First Citizens BancShares, Inc. Q2 FY2025 earnings call

• Key earnings metrics were solid with net interest income growth, low net charge-offs, and adjusted noninterest expense in the low end of guidance. - Maintained strong capital and liquidity positions and returned $613 million to shareholders via share repurchases. - Progressed on 2025 strategic priorities, including consolidating platforms and relationship teams with positive momentum. - Appointed Diane Morais to the Board of Directors. - Rail business had adjusted rental income increase, with 96.9% utilization and 15 consecutive quarters of positive repricing trends. - In the General Bank, implemented new deposit growth tactics and maintained loan pricing discipline despite competitive pressures.

Key earnings metrics were solid. Net interest income grew. Net charge-offs were at the lowest level since Q2 2024. Adjusted noninterest expense was at the low end of guidance range. Adjusted earnings per share were $44.78, adjusted ROE was 11.00%, and ROA was 1.07%. Returned $613 million to shareholders through share repurchases in Q2. Loans declined modestly by $89 million or 0.1% sequentially. Deposits were up $610 million or 0.4% sequentially. Net charge-offs declined by 8 basis points sequentially and were below guidance range. The allowance ratio was down 1 basis point to 1.18%.

• Balance sheet: Anticipates loans in $141 billion to $144 billion range in Q3, driven by General and Commercial Banks and SVB Commercial; full-year loans projected $143 billion to $146 billion. Deposits expected $159 billion to $162 billion in Q3, full-year $161 billion to $166 billion with revisions lower. - Net interest income: Third quarter relatively stable, full-year tightened to $6.68 billion to $6.88 billion from $6.55 billion to $6.95 billion. - Credit losses: Q3 net charge-offs expected 35 to 45 basis points, full-year guidance maintained 35 to 45 basis points. - Adjusted noninterest income: Q3 $480 million to $510 million, full-year tightened to $1.97 billion to $2.05 billion. - Adjusted noninterest expense: Q3 modestly up, full-year tightened to $5.1 billion to $5.2 billion. - Tax rate: Expected 25% to 26% for Q3 and full-year 2025.

• Macro and geopolitical landscape uncertainty, including tariff policy, interest rates, and regulatory change. - Potential deposit outflows in SVB Commercial due to cash burn and muted investment activity. - Lumpiness in net charge-offs due to large deals swinging the ratio. - Competition from new applications for bank charters targeting the same ecosystem as SVB.

Q: On loan growth outlook, especially SVB pipeline vs. loan growth projection.

A: SVB's Global Fund Banking pipeline is $9.5 billion and up from Q1, but utilization pulled in slightly, so being conservative. Elsewhere, elevated prepayments in industry verticals but well positioned in tech, media, telecom, energy, and health care.

Q: Updated thoughts on FDIC purchase money note and FHLB capacity.

A: Declining interest rates would precipitate paydown of the note in 2026. Prefer to use excess liquidity from core deposit growth first, then broker deposits, FHLB advances, and long-term debt. Have excess liquidity in $11 billion range and positive arbitrage now.

Q: Thoughts on deregulation, expense growth for Cat 2 compliance, and deposit opportunities from large deal.

A: Expect year-over-year expenses in mid- to high single-digit percent growth for Cat 3 readiness. Well positioned to grow deposits consistently regardless of competition, and large deal doesn't hinder deposit growth prospects.

Q: NIM exit rate in 4Q under different rate cut scenarios and competitive pressures on deposits and loans.

A: With 0-2 rate cuts in 2025, 4Q exit margin range for NIM would decline. On deposits, have moved beta up and feel good about competitive position; on loans, seen uptick in competition but well positioned with some large payoffs in verticals.

Q: Developments in new bank charters targeting SVB's ecosystem and talent risks.

A: SVB faces competition from new charters, but well positioned in Web3 banking services. Fluid dialogue on future services, but well positioned with hundreds of clients in the space. Talent risks early days but SVB well positioned in innovation economy.

Q: NIM trough next year and debt issuance for TLAC in NII planning.

A: 0 rate cuts in 2025 means NIM trough in 1Q '26; 1-2 cuts move troughs to 1Q '26. Modest expectations for LTD requirements pending final rule, and optimizing capital stack includes potential new instrument issuance.

Q: Deposit betas and their potential.

A: Deposit betas have approached terminal levels seen in up rate environment. Will continue to work to raise betas, with behavior depending on rate forecasts; if Fed cuts again, expect beta to adjust accordingly.