First Citizens BancShares Inc (Delaware)
NASDAQ:FCNCA
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First Citizens BancShares Inc (Delaware)
Earnings Call Analysis
Q3-2024 Analysis
First Citizens BancShares Inc (Delaware)
First Citizens BancShares reported strong financial results for the third quarter of 2024, with adjusted earnings per share reaching $45.87. The net interest margin (NIM) remained resilient at 3.53%, despite a reduction in accretion income. This stability was supported by an increase in average loan balances. The bank also saw continued growth in deposits, particularly within its General Bank segment, which provides a strong foundation as it navigates the evolving market.
Despite the overall positive outlook, the bank experienced a decline in loans, primarily driven by payoffs in the global fund banking portfolio that outpaced new loan originations. However, average loan outstandings increased compared to the previous quarter, suggesting a healthy pipeline. The General Bank and Commercial Bank segments continued to grow, with mid- to upper single-digit annualized percentage growth. The bank remains committed to proactive credit risk management as net charge-offs ticked up slightly, mainly in specific portfolios.
In alignment with its capital strategy, First Citizens initiated a share repurchase program in August, purchasing approximately $700 million worth of its Class A common stock. By October 22, the bank had repurchased 3.61% of its Class A common shares, which represents 28% of its $3.5 billion buyback authorization. This strategic move indicates the bank's confidence in its capital position and aims to enhance shareholder value.
Looking ahead, the bank forecasts deposits to end the year between $150 billion and $153 billion, indicating low to mid-single-digit growth. However, potential declines in the fourth quarter are anticipated due to cash burn in the SVB Commercial segment and the normalization of global fund deposits. Furthermore, for the fourth quarter, the bank expects a low to mid-single-digit percentage decrease in headline net interest income, which is projected in the range of $7.1 billion to $7.2 billion for the full year.
As the Federal Reserve continues to adjust interest rates, First Citizens anticipates impacts on its net interest income and margin. The effective Fed funds rate is projected to decline to as low as 4.25% by the end of the year. The bank's interest income is expected to experience downward pressure due to rising deposit costs, which peaked in Q3 but are anticipated to decrease moving forward. The flexibility in managing its balance sheet positions First Citizens to navigate these fluctuations effectively.
The bank has maintained an overall healthy credit profile, though it acknowledges the potential for elevated net charge-offs, particularly in certain portfolios such as commercial real estate and investor-dependent loans. The projected net charge-off ratio for the fourth quarter is expected to be near or slightly above the third-quarter level. Additionally, the bank remains watchful of larger credits that could lead to potential losses as they navigate through economic pressures.
Continued investments in the bank's technology and risk management frameworks are part of its strategy to ensure stable long-term growth. The adjusted noninterest expense for the full year is expected to fall between $4.76 billion and $4.79 billion, reflecting efforts to enhance operational efficiencies while managing expenses prudently. The bank’s focus on building a solid infrastructure will support sustained growth as economic conditions improve.
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Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Third 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, Head of Investor Relations. You may begin.
Thank you, and good morning. Welcome to First Citizens' Third Quarter Earnings Call. Joining me on the call today are Chairman and Chief Executive Officer, Frank Holding; and Chief Financial Officer, Craig Nix. They will provide third quarter business and financial updates referencing our earnings 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 of the presentation.
We will also reference non-GAAP financial measures. Reconciliations of these measures against the most directly comparable GAAP measures can be found in Section 5 of the presentation. Finally, First Citizens is not responsible for and does not edit nor guarantee the accuracy of earnings transcripts provided by third parties.
I will now turn it over to Frank.
Thank you, Deanna. Good morning, everyone, and welcome to our earnings call. I'll make some brief comments about our third quarter results, and then I'll turn it over to Craig to review our results in more detail before we take your questions.
Starting on Page 6 of our investor presentation. We delivered another quarter of strong financial results with adjusted earnings per share of $45.87. Our net interest margin was resilient despite declines in accretion income, and we remain encouraged by the stability of our deposit base.
We saw continued deposit growth in the General Bank and SVB commercial balances were up modestly over the prior quarter. We are pleased with the stability of the SVB deposit franchise, demonstrating the competitive advantage we maintain in the innovation economy.
Loans declined during the quarter, predominantly by a reduction in the global fund banking portfolio as repayment levels outpaced new loan origination and draw activity. However, the pipeline remains strong in this business and average loan outstandings were up over the second quarter.
The decline in GFB was partially offset by mid- and upper single-digit annualized percentage growth in the general and commercial banks, respectively. While net charge-offs ticked up modestly over the second quarter, overall credit remains in good shape. Consistent with previous quarters, net charge-offs were mostly concentrated in the general office, investor-dependent and small ticket leasing portfolios. We continue to proactively review our portfolios to identify potential issues early on and prudent credit risk management will remain a priority for us.
Our capital and liquidity positions remained strong during the quarter and continue to be a source of strength. We're pleased with the progress we made under our share repurchase plan. And during the third quarter, we repurchased over 350,000 shares of Class A common stock for a total price of approximately $700 million. Craig will touch on this in more detail in his comments.
In closing, our thoughts are with our associates, clients and communities that have been affected and continue to be affected by Hurricanes Helene and Milton. Thanks to our dedicated associates, we quickly reopened operations to help our clients and communities in their rebuilding efforts during this difficult time. We're committed to continuing this support moving forward.
I'll turn it over to Craig to review the financial results in more detail. Craig?
Thank you, Frank. We appreciate everyone joining us today. I will anchor my comments on the third quarter key takeaways outlined on Page 9. Pages 10 through 26 provide more details underlying our results.
As Frank mentioned, we initiated our share repurchase program at the beginning of August. As of close of business on October 22, we repurchased 3.61% of Class A common shares and 3.36% of total common shares outstanding for a total purchase price of $969.4 million. This represents approximately 28% of our Board-approved $3.5 billion repurchase.
Turning to third quarter financial results. ROE and ROA adjusted for notable items were 11.94% and 1.22%, respectively. Our adjusted PPNR, ROA and efficiency ratio were 1.88% and 54%, respectively. Headline NIM was 3.53% and ex-accretion NIM was 3.33%. With respect to these earnings metrics, we remained at or amongst the top of our large financial institution peer group.
Aligned with our guidance, headline net interest income was down slightly from the second quarter as lower accretion income and higher deposit costs offset increases in interest income on loans ex accretion and investments. While modest, net interest income ex accretion increased over the linked quarter given support from higher average loan balances.
While the pace moderated, deposit costs were up predominantly due to growth in money market and savings accounts. We believe the cost of deposits reached its peak in the third quarter, and we'll see a downward trend moving forward as down rate betas accelerate from the magnitude of rate cuts in September.
Headline NIM contracted sequentially by 11 basis points and excluding accretion by 3 basis points. While NIM was down, the impacts from deposit repricing and interest-bearing deposit growth have stabilized, and we continue to benefit from a higher average loan balance.
Adjusted noninterest income was down modestly sequentially, but aligned with our guidance. The decline was primarily driven by changes in the fair value of customer derivative positions brought on by lower interest rates, partially offset by increased capital market fees due to higher loan syndication volume and an increase in rental income on rail operating lease equipment.
The profitability of our Rail segment remains on track as we added to the number of railcars in the fleet this quarter, and we continue to experience solid repricing trends and utilization rates.
Adjusted noninterest expense came in slightly above our guidance range, increasing sequentially by approximately 5% with the increase concentrated in personnel costs and professional fees.
As you will recall, we identified the continued build-out of our risk organization and risk management framework to LFI standards as a strategic priority in 2024. During the third quarter, this constituted the most significant component of the increase impacting both personnel costs and professional fees.
In addition to the risk management spend, incentive accruals increased related to 2024 performance, and there was an additional working day in the quarter. Finally, but to a lesser extent, lower loan originations and thus lower deferred salaries and higher insurance expense contributed to the increase in expense during the quarter. While these expenses were expected, they pulled through at a slightly elevated level in the third quarter given accelerated hiring and increased project spend. We expect continued spend into 2025 as we further mature the organization and build a platform for sustainable growth in the future.
Despite investments in our business and infrastructure, we have continued to execute on cost savings initiatives, and we are pleased to report that we achieved the low end of our cost savings goal from the SVB acquisition. Effectively managing expenses is a top priority for us given headwinds to net interest income and necessary spend for regulatory readiness. We will continue to be vigilant on overall expense management as we look to 2025.
Moving to credit. Our net charge-off ratio during the quarter was 42 basis points, up slightly from the sequential quarter, but aligned with our guidance range. As Frank mentioned in his comments, net charge-offs were in the same portfolios discussed previously, and we noted no emerging problems outside of those pressure points. Most of the increase in net charge-offs during the quarter were concentrated in the general office portfolio within the commercial bank. We believe losses will remain elevated here due to high vacancy rates, continued pressure from interest rates and limited liquidity in the market for refinancing maturing loans.
At quarter end, total loans in this portfolio were $825 million or approximately 0.6% of the total loan portfolio.
We saw a modest increase in net charge-offs in the small ticket leasing portfolio and experienced modest improvement in the investor-dependent portfolio. Continued improvement here will be facilitated by a higher fundraising environment driven by both M&A and IPOs. At this time, an improved appetite for IPOs remains elusive, and we expect continued stress in this portfolio in the near term but remain optimistic that a declining rate environment will help generate more activity in this space.
Nonaccrual loans increased sequentially driven by one loan that migrated to nonaccrual status in the SVB commercial portfolio and appears to be an idiosyncratic event.
Looking at the allowance, the ratio declined by 1 basis point to 1.21% with the most significant factor related to improvement in credit quality of our commercial loan portfolio, partially offset by changes in the macroeconomic forecast, higher specific reserves on individually evaluated loans and a $20 million reserve recorded related to Hurricane Helene. We feel good about our overall reserve coverage as well as coverage on the portfolios experiencing stress.
Moving to the balance sheet. Loans decreased by $646 million sequentially, a decline of 0.5%. The decline was driven by a $2.1 billion reduction in SVB commercial loans, a majority of which was concentrated in period-end loans with Global Fund Banking driven by lower loan draws and higher prepayments. Encouragingly, the GFB pipeline remains strong at approximately $8 billion and average loan balances were up during the quarter. These decreases were partially offset by growth in the General and Commercial Bank segments of $897 million and $573 million, respectively.
General Bank growth was primarily attributable to business and commercial loans, while growth in the commercial bank continued in our industry verticals, including tech, media and telecom and health care.
Turning to the right-hand side of the balance sheet. Deposits grew sequentially by 0.3% or $495 million due to growth in the branch network. We were pleased with this growth given that this has been a key focus area for us in 2024.
In SVB Commercial, we saw modest deposit growth of $54 million. The stability of this franchise continues to demonstrate the competitive advantage we maintain in the innovation economy given our unique products, innovative and adaptive approach and the deep institutional knowledge of our associates. These increases were partially offset by a $165 million decrease in direct bank deposits as we continue to allow expiring time deposits to run off and only partially replace them with savings products.
Given recent Fed rate cuts, we are seeing some slowing in competition and pricing pressures across our channels. This, coupled with continued general bank core deposit growth reduced the need for additional high-cost direct bank deposits in the third quarter. We will continue to utilize this channel as needed to bolster liquidity. But given our excess liquidity position, we slowed growth in this channel during the quarter.
Moving to capital. Our CET1 capital ratio decreased by 9 basis points sequentially, ending the quarter at 13.24%. This was driven by a continued decline in the benefit provided by the shared-loss agreement, which added approximately 73 basis points to the ratio this quarter, down 12 basis points from the second quarter. CET1, excluding the benefits of the shared-loss agreement, increased 3 basis points from the linked quarter as earnings growth outpaced risk-weighted asset growth as well as the impact of share repurchases.
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 '24 and '25 as we continue to assess capital needs considering loan growth, earnings trajectories and the economic and regulatory environments.
I will close on Page 28 with our 2024 fourth quarter and full year outlook. On loans, we moved our expectations lower given the starting point at the beginning of the fourth quarter. While we remain guarded on growth, we do continue to see solid momentum in our pipelines. We anticipate flat to low single-digit annualized percentage growth in the fourth quarter, driven by the business and commercial loan portfolios in the General Bank and growth in the SVB Commercial segment.
We expect SVB Commercial will benefit from growth in the Global Fund Banking business, but do remain cautious on the absolute level of growth given the softness we experienced in the third quarter.
We do expect a modest increase in investment activity in the fourth quarter as the Fed's monetary easing cycle has potential to kickstart a market recovery, which could drive loans higher in the segment.
We expect loans to end the year in the $138 billion to $140 billion range, representing mid-single-digit percentage growth for the full year. We anticipate this growth will be concentrated across the same banking segments and for the same reasons previously discussed.
We expect deposits to end the year in the $150 billion to $153 billion range, representing a low to mid-single-digit percentage growth rate for the full year. There is potential for a modest decline in deposits in the fourth quarter due to lower balances in the SVB Commercial segment driven by cash burn and a few large global fund banking deposits that came in late in the third quarter before being distributed in October. Additionally, as previously discussed, we expect a continued decline in the direct bank as we are not replacing time deposit maturities.
We anticipate these reductions to be partially offset by continued growth in the branch network as we benefit from increasing our customer base by building deposits through successful execution of our organic growth and relationship banking strategy.
Our interest rate forecast for the fourth quarter covers a range of 0 to 325 basis point rate cuts with the effective Fed funds rate declining from 5% currently to as low as 4.25% by the end of the year.
Turning to fourth quarter headline net interest income. We expect a low to mid-single-digit percentage points decline as lower accretion and slightly lower loan and investment yields are only partially offset by declining deposit costs. Our guidance does include the planned impact of share repurchase activity for the remainder of 2024.
For the full year, we expect headline net interest income to be in the range of $7.1 billion to $7.2 billion, down slightly from our previous guide of $7.2 billion to $7.3 billion reflecting the full impact of the 50 basis points rate cut in September as well as potential additional cuts in the updated forecast occurring in the fourth quarter. In either case, as expected, we project that loan accretion will be down over $200 million for the year as loan discounts on the shorter portfolios continue to be recognized.
While we realize that our asset sensitivity causes headwinds to net interest income and net interest margin in down cycles, it has allowed us to pull forward earnings in the higher for longer rate environment. In general, we believe that being asset sensitive provides greater optionality in multiple interest rate environments and allows for greater flexibility on our balance sheet. We will continue to employ strategies to appropriately navigate market fluctuations in line with our long-term focus on tangible book value growth.
Moving to credit losses. While we remain within our risk appetite, we do anticipate fourth quarter net charge-offs near or slightly above the level we experienced in the third quarter, driven by the continued stress in the same portfolio as we have been discussing this year.
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 issues in this portfolio. However, we do believe losses will remain elevated for the remainder of '24 and into '25. We also anticipate continued stress in the investor-dependent portfolio in the fourth quarter and into 2025.
In addition to these factors, we are watching a couple of larger credits that could manifest into losses in the fourth quarter, which are considered in the 40 to 50 basis points range for the quarter. We are increasing the lower end of our full year range slightly from 35 to 37 basis points with the high end of the range remaining at 40 basis points.
Moving to adjusted noninterest income. We expect the fourth quarter to be in line to down low single-digit percentage points from the third quarter. We expect full year adjusted noninterest income to be in the range of $1.89 billion to $1.91 billion, which is slightly higher than our previous guidance. This is driven by our rail outlook as we expect a continuation of healthy fundamentals 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 are also expecting higher wealth management income due to continued organic growth and client acquisition.
Moving to adjusted noninterest expense. We expect the fourth quarter to be flat compared to the third quarter. As discussed, we continue to invest in our risk and technology capabilities and have made strategic hires on these teams, resulting in a higher run rate for salaries and benefits expense.
We are additionally seeing higher project-related expenses for strategic technology projects and increased marketing expenses in the direct bank as we try to hold on to deposits there. We will seek to partially offset these expenses through additional acquisition synergies, which I spoke to earlier.
Our adjusted efficiency ratio is expected to remain in the mid- to upper 50% range in 2024 as the impact of the Fed rate cut cycle puts downward pressure on net interest margin, and we continue to make investments into areas that will help us scale to Category 3 status when we cross that threshold.
Looking at the full year, we anticipate adjusted noninterest expense to be in the range of $4.76 billion to $4.79 billion, representing mid-single-digit percentage growth for the 3 comparable quarters we merged with SVB in 2023.
For both the fourth quarter and full year 2024, we expect our tax rate to be in the range of 27% to 28%, which is exclusive of any discrete items.
In summary, we are pleased with our performance this quarter and encouraged by the performance of our business segments in the current economic cycle. We will continue to focus on growing in a prudent manner, appropriately allocating capital and driving long-term growth for our shareholders.
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 or Frank, the SVB decline in the quarter. Obviously, that's a very tough quarter-to-quarter balance to forecast. I'm interested in your thoughts of the next couple of quarters. What would it take? I think you mentioned lower rates, but just maybe what might be at risk here in terms of near-term loan growth before we start seeing that benefit as rates go down?
Chris, this is Craig. I'll ask Marc or Frank to expand on this. But we anticipate as the market recovers that loans and deposits will grow in SVB. We do think that lower rates and the expectation for lower rates could be a catalyst for growth. We don't really see anything in the quarter structural at SVB. That decline, it really was more related to payoffs towards the end of the quarter. Average loan balances were higher than last quarter. So again, nothing really structural there that we're seeing.
I would like to give Marc an opportunity to address that as well if he's on the line. But that's where we -- that's kind of how we see it right now. And Marc, are you there?
I am here. Thank you, Craig. This is Marc Cadieux. And what you see in that capital call lending portfolio and taking it back to the second quarter when it was up by a roughly similar amount, on a period-end balance basis, that portfolio can move around, again, as second quarter and third quarter results indicate. Craig hit what I think is the most important point, and that is the average loan growth, which was -- continued to be positive in the quarter. And when it comes to a portfolio like this that can swing around on a period-end basis like we've witnessed, I think the average balances are really a better thing to focus on as it gives a better indication of how that portfolio is trending, recognizing that, again, borrowing is a function of investment activity. Investment activity continued to be muted in the quarter. And so until we see a significant pickup in investment activity, we will presumably continue to see more muted activity in that portfolio segment.
That's great. And then I guess, Craig, back to the net interest income guide. The range is wide and understandably because of the uncertainty with rates. Can you maybe just speak to the different ranges? And then also within the guide, accretion income came down. How do we think about the accretion piece going forward in the next few quarters?
So accretion, we expect the pickup in NIM or the accretion to NIM to continue to dissipate as those shorter-term loans are paid off and we recognize that income. For instance, during the third quarter, NIM benefited from accretion by 20 basis points. That was down 8 basis points from the prior quarter, with accretion income dropping from $140 million to $101 million. That would continue to decline as we go forward. For instance, we think that the fourth quarter will be somewhere around $90 million. We will have about $1.3 billion remaining at the end of this year, which is roughly half of what we started with around $2.6 billion.
So the accretion number -- the contribution from accretion will continue to go down as we move forward. If we look at just trajectory of NIM and net interest income, we have -- we're looking at this in a range of possible outcomes with the high end of the range, assuming no further rate cuts in the fourth quarter. So the 50 basis points in September are baked in, but no further rate cuts in the fourth quarter and for next year, that would be the high end of the NIM and net interest income range. And for the low end of the range, 3 additional 25 basis point rate cuts in the fourth quarter of '24 and 4 cuts in 2025.
And I'm going to anchor my comments to net interest income ex accretion. We just talked about the accretion impact. If I look at third quarter actual compared to expected fourth quarter '24 exit net interest income, in the low scenario, we would expect mid- to high single digits percentage decline and in the higher forecast, mid to single -- low to mid-single digits decline.
On the margin, in the high scenario, we would expect margin to drop ex accretion from the 333 to the low 320s in the high and the low 310s in the low. If we fast forward that trajectory and look at fourth quarter '25 exit for net interest income ex accretion in the high, we would anticipate being up low single-digit percentage points. And in the low, we would anticipate being down low single digits.
On NIM, we would expect the -- in the high scenario for the margin to move from the mid-320s to the high 310s and then the low from the mid-310s to the high 290s. I know that's a lot, but that's where we see our exit fourth quarter '24 and fourth quarter '25 net interest income and margin ex accretion landing given those rate scenarios.
The next question comes from Anthony Elian from JPMorgan.
Following up on SVB, you saw deposits stable during the quarter and the -- you called out the decline in period-end loans. But Marc or Craig, I'm wondering if you can comment on the pace of client additions in that business and how that's trended in the third quarter?
Marc, will you take that one, please?
Yes. I will start, yes. So it's Marc Cadieux. And I do not, in the moment, have the new client statistic for the quarter, though we do continue to add new clients. We continue to see clients return to us in the third quarter. And so continue to feel good directionally, recognizing that our target markets are still experiencing a downturn, and so that remains the headwind there. But we are encouraged by new client acquisition continuing to be positive.
And then for my follow-up on the buyback. So you told about 30% through October, which was an elevated pace compared to the total authorization you have outstanding. Should we continue to expect the pace of the buyback to remain elevated until mid-next year?
Yes. This is Tom Eklund. Yes, I think through the end of the year, you can assume a similar pace to what you've seen so far and then sort of slowing down a little bit in next year to get to that $3.5 billion in the third quarter of next year.
The next question comes from Samuel Varga from UBS.
Craig, could you just put a finer point on the floating rate loan exposures, the 60% to 65%, I believe. But can you just say what the exact percentage is and as a split between what's floating and what's actually variable?
Yes. In the total loan portfolio, around 64% is variable, 36% fixed.
Okay. And of the variable, can you share what's effective floating?
Could you repeat that? You broke up there.
Yes. Sorry, in the variable of the 64%, what part of that is actually effective floating today?
Are you saying type of floating?
Just effective floating. So today, what's effective floating?
Well, the majority of the loans are tied to SOFR and the spot maturity rate would be around [ 6 90 ], if that's what you're asking.
Okay. And then in terms of the terminal deposit beta, you noted the 33% expected next quarter. Can you give some color around how high you expect that to go by 4Q '25?
So our terminal up betas on loans was 53% on deposits was 47%. We're anticipating in the fourth quarter down betas to be 23% on deposits, 32% on loans. And fast forwarding to next year, we would think the terminal betas in the down would be very similar to terminal betas up on loans and deposits. Tom, does that clear square up with what you're...
Yes. I mean there's obviously a little bit of a lag on the deposit side. So that's why we're expecting it to be a little lower going into the fourth quarter and then catch up during next year.
The next question comes from David Long from Raymond James.
Marc, I know you talked a little bit about the loan side of SVB. And then just looking more at the deposit side, flat balances quarter-to-quarter, had a nice improvement in the second quarter. What changed in the marketplace that drove that to be relatively flat in the third quarter?
So it really starts with a diminished venture investment activity in the quarter, roughly $38 billion. And so fewer deposits to capture is how that translates. Similarly, as I think we've noted in past calls, many of our clients have multiple bank accounts today. And so some portion of that opportunity gets captured by others as a function of that.
And then cash burn continues to be a factor, which ticked up a little bit in the third quarter relative to the second. And so those are, in effect, the headwinds from the deposit gathering. And by virtue of that, what I think the flat deposits are up modestly, I think it was $54 million in the quarter, reflects, I think, that continued progress bringing back existing -- or bringing back former clients, attracting new ones and continuing to reduce the number of clients that [ attrite ].
And so generally speaking, maybe stick the landing on this, I think of the continued stability in deposits, given all of these headwinds as great evidence that we're continuing to execute well and remain positioned for a better environment when investment inevitably picks back up.
The next question comes from Ryan Nash from Goldman Sachs.
Maybe a follow-up on some of the net interest income questions that were asked. So when you think about the 2 scenarios that you outlined, when would you expect net interest income and net interest margin to bottom and begin growing again? And then I guess related to that, last quarter, you talked about further actions you've taken to reduce asset sensitivity. Can you maybe just talk about updated thoughts on other actions that you've taken this quarter to reduce sensitivity? And I have a follow-up.
I will cover the trough question and let Tom cover the asset sensitivity question. In terms of -- and obviously, these troughs depend heavily on both timing and magnitude of rate cuts. Timing can be very important on that and also on balance sheet growth.
So just -- but all things being equal, if we look at net interest income ex accretion, we're looking second half of '25 regardless of the rate scenario. And net interest margin ex accretion, we're also looking at second half of '25 regardless of scenario. And that pushing that out is directly tied into our asset sensitivity.
So obviously, rate cuts have a negative impact and pressure our net interest income and margin. So subject to revision going forward, but we would say second half of '25 is the trough.
And I'll let Tom hit the asset sensitivity question.
Yes. On the asset sensitivity side, as you're aware, we have that 3.5% purchase money note on the liability side, which is fixed rate. It's about 20% of our total funding. So we're -- we got a little bit of a kink in our asset sensitivity there right around that point.
So during the third quarter, with rates falling down, we moderated some of our actions to mitigate asset sensitivity to instead sort of set aside liquidity to get ready to repay the purchase money note. As rates have recovered now early in the fourth quarter, we've gone back to invest a little more, look at some swap options there, but it just hasn't been economic to put on receive fixed at the same rate we're paying fixed on the liability side.
Got you. Maybe come back to the Global Fund Banking, where you talked about the end of period being down, but to focus on the average where it was flat. I think you flagged lower draw activity, which is intuitive and higher repayments. And obviously, capital call has been an area that a lot of banks have been investing in. Can you maybe just expand on the comments about higher repayments? Are you seeing competition picking up and loans are being refinanced away? And I know one quarter doesn't make a trend, but how are you just thinking broader about growth in this portfolio over the medium term?
Marc, can you take that one, please?
Sure. It's Marc again. Yes. So it's Marc. And so a couple of things maybe to go back to the period end. Again, up by roughly a similar amount on a period-end basis in the second quarter before coming down. And to just give a little bit of context on this capital call lending, these are tend to be short-term loans. In effect, they're revolving lines of credit and they borrow when they make an investment, generally speaking, and repay when the capital called from their limited partner investors show up.
And in a higher rate environment that we've been in, on average, borrowers tend to keep those advances out for a shorter duration. And so the combination of that factor, coupled with, again, the more muted investment activity is, I think, what conspires there to cause those swings quarter-to-quarter on a period-end basis. Again, the important point to note here is the average balance growth, which has continued to trend positive.
And getting to, I think, the heart of your question, our competitiveness in the marketplace and what we're seeing from others. You are right, capital call lending, subscription lending continues to be an attractive category. We have seen in recent years, new entrants. And we continue to feel very confident about our position in the market. We believe we have the longest lived fund banking practice anywhere. We've been at an awfully long time. and a very long established and experienced team, and that team continues to win new business, notwithstanding the competitive environment.
As I think Craig signaled earlier, we're encouraged by the pipeline we see there. And without going into the future, we remain optimistic when fundraising -- or I'm sorry, when investment eventually picks back up. I hope that was responsive.
Yes. No, it was. And if I could squeeze in one last one. Just on the SVB deposits, I know you said that there was some paydown early in the quarter and then there's some cash burn. But if you think about alts and advisers have been talking about a ramp in deal activity. You talked about lower rates being a catalyst. Like do you see deposit flows picking up in this market as we exit the year and move into 2025, hopefully, in a more conducive environment?
So recognizing we're not providing preliminary guidance on '25 at this point, there continues to be a substantial amount of dry powder "capital" that's been committed to venture capital general partners that has yet to be invested. I think the stat for the third quarter is something like $328 billion or something like that.
So a lot of money on the sidelines waiting to be invested. We've just seen the first 50 basis point rate cut with the expectation of potentially more. And that, we believe, as I think Craig said in his opening remarks, we hope will begin to unstick this market, right, that things will continue to thaw given that we're now 9, 10 quarters into what has been a very significant downturn in the innovation economy space.
And so while I can't predict the future and nobody knows exactly when that investment activity will pick back up, I think, again, we remain well positioned for that inevitability when it occurs.
The next question comes from Christopher Marinac from Janney Montgomery Scott.
Craig, if you have less balance sheet growth that should have CET1 higher next year. I was just curious how that could impact the buyback, just thinking beyond what you've already authorized.
Yes. We certainly plan to utilize the entire $3.5 billion in approved buyback. We will be resubmitting our capital plan in the early next year, first quarter -- in the first quarter. And if that's the case, if earnings continue to outstrip risk-weighted asset growth, we would contemplate tagging on another repurchase plan in the back half of 2025.
So you're exactly right, if asset growth -- if we do have a smaller balance sheet, certainly would support us continuing with our share repurchase plan. And right now, we certainly contemplate not necessarily a smaller balance sheet, but despite that, having the capacity to do a further plan in the second half of next year.
Great. And just a follow-up on liquidity. Is there any excess liquidity that you're carrying today that could be redeployed as some of the capital rules of the Fed are better understood in a few more quarters?
Yes. I think as we look at liquidity, obviously, we're not subject to LCR, but run our internal stress tests and everything like that, just in line with what you see at other large financial institutions. We got, give or take, $7 billion, $10 billion, depending on how you count it in excess liquidity right now that we're carrying on the balance sheet that we could, in theory, redeploy whether we use that to pay down debt or invest in other earning assets.
But it's -- numbers keep shifting because it's obviously highly dependent on deposit mix, unfunded commitments and things like that. But we do have a little bit. We continue to manage liquidity conservatively and we'll look to take advantage in the future.
I'm not showing any further questions at this time. So I'd like to turn the call back over to our host, Deanna Hart for any closing remarks.
Thank you so much, and thanks, everyone, for joining the 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 everyone has a great rest of your day.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Have a wonderful day.