First Citizens BancShares, Inc. Q4 FY2024 earnings call

• Strong Q4 results with adjusted earnings per share of $45.10, driven by higher core PPNR. - SVB had a great quarter with modest improvements in VC investment activity. - Strategic priorities for 2025 include expanding capabilities for customers/clients, developing associates and adding talent, improving operational efficiency, optimizing balance sheet management, and maintaining prudent risk management. - Repurchased 3.5% of Class A common stock in the fourth quarter, with total repurchases since the plan inception at 6.44%. - Appointed Matt Snow to the Board of Directors. - Committed to supporting communities affected by wildfires and hurricanes.

In the fourth quarter, loans were up over the third quarter and the prior year despite a muted investment pace. Deposits were also up. General Bank loans grew by $676 million, Commercial Bank loans were up $508 million, and SVB Commercial loans grew by $342 million. Deposits saw broad-based growth, with the direct bank contributing $1.6 billion, General Bank $893 million, and SVB Commercial having sequential deposit growth. Total client funds, including off-balance sheet accounts, increased by $5.3 billion from the third quarter.

• Loans expected in $140 billion to $142 billion range in Q1 2025, $144 billion to $147 billion for full year 2025. - Deposits expected in $154 billion to $157 billion in Q1 2025, $162 billion to $167 billion for full year 2025. - Headline net interest income expected $6.6 billion to $7 billion for full year 2025, with first quarter relatively stable compared to Q4. - Adjusted non-interest income expected to decrease sequentially in Q1 2025 to $475 million to $500 million range, and up slightly to $1.95 billion to $2.05 billion for full year. - Adjusted non-interest expense expected flat to modestly up in Q1 2025, and increase to $5.05 billion to $5.2 billion for full year. - Effective tax rate lowered to 25% to 26% for 2025.

• Economic slowdown could negatively impact loan and deposit growth. - Potential for fewer rate cuts than expected, affecting net interest income. - Continued stress in investor-dependent and office loan portfolios, though equipment finance is showing signs of normalization. - Uncertainty around VC investment and fundraising environment impacting client fund growth.

Q: Just on the 2025 outlook, the range of the $6.6 billion to $7 billion for net interest income. Could you just walk us through the assumptions on the low and then the high end of the range?

A: Our net interest income baseline forecast is anchored to two rate cuts, but the range contemplates anywhere between zero and four. First quarter '25 headline and ex accretion net interest income could be up to down 1% sequentially. For full year 2025, headline net interest income is expected in the $6.6 billion to $7 billion range, reflecting impact of rate cuts.

Q: I was wondering if you could provide more color on the total client fund growth you saw in SVB in the fourth quarter. I know a good portion of the $75 billion in venture capital investment came from large late stage deals. How much of those larger deals contributed to the total client fund growth you saw in 4Q, and if you think the growth in total client funds can persist even with a higher for longer rate outlook?

A: Roughly a third of the $75 billion invested in Q4 were three very large financings, and billion dollar plus rounds were almost half of the total. With venture investment of the sub $1 billion roughly flat quarter-over-quarter, we are pleased with the growth but are cautious about growth expectations for SVB given the mixed investment environment and interest rates weighing on it, especially until the second half of the year.

Q: If you look at the guide and take rates out of it for a moment, where do you think the biggest upside potential is to the guide and also the biggest downside risk?

A: Upside potential could be rates higher for longer (if on the zero end of the range) as net interest income is over 80% of net revenues, or net charge-offs falling to the lower end of the range. Downside risk could be if the economy slows, negatively impacting loan and deposit growth.

Q: Is that loss share agreement going to work itself to zero this year, or is that going to take longer into '26? And is the buyback a goal for 2025, or would the reduction closer to 11% or less take longer than this year?

A: The spread between our capital ratios with and without loss share is going to shrink to around 10 basis points and will work out to a zero impact on capital throughout the remainder of the year. Assuming managing to the 10.5% to 11% range, we contemplate instituting another share repurchase plan in the second half of 2025 as the current one would be completed over the next two to three quarters.

Q: Just coming back to the expense outlook for the year. As you're thinking about the investments you're making on the regulatory readiness front, and sounds like it's those expenses are built into the run rate at this point. But would potential changes to the regulatory backdrop change how you're thinking about those investments over the next couple of years?

A: We recognize that prioritization of regulatory policy initiatives could change, but we are remaining steadfast in our goal to meet regulatory expectations for category three, so we do not see significant changes in the near term in how we're thinking about those investments.