First Citizens BancShares Inc. (FCNCA) is a diversified financial holding company that has established itself as a leading player in the innovation banking space. With a rich history dating back to 1898, the company has evolved to become a prominent force in the Southeast, Mid-Atlantic, Midwest, and Western United States, offering a wide range of banking and financial services to individuals, businesses, and professionals.
Business Overview and History: First Citizens BancShares was founded in 1898 as a small community bank in Smithfield, North Carolina, with the goal of serving the financial needs of local residents and businesses. Over the decades, the company has grown organically and through strategic acquisitions, steadily expanding its footprint by opening new branches and acquiring other community banks across the Southeast. This strategic growth allowed the company to build a strong deposit base and diversify its loan portfolio, positioning it for long-term success.
A key milestone in First Citizens' history was its acquisition of Southern National Corporation in 1997, which significantly expanded the company's geographic reach and product offerings, transforming it into a major regional banking player. Although the integration of Southern National presented challenges, First Citizens successfully navigated these issues.
In the early 2000s, First Citizens faced obstacles during the subprime mortgage crisis but weathered the storm by maintaining a conservative lending approach and focusing on risk management. This allowed the company to emerge from the crisis in a position of strength, ready to capitalize on new growth opportunities.
More recently, First Citizens has continued its growth trajectory with transformative acquisitions, including CIT Group Inc. in 2021 and Silicon Valley Bridge Bank, N.A. (SVBB) in 2023. The SVBB acquisition significantly expanded the company's presence in the innovation banking sector, providing a strong foothold in serving the technology, life science, and healthcare industries.
Throughout its history, First Citizens has remained committed to its core values of community banking, customer service, and prudent risk management. This unwavering focus has enabled the company to navigate various economic and industry challenges, positioning it as a leading regional banking institution in the Southeastern United States.
Financial Performance and Ratios: As of September 30, 2024, First Citizens BancShares reported total assets of $220.57 billion, a 3.2% increase from the end of 2023. The company's loan portfolio stood at $138.69 billion, with a loan-to-deposit ratio of 91.5%. The bank's net interest margin (NIM) was 3.53% for the third quarter of 2024, reflecting a 11 basis point decrease from the previous quarter due to lower loan accretion income and higher deposit costs.
In terms of profitability, First Citizens BancShares reported a return on assets (ROA) of 1.15% and a return on equity (ROE) of 11.94% for the third quarter of 2024. The company's efficiency ratio, a measure of operating efficiency, was 54% for the same period.
For the most recent quarter, First Citizens BancShares reported revenue of $3,138,000,000 and net income of $639,000,000. The company's operating cash flow (OCF) for the quarter was $991,000,000, while free cash flow (FCF) stood at $821,000,000. The bank reported adjusted earnings per share of $45.87 for Q3 2024.
Liquidity and Solvency: First Citizens BancShares maintains a strong liquidity position, with $58.36 billion in high-quality liquid assets as of September 30, 2024, representing 26.5% of total assets. The company's capital ratios also remain robust, with a Common Equity Tier 1 (CET1) ratio of 13.24% and a total risk-based capital ratio of 15.36% as of the same date, well above regulatory requirements.
Innovation Banking Segment: The acquisition of SVBB has significantly enhanced First Citizens BancShares' presence in the innovation banking sector. The company's SVB Commercial segment, which includes the former SVBB operations, provides a range of lending, leasing, capital markets, asset management, and other financial services to small and middle-market companies in key innovation industries, such as technology, life science, and healthcare.
As of September 30, 2024, the SVB Commercial segment accounted for 29% of the company's total loan portfolio, with a focus on products such as capital call lines of credit, investor-dependent loans, cash flow-dependent loans, and innovation-related commercial and industrial loans. The segment's deposits totaled $35.95 billion, or 23.7% of the bank's total deposits, demonstrating the resilience of the innovation banking customer base.
For the current quarter, the SVB Commercial segment reported net interest income of $583 million, a provision for credit losses of $50 million, and net income of $204 million. Compared to the linked quarter, net interest income increased $6 million due to higher average loan balances, while the provision for credit losses increased $32 million primarily from higher specific reserves in the investor dependent portfolios.
Other Business Segments: First Citizens BancShares operates several other key business segments:
General Bank Segment: This segment delivers a range of deposit products, loans (primarily residential mortgages and business/commercial loans), cash management, private banking and wealth management, payment services, and treasury services. For the current quarter, the General Bank segment had net interest income of $768 million, a provision for credit losses of $38 million, and net income of $263 million.
Commercial Bank Segment: This segment provides lending, leasing, capital markets, asset management, and other financial and advisory services, primarily to small and middle market companies across various industries. For the current quarter, the Commercial Bank segment had net interest income of $274 million, a provision for credit losses of $29 million, and net income of $110 million.
Rail Segment: This segment offers customized leasing and financing solutions on a fleet of railcars and locomotives to railroads and shippers throughout North America. For the current quarter, the Rail segment had adjusted rental income on operating lease equipment of $94 million, an increase of $4 million from the linked quarter due to growth in the operating lease equipment portfolio and strong re-pricing and utilization rates.
Challenges and Risks: While First Citizens BancShares has navigated the innovation banking landscape with resilience, the company faces several challenges and risks. The company's exposure to the technology, life science, and healthcare sectors makes it susceptible to fluctuations in venture capital and private equity activity, which can impact loan demand and deposit levels. Additionally, the bank's significant presence in the commercial real estate market, particularly in the general office sector, exposes it to potential risks associated with changing market dynamics and interest rate movements.
Furthermore, the ongoing regulatory scrutiny and heightened capital requirements for large financial institutions, such as the proposed interagency rulemaking announced in 2023, pose potential challenges for First Citizens BancShares as it continues to grow and expand its operations.
Guidance and Outlook: For the fourth quarter of 2024, First Citizens BancShares expects flat to low single-digit annualized percentage growth in loans, driven by continued momentum in the General Bank and SVB Commercial segments. The company anticipates deposits to end the year in the $150 billion to $153 billion range, representing a low to mid-single digit percentage growth rate for the full year.
Regarding net interest income, the bank expects a low to mid-single digit percentage point decline in the fourth quarter compared to the third quarter, as lower loan accretion income and slightly lower loan and investment yields are only partially offset by declining deposit costs. For the full year 2024, First Citizens BancShares forecasts headline net interest income to be in the range of $7.1 billion to $7.2 billion.
In terms of credit quality, the company expects net charge-offs to remain elevated in the fourth quarter, driven by continued stress in the general office and investor-dependent loan portfolios. The bank has increased the lower end of its full-year net charge-off ratio guidance to 37-40 basis points.
Additional guidance for Q4 2024 includes: - Adjusted non-interest income to be in line to down low single digits percentage points from Q3. - Full-year 2024 adjusted non-interest income in the range of $1.89 billion to $1.91 billion. - Adjusted non-interest expense to be flat compared to Q3. - Full-year 2024 adjusted non-interest expense in the range of $4.76 billion to $4.79 billion. - The tax rate is expected to be in the 27-28% range for both Q4 2024 and the full year.
Conclusion: First Citizens BancShares has demonstrated its ability to navigate the dynamic innovation banking landscape with resilience. The company's strategic acquisitions, including the transformative SVBB acquisition, have strengthened its presence in key growth markets and diversified its revenue streams. While the bank faces various challenges, such as exposure to the innovation economy and commercial real estate sectors, its strong liquidity, capital position, and diversified business model position it well to continue delivering value to its shareholders. The company's robust performance across its various business segments and its forward-looking guidance underscore its commitment to sustainable growth and adaptability in a rapidly evolving financial landscape.