First Citizens BancShares, Inc. Class A Aktie

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares First Quarter 2026 Earnings Conference Call.

[Operator Instructions] 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.

Good morning, and thank you. Welcome to First Citizens First Quarter 2026 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 first quarter business and financial updates referencing our earnings call presentation, which you can find on our website.

Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on Page 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 guarantee the accuracy of earnings transcripts provided by third parties.

I will now turn it over to Frank.

Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us. I'll start by highlighting our overall performance for the quarter before turning it over to Craig Nix to take you through our financial results and outlook for 2026 in more detail.

Starting on Page 5. We were pleased with our first quarter results. This morning, we reported adjusted earnings per share of $44.86, representing an adjusted ROE and ROA of 10.39% and 0.97%, respectively. While lower rates were a headwind, we saw strong deposit growth. Credit quality remains strong and expenses came in below our expectations.

Deposit growth accelerated this quarter, up by 5.7% sequentially, anchored by increased client activity in Tech & Healthcare and Global Fund Banking. In addition, deposits grew in the General Bank segment and the Direct Bank. This growth was also supplemented by the strategic use of broker deposits to further bolster our liquidity position.

We also achieved solid increases in off-balance sheet client funds driven by the Tech & Healthcare and Global Fund Banking businesses. We continue to optimize our capital stack, returning another $900 million to shareholders through share repurchases. Due to our strong liquidity position, we were able to prepay another $2.5 billion to the FDIC -- on our FDIC promissory note -- money note during the quarter.

Turning to our announcement this morning. We are expanding our commercial solutions and optimizing our brand portfolio to better serve our clients and drive growth. In 2026, we are accelerating our strategic road map by expanding capabilities in payments, international banking and digital assets. As part of this growth, we will transition to a united brand structure in the fourth quarter, featuring innovation banking and fund banking sub-brands under the First Citizens umbrella.

Now brand adjustments always generate questions, and we want to be perfectly clear that while names are changing, the client experience is not. Our relationship teams remain the cornerstone of our service, providing the same deep specializations that our clients rely on. This brand alignment simply opens the door to a larger platform of solutions and a more connected network of experts for the future.

Despite a complex global backdrop, we continue to operate from a position of strength. Our capital, liquidity and risk discipline provide a solid foundation that allows us to focus on what matters most, serving our clients and customers and continuing to drive long-term shareholder value. We are confident in our strategy, disciplined in our execution and very optimistic about the path ahead.

I'll conclude with that and pass it over to Craig Nix to take us through the financial results for the quarter and guidance for the remainder of the year. Craig?

Thank you, Frank, and good morning, everyone. I will anchor my comments to Page 8 of the presentation, Pages 9 through 27 provide details underlying our first quarter results.

In the first quarter, we delivered adjusted earnings of $44.86 per share on net income of $560 million. The sequential decline of $6.41 per share largely reflects the impact of lower interest rates on our net interest margin. However, we were pleased that lower noninterest expense helped offset a portion of the net interest income decline.

In line with our previous guidance, net interest income declined by $101 million, with NIM compressing 11 basis points to 3.09%. This decline was primarily driven by lower earning asset yield following the Fed's rate cut in late 2025, alongside a shorter day count this quarter. However, these headwinds were moderated through strong organic loan growth, lower funding costs and a reduction in average borrowings.

Noninterest income was down $9 million from the linked quarter, but in line with our previous guidance. The majority of the decline centered in other noninterest income, which was down $15 million, largely attributable to a decrease in other investment income, a line item subject to fluctuation on a quarterly basis.

Outside of the decline in other noninterest income, our core fee categories performed well. We saw solid growth in deposit fees and lending-related capital market fees though these increases were partially tempered by seasonal declines in factoring commissions. Additionally, while the Fed funds rate environment pressured client investment fees, we successfully mitigated that impact through a $3.9 billion increase in average off-balance sheet client funds.

Adjusted noninterest expense was $38 million lower sequentially, outperforming our previous guidance. This reduction reflects a $16 million decline in professional fees as we successfully completed several technology and risk management projects at the end of 2025.

Marketing costs also declined by $15 million as we pivoted our funding strategy this quarter to leverage lower cost broker deposits rather than higher cost deposits in the direct bank. While the direct bank remains a critical funding source, and we expect marketing expense to normalize in the future, we will remain agile, balancing deposit growth with cost efficiency to protect our margins.

Finally, we saw a $16 million seasonal normalization in other expenses. These reductions were partially offset by seasonally higher benefits expense due to resets as well as continued deliberate investments in our technology platforms, which are essential to scaling our operations and enhancing our client experience.

Turning to the balance sheet. Period-end loans grew $762 million or 0.5% sequentially, driven by Global Fund Banking, which was up $1 billion on record production of over $6 billion, surpassing the record set just last quarter. With average line utilization also trending higher, we see evidence of higher client demand and a robust pipeline moving forward.

In Middle Market Banking, we added $327 million in growth as stable production was bolstered by lower prepayments. While we are pleased with this quarter's growth, we maintain a guarded outlook given the broader macro environment.

General Bank loans decreased $591 million, primarily reflecting a strategic decision to move $365 million in SBA loans to held for sale. Excluding this balance sheet optimization, the decline was driven by typical first quarter seasonality. On an average loan basis, loans increased $2.2 billion sequentially, led by our Global Fund Banking business.

Turning to the right-hand side of the balance sheet. Period-end deposits grew by $9.3 billion or 5.7% sequentially. This growth reflects strong organic growth in our core business segments as well as execution of our balance sheet optimization strategies.

Within SVB Commercial, we saw significant momentum in Global Fund Banking and Tech & Healthcare where deposits grew sequentially by $5.6 billion, driven by a visible pickup in VC investment and exit activity. Growth here underscores the strength of our franchise within the innovation economy. While these inflows were encouraging, we remain disciplined in our outlook as a portion of this growth stem from large short-term deposits.

As we've noted before, these inflows can be lumpy and we have already observed some anticipated outflows in April. We are managing these balances with a strict focus on liquidity and funding cost optimization in mind.

In the General Bank, deposits grew by $1.1 billion. This was largely driven by successful seasonal campaign within our CAB business and solid growth in our branch network, demonstrating our ability to consistently execute on core deposit gathering initiatives.

To support the transition away from the purchase money note and limit impacts to net interest income, we also tactically utilized $1.8 billion in broker deposits. This was a flexible lever for us this quarter as the all-in cost was lower than leading rates in the Direct Bank as we continue to monitor pricing and tenor to ensure a resilient and cost-effective funding mix. On an average basis, deposits also performed well, growing by $2.7 billion or 1.7% sequentially, driven primarily by Tech & Healthcare Banking and CAB.

Finally, off-balance sheet momentum was equally strong. SVB commercial client funds rose $8.1 billion to nearly $78 billion, while average off-balance sheet funds grew by $3.9 billion.

Turning to credit. Provision was $103 million for the quarter, up $46 million from the linked quarter. The increase was driven almost entirely by a larger reserve release last quarter rather than a negative shift in credit quality.

In fact, the net charge-off ratio came in 9 basis points lower than the linked quarter at 30 basis points with net charge-offs totaling $111 million. This was favorable to our previous guidance, though I'd characterize the beat as a matter of timing on specific resolution efforts, particularly within our general office book rather than a significant change in our overall outlook.

While nonaccrual loans moved slightly higher to 96 basis points, the change was isolated to a few specific credits. We do not view this as a signal of broader migration or systemic pressure across the portfolio. This is supported by our $8 million reserve release this quarter, which was underpinned by growth in high-quality segments like Global Fund Banking and changes to the macroeconomic outlook.

Given the heightened market focus on private credit and NDFI exposures, we've included a new slide today to provide additional transparency. Our NDFI exposure stands at $38.8 billion, but it is critical to look at the structure. 83% of this book consists of capital call lines. These are backed by contractual LP commitments, not investment performance, and historically carry exceptionally low credit risk.

The remainder of the book is diversified, well collateralized and supported by structural protections. Traditional private credit represents approximately 8% of the NDFI portfolio and includes lines provided to credit funds and warehouse lines, both of which are well secured.

To summarize, our exposure to the private credit ecosystem is defined by conservative structures, significant sponsor equity and rigorous covenant protections. While we remain vigilant in a volatile macro environment, our credit culture is built for this backdrop. We are confident that our disciplined standards and resilient portfolio position us well to navigate the cycles ahead.

Turning to our capital position. We continue to execute on our commitment to a disciplined capital return. As of April 21, 2026, we have made significant progress on our 2025 share repurchase plan, having repurchased over 20% of total common shares outstanding for a total of $5.7 billion. This includes the successful completion of our 2024 plan, and roughly 52% of our current $4 billion authorization.

Our first quarter CET1 ratio stood at 10.83%. While this represents a 32 basis point sequential decrease, it was a deliberate outcome as we balance loan growth and share repurchases against first quarter earnings.

As part of our annual capital planning and informed by internal stress testing, we adjusted our CET1 target range down by 50 basis points to 10% to 10.5%. We believe this recalibrated level provides the ideal balance of ensuring we remain strong for severe stress events while maximizing our flexibility to support both client growth and shareholder returns.

Regarding the pace of repurchases moving forward, we returned $900 million to shareholders this quarter. However, as we approach our new target capital range, we anticipate a slower pace for the remainder of the year. This shift reflects prudent management of the balance sheet, accounting for anticipated organic growth, the shifting economic backdrop and our commitment to a conservative capital buffer.

Finally, we are encouraged by the revised Basel III proposal released in March. Our initial assessment indicates a potential 70 to 100 basis points benefit to our CET1 ratio, primarily driven by lower risk-weighted assets under the new standardized approach.

While the proposal includes the phase-in of AFS and pension-related AOCI, we don't expect a material impact given our short duration investment strategy and limited AOCI risk. Overall, these regulatory developments represent a clear step forward providing us with enhanced capital flexibility to drive long-term value for our shareholders.

Turning to Page 29, I'll conclude with our outlook for the remainder of 2026. The macroeconomic backdrop remains fluid, making it difficult to narrow the range of potential impacts on the broader economy and our business lines and clients. Accordingly, we have not made significant changes to our previous guidance, but do continue to monitor the environment and how it could impact our performance.

Starting with the balance sheet. We expect loans to land between $149 billion and $152 billion at the end of the second quarter. In the Commercial Bank, we expect loan growth to be anchored in Global Fund Banking where we are managing a robust $12 billion pipeline.

While we expect long-term expansion, we remind everyone that ending balances can ebb and flow based on the timing of client draws and we anticipate some quarter-to-quarter volatility here even as absolute levels grow.

Outside of growth in Global Fund Banking, we are projecting growth in commercial finance industry verticals and middle market banking portfolios. In the General Bank, as seasonal headwinds abate, we expect growth to be supported in the branch networks business and commercial loan portfolios.

For the full year, we are reiterating our loan guidance of $153 billion to $157 billion, inclusive of the $1 billion in the BMO acquisition. To optimize our balance sheet, we continue to evaluate strategic sales similar to this quarter's $365 million SBA securitization to efficiently fund the repayment of our purchase money note.

Now to deposits and funding. We anticipate second quarter deposits between $171 billion and $174 billion. We expect growth in the General Bank segment and in the Direct Bank as we are seeing strong momentum in both where competitive pricing and marketing are helping us capture share. Growth in these channels will help mitigate expected outflows in Global Fund Banking and within Tech & Healthcare as those clients continue to utilize cash for operations or move to off-balance sheet investment products.

For the full year, we reaffirm our range of $181 billion to $186 billion, including the $5.7 billion BMO infusion. This range continues to include significant growth in the Direct Bank as we look to continue to prepay the purchase money notes.

We've made significant progress on the purchase money note with $5.5 billion in total prepayments through today, including $2.5 billion this quarter and another $500 million in April. Moving forward, we expect to pay down at least $500 million to $1 billion per month, utilizing excess liquidity, broker deposits or other funding levers as interest rates and market conditions dictate.

Next, our net interest income and rate outlook covers a range of zero to two 25 basis point rate cuts where the Fed funds rate may decline from a range of 3.50% to 3.75% today to a range of 3% to 3.25% by year-end. We expect second quarter headline net interest income to be in the $1.6 billion to $1.67 billion range. While we expect strong earning asset growth, we think it will be partially offset by modest increases in funding costs as deposit competition remains intense across all channels.

For the full year, we are marginally tightening our range to $6.5 billion to $6.8 billion. This accounts for the persistent pressure on DDA balances in a higher for longer environment, continued deposit competition and a projected $100 million reduction in loan accretion.

Moving to credit. We expect second quarter net charge-offs in the 35 to 45 basis point range. We are actively managing the commercial general office portfolio and the SVB commercial books where we expect losses to remain elevated in the medium term, while the equipment finance portfolio losses have largely stabilized, we are watching one larger deal that could result in elevated losses in the second quarter.

Reflecting first quarter performance, we are lowering our full year net charge-off outlook to 30 to 40 basis points with the range reflective of the fact that a handful of large deals can cause lumpiness in the ratio.

Moving to noninterest income. We expect it to be in the $520 million to $550 million range in the second quarter. Overall, we continue to see strength in many of our business lines, such as fees from wealth, rail and credit card and merchant services.

For the full year, we are raising our adjusted noninterest income guidance to $2.12 billion to $2.22 billion, driven by our rail business, repricing momentum, deposit fees and service charges, growth in wealth and lending-related fees as we continue to benefit from loan growth and capital markets activity.

On to expenses. We expect the second quarter to be in the $1.34 billion to $1.38 billion range, slightly up from the first quarter. We expect the growth to come primarily from higher Direct Bank marketing costs given our focus on client acquisition in that channel.

As we continue to focus on bending the cost curve, we are reducing our full year range to $5.34 billion to $5.43 billion. The increase in full year expenses includes merit-based increases, marketing costs, tech scaling and the BMO acquisition impact, which will add less than 1% to our overall expense growth in 2026.

As Frank mentioned earlier, we are excited to implement a united brand strategy to continue to align platforms and provide expanded solutions for our clients. While we are still assessing the impact of this announcement, we believe it will add an additional $20 million to $30 million to full year noninterest expense.

We expect that our adjusted efficiency ratio will be in the lower 60% range in 2026 as the impact of prior year rate cuts have put downward pressure on net interest income. We believe that the investments we have made in our franchise while driving up costs in the short and medium term are foundational to delivering positive operating leverage over time.

Meanwhile, exercising disciplined expense management is a top priority for us given headwinds to net interest income, and while we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from the investments in our franchise. Longer term, our goal remains to operate an efficiency ratio in the mid-50s.

And finally, for both the second quarter and full year 2026, we expect our tax rate to be in the range of 24.5% to 25.5%, which is exclusive of any discrete items.

To conclude, our first quarter results are reflective of the strength and resilience of our diversified business model. Thanks to our long-term focus and continued investments in our business, we're well positioned to continue delivering value to our clients, customers and shareholders.

This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question-and-answer portion of the call.

[Operator Instructions] Our first question comes from Chris McGratty with KBW.

Great. Craig or Frank, on the new CET1 target, I just want to make sure I got all the pieces, 10%, 10.5% is the new target. And then on top of that, there's a 70 to 100 benefit on the Basel III.

How should we think about -- I hear you on the near term on the buybacks. But is there any bias within the range near term? Any changes in uses of capital near term?

Yes. If you go back to '25 and so far '26, our repurchases have ranged from $600 million to $900 million per quarter. And as we move closer to that range, the 10% to 10.5%, we would expect to moderate to the lower end of that range for the next 2 quarters.

Okay. And then on the NII guide, I appreciate the fluidity of the curve. But any -- last quarter, you gave some comments on troughing expectations and margin expectations. Any refresh of that, both on a core and a reported basis, Craig?

Sure. In terms of just the tightening of the guidance, we would still, for the full year, expect low single-digit percentage decline in the absolute dollar amount of net interest income.

If we look at the trajectory, though, for 2Q '26, we would expect both headline and ex accretion, net interest income to be down low single digits percentage points, and NIM to be in the mid-3.0s, and ex accretion in the high 2.90s. As far as fourth quarter exit, we expect both headline and ex accretion net interest income to be up mid-single-digit percentage points and expect headline NIM to be in the high 3.0s and ex accretion in the low 3.0s.

And in terms of troughing, I think you asked about that. We would expect that headline net interest income and ex accretion net interest income to have already troughed in the first quarter, but the NIM will trough in the third quarter.

Our next question comes from Casey Haire with Autonomous Research.

Great. I wanted to touch on the deposit growth outlook, very good start here in the first quarter, a lot of it coming from the SVB side of things. Craig, I think I heard you say that you expect Direct Bank to drive a lot of the growth going forward. But just wondering what the outlook is on the SVB side of things after a strong quarter.

Elliot, why don't you do the SVB, and Marc, you can weigh in on this as well.

Yes. I'll start with the SVB. I mean we do expect continued growth through the end of the year. I think when you look at the balances, as Craig mentioned, we did have some very large inflows, client accounts that we do expect to either go back out and/or transition to off balance sheet. And so I think second quarter from a Silicon Valley perspective, we do think moderate, but we do see growth really through the end of the year.

And nothing to add.

What do you think, Marc? Nothing to add, Marc. Okay.

Nothing to add.

Okay. Great. And then on the credit quality front, on the NPL uptick, Craig, I heard it's nothing systemic. But I was just wondering if you could provide a little more color as to what drove that, those credits, what type of credits they were and resolution efforts to reduce the NPL ratio at around 1% going forward?

Andy, would like to take that one, please?

Yes, sure. The increase was driven specifically by 3 main credits, 2 of which were our multifamily that have moved to nonaccrual. We really don't see a lot of loss content on those 2, reviewed them for specific reserves and are working through resolution on those. The third was an account in our innovation portfolio, been criticized for some time. It's currently up for sale, and we hope to have resolution on that credit at some point this year.

In terms of efforts to bring down our NPLs. The majority of our NPLs really reside in our general office. And so as Craig noted at the beginning, charge-offs in our general office portfolio were down this quarter, and we anticipate -- and a lot of that was timing on resolution. So we would anticipate, as we work through this year, to see some of those resolutions come to fruition. And as a result, we would anticipate NPLs to come down.

Our next question comes from Anthony Elian with JPMorgan.

Craig or Frank, I appreciate the new slide you have on the NDFI book. Could you help us quantify your exposure to companies in the software industry for both loans and deposits? I don't think this has been disclosed since you acquired SVB a few years ago.

Yes. I will let Andy elaborate. But in terms of on-balance sheet, software is $8.1 billion and about $14.4 billion of exposure. But I'll let Andy talk about what that portfolio looks like.

Sure. Thanks, Craig. So having backed the innovation economy for quite a while, we obviously had some very deep experience managing tech credit portfolios through multiple economic cycles and changes in tech shifts there. We have seen improvement throughout the last several quarters on our criticized levels within the software portfolio.

And if you think about our portfolio, couple of main buckets, if you will. The first would be emerging growth, VC-backed type companies. And they are focused on being kind of the disruptors themselves and are really AI native or investing heavily in AI. And so you can think about those really being the investor-dependent type transaction. So they're really focused on access to capital, and that's where the risk would be.

The other large bucket would be the middle market software companies kind of PE controlled or the late-stage venture-backed companies. These are actively focused on AI adoption and the evolution to address any potential disruption. And that would be the second bucket. And then there's also within that $8 billion, there's probably 25-ish, 30% of which are either cash-secured or ABL transactions. So we feel good about that credit risk as well.

We have done a deep dive into the portfolio to evaluate any attributes for vulnerability or strength within each of those borrowers, including looking at, are they a system of record? Do they have proprietary data? What is the level of switching costs, et cetera. So we've got a good sense for strengths or weaknesses with each of those borrowers.

We're also leveraging our deep relationships with the VC firms themselves to get additional insight. And as we go through the second quarter, we will be doing additional focal reviews at a finer segmentation. That's kind of the overview, high level overview of our software exposure.

I think you touched on NDFI as well. Within our private credit book, we did a deep dive there this quarter as well. The software exposure within that portfolio averages about 14% of software exposure for any given fund, so not too outsized. And as Craig said, those structures are very well collateralized and have a lot of structural protections.

And then finally, as part of that deep dive, we did a stress scenario and assume some very conservative either default rates and recovery rates and found that any losses would be manageable coming out of that portfolio.

Great. And then my follow-up from an earlier question. Craig, on the exit NII guide you gave earlier, you gave a range of up mid-single digits. Could you make clear what time period that was for? And what comparison period was the base?

The up mid-single digits was the first quarter to fourth quarter exit.

Both for core and GAAP NII?

That's correct.

Our next question comes from Bernard Von Gizycki with Deutsche Bank.

So just a question on the competition that remains intense in deposits. Could you just maybe provide some commentary on just thoughts in your franchise or what you're seeing with terms and pricing from peers?

I think competition is intense, pricing betas haven't moved much given pricing pressures. So I would describe competition as intense. I will let Marc maybe talk about a little bit what he's seeing at SVB, and Elliot a little bit of what we're seeing in the branch network in the Direct Bank.

So I will start. It's Marc Cadieux on SVB. And as Craig mentioned, the competition is intense. We see it from all manner financial institutions, neobanks, fintechs, et cetera, competing for balances. And as I think the quarter indicates, we are holding our own, notwithstanding the competition, allowing as already mentioned that there is some volatility to the balances and all of which is reflected in our guide. I will pass it along.

Yes. And I think as it relates to both the branch network and especially the Direct Bank, where we're really seeing the pressure is on a lot of the money market promos, CD rates, too, now with kind of the expectation of really no rate cuts. And so we're seeing competitors still out there with really kind of a 4% type rate.

I think our hope would be that betas would have shifted down a little bit, that we would assume something kind of more in the high 3s, but competition has really remained and those lead rates have really stayed elevated through the first quarter.

Great. And just as a follow-up. The commentary about the broker deposits being all in lower cost versus the Direct Bank. Just any commentary you can provide on what the -- maybe the spread differences between the 2, just to give us a sense?

Yes, sure. This is Tom. If you look at the broker deposits, I mean, during the first quarter, you were able to raise those what I would consider in the high 3s. Whereas to Elliot's point earlier, some of the competition we've seen in the Direct Bank and even some of the branch network, we've seen rates north of 4% there.

Obviously, the brokered market is efficient. Marketing costs are sort of fixed at that 10 basis points. So you have an all-in cost below that 4% handle in that channel. So that's really what drove us to shift a little heavier into that space. And again, we'll continue to monitor market conditions as we move ahead.

Our next question comes from David Chiaverini with Jefferies.

So on the loan outlook, it sounds like the pipelines for Global Fund Banking are robust, but you sounded more guarded on the middle market side of the business. Can you talk about what's driving this? Is it macro uncertainty or geopolitical risk? Just any color there would be helpful.

Yes. I think in the middle market and really coming to the industry vertical space, I think we still do expect growth. I think, certainly, with the geopolitical events occurring right now, a little bit of uncertainty, we did see prepayments pick up a little bit in the first quarter.

But I think all else equal, we are expecting growth really kind of in the, call it, mid-single digits in industry verticals and really that middle market space. So still optimistic. But I think we do have a little bit of hesitation just with kind of the uncertainty that's out there right now.

Great. And in terms of the loan pricing environment and the competitive environment there, can you provide some commentary there? It's clearly very intense on the deposit side, curious about the loan pricing side.

Yes. We've, generally, I think over the past few quarters, seen spreads come in a little bit just due to the competition. What I'd say is I think we're reaching more of a stabilization on really those spreads. So I think competition is fierce right now, but I think we'd characterize it really throughout '25 and certainly in first quarter '26 as remaining intense.

Our next question comes from Christopher Marinac with Brean Capital, LLC.

Is there a further goal on the FDIC purchase money note beyond what you've already done in April?

As further goal, we would anticipate at a minimum, based on the roll-off of the loans collateralizing or U.S. treasuries collateralizing, the note to pay down an additional $500 million to $1 billion per month. So that sort of gives you an idea of the trajectory we're on.

Sure. And then back to the other conversation about broker deposits. You really are long ways away from having any restraints on how many brokered funds you can do. Is that correct?

Yes, that's correct. I mean these were really sort of the first deposits. We had another slug of broker deposits that matured. I believe it was back in October last year. So we're really coming off of a very low base here. And really, the way we look at that is we look at those deposits in conjunction with the Direct Bank and sort of look for, as I spoke about earlier, opportunities from a cost perspective where we can get the best execution.

Great. But in general, in the big picture, the Direct Bank is still going to grow. It might just be more of a timing difference in terms of where you are this year, next year, et cetera?

Yes, that's right. We still expect the direct bank to continue to grow. It's just that we might moderate some of the expectations if we continue to put on broker deposits to augment that growth if that turns out to be cheaper.

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

Thank you, and thanks, everyone, for joining our call today. We appreciate your ongoing interest in our company. And if you have 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.

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

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares' Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

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

Good morning. Welcome to First Citizens' Fourth Quarter 2025 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 fourth quarter business and financial updates referencing our earnings call presentation, which you can find on our website. Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on Page 3 of the presentation.

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

I will now turn it over to Frank.

Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us for our fourth quarter earnings call, and we'll start by highlighting our overall performance for the quarter and provide comments on our strategic priorities for 2026, then I will turn it over to Craig to take you through our financial results and outlook for 2026.

Starting on Page 5. The fourth quarter was a continuation of what was a successful year for First Citizens in 2025. This morning, we reported adjusted earnings per share of $51.27 and adjusted ROE of 11.93% and an adjusted ROA of 1.1%. Despite the headwinds of lower rates, these earnings metrics exceeded our expectations marked by resilient net interest income and stable credit quality.

Before I highlight our balance sheet performance, I'd like to point out that we made a change in our operating segment reporting during the quarter. Previously, we reported SVB Commercial as a separate operating segment. In the fourth quarter, it was consolidated into the Commercial Bank segment. Now despite this change in reporting, we remain committed to the innovation economy, and we will continue to report key metrics like loans, deposits, off-balance sheet client funds at the SVB commercial level.

Compared to the linked quarter, loans were up $3.2 billion or by 2.2% driven mostly by our global fund banking business within SVB Commercial due to strong production and increased line utilization. Deposits were down sequentially $1.16 billion or by 1%, primarily driven by anticipated shifts into off-balance sheet client funds and seasonal distributions. Despite the decline in actual balances at the quarter end, due to late quarter outflows, average deposits were up by $2.6 billion or by 1.6% driven by broad growth in the General and Commercial Bank segments.

We returned another $900 million to our shareholders through share repurchases, moving us closer to our long-term capital targets. Despite loan growth exceeding deposit growth during the quarter, and the prepayment of $2.5 billion of the FDIC Purchase Money Note, our liquidity position remains strong.

Now turning to Page 6. We made significant progress on our strategic objectives in 2025. And for 2026, our strategic priorities remain consistent with 2025 and are to, one, to deepen client relationships; two, develop, retain and recruit talent; three, optimize our balance sheet; and four, make investments in our franchise to improve our capabilities and poise us for growth in the years ahead.

In 2025, we made great progress in improving our customer support capabilities within the General Bank. We continue to make investments in our digital capabilities to serve customers in their channel of choice. These capabilities have enabled us to deepen relationships with existing customers and acquire key new ones through both branch and digital channels, and we also continue to invest in our wealth business by expanding to new markets and increasing product and service offerings.

We're excited about the momentum in the commercial bank as we head into 2026. By investing in technology and our teams, we're growing relationships and adding new clients. And during 2025, we simplified the organizational structure and streamline processes to make us meet the needs of our clients. In 2026, we will continue to [indiscernible] we'll start focus to optimizing systems and platforms for an improved end-to-end client experience. For example, we are investing in our payments capabilities to achieve client growth and an increased capture of core deposits.

Now we can't do any of this without our associates, and we remain indicated to attracting, retaining and developing our associates given that customer and client service is paramount to our success. Operational efficiency remains a key priority. We did a lot of foundational work in 2025 to reduce operating complexity and position the bank for continued growth and expect to continue to do so in 2026. With those efforts -- while these efforts have resulted in expense growth over the past few years and will continue to have an impact in 2026, we're committed to delivering positive operating leverage over time and recognize that responsible growth is balanced through operational efficiency. Effectively managing expenses remains a priority for us.

We made significant progress on balance sheet optimization in 2025, moving our capital ratios closer to our long-term targets, growing core deposits and beginning repayment of the purchase money note. In 2026, we will continue to focus on a funding remix to core deposits, repaying the purchase money note and moving capital ratios to our target range through share repurchases, all while supporting quality loan growth in our line business.

I'd also like to take a moment to thank our Chief Risk Officer, Lorie Rupp, for her outstanding leadership and unwavering commitment to First Citizens throughout her 13-year career at the bank. Lorie intends to retire in June of 2026, and we wish her all the best in this next chapter of her life. She will be replaced by our current Treasurer, Tom Eklund, who is a seasoned executive with substantial experience, managing capital, market, liquidity and compliance risk. We're confident Tom will build on our strong risk foundation and drive continued success as we remain committed to maintaining a robust risk governance framework in pursuit of our long-term objectives.

To close, 2026 was a successful year for First Citizens despite a challenging macroeconomic backdrop that included interest rate volatility, competitive pressure on lending spreads, competition for deposits and geopolitical uncertainties. As always, we remain vigilant on the macro and geopolitical landscape and keep prudent risk management at the core of our actions.

I want to emphasize that even in volatile periods across markets and rates, our diverse business model and disciplined risk posture are key differentiators that have and will continue to serve us well. I want to thank all our associates for their contributions to making 2025 a successful year for our company, clients and customers. We enter 2026 on a strong footing and I'm excited about what we can accomplish in the years ahead.

With that, I'll turn it over to Craig to take us through our fourth quarter financial performance and 2026 outlook. Craig?

Thanks, Frank, and good morning, everyone. I will anchor my comments to Page 8 of the presentation. Pages 9 through 26 provide more details underlying our fourth quarter results and are for your reference. We had adjusted net income of $648 million in the fourth quarter or $51.27 per share, which was up $6.65 over the linked quarter driven mostly by a decline in provision for credit losses due to lower net charge-offs and a higher net provision release related to lower specific reserves on impaired loans, a mix shift to higher credit quality loan portfolios and improvement in the macroeconomic outlook.

Tangible book value per share grew by 11% in 2025 and 3% sequentially, including the impacts from share repurchases, which as of year-end totaled $4.7 billion since the July 2024 inception of the plan. Headline net interest income declined $12 million sequentially aligned with our guidance. Net interest income ex accretion was unchanged sequentially. Interest income ex accretion declined by $46 million, but was offset by a similar decline in interest expense due mostly to a lower rate paid on deposits.

Headline NIM was 3.2%, lower by 6 basis points sequentially, while NIM ex accretion was 3.11%, down 4 basis points sequentially. The decline was primarily due to a lower yield on earning assets impacted by the Fed rate cuts in the second half of 2025, only partially offset by lower funding costs and a higher average loan balance.

Adjusted noninterest income exceeded our guidance and was up 2% sequentially. The increase was broad-based, but the most significant items contributing to the increase were rental income on operating leases and wealth management income. Rental income benefited from a larger fleet and lower maintenance costs. Wealth benefited from higher assets under management and increased sales activity, including brokerage income. International factoring and deposit service charges were also up during the quarter. These increases were partially offset by a decline in client investment fees due to the lower Fed funds rate, only partially offset by a $3.1 billion increase in average off-balance sheet client funds.

Adjusted noninterest expense was up $89 million sequentially, driven by higher personnel, technology and direct bank marketing costs. Personnel costs increased $38 million, mostly driven by higher temporary labor to support technology-related projects, performance-based incentive compensation, benefit expenses due to a seasonally higher health insurance claims as employees reach their out-of-pocket deductibles and termination costs.

Technology-related costs contributed $22 million of the increase related to higher amortization expense of several technology-related projects were placed into service late in the third quarter as well in the fourth quarter. In addition, software costs were up as we continue to scale our technology platforms and invest in new capabilities. And finally, direct bank marketing costs contributed to $12 million of the sequential increase.

As I will discuss in a moment in our 2026 outlook, we expect year-over-year adjusted expenses to be up in the low to mid-single-digit percentage range with less than 1% of the increase coming from the BMO acquisition expected to close in the second half of the year.

Compared to the annualized run rate of the fourth quarter, we expect expenses to be flat to slightly down as episodic fourth quarter items are offset by increases from merit as well as the full year impact of higher depreciation from completed projects.

Moving to the balance sheet. Period-end loans increased by $3.2 billion or 2.2% sequentially led by strong growth in Global Fund Banking. Global Fund Banking loans were up $3.8 billion sequentially and loan production was over $5 billion, the highest since acquisition. Average line utilization continued to trend higher, resulting in growth in outstanding balances. We are encouraged by the momentum in this business driven by increased market activity.

General bank loans were down $267 million sequentially as we moved approximately $700 million of mortgage loans to held for sale in advance of a strategic plan sale in the first quarter of 2026. Removing the impact of this transfer, general bank loans increased modestly driven by growth in business and commercial loans within the branch network and wealth.

Period-end deposits declined by $1.6 billion or 1% sequentially mostly driven by expected outflows of global fund banking deposits into off-balance sheet, client funds and from seasonal fund distributions to limited partners. The decline was partially offset by growth in tech and health care banking given higher VC investing activity during the fourth quarter.

In the General Bank, deposits were up modestly as balance growth was partially offset by seasonal outflows. Direct bank deposits were down $344 million compared to the linked quarter. On an average basis, deposits performed well during the quarter, growing by $2.6 billion or 1.6% sequentially, supported by strong customer retention and acquisition in both the Commercial and General Bank. Encouragingly, this was achieved while we continued to reduce our total cost of deposits.

SVB Commercial off-balance sheet client funds totaled $69.7 billion up $2.7 billion sequentially, while average off-balance sheet client funds were up $3.1 billion over the third quarter.

Now let's shift to credit. Provision declined $137 million sequentially due to lower net charge-offs and a larger reserve release. Net charge-offs totaled $143 million or 39 basis points annualized in the fourth quarter, a $91 million or 26 basis points decline. The reserve release increased by $66 million over the linked quarter. You will recall that there was an $82 million single name loss in the third quarter, which was the largest contributor to the sequential decline in net charge-offs, both fourth quarter and full year net charge-offs were within our guidance.

Reasonably consistent with prior quarters, approximately half of the net charge-offs were concentrated in the SVB investor-dependent Commercial Bank, general office and equipment finance portfolios. The larger reserve release this quarter was driven by lower specific reserves, growth in higher credit quality loan portfolios and improvements in the macroeconomic outlook. The allowance ratio was down 8 basis points sequentially, driven by these same factors.

On the capital, Frank mentioned that we continue to make progress on our 2025 share repurchase plan. As of the close of business on January 20, 2026, we had repurchased 18.3% of Class A common shares or just over 17% of total common shares outstanding for a total price of $4.9 billion. Note that this is inclusive of the 2024 plan which we completed in the third quarter of 2025. With respect to the $4 billion repurchase plan approved by the Board in July 2025, we have completed approximately 30% of this authorization.

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. During the fourth quarter, repurchases were $900 million, and we expect repurchases to remain near or at that level during the first quarter of 2026. The pace will slow down as we get closer to our target range. And as we regularly assess our growth outlook, economic conditions, the regulatory environment and overall capital deployment.

The fourth quarter CET1 ratio was 11.15%, a decrease of 50 basis points from the third quarter as the impact from share repurchases and loan growth outpaced earnings.

I will close on Page 28 with our first quarter and full year 2026 outlook. Starting with the balance sheet. We anticipate loans in the $148 billion to $151 billion range in the first quarter. In the commercial bank, we remain optimistic about the momentum in Global Fund Banking as we enter 2026. Pipelines remain robust at approximately $11.5 billion as of year-end. While we are optimistic here on absolute loan levels over time, I think it bears reminding that loan outstandings can ebb and flow based on client draws and repayments and we may see some volatility in ending balance this quarter-to-quarter.

Outside of growth in Global Fund Banking, we are projecting growth in our commercial finance industry verticals and middle market banking. Within the General Bank, we expect loan growth to be supported by continued strong performance in our business and commercial portfolios within the branch network as well as in our wealth business. Additionally, we expect to close the BMO branch acquisition in the second half of the year, which we expect will add approximately $1 billion in loan balances.

For the full year, we anticipate loans in the $153 billion to $157 billion range as we expect growth in both general -- both in the general and commercial banks. We are continuing to explore some strategic loan portfolio sales similar to what we did in the mortgage book this quarter to provide liquidity for repayment of the purchase money note, which could impact absolute growth levels in 2026.

We expect deposits to be in the $164 billion to $167 billion range in the first quarter. We think growth will be broad-based across our channels, including the direct bank due to competitive pricing and marketing efforts, expansion in the general bank within the branch network in wealth and growth in SVB Commercial as investment activity and overall valuations continue to improve.

For the full year, we anticipate deposits in the $181 billion to $186 billion range representing low to mid-teens percentage growth over 2025, driven by the momentum across our lines of business as well as the BMO branch acquisition, which will add approximately $5.7 billion in deposits in the second half of the year.

We are projecting more significant growth in the direct bank as rate decline -- as rates decline and we begin repaying the purchase money note more aggressively. While it is a higher cost channel, it provides us with a source of insured granular deposits, and we anticipate benefiting from falling interest rates. The direct bank will be an important source of repayment of the purchase money node even if leading to elevated marketing costs in the near term.

Next, I'd like to take a minute to talk about our plans for repayment of the purchased money note. We began pledging U.S. treasury securities against the note in 2025 as loan collateral available to secure the note diminished. As Frank mentioned, we made an initial payment of $2.5 billion in December as rate cuts in the back half of 2025 and the differential between the note rate and the yield on the planet securities diminished.

As we look into 2026, we expect -- at a minimum, we will make payments against the note for the incremental loss in loan collateral, which averages $500 million to $1 billion per month. We will also consider making other incremental payments if interest rates continue to decline and/or alternative funding sources become cheaper as we anticipate based on our interest rate forecast. Currently, our rate forecast covers a range of 0 to 425 basis point rate cuts in 2026, with the effective Fed funds rate range declining from 3.5 to 3.75 currently to as low as 2.5 to 2.75 by the end of the year. Our baseline forecast includes 2 rate cuts but we do believe that stubborn inflationary metrics and possible impacts of macroeconomic policy could lead to fewer or no cuts. Therefore, we believe it is prudent to provide a range of expectations as we have done in prior quarters.

With that in mind, we expect first quarter headline net interest income to be in the range of $1.6 billion to $1.7 billion, a modest decline from the fourth quarter as the full impact of the December rate cut pulls through, resulting in a lower yield on earning assets. This decline will be partially offset by earning asset growth and lower funding costs.

For the full year, we believe our headline net interest income will be in the range of $6.5 billion to $6.9 billion. We project loan accretion will be down approximately $100 million for the year. Given continued rate cuts, we expect loan interest income to decline driven by a declining yield despite asset growth levels. We also expect interest income on cash and investments to decline given the reduction in yields as well as balances driven by lower absolute levels of cash and investments due to a reduction in excess liquidity. While despite balance sheet growth, we project a net reduction in interest expense due to lower cost of total deposits, this will only partially offset the decline in interest income.

On credit losses, we anticipate first quarter net charge-offs in line with our previous range of 35 to 45 basis points. We expect losses to continue to be elevated in the Commercial Bank general office portfolio and other portfolios where we have seen stress. While rate cuts could ease some of the pressure on borrowers in this sector, we believe losses will remain elevated in the medium term. even as market disruption may lessen as more companies reinstate office attendance requirements.

While losses in the equipment finance portfolio have largely stabilized, we have a larger deal we are watching that could elevate losses during the first quarter. Additionally, we expect SVB commercial losses to remain slightly elevated in early 2026. With respect to the full year range, we anticipate losses in the same range of 35 to 45 basis points.

Moving to adjusted noninterest income, we expect to be in the $500 million to $530 million range in the first quarter. Overall, we continue to see strength in many of our business lines such as fees from lending-related activities in capital markets, deposit fees and service charges, wealth, rail and card and merchant services.

For the full year, our adjusted noninterest income range is $2.1 billion to $2.2 billion. We expect year-over-year growth to continue to be driven by our rail business, which includes a balanced railcar portfolio and a strategic exploration ladder. We further expect rail to have continued momentum on repricing rates throughout 2026. We also expect continued growth in our wealth and deposit businesses.

Moving to adjusted noninterest expense. We expect the first quarter to be in the $1.34 billion to $1.38 billion range, essentially flat to slightly down from the fourth quarter as we had some nonrecurring items in the fourth quarter expenses that will not impact our run rate. These declines will be offset by continued investments in our technology platforms to allow us to scale efficiently and improve customer -- our customer experience. We also -- we will also be impacted by the seasonal benefit resets for social security, unemployment and 401(k) that drives the first quarter higher from a personnel expense perspective.

Looking at the full year, our adjusted noninterest expense range is $5.37 billion to $5.46 billion. This is a low to mid-single-digit percentage increase from 2025, driven primarily by higher personnel costs due to merit-based increases, higher cost and equipment expense and third-party processing given continued tech investments and the full year impact of projects that went into depreciation in the last half of 2025.

Marketing expense is also expected to be up given our focus on client acquisition and retention in the direct bank. Not that full year -- not that the full year increase also includes the impact of the BMO acquisition, which will add slightly less than a percentage point to overall adjusted noninterest expense growth, which will be realized during the second half of the year.

Our adjusted efficiency ratio is expected to be in the lower 60% range in 2026 as the impact of the Fed rate cut cycle puts downward pressure on net interest income. We believe that the investments we have made in our franchise while driving up cost in the short and medium term are foundational to delivering positive operating leverage over time. Meanwhile, exercising disciplined expense management is a top priority for us given headwinds to net interest income. And while we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from our continued investments in the franchise. Longer term, our goal remains to operate at an efficiency ratio in the mid-50s.

Finally, for both the first quarter and full year 2026, we expect our tax rate to be in the range of 24% to 25%, which is exclusive of any discrete items. In summary, our 2025 financial performance reflected the strength and resilience of our diversified business model. We generated strong returns, maintained credit discipline, grew our balance sheet, returned significant amounts of capital to shareholders, all while retaining strong liquidity and capital positions. We are excited about the opportunities in front of us and are well positioned to continue to deliver long-term value for our shareholders.

This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question-and-answer portion of the call.

[Operator Instructions] Our first question comes from Chris McGratty from KBW.

Craig, maybe to start with the guide for a moment. The -- I hear you on the 0 to 4 on rates. And I think you said in your prepared remarks, 2 was your base case. Is it as simple as I guess, putting 2 as the midpoint. How are you thinking about, I guess, the cadence of NII? And I think in past quarters, you've tied it kind of exit rates. So any comments on exit NII and margin would be great.

Okay. Yes. Chris, our baseline forecast calls for 2 rate cuts in 2026 in June and October. So in terms of the guide, I would direct you in the baseline to the middle of that range. So for the first quarter of '26, we expect both headline and ex purchase accounting, net interest income to be down mid-single digits percentage points. We expect headline NIM in the mid-3.10s and XP purchase accounting in the mid-3.0s or 3.00s.

In the exit quarter fourth quarter '26, we expect both headline and ex purchase accounting, net interest income to be flat with the fourth quarter '25 with 2 cuts, we also expect that headline and ex purchase accounting, net interest income will trough in the first quarter of '26. We expect that net interest margin headline in the mid-3.0s and ex purchase accounting in the high 2.90s and expect headline NIM to trough in the fourth quarter of '26 and ex purchase accounting in the second quarter of '26. So that's the trajectory at our baseline, which includes 2 rate cuts, one in June and one in October.

On the investments, I think I heard you talk about kind of the focus on operating leverage, maybe not near term, but medium term. And I guess I'm interested in the cadence and the pace of technology and investment spend at the bank now that you've grown obviously, scars on the horizon. Are we nearing the kind of the peak investment? Am I hearing kind of you're nearing the peak investments and then over time, you kind of grow into the returns a bit?

Yes. I think that's a fair statement. I mean we've been very intentional about investments in our franchise and particularly in the areas of building out our risk management capabilities, and in our technology infrastructure. As we strive to -- if we've grown 4x, we're striving to reduce operational complexity, we're striving to meet Category 3 expectations. All of this is to meet regulatory requirements, improve our client experience. And we recognize that this has put pressure on our efficiency in the short term, but we do like where we're heading. We are materially complete with the implementation of our risk management capabilities and are transitioning to maturity or a business-as-usual model.

We will continue to make investments in technology, and really that is to enable client-centric business solutions for our General and Commercial Bank to streamline our processes to improve efficiency and to build a technical infrastructure commensurate with the bank's future growth. So those investments will continue, but we are hyper focused on bending the cost curve and costs were up 8% last year. We expect them to be low to mid-single-digit percentage points this year. So we're starting to bend the curve. And we do have a lot of focus on improving operating leverage as we move forward.

Greg, I don't know if you have anything else to add to that on the technology side other than we are continuing to invest in our franchise. But the focus is now as we've gotten our risk management infrastructure sort of behind us and we're in the maturity model to start bending that cost curve going forward.

Yes, Craig, I think you did a great job there. So this is Greg Smith, the CIO. And Chris, the question is a good one, and we do recognize that we're on the higher end of our spend when you compare it to our peer group. But you have to put that in context with where we were, where we are in our maturity. So just like Craig said, we -- at the end of our acquisitions in 2022 and '23, we took a step back and we looked at our entire technology environment. We laid out a very clear plan to simplify and modernize the environment, and we are in full execution mode there. So the simple answer is we are indeed peaking in 2026 from a spend on the tech road map.

But a couple of the key things that we're working on. So just coming into the year or leaving 2025, we've simplified or reduced over 1/3 of our applications. So that's a big win as well. We have at least 2/3 of the actual program up and running in full execution mode. And this is both simplifying as well as modernizing our applications and our infrastructure. So another simple example is at the beginning of 2024, we had 8 different data centers, by the end of '26, we will only have 2 data centers. Now that means we're closing 7 and we're building a new one. But the benefits of all that means that at the end, we will not only have efficiency coming out of that example. But we'll also have a much better resiliency and more flexibility and scalability in our environment. So those are the kind of things that we're working on. It is a multiyear plan, but the simple answer is we will peak in that plan in 2026, and that will allow us some more capacity to spend in other areas of the business.

And then just quickly on the tax rate, Craig, in the quarter. Was there a specific charge in the quarter on the taxes?

This is John Wilson, the Tax Director. The only charge in the quarter was a return to provision adjustment we recognized after filing our 2024 tax returns, primarily related to the estimate that we had for tax credits for the prior year provision.

The next question comes from Anthony Elian from JPMorgan.

Craig, your expense outlook is quite wide. The range is about $100 million. I'm curious, I know I recognize your previous comments on tech spend. I'm curious just what gets you to the high end versus the low end? How much LFI CAT III expenses you have that's baked in that may eventually go away?

This is Elliot Howard. I think when you look at that range, $100 million on the entire base is only really kind of 2 percentage points. And really what puts us probably at the top end of that range is that includes -- we're doing the heavy lift on direct bank advertising to really kind of raise deposits. And then I think as we kind of progress along the year, just kind of the timing of the tech expenses and when we can get efficiencies. So full year, I think being able to kind of get the efficiencies faster and less in marketing expense would put us closer to the lower end of that range. And then really having more competitive really rate environment on the direct bank side would probably give us a little bit higher to the top end of that range.

Okay. And then if Marc is on the line. You guys saw another really strong quarter in SVB total client fund growth. What specifically drove that? And I didn't hear the level of cautiousness that you guys have emanated the past couple of quarters on the outlook for SVB. So how are you guys thinking about that business and the growth in total client funds for this year?

This is Marc Cadieux. And I think the -- the growth in total client funds that we saw in fourth quarter and really over the course of '25, I think is a function of the incremental improvement that we're seeing, venture investment, year-over-year innovation economy activity. And the longer we have been with First Citizens, the more things have stabilized within our 4 walls and our ability to go to market and execute has just continued to get better. And so it's really a function of it's improving out there. As reflected in the guidance there is that further expectation of further incremental improvement and our ability to capture continues to improve as well. And so that in a nutshell is the story if you behind the positive TCF trends.

Next question comes from Bernard Von Gizycki from Deutsche Bank. We will move on. The next question comes from Casey Haire with Autonomous.

So Craig, I wanted to touch on the purchase money note, if -- if I heard you right, it sounds like the pace of retirement is going to be a little bit slower between $0.5 billion and $1 billion a month. So $9 billion a year, if that's right. So just wondering -- I thought the first tranche was going to be the biggest. It just feels like it's a little bit slower. So just maybe a little more color on that. And how much -- how low are you willing to go on the cash front as a percentage of earning assets?

Okay. The reason for the lower than anticipated payment in December was really related to the loan growth that we experienced versus deposit growth, and it impact on our excess liquidity. So that's the simple math there. In terms of just the $500 million to $1 billion, that relates to the amount of loan collateral that rolls off monthly is an estimate of that. And that would sort of indicate the minimum that the loan collateral the loans that are eligible would be loans in place at the time of the acquisition and as those loans mature, that collateral pool gets diminished. And we have pledged U.S. treasury securities as well to that. But that gets into whether or not we pay off that get into the rate arbitrage between those securities in the purchase money note. So we're trying to balance both the need to get the note paid efficiently with doing it in a way that's most profitable, if that makes sense. So the $500 million to $1 billion would be sort of -- and you should think of that as sort of the minimum amount that we'd pay off this year. Tom, I'll let you amplify anything there.

No, I think that was very clear on the $500 million to $1 billion being the minimum. And obviously, looking at the alternative funding cost is why we've sort of moderated our pace of pay down with the 3.5% we're paying on the purchase money note. So as alternative funding costs come down, you can expect to see us accelerate those payments. I think you also asked about cash sort of as a percentage of earning assets we're currently right at about 10%. I think you can see that come down a little bit from there, but it'll remain in that 8% to 10% range is sort of what we'll manage to from a liquidity risk perspective.

Okay. That's great. So -- and then I guess just switching to the loan growth outlook. So a very strong result in the fourth quarter here. The pipeline is up and yet you're calling for growth to moderate to a mid-single-digit pace in '26. The deposit growth guide does imply that the loan-to-deposit ratio moves up to the mid-90s. So I guess the question is like, are you purposely constraining the loan growth for liquidity reasons? Or do you expect loan growth to moderate from this near double-digit pace?

Yes. I think there's a lot of positives certainly on the loan front. I think SVB, we talked about pipelines are full. We feel very good about the activity in the fourth quarter and where we are heading in the first quarter. I think we have really good outlook on commercial finance. And then in our general bank kind of in our business and commercial side, I think that said, as Tom touched on the purchase money note. We will look at certain places to sell portfolios. We had the $700 million that we moved mortgage. I think we're exploring potential sales elsewhere SBA, where kind of the financials make sense. And so we're going to be there for our clients. We're going to continue to lend. But I think the reality is we still do have $33 billion that we need to repay on the purchase money notes just going to be a function of how much we can really generate deposits [indiscernible]

I think one other component -- this is Tom. One other component to add is when you look at the capital call line and the nature of the loan growth that has come through there, as you get further into that, obviously, a larger portfolio is going to lead to larger paydowns. So even with same elevated activity, it will lead to moderating growth.

At portfolio natural duration.

That's right.

Yes. Okay. All right. Just last one housekeeping. Craig, very helpful to walk through all the headline and core NIM, NII. Just and I apologize if I missed this, but what is the outlook for purchase accounting this year?

For just -- are you speaking of net accretion income?

Yes.

Yes. We expect to be -- for 2025, we recognized around $250 million of net accretion income. We expect that to drop to about $203 million this year, so around a $50 million decline, so not very significant -- not as significant as a entertain prior years as some of those shorter portfolios ran.

[Operator Instructions] I'm not showing any further questions at this time. So I'd like to turn the clack over to our host, Mr. Deanna Hart for any closing remarks. .

Thank you, and thanks, 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.

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

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens Bancshares Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

Good morning. Welcome to First Citizens Third 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 third quarter business and financial updates referencing our earnings presentation, which you can find on our website. .

Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ materially from expectations. We assume no obligation to update such statements. These risks are outlined on Page 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.

I will now turn it over to Frank.

Thank you, Deanna. Good morning. Thank you for joining us for our third quarter earnings call. During the third quarter, our business segments continued to deliver strong performance. I'll focus my comments on our earnings metrics for the quarter and how we are positioning First Citizens to achieve our strategic initiatives as we move forward. I'll then turn it over to Craig to review our performance in more detail and provide guidance on the fourth quarter.

Starting on Page 5. Key earnings metrics were solid, marked by net interest income growth, stable NIM and adjusted noninterest expense at the low end of our guidance range. We reported adjusted earnings per share of $44.62, an adjusted ROE of 10.62% and an adjusted ROA of 1.01%. We achieved 2.5% loan growth over the linked quarter spread across all our operating segments, but led by SVB Commercial where global fund banking loans increased 10% sequentially, driven by increased utilization and strong production in our capital call portfolio.

Deposits were up by $3.3 billion or 2% sequentially, with notable inflows from our SVB Commercial and General Bank segments. We are pleased that this marks our 7th consecutive quarter of deposit growth. We also maintained strong capital and liquidity positions supporting the balance sheet growth I just mentioned and allowing us to return another $900 million to our shareholders through share repurchases during the quarter.

We recently announced an agreement to purchase 138 branches from BMO Bank and while we offer our clients a variety of different ways to interact with us, our branches continue to be integral to our franchise. Building on the scale of our current nationwide platform, we are excited about this opportunity to expand into new markets and offer our client-centered approach in even more regions. Strategically, the net deposit position is expected to enable us to further enhance our liquidity position and provide additional flexibility to support our strategic initiatives including the repayment of the purchase money note as interest rates move lower.

Looking ahead on Page 6. We remain committed to deepening client relationships, optimizing our balance sheet and making investments in our franchise that underpin scalable growth. So far, we have made real progress on our strategic initiatives, including platform integration and alignment. We continue to align teams to improve client experience, client segmentation and product orchestration. We have increased outreach across our business segments to deliver more holistic solutions to our clients.

Digital and operational improvements. We continue to streamline workflows through automation where it makes sense with the goal of simplifying our operating environment to make us more operationally efficient. Capital and liquidity resilience. We've maintained capital ratios well above regulatory thresholds and our liquidity profile continues to afford us the optionality to support clients, invest in our future and pursue external opportunities.

As always, we remain vigilant on the macro and geopolitical landscape, which remains somewhat uncertain. While we recognize that some elements of the landscape could serve as tailwinds and other headwinds, we are pleased to be operating from a position of strength.

In closing, I want to emphasize that even in volatile periods across markets and rates, we continue to believe that our diverse business model and disciplined risk posture are key differentiators. Over the last several quarters, we've delivered consistent results even as external conditions shift. We remain deeply committed to being a dependable, thoughtful partner to our clients, communities and shareholders while maintaining flexibility in a dynamic economic environment.

With that, I'll turn it over to Craig, who will take you through our third quarter results and forward-looking guidance for the fourth quarter. Craig?

Thank you, Frank. Thanks for joining us today. I will anchor my comments to the third quarter key takeaways outlined on Page 8. Pages 9 to 26 provide more details underlying our results and are for your reference. Frank mentioned, we had another solid quarter in terms of term and return metrics exceeded our expectations. Adjusted net income of $587 million was driven by positive operating leverage which included net revenue growth and expenses at the low end of our guidance range.

Positive operating leverage was partially offset by an $82 million charge-off related to the first brands bankruptcy representing our full exposure to the company. We don't believe this loss is reflective of broader issues within our supply chain finance portfolio, and we're confident in the strength of our broader loan portfolio.

Tangible book value per share increased by approximately 8% over the prior year and 2% sequentially despite share repurchases totaling $4 billion since inception of our share repurchase plan in July 2024 and $900 million in the third quarter. Headline net interest income was up 2.3% sequentially and in the upper half of our guidance range, driven primarily by higher average earning assets and day count.

Net interest income ex accretion grew by 2.7% sequentially. Headline NIM was 3.26%, and unchanged from the Link order, while NIM ex accretion was 3.15%, up 1 basis point sequentially as we were able to continue to manage deposit costs down while the earning asset yield remained relatively stable. Adjusted noninterest income came in just above our guidance range, increasing modestly by 1% sequentially. The primary drivers of the increase were gains on the sale of previously foreclosed assets and higher client investment fees driven by an increase in average off-balance sheet client funds in SVB Commercial.

These increases were partially offset by a $9 million sequential decline in adjusted rental income resulting from higher maintenance costs in our rail business. We continue to believe the underlying fundamentals in this business are solid with utilization close to 97% and continued positive repricing trends. Adjusted noninterest expense came in at the lower end of our guidance range and was virtually unchanged from the linked quarter.

Moving to the balance sheet. Loans increased by $3.5 billion or 2.5% sequentially and led by growth in Global Fund Banking within the SVB Commercial segment, followed by modest growth in the general and commercial bank segments. Global Fund Banking loans increased $2.9 billion and quarter end loan balances were at their highest level since the acquisition in this business. New loan production was strong, and we saw increased utilization in our capital call lines of credit. The pipeline for GFB remained strong, totaling approximately $10 billion as of the end of the quarter.

We are encouraged by some signs of increased market activity in GFB, which we believe may continue to be a positive driver over the medium term. General Bank loans grew by $238 million, driven by -- primarily by growth in the commercial portfolio within the branch network and wealth business. Recall, last quarter, we saw a contraction in the commercial portfolio. So we were pleased with its performance as runoff slowed and production increased. Meanwhile, our Wealth business continued to benefit from increased originations and in the third quarter.

Commercial Bank loans also increased $150 million with middle market banking experienced growth offset by declines within our industry verticals as we saw elevated prepayments as deals move to permanent financing and some deals in the pipeline move to the fourth quarter. We continue to maintain pricing discipline, which was reflected in our loan yield as the ex accretion loan yield held up well, only declining by 1 basis point during the quarter despite the impact of lower interest rates.

Turning to the right-hand side of the balance sheet. Deposits grew by $3.3 billion or 2% sequentially as we experienced growth across all our operating segments. SVB Commercial was the largest contributor of the increase, growing by $2.1 billion, driven by growth in both Global Fund Banking and Tech & Healthcare. Deal events led to an increase in GFB deposits, while Tech & Healthcare benefited from new client acquisition and an improving investment environment. Encouragingly, average deposit balances and average total client funds in the SVB commercial business grew by 5.9% over the second quarter.

While we are encouraged by this growth and some positive signs in the innovation economy, we remain guarded on the forward-looking impact on the balance sheet, giving known outflows following the end of the quarter and the overall state of the innovation landscape. In SVB Commercial, we remain focused on winning market share that is stable and profitable. In the General Bank, growth was primarily concentrated in the branch network and wealth where we continue to focus on deepening existing relationships and acquiring new customers.

As noted last quarter, we have implemented additional 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, and we are excited to see these efforts pull through on the balance sheet. We were also encouraged by our ability to grow noninterest-bearing deposits for the third consecutive quarter helping us keep our noninterest-bearing deposit mix stable at 26% despite continued strong growth in total deposits.

Moving to credit. Net charge-offs increased by $115 million to $234 million and were 65 basis points for the quarter. As I noted earlier, $82 million of the increase was a result of the first brands bankruptcy, which contributed 23 basis points or made up around 35% of our total net charge-offs for the third quarter. We don't believe this loss is reflective of broader issues within our supply chain finance portfolio, which totaled $300 million as of the end of the quarter. Outside of this loss, net charges -- outside of this loss net charge-offs were within our expectations and the guidance we provided for the third quarter.

Excluding the first brands charge-off, net charge-offs were mostly concentrated in the SVB commercial investor-dependent portfolio, the commercial bank general office portfolio and our equipment finance portfolio reasonably consistent with prior quarters. While we still see stress in the equipment finance portfolio, we continue to see signs of improvement and trending toward long-term expectations. We have taken steps to mitigate future losses through tightening underwriting as well as increasing collection staff to work through earlier vintages.

We expect these efforts to return this business to historical net charge-off levels in the medium term. There are a couple of larger charge-offs this quarter. And as we have noted on past calls, net charge-offs can be lumpy quarter-over-quarter, given the hold sizes of some of our credits. While we continue to monitor these portfolios, we don't see further trends that would signal wider credit quality concerns and believe we are well reserved.

The allowance ratio was down 4 basis points to 1.14%, driven by improvements in the macroeconomic outlook, a reduction in reserves related to Hurricane Helene and growth in higher credit quality loan portfolios. We feel good about our over observe coverage as well as the coverage on portfolios experiencing stress. Ultimately, our strong risk management rigorous underwriting standards and diversified portfolio helps safeguard against losses.

Given recent industry headlines, I want to briefly touch on our exposure to nondepository financial institutions or NDFI. While the exposure can look sizable based on our call report, approximately 85% is to high-quality, low-risk capital call lines to private equity and DC sponsors. These are backed by institutional investors with committed capital many of which have historically generated solid risk-adjusted returns and credit performance has been excellent. So while the regulatory classification may label them as NDFI, from a credit perspective, we view them as safe, well-managed assets.

Moving to capital. Frank mentioned that we continue to make progress on our 2025 share repurchase plan. As of close of business on October 21, we had repurchased just over 15% of Class A common shares or 14% of total common shares outstanding for a total price of $4 billion. Note that this is inclusive of the 2024 plan, which we completed in the third quarter of 2025. With respect to the $4 billion repurchase plan approved by the Board in July 2025, we have completed approximately 7% of this authorization. During the third quarter, repurchases were at the top end of our $600 million to $900 million range -- per quarter range.

We expect that repurchases through the end of 2025 and into the first part of 2026, will continue to 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 expectations. 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 efficient -- capital efficient over time.

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 repurchase plan will enable us to methodically manage CET1 down to that level over time as we regularly assess our growth outlook, economic conditions, the regulatory environment and capital deployment. The third quarter CET1 ratio was 11.65%, a decrease of 47 basis points from the second quarter as the impact from share repurchases and loan growth outpaced earnings.

I will close on Page 28 with our fourth quarter and full year 2025 outlook. We continue to monitor the overall macroeconomic environment but acknowledge that fluidity of changes makes it difficult to narrow the range of potential impacts on the broader economy and 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 could impact our performance.

Additionally, as Frank noted earlier, we are excited about the recent announcement of the branch acquisition with BMO Bank, given the expected close -- given that the expected close is in mid-2026. The impacts of this deal are not included in the guidance. With those disclaimers out of the way, I'll start with the balance sheet where we anticipate loans in the $143 million to $146 billion range in the fourth quarter, driven primarily by the same areas we have seen growth year-to-date.

As I noted earlier, while we had strong third quarter growth, we remain cautiously optimistic on absolute loan levels as we head into year-end. In the Commercial Bank, we expect recent trends to abate and are projecting growth in our industry verticals. Market activity remains positive. And while there is increasing competition as banks continue to lean into the lending market, our pipeline remains strong, going into the end of the year. Credit metrics remain stable and optimism is being signaled across the industry, pointing to a strong end of the year for the lending market.

We expect some pullback in global fund banking in the fourth quarter as we aren't projecting utilization to remain at the levels we saw in the third quarter. Loan outstandings in this business can ebb and flow based on client draws and repayments. And while we are very bullish over the medium term on the continued expansion in this line of business, we are realistic that quarter and snapshots of outstanding balances can be more volatile.

We expect deposits to be in the $161 million to $165 million range in the fourth quarter. We expect drivers of growth to be continued expansion in the general bank through the branch network and wealth as we continue to focus on deepening existing relationships, inquiring new customers to help drive organic deposit growth. We expect that this growth will be partially offset by a decline in SVB commercial given known outflows from deposits into off-balance sheet products post quarter end that increased third quarter deposit balance on balance sheet.

We continue to be focused on strategies to best serve our clients in this business while reducing funding and liquidity costs, which could impact absolute deposit growth levels. Our interest rate forecast covers a range of 0 to 225 basis points rate cuts in the fourth quarter of 2025 with the effective Fed funds rate range, declining from 4% to 4.25% currently to as low as 3.5% to 3.75% by the end of the year. While our baseline forecast includes 2 rate cuts, we believe stubborn inflationary metrics and possible impacts of macroeconomic policy could lead to fewer or no cuts.

Therefore, we believe it is prudent to provide a range of expectations. With that in mind, we expect fourth quarter headline net interest income to be relatively stable compared to the third quarter. For the full year, we are tightening our headline net interest income guidance to be in the range of $6.74 billion to $6.84 billion from $6.68 million to $6.88 billion. The revision reflects the new forward interest rate curve as well as the jumping off point from the third quarter. 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 fourth quarter net charge-offs in the range of 35 to 45 basis points, in line with the range we provided in the third quarter but below our third quarter results. As previously discussed, our third quarter net charge-offs were higher than anticipated given 1 large charge-off. We expect losses to continue to be driven by the same portfolio as we have been discussing for a number of quarters, equipment finance, general office and the SVB investor-dependent portfolio. We remain focused on client selection and prudent underwriting and have tightened in certain sectors and asset classes for specific client profiles.

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 fourth quarter even as market disruption may lessen as more companies have reinstated office attendance requirements. With respect to the full year range, we are increasing our guide of 35 to 45 basis points to 43 to 47 basis points given the higher jump-off point. We also continue to see some lumpiness and losses in the portfolio and as we mentioned earlier, we have a portfolio where a handful of large deals can swing the ratio.

It is 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 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. We will continually assess the potential impact on our portfolio, but we do believe that its diversity is a strength in this environment.

Moving to adjusted noninterest income, we expect to be $480 million to $510 million range in the fourth 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, wealth and lending-related fees. Given that we have 3 quarters behind us, we have tightened our full year adjusted noninterest income range to $1.99 billion to $2.02 billion. Year-over-year growth continues to be driven by our rail outlook, which includes a balanced railcar portfolio in a strategic exploration ladder.

We also expect continued growth in wealth and international fees, thanks to new client acquisition and an increase in flow of funds. We are also encouraged by the performance of our capital markets business as we are on target to achieve another year of record fee income. The increase in off-balance sheet client funds has also benefited client investment fees. I do want to caution that given the changing rate environment, our client derivative positions can fluctuate between quarters causing some lumpiness in our results.

Moving to adjusted noninterest expense. We expect the fourth quarter to be up modestly compared to the third quarter as we continue to invest in category 3 readiness and to help simplify and optimize our platforms to allow us to scale efficiently in the future. We also have seasonal expenses that generally pull through in the fourth quarter like higher travel, client entertainment and year-end contributions, making it a bit lumpy.

Looking at the full year, we tightened our adjusted noninterest expense range to $5.12 billion to $5.16 billion. exercising disciplined expense management while making opportunistic investments through the cycle and technology and risk management is a top priority for us given headwinds to net interest income. Our adjusted efficiency ratio is expected to be 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 III status. Longer term, our goal remains to operate in the mid-50s.

Finally, for both the third quarter and full year -- for both the fourth quarter and full year 2025, we expect our tax rate to be in the range of 25% to 26%, which is exclusive of any discrete items. To conclude, we are pleased to deliver another quarter of strong financial results, 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 question-and-answer portion of the call.

[Operator Instructions] And our first question comes from Chris McGratty at KBW.

Craig, on the NII guide, I want to start there. It looks like you just added a cut to the guide from last quarter. Can you help us about -- within the range for Q4 if we get the forward curve, is the $1.7 billion the right number if you get 2 cut? I know there's a lot moving on with the balance sheet.

Yes. If we get 2 cuts, which frankly would be our base forecast, we think it's more likely than not having any cuts or 1 cut. So when we look at both headline net interest income and net interest income ex purchase accounting, we would expect those numbers to be down low single digits percentage points sequentially. And if we look at NIM headline. We're looking in the high 310s. And if we look at NIM ex accretion in the high 300s for the fourth quarter.

Okay. And then I guess, fast forwarding, I mean, I guess the question is, when do you assume NII bottoms?

Really all -- both headline NII and ex-accretion NII and headline NIM and ex-accretion NIM with trough in the first quarter of '26, But let me point out that there's a little nuance there that if the interest rate forecast holds, which assumes 2 more rate cuts this year, with the Fed fund rate ending at around $375 million, we do anticipate paying down the note as the arbitrage in it either disappears or becomes as opposed to where we have a 70 basis point spread right now.

So at that point, repayment would have a positive impact on NIM to the extent, which will be determined by the amount of our pay down. So our NIM troughs are pulled forward to the first quarter, even despite our asset sensitivity given that the paydown will be accretive to NIM, absent the paydown, which wouldn't make any sense if there's an arbitrage in it, those troughs will be pushed out to the first part of '27.

Okay. And on the $35 or so billion, are you thinking tranches? How are you thinking about repayment? Any kind of color there?

Yes. On the purchase money note, we can pay portions of it. So we would not go out and pay off the whole things as it makes up a substantive, obviously, a portion of our balance sheet and also we do the optionality obviously carries some value above and beyond the rate we're paying on it. So it would be something we would sort of leg into but maybe make a slightly larger first payment on. .

The next question is from Bernard Von Gizycki from Deutsche Bank.

I know you mentioned the $82 million charge-off to First Brands and represents all your exposure there. But can you just share any information on any additional monitoring you might have conducted throughout that portfolio? I think it was called out that the allowance for loan losses, there were some higher specific reserves for individually evaluated loans. So just any color you can share on that?

Sure. This is Andy. Just to remind, our supply chain follows about $300 million across 24 borrowers. So it's, on average, about $13 million of exposure, we don't have the level of concentration in the remainder of that portfolio that we did with First Brands, certainly did a deep dive post-perse brands and feel very comfortable with the remainder of that portfolio. Obviously, there's a lot of widespread allegations around fraud there. but it's going to take some time to work through that through the bankruptcy process before we learn more there. And we don't think that it's emblematic of the supply chain portfolio or supply chain in general.

And just as a follow-up on M&A, post acquisition of BMO's branches expected to close for mid next year. Just given the favorable regulatory backdrop, can you just talk about your appetite to do an additional branch acquisition or a whole bank acquisition?

Yes. Beyond BMO, we have no specific M&A plans. But as BMO indicates, long term, M&A will remain a significant part of our growth strategy. So we don't have -- and outside of BMO, we don't have a specific time line on when we'll be back in the market as we continue to focus on category 3 readiness and capital efficiency. But when we do enter the market, we will be the same opportunistic buyer focused on accretive M&A that brings more scale and enhances our ability to compete and makes us a better bank for our customers and clients.

The next question comes from Casey Haire with Autonomous.

I wanted to touch on the loan growth. So the loan growth guide, I hear you that it's that you expect lower utilization in fund banking, but you just put up a 10% annualized growth, it sounds like the pipeline is just as strong. So -- but the guide introduces the possibility of loans coming in, in the fourth quarter. Just in want to get a little color on what you really expect loan growth because it seems a little conservative.

Let me -- let Marc start with that and Elliot amplify.

Sure. So this is Marc speaking specifically about the GFB segment. Totally understand your point, given the 10% quarter-over-quarter growth in the third quarter. a call out there though. And maybe going back to something, Craig, I think you said earlier, is borrowings and repayments tend swing around a lot. And with Global Fund Banking, in particular, that can happen. And it's probably best illustrated when I think about the average loan growth in that segment versus the period end, that average loan growth is sub-$1 billion over the course of the third quarter.

And that obviously is quite a bit less than the plus 3% by period end basis. And so I think that illustrates sort of the point right there. And by extension, I think hopefully explains the appearance of conservatism in that part of the fourth quarter loan growth outlook. I'll stop there and pass it to you, Craig.

Okay. And just on the expenses. So first off, I guess, a pretty wide range in the fourth quarter, up 10%, up 50%. Just what are the wildcards within that? And -- just as a follow-up, that implies 6% to 7% expense both on the year and 25%. Just wondering how much of that is Category 3 and when we could see relief on the expense pressure.

Yes. I'll let Elliot talk about the guide, but I'll handle the last part of that question, but the escalation of expenses in '25, as we guided previously, are related primarily to that work. large financial institution program as well as several large projects related to that work as well. So that is the reason for the mid- to upper single-digit expense growth 25% over 24%. I'll let Elliot speak to the guide a bit for the fourth quarter.

Yes, sure. Craig touched on some of the script. I mean I think when you look at the fourth quarter, there are certain things that are kind of more particular so seasonal to the fourth quarter. We see kind of elevated client entertainment, we see elevated travel, in addition, when you look at something like health insurance, a lot of employees have hit their deductibles, so we see that pull through at a higher rate in the fourth quarter.

In addition, I think third quarter, we had some larger meaningful projects close out. And so the depreciation impact is now get reflected in the fourth quarter. So as far as what could tipped up or down, I think some of those aforementioned things and then really just the timing of kind of idiosyncratic project expenses really related to kind of the tech build-out and simplification.

Okay. And just credit, the Category 3 expense -- is that -- can we -- when can we start to see some relief on those expenses? Is that a near-term event? Or is that further down the road?

I would call it medium term. I think in terms of -- we made a lot of progress there. And there's certainly a great focus within our company to continue to make progress there. Most of the Category 3 requirements are either enhancements to what we currently do or represent formalization of rules they already comply with. But there are -- there's a lot of work around data modeling and reporting frequency, which really has us reworking processes, systems and data delivery.

So there are some expenses there. I think we're probably to use a baseball analogy in the 7th inning stretch there. So there will be some expenses pulling through there, but we may -- but I do want to mention we have made a lot of great progress on that. We do intend to be able to meet those requirements in the first half of '26.

The next question comes from Anthony Elian from JPMorgan.

On total client funds, I'd like to get I'd like to get more color on total client funds. What specifically drove the strong growth you saw in 3Q. And I know in Craig's prepared remarks, there's a level of cautiousness on the outlook for SVB. But given the backdrop of lower rates, more IPOs coming to market and VC investments continuing at a strong pace. What exactly is causing you to believe that the strong level of activity won't continue?

So I will start, others may wish to contribute as well. I think this really goes to the caution that was represented in Craig's comments and with regard to Q4 guidance. It certainly has been encouraging and was encouraging to see that growth in the third quarter. At the same time, you mentioned IPOs, and there were 7 over $1 billion or with pre-money valuation over $1 billion, I think it was in the quarter, but not yet again, a target pace there.

And as I think we all know, thus far, in the fourth quarter, there are no IPOs, FCC, I believe, remains closed. And so, that would be 1 factor. We are encouraged by some improving exit activity outside of IPOs. And I'm speaking specifically to M&A that could potentially result in further improvement in venture capital sentiment improvement in investment. But there are so many -- again, as Craig referenced, uncertainty, headwinds, et cetera, out there that is just really difficult to predict at the moment, whether that trend we saw in the third quarter will continue in the fourth and beyond.

And so that hopefully helps to explain some of our caution there. And maybe actually just one last comment. While venture capital investment to, I think, another point you made is on track to have a second best year ever. That concentration in the mega around end of the segment over $30 billion going to the large AI round. -- the -- what's left after that really hasn't changed terribly much when you look at what that represents on a quarterly basis and early-stage investment, which is particularly important to the SVB segment. really hasn't come back yet aside from maybe deal count in certain segments having gone up a bit.

And so with all of that for context, hopefully, that explains our more cautious outlook there, and I will pass it, Craig, to you if you have anything to add there.

I have nothing to add.

And then my follow-up on credit. I'm curious if you've done any broader reviews on policies and procedures, particularly on the CIT portfolio beyond supply chain after first grants and the other recent credit events that have happened across the industry.

Yes. I mean, that is part of our normal course where we're continuously looking at policies, procedures, our credit standards. It goes through a regular cadence of reapproval, and to ensure that is in line with our risk appetite. So yes, that is part of our normal cadence and our risk management.

The next question comes from Steven Alexopoulos from TD Cowen.

I want to start, go back to Casey's question. So you have elevated expenses related to LFI prep. And if we think about the work you're doing I think we're all trying to figure out how much of the expense level is sticky, right? You're just hiring more full-time people, et cetera. And once you get done with this, let's just say, argument's sake mid-2026 do expenses from that point start growing at a more normal cadence? Or are there costs in the run rate now that will actually fall out that caused expenses to step down a bit before they start growing?

Yes, Steve, I think a few things there. I think while there might be some that falls out, it's ultimately going to be replaced with a lot of the investment that we're doing in tech and simplification. As we look to -- you referenced kind of the 6% to 7% guide kind of from the end of the year this year '24, we would expect that to probably be in the of mid-single digits next year. So it certainly pulled back a little bit. But I think as we look towards kind of that longer-term road map, as we look to some of the investments in the tech space are going to help scale us for growth. We don't see really the expenses pulling back and going down, but more moderating from the levels they've been at.

So they just get replaced with other expenses. Okay. That's helpful. And then -- which is tied to that actually. So if we look at the ROTCE PAA is a factor, but ROTC is down about 11% adjusted this quarter. So it's down quite a bit over the past year. Now I know you're active and purchasing shares already this quarter. But what's stopping you from getting much more active, just given you're above your target stocks down, I don't know, 17% or so year-to-date just above tangible book. Why not get even more active here? It seems like you have a window to do that.

And just to be clear, you're talking about in terms of share repurchases getting more active?

Yes.

Okay. Yes. Well, first of all, the -- we lay out our plan for share repurchases in our capital plan. And we've always said that we want it to be methodical about that. And we believe a range of $600 million to $900 million, which on the time of that is aggressive is a good pace. And that's what we would intend to do going forward. We obviously have to be very cognizant of while we're doing this of our growth outlooks, internal growth, an economic environment, regulatory changes and just capital deployment options in general. So we believe that, that range is really getting after it. We've repurchased 15% of our A shares and 14% of total common since the commencement of the plan. So we believe our pace is getting after it.

The next question comes from Brian Foran from Truist. Brian.

I'm not sure if you can speak to this, but 2026 NII is obviously such a big debate given the tension of underlying growth and rate cuts. So appreciate the comments that you think or forecast that NII would bottom in 1Q. Is it possible to give any bounds on the level? And then as you look to 2Q 206 and beyond, any thoughts on the directional bias would you see it as more flat do you think you can grow even with Fed rate cuts?

And again, totally appreciate it's early for 2016 guidance, but it's the biggest question I hear from investors. So any thoughts would be helpful.

Sure. I'd be glad to give you some directional color there, with 2 rate cuts and 2 in '26, we could -- we would expect both net interest income and headline and ex accretion to be fairly stable and the NIM headline NIM and ex accretion, NIM to be fairly stable with the exit in the fourth quarter of. So fairly stable. If we had more rate cuts, obviously, that would change -- that could change.

That's really helpful. Maybe for Marc more just qualitative one, can you speak to the AI boom and where that's benefiting FCB? And then conversely, anywhere, it's not benefiting FCBs, is it a size of deal thing? Is it a client coverage thing? Is it a your choices and selections of what you want to be involved in, just broadly, if you could speak to the AI trends that are such a big part of market right now. .

Sure. So starting with venture investment as referenced in my earlier remarks, there's an awful lot of capital going into the space that has been very dramatically different in terms of the investment pace valuation trends, et cetera, relative to the broader venture backdrop, that's where things have been going through a reset or whatever, we would call it, since around mid-'22. So where SVB benefits is -- and in fact, AI is working its way into all of the other sectors that we focus on in 1 way, shape or form, an enabler, a feature, et cetera.

And that for the companies that are successfully weaving that into their offering. That is enabling them to so many words, get in on the AI boom and be more attractive to investment and there's some parsing there that I think investors are doing not too different from what happened in dotcom when suddenly everyone was dotcom, you had to figure out who really was. Some of that is going on here. But clearly, that spread of that enhancement into these sectors, again, is driving investment in helping us find those better opportunities to bring clients on to lend, et cetera.

Where we don't see as much benefit as those mega rounds I mentioned earlier, those going to the very largest AI companies, LLM companies, et cetera, that really hasn't been a factor for us in terms of driving business results. And so hopefully, that color helps with the bifurcation. The very biggest ones, not really our target market, starting to see some benefit across the sectors we bank elsewhere.

This is [ Jim Hudak ], One thing to just interject to Marc's point and other places where we're benefiting in for citizens -- we have had a very good ride on the data center side. And a lot of that growth in data centers is a need for capacity -- computing capacity from AI. So on the places where we're actually financing some of the infrastructure, a lot of that has actually been driven by AI. And that's actually helped us on the loan growth side.

And one other point I just wanted to make was in relation to -- looking at our loan growth, we've actually benefited from the fact that there's so much liquidity in the market. So even though we are doing quite a bit on the data center side, sometimes we will get paid out because as those data centers get built and stabilized, they'll be taken up to the securitization markets and then we will go and recycle that money.

And where that shows up for us is actually enhanced capital markets fees. It may not necessarily be in quarter-over-quarter strong growth each time. But a lot of benefits to us when we're financing infrastructure, where it's -- where a lot of that is promoted by the demand for AI.

If I could sneak in a follow-up there, but do we know the size of this data center lending book and geographically, does that show up at FCB? Or does that show up somewhere else in your disclosure?

So the data center side is on the commercial bank side, commercial finance. And our exposure is about $3.5 billion.

The next question is from Samuel Varga at UBS.

I just wanted to go back to FCB for one more finer point on 2026. Just based on the commentary you've provided this morning, is it fair to say that the growth to come is more on the new client acquisition side rather than utilization uptake? Or it could be still from both into next year?

I will start, and I think it could be both, right? It's early-stage venture investment, would you to pick up. that would certainly be helpful on the new client acquisition side and helpful to our Tech & Healthcare banking business. And generally speaking, if investors are investing more, that is going to help with utilization of those capital call lines, but typically are how VCs fund those investments, recognizing that there is a large significant portion really more than half of the capital call portfolio that is private equity and not really about venture investment, innovation economy, et cetera.

Though as we saw in the third quarter, that was certainly part of the utilization story as well. I'll try to stick the landing here in that we think in an improving environment, we would hopefully see both. But I'll end by saying, again, given our caution, the mixed outlook, et cetera, nothing I've said should be taken as a guidance for '26 at this point. Craig, I'll pass it to you if you want to add anything?

I think that covers it, Marc. Thank you.

And then just a short one on credit, nonaccruals moved up a little bit, as you noted, Craig, in the prepared remarks. Can you provide any updates or any further color on migration trends or the mitigation trends?

Yes. I think it was driven by a handful of larger credits. We had 1 in the innovation portfolio, which was a non-investor dependent transaction that migrated this quarter. We had a couple of credits in our wine portfolio migrate as well and then an additional credit in CRE Outside of that, everything has been pretty stable. I think I would point out that our criticized and classified assets did come down for the second quarter in a row by about 4.5%. And -- and to Craig's point, I think from a charge-off perspective, absent first brands, it's right in line with where we would expect things to come up this quarter. So we're feeling pretty good about credit.

Next question comes from Christopher Marinac from Janney Montgomery Scott.

I just wanted to go back over the years as you've had other fraudulent situations. Can you just walk us through kind of how you have evolved your fraud detection in general, post CIT and now post FCB?

So this is [ Greg Smith ]. I run the enterprise operations fraud has always been a key focus for us, and we have invested quite a bit of money over the past few years in talent and in technology I won't get into some of the details. But on a day-to-day basis, we now use AI. We have different algorithms to detect fraud. And we've really seen I'll say, stability in that market, although it is something that is a key focus, and it may grow over time, we have spikes once in a while for individual products, but we have strengthened our environment quite a bit over the last few years.

Great. And then Craig, just a quick one for you. As the branch acquisition closes next year. Does that help you become more neutral from a rate risk perspective? .

It certainly is net deposit based, so less asset sensitive, yes. I won't say -- I haven't really calculated the actual position. So I wouldn't say neutral because it's just relatively small relative to the overall balance sheet but certainly is directionally in the right place. I'll let Tom mention or say something about that as well.

I think really, if you're thinking about asset sensitivity, I think the major driver is as we start paying down that fixed rate purchase money note is what's going to help get that down. And obviously, if you look at that branch acquisition, that's replacement with deposit funding to that purchase money note, I think that's an accurate statement. .

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

Thank you, everyone, for joining us today on our earnings call. We appreciate your ongoing interest in our company. And if you have further questions or need additional information, please feel free to reach out to the Investor Relations team through our website. We hope you have a great rest of your day.

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

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

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 that 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, our 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.

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 Nick 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 noninterest 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%. 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 the second quarter.

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 are 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.

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 listing to our clients' needs and helping them succeed. We were recently excited to announce the appointment of Diane 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, Her knowledge and experience complement our Board, and we're excited to have her on our team.

Looking at Page 6. 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 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.

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?

Thank you, Frank. I appreciate everyone joining us today. I will anchor my comments to the second quarter 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 second quarter return metrics were solid. Adjusted net income was $607 million, exceeding our expectations buoyed by a 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 the second quarter. 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 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. Net interest income ex accretion, which had also declined in 5 of the past 8 quarters, also grew sequentially by 2.6% after 3 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.

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 '25 and into '26, our trough will be further out.

Adjusted noninterest income came in just above our guidance range, increasing by $34 million or by 7.2%. The primary drivers of the increase were favorable changes in the fair market -- the fair value of customer derivative positions and other nonmarketable 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 continued 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. However, given that only around 30% of the portfolio expires in '25 and '26, there is some protection against near-term disruption.

Adjusted noninterest 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 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 '25 as additional risk and technology projects are placed into service. I will discuss further in our outlook, but we expect quarterly expenses to remain in the $1.28 billion to $1.32 billion range in the third and fourth quarters.

Moving to the balance sheet. Loans declined modestly by $89 million or by 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 & Healthcare portfolio within the SVB Commercial segment. Tech & Healthcare banking loan outstandings were down approximately $300 million from the [Audio Gap] environment. 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.

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 origination 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 as 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.

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 ex accretion 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.

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 by 0.4% 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 noninterest-bearing deposit mix flat from the linked 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. In SVP 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 & Healthcare banking which was driven by a new client acquisition -- or 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. 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 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. 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.

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 1 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 helped safeguard against losses.

Moving to capital. Frank mentioned that we continue to make progress on our 2024 share repurchase plan. As a 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 the third quarter and immediately following its completion, begin repurchasing shares under the $4 billion plan.

During the past year, repurchases have ranged from approximately $600 million 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 in 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.

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 the second quarter, 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.

The second quarter CET1 ratio was 12.12%, and a decrease of 7 basis points from the first quarter 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 third quarter and full year 2025 outlook. We continue 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. Starting with the balance sheet. We anticipate loans in the $141 billion to $144 billion range in the third quarter 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 shift in strategies to ensure we remain competitive in this space and anticipate higher balances over the next few quarters.

We expect Commercial Bank growth will come from our industry verticals as we expect the idiosyncratic paydowns we saw in the second quarter 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 billion to $146 billion range, as we remain cautiously optimistic on absolute loan levels given lower growth in the first half of the year. We expect growth to be driven by the same factors I just mentioned, but we believe that we could see growth pick up 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.

We expect deposits to be in the $159 billion 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 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 2 quarters without a decline in total balances.

We expect that this growth will be partially offset by a decline in SVB Commercial as continued cash burn in 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 loan -- to 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.

For the full year, we are revising our deposit guidance lower to the $161 billion to $166 billion range, given the lower jump-off point in the second quarter and our shift in loan growth expectations. We expect full year growth to be driven by similar factors to what I just mentioned and knowledge 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 2 25 basis points rate cuts in the second half of 2025 with the effective Fed funds rate range declining from 4.25 to 4.5 currently to as low as 3.75 to 4 by the end of the year. 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 third quarter headline net interest income to be relatively stable compared to the second quarter. 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 billion to $6.88 billion from $6.55 billion to $6.95 billion. The revision reflects the new interest rate curve as well as the jumping off point from the second quarter. 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 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. While second quarter net charge-offs were lower than expected, we did not have 1 or 2 large charge-offs pull-through, which would have pushed our net charge-off ratio higher.

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 move 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.

The catalyst for buyers to become more acquisitive and for public investors to have an improved appetite for IPOs remain 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 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 tariffs given the continued shift 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. 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 noninterest income. We expect to be in the $480 million 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 well.

Given that we have 2 quarters behind us, we have tightened our full year adjusted noninterest income range to $1.97 billion to $2.05 billion. Year-over-year growth continues to be driven by our rail outlook which includes a balanced railcar portfolio and a strategic exploration ladder. 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 noninterest income results.

Moving to adjusted noninterest 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.

Looking at the full year, we tightened our adjusted noninterest expense range to $5.1 billion to $5.2 billion, exercising disciplined expense management while making opportunistic investments through the cycle in 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 Fed rate cycle -- 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 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.

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.

[Operator Instructions] Our first question comes from Casey Haire from Autonomous Research.

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 think you said the SVB pipeline was up... [Technical Difficulty]

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

So just a question on the loan growth. I look, if I heard you correctly, I think you said SVB pipelines are $9.5 billion, and yet you have loans running either flat or up modestly in the third quarter. Just a little more color on what's driving that, what seems to be a conservative outlook.

Yes. On the $9.5 billion, that's related to the 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. I think utilization has pulled in slightly. And so I think we're being a little bit conservative on kind of what that growth might portend into, but the underlying really fundamental is really strong in that business.

I think elsewhere, we saw some elevated prepayments kind of idiosyncratic in nature and industry verticals. But we feel really good on where we're positioned in Tech, Media and Telecom, Energy and Healthcare.

Okay. Great. And then can we give some updated thoughts on the FDIC purchase money note. I know Fed cuts kind of keep getting pushed out. But the forward curve does have at that 100 bps by the end of next year. So just what is the -- how do you guys envision this playing out like and how much FHLB capacity you intend to use in terms of retiring this funding source?

Okay. 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 paydown 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 is 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. Tom, would you like to add anything to that?

No, I would say to sort of amplify that, since the acquisition of SVB, we paid off just under $10 billion worth of expenses, as we took on the purchase money notes, obviously, we have capacity there. That being said, we 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 not down early. But as we look out over time, and rate change, that may change. I think over time, we'd like to keep the parcels get that back up to funding sort of 90% to 95% versus the 81% that it is today as a percentage of total funding.

The next question comes from Steven Alexopoulos from TD Cowen.

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 2Q, 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?

Mark, do you want to take that one? .

Craig, do you like me to take that?

Yes. Go ahead, Mark.

Steve, great to hear from you. 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 in 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 unclear whether this will really be the start of a more IPOs. I think it's 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 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.

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.

Got it. That's great color, Mark. And maybe to follow-up for Craig. So it sounds 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?

I'm going to let Elliot address that one.

Yes, Steve, I think on the [Audio Gap]

Got it. So flat inside the guidance.

Next question comes from Chris McGratty from KBW.

A lot of talk about deregulation in markets. I'm interested in 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 is about what you're thinking?

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

Sure. The mid-single-digit expense outlook that you've talked about as you get ready from CAT 2?

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 3 firm. So we do expect -- we don't expect that our expenses will be flat like they were in the 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're ready for Category 3. .

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?

Well, I'd 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. .

The next question comes from Bernard Von Gizycki from Deutsche Bank.

Could you just talk to what the exit rate for the margin could be in 4Q if rates on the short end remains unchanged versus if we get 2 rate cuts by the end of the year or the 1 assumed in your baseline forecast?

Sure. And here, you're referring to NIM?

Yes.

So from a range of 0 to 2 rate cuts in 2025, with a rate -- if there's 2 rate cuts, we anticipate maybe 1 in September, 1 in December, the fourth quarter exit margin range would decline from 3.26 in the second quarter to the mid-3.10s to high 3.20s on headline NIM and NIM ex accretion from the mid-3.10s to mid-3s to high 3.10s. So we started at mid-3.10s second quarter, as accretion NIM would be a range of mid-3s to mid-3.10s.

Just a follow-up just on competitive pressures. Interestingly, during the quarter, a lot of regional bank peers noted seeing increased competitive pressure in deposit pricing just given where we are in the rate cycle and pushing out of rate cuts. Obviously, your deposit betas continue to creep higher. Your costs keep lower. I think you noted in the general bank you're implementing some new deposit growth tactics for short and near-term -- near-term and long-term opportunities.

And then I know in the General Bank, on the loan side, you also mentioned some competitive pressures increasing there. 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.

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. 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 and again, I think we're in good shape from an activity and sort of forward look there.

The next question comes from apologies. Next question comes from Nick Holowko from UBS.

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 in 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 aims some of these announcements?

Mark, do you have any thoughts on that, as is it impacts SVB competition?

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, nonbank, 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 banks at the application stage will take a while to become additional competition for us is the first thing.

And then 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 I 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 everybody else focused on the innovation economy focused on crypto and changing regulations there,

I think, it is similarly enthusiastic about the opportunity there. And so 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. And I think by extension, as comments already offered, we feel pretty good about our positioning and our ability to capture our fair share.

Very helpful. And just as a follow-up, you mentioned and highlighted the traditional banking services you've done in the Web3 ecosystem and some of the -- clearly, a lot of the momentum here relates back to the crypto environment more broadly 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?

Well, I would just say...

I will just start on that, others may... go ahead,

You go ahead, Marc, and I'll amplify anything needs to be added.

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, we'd just end on the very well positioned hundreds of clients in the space. 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.

I think you said it well, Marc.

The next question comes from Chris Marinac from Janney Montgomery Scott.

Craig, I want to ask about the Direct Bank and what the proportion of those deposits grow over time relative to the whole balance sheet?

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, that 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 -- in growth in that channel going into 2026.

Okay. Great. And then 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? .

Yes, great question, Chris. I mean, I think we're very encouraged with where we are. I mean, I think the utilization having stayed up, we're still close to 97%. We've had 15 quarters of repricing, which Craig mentions. I think, from 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, we continue to invest in that business each year. I'd say, kind of generally $300 million to $500 million in added assets. So there is, I think, further runway from a revenue standpoint. But obviously, we'll kind of keep in tune with kind of the economy and everything going there.

Our next question today comes from Manuel Navas from D.A. Davidson.

Can you update where you feel the NIM NII trough could be next year and kind of what are the assumptions around it?

Yes. It obviously depends on 0, 1 or 2 rate cuts in 2025. If we have 0 rate cuts, we've pretty much already troughed it with the exception of NIM headline, that would be 1 quarter -- 1Q '26, 1 or 2 cuts just moves all the troughs, whether you're looking at net interest income headline or ex accretion or NIM headline ex accretion out to the first quarter of '26

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

We have pretty modest expectations when it comes from pure -- what would be 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 more efficient. .

Also it's subject to...

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

Yes, 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.

I appreciate that. Can I sneak in 1 more? Deposit betas have been really, really impressive. You have that targets in your deck. Are you just going to 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?

The most difficult part about answering that question is obviously depending on what rate forecasts do. I think what you've seen is we've I mentioned earlier, yes, we've done what we can to keep managing interest expense in this as rate cuts has made 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.

But I think you're making a good point that the betas are approaching terminal betas that we saw in the upgrade environment. So that's a good observation.

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

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. .

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