Citizens Banks Beats Expectations Despite Rate Cuts

Date of Call: Jan 23, 2026

Financials Results

• EPS: $51.27 per share, up $6.65 sequentially

Guidance:

• Q1 2026 loans expected in the $148B-$151B range; full year $153B-$157B.
• Q1 2026 deposits expected in the $164B-$167B range; full year $181B-$186B.
• Q1 2026 headline NII expected $1.6B-$1.7B, down mid-single digits sequentially; full year $6.5B-$6.9B.
• Q1 2026 net charge-offs expected 35-45 bps; full year same range.
• Q1 2026 adjusted noninterest income expected $500M-$530M; full year $2.1B-$2.2B.
• Q1 2026 adjusted noninterest expense expected $1.34B-$1.38B; full year $5.37B-$5.46B, up low to mid-single digits.
• Tax rate expected 24%-25% for Q1 and full year 2026.
• Expect to make minimum $500M-$1B monthly payments on purchase money note in 2026.

Business Commentary:

Financial Performance and Strategic Priorities:

• First Citizens BancShares reported adjusted earnings per share of $51.27 and adjusted ROE of 11.93% for Q4 2025, exceeding expectations despite lower interest rates.
• The strong performance was attributed to resilient net interest income, stable credit quality, and strategic priorities such as deepening client relationships and optimizing the balance sheet.

Loan and Deposit Dynamics:

• Loans increased by $3.2 billion or 2.2% sequentially, primarily driven by the global fund banking business.
• Deposits declined by $1.16 billion or 1%, influenced by shifts into off-balance sheet client funds and seasonal distributions.
• The growth in loans was supported by strong production and increased line utilization, while deposit declines were partially offset by growth in average deposits.

Share Repurchase and Capital Management:

• The company returned $900 million to shareholders through share repurchases in Q4, aligning with their capital targets.
• The repurchase activity is part of a broader strategy to optimize capital ratios and manage liquidity, especially with the repayment of the FDIC Purchase Money Note.

Technology and Operational Investments:

• First Citizens continued to invest in technology and operational capabilities, with a focus on improving customer experience and streamlining processes.
• These investments, while increasing short-term expenses, are aimed at delivering positive operating leverage and enhancing efficiency in the long term.

Risk Management and Leadership Changes:

• The company emphasized its commitment to maintaining a robust risk governance framework, with Lorie Rupp retiring and Tom Eklund assuming the role of Chief Risk Officer.
• This transition is part of ongoing efforts to ensure strong risk management and operational efficiency as the company grows.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q4 as a continuation of a 'successful year' with earnings metrics exceeding expectations despite lower rates. They reported resilient net interest income, stable credit quality, and strong loan growth. The tone was optimistic about momentum into 2026, with statements like 'We enter 2026 on a strong footing and I'm excited about what we can accomplish.'

Q&A:

• Question from Christopher McGratty (Keefe, Bruyette, & Woods, Inc.): Concerns about the cadence of NII and exit rates, and the midpoint of the rate guidance.
  Response: Baseline forecast includes 2 rate cuts in 2026 (June and October). Q1 2026 NII expected down mid-single digits; NIM expected mid-3.10s. NII expected flat by Q4 2026, with NIM troughing in Q4 2026.

• Question from Christopher McGratty (Keefe, Bruyette, & Woods, Inc.): Inquiry about the cadence and pace of technology and investment spend, and if peak investment is nearing.
  Response: Investments in risk management are largely complete, transitioning to a business-as-usual model. Technology spend is peaking in 2026, but focused on bending the cost curve; expenses expected low to mid-single-digit growth in 2026.

• Question from Christopher McGratty (Keefe, Bruyette, & Woods, Inc.): Question about specific tax charges in the quarter.
  Response: Only charge was a return-to-provision adjustment related to tax credit estimates for the prior year.

• Question from Anthony Elian (JPMorgan Chase & Co): Asked about factors driving the wide expense outlook range and LFI Cat III expenses.
  Response: Range is influenced by direct bank advertising spend and timing of tech efficiencies; competitive deposit environment could push to higher end, while faster efficiencies would push to lower end.

• Question from Anthony Elian (JPMorgan Chase & Co): Asked about drivers of strong SVB client fund growth and outlook for the business.
  Response: Growth driven by improving venture investment activity and better execution; guidance reflects expectation of further incremental improvement.

• Question from Casey Haire (Autonomous Research Limited): Asked for more color on the pace of purchase money note retirement and cash as a percentage of earning assets.
  Response: $500M-$1B monthly payment is the minimum based on collateral roll-off; payments may accelerate if alternative funding costs decline. Cash as a percentage of earning assets expected to remain in 8%-10% range.

• Question from Casey Haire (Autonomous Research Limited): Asked if loan growth is being constrained or is expected to moderate.
  Response: Loan growth may moderate due to portfolio sales to repay the purchase money note and the natural short duration of the capital call line portfolio, even with strong pipeline activity.

• Question from Casey Haire (Autonomous Research Limited): Asked for outlook on purchase accounting (net accretion income).
  Response: Net accretion income expected to decline from ~$250M in 2025 to ~$203M in 2026.

Contradiction Point 1

Net Interest Income (NII) and Net Interest Margin (NIM) Trough Timing

The timing for when NII and NIM will reach their lowest point has shifted between quarters.

What's the outlook for NII trajectory and exit NIM considering rate guidance? - Christopher McGratty (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q4: Headline NIM is expected to trough in Q4 2026, and ex-accretion NIM in Q2 2026. - Craig Nix(CFO)

Given the lower NII guidance this quarter, is $1.7 billion the expected Q4 NII with two rate cuts? When do you expect NII to reach its lowest point? - Christopher McGratty (Keefe, Bruyette, & Woods, Inc.)

2025Q3: NII and NIM are expected to trough in the first quarter of 2026. - Craig Nix(CFO)

Contradiction Point 2

Loan Growth Outlook and Constraints

The rationale for moderating loan growth guidance appears to conflict between quarters.

Why is the 2026 loan growth guidance mid-single digits despite strong growth and a robust pipeline, and is growth being constrained for liquidity? - Casey Haire (Autonomous Research Limited)

2025Q4: The guide reflects a balance between supporting client lending and managing the repayment of the purchase money note. - Frank Holding(CEO), Tom Eklund(SVP & Treasurer), Craig Nix(CFO)

Why is the Q4 loan growth guide conservative despite Q3's 10% growth and a strong pipeline? - Casey Haire (Autonomous Research Limited)

2025Q3: The Q4 guidance reflects the expected volatility and is not as conservative as it may appear. - Marc Einerman(SVP)

Contradiction Point 3

Net Interest Income (NII) and Net Interest Margin (NIM) Outlook

Inconsistent guidance on when NII and NIM will trough.

How do you expect the trajectory of NII and projected NIM to evolve with current rate guidance? - Christopher McGratty (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q4: Headline NIM is expected to trough in Q4 2026, and ex-accretion NIM in Q2 2026. - Craig Nix(CFO)

What NIM exit rate is expected in Q4 2025 under 0, 1, or 2 rate cuts, and how do competitive pressures in deposits and loans factor in? - Bernard Von Gizycki (Deutsche Bank)

2025Q2: For the range of 0 to 2 rate cuts in 2025: ... NIM ex-accretion: Q4 exit rate would be in the mid-3.10s to mid-3.0s. - Craig Lockwood Nix(CFO)

Contradiction Point 4

Repayment Timeline for FDIC Purchase Money Note

Contradictory statements on when note repayments will occur.

Can you explain the slower-than-expected purchase money note repayment pace and the projected cash percentage of earning assets? - Casey Haire (Autonomous Research Limited)

2025Q4: The minimum monthly payment is $500 million to $1 billion... As alternative funding costs decline, the bank will accelerate payments. - Craig Nix(CFO), Tom Eklund(SVP & Treasurer)

What is driving the conservative loan growth guidance (flat to modest up) despite a $9.5B SVB pipeline, and what are updated thoughts on the FDIC purchase money note, FHLB capacity, and their interaction with potential Fed rate cuts? - Casey Haire (Autonomous Research)

2025Q2: Declining rates (as per the forward curve) would lead to paydowns in 2026, not 2025. - Craig Lockwood Nix(CFO), Tom Eklund(SVP & Treasurer)

Contradiction Point 5

Purchase Money Note Repayment Timing

Contradiction on the timing and certainty of repaying the PMN.

Why is the 2026 loan growth guidance for mid-single digits despite strong growth and a robust pipeline, and is growth being constrained for liquidity reasons? - Casey Haire (Autonomous Research Limited)

2025Q4: The guide accounts for potential portfolio sales... to fund note repayment. As alternative funding costs decline, the bank will accelerate payments. - Frank Holding(CEO), Tom Eklund(SVP & Treasurer)

What is the impact of FDIC SLA termination on the balance sheet, buybacks, and earnings beyond Q1, and is the bank still asset-sensitive? - Christopher Marinac (Janney Montgomery Scott)

2025Q1: The purchase money note (PMN) will be paid down in 2025 as rates forecasted, with potential further paydowns in 2026. - Craig Nix(CFO)