First Citizens BancShares Inc. (FCNCA) is a bank holding company and financial services provider that has demonstrated resilience and strategic foresight over its decades-long history. As the largest family-owned bank in the United States, First Citizens has weathered economic cycles and industry disruptions by maintaining a disciplined approach to risk management and seizing opportunities in times of uncertainty.
Business Overview and History
First Citizens BancShares was founded in 1898 in Smithfield, North Carolina, with a mission to serve the local community’s banking needs. Over the course of the 20th century, the company steadily expanded its footprint, first throughout North Carolina and then into neighboring states in the Southeast, Mid-Atlantic, and Midwest regions.
The company demonstrated remarkable resilience during challenging economic periods, successfully navigating through the Great Depression and World War II while maintaining strong relationships with its customers. In the 1960s and 1970s, First Citizens began a strategic expansion beyond its North Carolina roots, establishing branches in other Southeastern states to diversify its loan and deposit portfolios.
The 1980s and 1990s marked a period of significant growth through strategic acquisitions, with First Citizens purchasing banks in Virginia, Tennessee, and Florida. These acquisitions strengthened the company’s presence in the Mid-Atlantic and Southeastern regions. During this time, First Citizens also focused on developing its wealth management and commercial banking capabilities, laying the groundwork for its comprehensive suite of financial services.
In 2023, First Citizens made a transformative move by acquiring Silicon Valley Bridge Bank, N.A. (SVBB) from the FDIC. This strategic acquisition significantly bolstered the company’s presence in the innovation economy, adding a complementary suite of products and services catered to technology, life science, and healthcare clients, as well as private equity and venture capital firms. The SVBB acquisition also expanded First Citizens’ wealth management capabilities, particularly in servicing private banking and high-net-worth clients.
Today, First Citizens operates a network of over 500 branches and offices across 21 states, providing a comprehensive range of commercial and consumer banking services, including lending, leasing, wealth management, and treasury management. The company’s diversified business model has proven resilient, with the General Bank, Commercial Bank, and SVB Commercial segments contributing to its consistent financial performance.
Financial Strength and Solvency
First Citizens BancShares has maintained a strong financial profile, with robust capital, liquidity, and credit quality metrics. As of September 30, 2024, the company reported a Common Equity Tier 1 (CET1) capital ratio of 13.24%, well above the regulatory minimum of 7.0%. This solid capital position has enabled First Citizens to navigate various economic environments, including the COVID-19 pandemic, without significant disruption to its operations.
The company’s net interest margin (NIM), a key measure of profitability, stood at 3.53% in the third quarter of 2024, slightly down from 3.64% in the previous quarter due to a decline in loan accretion income. Excluding the impact of purchase accounting accretion, the NIM was 3.33%, demonstrating the underlying strength of the company’s core banking activities.
First Citizens’ loan portfolio has remained relatively stable, with a total loan and lease balance of $138.69 billion as of September 30, 2024, a slight decrease of 0.5% from the previous quarter. The decline was primarily driven by a reduction in the SVB Commercial segment’s Global Fund Banking portfolio, as repayment levels outpaced new loan originations and draw activity. The General Bank and Commercial Bank segments, however, recorded mid-single-digit and upper-single-digit annualized loan growth, respectively, during the quarter.
The company’s asset quality metrics remain strong, with a nonperforming asset ratio of 0.94% and an allowance for loan and lease losses (ALLL) to total loans ratio of 1.21% as of September 30, 2024. The ALLL balance included a $20 million reserve recorded for potential losses related to Hurricane Helene, reflecting First Citizens’ proactive approach to risk management.
Liquidity
First Citizens BancShares maintains a strong liquidity position, ensuring its ability to meet customer needs and navigate potential market disruptions. The company’s diverse funding sources, including a stable deposit base and access to capital markets, contribute to its robust liquidity profile. This strong liquidity position enables First Citizens to support its lending activities, manage potential deposit outflows, and capitalize on strategic opportunities as they arise.
Operational Resilience and Efficiency
First Citizens has demonstrated operational resilience and a commitment to disciplined expense management. During the third quarter of 2024, the company’s adjusted noninterest expense increased by 5% sequentially, primarily driven by investments in risk management and compliance capabilities to meet the standards of a large financial institution.
The company’s efficiency ratio, a measure of operational efficiency, stood at 54% in the third quarter, placing it among the top performers in its peer group. First Citizens has executed on cost-saving initiatives and achieved the low end of its cost savings target from the SVBB acquisition, underscoring its ability to optimize its cost structure while maintaining strong profitability.
Shareholder Returns and Capital Allocation
First Citizens has a track record of prudent capital allocation and shareholder-friendly policies. In July 2024, the company’s Board of Directors authorized a $3.5 billion share repurchase program, which the company has been actively executing. During the third quarter, First Citizens repurchased over 350,000 shares of its Class A common stock for approximately $700 million.
The company also declared a quarterly common stock dividend of $1.95 per share, an increase from the previous quarter’s dividend of $1.64 per share. First Citizens’ commitment to returning capital to shareholders, combined with its strong financial position, demonstrates its confidence in the long-term sustainability of its business model.
Risks and Challenges
While First Citizens has navigated various economic cycles and industry disruptions successfully, the company faces several risks and challenges going forward:
Regulatory Landscape: The banking industry continues to face an evolving regulatory landscape, including enhanced capital requirements and compliance standards. First Citizens must remain vigilant in ensuring its risk management and compliance practices align with regulatory expectations.
Competition in the Innovation Economy: The company’s SVB Commercial segment operates in a highly competitive environment, serving technology, life science, and healthcare companies, as well as private equity and venture capital firms. Maintaining its competitive edge in this dynamic market will be essential for continued growth and profitability.
Integration of the SVBB Acquisition: The successful integration of Silicon Valley Bridge Bank’s operations, systems, and personnel will be critical in realizing the full synergies and strategic benefits of the acquisition.
Segment Performance
First Citizens’ diversified business model is reflected in its four main segments: General Bank, Commercial Bank, SVB Commercial, and Rail.
The General Bank segment, which provides a full range of deposit products, loans, and wealth management services to consumers and businesses, reported net income of $263 million in the third quarter of 2024, a 7% increase from the previous quarter. This growth was driven by higher net interest income related to loan growth and a lower provision for credit losses. Loans and deposits in this segment grew by 1% compared to the previous quarter.
The Commercial Bank segment, offering lending, leasing, and advisory services to small and middle market companies, experienced a 12% decrease in net income to $13 million. This decline was primarily due to higher interest expense on deposits and an increase in the provision for credit losses. Despite these challenges, the segment saw a 2% increase in loans and leases, with growth in technology, media, telecommunications, and healthcare industries.
The SVB Commercial segment, which caters to clients in the innovation ecosystem, reported a 10% decrease in net income to $22 million. While net interest income increased, this was offset by a higher provision for credit losses, particularly in investor-dependent portfolios. Loans in this segment decreased by 5%, mainly due to a decline in global fund banking loans.
The Rail segment, offering leasing and financing solutions for railcars and locomotives, reported net income of $21 million for the quarter. The segment’s fleet consists of approximately 125,600 railcars and locomotives, serving major railroads and commodity shippers across North America.
Outlook and Conclusion
Despite the challenges, First Citizens BancShares remains well-positioned for the future. The company’s diversified business model, strong financial fundamentals, and prudent risk management approach have enabled it to navigate economic cycles and industry disruptions. The SVBB acquisition has further strengthened its presence in the innovation economy, providing access to a new client base and complementary services.
Looking ahead, First Citizens expects to maintain its growth momentum, with forecasts of mid-single-digit loan growth and low-to-mid-single-digit deposit growth for the full year 2024. The company’s adjusted net interest income is projected to be in the range of $7.1 billion to $7.2 billion, reflecting the impact of interest rate cuts, while its adjusted noninterest income is expected to be between $1.89 billion and $1.91 billion.
For the fourth quarter of 2024, First Citizens anticipates flat to low single-digit annualized percentage loan growth, driven by the business and commercial loan portfolios in the General Bank and growth in the SVB Commercial segment. Deposits are expected to end the year in the $150 billion to $153 billion range. The company forecasts a low to mid-single digit percentage decline in headline net interest income as lower accretion and slightly lower loan and investment yields are only partially offset by declining deposit costs.
First Citizens expects net charge-offs to be near or slightly above the third quarter 2024 level, while adjusted noninterest income is projected to be in line to down low single digits percentage points from the third quarter. Adjusted noninterest expense is anticipated to be flat compared to the third quarter of 2024.
For the full year 2024, the company expects loans to end in the $138 billion to $140 billion range, representing mid-single digit percentage growth. Adjusted noninterest expense is projected to be in the range of $4.76 billion to $4.79 billion, representing mid-single digit percentage growth. The effective tax rate is expected to be in the range of 27% to 28%.
First Citizens’ emphasis on prudent risk management, operational efficiency, and shareholder-friendly policies has enabled it to deliver consistent financial performance and long-term value creation. As the company navigates the ongoing challenges in the banking industry, its disciplined approach and strategic foresight position it well to capitalize on future growth opportunities and continue its legacy of serving the evolving needs of its customers and communities.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.