10-Q: First Citizens Q3: Deposit Growth Amid Credit Headwinds

First Citizens BancShares reports a slight dip in Q3 net income to $568 million, driven by higher credit loss provisions, despite robust deposit growth and strategic branch acquisition plans.

Summary

• Net income for the third quarter of 2025 was $568 million, a 1% decrease from the linked quarter and an 11% decrease from the prior year quarter.
• Net income available to common stockholders was $554 million, a 1% decrease from the linked quarter.
• Diluted earnings per common share for the third quarter was $43.08, an increase from $42.36 in the linked quarter.
• Net interest income (NII) for the third quarter was $1.73 billion, a 2% increase from the linked quarter, but a 3% decrease from the prior year quarter.
• Net interest margin (NIM) remained flat at 3.26% in the current and linked quarters, but decreased from 3.53% in the prior year quarter.
• Provision for credit losses increased significantly to $191 million in the third quarter, up from $115 million in the linked quarter, primarily due to an $82 million charge-off on a single supply chain finance client.
• Total assets reached $233.49 billion as of September 30, 2025, a 4.4% increase from December 31, 2024.
• Total deposits grew by $7.96 billion (5.1%) to $163.19 billion since December 31, 2024, with noninterest-bearing deposits increasing by 10.7%.
• Total loans and leases increased by $4.54 billion (3.2%) to $144.76 billion since December 31, 2024, driven by Global Fund Banking.
• The Allowance for Loan and Lease Losses (ALLL) was $1.65 billion, a $24 million decrease from December 31, 2024, with the ALLL to total loans ratio at 1.14%.
• A new $4.0 billion share repurchase program was authorized through December 31, 2026, with 457,350 Class A shares repurchased for approximately $900 million in Q3 2025.
• An agreement to acquire 138 branches from BMO Bank N.A. was announced, expected to add $5.7 billion in deposits and $1.1 billion in loans.
• The Shared-Loss Agreement with the FDIC was terminated on April 7, 2025, with no material financial impact.
• New debt issuances included $600 million in 5.600% subordinated notes due 2035, $500 million in 5.231% senior notes due 2031, and $750 million in 6.254% subordinated notes due 2040, while $350 million in 3.375% subordinated notes due 2030 were redeemed.

Sentiment

Score: 5

Explanation: Strong deposit and loan growth, coupled with strategic acquisitions and share repurchases, are positive. However, a significant increase in credit loss provisions due to a large charge-off, declining net income, and flat net interest margin indicate underlying credit quality concerns and pressure on profitability.

Positives

• Total deposits increased by $7.96 billion (5.1%) to $163.19 billion since December 31, 2024, demonstrating strong funding growth.
• Noninterest-bearing deposits grew by $4.12 billion (10.7%) and now represent 26.2% of total deposits, improving funding mix.
• Agreement to acquire 138 branches from BMO Bank N.A. is a strategic expansion, expected to add $5.7 billion in deposits and $1.1 billion in loans.
• Total loans and leases increased by $4.54 billion (3.2%) to $144.76 billion since December 31, 2024, with significant growth in Global Fund Banking.
• A new $4.0 billion share repurchase program was authorized through December 31, 2026, signaling commitment to shareholder returns.
• All regulatory capital ratios for BancShares and FCB exceeded Prompt Corrective Action (PCA) well-capitalized thresholds and Basel III requirements.
• Net interest income increased by $39 million (2%) from the linked quarter.
• Noninterest income increased by $21 million (3%) from the linked quarter, driven by favorable fair value adjustments on marketable equity securities and higher client investment fees.
• The Rail segment demonstrated strong repricing, with an average of 118% of the prior lease rate on renewed equipment, and high utilization at 96.8%.

Negatives

• Net income decreased by $7 million (1%) from the linked quarter and $71 million (11%) from the prior year quarter.
• Provision for credit losses significantly increased to $191 million in the third quarter, up from $115 million in the linked quarter, primarily due to an $82 million charge-off on a single supply chain finance client.
• Net charge-offs increased by $115 million from the linked quarter, largely due to the aforementioned single client charge-off.
• Net interest margin (NIM) remained flat at 3.26% from the linked quarter and decreased from 3.53% in the prior year quarter, indicating pressure on profitability.
• The Allowance for Loan and Lease Losses (ALLL) decreased by $24 million from December 31, 2024, and the ALLL to total loans ratio decreased to 1.14% from 1.20%.
• Nonaccrual loans increased by $87 million from the linked quarter and $222 million from December 31, 2024, mainly due to a small number of larger balance individually evaluated commercial loans.
• Other real estate owned (OREO) and repossessed assets increased by $34 million from December 31, 2024, reflecting additional foreclosed commercial real estate (CRE) properties.
• The General Office CRE portfolio shows more negative credit quality trends relative to other CRE portfolios, with delinquencies at 9.09% and non-performing loans at 11.27% as of September 30, 2025.
• The yield on average interest-earning assets decreased by 3 basis points from the linked quarter and 54 basis points from the prior year quarter.

Risks

• Credit risk from potential non-collection of payments on loans, leases, and investment securities, influenced by macroeconomic factors like unemployment, GDP, and real estate price indices.
• Market risk from changes in interest rates and yield curve shape, potentially impacting net interest income and economic value of equity.
• Liquidity risk due to potential deposit withdrawals and the need for adequate cash, collateral, and funding capacity, especially under stressed conditions.
• Concentration risk in specific geographic areas (e.g., California, New York, North Carolina), collateral types (real estate secured, revolving mortgage), industries (e.g., Finance and Insurance, Real Estate, Healthcare), and customer groups (e.g., private equity, venture capital).
• Specific credit quality deterioration in the General Office commercial real estate portfolio.
• Potential for an economic slowdown or recession, which could increase credit and market risk and impact earnings, capital, and liquidity.
• Geopolitical tensions and international tariffs/trade restrictions could impact the economy, exacerbate market volatility, and disrupt global supply chains.
• Operational risks, including those associated with potential cyberattacks on the company and its third-party vendors.
• Regulatory changes, such as proposed enhanced capital requirements and long-term debt rules for larger banks, could lead to increased costs and limitations.
• The ability to fund future loan growth is significantly dependent on retaining existing deposits and generating new deposits at a reasonable cost, which could be affected by changing economic conditions.

Future Outlook

The acquisition of 138 branches from BMO Bank N.A. is expected to close in mid-2026, subject to customary closing terms and regulatory approvals. Interest expense on borrowings is expected to increase in the fourth quarter of 2025 due to recent debt issuances impacting the full quarter. The company will continue to monitor the interest rate environment and assess the prudence of voluntary prepayments on the Purchase Money Note. The status of the Notice of Proposed Rulemaking (NPR) regarding long-term debt requirements for banks with $100 billion or more in assets is being monitored, which could require additional long-term debt issuance. Evolving macroeconomic and social conditions may result in changes for General Office demand, and baseline economic forecasts reflect a decline in commercial real estate (CRE) property values due to current interest rate levels. The current tariff environment is dynamic and uncertain, with potential for adverse impacts on business, financial condition, and results of operations. The 2025 Share Repurchase Program allows repurchases through 2026 but is not an obligation and may be suspended at any time.

Management Comments

• We strive to maintain a strong liquidity position and our risk appetite for liquidity is low.
• We believe traditional bank deposit products remain an attractive option for many customers.
• Our ability to fund future loan growth is significantly dependent on our success in retaining existing deposits and generating new deposits at a reasonable cost.
• We continually monitor our capital needs and market conditions in an effort to diversify our borrowing base and capital mix when appropriate.
• We are committed to effectively managing our capital to protect our depositors, creditors and stockholders.
• We continually monitor the capital levels and ratios for BancShares and FCB to ensure they exceed the minimum requirements imposed by regulatory authorities and to ensure they are appropriate given growth projections, risk profile and potential changes in the regulatory or external environment.
• BancShares has defined a moderate risk appetite and a balanced approach to risk taking with a philosophy that does not preclude higher risk business activities commensurate with acceptable returns while meeting regulatory objectives.
• Assessments have not identified material impacts to date, but those assessments will remain ongoing as the conditions continue to exist and develop (referring to cyberattacks and international tensions).
• While economic data continues to be mixed, baseline economic forecasts reflect a decline in commercial real estate (CRE) property values due to current interest rate levels that impacted the ALLL forecasts.

Industry Context

The Federal Open Market Committee (FOMC) reduced the benchmark federal funds rate twice in Q3 and Q4 2025, indicating a potential easing monetary policy environment. The banking industry continues to face evolving regulatory requirements, including proposed enhanced capital requirements and long-term debt rules for larger banks. The agreement to acquire branches from BMO Bank N.A. suggests ongoing consolidation and strategic expansion opportunities within the banking sector. The termination of the Shared-Loss Agreement with the FDIC indicates a stabilization or improved outlook for assets acquired from Silicon Valley Bridge Bank. The General Office commercial real estate (CRE) market is experiencing negative credit quality trends, likely reflecting broader shifts in commercial real estate demand due to factors such as hybrid work arrangements. The dynamic tariff environment and international tensions are broader economic headwinds affecting many industries.

Comparison to Industry Standards

• All regulatory capital ratios for BancShares and FCB exceeded the Prompt Corrective Action (PCA) well-capitalized thresholds and Basel III requirements.
• The company maintains an asset-sensitive interest rate risk profile, with potential exposure to forecasted earnings largely due to floating-rate commercial loans and cash, and estimates of modest future deposit betas.
• Deposit betas are currently modeled to have a portfolio average of approximately 30%-40% over the twelve-month forecast horizon, including 45%-55% for interest-bearing non-maturity deposits.
• The credit quality for global fund banking loans is strong, based on structural protection from funds and underlying investors, resulting in a lower loss rate (ALLL of 0.19%) relative to other loan portfolios (total ALLL of 1.14%).
• The Custodian is required to act with the same degree of care and skill as it exercises for similar loans and in accordance with customary standards for such custody.
• The Custodian and Paying Agent are required to maintain insurance in amounts and with coverage customary for financial institutions acting in those capacities.
• Consumer lending credit standards follow industry standard documentation requirements.

Corporate Governance

Legal Proceedings

• The company and its subsidiaries are named as defendants in various legal actions arising from normal business activities, with damages claimed in various amounts.
• The company is exposed to litigation risk relating to prior business activities of banks from which assets were acquired and liabilities assumed.
• Management estimates an aggregate range of reasonably possible losses to be up to approximately $20 million in excess of established reserves and insurance for estimable matters.
• Management does not believe that the outcome of currently pending litigation will have a material impact on the consolidated financial statements.

Related Party Transactions

• FCB's acquisition of Silicon Valley Bridge Bank, N.A. (SVBB) from the Federal Deposit Insurance Corporation (FDIC) involved the FDIC in multiple capacities: as Receiver for SVBB, Notes Designee, Collateral Agent, and Lender for the Purchase Money Note and the Advance Facility Agreement.
• The Purchase Money Note is a five-year $36.07 billion note payable to the FDIC, maturing March 27, 2028.
• The Advance Facility Agreement with the FDIC provided up to $70 billion in advances, with the draw period ending March 27, 2025.
• The Shared-Loss Agreement with the FDIC was terminated on April 7, 2025.

Stakeholder Impact

• Shareholders are impacted by decreased net income and increased provision for credit losses, but also benefit from the new $4.0 billion share repurchase program and increased common stock dividends ($2.10 per share).
• Customers may benefit from an expanded branch network and services through the pending BMO branch acquisition, and deposit growth indicates continued customer confidence.
• Employees experienced increased personnel costs due to net staff additions, annual merit increases, and promotions, while acquisition-related personnel costs include severance and retention.
• Creditors and lenders are affected by new debt issuances (senior and subordinated notes) providing additional funding, and the Purchase Money Note to the FDIC represents a significant liability.
• Regulatory bodies continue to oversee the company, with potential for new capital requirements and ongoing scrutiny.

Next Steps

• Close the acquisition of 138 branches from BMO Bank N.A. in mid-2026, subject to customary closing terms and regulatory approvals.
• Continue to monitor the interest rate environment and assess the prudence of voluntary prepayments on the Purchase Money Note.
• Monitor the status of the Notice of Proposed Rulemaking (NPR) regarding long-term debt requirements and potentially issue additional long-term debt.
• Continue share repurchases under the $4.0 billion 2025 Share Repurchase Program through December 31, 2026.
• Pay quarterly dividends on Class A and Class B common stock ($2.10 per share) and preferred stock on December 15, 2025.

Key Dates

Recommendation

The company demonstrates strategic growth through acquisitions and commitment to shareholder returns via buybacks and dividends. However, the significant increase in credit loss provisions, particularly the large single client charge-off, and the flat net interest margin, signal potential headwinds in asset quality and profitability. The ongoing regulatory landscape and economic uncertainties warrant a cautious stance, suggesting a 'Hold' until clearer trends emerge in credit quality and margin expansion.

Keywords

Banking, Financial Services, Commercial Banking, Consumer Banking, Wealth Management, Leasing, Railcar Leasing, Quarterly Report, First Citizens BancShares, FCNCA, Deposits, Loans, Net Interest Income, Credit Losses, Share Repurchase, Acquisitions, BMO Bank, FDIC, Capital Ratios, Market Risk, Liquidity Risk, Credit Risk, Interest Rates, Economic Outlook, SVB Commercial