First Citizens BancShares Earnings Call: Growth Amid Pressure

First Citizens BancShares, Inc. Class A ((FCNCA)) has held its Q4 earnings call. Read on for the main highlights of the call.

First Citizens BancShares Balances Strong Earnings With Margin and Expense Headwinds in Latest Earnings Call

The latest earnings call from First Citizens BancShares, Inc. painted a mixed but generally constructive picture. Management highlighted robust profitability, double‑digit tangible book value growth, and aggressive share repurchases, underpinned by strong loan production and improving credit metrics. At the same time, they were candid about mounting margin pressure from lower rates, elevated technology and marketing expenses, a declining CET1 ratio as capital is deployed for growth and buybacks, and continued credit loss concentration in a few challenged portfolios. The message was one of confidence in the franchise and long‑term earnings power, tempered by a clear acknowledgment that 2026 will likely mark the low point for net interest income and margins before benefits from current investments begin to show.

Strong Earnings and Returns

First Citizens turned in a powerful quarter on core profitability. Adjusted earnings per share reached $51.27, driving adjusted net income of $648 million in the fourth quarter. Adjusted EPS rose a hefty $6.65 sequentially, signaling tangible momentum despite the tougher rate backdrop. Returns were solidly in double digits, with adjusted return on equity at 11.93% and adjusted return on assets at 1.1%, metrics that place the bank competitively among large peers and underscore the earnings capacity of the combined franchise.

Tangible Book Growth and Aggressive Share Repurchases

Capital deployment to shareholders remains a central theme. Tangible book value per share climbed 11% year over year and 3% sequentially, even as the bank stepped up buybacks. The company repurchased $900 million of stock in the quarter and about $4.9 billion since July 2024, retiring roughly 18.3% of Class A shares and about 17% of total common shares. Management has already completed around 30% of the board’s $4 billion authorization, signaling continued confidence in intrinsic value while carefully managing capital closer to long‑term targets.

Loan Growth Powered by Global Fund Banking

Growth on the asset side was led by the bank’s specialty engines. Period‑end loans rose $3.2 billion, or 2.2% sequentially, with global fund banking the standout contributor. That business alone saw loans increase $3.8 billion quarter over quarter, reflecting strong demand from fund clients and the bank’s competitive positioning. Total loan production surpassed $5 billion, the highest since the SVB acquisition, underscoring that the franchise is still capable of generating high‑quality growth even in a cautious credit environment.

Deposit Growth and Off‑Balance‑Sheet Strength

On the funding side, customer engagement remained healthy despite some period‑end volatility. Average deposits increased about $2.6 billion, or 1.6% sequentially, helping support the bank’s balance sheet expansion. Importantly, SVB commercial off‑balance‑sheet client funds rose to $69.7 billion, up $2.7 billion on a period‑end basis, with average off‑balance‑sheet balances up $3.1 billion. This indicates sticky, high‑value client relationships and gives the bank optionality to convert those balances onto the balance sheet as conditions warrant.

Noninterest Income Delivers a Lift

Fee and other noninterest income streams provided helpful diversification. Adjusted noninterest income grew roughly 2% sequentially, with contributions from rental income on operating leases—supported by a larger fleet and lower maintenance costs—alongside better wealth management fees driven by higher assets under management and stronger brokerage activity. International factoring and deposit service charges also added to the mix. Management guided first‑quarter noninterest income to $500–$530 million and full‑year levels to $2.1–$2.2 billion, signaling confidence in the durability of these revenue sources.

Improving Credit Metrics and Reserve Release

Credit trends showed tangible improvement quarter over quarter. The provision for credit losses declined by $137 million sequentially, reflecting both lower new problem formation and a more favorable macro outlook. Net charge‑offs fell by $91 million to $143 million, or 39 basis points annualized. The bank also recorded a larger reserve release—up $66 million sequentially—as the portfolio mix shifted toward higher‑quality exposures and macro assumptions improved, though management made clear that certain commercial segments will remain under pressure.

Progress on Strategy and Technology Modernization

Management devoted meaningful time to outlining progress on simplification and technology upgrades, key to long‑term efficiency gains. The bank has reduced its application inventory by more than one‑third and is consolidating its data center footprint from eight locations toward two. These moves are designed to streamline operations, reduce long‑term run‑rate costs and support scalable growth. While technology spending is expected to peak in 2026—keeping near‑term expenses elevated—management framed this as a necessary investment phase that should ultimately produce better operating leverage.

Liquidity and Purchase Note Paydown

Liquidity remains a source of strength. Cash balances stand at roughly 10% of earning assets, and the bank intends to operate within an 8–10% range, providing flexibility to support loan growth and manage funding risk. The company also began aggressively reducing its FDIC purchase money note, making an initial $2.5 billion prepayment. Ongoing paydowns of this note are a key component of the liquidity and balance sheet strategy, as the bank works to optimize its funding mix over the coming quarters.

NII and Margin Pressured by Rate Outlook

Despite strong volumes, revenue from net interest income is under pressure. Headline NII declined $12 million sequentially, and the reported net interest margin slipped 6 basis points to 3.20%. Excluding accretion, NIM fell 4 basis points to 3.11%, reflecting the drag from lower rates and competitive deposit pricing. Management expects both NII and NIM to bottom out in 2026, with full‑year NII guided to $6.5–$6.9 billion and first‑quarter NII of $1.6–$1.7 billion. The path forward hinges heavily on the rate environment, and the bank is preparing for a scenario where the benefit from reinvestment and balance‑sheet actions emerges only gradually.

Rising Operating Expenses and Near‑Term Efficiency Hit

Expenses are climbing as the bank invests for growth and integration. Adjusted noninterest expense increased $89 million sequentially, with personnel costs up $38 million, technology spending up $22 million, and direct bank marketing adding $12 million. For the full year, management guided adjusted noninterest expense to $5.37–$5.46 billion, a low‑ to mid‑single‑digit percentage increase. As a result, the efficiency ratio is expected to remain in the lower‑60% range in 2026, above the bank’s longer‑term target, reflecting the intentional near‑term trade‑off between cost discipline and growth investments.

Capital Ratio Compression From Growth and Buybacks

Capital levels remain solid but are moving down toward management’s target range as the bank funds growth and buybacks. The common equity Tier 1 (CET1) ratio ended the quarter at 11.15%, down 50 basis points from the prior quarter. The decline primarily reflects the impact of continued share repurchases and strong loan growth outpacing retained earnings. Management emphasized that they are comfortable with this direction of travel, but the compression does slightly reduce the excess capital buffer that had been built following the acquisition.

Deposit Outflows at Quarter‑End and Funding Strategy

While average deposits grew, the bank did experience modest outflows at the quarter’s end. Period‑end deposits were down $1.6 billion, or about 1%, with direct bank deposits decreasing $344 million. Management framed this as manageable within the broader funding plan and reiterated the focus on disciplined balance sheet management. Aggressive repayment of the FDIC purchase money note remains a priority, with minimum monthly paydowns guided in a range that should help gradually de‑risk the funding structure while preserving flexibility to support loan growth.

Concentrated Credit Losses and Elevated Medium‑Term Risk

Credit challenges remain concentrated in a few specific portfolios. Roughly half of net charge‑offs continue to come from SVB investor‑dependent credits, general office commercial real estate in the commercial bank, and the equipment finance book. Management expects net charge‑offs in the 35–45 basis point range for 2026 and anticipates losses will stay elevated in these pockets over the medium term. While overall credit metrics are improving, investors should expect a slower normalization path in these higher‑risk segments.

Headwinds From Lower Accretion and Interest Income

The bank’s earnings tailwind from purchase accounting and loan accretion is fading. Purchase accounting accretion is expected to decline from around $250 million in 2025 to about $203 million in 2026, a roughly $50 million headwind. Loan accretion is also projected to be down by about $100 million over the year. Combined with lower yields on cash and investments as rates fall, these factors will weigh on interest income and NIM, making underlying volume growth and pricing discipline even more important for maintaining revenue.

Expense and Marketing Pressure From Growth Initiatives

Beyond technology, management highlighted that direct bank marketing and integration activities will remain key sources of expense volatility. The company is leaning into marketing spend to support deposit and customer growth, while continuing integration work, including the BMO branch acquisition. These initiatives contribute to a wider expense guidance range in both the first quarter and full year, as timing of campaigns and tech milestones can shift. The message is that management is willing to accept near‑term margin compression if it drives sustainable, scalable earnings power in the years ahead.

Guidance and Outlook: Growth Continues Amid a 2026 Trough

Looking ahead, management laid out a detailed roadmap that combines balance‑sheet growth with disciplined capital and liquidity management, against a backdrop of expected Fed rate cuts. For the first quarter, loans are guided to $148–$151 billion and deposits to $164–$167 billion, with full‑year loan balances expected in the $153–$157 billion range and deposits between $181–$186 billion, including contributions from the BMO branch acquisition. Headline NII is projected at $1.6–$1.7 billion for Q1 and $6.5–$6.9 billion for the year, assuming two rate cuts later in the year that push NII and NIM to a trough in 2026, with exit‑2026 NIM roughly flat to 2025. Net charge‑offs are expected to run 35–45 basis points for both the first quarter and full year, reflecting continued elevated losses in certain portfolios. Adjusted noninterest income is forecast at $500–$530 million in Q1 and $2.1–$2.2 billion for 2026, while adjusted noninterest expense is pegged at $1.34–$1.38 billion for Q1 and $5.37–$5.46 billion for the year, driving an efficiency ratio in the lower‑60% range. The bank plans to maintain cash at about 8–10% of earning assets, continue paying down the FDIC purchase note in sizable monthly increments, manage CET1 from its current 11.15% level toward internal targets, and maintain share repurchases around $900 million per quarter as conditions allow.

In sum, First Citizens’ earnings call showcased a franchise that is growing loans and deposits, expanding fee income and delivering strong returns, while deliberately investing in technology and marketing that weigh on near‑term efficiency. Credit trends are improving overall, even as certain portfolios remain a drag, and capital is being actively returned to shareholders through sizable buybacks. The outlook calls for a period of earnings and margin digestion through 2026 as rate‑related headwinds and declining accretion play out, but management’s tone and actions suggest confidence that today’s pressure will ultimately set the stage for stronger, more efficient earnings in the next phase of the cycle.