First Citizens BancShares Inc 2026 Q3 Earnings Call

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 3 of the presentation. We will also reference non-GAAP financial measures. Reconciliations to 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 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 9 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.