First Citizens BancShares, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
First Citizens BancShares, Inc. is a financial holding company operating primarily through First-Citizens Bank & Trust Company. Its businesses include consumer and commercial banking, lending, leasing, factoring, wealth management, investment services and rail equipment leasing. The report covers the unaudited three months ended March 31, 2024. Results include a full quarter of operations from the Silicon Valley Bridge Bank acquisition, compared with only five days in the prior-year quarter.
Current segments are General Bank, Commercial Bank, SVB Commercial, Rail and Corporate. Segment reporting and certain loan-class disclosures were reorganized and prior periods were recast accordingly.
Key financial metrics
| Metric | Q1 2024 | Q4 2023 | Q1 2023 |
|---|---|---|---|
| Net interest income | $1.817 billion | $1.911 billion | $850 million |
| Provision for credit losses | $64 million | $249 million | $783 million |
| Noninterest income | $627 million | $543 million | $10.259 billion |
| Noninterest expense | $1.376 billion | $1.492 billion | $855 million |
| Net income | $731 million | $514 million | $9.518 billion |
| Net income available to common stockholders | $716 million | $499 million | $9.504 billion |
| Diluted EPS | $49.26 | $34.33 | $653.64 |
| Return on average assets | 1.36% | 0.95% | 33.23% |
| Net interest margin | 3.67% | 3.86% | 3.41% |
| Net charge-off ratio | 0.31% | 0.53% | 0.27% |
Q1 2023 comparisons are not representative because they included a preliminary $9.824 billion gain on the SVBB acquisition and substantial acquisition-related day-two credit-loss provisions.
Balance sheet, liquidity and capital
- Total assets were $217.84 billion, up from $213.76 billion at December 31, 2023.
- Loans and leases were $135.37 billion, up 2% sequentially. Commercial loans were $67.60 billion, consumer loans were $27.92 billion and SVB loans were $39.85 billion.
- Total deposits were $149.61 billion, up 3% sequentially. Interest-bearing deposits increased to $110.33 billion, while noninterest-bearing deposits declined to $39.28 billion.
- Estimated uninsured deposits were $54.85 billion, or approximately 36.7% of total deposits.
- Total borrowings were $37.54 billion, including the $36.07 billion FDIC Purchase Money Note issued in connection with the SVBB acquisition.
- Liquid assets totaled $59.33 billion, consisting of $30.03 billion of cash and interest-earning deposits and $29.30 billion of high-quality liquid securities. Additional contingent borrowing capacity was $32.90 billion.
- The FDIC Advance Facility had $12.85 billion of immediately available capacity and was not utilized at March 31, 2024. The facility has maximum capacity of up to $70 billion through March 27, 2025, subject to collateral and usage limitations.
- Common equity Tier 1, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios were 13.44%, 14.00%, 15.66% and 10.11%, respectively. Management stated that capital ratios remained well above applicable requirements.
- Stockholders’ equity was $21.85 billion, compared with $21.26 billion at December 31, 2023. Accumulated other comprehensive loss increased to $582 million, primarily from securities-related unrealized losses.
Material changes versus comparable periods
- Net income increased 42% from Q4 2023, primarily due to lower credit-loss provisions and noninterest expense, plus higher noninterest income. Q1 2024 net income was sharply below Q1 2023 because the prior-year period included the SVBB acquisition gain.
- Net interest income declined 5% sequentially. Higher deposit costs and lower acquired-loan discount accretion more than offset growth in investment-securities income and loan balances. Loan discount accretion declined to $163 million from $198 million in Q4 2023.
- Net interest margin declined 19 basis points sequentially to 3.67%.
- The credit-loss provision declined 75% sequentially to $64 million. The decrease reflected lower net charge-offs, changes in macroeconomic forecasts, lower specific reserves and a larger benefit related to off-balance-sheet credit exposures.
- Noninterest income rose 16% sequentially, largely because Q4 2023 included an $83 million reduction to the acquisition gain. Excluding that item, the filing describes mixed changes across fees, factoring, derivatives and other categories.
- Noninterest expense declined 8% sequentially to $1.376 billion. Acquisition-related expense decreased to $58 million from $116 million, and the FDIC special assessment declined to $9 million from $64 million.
- Loans grew across all major segments, while SVB Commercial deposits declined to $34.01 billion from $34.73 billion. Growth in the Direct Bank and branch network more than offset the SVB Commercial decline.
Credit quality, outlook and risks
- The allowance for loan and lease losses was $1.737 billion, or 1.28% of loans, compared with $1.747 billion, or 1.31%, at year-end 2023. Management’s modeled allowance range was approximately $1.42 billion under an upside scenario to $2.19 billion under a downside scenario.
- Nonaccrual loans increased to $1.074 billion from $969 million, and total nonperforming assets increased to $1.132 billion from $1.031 billion. The nonaccrual-loan ratio rose to 0.79% from 0.73%.
- Commercial real estate exposure was $21.14 billion, or 15.61% of total loans and leases. General office loans were $2.75 billion and had a nonperforming-loan ratio of 15.13% of general-office CRE loans.
- The SVB portfolio remains concentrated in global fund banking, private equity and venture capital, technology and life science/healthcare. Global fund banking loans were $26.52 billion, or 67% of SVB loans.
- Management cited risks from elevated interest rates, inflation, potential recession, commercial real estate weakness, deposit competition and runoff, banking-industry volatility, geopolitical conflicts, cyberattacks, regulatory changes and proposed enhanced capital and long-term-debt requirements.
- The Federal Reserve maintained the federal funds target range at 5.25%–5.50% at its May 2024 meeting. Management noted that future rate changes, including potential cuts, could affect net interest income, securities values, deposit pricing and liquidity.
- The company accrued an additional $9 million FDIC insurance special assessment in Q1 2024. It also expects that proposed enhanced capital and long-term-debt rules for banks with at least $100 billion of assets could require additional long-term debt if finalized.
- Management reported no material changes to previously disclosed risk factors. Pending litigation was not expected to have a material adverse effect on financial condition based on current information, but actual results could be material to a particular period. Management estimated reasonably possible litigation losses of up to $10 million above established reserves and insurance, excluding matters for which an estimate was not reasonably possible.
- No full-year earnings or operating guidance was provided in the filing. Management’s outlook remains dependent on interest rates, deposit behavior, credit performance, economic conditions and regulatory developments.
Investor verification points
- Verify the sustainability of net interest income and the 3.67% net interest margin as acquired-loan discount accretion declines and deposit costs remain elevated.
- Monitor SVB Commercial deposit retention, uninsured deposit levels and the concentration of large private equity, venture capital and technology-related relationships.
- Assess trends in nonaccrual loans, commercial real estate performance, office exposure, SVB credit quality and the adequacy of the $1.737 billion allowance.
- Review liquidity availability and collateral constraints under the FDIC Advance Facility, FHLB capacity and Federal Reserve borrowing arrangements.
- Evaluate the effect of proposed enhanced capital and long-term-debt requirements on funding costs, capital ratios and future issuance needs.
- Separate recurring operating performance from acquisition-related expenses, FDIC assessments, acquired-loan accretion and other unusual items.
- Confirm the impact of the $91 million after-tax decline in other comprehensive income and the $2.507 billion of gross unrealized losses on investment securities.