First Citizens BancShares Inc earnings calls

Asset sensitivity and paying down FDIC note

Q (Bernard von Gizycki · Deutsche Bank): How will asset sensitivity change as you pay down the FDIC Purchase Money Note? Also, is there appetite for whole-bank or branch deals to help pay it down?

A: Management said the FDIC note is fixed rate and cannot be hedged because of an option feature. Paying it down should slightly reduce asset sensitivity and give them more flexibility to manage across cycles. They have no specific whole-bank plan now but will look opportunistically at M&A and branch deals to improve liquidity.

"Overall, we should see from a mix perspective a more beneficial backdrop for us to manage the position that way." — Arch McClure

Margins, NII growth and Basel III impact

Q (Chris McGratty · KBW): Can you walk through the margin moving parts and the outlook for NII and NIM? Also, any comment on betas and how Basel III proposals affect capital and TCE?

A: Management gave NII and NIM guidance for the near term and for 4Q2027 anchored to 4Q2026, assuming more rate hikes. They expect deposit betas around 50% and loan betas starting lower 60s rising toward 100% over time. On Basel III, the standard approach could lower risk-weighted assets by mid- to high-single digits and add about 70 basis points to CET1; they expect an end-of-year update on rules.

"I think we're estimating the standard approach would reduce our current risk-weighted assets in the mid to high single digits percentage range." — Craig Nix (CFO)

Fund banking loan and deposit pricing

Q (Brian Foran · Truist): What do pricing and spreads look like in fund banking? Do those loans and deposits come on at similar margins to the overall bank or different?

A: Management said fund banking has very healthy spreads and some prior compression has stabilized. Loans in that business generally yield slightly above the company average, while deposits in that business are lower cost than the bank average. They also said pricing decisions consider the entire client relationship, so returns are evaluated on a risk-adjusted, relationship basis.

Fund banking spreads and competition

Q (Elliot Howard): Follow-up on fund banking pricing and deposit cost: any additional color on spreads, deposit behavior, and competition?

A: Management said competition is active and earlier spread compression has slowed. They emphasized they price based on the full client relationship, which helps maintain favorable risk-adjusted returns. They expect compression to be more muted going forward but remain focused on overall economics of each client.

"I think that continues to allow us some favorable risk-adjusted returns accretive to FCB overall." — Jesse Hurley

Rates and VC/transaction activity

Q (Brian Foran · Truist): Could higher rates cause a drop in VC activity or deal velocity like in the SVB days? Are you watching for that?

A: Management said higher rates can slow transaction velocity, especially for high leverage deals, but they think rates would need to be substantially higher to slow activity materially. Growth is driven more by fundraising and deployment of dry powder than by rates alone; historically they have seen minimal impact from rate increases on their loan book.

"So in general, higher rates could slow transaction velocity, right?" — Jesse Hurley

IPOs, exits, and liquidity for clients

Q (Marc Cadieux): Are you seeing any slowdown or hesitation around IPOs that worries your clients? Any impact on exits?

A: Management said they have not heard IPO pullbacks as a specific concern. Exits improved in Q3 but were concentrated in one large deal, and overall exit activity and capital round-tripping remain below desired levels. They noted other liquidity avenues like secondaries are providing some relief while waiting for a broader IPO window.

Replacing the FDIC note and margin drag

Q (Anthony Elian · JPMorgan): If you replace the Purchase Money Note with FHLB, brokered deposits, or debt, how much will that drag margins next year?

A: Management acknowledged those alternative funding sources can be more expensive and will pressure margin as you replace the note. They view the drag as temporary and expect earning asset yields and loan side upside to outstrip the negative impact over time. Overall they expect to maintain positive operating leverage across the balance sheet.

"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." — Arch McClure

Demand vs market share in capital call lending

Q (Janet Lee · TD Cowen): Is your capital call loan growth driven by demand from existing clients or by taking market share? Also explain your lower reserve ratio.

A: Management said growth was driven by both strong demand from existing clients and market share wins, with about $6 billion of new deals booked in Q3. They expect utilization to normalize from high recent levels, but the fund banking franchise remains healthy. On reserves, they said the allowance is prudent and conservative and covers net charge-offs multiple times over, reflecting improving credit trends.

"It's covering net charge-offs over 3.4x on a quarter-to-date basis, over 3x on a year-to-date basis." — Craig Nix (CFO)

Expense outlook and brand change feedback

Q (David Chiaverini · Jefferies): How should we think about medium-term expense growth? And any client feedback from the unified brand launch?

A: Management said low- to mid-single-digit expense growth is reasonable, reflecting efficiency gains and the full-year impact of the BMO deal in 2027. On the brand, feedback has been minimal and generally positive; clients care more that service and product remain strong than the name itself. They are confident cost progress will continue into 2027.

"I think we've really been focused on efficiencies as we look at continuing to optimize and combine platforms, processes, and teams quite candidly." — Elliot Howard

Margin cadence and future M&A plans

Q (Timur Braziler · UBS): If the forward curve makes replacing the note more expensive, does your margin path still hold? And if you pursue M&A, will it be whole-bank or branch deals?

A: Management said if replacement funding is pricier it will have marginal impact but they expect loan yield upside to offset much of it. Margin gains depend on timing of rate hikes, with most benefit coming in 2027 under their baseline. On M&A, they said they would look for deals that improve funding mix and core deposits, including branch acquisitions, and remain opportunistic for accretive whole-bank deals.

"We certainly would look for opportunities to do that to improve our funding profile, specifically getting our funding mix back more to core deposits." — Craig Nix (CFO)

Regulatory changes and opportunities

Q (Christopher Marinac · Brean Capital): Could proposed regulatory changes open external opportunities for First Citizens, including M&A?

A: Management said recent and proposed regulatory changes are supportive of their strategy and are seen as positive. They highlighted FRB supervisory principles and FDIC rulemaking as moves that align with their goals. From an M&A view, the regulatory environment is also conducive and they will keep looking for opportunities.

"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." — Craig Nix (CFO)

Regulatory view on M&A

Q (Tom Eklund): Would regulatory shifts make M&A easier or create new opportunities?

A: Management agreed the regulatory picture is favorable for M&A and consistent with their earlier comments. They said they are always looking for opportunities and will assess deals on their merits. The environment is conducive from a regulatory perspective, which they view as helpful.