First Citizens BancShares, Inc. (NASDAQ:FCNCA) Q3 2025 Earnings Call Transcript

First Citizens BancShares, Inc. (NASDAQ:FCNCA) Q3 2025 Earnings Call Transcript October 23, 2025

First Citizens BancShares, Inc. beats earnings expectations. Reported EPS is $44.62, expectations were $41.51.

Operator: 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.

Deanna Hart: 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.

Frank Holding: 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 others 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?

Craig Nix: 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 through 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%, unchanged from the linked quarter, 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, 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 remains 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 our 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 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 and Healthcare . Deal events led to an increase in GFB deposits, while Tech and 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 charge-offs — 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 VC 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 billion 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 billion to $165 billion 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 two 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 billion 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 one 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 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 that 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 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 three 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 3 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.

Q&A Session

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

Christopher McGratty: 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 two cut? I know there’s a lot moving on with the balance sheet.

Craig Nix: Yes. If we get two cuts, which frankly would be our base forecast, we think it’s more likely than not having any cuts or one 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 3.10%. And if we look at NIM ex accretion in the high 3.00% for the fourth quarter.

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

Craig Nix: 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 two more rate cuts this year, with the Fed fund rate ending at around 3.75%, we do anticipate paying down the note as the arbitrage in it either disappears or becomes 0 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.

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

Andrew Giangrave: 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. .

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

Bernard Von Gizycki: 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?

Andrew Giangrave: Sure. This is Andy. Just to remind, our supply chain portfolio is 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.

Bernard Von Gizycki: 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?

Craig Nix: 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.

Operator: The next question comes from Casey Haire with Autonomous.

Casey Haire: 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 and 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.

Frank Holding: Let me — let Marc start with that and Elliot amplify.

Marc Einerman: Sure. So this is Marc and 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% on a 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.

Casey Haire: 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 then 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 prep and when we could see a relief on the expense pressure?

Craig Nix: 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 in ’25 over ’24. I’ll let Elliot speak to the guide a bit for the fourth quarter.

Elliot Howard: 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 plus 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 going to be 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.

Casey Haire: Okay. And just Craig, the Category 3 prep 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?

Craig Nix: 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 that we already comply with. But there are — there’s a lot of work around data modeling and then 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.

Operator: The next question comes from Anthony Elian from JPMorgan.

Anthony Elian: For Marc, on total client funds, 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?

Marc Einerman: 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, or with pre-money valuations over $1 billion, I think it was in the quarter, but not yet again, a torrid pace there. And as I think we all know, thus far, in the fourth quarter, there are no IPOs, SEC, 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 to pen 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 round 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, to Craig, to you if you have anything to add there.

Craig Nix: I have nothing to add.

Anthony Elian: 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.

Andrew Giangrave: 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.

Operator: The next question comes from Steven Alexopoulos from TD Cowen.

Steven Alexopoulos: 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, for argument’s sake, it’s 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?

Elliot Howard: 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 — Casey referenced kind of the 6% to 7% guide kind of from the end of the year this year or ’24, we would expect that to probably be in the range 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.

Steven Alexopoulos: 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 ROTCE is down about 11% adjusted this quarter. So it’s down quite a bit over the past year. Now I know you’re active in repurchasing 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.

Craig Nix: And just to be clear, you’re talking about in terms of share repurchases getting more active?

Steven Alexopoulos: Yes.

Craig Nix: 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, the 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.

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

Brian Foran: 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 ’26. Is it possible to give any bounds on the level? And then as you look to 2Q ’26 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 ’26 guidance, but it’s the biggest question I hear from investors. So any thoughts would be helpful.

Craig Nix: Sure. I’d be glad to give you some directional color there, with two rate cuts and two 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 ’25. So fairly stable. If we had more rate cuts, obviously, that would change — that could change.

Brian Foran: That’s really helpful. Maybe for Marc, more of just qualitative one, can you speak to the AI boom and where that’s benefiting SVB? And then conversely, anywhere, it’s not benefiting SVB, 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?

Marc Einerman: 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 one 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 [ dot-com ] when suddenly everyone was [ dot-com ] , 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 is 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.

Jim Hudak: 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.

Brian Foran: 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 SVB? Or does that show up somewhere else in your disclosure?

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

Operator: The next question is from Samuel Varga at UBS.

Samuel Varga: I just wanted to go back to SVB for one more finer point on 2026. Just based on all 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?

Marc Einerman: I will start, and I think it could be both, right? It’s early-stage venture investment, were 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 driven 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. And so 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 or speak on anything?

Craig Nix: I think that covers it, Marc. Thank you.

Samuel Varga: 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?

Andrew Giangrave: Yes. I think it was driven by a handful of larger credits. We had one 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 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.

Operator: Next question comes from Christopher Marinac from Janney Montgomery Scott.

Christopher Marinac: 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 SVB?

Gregory Smith: 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.

Christopher Marinac: 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? .

Craig Nix: 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, he wants to say something about that as well.

Tom Eklund: 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.

Operator: 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.

Deanna Hart: 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.

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