01—Abstract
Summary
Summary of the 8-K filed April 25, 2024. Cited figures are marked; the original filing is the authoritative source.
First Citizens BancShares (FCNCA) reported first-quarter 2024 GAAP net income of $731 milliona, or $49.26 per diluted share, and net income available to common stockholders of $716 million.
Excluding notable items, adjusted diluted EPS was $52.92b, up from $46.58 in the linked quarter. The GAAP improvement was driven largely by an $83 million reduction in the prior-quarter gain on acquisition (a reversal of a tax-estimate adjustment on the SVB acquisition) and a $116 million decline in noninterest expense, mainly from lower acquisition-related costs and FDIC insurance expense. Pre-provision net revenue was $1.07 billion, and the provision for credit losses fell to $64 million from $249 million, reflecting lower net charge-offs and a small reserve release.
Core trends were mixed. Net interest income fell 4.9% sequentially to $1.82 billionc and net interest margin compressed 19 basis points to 3.67%, as higher deposit costs (cost of deposits rose to 2.53% from 2.35%) and lower loan accretion outweighed balance sheet growth. Loans rose $2.1 billion (6.2% annualized) and deposits rose $3.8 billion (10.4% annualized), with the first net loan growth in the SVB Commercial segment since the acquisition.
Credit quality showed some pressure: nonaccrual loans rose to 0.79% of loans from 0.73%, although net charge-offs declined to 0.31% from 0.53%. Capital ratios strengthened, with CET1 at 13.44% and a Tier 1 leverage ratio of 10.11%. Management's full-year 2024 guidance points to net interest income of $7.1 to $7.3 billiond, a net charge-off ratio of 35 to 50 basis points, and adjusted noninterest expense of $4.6 to $4.7 billion.
These projections depend on the number of Federal Reserve rate cuts assumed. Investors will likely focus on whether NIM stabilizes, whether SVB integration milestones are met in 2024, and whether deposit cost pressure keeps easing as management expects.
02—Key points
Key Highlights
- GAAP diluted EPS of $49.26 versus $34.33 in Q4 2023; adjusted diluted EPS of $52.92 versus $46.58, excluding notable items such as $58M of acquisition-related expenses and a $9M FDIC special assessment
- Net interest margin declined 19 bps to 3.67% and net interest income fell 4.9% to $1.82B, as deposit costs rose to 2.53% and loan accretion decreased $35M
- Provision for credit losses dropped to $64M from $249M, with net charge-offs of $103M (0.31% of loans, down from 0.53%) and a $10M reserve release
- Loans grew $2.1B (6.2% annualized) and deposits grew $3.8B (10.4% annualized), with the first loan growth in the SVB Commercial segment since the acquisition
- Nonaccrual loans rose to $1.07B (0.79% of loans) from $969M (0.73%), a modest deterioration in asset quality
- Capital and liquidity strengthened: CET1 ratio 13.44%, Tier 1 leverage 10.11%, liquid assets $59.3B, and liquidity covering uninsured deposits 168%
- FY2024 guidance: net interest income of $7.1–7.3B, net charge-off ratio of 35–50 bps, and adjusted noninterest expense of $4.6–4.7B
03—Questions
Frequently Asked Questions
Why did reported GAAP earnings rise so sharply from the prior quarter?
Much of the increase came from items that do not reflect core operations. Noninterest expense fell $116M, mainly due to lower acquisition-related expenses and FDIC insurance costs. Noninterest income also rose $84M, largely because the prior quarter included an $83M reduction to the SVB acquisition gain tied to tax-estimate refinements. On an adjusted basis, which excludes these notable items, EPS rose a smaller but still meaningful amount, from $46.58 to $52.92.
Is the net interest margin compression a concern for investors?
The 19 bps decline to 3.67% is significant, driven mainly by a $63M increase in deposit interest expense and a $35M drop in purchase accounting loan accretion tied to the SVB acquisition. Management said the NIM decline was in line with its forecast, and the pace of deposit cost increases appears to be slowing (the cost of deposits rose 18 bps versus 2.35% in Q4). The outcome for 2024 depends on the number of Fed rate cuts, and management's guidance includes a range of scenarios.
How is the SVB integration progressing?
Management reports that the SVB Commercial segment returned to net loan growth for the first time since the acquisition, with loans up $335M. Deposits in that segment still fell $716M, however, as clients continued to burn cash and move funds to off-balance-sheet products. Management expects most critical integration milestones to be completed in 2024, and the Wealth business is targeting full operational integration by early 2025.
Are credit quality trends deteriorating?
Mixed. Net charge-offs improved meaningfully to 0.31% from 0.53%, and the provision fell sharply. However, nonaccrual loans increased to 0.79% of total loans from 0.73%, and the ALLL ratio declined slightly to 1.28%. The filing identifies the general office portfolio in the Commercial Bank (about $1.0B) as having experienced recent stress, with an ALLL ratio of 11.12% on that portion.
Is the capital position sufficient for the company's regulatory obligations?
Yes. The CET1 ratio rose to 13.44% and the total risk-based capital ratio is 15.66%, well above regulatory minimums. Management notes these ratios are preliminary pending regulatory filings, and they are reported including the FDIC Shared Loss Agreement benefit. Excluding the SLA impact, the adjusted CET1 ratio is 12.37%. The company is also preparing for enhanced Large Financial Institution (LFI) requirements and has submitted its 2024 capital plan.
04—Continue