Why did First Citizens' earnings decline quarter over quarter?

Net income decreased $68 million, largely because net interest income fell $25 million as purchase accounting accretion declined $39 million, and noninterest expense rose $70 million. Higher salaries, professional fees tied to regulatory compliance, and an additional working day drove expense growth. Adjusted EPS fell to $45.87 from $50.87.

How is credit quality trending at First Citizens?

Credit is stable but softening at the margins. Net charge-offs rose to 0.42% of average loans from 0.38%, and nonaccrual loans increased to 0.90% of total loans from 0.82%, mainly in SVB Commercial. The allowance for loan and lease losses declined slightly to 1.21% of loans, and a $20 million reserve estimate related to Hurricane Helene was included in the provision.

What is the outlook for net interest income and margins?

Management projects full-year 2024 net interest income of $7.08–$7.18 billion, implying a lower fourth-quarter run rate of $1.65–$1.75 billion as accretion continues to fade. The company said it believes its cost of deposits has peaked and that its deposit mix provides a cost advantage as rates decline, though this depends on the Federal Reserve's rate path.

How much capital is First Citizens returning to shareholders?

During Q3 2024 the company repurchased about 353,000 Class A shares for $700 million and paid a $1.64 per share dividend. Under the $3.5 billion repurchase plan announced in July, it had completed roughly 28% through October 22, 2024. Management noted that the CET1 ratio of 13.24% remains well above regulatory requirements, although the figures are preliminary.

What are the main risks highlighted in the filing?

Key risks include ongoing pressure in the SVB Commercial portfolio, particularly Global Fund Banking loan declines and investor-dependent early- and growth-stage loans with elevated charge-off and nonaccrual ratios. Other risks include the ongoing cost of building large financial institution regulatory capabilities, potential FDIC special assessments, changes in interest rates, and exposure to the general office CRE portfolio, which has experienced stress.

FCNCA 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 24, 2024. Cited figures are marked; the original filing is the authoritative source.

First Citizens BancShares (FCNCA) reported third-quarter 2024 net income of $639 million^a, or $43.42 per diluted common share, down from $707 million ($47.54) in the second quarter.

Excluding notable items, adjusted diluted EPS was $45.87^b, versus $50.87 in the linked quarter and $55.92 a year earlier. The decline was driven mainly by lower net interest income, which fell $25 million sequentially to $1.80 billion as purchase accounting accretion dropped $39 million, and by higher adjusted noninterest expense of $1.23 billion, up $61 million on salaries, benefits and regulatory-compliance professional fees. Net interest margin compressed to 3.53% from 3.64%, and to 3.33% excluding accretion from 3.36%.

Credit quality softened modestly. Net charge-offs rose to 0.42% of average loans from 0.38%, and nonaccrual loans climbed to 0.90% of loans from 0.82%, concentrated in the SVB Commercial segment. The provision for credit losses increased to $117 million^c, including a $20 million estimate tied to Hurricane Helene.

Loans declined 0.5% sequentially to $138.7 billion^d, reflecting paydowns in Global Fund Banking, while deposits rose 0.3% to $151.6 billion. Capital remained strong, with a CET1 ratio of 13.24% (preliminary), and the company repurchased about 353,000 Class A shares for $700 million in the quarter under a $3.5 billion plan announced in July.

For investors, the key takeaways are margin pressure as purchase accounting accretion rolls off, rising expense growth tied to regulatory readiness for large financial institution requirements, and slightly weaker asset quality in SVB Commercial. Management guided 2024 net interest income to $7.08–$7.18 billion and adjusted noninterest expense to $4.76–$4.79 billion, and expects zero to three 25 basis point rate cuts in Q4 2024.

02—Key points

Key Highlights

Net income fell to $639 million ($43.42 diluted EPS) from $707 million ($47.54) in Q2 2024; adjusted diluted EPS was $45.87 versus $50.87 in the prior quarter.
Net interest margin contracted to 3.53% from 3.64%, with NIM excluding purchase accounting accretion steady at 3.33% versus 3.36%; net interest income fell $25 million to $1.80 billion.
Adjusted noninterest expense rose $61 million to $1.23 billion, driven by salaries and benefits (including an extra working day) and a $18 million increase in professional fees tied to large financial institution regulatory build-out.
Net charge-offs increased to 0.42% of average loans from 0.38%, and nonaccrual loans rose to $1.24 billion (0.90% of loans) from 0.82%, concentrated in the SVB Commercial segment.
Loans declined 0.5% sequentially to $138.7 billion due to Global Fund Banking repayments, while deposits grew 0.3% to $151.6 billion, mostly in the General Bank's Branch Network.
Capital remained strong with a preliminary CET1 ratio of 13.24%; the company repurchased $700 million of Class A stock in Q3 and has completed about 28% of its $3.5 billion buyback plan through October 22, 2024.
Full-year 2024 guidance projects net interest income of $7.08–$7.18 billion and adjusted noninterest expense of $4.76–$4.79 billion, with an effective tax rate of 27–28%.

03—Questions

Frequently Asked Questions

Why did First Citizens' earnings decline quarter over quarter?
Net income decreased $68 million, largely because net interest income fell $25 million as purchase accounting accretion declined $39 million, and noninterest expense rose $70 million. Higher salaries, professional fees tied to regulatory compliance, and an additional working day drove expense growth. Adjusted EPS fell to $45.87 from $50.87.
How is credit quality trending at First Citizens?
Credit is stable but softening at the margins. Net charge-offs rose to 0.42% of average loans from 0.38%, and nonaccrual loans increased to 0.90% of total loans from 0.82%, mainly in SVB Commercial. The allowance for loan and lease losses declined slightly to 1.21% of loans, and a $20 million reserve estimate related to Hurricane Helene was included in the provision.
What is the outlook for net interest income and margins?
Management projects full-year 2024 net interest income of $7.08–$7.18 billion, implying a lower fourth-quarter run rate of $1.65–$1.75 billion as accretion continues to fade. The company said it believes its cost of deposits has peaked and that its deposit mix provides a cost advantage as rates decline, though this depends on the Federal Reserve's rate path.
How much capital is First Citizens returning to shareholders?
During Q3 2024 the company repurchased about 353,000 Class A shares for $700 million and paid a $1.64 per share dividend. Under the $3.5 billion repurchase plan announced in July, it had completed roughly 28% through October 22, 2024. Management noted that the CET1 ratio of 13.24% remains well above regulatory requirements, although the figures are preliminary.
What are the main risks highlighted in the filing?
Key risks include ongoing pressure in the SVB Commercial portfolio, particularly Global Fund Banking loan declines and investor-dependent early- and growth-stage loans with elevated charge-off and nonaccrual ratios. Other risks include the ongoing cost of building large financial institution regulatory capabilities, potential FDIC special assessments, changes in interest rates, and exposure to the general office CRE portfolio, which has experienced stress.

04—Continue

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