Business Context and Reporting Period
Company: First Citizens BancShares, Inc. (FCNCA)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Overview: First Citizens BancShares is a financial holding company operating through its subsidiary, First-Citizens Bank & Trust Company. The company provides commercial and consumer banking, leasing, and wealth management services. The reporting period reflects the integration of the Silicon Valley Bridge Bank (SVBB) acquisition, with segment reporting updated in Q1 2024 to include General Bank, Commercial Bank, SVB Commercial, and Rail segments.
Key Financial Metrics
| Metric (in millions, except per share) | Q2 2024 | Q2 2023 | YTD Q2 2024 | YTD Q2 2023 |
|---|---|---|---|---|
| Net Interest Income | $1,821 | $1,961 | $3,638 | $2,811 |
| Noninterest Income | $639 | $658 | $1,266 | $10,917 |
| Noninterest Expense | $1,386 | $1,572 | $2,762 | $2,427 |
| Net Income | $707 | $682 | $1,438 | $10,200 |
| Diluted EPS | $47.54 | $45.87 | $96.80 | $699.53 |
| Net Interest Margin (NIM) | 3.64% | 4.11% | 3.66% | 3.87% |
| Return on Average Assets | 1.30% | 1.31% | 1.33% | 12.62% |
| Total Assets | $219,827 | $209,502 | $219,827 | $209,502 |
| Total Loans and Leases | $139,341 | $133,015 | $139,341 | $133,015 |
| Total Deposits | $151,079 | $141,164 | $151,079 | $141,164 |
| Total Borrowings | $37,458 | $37,654 | $37,458 | $37,654 |
| Allowance for Loan and Lease Losses (ALLL) | $1,700 | $1,637 | $1,700 | $1,637 |
Liquidity: High-quality liquid assets totaled $56.91 billion at June 30, 2024. The company maintains significant unused borrowing capacity, including $11.34 billion under the FDIC Advance Facility Agreement and $14.68 billion with the Federal Home Loan Bank.
Material Changes vs. Prior Period
- Year-Over-Year Comparison (YTD): Net income decreased significantly from $10.20 billion in YTD 2023 to $1.44 billion in YTD 2024. This decline is primarily attributable to the $9.88 billion non-recurring gain on the SVBB acquisition recorded in the prior year, which is not present in the current period. Excluding this one-time gain, core earnings have grown due to the inclusion of SVBB operations.
- Quarter-Over-Quarter (Q2 2024 vs. Q1 2024): Net income decreased slightly by $24 million (3%) to $707 million. This was driven by a higher provision for credit losses ($95 million vs. $64 million) due to a lower benefit from off-balance sheet credit exposure, partially offset by higher net interest income and noninterest income.
- Net Interest Income (NII): NII increased 29% year-over-year (YTD) to $3.64 billion, driven by loan growth, higher yields, and the inclusion of SVBB operations. NII was essentially flat quarter-over-quarter.
- Loan Portfolio: Total loans and leases increased 5% from December 31, 2023, to $139.34 billion. Growth was observed across all segments, with significant expansion in the SVB Commercial segment (global fund banking) and Commercial Bank segment (TMT and healthcare industries).
- Deposit Growth: Total deposits increased 4% from December 31, 2023, to $151.08 billion, driven by growth in the Branch Network, Direct Bank, and SVB Commercial segments.
Guidance, Outlook, and Risks
Management Commentary:
- Share Repurchase: On July 25, 2024, the Board authorized a new share repurchase program of up to $3.5 billion through 2025.
- Dividends: The Board declared a quarterly dividend of $1.64 per common share, payable September 16, 2024.
- Interest Rate Environment: Management notes the Federal Reserve has maintained rates at 5.25%-5.50%. The company maintains an asset-sensitive interest rate risk profile, benefiting from rising rates but exposed to potential rate cuts.
- Segment Performance: The SVB Commercial segment saw net income increase $24 million quarter-over-quarter, driven by loan growth. The Rail segment net income decreased $12 million due to higher maintenance expenses.
Risks and Contingencies:
- Credit Risk: Nonaccrual loans increased to $1.14 billion (0.82% of total loans). The ALLL ratio decreased to 1.22%. Management highlights monitoring of Commercial Real Estate (CRE) property values and macroeconomic forecasts.
- Regulatory: The company is evaluating proposed enhanced capital and long-term debt requirements for banks with over $100 billion in assets. It is also subject to the new FDIC Covered Insured Depository Institution (CIDI) rule requiring resolution plans.
- FDIC Assessments: An additional FDIC insurance special assessment charge of $11 million was accrued in 2024 related to revised loss estimates for the deposit insurance fund.
- Legal: The company is involved in various legal proceedings but believes the outcome will not have a material adverse effect on its financial condition, though reasonably possible losses are estimated up to $10 million in excess of reserves.
Investor Verification Checklist
- SVBB Integration: Verify the ongoing accretion of the loan discount from the SVBB acquisition and its impact on future Net Interest Income.
- CRE Exposure: Review the specific exposure to non-owner occupied commercial mortgages ($15.58 billion) and the associated allowance coverage (2.40%) given macroeconomic headwinds.
- Deposit Stability: Monitor the composition of uninsured deposits (38% of total) and the stability of the SVB Commercial deposit base ($35.89 billion).
- Capital Ratios: Confirm that regulatory capital ratios (CET1 13.33%, Tier 1 13.87%, Total 15.45%) remain well above "well-capitalized" thresholds despite potential new regulatory requirements.
- Share Repurchase Execution: Track the utilization of the newly authorized $3.5 billion share repurchase program and its impact on earnings per share.