FCNCA - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares First Quarter 2024 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 Senior Vice President of Investor Relations. You may begin.

Good morning. Welcome to First Citizens first quarter earnings call. Joining me on the call today our Chairman and Chief Executive Officer, Frank Holding; and Chief Financial Officer, Craig Nix. They will provide first core business and financial update referencing our earnings call presentation, which you can find on our website. Our comments today 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. 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 prediction. Finally, First Citizens does not respond for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties. I'll now turn it over to Frank.

Thank you, Deanna, and good morning, everyone. Let's start on Page 6. And I'll say that over the last 12 months, we've successfully focused on our SVB integration efforts, regulatory readiness, strategic priorities and financial performance. During the first quarter, we delivered earnings per share of $52.92 adjusting for notable items that are on Page 51. Return metrics were strong, reflecting a peer-leading net interest margin, an adjusted efficiency ratio of 50% and the lower net charge-offs. These results exceeded our expectations with earnings increasing approximately 14% over the sequential quarter. We're pleased that all our segments, including SVB Commercial, grew loans during the quarter and our liquidity and capital position strengthened due to core deposits and earnings growth. We successfully submitted our capital plan to the Federal Reserve on April the 5th. The process included a full stress test, including the acquired SVB portfolios. The mission of this plan was an important milestone in our regulatory journey, and I'd like to thank all our associates for their hard work in submitting a quality plan. Turning to Page 7. It's been a year since Silicon Valley Bank became part of First Citizens, which is -- which has introduced a lot of change, but most of all, opportunity. I want to thank our associates for their hard work over the past year, stabilizing the business and taking care of our clients. I also want to thank our clients for their confidence in us as we remain committed to them and the innovation economy. The SVB team continues to deliver exceptional service to our clients, and this is demonstrated by the fact that 80% of the VC firms on the Forbes’ Midas list are served by our company, and our ability to onboard over 1,000 new clients in the first year of our acquisition. SVB also has more experience serving the innovation economy than any other financial services provider, thanks to our dedicated teams of sector experts. Their essential insights come from over 40 years of dedicated focus on innovators and investors on average leadership tenure of over 20 years with SVB and the deepest and most experienced bench of over 1,500 innovation bankers and relationship advisers. Our team is well positioned despite some of the continued economic headwinds facing the innovation economy. Last year, VC fundraising hit its lowest level since 2017. The drawback in fundraising we witnessed in 2023 continued into the first quarter, even though there remains plenty of dry powder to invest. Despite the current environment, we are encouraged by the number of exit-ready companies poised to exit once the IPO market fully reopens. In fact, there is a record backlog of companies ready to exit given current market conditions. There is fundamental demand from investors, but only at the right price and for companies with good stories. We are beginning to see activity improve and the signs that IPO activity may pick up this year. On Page 8, we showed that the SVB franchise has been stabilizing in terms of loans and client funds since the second quarter of last year, reflecting continued support of our innovation clients. Moving to Page 9. Our integration efforts helped us retain clients, stabilize deposit balances and develop strategic priorities for the combined organization. We continue to make meaningful progress on integration and remain committed to achieving our post-merger potential. While we have always focused on compliance with regulatory requirements, our growth has moved us to a significantly increased level of regulatory oversight, and we are investing and being proactive in enhancing our regulatory readiness. While there is more work to be done, we have made meaningful progress in maturing and refining our processes to support the change in our size and complexity. A few of these accomplishments include: First, implementing expanded risk management capabilities based on feedback from third-party GAAP assessment; second, creating a dedicated regulatory remediation oversight team to manage and enhance regulatory response as well as provide oversight, monitoring and reporting of remediation efforts; third, enhancing our dedicated regulatory affairs team to manage heightened regulatory activity and relationships with new examiners; and fourth, completing our first time large financial institution regulatory filings on time. In addition, with our strong risk management culture, we will continue to invest in our capabilities here and we're confident that over time we will effectively transform our program in accordance with new and changing regulatory requirements. Now let's look at Page 10. We continue to invest in our wealth business, one of our primary key income drivers. We believe there are significant opportunities and we've achieved remarkable organic growth here since 2013. In the third quarter, we announced the alignment of SVB Private and First Citizens Wealth under one leadership team to improve coordination and enhance services available to clients. Wealth is beginning to see the benefits of bringing our capabilities together under one umbrella, creating a premier private banking and wealth business. Most recently, we rebranded all of our wealth services to First Citizens Wealth. The combined First Citizens Wealth organization can help any client business or institution regardless of size or complexity. We remain focused on maintaining deep client relationships, providing a boutique experience with big bank capabilities. Moving forward, we believe our combined product set dedicated and experienced wealth professionals and client-centric engaged model. We'll continue to celebrate -- to accelerate the growth of our wealth franchise. And finally, turning to Page 11. We're happy to be recognized and honored as a top 20 financial institution on Forbes list of America's Best Banks and by other organizations and publications listed on the page. This recognition reflects our solid track record taking care of our clients and our customers. To conclude, the positive momentum we started in 2023 continues. Despite the uncertainty in the current environment, and the hard work ahead of us, we continue to protect and grow customer relationships, stabilize the SVB franchise, grow core deposits and loans and strengthen our balance sheet. Given our position of strength and dedicated associates, I'm excited about the opportunities ahead of it -- ahead of us. And with that, Craig, I'll turn it over to you.

Thank you, Frank. Appreciate everyone joining us today. I'm going to anchor my comments to the key themes outlined in the takeaways on Page 14. Pages 15 through 35 provides more detail supporting our first quarter results. As Frank mentioned, our return metrics were strong and above our expectations. ROE and ROA adjusted for notable items were 15.01% and 1.46%, respectively. Compared to the fourth quarter, these metrics benefited from a 13% increase in net income, driven by lower net charge-offs and higher noninterest income, partially offset by lower accretion income and higher deposit costs. While net interest income declined from the linked quarter by 5%, it was above our expectations. The decline was related to lower accretion income and higher deposit costs. These impacts were somewhat mitigated by securities and loan portfolio repricing to higher rates during the quarter. NIM contracted by 19 basis points to 3.67% mostly due to the same factors affecting the decline in net interest income. Ex accretion, NIM declined by 12 basis points to 3.35%. Adjusted noninterest income increased by 5% over the fourth quarter. A majority of the increase consisted of higher net rental income on rail operating lease equipment. Net rental income was aided by strong utilization rates that surpassed 99%, the highest level since the second quarter of 2015, also a positive repricing trends as well as lower maintenance costs. As you will recall, we pulled forward maintenance qualification activity during the fourth quarter, which positions us to handle the uptick in customer volume this quarter while front-loading some of the expenses. Maintenance costs also benefited from unanticipated delays in getting railcars to maintenance facilities. As a result, we model higher maintenance costs for the remainder of the year as service levels returned to normal. Noninterest income also benefited from an increase in the fair value of customer derivative positions due to higher interest rates. These increases were partially offset by lower capital markets income related to seasonality as well as increased competition as regional banks continue to return to normal activity following last year's pullback. Stripping out some of the seasonality and focusing on a year-over-year comparison, capital markets income was up roughly $5 million from syndicated deals. Adjusted noninterest expense slightly beat our expectation, increasing sequentially by less than 2%. Expense growth was concentrated in salaries and benefits and seasonal adjustments associated with our 401(k), higher payroll taxes and annual merit adjustments took effect. First quarter expenses also reflected higher FDIC insurance expense. Effectively managing expenses remains a top priority for us given headwinds to net interest income. We are on track to achieve the low end of our 25% to 30% synergies target for SVB by the end of this year. Focusing on credit, net charge-offs declined by $74 million from the sequential quarter to $103 million. This represents a charge-off -- net charge-off ratio of 0.31% below our previous guidance of 50 to 60 basis points. Losses were largely in the same portfolio as previous quarters, although at a lower rate. The largest decline was in the innovation portfolio, where net charge-offs were down $30 million sequentially led by a $19 million drop in the investor dependent portfolio. The remainder was spread between equipment finance, general office and other loan portfolios. At quarter end, the allowance plus purchase discount on the investor dependent portfolio was 8.2% covering first quarter annualized net charge-offs 2.9x and the last 4 quarters, 1.9x. Consistent with prior quarters, net charge-offs within the commercial bank were concentrated in the general office and small ticket equipment leasing portfolios. As a reminder, while our total general office portfolio was $2.8 billion at the end of the quarter, the portfolio where we have seen stress in charge-offs is in Class B, repositioned bridge loans within the commercial bank, which totaled $1 billion at quarter end. Portfolio net charge-offs were down sequentially, but we continue to monitor the risks here. The allowance on this portfolio was 11.1%, covering first quarter annualized net charge-offs 1.6x in the last 4 quarter net charge-offs 1.4x. Overall, the allowance decreased 3 basis points sequentially to 1.28% due to improvement in macroeconomic forecasts, a mix shift to higher credit quality segments and lower specific reserves, all partially offset by increased volume and mild credit quality deterioration. While the allowance did decline this quarter, we feel good about our overall reserve coverage on the portfolios where we continue to see stress. Our credit team continually monitors our loan portfolios by reviewing delinquency trends and grading migration by industry and/or geography to identify areas of potential stress. And at this time, we are not aware of other significant pockets of deterioration. Moving to the balance sheet. Loans grew by more than $2 billion over the linked quarter and annualized growth rate of 6.2%. The General and Commercial segments grew loans by $900 million and $794 million, respectively, and the SVB Commercial segment was up by $335 million. General Bank growth was concentrated in small business and commercial loans generated in our branch network. In the Commercial Bank, growth was driven by strong production in our industry verticals particularly in TMT, healthcare and energy. Growth in our TMT vertical continues to be driven by strong demand for new data centers, while our energy vertical is benefiting from the energy transition, which is driving activity in financing renewable energy projects. Finally, the increase in SVB commercial loans related to global fund banking growth. And despite increased competition in this space, we continue to win business. To that end, our team closed more than $5 billion in deals in the first quarter. While we are excited by the positive trends in global fund banking, we recognize that the macroeconomic environment still presents headwinds. In the first quarter, VC investment came in lower than expected amid macroeconomic uncertainty and geopolitical tensions. While VC dry powder remains elevated despite ongoing fundraising sluggishness, we expect it to take time to gradually deploy those investments. However, we remain well positioned to ramp up both loans and deposits quickly when the macroeconomic environment improves given, we have the largest fund finance team in the market. Within the SVB Commercial segment, growth in global fund banking was partially offset by expected declines in our technology and health care banking business as pay downs outpaced new fundings due to continued headwinds in the private investment landscape. While we've seen some encouraging activity in the IPO market, we do not expect an immediate reset given continued fundraising and valuation mismatches. We are well positioned to capture business as the pendulum swings back. Technology and healthcare banking team has a focused approach and our track record and expertise in the innovation economy will continue to help us win deals. We are encouraged by our progress in growing the new SVB commercial brand, winning new clients and bringing those back who left. Turning to the right-hand side of the balance sheet. Deposits grew at an annualized rate of 10.4% or by $3.8 billion in the first quarter due to strong core deposit growth in the General and Direct Banks. In the General Bank, we continue to focus on growing customer deposits, and we're pleased to see these grew by $2.4 billion due to our continued emphasis on expanding relationships with current customers and attracting new accounts. Direct bank deposits increased by over $2 billion, despite a decrease in marketing expense during the quarter. While the Direct Bank channel is higher cost and now accounts for 27% of our deposit base is an additional lever, we've used to remain resilient through a turbulent environment and is a strong source of insured consumer deposits funding our earnings base. Growth in this channel enabled us to continue to redeem some of our smaller subordinated debt issuances this quarter given our excess capital and liquidity positions. These increases were partially offset by expected declines in the SVB Commercial segment. Deposits were down $760 million from the linked quarter driven by continued client cash burn and muted fundraising activity. Moving to capital. Our CET1 ratio increased by 8 basis points sequentially, ending the quarter at 13.44%. Our shared loss agreement added approximately 107 basis points to the ratio down from approximately 120 basis points last quarter. We continue to use capital to support organic growth, but acknowledge that we are operating with elevated capital levels. In addition to supporting organic growth, share repurchases are part of our capital distribution strategy. We assessed share repurchase as part of our capital plan that was approved by our Board during the first quarter and was submitted to our regulators earlier this month. While we have not yet received feedback from our regulators on the plan, we remain confident that a share repurchase plan will be an option for us in the second half of this year. While we don't have an approved share repurchase plan at this time, I will share some general information about how we intend to manage capital moving forward. We managed our capital ratios, excluding any benefit from the loss share agreement, which we refer to internally as adjusted CET1. All planned activities and capital levels are assessed in this context as the RWA benefit continues to run off at a rate of $1 billion to $2 billion per quarter and is expected to be mostly gone by the end of 2025. In addition to supporting organic growth and paying dividends, we intend to supplement that capital use with methodical share repurchase over time to get our adjusted CET1 ratio down to the 10.5% range by the end of 2025, which is the level it was following the acquisition of SVB. We do not intend to immediately manage capital down to this level. Instead, we intend to do it methodically and continually assess capital needs based on balance sheet growth expectations, earnings trajectories and the economic and regulatory environments over the next couple of years. We will reassess our capital management priorities on a regular basis, including annual updates to our capital plan. [indiscernible] both on Page 35, discussing our second quarter and 2024 full year outlook. In summary, for the full year, we moved our net interest income forecast up on the higher first quarter starting point and a reduction from 3 to 6 rate cuts to 0 to 3 rate cuts. We also moved our credit loss guidance down from the lower first quarter starting point. We have not materially changed our noninterest income and expense guidance. On loans, we anticipate low single-digit percentage growth in the second quarter, driven by growth in the General Bank, Commercial Bank and SVB Commercial. We anticipate SVB Commercial will benefit from continued growth in the global fund banking business, where we continue to see success due to continued client outreach. This growth, however, will continue to be pressured by headwinds in the private equity and venture capital markets. We also anticipate a modest decline in technology and healthcare banking business as lower levels of funding and line draws result in loan portfolio contraction. Looking at the innovation economy more broadly, we found that, overtime, there is a correlation between public market valuations and VC investment volume. There have been some positive economic signals suggesting that capital deployment may rebound in 2024, driven by an improved IPO outlook. We, therefore, expect a modest increase in VC investment compared to 2023. Meanwhile, we anticipate growth in the Commercial Bank in our industry verticals and increased activities in middle market banking following seasonal declines in the first quarter. Looking at the full year, we continue to expect loans to end in the $139 million to $143 billion range or mid-single-digit percentage growth, which is essentially unchanged from our previous guidance. We anticipate this growth to be concentrated across all 3 banking segments for the reasons previously discussed. We expect deposits to be flat to slightly up in the second quarter as growth in the General Bank is offset by a decline in SVB commercial. Within the General Bank, we anticipate growth in the branch network as we benefit from our focus on increasing our customer base by building deposits through proactive sales, associate outreach, centralized marketing campaigns and increased community connectivity. This growth will be slightly offset by seasonal declines that we expect in April due to tax payments. With respect to SVB deposits, we expect the venture capital environment to remain challenging, particularly in the first half of 2024. Looking forward, we expect client funds, cash burn and losses to continue to normalize over time with gradual improvement expected in the second half of the year. In addition, we expect to improve our capture rate of private market fundraising, a large percentage of which flows into on-balance sheet deposit products. Bringing this all together, we expect SVB deposits to be relatively flat in the first half of the year before growing in the second half. While we continue to raise deposits in our direct bank in the first quarter, we anticipate these deposits will remain fairly stable in 2024, given the excess liquidity on our balance sheet and continued strong growth in other channels including the branch network. This, obviously, could change if we have unexpected deposit outflows occur elsewhere. For the full year, we anticipate mid-single-digit percentage growth, primarily related to growth in the general bank previously discussed and low to mid-single-digit percentage growth in SVB commercial deposits. Our interest rate forecast follows the implied forward curve, which includes 3 rate cuts in 2024 with the effective Fed funds rate declining from 5.50% to 4.75% by the end of the year. It is our belief that we will see closer to one or no rate cuts given the continued strength of the labor markets, and the lumpiness we've seen in the economy fueling speculation that inflation remains untamed. Therefore, for our net interest income guidance, we provided a range with the top end assuming no rate cuts and the low end assuming 3 rate cuts. It is important to note that these projections do not include the impact of planned share repurchase activity in the back half of 2024 as we await final sizing and approval as part of our capital planning process. For the second quarter, we expect headline net interest income to be down in the low to mid-single-digit percentage points range. The decline will be driven by the impact of lower accretion, higher deposit costs and lower loan yields, assuming one rate cut only partially offset by higher investment securities yield. With no rate cut, we expect headline net interest income to be fairly stable with or just slightly down compared to the first quarter. For the full year, we expect headline net interest income in the range of $7.1 billion to $7.3 billion. In either case, we project accretion income just under $500 million for the year, which is a decline from $725 million in the last 3 quarters of 2023, as loan discounts on the shorter portfolio will have fully been recognized. We previously guided to a range of $6.9 billion to $7.1 billion. The upward revision reflects the higher for longer rate environment and shifting the guidance range between 0 and 3 cuts for the remainder of 2024. On credit losses, we are reducing our net charge-off guidance as we now anticipate it will remain in the 35 to 50 basis points range for both the second quarter and full year 2024. We are benefiting from the decreased innovation economy stress. And while losses in this portfolio can still be lumpy, we believe the continued market optimism fueled by the revival of public markets for PE and VC backed companies with 2 large tech IPOs already out the door in 2024, is an encouraging sign for venture exit activity. Accordingly, we expect some of the pressure in the investor dependent portfolio to soften in the back half of this year. It is worth noting that hold sizes on some of our portfolios are large in the Commercial and SVB Commercial segment. And just as we had a favorable experience this quarter with less large charge-offs in the innovation portfolio, 1 or 2 unexpected larger charge-offs can result in blips in our net charge-off ratio. Therefore, while the decline in net charge-offs during the first quarter was positive, we think it's too early to call an inflection point on credit following 1 quarter of improvement. However, we believe that credit costs remain manageable and are appropriately incorporated into our guidance. Moving to adjusted noninterest income. We expect the second quarter to be down as net rental income on rail operating leases decreases due to expected maintenance costs that were deferred in the first quarter, as I previously mentioned. While we anticipate some normalization to historically high utilization levels during 2024, our outlook for rail remains positive, and we expect a continuation of healthy fundamental trends in the near-term from a supply-driven recovery, which is generating strong demand for existing railcars, resulting in a stronger for longer scenario. We also expect client investment fees to decrease due to anticipated lower rates. To the extent we do not receive 3 rate cuts in 2024, we could see some upside to our forecast here. Nonetheless, we continue to experience growth in wealth management fees and card income, reflecting the strong consumer acquisition and growth trends from our branch network. We expect full year adjusted noninterest income to be in the $1.8 billion to $1.9 billion range, which is in line with our previous guidance. As Frank mentioned in his comments, we are excited for the continued build-out of -- and momentum in our wealth platform and look forward to realizing the synergies of this combination. Moving to expenses. We expect a modest increase from the first quarter due to increased marketing as well as professional and third-party servicing fees, as we ramp up project spend related to a few regulatory items, such as ISO Payments and Dodd-Frank. Furthermore, as mentioned last quarter, a continued focus for us is to build out the product capabilities that will keep us the premier partner in the innovation economy, continuing to enhance our offerings in cash management, FX and payments. Additionally, we will continue the modernization of our platforms in consumer, equipment finance and factoring to ensure we are well equipped to scale in the future. As we fine-tune our regulatory capabilities, we will also continue to make strategic hires that will help reinforce the skills of the great teams we already have assembled. All of this will be partially offset by continued acquisition synergies, which I spoke too earlier. While we expect to achieve the lower 25% band of our cost saves goal by the end of 2024, these savings will be offset by continued capability build-out for heightened regulatory expectations as well as costs related to the strategic priorities I just mentioned. Our adjusted efficiency ratio is expected to be in the low 50% range in 2024, up slightly from 49% for the full year of 2023. Looking at the full year, we anticipate adjusted noninterest expense to be up -- low to mid-single-digit percentage points, which equates to a range of $4.6 billion to $4.7 billion, unchanged from our previous guidance. For both the second quarter and full year we expect our tax rate to be in the range of 27% to 28%, which is exclusive of any discrete items. In closing, we remain steadfast in our long-term approach, focused on our clients and customers and committed to maintaining a strong risk management environment. I believe we have tremendous opportunity ahead of us as demonstrated by the successful first quarter and that we are well positioned for the future, thanks to our solid financial condition. I will now turn it over to the operator for instructions for the question-and-answer portion of the call.

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

Craig, maybe with the view -- the market is, obviously -- suggesting higher for longer. Can you talk about what you're doing with the cash levels and the security purchases as you've got likely a few more quarters. How do we think about the normalization process? Has anything changed since last quarter?

I would say that right now, we're a little -- and intentionally a little heavy on cash through the optimal level. We're around 15%. We'd like to see that normalize to 10% to 15% over time. We're sitting a little slightly light on investments, but you've seen us deploy cash into the investment portfolio over the last 3 quarters, and we would expect to continue to do that maybe to the tune of $3 million to $4 billion before the end of the year. So we're very close to optimization, high on cash, but again, a little bit of that intentional given our purchase money -- the FDIC . Tom, do you have anything to add or amplify there?

No, I think you hit it. I mean if you look at the last 3 quarters, we've grown in that $4-ish billion range. And I think you can expect that to continue in the short-term. And to Craig's point, as cash comes down, we will eventually normalize and sort of slowdown that investment portfolio.

Okay. Great. And then as my follow-up, the improvement in credit, totally understand not wanting to declare victory yet. But given the marks that you have on the acquired portfolios and how stable credit was, how do we think about the reserve level? I mean, you released about $10 million in the quarter. How do we think in light of the charge-off guidance where reserves are trending?

Are you referring to the overall reserve coverage, Chris? Okay. I'm going to answer it -- I'll answer it both ways in. In terms of just overall coverage, we feel really good about where our reserves are. We covered quarter-to-date net charge-offs 4x this quarter, about 2.5x last quarter. We covered -- the allowance is now covers 2023 charge-offs almost 2.9x and nonaccrual loans 1.6x. On nonaccrual loans, what gives us comfort here, too, with respect to reserves is that we have analyzed over 70% of those loans for impairment on an individual basis, and our reserve ratio sits at around 30% on those. In terms of our stress portfolios, which I alluded to, overall, we have -- we covered first quarter net charge-off 2.8x in the last quarter to 1.8x. And that portfolio represents about 8% of loans, with 61% charge-offs. So we're feeling like we're prudently and conservatively reserved both for the specific loan portfolios, exhibiting stress and on the overall ACL.

The next question comes from Brian Foran with Autonomous.

Just on the NII outlook this quarter versus what you gave last. Is it just the move to 0 to 3 rate cuts that move the range up? Or was it -- I guess, is it just the move in rate cuts? And if it's not just the move in rate cuts, what else got better in that?

It is the shift in the rate cuts.

Okay. And on the capital commentary, and I apologize because at least my line cut slightly as you were talking; a, I just want to clarify the go-to capital ratio, did you say 10; and then b, I was trying to compare what you said now versus last time, was the spirit just kind of reiterating what you've said before? Or was there any more caution implied with the methodically comment and the ex FDIC as the core ratio you're managing?

No. I think we're just reinforcing what we've said previously for share repurchases. And I would point out that over this 2-year period, we would intend to manage the CET1 down to the 10.5% range.

Okay. And is 9% to 10% still kind of a longer-term target? Or given the shift in the world is kind of 10.5% now more kind of the -- beyond 2025 landing point?

Well, the 9% to 10% was our previous target. We have proposed a new target range that we're not going to disclose today in our capital plan. But I can tell you that you shouldn't expect it to significantly change from the previous one. I want to give our regulators time to give us feedback on our capital plan that we just submitted a couple of weeks ago. But I would not -- you should now expect...

Okay. Do you think it's sneaking one leg...

Change in there.

Not expect a significant change from 9% to 10% long-term or?

That's correct.

Okay. Great. The last one just very quickly. I'm looking at Page 44 in your deck. Definitely here, I appreciate all the commentary on the SVB credit. A lot of the decline in provision dollars really came from the commercial legacy CIT book, can you just kind of give us the next round of color? I know there's a couple of comments on the -- on slide as well. But what drove the provision expense on legacy CIT down so much?

Well, they had -- I mean, their charge-off ratio has declined is same as the other portfolio. It's really the biggest move and 80% of the variance in our charge-offs, we're in the investor dependent portfolio. And there are 4 major factors there. We had no real large dollar charge-offs during the quarter. We had -- the fact that charge-offs on smaller loans were down and the number of charge-offs were also down, we had a good recovery quarter. So most of the drop in at least the net charge-off guidance and consequently the provision really related to that investor dependent portfolio.

The next question comes from Steven Alexopoulos with JPMorgan.

I don't know if Marc is on the line, but I want to start on the SVB side. The 1Q VC investment was very weak, and I bought tied to that, we would see deposits decline at SVB. And also, I thought capital calls might come down a bit. Could you give some color on how you're able to maintain stable balances just given this not great backdrop?

Well, I'll let Marc amplify, but I think it's -- Marc -- are you on the line, Marc? I hear you.

I heat you. Go ahead and start, Craig. I'll...

Yes. I was just going to set the backdrop, Marc, and let you amplify, but we were encouraged in the first quarter new money coming into SVB, did increase over the first quarter. And while cash burn and losses to competitors remain fairly consistent, new cash flows did come in, they went disproportionately off-balance sheet, but this was the first quarter since the acquisition where the cash position remained neutral. First time, it has not been negative since we merged last year. And Marc, I'll let you give some color around that of how we're doing that. But again, we're pretty encouraged by what we're seeing there.

Yes. So Steve, it's Marc. And we'll follow-on. I think that was a great overview. And I think, ultimately, to your point, the -- what sounds like better-than-expected deposits in the quarter compared to what you would have expected, is a function, I think, of our continued momentum in the marketplace, the continued success we're having both in winning new business and bringing back clients as well. And as you see, that is -- that's really helping, and I think bodes well for the future if we can keep it up.

Got it. That's good color. For a follow-up, there's a lot of excitement at your talk about the potential for you guys to buy back stock. But I'm curious, given that tangible book value growth is a key performance metric for you guys, how price sensitive are you as it relates to buybacks moving forward? Is there a certain valuation where you're unlikely to buy back stock? Or are you pretty much committed to get down to the 10.5% range?

We don't buy it back blindly. So we do approach it similar to an approach on an open market acquisition, although there are differences -- obvious differences there with respect to risk. So we don't just blindly buy. Right now, we do see the stock at an attractive price. So we would anticipate repurchasing at that price. I'm not going to share at what levels we would trigger where we wouldn't, but we do consider that in our internal model. And it is our goal to manage down to that 10.5% range over the next 2 years on CET1. Tom, do you want to say anything else about that?

No. I mean, obviously, from a buyback and capital perspective to keep in the stock even more sense it makes. But -- no, I mean, we -- to Craig's point, if you look at it similar to open market transactions, making sure we can get payback -- we can payback periods and everything to line up for us.

The next question comes from Stephen Scouten with Piper Sandler.

And just a follow-up kind of around that repurchase. I just want to make sure I'm thinking about this excess capital correctly. So if I think about the 107 basis points, your kind of adjusting for the loss here. We're talking about like 12, 37, I guess, on CET1. So about 190...

That's correct.

Basis points of excess today. Is that right?

That's correct.

Okay. Great. Perfect. And then going back to SVB, I mean, it really does -- I think you used the word stability in the presentation a couple of times. It feels like you guys have really stabilized kind of that brand and that footprint. Is it now time for you guys to go even more on the offensive? Or how do you think about the longer-term push in those segments today?

Marc, why don't you take that one?

Yes. So I think the environment is the challenge here, right? As noted earlier in our discussion, our target markets remain challenged. We expect those challenges to continue through '24, allowing we have some optimism around IPOs coming back, and potentially deposits picking up in the second half as we've talked about. And so the trick, right, is as long as venture investment remains diminished, there is -- again, you can only step on it to such a degree, similarly on the lending side. And then tech, healthcare banking, in particular, we need to be -- continue to be careful and choosy and manage the loans we have diligently by virtue of the heightened asset quality concerns that you get from a market downturn like this where the investors aren't investing as much. And so with all of that for context, and I think following on my earlier answer to Steve, we are going to continue to focus on doing what we do, executing as best we can. And I think trying to accelerate, I think would be -- the kind of thing you might see when we have more confidence that our target markets are coming back and we see that pickup in venture investment. And until then, I think we're going to continue to compete effectively, but carefully at the same time. I'll stop there.

The next question comes from Christopher Marinac with Janney Montgomery Scott.

I wanted to ask about originating loans kind of in the legacy for Citizens footprint from the perspective of possibly having lower charge-offs there. And therefore, the guide on charge-offs could even be better down the road. I mean, Craig, is that a plausible scenario that you may originate less in some of the CIT and SVB areas and more at the old for Citizens and that drives different charge-off outcomes?

No, I don't think that's the case. I'll let Elliot talk about our [indiscernible] forecast. The business segment.

Yes. We really see good growth really across the segments. I think for the General Bank, really the branch network driving it. We've continued to have good growth there. I mean I think it's a testament to kind of a good market strategy, the tenure of our sales team. So we've seen that up meaningfully this quarter. And I mean, you're right that that book has really got sub 15 basis points type charge-offs. So we see that seem to be a benefit. [ CFP ] as well, I think we can call it out some of our industry-leading verticals: TMT, energy, healthcare. So we see growth there. And then with SVB, I think Marc elaborated on that. As we look at GFB, that's the capital call business that has really no charge-off history. We see continued growth there for the rest of the year as some of the recent originations that we have pulled through. So I don't necessarily see us pulling back on any of those segments. But -- the extent that we keep that having good growth in the General Bank, that's certainly helpful to the charge-off ratio.

Got it. I appreciate it. And any other criticized trends for the General Bank outside of what was called out in the slides this morning?

No.

Would you see a criticized kind of rise slightly from here? Or what would be the outlook if there is any?

Are. You speaking to the General Bank?

Correct. And I'm just looking beyond what you called out on SVB in some of the other areas?

We don't see any rise there. We anticipate it will be fairly stable.

The next question is from

My question is just around the trajectory of loan yields. I saw that it ticked down quarter-over-quarter. Is that just a function of lower accretion income? Or is there another driver there? And any color you could provide on the trajectory going forward would be great.

Yes. There was a decline due to accretion declining in the quarter, we were down about $40 million on a sequential basis and accretion income. So that had an impact. As far as trajectory, it really depends on the rate cut scenarios. If we look at just no cuts, we would look at the -- sort of the headline yield remaining fairly stable in the first quarter. And at accretion actually bumping around the -- where it was at the first quarter. It was 3 cuts; we would start to see some decline in the yield to the low 7s in the second quarter and to the high-70 -- or mid 70s at the end of the fourth quarter. So we would certainly start to feel that impact going forward if we had 3 rate cuts and what our projection -- the way we projected this, we have one rate cut in the second quarter, one rate cut in the third and one in the fourth. So obviously, timing of those rate cuts could impact that as well. The accretion income added 45 basis points to the margin last year, and we expect that to be down 24% this year. So a fairly substantial reduction in accretion income.

We have a follow-up question from Brian Foran with Autonomous.

Just two quick ones. Can you remind us where you want to get the loan-to-deposit ratio or range over time or on a normalized basis?

Yes. On a more normalized basis, we see that loan-to-deposit ratio getting back to the mid-80s.

Perfect. And then as we start thinking about '25 and maybe putting the rate cuts in '25 as opposed to '24, if the Fed is cutting a few times in '25, would kind of the sensitivities be similar to what we're seeing now? Like if you took 3 rate cuts out of the guide and then moved up $200 million, is the sensitivity -- if we put those rate cuts into '25, is the sensitivity kind of similar? Or is it different for any reason as the balance sheet moves around?

It would be similar, it would just push the trough out further. But yes, similar trends. We would expect similar trends at this setting.

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

Great. Thank you. And thank you, 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 our Investor Relations team. We hope you have a great rest of your day.