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Founded in the 1800s, First Citizens BancShares is one of the largest commercial banks in the United States. First Citizens BancShares is the holding company for First-Citizens Bank & Trust Company, which offers retail and commercial banking services to individuals, small businesses, and larger companies in the United States and internationally. Since purchasing Silicon Valley Bank in 2023, First Citizens has offered financial services to startups and technology firms through a division called Silicon Valley Commercial.

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First Citizens BancShares (FCNCA): Company Profile, Stock Price, News, Rankings

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First Citizens BancShares

first citizens bancshares

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. If you require operator assistance during the program, please press star, then zero. As a reminder, today's conference is being recorded. I would now like to introduce you to the host of this conference call, Ms. Deanna Hart, Head of Investor Relations. Deanna, you may now begin.

Good morning, and welcome to First Citizens' third quarter 2026 earnings call. Joining me on today's call 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 investor relations website. Before we begin, please note that 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. Information regarding these risks is outlined on page three of the presentation. We will also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in section five of the presentation. Finally, First Citizens is not responsible for, and does not guarantee the accuracy of earnings transcripts provided by third parties. With that, I will now turn it over to Frank.

Thank you, Deanna. Good morning, and welcome everyone. Thank you for joining us today. I'll begin with a summary of our third quarter performance before turning it over to Craig Nix to review our financial results and fourth quarter outlook in more detail. Earnings exceeded our expectations during the quarter. Strong performance was headlined by high quality sequential top-line growth, underscoring the strength of our franchise and core client relationships, and our disciplined focus on delivering long-term shareholder value. We generated adjusted net income of $652 million, and adjusted earnings per share of $55.37, driving an ROE of 12.24% and an ROA of 1.08%. These solid results were fueled by accelerated loan and deposit growth, highly resilient credit metrics, expense discipline, and systematic balance sheet optimization. Loan growth remained strong during the quarter due to high quality client activity across both the commercial and general bank segments.

Loans were up $6.2 billion over the linked quarter, spearheaded by our premier fund banking business. Concurrently, our deposit channels delivered another standout quarter of expansion, growing by $11.8 billion on a period end basis, and $8.0 billion on an average basis. These deposit inflows reflect healthy client liquidity and the power of our diversified multi-channel funding sources, which reliably anchored our asset growth. Deposit balances directly benefited from the successful integration of the BMO branch acquisition, onboarding approximately $4.9 billion in high quality deposits. This transaction efficiently scales our branch network across 11 states, adding scale alongside First Citizens' well-established footprint and driving enhanced liquidity. Beyond our robust balance sheet expansion, heightened client engagement and strong momentum across our innovation and fund banking businesses drove solid, high quality increases in both period end and average off balance sheet client funds.

We also continue to deliver on our balance sheet optimization initiative. During this quarter, we returned $600 million to shareholders through share repurchases, successfully achieving our target operating range for CET1 capital. This deliberate capital management strategy underscores our financial strength and enhances our long-term capital efficiency. Furthermore, our strong liquidity position enabled us to prepay an additional $8 billion of the FDIC Purchase Money Note during the quarter, followed by another $1.5 billion in October. Since commencing these prepayments in the fourth quarter of 2025, we have systematically retired approximately 47% of the total balance, representing $17 billion in debt reduction in a year's time. Our solid performance this quarter reinforces a core message we have consistently communicated. First Citizens is structurally resilient, not dependent on any single business line, interest rate cycle, or macroeconomic variable.

Instead, our diversified earnings profile leverages highly complementary business segments that reliably generate stable, sustainable growth across diverse operating environments. As we look forward to the conclusion of 2026, our strategic priorities remain clear and measurable. Deepening core client relationships, driving operating efficiencies, and maximizing long-term shareholder value. Backed by highly favorable credit trends, rigorous expense discipline, balance sheet velocity, and robust client momentum, we are exceptionally well-positioned moving forward. I am incredibly proud of the execution our team has demonstrated this year, and I have the utmost confidence in the growth trajectory ahead of us. With that, I'll turn it over to Craig to walk us through our third quarter financial metrics and our updated outlook for the remainder of the year. Craig?

Thank you, Frank, and good morning, everyone. I will begin today with a review of our financial performance for the quarter, followed by an update on our credit quality trends and balance sheet optimization efforts. I will close with our fourth quarter 2026 outlook. My comments will be anchored to page nine of the presentation, with pages 10 through 27 providing the details underlying our third quarter results. As Frank mentioned, we are highly pleased with our performance this quarter. In the third quarter, adjusted net revenue expanded by 1.4% sequentially, successfully driving positive adjusted operating leverage. This momentum was powered by net interest income expansion, resilient fee-based non-interest income, and ongoing disciplined expense management. Delivering in line with our previous guidance, net interest income increased by $43 million over the linked quarter.

This growth was driven by favorable earning asset volumes and strong yields, a deliberate reduction in borrowings, and a higher day count. These structural tailwinds successfully offset higher funding costs and the anticipated growth in interest-bearing deposit balances. On a headline basis, NIM was 3.07%, while NIM excluding accretion was 2.99%, reflecting excellent margin stability in the current environment and remaining essentially in line with our expected band and the prior quarter. While adjusted non-interest income declined by a modest $11 million sequentially, it exceeded our guidance. We continue to benefit from robust, sustainable performance within our core fee-generating lines of business, underscoring the diversification and earnings power of our franchise. Lower sequential non-interest income stemmed almost entirely from a $37 million change in warrant income due to valuation adjustments in the current quarter. As we discussed last quarter, this portfolio is inherently subject to periodic valuation adjustments.

For context, these are equity warrants acquired through our strategic lending and financing relationships. They are marked to fair value each quarter based on shifting public and private company valuations, representing a non-operational market-driven fluctuation rather than a shift in our core performance. Importantly, our underlying core fee income engines delivered robust momentum. Lending-related fees were up $10 million sequentially, propelled by accelerating client lending and capital markets activity within the commercial bank. Client investment fees were up $9 million sequentially, benefiting from higher average off-balance-sheet client funds, a direct result of sustained client inflows within our high-performing innovation and fund banking franchises. Our Rail business delivered $10 million sequential growth in adjusted rental income. This business continues to capture high-value expansion within our railcar portfolio, anchored by exceptional utilization stability and resilient positive repricing trends.

We remain highly confident in the fundamentals of this portfolio and see clear near-term tailwinds ahead. Adjusted non-interest expense was largely stable sequentially, landing within our guidance range and reinforcing our commitment to expense management and operating efficiency. The sequential increase during the quarter was primarily driven by our continued investment in digital infrastructure and data center modernization and other expenses distributed across various operational line items. On technology investments, we are focused on an ongoing rigorous evaluation of our key vendor relationships to optimize investment and maximize efficiency. Importantly, these target investments were strongly mitigated by a sequential decline in professional services following the successful completion of key risk management and technology initiatives. Additionally, we achieved lower marketing expenses through enhanced marketing effectiveness within our direct bank channel. Personnel expenses were essentially flat on the quarter.

Turning to the balance sheet, period-end loans expanded by $6.2 billion, or 4.1% sequentially. While growth was broad-based within the commercial bank segment, a material portion was powered by continued momentum in our fund banking business. We also captured strong, high-quality growth in innovation banking, middle market banking, industry verticals, and our branch network. Further, the BMO branch acquisition contributed approximately $650 million in loan balances. In terms of business segment performance, fund banking delivered outstanding results, with loans expanding by $4.4 billion, or 11% sequentially. A combination of factors contributed to the performance, including higher utilization rates reflecting strong market demand, expanding capital call balances as market transaction values and line balances continued to climb, and stable limited partner capital calls. Innovation banking loans reached $10.1 billion at quarter end, representing an increase of 6.6% over the linked quarter.

Growth was anchored in the tech business and was supported by positive momentum from commercial finance referrals and strategic business partnerships, which continue to act as a powerful catalyst for loan production. We continue to capture high-value opportunities across our commercial finance verticals, where we see broad-based tailwinds in working capital, technology, media and telecom, and energy. In the middle market space, we see robust expansion driven by a combination of higher utilization levels and slower prepayments. In the general bank, loan balances increased by $633 million, reflecting the BMO branch acquisition and growth within our branch network and wealth management segments. Turning to deposits, we achieved high-quality growth during the quarter. Period end deposits grew by $11.8 billion, or by 6.8% sequentially. Deposit inflows were broad-based across all operating segments. This growth was successfully supplemented by the acquired BMO deposits, totaling $4.9 billion.

Our direct bank delivered outstanding performance, generating $3.2 billion in high-quality inflows this quarter. These core retail deposits are granular and heavily insured, structurally fortifying our liquidity profile while further minimizing depositor concentration. We are capturing a powerful secular trend as consumer adoption of digital-only banking accelerates, expanding our scale and deepening our digital relevance. The commercial bank segment increased by $1.5 billion, stemming from growth in innovation banking and middle market banking, partially offset by lower in-transit balances compared to the prior quarter. Specifically, innovation banking deposits grew by $1.7 billion. This growth reflects a stabilizing and healthy innovation ecosystem with vibrant public and private capital deployment alongside new client acquisition. While normal course client cash burn offset a portion of these inflows, the underlying business remains robust as we are growing efficiently across a highly diversified, healthy mix of early and late-stage investors.

This exceptional quarterly performance was further accelerated by deepening relationships with several large corporate clients. While institutional onboarding timelines naturally introduce minor quarter-over-quarter variability, the core trajectory and momentum are encouraging. Finally, to bolster liquidity to prepay the FDIC note, we continue to supplement organic deposit growth with the opportunistic use of brokered deposits. We actively monitor pricing and tenor to ensure a resilient, cost-effective funding mix and use this strategic deposit channel as needed to support funding needs. Period-end total client funds grew by $6.9 billion, while average total client funds rose by $7.2 billion on a linked quarter basis. This growth was primarily driven by expansion in our innovation and fund banking businesses, which continue to capture substantial inflows. Our credit profile remains strong, characterized by improvements across our key credit quality metrics. Nonaccrual loans decreased by $80 million sequentially, concluding the quarter at 0.87% of total loans.

Net charge-offs were $103 million, relatively stable compared to the second quarter. Our net charge-off ratio improved by 2 basis points to 0.27%, outperforming our guidance. Our performance resulted from successfully resolving several larger exposures within our general office portfolio to better outcomes than initially modeled. Furthermore, we observed consistent positive loss trends across our investor dependent, broader C&I, and equipment finance portfolios. During the quarter, we continued to see a reduction in criticized and classified asset levels. This positive migration towards higher credit quality, lower risk portfolios, such as capital call lending, has fundamentally strengthened our balance sheet. As a result of these improving credit quality trends, continued low net charge-offs, and a positive macroeconomic backdrop, we reduced our allowance for loan losses during the quarter. Building on Frank's earlier remarks, we are fully committed to the systematic repayment of the Purchase Money Note.

We are managing this proactively by optimizing our forward-looking profitability, strategic funding mix, and channel utilization. This calculated approach allows us to remain highly agile, adjusting dynamically to market conditions and relative funding economics to protect and enhance our margins. I am pleased to report through October, we have made outstanding progress on prepaying the Purchase Money Note, having prepaid $17 billion, representing approximately 47% of the original principal balance. During the third quarter, we hit the high end of our guidance range, successfully prepaying $8 billion, followed by an additional $1.5 billion in October. This accelerating momentum was efficiently powered by strong net positive deposit growth that outperformed loan expansion, alongside the liquidity infusion from the successful BMO branch acquisition. Looking forward, we are maintaining a highly visible, predictable, and steady paydown trajectory.

We project consistent quarterly prepayments in the $3.5 billion-$4 billion range through the end of 2027, putting us firmly on track to extinguish the remaining balance in full by that time. To ensure complete transparency regarding our funding architecture, our baseline forecast for the fourth quarter and the entirety of 2027 anchors on sustained net deposit growth over loan growth as our primary prepayment engine. To supplement prepayments, we do contemplate using targeted FHLB debt and opportunistic market issuances. As a point of context, we have significant untapped liquidity capacity. The approximate $8 billion in FHLB advances outstanding at the time of the SVB acquisition were entirely paid off in 2023, and we have not yet utilized this channel for our prepayment strategy.

While we have successfully leveraged the direct bank and the brokered CD market this year to capture high-value growth, we will continue to evaluate these options strictly against market pricing conditions. Finally, to support both long-term capital levels and the systematic replacement of the Purchase Money Note, we anticipate aggregate senior unsecured and subordinated debt issuances will be in a modest range of approximately $1 billion-$2 billion through year-end 2027. Turning to capital, as of October 20th, we have successfully repurchased approximately 24% of our outstanding common shares, representing a significant $6.9 billion capital return to our investors. During the third quarter, share repurchases totaled $600 million, bringing our CET1 ratio within our target range at 10.24% at quarter end.

Given that we are now operating within our CET1 target range, we expect the pace of share repurchases to moderate in upcoming quarters as we transition from deploying historical excess capital to a highly efficient, sustainable capital run rate. Demonstrating our long-term confidence, we recently announced a new $1.2 billion share repurchase plan set to commence in 2027. Looking immediately ahead, we project fourth quarter 2026 repurchases of approximately $300 million. This reflects our entry into a normalized capital range that balances sustained earnings with robust balance sheet growth. While we expect a similar quarterly baseline in 2027, the absolute volume of repurchases will remain flexible each quarter. This allows us to prioritize high-return organic growth opportunities, which we firmly believe represents the absolute highest and best use of capital. Ultimately, our capital allocation priorities remain unchanged.

We will continuously fuel client growth opportunities across our franchise, maintain a fortress balance sheet, and consistently return surplus capital to our shareholders. Our capital position remains comfortably and securely above all regulatory requirements. This provides us with meaningful strategic optionality to support client needs, fully fund high-value strategic growth initiatives, and deliver consistent premium long-term returns to our shareholders. Turning to page 29, I will conclude with our outlook for the fourth quarter and full year of 2026. We are raising our fourth-quarter loan guidance to a range of $158 billion-$161 billion. This upward revision is propelled by high-quality expansion within our commercial and general bank segments, backed by sustained client activity, disciplined pipeline conversion, and accelerating momentum across our core business lines. In the commercial bank, growth remains firmly anchored by our higher-performing fund banking business.

This is supported by elevated utilization rates and a highly resilient pipeline, which averaged a robust $10 billion during the third quarter. Following record-breaking production levels year to date, we prudently anticipate that balance growth will moderate from the exceptional pace observed in the third quarter. In the general bank, loans are positioned for steady, reliable growth driven by targeted expansion within our branch network's business and commercial portfolios. We project fourth quarter deposits between $189 billion and $192 billion, reflecting a significant increase over our prior guidance, driven by powerful continuous traction across our primary deposit channels. We anticipate deposit growth within our branch network, innovation, and fund banking channels. This will be strategically bolstered by growth in the direct bank alongside our tactical optimized use of brokered CDs.

Turning to net interest income, we are raising our full-year guidance to $6.68 billion-$6.75 billion, while establishing a fourth quarter range of $1.7 billion-$1.77 billion. This range factors in zero to one 25-basis-point rate hike in the fourth quarter. We expect continuous expansion in earning assets and that the benefit of higher asset yields will outpace rising funding costs. By accelerating deposit generation across all channels and efficiently retiring the FDIC note, we are systematically optimizing our balance sheet for high-quality net interest growth heading into 2027. Due to the specific timing of recent and potential fourth quarter rate hikes, a meaningful portion of our net interest income upside will materialize as a tailwind in early 2027, rather than late 2026.

This reflects a temporary lag as our proactive deposit repricing naturally moves ahead of our variable rate loans, which typically lag by up to one quarter to capture full repricing benefits. Finally, regarding credit quality, we expect fourth quarter net charge-offs to remain stable within the 30 basis points-35 basis points range. This matches our consistent, predictable performance throughout 2026. We view this as a normalized, highly manageable credit environment for the organization. Reflecting resilient performance year to date, we are tightening our full-year net charge-off guidance to 29 basis points-31 basis points. We observe no systemic trends signaling credit quality deterioration across the portfolio. Our loans remain well reserved, and we are highly encouraged by our credit metrics. Looking ahead, we project sustained declines in non-accrual loans as our disciplined asset resolution continues to outpace new inflows.

For the fourth quarter, we expect non-interest income to land between $540 million and $580 million. While our fee-generating engines continue to trend higher, this range accounts for potential warrant income fluctuations. Underpinning this, we see broad-based strength and momentum across many of our core fee income lines. Driven by strong year-to-date execution, we are raising our full-year guidance to $2.22 billion-$2.26 billion.

This upward revision is backed by sustained, highly visible momentum in client investment fees, deposit fees, lending fees as we continue to capture high margin upside in our lending-related business, directly benefiting from strong organic loan growth and robust capital markets activity. Rail, as the segment continues to operate from a position of strength driven by high asset utilization and favorable lease rate repricing, and finally, wealth management. We project fourth quarter expenses to remain stable, landing us within the $1.35 billion-$1.39 billion range.

This positions our full-year expenses to come in between $5.39 billion and $5.43 billion. As we enter the final quarter, we will fully realize the BMO branch acquisition within our run rate. Furthermore, we anticipate continued expansion in both equipment and third-party processing, directly driven by our high return investments in digital infrastructure and technology capabilities. To robustly support our deposit pipeline, we will continue leveraging our high-performing direct bank, backed by a calculated marginal increase in marketing expense. As is typical for this period, our fourth quarter outlook incorporates seasonally higher benefits related expenses. It also includes an increase in incentive compensation, a direct reflection of our strong performance across the organization this year. Additionally, professional fees will shift upward relative to the third quarter, timed with the launch of several milestone projects that directly support our key strategic initiatives.

To wrap up on expenses, leadership is highly encouraged by our current trajectory. The rigorous expense discipline embedded across our organization reflects deliberate, successful actions to streamline our cost of doing business. Our strategic focus on operating efficiency is effectively bending the cost curve in our favor. For both the fourth quarter and full year 2026, we expect our tax rate to be in the range of 24.5%-25.5%, which is exclusive of any discrete items. This concludes our prepared remarks. I will now turn it over to the operator to open the line for questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press star then one on your touch tone telephone. As a courtesy to others on the call, we ask that you limit yourself to one question and one follow-up. If your question has been answered and you wish to remove yourself from the queue, please press star one again. We will pause for one moment to compile our Q&A roster. Our first question comes from the line of Bernard von Gizycki with Deutsche Bank. Bernard, your line is now open.

Hey, guys. Good morning. Just on asset sensitivity, how do you expect that to evolve as you further pay down the FDIC Purchase Money Note, as there will be some change in the funding mix as noted?

Yeah, Bernard, this is Arch McClure here. I can take that on the asset sensitivity. Overall, we should see from a mix perspective a more beneficial backdrop for us to manage the position that way. As a quick level set, the FDIC note is a fixed rate note, and due to the option component to it, we are unable to hedge around that position. As we look at the alternative funding sources that Craig kind of mentioned in his prepared comments, we have a more compelling capability to manage the current position for asset sensitivity down to where we probably will land. Generally speaking, directionally, it should trim a little bit from where we're positioned this quarter. But ultimately, it's going to provide us an appetite or an opportunity to manage across a wide range of cycles here.

Just maybe following up, what's the appetite for pursuing either a whole bank deal or a branch acquisition similar to the BMO to help pay down the FDIC Purchase Money Note further?

We don't have any specific plans currently for a whole bank acquisition, but I do think that the BMO transaction indicates that M&A will remain an important part of our growth strategy and a way for us to continue delivering value to our shareholders. So we would look for opportunistic or opportunities in the space, especially in opportunities to increase and improve our liquidity profile.

Your next question comes from the line of Chris McGratty with KBW. Chris, your line is now open.

Oh, great. Morning, everybody. Craig, maybe starting with the margin, the moving parts. Could you help like you've done in prior quarters with kind of a look forward between margins and NII growth? And I did see you nudged up your beta assumptions a bit. So any comment there? Thanks.

Sure. In terms of looking at where we were in the third quarter actual compared to the fourth quarter exit, we expect headline net interest income to be up low-single-digit percentage points and ex accretion to be up low to mid-single-digit percentage points. From a NIM basis, we expect headline NIM to be in the mid 3.10s and ex accretion in the high 3.0s. In terms of that fourth quarter 2026 exit to fourth quarter 2027 exit, this assumes we are anchoring to one more rate hike this year and two rate hikes in 2027 as our baseline scenario. The fourth quarter 2027 exit, we would expect headline net interest income and ex accretion net interest income to be up mid to high-single-digits percentage points.

We would expect headline NIM to be in the mid 3.20s and ex accretion NIM in the low 3.20s. In terms of betas, we do not expect our betas ultimately to be up significantly from where they were in the last up cycle. Think in deposits in that 50% range in loans and maybe that lower 60% range, ultimately increasing to 100% over time on loans.

Okay, thanks. The mid 3.20s, low 3.20s, that was 4Q 2027 anchored against 4Q 2026, right?

Okay, great. On the capital, I hear you're in the range, in the pace. I think that's in line with our expectations. Can you just walk through how you're thinking about when Basel III gets finalized? Any capital relief there or the toggle between CET1 absolute targets and any comment on the TCE ratio? Thanks.

Yeah. We're currently assessing those proposals in terms of ERBA versus the standardized approach for the impact on our capital ratios. At this time, I think we're estimating the standard approach would reduce our current risk-weighted assets in the mid to high single digits percentage range. It would be accretive to our CET1 ratio by around 70 basis points. We also don't expect the AOCI inclusion to have a material impact given our relatively short duration investment portfolio. At the quarter, we were down, it would have been about a 42 basis points drag. In terms of that, we're still assessing, and I don't think we're ready to commit to ERBA today, but we'll continue to evaluate it. Arch, anything else to add there in terms of Basel III?

I think you hit the highlights there, Craig. The only thing I'll add there, Chris, is obviously timeline I would say we're expecting by end of year for at least an update or a final rule determination on that front. From there, we'll assess the opportunities ahead of us. I think to echo Craig's point, with OCI kind of being front and center with the September move in rates at a 40-basis-point impact on the OCI mark from the portfolio, we feel like we're in a very good place here to kind of manage through the final rule and what the potential impacts would be for us.

Your next question comes from the line of Brian Foran with Truist. Brian, your line is now open.

Hey, how's it going? I guess on fund banking, obviously great growth. Any thoughts on what pricing on loan and deposits looks like? I guess ultimately, is it coming on at a similar net interest margin in that business to the overall company or anything you'd flag about it being higher or lower?

Yeah. This is Elliot Howard. I'll start there and then kick it to any comments from Jesse. I think in general, very healthy spreads in the fund banking business. I think we did over probably a six, eight  quarter period, see a little bit of compression in that business, and that's largely stabilized. So if you look at our overall portfolio, it's coming on, I'd say slightly above it.

What we'd consider very healthy spreads and very healthy, I think even to kind of our marginal funding in the direct bank. As far as the deposits in that business, they're actually lower than our average deposits at the bank. So really some of the lowest ones that we probably have from a lot of business perspective. Not all those obviously are completely lendable given the nature of the client, us holding liquidity. But from a just absolute rate perspective, positive on the loans and also certainly lower than our average cost of deposits. Jesse, anything to add on kind of either of those points?

Elliot, I think you said it well. Competition does remain active. We have, as you said, experienced some spread compression in our markets. I think that is across the broader fund finance market in general. But I do think a differentiator is our pricing decisions consider the economics of the entire client relationship. That includes lending deposits, fee income, obviously. And so we are evaluating opportunities based on an overall risk-adjusted relationship return rather than just loan spreads or deposit spreads in isolation. I think that continues to allow us some favorable risk-adjusted returns accretive to FCB overall. That said, compression has slowed. The competitive environment has not slowed, but the compression we have seen in the market has slowed on the loan yields, and so we are anticipating it to go at a more muted pace going forward.

Great. If I could ask one follow-up. Historically in the SVB days, when you got a sharp move higher in rates or the rate outlook, it was not always the case, but there were times when there was an air pocket in activity in VC world. Is that something you are watching at all? It does not sound like it, so maybe what is different this time that is making fund banking kind of zig whereas this historically would have zagged as rates move up?

Yeah. So in general, higher rates could slow transaction velocity, right? Particularly for higher leverage transactions. This is more on the private equity side of the house. But we just think it is going to take substantially higher rates for things to slow materially. Sponsors still have a ton of dry powder. Fundraising is active among the more established managers. Our clients continue to be focused on deploying that capital. So our growth rates are more influenced by fundraising and capital deployment, less so by rate movements alone. Historically, we have seen overall minimal impact on activity levels from rate increases alone in our loan book. I will pass to Marc if he has any comments on the overall venture ecosystem and how rates could impact that.

Yeah, I will pick up on that. As noted, higher interest rates, a rising interest rate environment can be a headwind for venture investment as I think Jesse mentioned. Given the extraordinary pace of venture investment that we've seen year to date, we could see some slowdown. Expect we quite likely will see some kind of slowdown, but at the same time, haven't really detected any dampening of enthusiasm, I guess I would describe it, based on rates. The pace of venture investment through the third quarter remained pretty robust. I think part of this is likely a function of the diminished, outside of AI investment anyway, the diminished pace of venture investment 2022 to 2025, I think results in a little bit of a pent-up, if you will, pent-up investment that we've seen really pick up as noted year to date.

There certainly is that question of how much higher will rates go, how swiftly? It remains to be seen going into 2027 if that turns out to be more of a headwind. But so far, again, the enthusiasm we're seeing from venture investors is notable and seemingly not diminished by what we've seen so far in the rates.

Our next question comes from the line of Anthony Elian with JPMorgan. Anthony, your line is now open.

Morning. Just following up on that previous question. Marc, are you seeing any signs of slowdown or cause from concern or hesitation from IPOs getting pulled or delayed? Is that causing any concern among your clients?

Specifically, it is not a concern I have heard of specifically. I would broaden that to say in general, while exits were better in the third quarter, there was some concentration in that one transaction was, I think, about half of the exit value. When you net that out and then add the bar remains high for IPOs, we are still not seeing the degree of exits and capital making the round trip that we would hope to. Again, we will see if that changes. But for the moment, that I think remains a bit of a headwind, though at the same time, there are other avenues for liquidity and things like secondaries, et cetera, that continue to provide some degree of liquidity while we wait and see when we are going to get a more wide open IPO window.

Okay. On slide 23, you give us some of the funding sources such as FHLB brokered and issuing debt that can help offset prepaying the note. Those to me sound all more incrementally expensive sources of funding relative to the note. Can you help us size up how much of a drag on NIM or NII you expect next year from replacing the note with those funding sources? Thank you.

Yeah. Hey, Anthony, it is Arch here again. Point taken there. Obviously with the marginal cost of funding through those channels being that and higher of the Purchase Money Note coupon and effective yield we have on it will pressure and have a bit of a drag there on the margin component. I think overall though, when we look at how the balance sheet forecasts and models out through the program or the strategy here, we expect to still continue to have some positive operating leverage across the aggregate. So again, I think for us, it is more of a temporary drag and something we feel like we can work through again as we look at a longer horizon here.

Yeah. While it in and of itself is a drag, overall we expect that earning asset yields will outstrip any negative impact of that, and our margins will expand.

Our next caller comes on the line of Janet Lee with TD Cowen. Janet, your line is now open.

Morning. Following up on fund banking, which was obviously very strong. Some of your peers have pulled back on the capital call lines, but obviously your growth has been very resilient and strong. What do you see on the demand? Is it purely on the demand side from existing customers, or are you taking market share? How should we understand the strengths and that growth that we've seen and your outlook on capital call lending?

Sure. Happy to jump in, Craig. In Q3, as we saw in the second quarter as well, our clients continued to deploy substantial amounts of capital, and that resulted in continued elevated utilization on our facilities and in overall loan growth. I think to your question, we saw demand coming from our existing clients. We are also taking market share. We are benefiting from strong production that the team executed on in the first half of the year, and that production very much continued through Q3. So we booked close to $6 billion in new deals in Q3 alone, all of which allowed us to grow our loan balances beyond our original expectations. I will caveat that and say utilization levels, we do expect them to moderate somewhat. They are out of our control.

But we did see in Q3 utilization levels around 40%, which is the highest over the last few years, and really just below our 2021 and 2022 highs. Given this is a very different macro and liquidity backdrop, we do expect utilization to normalize somewhat. But again, that's out of our control. What is in our control is that the underlying fund banking franchise is one of the healthiest it's been, I think on both the loan side, but also on the fee and deposit side. I think we continue to expand through production, as I mentioned. We're taking market share. We're expanding existing relationship. And the pipeline activity, as Craig mentioned, is extremely robust. All that remains at very healthy levels, and hence our forecast for continued loan growth, albeit maybe at a slower pace than Q3.

Got it. Thanks for all the color. On credit, obviously very stable and strong. A few of your peers have increased reserve just on the evolving macroeconomic outlook. Can you just explain to us the rationale behind the lower reserve ratio, why this is a good level? You've been beating the street on provision for quite a bit, so just want to see what the right level of provision here is going forward. Thanks.

Yeah. I would just talk at a macro level here. We're very comfortable where our allowance is right now. We think it's prudent and conservative. It's covering net charge-offs over 3.4x on a quarter-to-date basis, over 3x on a year-to-date basis. We've got over 1% coverage on non-accrual loans. The net charge-off ratio has declined for four straight quarters. At 27 basis points this quarter was the lowest it's been since the first quarter of 2023. We continue to be in the top half in a good way of our peer group in terms of charge-off ratio being lower. We just feel very good about where we are with our allowance.

The reduction or the release that you've seen primarily just relates to that quality of credit, and our trends moving in the right direction just about across the board in every credit quality metric you can name. That's where we are on the allowance. Be glad to answer any other questions about that. Andy, do you want to make any comments there?

No, I think the credit quality, like you said, Craig Nix, across all the asset measures reflects the quality and the strength of the portfolio.

Our next question comes from the line of David Chiaverini with Jefferies. David, your line is now open.

Hi, thanks for taking the questions. Wanted to ask about expenses. You mentioned about bending the curve in your favor. How should we think about expense growth over the medium term? Is low to mid-single digit reasonable?

Yeah, we think that's absolutely fair. I think we've really been focused on efficiencies as we look at continuing to optimize and combine platforms, processes, and teams quite candidly. I think that puts downward pressure on it. As we look forward to 2027, we will have the full year impact of BMO, which that kind of low to mid-single digits really contemplates that being in that kind of guidance. But we're confident. I think the progress that you've seen in the last few quarters in our results, that we're going to be able to really carry that forward into 2027.

Great. Thanks for that. I wanted to ask about the brand alignment now that that's complete. Any takeaways or feedback from your clients thus far in shifting the brand to a unified brand?

Yeah, Dave. This is Deanna. I think we've had a really good experience to date. The feedback from the clients has been well as well. Marc, anything you'd want to add there since you're a little closer to that business?

Yeah, what I would add is I think all the feedback we were going to hear from clients, and there really wasn't a lot of it, we heard back in April when we announced that this was coming. With the brand launch, there's been hardly any discussion really that I've heard from clients other than to acknowledge that the thing we told them in April is finally here. But the overarching sentiment continues to be that name change, whatever, so long as you're continuing to deliver the same excellent client experience, product solutions, et cetera, that SVB did for the last three years as part of First Citizens in the 40 years prior. That's really what the marketplace cares about, and by extension, has seemingly moved past the name change as a kind of no big deal event.

Our next question comes from the line of Timur Braziler with UBS. Timur, your line is now open.

Hi. Thank you for the questions. Just the ability to pay down the FDIC note if the forward curve plays out, I am just wondering if that becomes more expensive, is your margin trajectory still intact? Maybe part B of that question, just appreciate all the margin color. It sounds like you get much of that margin expansion that you are expecting for next year over the next two quarters, and then it kind of stabilizes out. Is that a fair assessment, or is it more of a stairstep in your internal calculations?

Timur, this is Arch here again. I will take the first part up with the Purchase Money Note and call it fluctuations or scenarios around the forward curve. I would say generally should the forward curve either be under-appreciating or over-appreciating the path of rates, as Craig has alluded to, there will be marginal impact or benefit to the margin trajectory itself.

Again, if we are having to replace with higher cost funding, that is a known known, right? We do think we have upside on the left side of the balance sheet on the loans side to offset what that marginal increase or impact would be from the funding base. Again, not an all-seeing answer here by any stretch, but I do think we are confident that we can manage with the expectations here should rate forecasts and actuals have a deviation, which we know will happen. Forward curve is never right. We will find a way to manage across, but again, we are confident with where we are.

Okay, and then just in terms of margin cadence, is much of that uptake here in the next couple of quarters, or is it more stairstep throughout 2027?

That's going to largely depend on the timing of the hikes. Again, we have one hike in the fourth quarter. We won't see much of that come to fruition until 2027, as I mentioned earlier. But we do expect low-single-digit percentage growth in the fourth quarter over the third, and that transforming into, over the next year, assuming two rate hikes in the next year, to mid to high-single-digits growth year-over-year. Most of the benefit is

If I could just one. Got it. Then just maybe one more on the M&A conversation. There was an article earlier in the quarter about interest in adding scale. You guys have been successful both in whole bank M&A at attractive valuation. The BMO deal, I think, was very attractive from a financial standpoint. Just, I guess as you look at the broader opportunity set that's out there, what is the more likely scenario if you were to pursue M&A here? Would it be continuing down the path of whole bank M&A at or below tangible book value? Or are there additional opportunities to maybe add branches and deposits along with them?

We certainly would look for opportunities to do that to improve our funding profile, specifically getting our funding mix back more to core deposits. We definitely would be looking for opportunities for branch acquisitions if they exist. When we return to the market on the whole bank side, I think you'll see us be the same opportunistic buyer focused on accretive M&A that increases our scale, enhances our ability to compete, and to be a better bank for our clients. I think all of those things would be very consistent with what you've seen us do in the past. But in terms of anything right now, we don't have anything on the board, but we would look at each opportunity based on its merits.

Our last question comes from the line of Christopher Marinac with Brean Capital. Christopher, your line is now open.

Hey, thank you. I wanted to ask about the regulatory environment possibly changing in future quarters, and would that open up any opportunities externally for First Citizens?

Let me make a macro comment there. We see recent and proposed changes to the regulatory environment that really is supportive of what we want to do, whether we're talking about FRB supervisory principles, FDIC proposed rulemaking, tailoring. We see those things as highly positive to us. We're encouraged by the regulatory environment. Tom, would you like to add anything to that?

No, I think you hit the key points. I think if I understood the question, Chris, also from an M&A perspective, obviously the environment is conducive to M&A from a regulatory perspective. To Craig Nix's points earlier, we are always looking for opportunities there.

Great. I appreciate you adding that, and thank you again for hosting us this morning.

There are no further questions at this time. I would like to turn the call back over to our host, Ms. Deanna Hart, for any closing remarks.

Thank you for joining our earnings call today. We appreciate your ongoing interest in our company. If you have 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 call. You may now disconnect. Have a wonderful day.

First Citizens BancShares (FCNCA) Q3 2026 Earnings Call Transcript

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