Why did First Citizens record a large gain on the Silicon Valley Bridge Bank acquisition?

The fair value of the net assets acquired ($46.12 billion after liabilities) exceeded the purchase price (about $36.31 billion, consisting of the Purchase Money Note and Value Appreciation Instrument). The gain arose largely from the $16.45 billion asset discount under the Purchase Agreement and the acquisition of deposits without a premium. The preliminary after-tax gain is $9.81 billion, and it is preliminary and subject to adjustment during the measurement period.

How much risk does First Citizens face from the loans it acquired?

The shared-loss agreement with the FDIC reduces exposure: the FDIC covers 0% of losses up to $5 billion and 50% above that for five years on about $60.5 billion of funded loans. FCB, however, reimburses the FDIC for 50% of recoveries for eight years and may owe up to $1.5 billion in a true-up payment. Management says preliminary estimates show no material value for the loss-sharing asset or true-up liability. Acquired loans include concentrations in global fund banking (56% of total loans), so concentration and credit trends remain important to watch.

Is the funding from the FDIC a source of risk for investors?

Yes. The $36.07 billion Purchase Money Note carries a 3.50% rate and matures in March 2028, and the Advance Facility Agreement is subordinated to it. Borrowings under the facility are capped by the value of acquired collateral, and the facility's availability ends March 27, 2025. Investors should watch how these obligations are refinanced or repaid, as well as how the interest expense (about $1.00 billion on the note in 2023) affects earnings.

How has the acquired business performed since the deal closed?

From March 27 through December 31, 2023, the SVB segment reported net interest income of $1.95 billion, noninterest income of $478 million, noninterest expense of $1.64 billion, and net income of $530 million. Deposits from the acquisition fell from $56.01 billion to $38.48 billion over the same period, though management reports that outflows stabilized in the second quarter of 2023. Acquisition-related expenses at the corporate level totaled $470 million in 2023.

Are the acquisition accounting figures final?

No. The fair value estimates are preliminary and may be updated for a measurement period not to exceed one year from March 27, 2023. Final settlement with the FDIC, valuation changes, and tax treatment (which is complex for FDIC-assisted deals and results in provisional deferred taxes) could still change the recorded amounts, including the gain. Investors should treat the $9.81 billion gain as an estimate until the measurement period closes.

FCNCA 8-K: Acquisitions & Dispositions

01—Abstract

Summary

Summary of the 8-K/A filed January 26, 2024. Cited figures are marked; the original filing is the authoritative source.

On January 26, 2024, First Citizens BancShares (FCNCA) filed an 8-K/A (Amendment No. 2) providing updated financial disclosures on its March 27, 2023 acquisition of substantially all assets and assumed deposits of Silicon Valley Bridge Bank, N.A. from the FDIC.

FCB acquired assets with an estimated fair value of $107.54 billion^a, including $68.47 billion of net loans and $35.31 billion of cash and interest-earning deposits, and assumed $61.42 billion of liabilities, including $56.01 billion of deposits acquired without a premium. The assets were acquired at a discount of roughly $16.45 billion, which is the main reason the deal produced a preliminary after-tax bargain purchase gain of $9.81 billion (with no goodwill recorded). Values remain preliminary, subject to a measurement period of up to one year and to pending tax and settlement adjustments.

Financing and risk-sharing terms are central to investor assessment. FCB issued a five-year Purchase Money Note to the FDIC, amended and restated to about $36.07 billion^b (3.50% interest, maturing March 2028), and obtained an Advance Facility Agreement of up to $70 billion for liquidity through March 2025, both finalized November 20, 2023. A commercial shared-loss agreement covers about $60.5 billion of funded loans, with FDIC loss sharing at 0% on the first $5 billion of losses and 50% above that for five years, and FCB reimbursing 50% of recoveries for eight years.

FCB may owe a true-up payment of up to $1.5 billion^c, but management states preliminary estimates show no material value for the loss indemnification asset or true-up liability. Performance data through year-end 2023 shows the SVB segment contributed $530 million of net income since acquisition, with noninterest expense and deposit outflows as key pressure points.

Deposits fell from $56.01 billion at acquisition to $38.48 billion^d by December 31, 2023, though management says they stabilized in the second quarter. Liquidity was strong at $57.28 billion in liquid assets, and regulatory capital ratios remained well above well-capitalized thresholds (BancShares CET1 of 13.36%, total risk-based capital of 15.74%, both preliminary).

02—Key points

Key Highlights

Acquired assets with fair value of $107.54 billion, including $68.47 billion of net loans and $35.31 billion of cash and interest-earning deposits, while assuming $61.42 billion of liabilities, mainly $56.01 billion of deposits.
Recorded a preliminary after-tax bargain purchase gain of $9.81 billion (pre-tax $13.17 billion) and no goodwill, driven by a $16.45 billion asset discount under the Purchase Agreement.
Purchase Money Note amended and restated to about $36.07 billion, maturing March 2028 at 3.50%, with no scheduled principal payments and voluntary prepayment allowed without penalty.
Advance Facility Agreement provides up to $70 billion in liquidity through March 2025, limited by the value of acquired collateral; $15.11 billion was unused at December 31, 2023.
Shared-loss agreement covers about $60.5 billion of funded loans, with FDIC loss sharing for five years and FCB reimbursement of 50% of recoveries for eight years; up to a $1.5 billion true-up payment is possible after March 31, 2031.
Deposits from the acquisition declined from $56.01 billion to $38.48 billion by December 31, 2023, a key liquidity and funding trend for investors to monitor.
Strong liquidity ($57.28 billion in liquid assets) and capital (BancShares CET1 13.36%, total risk-based capital 15.74% at December 31, 2023, preliminary) remained above well-capitalized thresholds.

03—Questions

Frequently Asked Questions

Why did First Citizens record a large gain on the Silicon Valley Bridge Bank acquisition?
The fair value of the net assets acquired ($46.12 billion after liabilities) exceeded the purchase price (about $36.31 billion, consisting of the Purchase Money Note and Value Appreciation Instrument). The gain arose largely from the $16.45 billion asset discount under the Purchase Agreement and the acquisition of deposits without a premium. The preliminary after-tax gain is $9.81 billion, and it is preliminary and subject to adjustment during the measurement period.
How much risk does First Citizens face from the loans it acquired?
The shared-loss agreement with the FDIC reduces exposure: the FDIC covers 0% of losses up to $5 billion and 50% above that for five years on about $60.5 billion of funded loans. FCB, however, reimburses the FDIC for 50% of recoveries for eight years and may owe up to $1.5 billion in a true-up payment. Management says preliminary estimates show no material value for the loss-sharing asset or true-up liability. Acquired loans include concentrations in global fund banking (56% of total loans), so concentration and credit trends remain important to watch.
Is the funding from the FDIC a source of risk for investors?
Yes. The $36.07 billion Purchase Money Note carries a 3.50% rate and matures in March 2028, and the Advance Facility Agreement is subordinated to it. Borrowings under the facility are capped by the value of acquired collateral, and the facility's availability ends March 27, 2025. Investors should watch how these obligations are refinanced or repaid, as well as how the interest expense (about $1.00 billion on the note in 2023) affects earnings.
How has the acquired business performed since the deal closed?
From March 27 through December 31, 2023, the SVB segment reported net interest income of $1.95 billion, noninterest income of $478 million, noninterest expense of $1.64 billion, and net income of $530 million. Deposits from the acquisition fell from $56.01 billion to $38.48 billion over the same period, though management reports that outflows stabilized in the second quarter of 2023. Acquisition-related expenses at the corporate level totaled $470 million in 2023.
Are the acquisition accounting figures final?
No. The fair value estimates are preliminary and may be updated for a measurement period not to exceed one year from March 27, 2023. Final settlement with the FDIC, valuation changes, and tax treatment (which is complex for FDIC-assisted deals and results in provisional deferred taxes) could still change the recorded amounts, including the gain. Investors should treat the $9.81 billion gain as an estimate until the measurement period closes.

04—Continue

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