First Citizens BancShares, Inc. (FCNCA) is a financial holding company headquartered in Raleigh, North Carolina. It operates through its banking subsidiary, First-Citizens Bank & Trust Company, providing a wide range of financial services across the United States. The company offers consumer and commercial banking services, wealth management, digital banking, and specialized financial services, catering to both individual and business clients .
- General Banking - Offers consumer and business banking products and services through branches and digital channels, including deposit products, loans, cash management, and wealth management .
- Commercial Banking - Provides lending, leasing, capital markets, and asset management services to small and middle-market companies across various industries .
- SVB Commercial - Serves commercial clients and investors in the innovation ecosystem, focusing on technology, life sciences, and healthcare companies, as well as private equity and venture capital firms .
- Rail - Provides leasing and financing solutions for railcars and locomotives, generating revenue primarily from rental income .
- Corporate - Includes financial activities not allocated to other segments, such as interest income on investment securities and acquisition-related expenses .
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What went well
- First Citizens plans to fully utilize their $3.5 billion share repurchase authorization and may consider additional buybacks in 2025, indicating strong capital generation and shareholder returns.
- Despite a downturn in target markets, the SVB unit continues to acquire new clients and maintain deposit stability, positioning the company to benefit when investment activity rebounds.
- A substantial amount of venture capital "dry powder" ($328 billion) is waiting to be invested, and as investment activity picks up, First Citizens is well-positioned to capture growth in loans and deposits through its SVB franchise.
What went wrong
- Net interest income and net interest margin are expected to bottom in the second half of 2025, regardless of rate scenarios, due to the bank's asset sensitivity and pressures from rate cuts.
- The SVB segment is facing headwinds from diminished venture investment activity and increased cash burn among clients, leading to flat deposits and muted loan growth, with uncertainty about when conditions will improve.
- A high proportion (around 64%) of variable rate loans exposes the bank to rate declines, and managing asset sensitivity is challenging due to a 3.5% fixed-rate purchase money note constituting about 20% of total funding, creating a "kink" in asset sensitivity.
Q&A Summary
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Net Interest Income Outlook
Q: Can you discuss NII guidance and accretion outlook?
A: Accretion income will continue to decrease as shorter-term loans pay off. In Q3, net interest margin benefited from accretion by 20 basis points , down 8 basis points from the prior quarter. Accretion income dropped from $140 million to $101 million , expected to be around $90 million in Q4. We anticipate net interest income ex accretion to decline mid- to high single digits in the low scenario and mid- to low single digits in the high scenario by the end of Q4 '24. Net interest margin is expected to drop from 3.33% to the low 3.20%s in the high scenario and to the low 3.10%s in the low scenario. -
Share Buyback Plans
Q: Will the elevated pace of buybacks continue?
A: We plan to utilize the entire $3.5 billion buyback authorization. Through the end of the year, you can assume a similar pace to what you've seen so far, then slowing down next year to reach that amount by Q3. If earnings continue to outstrip risk-weighted asset growth, we would consider an additional repurchase plan in the back half of 2025. -
Timing of NII and NIM Bottoming
Q: When will NII and NIM bottom and begin growing?
A: We expect net interest income and margin to trough in the second half of 2025, regardless of the rate scenario. This depends heavily on both the magnitude and timing of rate cuts and balance sheet growth. -
SVB Loan Growth Prospects
Q: What is the outlook for SVB loan growth?
A: As the market recovers, we anticipate loans and deposits will grow at SVB. Lower rates and the expectation of lower rates could be a catalyst for growth. There's nothing structural causing the decline; it was related to payoffs towards the end of the quarter. Average loan balances were higher than last quarter. -
Competitiveness in Capital Call Lending
Q: Are higher repayments due to competition?
A: Swings in capital call lending balances are due to borrowers keeping advances out for shorter durations in a higher rate environment and muted investment activity. Average balance growth continues to trend positive. While there are new entrants, we remain confident due to our long-standing fund banking practice and experienced team. -
SVB Deposit Trends and Outlook
Q: Do you expect SVB deposit flows to pick up?
A: Deposit balances were flat due to diminished venture investment activity, roughly $38 billion in the quarter , and increased cash burn. With the first 50 basis point rate cut and potential for more, we hope this will unstick the market, unlocking the substantial $328 billion in "dry powder" waiting to be invested. We remain well-positioned for when investment activity picks up. -
Floating Rate Loan Exposure
Q: What is the exact percentage of floating-rate loans?
A: In the total loan portfolio, 64% is variable and 36% is fixed. The majority of variable loans are tied to SOFR with a spot rate around 6.90%. -
Excess Liquidity Redeployment
Q: Is there excess liquidity that could be redeployed?
A: We have approximately $7 billion to $10 billion in excess liquidity that we could potentially redeploy to pay down debt or invest in earning assets. We manage liquidity conservatively and will look to take advantage in the future.
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Given the continued stress and anticipated elevated losses in your general office commercial real estate portfolio into 2024 and 2025, what specific strategies are you implementing to mitigate these risks, and how confident are you in your reserve levels to absorb potential future losses?
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Your net interest margin has faced headwinds due to asset sensitivity in the current rate environment, and you expect further pressure with anticipated Fed rate cuts. What measures are you taking to manage this asset sensitivity, and how will these actions impact your net interest income and overall profitability moving forward?
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Despite efforts to attract new clients and bring back former ones, SVB Commercial deposits were relatively flat in the third quarter, and venture investment activity remains muted. What are the principal challenges inhibiting deposit growth in this segment, and how do you plan to accelerate growth amidst a competitive landscape and subdued investment environment?
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Noninterest expenses have increased due to investments in risk and technology capabilities and strategic hires, impacting your efficiency ratio. How do you plan to balance necessary investments with cost management to meet your efficiency targets, and what are your expectations for expense growth in 2025?
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You have repurchased approximately 28% of your Board-approved $3.5 billion share repurchase authorization. Given the regulatory requirements as you approach Category 3 status and the need to maintain strong capital ratios, how do you justify this capital allocation strategy, and what implications might it have on your capital position amid potential economic or regulatory challenges?