what the exit rate for the margin could be in Q4, if rates on the short end remain unchanged versus if we get 2 rate cuts by the end of the year or the 1 assumed in your baseline forecast?

Bernard von Gizycki: Just on the NIM, could you just talk to what the exit rate for the margin could be in Q4, if rates on the short end remain unchanged versus if we get 2 rate cuts by the end of the year or the 1 assumed in your baseline forecast?

Hi guys. Good morning. Uh just having a ma'am. Could you just talk to what the X-ray?

Craig Nix: Sure. And you're referring to NIM? So if from a range of 0 to 2-

uh, for the margin could be in 4 q uh, if rates on the short end remains unchanged versus if we get 2 rate cuts by the end of the year, or the 1 assuming in your Baseline forecast,

Chris Mccarthy: Sure. And and you're you're referring to Nim.

Marc Cadieux: Yes.

Bernard von Gizycki: Yes.

Craig Nix: Rate cut from a range of 0 to 2 rate cuts in 2025, with a rate—if there's 2 rate cuts, we'd anticipate maybe 1 in September, 1 in December. The fourth quarter exit margin range would decline from 3.26 in Q2 to the mid-3.10s to high 3.20s on headline NIM and NIM ex accretion from the mid-3.10s to mid-3.00s to high 3.10s. So we started at mid-3.10s, Q2. Ex-accretion NIM would be a range of mid-3.00s to mid-3.10s.

Chris Mccarthy: So if from a range of 0 to 2 rate from from a range of 0 to 2 rate Cuts in 2025 with a rate, if there's 2 rate Cuts with the participate, maybe 1 in September 1 in December, uh, the the fourth quarter exit margin, uh, range would uh would decline from 3.26 in the second quarter to the mid 310 to high 320s on Headline, Nim and Nim execution, from the mid 310s to uh mid thres to high 310. So we started at mid 310s, second quarter,

Chris Mccarthy: Execution them would would be a range of mid 3s.

Chris Mccarthy: To Mid 31010.

Manan Gosalia: Okay, great. And just a follow-up, just generally about competitive pressures. You know, interestingly, during the quarter, a lot of regional bank peers noticing increased competitive pressure in deposit pricing, just, you know, given where we are in the rate cycle and, you know, pushing out of rate cuts. Obviously, your deposit data is continuing to creep higher, your costs, you know, keep lower. You know, I think you noted in the general bank, you're implementing some new deposit growth tactics, you know, for short- and near-term and long-term opportunities. And then I know in the general bank, on the loan side, you also mentioned some, you know, competitive pressures increasing there.

Bernard von Gizycki: Okay, great. And just a follow-up, just generally about competitive pressures. You know, interestingly, during the quarter, a lot of regional bank peers noticing increased competitive pressure in deposit pricing, just, you know, given where we are in the rate cycle and, you know, pushing out of rate cuts. Obviously, your deposit data is continuing to creep higher, your costs, you know, keep lower. You know, I think you noted in the general bank, you're implementing some new deposit growth tactics, you know, for short- and near-term and long-term opportunities. And then I know in the general bank, on the loan side, you also mentioned some, you know, competitive pressures increasing there.

Chris Mccarthy: follow up, just generally about, um,

Manan Gosalia: So I was wondering if you could just talk through some of the pressures that you might be seeing on the deposit and the loan side.

Bernard von Gizycki: So I was wondering if you could just talk through some of the pressures that you might be seeing on the deposit and the loan side.

I'm sorry, uh, just just to follow up, just on uh, competitive pressures. Uh, you know, interestingly during the quarter a lot of regional Bankers, uh, noticing increased competitive pressure, and deposit pricing, uh, just, you know, given where we are in the late cycle and, you know, pushing out of rate Cuts. Obviously your deposit data has continued to creep higher, uh, your costs, you know, keep lower. Um, you know, I think you you noted, uh, in the general Bank, your implementing some, new deposit growth tactics, uh, you know, for short and, and near-term, uh, near-term and long-term opportunities, uh, and then I know in the general Bank on the loan side. Um, you also mentioned, uh, some, you know, competitive pressures, increasing their. So, I was wondering if you could just talk through, uh, some of the pressures, uh, that you might be seeing on the deposit and the loan side.

Tom Eklund: Yes, I think, and this is Tom here. I would say on the deposit side, I mean, as you mentioned, we've been able to continue to move our beta up, and that really, I think, speaks to what Craig mentioned earlier. We feel good about our competitive position in sort of the markets we're in there, and we'll continue to do the best we can to manage those interest expense numbers, obviously. I think on the credit side, we've seen a little bit of an uptick, I think, just sort of across the board. Last year, I would say we were probably one of the few banks that were out there lending more broadly, and I think we're seeing a little more participants in there today.

Yes, so I I I think that and this is Tom here. I I would say on the deposit side. I mean, as you mentioned, we've been able to continue to move our beta up and that really, I think speaks to what Craig mentioned earlier. We feel good about our competitive position in in sort of the markets we're in there. And we'll continue to do the best we can to manage those, uh, interest expense. Uh,

Tom Eklund: But again, we feel like we're well-positioned, and as Elliot mentioned earlier, we had a couple of large payoffs in some of the verticals that we maybe didn't plan for. You know, again, think we're in good shape from an activity and sort of forward look there, so.

Numbers obviously. Uh, I think on the credit side, we've seen a little bit of an uptick I think just sort of across the board last year. I would say we will probably 1 of the few banks that were out there, lending more broadly. And I think we seeing a little more participants in there today. But again, we feel like we're well positioned in this Elliot mentioned earlier. We had a couple of large payoffs and some of the verticals that we maybe didn't plan for um, in, you know, again think we're think we're in a good shape from an activity. And and uh um sort of forward look there. So

Manan Gosalia: Great. Thank you for taking my questions.

Bernard von Gizycki: Great. Thank you for taking my questions.

Great. Thanks for taking my questions.

Craig Nix: Thanks, Manar.

Operator: The next question comes from-- apologies. Next question comes from Nick Holowko from UBS. Nick, your line is open. Please go ahead.

Bernard: Thanks Bernard.

Bernard: The next question comes from.

Speaker Change: Apologies. Next question, comes from Nick. Hello from UBS Nick, your line is open, please go ahead.

Nicholas Holowko: Hi, good morning.

Craig Nix: Good morning.

Nicholas Holowko: Maybe, one other question on competitive pressures. So it seems like there's been a pickup in new applications for bank charters over the past couple of months, including some that seem to be aimed at serving some of the same ecosystem that SVB has traditionally served. So do you have any thoughts on the developments that we're seeing there? And of course, I know it's very early days, but are there any risks that you could foresee on the talent front, given some of the higher-profile technology names tied to some of these announcements? Thank you.

Nick: Hi, good morning, maybe. Uh, 1 other question on competitive pressures.

Craig Nix: Mark, do you have any thoughts on that? Is it impacts SVB competition?

Nick: So it's it seems like there's been a pickup in new applications for a bank Charters over the past couple months, um including some that seem to be aimed at serving some of the same ecosystem that SBB has traditionally served. So do you have any thoughts on the developments that we're seeing there? And of course, I know it's very early days but are there any risks that you could foresee on the talent front given some of the higher profiles? Technology aims tied to some of these amount announcements, thank you.

Speaker Change: Mark, do you have any thoughts on that? Is it impacts svb competition?

Marc Cadieux: Sure. I would be happy to take that. So starting just competition more broadly, and as we talked about on past calls, the SVB business continues to have lots of competition, both bank, non-bank, fintech, et cetera, across the segments of our business. And so one more competitor is in a lot of ways, nothing really new. In this particular instance, thinking about, you know, banks at the application stage will take a while to become additional competition for us, is the first thing.

Speaker Change: Sure. I I would be happy to take that. Um so starting just competition more broadly and as we talked about in past calls

Speaker Change: Uh, the SBB business continues to have lots of competition, both Bank non-bank fintech Etc, uh, across the segments of our of our business. And so

Marc Cadieux: And then, you know, thinking specifically about maybe the charter you've got in mind, I would just say here that SVB has offered traditional banking services to Web3 companies for many years through our national fintech practice, and think we are very well positioned to expand those offerings over time to serve our clients' digital asset needs. And so, I think we and, and everybody else focused on the innovation economy, focused on crypto and changing regulations there, I think is similarly enthusiastic about the opportunity there. And so, yeah, I, I think like we've always had, we'll continue to have competition, and we will continue to, I think in the face of that, execute on our own game.

1 more competitor, um, is in a lot of ways. Nothing really new, uh, in this particular instance, uh, thinking about, you know, banks at the application stage, uh, will take a while, uh, to become additional competition for us as the first thing. And then, you know, thinking specifically about, um, maybe the charter you've gotten in mind. Uh, I would just say here that SBB is offered traditional banking services to

Speaker Change: web3 companies for many years through our national fintech practice and think we are very well positioned, uh, to expand. Those offerings over time to serve our clients, digital asset needs. And so uh I think we and and everybody else focused on the Innovation economy focused on uh, crypto and changing regulations there. Uh, I think is similarly enthusiastic about the opportunity there and so

Marc Cadieux: I think by extension, as Tom has already offered, we feel pretty good about our positioning and our ability to capture our fair share.

Speaker Change: Uh, yeah, I I think like, we've always had, we'll continue to have competition and we will continue to uh, I think in the face of that execute on our own game. And I think by extension, as comments already offered, uh, we feel pretty good about our positioning and our ability to capture our fair share.

Nicholas Holowko: Very helpful. Thank you. And just as a follow-up, you mentioned and highlighted the, you know, traditional banking services you've gone in in the Web three ecosystem and some of the—oh, you know, clearly a lot of the momentum here is relates back to the crypto environment more broadly. You know, outside of, like, traditional banking services, are there any other aspirations that you have as you think about that space over the next couple of years? Thank you.

Speaker Change: Very helpful. Thank you. And just as a follow-up and you mentioned and highlighted the, you know,

Craig Nix: Well, I would just say-

Marc Cadieux: Mark, I'll start on that. Others may... Go ahead.

Craig Nix: Go ahead, Mark.

Marc Cadieux: Go ahead.

Craig Nix: You go ahead, Mark, and I'll amplify anything that needs to be added.

Marc Cadieux: Yes. Great. I would just say this is a fluid dialogue, and so I'm going to refrain from talking about specific services that we may elect to offer in the future. But again, would just end on the very well positioned, hundreds of clients in the space.

Speaker Change: Well, I would start on that. Others may go ahead. Mark, go ahead, you go, you go, you go ahead Mark and I'll I'll amplify anything needs to be added. Yeah.

Tom Eklund: ...And so as we determine what makes the most sense and where we can best differentiate ourselves from other offerings, that's where I think you should expect to see us over time. I'll pass it to you, Craig.

Marc Cadieux: ...And so as we determine what makes the most sense and where we can best differentiate ourselves from other offerings, that's where I think you should expect to see us over time. I'll pass it to you, Craig.

Craig Nix: Yep. I think you said it well, Mark.

Speaker Change: I I would just say this is a a fluid dialogue. And so I'm going to refrain from talking about a specific services that uh we may elect to offer in the future. Um, but again would just end on the very well position. Hundreds of clients in the space and so as we, uh, determine what makes the most sense and where we can best differentiate ourselves from other offerings, uh, that's where I think you should expect to see us over time. I'll pass it to you Craig. Yep, I think you said it. Well, Mark.

Deanna Hart: Thank you, guys.

Nicholas Holowko: Thank you, guys.

Speaker Change: Thank you guys.

Craig Nix: Thank you.

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

Speaker Change: Thank you.

Speaker Change: The next question.

Chris merignac: Comes from Chris merignac from Johnny Montgomery Scott, Chris still on is open. Please go ahead.

Chris Marinac: Thanks. Good morning. Craig, I want to ask about the Direct Bank, and would the proportion of those deposits grow over time relative to the whole balance sheet?

Christopher Marinac: Thanks. Good morning. Craig, I want to ask about the Direct Bank, and would the proportion of those deposits grow over time relative to the whole balance sheet?

Chris merignac: Thanks, good morning. Uh Craig 1 asked about the direct bank and was the proportion of those deposits grow over time relative to the whole balance sheet.

Craig Nix: Yes, I mean, they certainly have grown since we purchased CIT or acquired CIT. I would expect them to continue to do so, but we obviously would rather grow deposits in lower cost channels, although we're okay with the spreads, those deposits, relative to our investment portfolio, loans, et cetera. So we do anticipate, if you look at our deposit outlook, we do anticipate double-digit percentage growth in that channel going into 2026.

Chris merignac: Yes. I mean they they certainly um, have uh, grown since we uh purchased uh CIT or acquired CIT. Uh I would expect them to uh continue to do so, but we obviously would rather uh grow deposits in lower cost channels. Although we're, we're okay with the spreads, uh, that those deposits, uh, relative to our Investment Portfolio, loans, Etc. Uh, so we do anticipate, um, if you look at our deposit Outlook, we do anticipate double digit percentage in growth in that, uh, in growth in that channel going into 2026,

Chris Marinac: Okay, great. Thank you for that. Just a quick follow-up on the railcar business. Do you see that business stable from here, or is there still opportunities to grow it further?

Christopher Marinac: Okay, great. Thank you for that. Just a quick follow-up on the railcar business. Do you see that business stable from here, or is there still opportunities to grow it further?

Speaker Change: Okay, great. Thank you for that and just a quick follow-up on the rail car business, do you see that business stable from here or is there still opportunities to grow it further?

Elliot: Yeah, great question, Chris. I mean, I think we're very encouraged with where we are. I mean, I think the utilization, you know, having stayed up, we're still close to 97%. We've had 15 quarters of repricing, which Craig mentioned. So I think from, you know, really kind of a revenue expansion side, we do see further opportunity there, in that runway to continue. And then last, I mean, I think from an expansion standpoint, you know, we continue to invest in that business each year. I'd say kind of generally $300 to 500 million in added assets. So there is, I think, further runway from a revenue standpoint, but you know, obviously we'll kind of keep in tune with kind of the economy and everything going there.

[Company Representative] (First Citizens BancShares): Yeah, great question, Chris. I mean, I think we're very encouraged with where we are. I mean, I think the utilization, you know, having stayed up, we're still close to 97%. We've had 15 quarters of repricing, which Craig mentioned. So I think from, you know, really kind of a revenue expansion side, we do see further opportunity there, in that runway to continue. And then last, I mean, I think from an expansion standpoint, you know, we continue to invest in that business each year. I'd say kind of generally $300 to 500 million in added assets. So there is, I think, further runway from a revenue standpoint, but you know, obviously we'll kind of keep in tune with kind of the economy and everything going there.

uh,

Speaker Change: Yeah, great question, Chris. I mean, I I think, uh, we're very encouraged with where we are. I mean, I think the utilization um you know, having stayed up or still close to 97%, we've had 15 quarters of repricing. Uh, which is Craig mentioned. So I think from, you know, really kind of a revenue expansion side. We do see further opportunity there, um, in that Runway to continue. Um, and then last, I mean, I think from an expansion standpoint, you know, we continue to invest, uh, in that business each year, I'd say kind of generally 3 to 500 million and added assets. Um, so, uh, there is, I think further Runway from a revenue standpoint. But, you know, obviously,

Speaker Change: Obviously we'll we'll kind of keep in tune with kind of the economy and kind of everything going there.

Chris Marinac: Great, Elliot. Thank you very much. Thank you, Craig, as well.

Christopher Marinac: Great, Elliot. Thank you very much. Thank you, Craig, as well.

Craig Nix: Thank you for your questions.

Speaker Change: Great Elliott. Thank you very much. Thank you Craig as well.

Speaker Change: So thank, thank you for your questions.

Operator: Our next question today comes from Manuel Navas from D.A. Davidson. Manuel, your line is open. Please go ahead.

Speaker Change: On the question today comes from Manuel Napa from da Davidson manual. Your line is open, please go ahead.

Manuel Navas: Hey, good morning. Can you update where you feel the NIM NII trough could be next year and kind of, what are the assumptions around it?

Speaker Change: Hey, good morning. Uh can you update where you? You feel the the Nim and II. Trough could be next year and kind of uh where are the assumptions around it?

Craig Nix: Yeah, it, it obviously depends on what zero, one, two or two rate cuts in 2025. If, if we have zero rate cuts, we've pretty much already troughed, with the exception of NIM headline. That would be one quarter, Q1 2026. One or two cuts just moves all the troughs, whether you're looking at net interest income headline or accretion, or NIM headline accretion out to the first quarter of 2026.

Speaker Change: Yeah, it it obviously depends on, uh, what 012 or 2 rate Cuts, uh, in 2025, if if we have zero, uh, rate Cuts, we we've we pretty much already troughed it with the exception of nim headline, uh, that would be 1 quarter 1 226, 1 or 2 Cuts, just moves all the troughs, whether you're looking at net interest income headline or execution or Nim headline, excretion out to the first quarter of 26.

Manuel Navas: I appreciate that. And what do you include in terms of debt issuance to satisfy TLAC in your kind of NII planning?

Speaker Change: I appreciate that. And and

Speaker Change: what do you include? Um, in terms of debt issuance to satisfy Tac in your kind of, uh, um,

Speaker Change: In your, in your knee planning.

Tom Eklund: We have pretty modest expectations when it comes from pure LTD requirements for us, as we've not seen a final rule there yet. What we do include, though, obviously, and we've talked about it with the share repurchase plan, we're trying to optimize the capital stack over time, which will include us looking to potentially issue new instruments there, to sort of get the slope between the CET1 and total capital ratios to look a little more efficient.

Speaker Change: We, we are pretty modest expectations when it comes from Pure. Uh, what would be LTD requirements for us as we've not seen a final rule there yet what we do, uh, include though, obviously, and we've talked about it with the Sherry purchase plan. We're trying to optimize the capital stack over time, which will include

Speaker Change: Um, us looking to potentially issue new instruments there, um to to sort of get the slope between the C1 and total Capital ratios to look a little more efficient.

Craig Nix: Also subject to final-

Manuel Navas: So it's come down from last time. So it's come down a little bit in the assumptions from, you know, we were looking at maybe $10 billion in issuance. I know you did some earlier in the year, too.

Speaker Change: Also subject to find. So come down from last time.

Tom Eklund: Yeah. Yeah, that assumes the LTD rule would come into play in its current form, which the 6% to RWA was our binding constraint in that. Obviously, pending a final rule, it's hard to estimate what our final issuance would have to be to meet those requirements.

Speaker Change: Would come into play in its current form, which the 6% to rwa was our binding constraint in that. Obviously pending a final rule is hard to estimate, what our final issues would have to be to to to meet those requirements.

Manuel Navas: I appreciate that. Can I sneak in one more? Deposit betas have been really, really impressive. You have that target, you have targets in your deck. Are you just gonna keep pushing to raise them? Because it seems like you're already at the cycle levels. Just kind of, you have a lot of success in the Direct Bank. Where can the deposit betas go?

I appreciate that. Can I speak in 1 more? Uh, deposit, datos have been really, really impressive. Um, you have that you have Targets in your deck. Um are you just going to keep pushing to to raise them? Because it seems like you're already at the, uh, cycle levels. Just kind of, um, you have a lot of success in the direct Bank. Um, where can the deposit data go?

Tom Eklund: The most difficult part about answering that question is obviously depending on what rate forecasts do. I think what you've seen is, I mentioned earlier, we've-

Manuel Navas: Absolutely.

Tom Eklund: Yeah, we've done what we can to keep managing interest expense in this as rate cuts has not been done in recent time. And if we keep that for another couple of quarters, we'll continue to keep working that beta higher. Obviously, if the Fed starts cutting again, I would expect a similar behavior like you've seen in the past, where we sort of lag a little bit going into it and then start catching up over time. So it's really more about when that cut cycle stops, but obviously looking for as much upside there as we can.

Craig Nix: But man, I think you're making a good point, that the betas are approaching terminal betas that we saw in the uprate environment. So that's a good, good observation.

The the the most difficult part about answering that question is obviously depending on what rate forecasts do. I think, what what you've seen is, we've I mentioned earlier, we yeah, we we've done what we can to keep managing interest expense in this as as rate Cuts as May uh, has not been done in in recent time. And if if if we keep that for another couple quarters, we'll continue to keep working that beta higher. Obviously, If the Fed starts cutting again, that would expect a similar, uh, Behavior like you've seen in the past, where we sort of lag, a little bit going into it and then start catching up over time. So it's really more about when when, when that cut cycle stops. But obviously, looking for, as much upside there as we can. But man, I think you're making a good point that the debate is, are approaching terminal bases that we saw in the upgrade, uh,

Environment. So that's a good.

Speaker Change: Good observation.

Manuel Navas: Thank you for the time.

Thank you for the time.

Craig Nix: Thank you.

Speaker Change: Thank you.

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

Speaker Change: I'm not showing any further questions at this time, I'd like to turn the call back over to our host. Miss Diana. Heart for any closing remarks

Deanna Hart: Great. Thank you, everyone, for joining our earnings call today. We appreciate your ongoing interest in our company, and if you have any further questions or need additional information, please feel free to reach out to the investor relations team. We hope you have a great rest of your day.

Diana Heart: Great. Thank you, everyone, for joining our earnings call today. We appreciate your ongoing interest in our company. And if you have any further questions, or need additional information, please feel free to reach out to the investor relations team. We hope you have a great rest of your day.

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

Diana Heart: Thank you so much. This concludes today's conference call, you may now disconnect have a wonderful day.

Q2 2025 First Citizens BancShares Inc Earnings Call

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