FCNCA Q2 Deep Dive: Loan Growth Remains Sluggish Amid Competitive, Cautious Backdrop

Regional banking company First Citizens BancShares (NASDAQGS:FCNC.A) reported Q2 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 3.5% year on year to $2.37 billion. Its non-GAAP profit of $44.78 per share was 14.5% above analysts’ consensus estimates.

Is now the time to buy FCNCA? Find out in our full research report (it’s free).

StockStory’s Take

First Citizens BancShares' second quarter results were met with a negative market reaction, reflecting concerns about declining sales and muted growth in key lending areas. Management cited the lowest net charge-offs since last year and disciplined expense control, but acknowledged that loan originations remained under pressure, particularly in technology and healthcare portfolios. CEO Frank Holding pointed to ongoing efforts to consolidate platforms and deepen client relationships, while CFO Craig Nix highlighted that sequential net interest income growth was primarily driven by a higher asset base and improved deposit costs. Nix described credit quality as stable, but warned that competition for new loans was fierce and that overall demand remains soft, especially in the branch network.

Looking ahead, management’s guidance is shaped by ongoing macroeconomic uncertainty, increased regulatory scrutiny, and persistent competitive pressures in both lending and deposit gathering. CFO Craig Nix signaled a cautious approach to loan growth, citing that, “we remain cautiously optimistic on absolute loan levels given lower growth in the first half of the year.” Nix also noted that expense growth will accelerate as investments in technology and risk management ramp up to meet Category 3 bank requirements. The company expects headwinds from a shifting interest rate environment, with Nix stating, “the fluidity of changes makes it difficult to narrow the range of potential impacts on the broader economy and on our business lines and clients.”

Key Insights from Management’s Remarks

Management attributed the quarter’s underwhelming results to sluggish loan demand, competitive pricing, and continued pressure in the innovation economy, while highlighting progress in risk management and diversified revenue streams.

• Loan growth challenges: Lending activity remained subdued, particularly in technology and healthcare, as higher prepayments and muted demand offset momentum in global fund banking. Management maintained pricing discipline despite increased rate pressure from competitors.
• Rail and wealth segments stable: The rail leasing business delivered its 15th consecutive quarter of positive repricing trends with utilization near 97%, while the wealth business saw increased originations and higher line utilization.
• Expense management focus: Adjusted noninterest expense growth was limited by lower equipment costs, but management warned that spending will increase in the second half as risk and technology projects are deployed to meet regulatory requirements.
• Deposit growth tactics: The direct bank channel remained a key driver of deposit growth, even as management successfully reduced costs in this higher-cost segment. However, declines in other segments and seasonal outflows limited overall deposit expansion.
• Capital return and board changes: The company continued aggressive share repurchases, totaling $613 million in the quarter, and announced a new $4 billion buyback plan. Additionally, Diane Morais joined the board, bringing extensive experience in consumer and commercial banking.

Drivers of Future Performance

Looking ahead, management expects muted loan and deposit growth, expense pressures from regulatory readiness, and ongoing uncertainty from macroeconomic and industry-specific factors.

• Category 3 compliance investment: Management anticipates mid- to high single-digit expense growth as they invest in risk management and technology to prepare for Category 3 regulatory status, with these costs expected to weigh on near-term profitability.
• Competitive deposit and lending environment: The company expects continued competition on both loan pricing and deposit rates, which may limit margin expansion and slow balance sheet growth despite active client acquisition efforts in core segments.
• Interest rate and macroeconomic risks: Forward-looking guidance incorporates a range of potential interest rate scenarios, with management acknowledging that slower monetary easing or persistent inflation could further pressure net interest margins, loan demand, and deposit growth.

Catalysts in Upcoming Quarters

Going forward, our analysts will be watching (1) the pace of loan origination recovery, especially within technology and healthcare banking; (2) expense inflation as investments in risk management and technology accelerate for regulatory compliance; and (3) the success of deposit growth strategies in the face of ongoing industry competition. The performance of the rail and wealth management businesses, along with any shifts in the macroeconomic outlook, will also serve as key indicators for future results.

First Citizens BancShares currently trades at $1,883, down from $2,114 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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