01—Abstract
Summary
Summary of the 8-K filed January 26, 2024. Cited figures are marked; the original filing is the authoritative source.
First Citizens BancShares (FCNCA) reported Q4 2023 GAAP net income available to common stockholders of $499 milliona, or $34.33 per diluted share, down from $737 million ($50.67) in Q3 2023.
Adjusted diluted EPS was $46.58b versus $55.92 in the prior quarter, a decline of roughly 17%. The sequential drop was driven largely by a reduced $83 million gain on acquisition (a tax-estimate refinement tied to the SVB transaction), $116 million of acquisition-related expenses, and a $64 million FDIC special assessment. Adjusted pre-provision net revenue still held up well at $1.23 billion, and the adjusted efficiency ratio improved to 48.00%.
Net interest margin compressed 21 basis points to 3.86%, reflecting higher deposit costs and lower loan accretion from the SVB acquisition. Balance sheet trends were mixed. Loans were essentially flat at $133.3 billionc, with strong growth in the General Bank (10.8% annualized) and Commercial Bank (9.4% annualized) offsetting a $1.85 billion decline in the SVB segment.
Deposits fell slightly to $145.9 billiond, with the Direct Bank up $2.0 billion offsetting seasonal branch outflows and SVB cash burn. The cost of total deposits rose to 2.35% from 2.12%, though management noted the pace of increase slowed. Credit costs rose modestly: the provision for credit losses increased to $249 million, the net charge-off ratio was 0.53%, and nonaccrual loans climbed to 0.73% of loans.
The allowance for loan and lease losses reached 1.31% of loans after a $74 million reserve build, driven by general office CRE and the SVB investor-dependent portfolio. Capital and liquidity remained strong. The CET1 ratio rose to 13.36% and the Tier 1 leverage ratio to 9.83%, both well above requirements, and liquid assets totaled $57.3 billion.
Management flagged a potential long-term debt shortfall of $8 to $11 billion under the proposed large-bank capital rules and expects to begin programmatic issuance in 2024. Management's outlook calls for 2024 net interest income of $6.9 to $7.1 billion, loan growth to $139 to $143 billion, and a net charge-off ratio of 45 to 55 basis points. Note that the press release describes the company as having completed its CIT integration and shows Q4 2023 quarterly comparisons against Q3 2023, and the financial supplement reports full-year 2023 GAAP net income of $11.5 billion, which is inflated by the one-time SVB bargain purchase gain.
02—Key points
Key Highlights
- GAAP diluted EPS of $34.33 vs. $50.67 in Q3 2023; adjusted diluted EPS of $46.58 vs. $55.92, a roughly 17% sequential decline
- Net interest margin fell 21 bps to 3.86% and net interest income declined $79 million to $1.91 billion, driven by higher deposit costs and lower SVB loan accretion
- Adjusted efficiency ratio improved to 48.00% and adjusted PPNR was $1.23 billion, indicating solid underlying operating performance
- Loans flat at $133.3 billion, with General Bank and Commercial Bank growth offsetting an SVB decline of $1.85 billion
- Deposits down slightly to $145.9 billion; the cost of deposits rose to 2.35% from 2.12%, but the pace of increase slowed
- Credit costs rose: provision of $249 million, NCO ratio of 0.53%, nonaccrual loans up to 0.73%, and ALLL up to 1.31% of loans
- Capital remained strong with a CET1 ratio of 13.36%, though an estimated $8 to $11 billion long-term debt shortfall under proposed rules is a forward-looking consideration
03—Questions
Frequently Asked Questions
Why did EPS decline so sharply from Q3 2023 to Q4 2023?
The decline was driven primarily by notable items. The gain on acquisition fell by $83 million (vs. a $12 million gain in Q3 2023) as the company refined income tax estimates related to the SVB acquisition. Acquisition-related expenses of $116 million and a $64 million FDIC special assessment also weighed on results. Adjusted EPS, which excludes these items, still fell from $55.92 to $46.58, reflecting the NIM compression and a $76 million increase in GAAP noninterest expense.
What is driving the compression in net interest margin?
NIM declined 21 basis points to 3.86%. Deposit costs rose sharply, with interest expense on deposits up $96 million from higher rates paid and a larger average balance, particularly in the Direct Bank. Loan accretion from the SVB acquisition also declined by $77 million. These effects were partially offset by higher yields on loans and investment securities.
Is credit quality deteriorating at First Citizens?
Credit costs are rising modestly but remain manageable. The net charge-off ratio held at 0.53%, while nonaccrual loans rose to $969 million (0.73% of loans) from $899 million. The ALLL increased to 1.31% of loans, driven by general office CRE, specific reserves in the SVB investor-dependent portfolio, and macroeconomic forecast changes. Management characterized the deterioration as mild, concentrated in commercial portfolios.
How strong is the bank's capital and liquidity position?
Capital and liquidity remain solid. At December 31, 2023, the CET1 ratio was 13.36%, Tier 1 risk-based capital was 13.94%, total risk-based capital was 15.74%, and the Tier 1 leverage ratio was 9.83%, all well above regulatory minimums. Liquid assets were $57.3 billion. However, management estimates a long-term debt shortfall of $8 to $11 billion under proposed large-bank rules and plans to begin issuing qualifying debt in 2024.
What does management expect for 2024?
Management projects 2024 year-end loans of $139 to $143 billion and deposits of $152 to $156 billion. Net interest income is expected at $6.9 to $7.1 billion, adjusted noninterest income at $1.8 to $1.9 billion, and adjusted noninterest expense at $4.6 to $4.7 billion. The net charge-off ratio is projected at 45 to 55 basis points. The NII outlook depends on the Federal Reserve's rate path, with assumptions ranging from three to six cuts in 2024.
04—Continue