Yahoo Finance

Craig Nix

Thank you, Frank. I appreciate everyone for joining us today. I will anchor my comments to the fourth quarter key takeaways outlined on page 9. pages 10 through 27 provide more details underlying our results. Our fourth quarter return metrics and efficiency continued to compare favorably to our peer group with ROE and ROA adjusted for notable items of 11.51% and 1.14%, respectively, and an adjusted efficiency ratio of 57%. Headline NIM was 3.32% and NIM ex accretion was 3.16%.
Aligned with our guidance, headline net interest income was down from the third quarter as the impact of lower yields on loans and overnight investments and lower accretion income more than offset higher investment securities income and lower deposit costs.
Headline NIM contracted sequentially by 21 basis points and excluding accretion by 17 basis points, 17 basis points decline was driven primarily by the negative impact of Fed rate cuts during the last four months of the year on our earning asset yield which was only partially offset by lower funding costs. Adjusted noninterest income increased 9% sequentially, meeting our top line guidance.
We continue to see solid traction in the rail business with 13 consecutive quarters of positive repricing trends, and another quarter of strong utilization rates. We also benefited from strong performance in our commercial and SVB commercial segments, driven by increased deal flow, which led to higher international and lending-related syndication fees.
We also had positive impacts from fair value changes in customer derivative positions and other nonmarketable investments driven by changes in the rate environment. Adjusted noninterest expense came in slightly above our guidance range, increasing sequentially by 3.1% driven by higher personnel, amortization and other expense.
Increased personnel costs were driven in part by net staff additions as we continue to build out our technology and risk organizations to support strategic projects and scale for future growth. The increase was also due to higher incentive compensation and related benefit expenses driven by the strong revenue year for the bank.
Equipment expense increased due to several technology projects coming online, which drove higher amortization and software licensing costs. As Frank noted in our strategic priorities, we are making investments in our infrastructure to support scalability and future growth, which have impacted our operating expenses in recent periods.
Other expense increased during the quarter driven by a number of miscellaneous items with the most significant, including higher state-related non-income taxes due to our increasing asset size as well as charitable donations provided to support relief efforts for the recent hurricanes and other smaller increases in various operating expenses.
While these expenses were expected, they pulled through at a slightly elevated level in the fourth quarter, given accelerated hiring and increased project spend. We will continue to make investments to help us scale effectively and to support both organic and strategic growth opportunities.
Moving to credit. Non-accrual loans decreased sequentially and while net charge-offs were up slightly by 4 basis points over the third quarter, they were aligned with our expectations. Consistent with previous quarters, net charge-offs were mostly concentrated in the general office, investor-dependent and small ticket leasing portfolios, but we did experience higher losses in our commercial finance business due to some idiosyncratic losses within our industry verticals.
We continue to take a disciplined measured approach to proactively reviewing our portfolios for additional stress and maintaining vigilance on credit remain a priority. We believe our credit losses are well contained and see no emerging problems in other portfolios outside of those previously discussed. The allowance ratio decreased by 1 basis point to 1.2%. We feel good about our reserve coverage as well as the coverage on the portfolios experiencing stress.
Moving to the balance sheet. We experienced broad-based loan growth across our operating segments, ending the quarter up $1.5 billion or by 1.1% sequentially. General Bank loans grew by $676 million attributable to continued strong performance in business and commercial loans, while commercial bank loans were up $508 million with growth concentrated in our industry verticals. SVB commercial loans grew by $342 million, driven by global fund banking as draws and new fundings outpaced paydowns and payoffs.
Our team remains well positioned to serve new and existing clients, booking more than $5 billion in new business during the fourth quarter. While the Tech and Healthcare business was down sequentially, it was in line with our expectations as the macro environment continues to be a drag on originations.
Turning to the right-hand side of the balance sheet. Deposits were up $3.7 billion or by 2.4% sequentially and exceeded our guidance as we experienced strong growth across our operating segments. The direct bank was the largest contributor to the increase, growing by $1.6 billion.
We were measured in bringing down our rates during the quarter to ensure balanced stability and to attract new clients given the shipment strategy for one of our SVB commercial deposit products. This high-yielding deposit product will be shifting to an off-balance sheet product in the first quarter and is expected to lower total deposits in this channel on balance sheet by $2.5 billion.
While this will result in an absolute reduction in on balance sheet SVB commercial deposits, the funds will increase off-balance sheet client funds and is expected to have a limited impact on total client fund balances in the segment. This is one step we have taken as we work to optimize our balance sheet to enhance liquidity and reduce total deposit interest expense.
In the General Bank, we experienced growth of $893 million as we continue to maintain strong client relationships and grow deposits organically. We expect future deposit growth in the General Bank to continue, given our client-first focus and deeply rooted relationship banking model. As Frank highlighted earlier, SVB had a good quarter in terms of deposits, achieving sequential actual an average growth of $692 million and $1.2 billion, respectively.
Additionally, total client funds, which include off-balance sheet accounts were up over the third quarter on a period on both a period-end and average basis, increasing by $5.3 million and $3.9 billion respectively. Our tech and health care team was the largest contributor to the total client fund growth as higher VC investment and better market valuations acted as a tailwind for increased inflows with both existing and new clients.
Moving to capital. Frank mentioned that we continue to make progress on our share repurchase plan. As of close of business on January 22, we repurchased 6.44% of Class A common shares or 6% of total common shares outstanding for a total price of $1.8 billion. This represents just over 50% of our Board approved $3.5 billion repurchase.
The CET1 capital ratio decreased by 25 basis points sequentially, ending the quarter at 12.99%. Along with the impact of share repurchases, this was driven by a continued decline in the benefit provided by the share loss agreement, which added approximately 66 basis points to the ratio this quarter, down 7 basis points from the third quarter.
CET1, excluding the benefits of the shared loss agreement, decreased 18 basis points sequentially as risk-weighted asset growth and the impact from share repurchases outpaced earnings growth. We intend to manage CET1 ex loss share towards the 10.5% to 11% range by the end of 2025, which is the level it was following the acquisition of SVB.
We intend to accomplish this through regular share repurchases in 2025 as we continue to assess capital needs, considering loan growth, earnings trajectories in the economic and regulatory environments.
I will close on page 29 with our first quarter and full year 2025 outlook. Anticipate loans in the $140 billion to $142 billion range in the first quarter, driven in part by growth in the Commercial Banking segment, primarily coming from our industry verticals. We also expect SVB commercial will 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.
Looking at the full year, we expect loans in the $144 million to $147 billion range, driven by anticipated growth in SVB Commercial and the commercial bank industry verticals. We expect that SVB commercial growth will be more concentrated in the back half of the year as the Fed's monetary easing cycle begins to take effect, and we see the benefit of higher VC investment activity as well as better capital markets activity.
For the full year, in the General Bank, we expect continued mid-single-digit percentage growth in business and commercial loans in the branch network. We do look to move pockets of our residential and consumer production off-balance sheet to create additional liquidity while generating supplemental noninterest income.
We expect deposits to be in the $154 billion to $157 billion range in the first quarter. We expect overall growth in the General Bank as deposit gathering remains a top priority. Additionally, within General Bank, we are projecting growth in our HOA business given our national market share position. There is a lot of consolidation in this industry and we tend to be on the favorable side of it as our large customers continue to acquire smaller HOAs that may not be clients.
We expect the growth in the General Bank will be partially offset by a decline in SVB Commercial as we intentionally shift the higher-yielding deposit product that I mentioned earlier, off balance sheet in the first quarter. For the full year, we anticipate deposits in the $162 billion to $167 billion range. Growth in deposits will be driven primarily by the General and Direct banks and the General Bank will continue to benefit from our network, leveraging new products and initiatives to deepen client relationships.
We will also continue to focus on increasing our customer base by building deposits through proactive sales associate outreach, centralized marketing campaigns and increased community connectivity. We will continue to leverage the Direct Bank to drive growth and ensure core deposits.
While it is a higher, cost product, we anticipate benefiting from falling interest rates and believe it will provide us with the strategic agility to pursue our balance sheet optimization efforts. Our interest rate forecast covers a range of 0 to 4.25 basis points rate cuts with the effective funds rate range declining from 4.25% to 4.50% currently to as low as 3.25% to 3.50% by the end of the year.
While our baseline forecast follows the implied curve, implied forward curve, which includes two rate cuts, we believe there is the possibility that declining inflation could lead to additional cuts. However, given stubborn inflationary metrics and recent hawkish positions by the Fed, we recognize these cuts may also not occur. Therefore, we believe it is prudent to provide a range of expectations for the year.
We expect first quarter headline net interest income to be relatively stable compared to the fourth quarter as lower deposit costs were offset by lower accretion and interest on earning assets. Our guidance does include the planned impact of share repurchase activity for 2025 under our current repurchase plan. For the full year, we expect headline net interest income to be in the range of $6.6 billion to $7 billion, reflecting the impact of the 50 basis points rate cuts that occurred in the fourth quarter as well as any potential additional rate cuts in 2025.
In either case, as expected, we project that loan accretion will be down by over $200 million for the year. On credit losses, we anticipate first quarter net charge-offs relatively in line with the fourth quarter. While we anticipate continued stress in the investor dependent and office portfolios, we do believe equipment finance is beginning to normalize, and we are seeing signs of improvement and towards longer-term expectations for this portfolio.
In commercial real estate, rate cuts could ease some of the pressure on borrowers in the general office sector and over the long term, help to reduce stress in this portfolio. However, we do believe losses remain elevated in 2025, 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 throughout 2025. While the Fed cycle is a welcome change the catalyst for buyers to become more acquisitive and for public investors to have an improved appetite for IPOs remained elusive.
And while later stage companies in the portfolio are less dependent on fresh capital, higher interest rates and challenging macro conditions continue to impact operating performance. Encouragingly, we did see a $31 billion uptick in VC investment in the fourth quarter compared to the third quarter.
However, we remain guarded on the overall outlook as there were a number of outsized deals in these totals, and when large deals are removed, the fourth quarter total is aligned with the 2024 quarterly average. Continued improvement here will be facilitated by a higher fundraising environment, driven by both M&A and IPOs.
With respect to the net charge-off ratio, we do have a couple larger deals that we expect to pull through as losses in the first quarter. Therefore, the net charge-off ratio could be more elevated in the first quarter in the range of 40 basis points to 50 basis points.
However, we expect full year -- the full year net charge-off ratio to be aligned with longer-term expectations in the 35 basis point to 45 basis point range. We will continue to refine these estimates as the year progresses but at this juncture, we are not seeing any signs of material concern.
Moving to adjusted noninterest income, we expect a sequential decrease in the first quarter to the $475 million to $500 million range, mainly due to the fourth quarter exceeding our expectations. We saw strong net operating lease income in part due to low maintenance expense which can be lumpy quarter to quarter.
Also, we expect typical slight seasonal declines for the first quarter in areas such as card merchant factoring, mortgage and capital market fees. We expect full year adjusted noninterest income up slightly into the $1.95 billion to $2.05 billion range. This growth is driven by our rail outlook, which includes our balanced railcar portfolio and strategic exploration ladder, which we expect will continue to support positive repricing throughout 2025.
We also expect continued momentum in our wealth business as we increase our assets under management as well as higher international and lending-related fees given the healthy fundamentals supporting these businesses.
Moving to adjusted noninterest expense. We expect the first quarter to be flat to minusly up compared to the fourth quarter, in part driven by seasonal benefit increases offset by lower other noninterest expense categories that were elevated at year-end, as previously discussed.
We continue to invest in the technology capabilities and are working to better optimize our platforms. As a result, we are seeing higher third-party processing fees and expect higher equipment expense due to amortization as projects are placed into service.
We feel our continued investments in technology and risk will help us build towards Category 3 expectations as well as creating a foundation for effective and scalable growth into the future. Additionally, we expect increasing marketing expenses in the direct bank as we try to hold on to and grow deposits in this channel.
Looking at the full year, we anticipate adjusted noninterest expense to increase into the $5.05 billion to $5.2 billion range as equipment expense, third-party processing fees and marketing expense for the investments I previously mentioned take effect, exercising disciplined expense management while making opportunistic investments as a top priority for us giving headwinds to net interest income from lower rates.
We expect continued spend into 2025 as we further enhance our risk management framework modernizes our technology capabilities and consolidate our platforms to improve client experience and better enhance collaboration across our business units.
Our adjusted efficiency ratio is expected to remain in the upper 50% range in 2025. And 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 3status when we cross that threshold. Longer term, our goal is to operate with an efficiency ratio in the mid-50s.
Finally, we are lowering our estimated effective tax rate by approximately 1% to 25% to 26% for both the first quarter and full year 2025, which is exclusive of any discrete items. The lower fourth quarter 2024 and estimated 2025 tax rate were primarily the result of a lower apportionment rate than estimated on the assets acquired from SVB, which occurred upon filing our first combined state tax returns.
To conclude, in 2024, we delivered peer-leading returns to our shareholders and maintain strong capital and liquidity positions, all while increasing our capabilities as a large financial institution. As we enter 2025, I'm excited about the opportunities we have to drive continued long-term value for our shareholders.
I will now turn it over to the operator for instructions for the question-and-answer portion of portion of the call. Thank you.

Question and Answer Session

Operator

(Operator instructions)
Bernard von Gizycki, Deutsche Bank.

Bernard von Gizycki

Hey guys, good morning. 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 the high end of the range? Just anything you can provide there?

Craig Nix

Sure. So our baseline forecast is anchored to two rate cuts, but the range contemplates anywhere between [zero and four]. And obviously, the exact absolute value or number for net interest income and for margin will be dependent on the magnitude, timing of those rate cuts.
But if I just -- if we want to talk about just the trajectory for the first quarter '25 compared to the fourth, we expect headline and ex accretion, net interest income to be anywhere from up to down 1% sequentially. So a lot of movement fairly stable for the exit in the fourth quarter of '25, anchoring the two rate cuts.
We expect headline net interest income to be up low single digits, ex accretion, net interest income to be up low to mid-single digits, and we expect headline NIM in the low [3.20s, ex accretion NIM in the low 3.10s. So that range that you referenced, those contemplate between zero and four], the numbers that I just mentioned really we're really -- we're pegging towards the two rate cuts in the last half of the year.

Bernard von Gizycki

Okay, great. Thanks for that color. And just my one follow-up. I think on last quarter's call, Craig, I think you noted there could be some additional acquisition related synergies from SVB. Just wondering what that could entail and if there are any cost or revenue synergies assumed in the '25 guide?

Craig Nix

We -- they're not material or significant. We've achieved the cost synergies estimate that we laid out at the beginning of the acquisition. So don't anticipate any material impact from further expense synergies on SVB in the guidance.

Bernard von Gizycki

Okay, great. Thanks for taking my questions.

Operator

Anthony Elian, JPMorgan.

Anthony Elian

Hi, everyone. 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 and venture capital investment you had on slide 22 came from large late-stage deals that Craig you highlighted.
But I think early stage was flat sequentially. I'm just curious 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?

Craig Nix

Marc, would you like to take that question?

Happy to take that question, yes. So as already noted on the call, the roughly $75 billion invested in the fourth quarter did have a chunk very large deals and is roughly a third of that total were three very large financings.
And then I want to say, $1 billion-plus rounds were almost half of the total. So as Craig mentioned earlier, for the part of the fundraising or the investment rather that we tend to capture more of is in that sub $1 billion range. And so with that for context, with venture investment of the sub $1 billion roughly flat quarter over quarter.
We are pleased with the growth. I think it signals that we're continuing to execute well. We also saw less -- a lower level of cash burn in the quarter relative to Q3, which also helped a bit. And so going into '25, I think our expectations, as Craig already mentioned, we are cautious about growth expectations for SVB, given the continued mixed environment for investment IPOs, etcetera, interest rates weighing on all of it perhaps at least until the second half of the year.
And so I'll end by saying that our expectations for TCF growth is captured in the forward guidance Craig mentioned earlier.

Anthony Elian

Great. Thank you, Marc. And then my follow-up maybe for Frank. I want to get your latest thoughts on M&A, just given First Citizens has been historically acquisitive, right? You're getting close to the Category 3 threshold and the regulatory backdrop of the new administration will likely be more favorable for all banks. Thank you.

Frank Holding

Thank you. We are not projecting any material M&A activity in 2025, but we're an opportunistic crowd, so but we are not making any projections in that area.

Anthony Elian

Crystal clear. Thanks. Thank you.

Operator

Chris McGratty, KBW.

Chris McGratty

Oh, great, thanks. Frank or Craig, if you look at the guide and I guess 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?

Craig Nix

Well, upside would be rates higher for longer if we're on the zero end of that range. That's the biggest one, given that net interest income is over 80% of net revenues. So that certainly would be an upside. Upside could be if our charge-offs fall to the lower end of the range, which would imply less provisioning next year.
Downside risk could be if the economy slows, negatively impacting both loan and deposit growth that could certainly be on the downside. Those are the major ones that come to mind. Tom or Elliot, anything else that comes to your mind on upside or downside?

Tom Ekuland

I think you hit the big ones, Craig.

Yeah, Craig mentioned --

Chris McGratty

Thank you. Thank you for that. And then in terms of Category 3 readiness. Craig, I mean, within the guide for expenses this year, do you think this gets you most of the way there? Or do you think 2026 is again kind of a little bit of an over invest year?

Craig Nix

I think it does. I think the expenses associated with Category 3 readiness are reflected in our run rate for expenses.

Chris McGratty

Great. Thank you.

Craig Nix

Welcome.

Operator

Christopher Marinac, Janney Montgomery Scott.

Christopher Marinac

Thanks. Good morning. Craig, I want to buyback comments you made and the impact of the loss share agreement, is that a loss share agreement going to work itself to zero this year? Or is that going to take longer into '26?

Craig Nix

The spread between the -- our capital ratios with and without loss share is going to shrink to around 10 basis points, and it was 66 basis points this quarter. So yes, it's working out to a zero impact on capital throughout the remainder of the year.

Christopher Marinac

Great. And is the buyback a goal for 2025? Or would the reduction closer to 11% or less take lower than this year, do you think?

Craig Nix

Assuming that managing to the 10.5% to 11% range, we contemplate that we actually institute another share repurchase plan in the second half of this year. The current one would be completed over the next two to three quarters. So we're in the midst of our capital plan now.
And depending on projected earnings trajectories and the results of the stress testing, we would contemplate another plan in the second half of the year. Tom, you want to talk about anything -- did I miss anything there (inaudible) repurchases.

Tom Ekuland

No, I think you hit it. I mean, early accretion will still be strong and outpaced RWA growth and we'll continue to work our capital ratios down is really the plan over the coming quarters.

Christopher Marinac

Great. Thank you for that background. And just a quick one on credit. Beyond the information you gave us about the SVB criticized. Any other general trends on criticized and classified for the general bank?

Craig Nix

No, nothing material. Again, I think credit is well contained. Andy, would you like to elaborate on any of that? Or is that pretty much where you see it?

No, I agree. I think no discernible trends, obviously, seeing a slight uptick, but nothing of concern.

Christopher Marinac

Great. Thank you all very much. Appreciate the information.

Craig Nix

Yes.

Operator

(Operator instructions)
Nick Holowoko, UBS.

Nick Holowoko

Hi, good morning.

Deanna Hart

Good morning.

Nick Holowoko

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

Craig Nix

We recognize that prioritization of regulatory policy initiatives could change, but we are remaining steadfast in our goal to become to meet regulatory expectations for Category 3, Category 4 -- Category 3. So we do not see significant changes regulatory, at least in the near term. And certainly, where we would be focused going into 2025, 2026.

Nick Holowoko

Got it. And then you noted your goal for operating with an adjusted efficiency ratio in the mid-50s versus the upper [50] range for 2025 and you laid out the strategic priorities for the year, including a focus on improving operational efficiency and optimizing the balance sheet.
So as you think about the progress that you're making on those fronts, do you have a view on how you're thinking about the sustainable ROE power of the bank over the medium term?

Craig Nix

I mean I think in the short term, we've obviously quadrupled in size over the last three years. So with that comes significant investment in both technology and our risk management capabilities. Our goal with the operational efficiency is to over time, improve our processes, simplify our processes so that we are better able to meet regulatory expectations and also improve our customer experience.
So that's not something that will happen in the short term. Obviously, rates have a lot to do with us operating right now in that upper 50s range. So rate help would certainly be a case. But our goal through operational efficiency would be over the long-term. to operate in the mid-50s.

Nick Holowoko

Understood. Thank you.

Operator

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.

Deanna Hart

Thank you, and thanks, everyone, for joining our earnings 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 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.