First Citizens BancShares, Inc. (NASDAQ:FCNCA) is a diversified financial services company that has demonstrated its ability to navigate challenging economic environments and deliver solid financial results. With a strong presence across the Southeast, Mid-Atlantic, Midwest, and Western United States, the company has built a diversified business model that caters to the needs of individuals, businesses, and institutional clients.

Financials

For the full year 2023, First Citizens reported annual net income of $11.47 billion and annual revenue of $11.59 billion. The company's annual operating cash flow stood at $2.71 billion, while its annual free cash flow reached $1.28 billion. These impressive financial metrics underscore the company's ability to generate consistent and sustainable earnings, as well as its efficient capital allocation strategies.

In the second quarter of 2024, First Citizens continued to deliver strong financial performance. The company reported net income of $2.46 billion, representing a year-over-year decline of 6.1%. Earnings per share (EPS) for the quarter came in at $50.87, compared to $52.60 in the prior-year period, a decrease of 3.3%. While the top and bottom-line results showed a slight decline, the company's performance exceeded market expectations, with revenue surpassing the Zacks Consensus Estimate by 7.03% and EPS beating the consensus by 13.27%.

Business Overview

The company's diversified business model, which includes the General Bank, Commercial Bank, SVB Commercial, and Rail segments, has been a key driver of its consistent performance. The General Bank segment, which focuses on retail and commercial banking, experienced positive loan trends, with growth particularly resilient in business and commercial loans within the branch network. The Commercial Bank segment continued to deliver strong loan growth, driven by several of its specialized industry verticals, primarily in project financing for energy and data centers.

The SVB Commercial segment, which caters to the innovation economy, achieved quarter-over-quarter loan growth driven by high-quality loans in its global fund banking or capital call lending business. The segment also witnessed a quarter-over-quarter increase in total client funds for the first time since the fourth quarter of 2021, driven by a slight improvement in the macroeconomic environment and client acquisition.

The Rail segment, which provides customized leasing and financing solutions on a fleet of railcars and locomotives, continued to demonstrate its resilience, with rental income on operating lease equipment increasing by 1% compared to the previous quarter. The segment's adjusted rental income on operating lease equipment, which excludes depreciation and maintenance expenses, increased by 18.4% year-over-year, reflecting strong demand and pricing in the rail equipment market.

In terms of geographic diversification, First Citizens' deposits are well-distributed across its footprint. As of March 31, 2024, deposits in North Carolina and South Carolina represented approximately 25.8% and 8.0% of total deposits, respectively. The company's nationwide Direct Bank also contributed a significant portion of deposits, accounting for 27% of total deposits as of the same date.

Outlook

Looking ahead, First Citizens provided guidance for the third quarter and full year 2024. The company expects high single-digit annualized loan growth in the third quarter, driven by broad-based expansion across its business segments. For the full year, the company anticipates loans to end in the $143 billion to $146 billion range, representing mid- to high-single-digit percentage growth on a year-over-year basis.

On the deposit front, First Citizens expects deposits to be up slightly in the third quarter, with growth primarily in the General Bank segment. For the full year, the company anticipates deposits in the $153 billion to $155 billion range, driven by growth in the General Bank and the Direct Bank.

Regarding net interest income (NII), the company expects headline NII to be relatively flat in the third quarter compared to the second quarter, as the impact of lower accretion, slightly higher deposit costs, and a slightly lower loan yield are expected to be offset by higher investment securities yield. For the full year, First Citizens expects headline NII in the range of $7.2 billion to $7.3 billion, up from its previous guidance of $7.1 billion to $7.3 billion, reflecting the higher-for-longer rate environment and the potential for rate cuts in the second half of 2024.

The company's credit quality metrics have remained stable, with net charge-offs in the second quarter at 0.38% of average loans, on the low end of the guidance range. First Citizens expects net charge-offs in the third quarter to be in the 35 basis points to 45 basis points range, and has lowered the full-year range to 35 basis points to 40 basis points.

Capital Management

Regarding capital management, First Citizens' board has approved a $3.5 billion share repurchase plan, which the company intends to execute over the next four to five quarters. This plan is designed to help the company manage its capital ratios, with the goal of reaching a common equity Tier 1 (CET1) ratio in the 10.5% range by the end of 2025.

Conclusion

In conclusion, First Citizens BancShares has demonstrated its ability to navigate challenging economic environments and deliver consistent financial performance. The company's diversified business model, geographic footprint, and prudent capital management strategies position it well for continued success. As the company continues to execute on its strategic priorities, investors can expect First Citizens to remain a formidable player in the financial services industry.