FIRST CITIZENS BANCSHARES INC /DE/ Q3 FY2026 earnings call

• Financial Strength & Capital Return: Generated adjusted net income of $652 million with an ROE of 12.24%. Returned $600 million to shareholders via share repurchases, bringing the CET1 ratio to 10.24%, within the target range.
• Balance Sheet Optimization: Successfully prepaid $8 billion of the FDIC purchase money note in Q3, followed by $1.5 billion in October. Total prepayments since Q4 2025 amount to $17 billion (47% of the balance).
• Deposit & Loan Growth: Loans grew by $6.2 billion sequentially, fueled by Fund Banking and the BMO acquisition. Deposits expanded by $11.8 billion period-end, including $4.9 billion from BMO. Direct Bank deposits added $3.2 billion.
• Credit Quality: Non-accrual loans decreased by $80 million to 0.87% of total loans. Net charge-off ratio improved to 0.27%, outperforming guidance. Allowance for loan losses was reduced due to improving credit trends.
• Operational Efficiency: Adjusted non-interest expense remained stable, offsetting technology investments with declines in professional services and marketing expenses. Focus remains on digital infrastructure and data center modernization.

The transcript does not provide a breakdown of revenue contribution percentages for specific product segments. However, it highlights strong sequential loan growth driven primarily by the Fund Banking business ($4.4 billion increase, or 11% sequentially) and Innovation Banking ($10.1 billion total, up 6.6%). The General Bank segment contributed $633 million in loan growth, while the Rail business delivered stable rental income growth.

• Q4 2026 Loan Guidance: Raised to $158–$161 billion (upward revision), driven by commercial and general bank growth.
• Q4 2026 Deposit Guidance: Raised to $189–$192 billion, reflecting strong traction in direct bank, innovation, and fund banking channels.
• Net Interest Income (NII): Full-year guidance raised to $6.68–$6.75 billion. Q4 guidance set at $1.7–$1.77 billion, assuming 0–125 bps rate hikes.
• Non-Interest Income: Q4 guidance set at $540–$580 million. Full-year guidance raised to $2.22–$2.26 billion (upward revision).
• Expenses: Q4 projected at $1.35–$1.39 billion. Full-year guidance set at $5.39–$5.43 billion.
• Credit Quality: Q4 net charge-offs expected to remain stable at 30–35 bps. Full-year net charge-off guidance tightened to 29–31 bps.
• Capital Returns: Q4 share repurchases projected at ~$300 million as the company transitions to a normalized capital run rate.

• Funding Cost Pressure: Replacing the low-cost FDIC purchase money note with higher-cost funding sources (FHLB, brokered CDs, debt issuances) may temporarily pressure net interest margins, though management expects earning asset yields to offset this.
• Market Volatility: Equity warrant income is subject to periodic valuation adjustments based on public/private market fluctuations, creating non-operational volatility in fee income.
• Macroeconomic Sensitivity: While currently resilient, high interest rates could slow transaction velocity in private equity and venture capital, potentially impacting Fund Banking growth over time.
• Regulatory Changes: Finalization of Basel III rules could impact risk-weighted assets and capital ratios, though current impacts are assessed as manageable.

Q: Analyst asked about asset sensitivity evolution as the fixed-rate FDIC note is paid down and if M&A (whole bank or branches) would be pursued to accelerate paydown.

A: Management noted that replacing the fixed-rate note allows for better hedging and management of asset sensitivity, likely trimming it slightly but providing flexibility across cycles. Regarding M&A, they have no specific whole-bank plans currently but view acquisitions as important for growth and liquidity improvement, remaining opportunistic.

Q: Analyst asked about margin trajectory, beta assumptions, and Basel III impacts.

A: NII is expected to grow low-single digits in Q4 and mid-to-high single digits in 2027, with NIM stabilizing in the mid-320s to high-320s. Betas are expected to remain similar to the last cycle (~50% for deposits, lower 60% for loans). Basel III standardized approach is estimated to reduce RWA by mid-to-high single digits, accretive to CET1, with OCI inclusion having minimal impact due to short-duration portfolios.

Q: Analyst asked about Fund Banking pricing compression, VC activity resilience despite high rates, and IPO exit headwinds.

A: Spread compression has slowed, and the firm evaluates relationships holistically rather than just loan spreads. VC activity remains robust due to pent-up demand and dry powder, less sensitive to rates than historically. IPO exits are a headwind due to concentration in few deals, but secondary markets provide alternative liquidity.

Q: Analyst asked why reserves were released despite macro concerns and how utilization will trend.

A: Reserves were released because credit quality metrics improved across all portfolios, with NCOs at multi-year lows and coverage ratios well above peer averages. Utilization levels in Fund Banking were high (~40%) but are expected to normalize somewhat as the macro backdrop differs from previous highs, though underlying franchise health remains strong.

Q: Analyst asked about expense growth trajectory post-BMO integration and regulatory environment impacts.

A: Expense growth is expected to be low-to-mid single digits long-term, supported by efficiencies and full-year BMO impact. Management views recent regulatory tailoring proposals as positive, conducive to M&A and operational flexibility, enhancing their strategic optionality.