First Citizens BancShares, Inc. (FCNCA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares' Fourth 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.

Good morning. Welcome to First Citizens' Fourth Quarter 2025 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 fourth quarter business and financial updates referencing our earnings call 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 the 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.

Thank you, Deanna. Good morning, and welcome, everyone. Thank you for joining us for our fourth quarter earnings call, and we'll start by highlighting our overall performance for the quarter and provide comments on our strategic priorities for 2026, then I will turn it over to Craig to take you through our financial results and outlook for 2026. Starting on Page 5. The fourth quarter was a continuation of what was a successful year for First Citizens in 2025. This morning, we reported adjusted earnings per share of $51.27 and adjusted ROE of 11.93% and an adjusted ROA of 1.1%. Despite the headwinds of lower rates, these earnings metrics exceeded our expectations marked by resilient net interest income and stable credit quality. Before I highlight our balance sheet performance, I'd like to point out that we made a change in our operating segment reporting during the quarter. Previously, we reported SVB Commercial as a separate operating segment. In the fourth quarter, it was consolidated into the Commercial Bank segment. Now despite this change in reporting, we remain committed to the innovation economy, and we will continue to report key metrics like loans, deposits, off-balance sheet client funds at the SVB commercial level. Compared to the linked quarter, loans were up $3.2 billion or by 2.2% driven mostly by our global fund banking business within SVB Commercial due to strong production and increased line utilization. Deposits were down sequentially $1.16 billion or by 1%, primarily driven by anticipated shifts into off-balance sheet client funds and seasonal distributions. Despite the decline in actual balances at the quarter end, due to late quarter outflows, average deposits were up by $2.6 billion or by 1.6% driven by broad growth in the General and Commercial Bank segments. We returned another $900 million to our shareholders through share repurchases, moving us closer to our long-term capital targets. Despite loan growth exceeding deposit growth during the quarter, and the prepayment of $2.5 billion of the FDIC Purchase Money Note, our liquidity position remains strong. Now turning to Page 6. We made significant progress on our strategic objectives in 2025. And for 2026, our strategic priorities remain consistent with 2025 and are to, one, to deepen client relationships; two, develop, retain and recruit talent; three, optimize our balance sheet; and four, make investments in our franchise to improve our capabilities and poise us for growth in the years ahead. In 2025, we made great progress in improving our customer support capabilities within the General Bank. We continue to make investments in our digital capabilities to serve customers in their channel of choice. These capabilities have enabled us to deepen relationships with existing customers and acquire key new ones through both branch and digital channels, and we also continue to invest in our wealth business by expanding to new markets and increasing product and service offerings. We're excited about the momentum in the commercial bank as we head into 2026. By investing in technology and our teams, we're growing relationships and adding new clients. And during 2025, we simplified the organizational structure and streamline processes to make us meet the needs of our clients. In 2026, we will continue to these efforts, but we'll shift our focus to optimizing systems and platforms for an improved end-to-end client experience. For example, we are investing in our payments capabilities to achieve client growth and an increased capture of core deposits. Now we can't do any of this without our associates, and we remain indicated to attracting, retaining and developing our associates given that customer and client service is paramount to our success. Operational efficiency remains a key priority. We did a lot of foundational work in 2025 to reduce operating complexity and position the bank for continued growth and expect to continue to do so in 2026. With those efforts -- while these efforts have resulted in expense growth over the past few years and will continue to have an impact in 2026, we're committed to delivering positive operating leverage over time and recognize that responsible growth is balanced through operational efficiency. Effectively managing expenses remains a priority for us. We made significant progress on balance sheet optimization in 2025, moving our capital ratios closer to our long-term targets, growing core deposits and beginning repayment of the purchase money note. In 2026, we will continue to focus on a funding remix to core deposits, repaying the purchase money note and moving capital ratios to our target range through share repurchases, all while supporting quality loan growth in our line business. I'd also like to take a moment to thank our Chief Risk Officer, Lorie Rupp, for her outstanding leadership and unwavering commitment to First Citizens throughout her 13-year career at the bank. Lorie intends to retire in June of 2026, and we wish her all the best in this next chapter of her life. She will be replaced by our current Treasurer, Tom Eklund, who is a seasoned executive with substantial experience, managing capital, market, liquidity and compliance risk. We're confident Tom will build on our strong risk foundation and drive continued success as we remain committed to maintaining a robust risk governance framework in pursuit of our long-term objectives. To close, 2026 was a successful year for First Citizens despite a challenging macroeconomic backdrop that included interest rate volatility, competitive pressure on lending spreads, competition for deposits and geopolitical uncertainties. As always, we remain vigilant on the macro and geopolitical landscape and keep prudent risk management at the core of our actions. I want to emphasize that even in volatile periods across markets and rates, our diverse business model and disciplined risk posture are key differentiators that have and will continue to serve us well. I want to thank all our associates for their contributions to making 2025 a successful year for our company, clients and customers. We enter 2026 on a strong footing and I'm excited about what we can accomplish in the years ahead. With that, I'll turn it over to Craig to take us through our fourth quarter financial performance and 2026 outlook. Craig?

Thanks, Frank, and good morning, everyone. I will anchor my comments to Page 8 of the presentation. Pages 9 through 26 provide more details underlying our fourth quarter results and are for your reference. We had adjusted net income of $648 million in the fourth quarter or $51.27 per share, which was up $6.65 over the linked quarter driven mostly by a decline in provision for credit losses due to lower net charge-offs and a higher net provision release related to lower specific reserves on impaired loans, a mix shift to higher credit quality loan portfolios and improvement in the macroeconomic outlook. Tangible book value per share grew by 11% in 2025 and 3% sequentially, including the impacts from share repurchases, which as of year-end totaled $4.7 billion since the July 2024 inception of the plan. Headline net interest income declined $12 million sequentially aligned with our guidance. Net interest income ex accretion was unchanged sequentially. Interest income ex accretion declined by $46 million, but was offset by a similar decline in interest expense due mostly to a lower rate paid on deposits. Headline NIM was 3.2%, lower by 6 basis points sequentially, while NIM ex accretion was 3.11%, down 4 basis points sequentially. The decline was primarily due to a lower yield on earning assets impacted by the Fed rate cuts in the second half of 2025, only partially offset by lower funding costs and a higher average loan balance. Adjusted noninterest income exceeded our guidance and was up 2% sequentially. The increase was broad-based, but the most significant items contributing to the increase were rental income on operating leases and wealth management income. Rental income benefited from a larger fleet and lower maintenance costs. Wealth benefited from higher assets under management and increased sales activity, including brokerage income. International factoring and deposit service charges were also up during the quarter. These increases were partially offset by a decline in client investment fees due to the lower Fed funds rate, only partially offset by a $3.1 billion increase in average off-balance sheet client funds. Adjusted noninterest expense was up $89 million sequentially, driven by higher personnel, technology and direct bank marketing costs. Personnel costs increased $38 million, mostly driven by higher temporary labor to support technology-related projects, performance-based incentive compensation, benefit expenses due to a seasonally higher health insurance claims as employees reach their out-of-pocket deductibles and termination costs. Technology-related costs contributed $22 million of the increase related to higher amortization expense of several technology-related projects were placed into service late in the third quarter as well in the fourth quarter. In addition, software costs were up as we continue to scale our technology platforms and invest in new capabilities. And finally, direct bank marketing costs contributed to $12 million of the sequential increase. As I will discuss in a moment in our 2026 outlook, we expect year-over-year adjusted expenses to be up in the low to mid-single-digit percentage range with less than 1% of the increase coming from the BMO acquisition expected to close in the second half of the year. Compared to the annualized run rate of the fourth quarter, we expect expenses to be flat to slightly down as episodic fourth quarter items are offset by increases from merit as well as the full year impact of higher depreciation from completed projects. Moving to the balance sheet. Period-end loans increased by $3.2 billion or 2.2% sequentially led by strong growth in Global Fund Banking. Global Fund Banking loans were up $3.8 billion sequentially and loan production was over $5 billion, the highest since acquisition. Average line utilization continued to trend higher, resulting in growth in outstanding balances. We are encouraged by the momentum in this business driven by increased market activity. General bank loans were down $267 million sequentially as we moved approximately $700 million of mortgage loans to held for sale in advance of a strategic plan sale in the first quarter of 2026. Removing the impact of this transfer, general bank loans increased modestly driven by growth in business and commercial loans within the branch network and wealth. Period-end deposits declined by $1.6 billion or 1% sequentially mostly driven by expected outflows of global fund banking deposits into off-balance sheet, client funds and from seasonal fund distributions to limited partners. The decline was partially offset by growth in tech and health care banking given higher VC investing activity during the fourth quarter. In the General Bank, deposits were up modestly as balance growth was partially offset by seasonal outflows. Direct bank deposits were down $344 million compared to the linked quarter. On an average basis, deposits performed well during the quarter, growing by $2.6 billion or 1.6% sequentially, supported by strong customer retention and acquisition in both the Commercial and General Bank. Encouragingly, this was achieved while we continued to reduce our total cost of deposits. SVB Commercial off-balance sheet client funds totaled $69.7 billion up $2.7 billion sequentially, while average off-balance sheet client funds were up $3.1 billion over the third quarter. Now let's shift to credit. Provision declined $137 million sequentially due to lower net charge-offs and a larger reserve release. Net charge-offs totaled $143 million or 39 basis points annualized in the fourth quarter, a $91 million or 26 basis points decline. The reserve release increased by $66 million over the linked quarter. You will recall that there was an $82 million single name loss in the third quarter, which was the largest contributor to the sequential decline in net charge-offs, both fourth quarter and full year net charge-offs were within our guidance. Reasonably consistent with prior quarters, approximately half of the net charge-offs were concentrated in the SVB investor-dependent Commercial Bank, general office and equipment finance portfolios. The larger reserve release this quarter was driven by lower specific reserves, growth in higher credit quality loan portfolios and improvements in the macroeconomic outlook. The allowance ratio was down 8 basis points sequentially, driven by these same factors. On the capital, Frank mentioned that we continue to make progress on our 2025 share repurchase plan. As of the close of business on January 20, 2026, we had repurchased 18.3% of Class A common shares or just over 17% of total common shares outstanding for a total price of $4.9 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 30% of this authorization. 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 capital efficient over time. During the fourth quarter, repurchases were $900 million, and we expect repurchases to remain near or at that level during the first quarter of 2026. The pace will slow down as we get closer to our target range. And as we regularly assess our growth outlook, economic conditions, the regulatory environment and overall capital deployment. The fourth quarter CET1 ratio was 11.15%, a decrease of 50 basis points from the third quarter as the impact from share repurchases and loan growth outpaced earnings. I will close on Page 28 with our first quarter and full year 2026 outlook. Starting with the balance sheet. We anticipate loans in the $148 billion to $151 billion range in the first quarter. In the commercial bank, we remain optimistic about the momentum in Global Fund Banking as we enter 2026. Pipelines remain robust at approximately $11.5 billion as of year-end. While we are optimistic here on absolute loan levels over time, I think it bears reminding that loan outstandings can ebb and flow based on client draws and repayments and we may see some volatility in ending balance this quarter-to-quarter. Outside of growth in Global Fund Banking, we are projecting growth in our commercial finance industry verticals and middle market banking. Within the General Bank, we expect loan growth to be supported by continued strong performance in our business and commercial portfolios within the branch network as well as in our wealth business. Additionally, we expect to close the BMO branch acquisition in the second half of the year, which we expect will add approximately $1 billion in loan balances. For the full year, we anticipate loans in the $153 billion to $157 billion range as we expect growth in both general -- both in the general and commercial banks. We are continuing to explore some strategic loan portfolio sales similar to what we did in the mortgage book this quarter to provide liquidity for repayment of the purchase money note, which could impact absolute growth levels in 2026. We expect deposits to be in the $164 billion to $167 billion range in the first quarter. We think growth will be broad-based across our channels, including the direct bank due to competitive pricing and marketing efforts, expansion in the general bank within the branch network in wealth and growth in SVB Commercial as investment activity and overall valuations continue to improve. For the full year, we anticipate deposits in the $181 billion to $186 billion range representing low to mid-teens percentage growth over 2025, driven by the momentum across our lines of business as well as the BMO branch acquisition, which will add approximately $5.7 billion in deposits in the second half of the year. We are projecting more significant growth in the direct bank as rate decline -- as rates decline and we begin repaying the purchase money note more aggressively. While it is a higher cost channel, it provides us with a source of insured granular deposits, and we anticipate benefiting from falling interest rates. The direct bank will be an important source of repayment of the purchase money node even if leading to elevated marketing costs in the near term. Next, I'd like to take a minute to talk about our plans for repayment of the purchased money note. We began pledging U.S. treasury securities against the note in 2025 as loan collateral available to secure the note diminished. As Frank mentioned, we made an initial payment of $2.5 billion in December as rate cuts in the back half of 2025 and the differential between the note rate and the yield on the planet securities diminished. As we look into 2026, we expect -- at a minimum, we will make payments against the note for the incremental loss in loan collateral, which averages $500 million to $1 billion per month. We will also consider making other incremental payments if interest rates continue to decline and/or alternative funding sources become cheaper as we anticipate based on our interest rate forecast. Currently, our rate forecast covers a range of 0 to 425 basis point rate cuts in 2026, with the effective Fed funds rate range declining from 3.5 to 3.75 currently to as low as 2.5 to 2.75 by the end of the year. Our baseline forecast includes 2 rate cuts but we do believe that 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 as we have done in prior quarters. With that in mind, we expect first quarter headline net interest income to be in the range of $1.6 billion to $1.7 billion, a modest decline from the fourth quarter as the full impact of the December rate cut pulls through, resulting in a lower yield on earning assets. This decline will be partially offset by earning asset growth and lower funding costs. For the full year, we believe our headline net interest income will be in the range of $6.5 billion to $6.9 billion. We project loan accretion will be down approximately $100 million for the year. Given continued rate cuts, we expect loan interest income to decline driven by a declining yield despite asset growth levels. We also expect interest income on cash and investments to decline given the reduction in yields as well as balances driven by lower absolute levels of cash and investments due to a reduction in excess liquidity. While despite balance sheet growth, we project a net reduction in interest expense due to lower cost of total deposits, this will only partially offset the decline in interest income. On credit losses, we anticipate first quarter net charge-offs in line with our previous range of 35 to 45 basis points. We expect losses to continue to be elevated in the Commercial Bank general office portfolio and other portfolios where we have seen stress. While rate cuts could ease some of the pressure on borrowers in this sector, we believe losses will remain elevated in the medium term even as market disruption may lessen as more companies reinstate office attendance requirements. While losses in the equipment finance portfolio have largely stabilized, we have a larger deal we are watching that could elevate losses during the first quarter. Additionally, we expect SVB commercial losses to remain slightly elevated in early 2026. With respect to the full year range, we anticipate losses in the same range of 35 to 45 basis points. Moving to adjusted noninterest income, we expect to be in the $500 million to $530 million range in the first quarter. Overall, we continue to see strength in many of our business lines such as fees from lending-related activities in capital markets, deposit fees and service charges, wealth, rail and card and merchant services. For the full year, our adjusted noninterest income range is $2.1 billion to $2.2 billion. We expect year-over-year growth to continue to be driven by our rail business, which includes a balanced railcar portfolio and a strategic exploration ladder. We further expect rail to have continued momentum on repricing rates throughout 2026. We also expect continued growth in our wealth and deposit businesses. Moving to adjusted noninterest expense. We expect the first quarter to be in the $1.34 billion to $1.38 billion range, essentially flat to slightly down from the fourth quarter as we had some nonrecurring items in the fourth quarter expenses that will not impact our run rate. These declines will be offset by continued investments in our technology platforms to allow us to scale efficiently and improve customer -- our customer experience. We also -- we will also be impacted by the seasonal benefit resets for social security, unemployment and 401(k) that drives the first quarter higher from a personnel expense perspective. Looking at the full year, our adjusted noninterest expense range is $5.37 billion to $5.46 billion. This is a low to mid-single-digit percentage increase from 2025, driven primarily by higher personnel costs due to merit-based increases, higher cost and equipment expense and third-party processing given continued tech investments and the full year impact of projects that went into depreciation in the last half of 2025. Marketing expense is also expected to be up given our focus on client acquisition and retention in the direct bank. Note that full year -- note that the full year increase also includes the impact of the BMO acquisition, which will add slightly less than a percentage point to overall adjusted noninterest expense growth, which will be realized during the second half of the year. Our adjusted efficiency ratio is expected to be in the lower 60% range in 2026 as the impact of the Fed rate cut cycle puts downward pressure on net interest income. We believe that the investments we have made in our franchise while driving up cost in the short and medium term are foundational to delivering positive operating leverage over time. Meanwhile, exercising disciplined expense management is a top priority for us given headwinds to net interest income. And while we are not providing guidance beyond 2026, we are committed to returning to positive operating leverage as the interest rate environment normalizes, and we begin to recognize some of the efficiencies from our continued investments in the franchise. Longer term, our goal remains to operate at an efficiency ratio in the mid-50s. Finally, for both the first quarter and full year 2026, we expect our tax rate to be in the range of 24% to 25%, which is exclusive of any discrete items. In summary, our 2025 financial performance reflected the strength and resilience of our diversified business model. We generated strong returns, maintained credit discipline, grew our balance sheet, returned significant amounts of capital to shareholders, all while retaining strong liquidity and capital positions. We are excited about the opportunities in front of us and are well positioned to continue to deliver long-term value for our shareholders. This concludes our prepared remarks. I will now turn it over to the operator for instructions for the question-and-answer portion of the call.

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

Craig, maybe to start with the guide for a moment. The -- I hear you on the 0% to 4% on rates. And I think you said in your prepared remarks, 2% was your base case. Is it as simple as I guess, putting 2% as the midpoint. How are you thinking about, I guess, the cadence of NII? And I think in past quarters, you've tied it kind of exit rates. So any comments on exit NII and margin would be great.

Okay. Yes. Chris, our baseline forecast calls for 2 rate cuts in 2026 in June and October. So in terms of the guide, I would direct you in the baseline to the middle of that range. So for the first quarter of '26, we expect both headline and ex purchase accounting, net interest income to be down mid-single digits percentage points. We expect headline NIM in the mid-3.10s and XP purchase accounting in the mid-3.0s or 3.00s. In the exit quarter fourth quarter '26, we expect both headline and ex purchase accounting, net interest income to be flat with the fourth quarter '25 with 2 cuts, we also expect that headline and ex purchase accounting, net interest income will trough in the first quarter of '26. We expect that net interest margin headline in the mid-3.0s and ex purchase accounting in the high 2.90s and expect headline NIM to trough in the fourth quarter of '26 and ex purchase accounting in the second quarter of '26. So that's the trajectory at our baseline, which includes 2 rate cuts, one in June and one in October.

On the investments, I think I heard you talk about kind of the focus on operating leverage, maybe not near term, but medium term. And I guess I'm interested in the cadence and the pace of technology and investment spend at the bank now that you've grown obviously CCARs on the horizon. Are we nearing the kind of the peak investment? Am I hearing kind of you're nearing the peak investments and then over time, you kind of grow into the returns a bit?

Yes. I think that's a fair statement. I mean we've been very intentional about investments in our franchise and particularly in the areas of building out our risk management capabilities, and in our technology infrastructure. As we strive to -- if we've grown 4x, we're striving to reduce operational complexity, we're striving to meet Category 3 expectations. All of this is to meet regulatory requirements, improve our client experience. And we recognize that this has put pressure on our efficiency in the short term, but we do like where we're heading. We are materially complete with the implementation of our risk management capabilities and are transitioning to maturity or a business-as-usual model. We will continue to make investments in technology, and really that is to enable client-centric business solutions for our General and Commercial Bank to streamline our processes to improve efficiency and to build a technical infrastructure commensurate with the bank's future growth. So those investments will continue, but we are hyper focused on bending the cost curve and costs were up 8% last year. We expect them to be low to mid-single-digit percentage points this year. So we're starting to bend the curve. And we do have a lot of focus on improving operating leverage as we move forward. Greg, I don't know if you have anything else to add to that on the technology side other than we are continuing to invest in our franchise. But the focus is now as we've gotten our risk management infrastructure sort of behind us and we're in the maturity model to start bending that cost curve going forward.

Yes, Craig, I think you did a great job there. So this is Greg Smith, the CIO. And Chris, the question is a good one, and we do recognize that we're on the higher end of our spend when you compare it to our peer group. But you have to put that in context with where we were, where we are in our maturity. So just like Craig said, we -- at the end of our acquisitions in 2022 and '23, we took a step back and we looked at our entire technology environment. We laid out a very clear plan to simplify and modernize the environment, and we are in full execution mode there. So the simple answer is we are indeed peaking in 2026 from a spend on the tech road map. But a couple of the key things that we're working on. So just coming into the year or leaving 2025, we've simplified or reduced over 1/3 of our applications. So that's a big win as well. We have at least 2/3 of the actual program up and running in full execution mode. And this is both simplifying as well as modernizing our applications and our infrastructure. So another simple example is at the beginning of 2024, we had 8 different data centers, by the end of '26, we will only have 2 data centers. Now that means we're closing 7 and we're building a new one. But the benefits of all that means that at the end, we will not only have efficiency coming out of that example. But we'll also have a much better resiliency and more flexibility and scalability in our environment. So those are the kind of things that we're working on. It is a multiyear plan, but the simple answer is we will peak in that plan in 2026, and that will allow us some more capacity to spend in other areas of the business.

And then just quickly on the tax rate, Craig, in the quarter. Was there a specific charge in the quarter on the taxes?

This is John Wilson, the Tax Director. The only charge in the quarter was a return to provision adjustment we recognized after filing our 2024 tax returns, primarily related to the estimate that we had for tax credits for the prior year provision.

The next question comes from Anthony Elian from JPMorgan.

Craig, your expense outlook is quite wide. The range is about $100 million. I'm curious, I know I recognize your previous comments on tech spend. I'm curious just what gets you to the high end versus the low end? How much LFI Cat III expenses you have that's baked in that may eventually go away?

This is Elliot Howard. I think when you look at that range, $100 million on the entire base is only really kind of 2 percentage points. And really what puts us probably at the top end of that range is that includes -- we're doing the heavy lift on direct bank advertising to really kind of raise deposits. And then I think as we kind of progress along the year, just kind of the timing of the tech expenses and when we can get efficiencies. So full year, I think being able to kind of get the efficiencies faster and less in marketing expense would put us closer to the lower end of that range. And then really having more competitive really rate environment on the direct bank side would probably give us a little bit higher to the top end of that range.

Okay. And then if Marc is on the line. You guys saw another really strong quarter in SVB total client fund growth. What specifically drove that? And I didn't hear the level of cautiousness that you guys have emanated the past couple of quarters on the outlook for SVB. So how are you guys thinking about that business and the growth in total client funds for this year?

This is Marc Cadieux. And I think the -- the growth in total client funds that we saw in fourth quarter and really over the course of '25, I think is a function of the incremental improvement that we're seeing, venture investment, year-over-year innovation economy activity. And the longer we have been with First Citizens, the more things have stabilized within our 4 walls and our ability to go to market and execute has just continued to get better. And so it's really a function of it's improving out there. As reflected in the guidance there is that further expectation of further incremental improvement and our ability to capture continues to improve as well. And so that, in a nutshell, is the story, if you will, behind the positive TCF trends.

Next question comes from Bernard Von Gizycki from Deutsche Bank. We will move on. The next question comes from Casey Haire with Autonomous.

So Craig, I wanted to touch on the purchase money note, if I heard you right, it sounds like the pace of retirement is going to be a little bit slower between $0.5 billion and $1 billion a month. So $9 billion a year, if that's right. So just wondering -- I thought the first tranche was going to be the biggest. It just feels like it's a little bit slower. So just maybe a little more color on that. And how much -- how low are you willing to go on the cash front as a percentage of earning assets?

Okay. The reason for the lower than anticipated payment in December was really related to the loan growth that we experienced versus deposit growth, and it impact on our excess liquidity. So that's the simple math there. In terms of just the $500 million to $1 billion, that relates to the amount of loan collateral that rolls off monthly is an estimate of that. And that would sort of indicate the minimum that the loan collateral the loans that are eligible would be loans in place at the time of the acquisition and as those loans mature, that collateral pool gets diminished. And we have pledged U.S. treasury securities as well to that. But that gets into whether or not we pay off that get into the rate arbitrage between those securities in the purchase money note. So we're trying to balance both the need to get the note paid efficiently with doing it in a way that's most profitable, if that makes sense. So the $500 million to $1 billion would be sort of -- and you should think of that as sort of the minimum amount that we'd pay off this year. Tom, I'll let you amplify anything there.

No, I think that was very clear on the $500 million to $1 billion being the minimum. And obviously, looking at the alternative funding cost is why we've sort of moderated our pace of pay down with the 3.5% we're paying on the purchase money note. So as alternative funding costs come down, you can expect to see us accelerate those payments. I think you also asked about cash sort of as a percentage of earning assets we're currently right at about 10%. I think you can see that come down a little bit from there, but it'll remain in that 8% to 10% range is sort of what we'll manage to from a liquidity risk perspective.

Okay. That's great. So -- and then I guess just switching to the loan growth outlook. So a very strong result in the fourth quarter here. The pipeline is up and yet you're calling for growth to moderate to a mid-single-digit pace in '26. The deposit growth guide does imply that the loan-to-deposit ratio moves up to the mid-90s. So I guess the question is like, are you purposely constraining the loan growth for liquidity reasons? Or do you expect loan growth to moderate from this near double-digit pace?

Yes. I think there's a lot of positives certainly on the loan front. I think SVB, we talked about pipelines are full. We feel very good about the activity in the fourth quarter and where we are heading in the first quarter. I think we have really good outlook on commercial finance. And then in our general bank kind of in our business and commercial side, I think that said, as Tom touched on the purchase money note. We will look at certain places to sell portfolios. We had the $700 million that we moved mortgage. I think we're exploring potential sales elsewhere SBA, where kind of the financials make sense. And so we're going to be there for our clients. We're going to continue to lend. But I think the reality is we still do have $33 billion that we need to repay on the purchase money notes just going to be a function of how much we can really generate deposits over that loan growth.

I think one other component -- this is Tom. One other component to add is when you look at the capital call line and the nature of the loan growth that has come through there, as you get further into that, obviously, a larger portfolio is going to lead to larger paydowns. So even with same elevated activity, it will lead to moderating growth.

That portfolio is natural short duration.

That's right.

Yes. Okay. All right. Just last one housekeeping. Craig, very helpful to walk through all the headline and core NIM, NII. Just and I apologize if I missed this, but what is the outlook for purchase accounting this year?

For just -- are you speaking of net accretion income?

Yes.

Yes. We expect to be -- for 2025, we recognized around $250 million of net accretion income. We expect that to drop to about $203 million this year, so around a $50 million decline, so not very significant -- not as significant as a entertain prior years as some of those shorter portfolios ran off.

[Operator Instructions] I'm not showing any further questions at this time. So I'd like to turn the clack over to our host, Mr. Deanna Hart for any closing remarks. .

Thank you, and thanks, everyone, for joining our earnings call today. We appreciate your ongoing interest in our company. And if you have any further questions or need additional information, please feel free to reach out to the Investor Relations team. We hope you have a great rest of your day.

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