First Citizens Plans To Retire Its Remaining FDIC Note By End Of 2027, Prepaying $3.5 Billion To $4 Billion A Quarter
The bank has already paid down $17 billion, about 47% of the note's original principal, and says deposit growth will fund the rest.
First Citizens BancShares plans to prepay $3.5 billion to $4 billion of its FDIC purchase money note each quarter through the end of 2027, which would clear the remaining balance by then, Chief Financial Officer Craig Nix said on the bank's third-quarter earnings call on Friday. The bank, which absorbed Silicon Valley Bank in 2023, has prepaid $17 billion, about 47% of the original principal.
A $17 billion head start
Nix said the bank prepaid $8 billion of the note in the third quarter, the high end of its guidance range, and another $1.5 billion in October. Chairman and CEO Frank Holding said the prepayments began in the fourth quarter of 2025, so the $17 billion cumulative total came in a year's time.
Nix said the baseline forecast for the fourth quarter and all of 2027 rests on net deposit growth outpacing loan growth. Targeted Federal Home Loan Bank debt and opportunistic market issuance would supplement it. He also said senior unsecured and subordinated debt issuance should run about $1 billion to $2 billion through year-end 2027.
The roughly $8 billion of Federal Home Loan Bank advances outstanding when the SVB deal closed were fully repaid in 2023, Nix said, and the bank has not yet used that channel for the note. This year it has leaned on its direct bank and brokered CDs.
The margin drag, in management's words
An analyst from JPMorgan noted that the Federal Home Loan Bank, brokered and debt funding all look more expensive than the note, and asked how much that would weigh on margin. Treasurer Arch McClure agreed the higher marginal cost "will pressure" the margin. He called it "more of a temporary drag" and said he still expects positive operating leverage.
Nix added that earning asset yields should outstrip the drag and that margins will expand. He guided for headline net interest margin in the mid 3.30s by the fourth quarter of 2026 exit and in the mid 3.20s excluding accretion by the fourth quarter of 2027 exit, assuming one rate hike this year and two in 2027.
McClure said the note carries a fixed rate and an option component, so the bank cannot hedge it. Replacing it with other funding should trim the bank's asset sensitivity a little from this quarter's level, he said, and give it more room to manage across rate cycles.
Quarter and buyback backdrop
Adjusted net income was $652 million, or $55.37 a share. Loans rose $6.2 billion from the prior quarter and deposits grew $11.8 billion, including about $4.9 billion from the BMO branch acquisition. The bank repurchased $600 million of stock, and Nix said it plans about $300 million in the fourth quarter before a new $1.2 billion repurchase plan begins in 2027.
The bank raised its fourth-quarter loan guidance to $158 billion to $161 billion and its full-year net interest income guidance to $6.68 billion to $6.75 billion. Asked about deals, Nix said there is nothing on the board but that branch acquisitions that improve funding would be of interest.
Nix said the prepayment pace through 2027 is meant to be steady and predictable, with the quarterly range of $3.5 billion to $4 billion as the marker.
Sources
- First Citizens BancShares (FCNCA) Surpasses Q3 Earnings and Revenue Estimates — Yahoo Finance
- First Citizens BancShares Reports Third Quarter 2026 Earnings, Announces Additional Share Repurchase Plan – Company Announcement - FT.com — Financial Times
- First Citizens BancShare stock climbs on impressive Q3 beat, $1.2B buyback plan (FCNCA:NASDAQ) | Seeking Alpha — seekingalpha.com
- First Citizens (FCNCA): Is the SVB-Boosted Bank Still Undervalued for the S&P 500 Index? — Yahoo Finance
- First Citizens: Q3 Earnings Snapshot | wusa9.com — Associated Press
