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FIRST CITIZENS BANCSHARES INC /DE/ 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

First Citizens BancShares, Inc.

Filing date:

02/21/2025

TLDR:

First Citizens BancShares’ 10-K filing for FY 2024 reveals strong capital adequacy and deposit growth, but also highlights risks related to credit concentrations and interest rate sensitivity. A ‘Hold’ rating is suggested, pending observation of risk management and growth capitalization.

ELI5:

First Citizens bank is doing okay, with enough money and new customers, but they need to be careful about who they lend to and how interest rates change. It’s like saying ‘wait and see’ before investing.

Accession #:

0000798941-25-000010

Published on

Analyst Summary

  • Net income decreased significantly from $11.47 billion in 2023 to $2.78 billion in 2024, primarily due to the gain on acquisition in the prior year.
  • Net interest income (NII) increased slightly, driven by loan growth and higher yields, but offset by higher deposit costs.
  • Total assets and deposits increased, reflecting growth in various segments.
  • Key ratios such as ROAA and NIM decreased, while nonperforming assets increased.
  • Operating Profit Margin decreased by -42.74% to 36.81%.
  • Net Profit Margin decreased by -53.37% to 28.46%.
  • Return on Assets (ROA) decreased by -78.64% to 1.26%.
  • Earnings Per Share (EPS) decreased by -75.85% to $189.41.
  • Revenue Growth decreased by -48.06%.
  • Net Income Growth decreased by -75.78%.
  • EPS Growth decreased by -75.85%.

Opportunities and Risks

  • Credit Risk: Concentration of loans in specific industries and geographic areas increases vulnerability to economic downturns.
  • Interest Rate Risk: Asset-sensitive position exposes the company to potential earnings declines in a falling interest rate environment.
  • Integration Risk: Challenges in integrating acquired entities could lead to operational inefficiencies and higher costs.
  • Regulatory Risk: Potential for increased regulatory scrutiny and compliance costs due to proposed rules.
  • Cybersecurity Risk: Increasing sophistication of cyberattacks poses a threat to data security and operational stability.
  • Deposit Growth: Continued success in attracting and retaining deposits through the branch network and digital channels.
  • Strategic Acquisitions: Potential for future acquisitions to enhance organizational value and expand market presence.
  • Diversification: Opportunities to diversify the loan portfolio and reduce concentration risks.
  • Operational Efficiency: Ongoing efforts to streamline processes and systems to improve productivity and reduce costs.

Potential Implications

Company Performance

  • Company’s ability to manage credit concentrations, interest rate sensitivity, and integration risks will be crucial for future performance.
  • Successful integration of acquired entities, particularly SVB Commercial, will be crucial for future growth and efficiency.
  • Potential for increased regulatory scrutiny and compliance costs also warrants attention.

Stock Price

  • Investors should closely monitor the company’s ability to manage credit concentrations, interest rate sensitivity, and integration risks.
  • Potential for increased regulatory scrutiny and compliance costs also warrants attention.
  • A ‘Hold’ rating is recommended, pending further evidence of the company’s success in navigating these challenges and capitalizing on its growth opportunities.

First Citizens BancShares Inc. (FCNCA) – 10-K Filing Analysis (FY 2024)

Executive Summary

This report analyzes First Citizens BancShares Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Key areas of focus include financial performance, strategic initiatives, risk factors, and regulatory compliance. While the company demonstrates strong capital adequacy and deposit growth, the report highlights potential risks related to credit concentrations, interest rate sensitivity, and the integration of acquired entities. Overall, a ‘Hold’ rating is suggested, pending further observation of the company’s ability to manage these risks and capitalize on growth opportunities.

Company Overview

First Citizens BancShares, Inc. is a financial holding company operating through its subsidiary, First-Citizens Bank & Trust Company. The company provides a wide range of banking and financial services to individuals, businesses, and professionals. Recent significant events include the acquisition of Silicon Valley Bridge Bank (SVBB) in 2023 and the merger with CIT Group in 2022. The company operates through four reportable segments: General Bank, Commercial Bank, SVB Commercial, and Rail.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management focuses on strategic priorities including client focus, talent and culture, operational efficiency, and balance sheet optimization. The MD&A highlights the impact of the SVBB acquisition on financial performance and emphasizes the importance of managing credit risk and integrating acquired operations.

Financial Statement Analysis

Income Statement

  • Net income decreased significantly from $11.47 billion in 2023 to $2.78 billion in 2024, primarily due to the gain on acquisition in the prior year.
  • Net interest income (NII) increased slightly, driven by loan growth and higher yields, but offset by higher deposit costs.
  • Noninterest income decreased substantially, mainly due to the absence of the acquisition gain.
  • Provision for credit losses decreased, reflecting changes in loan mix and improvements in the macroeconomic forecast.

Balance Sheet

  • Total assets increased, driven by loan growth and investment security purchases.
  • Total deposits increased, reflecting growth in the General Bank, Direct Bank, and SVB Commercial segments.
  • Borrowings decreased slightly due to redemptions of senior unsecured notes and subordinated debentures.
  • Strong capital ratios were maintained, exceeding regulatory requirements.

Key Ratios

  • Return on Average Assets (ROAA): Decreased from 5.90% to 1.26%.
  • Net Interest Margin (NIM): Decreased from 3.92% to 3.54%.
  • Loan-to-Deposit Ratio: Decreased from 91.39% to 90.33%.
  • Nonperforming Assets to Total Assets: Increased from 0.77% to 0.89%.

Risk and Opportunity Assessment

Risks

  • Credit Risk: Concentration of loans in specific industries (healthcare, technology, life science) and geographic areas (North Carolina, California) increases vulnerability to economic downturns.
  • Interest Rate Risk: Asset-sensitive position exposes the company to potential earnings declines in a falling interest rate environment.
  • Integration Risk: Challenges in integrating acquired entities (SVBB, CIT) could lead to operational inefficiencies and higher costs.
  • Regulatory Risk: Potential for increased regulatory scrutiny and compliance costs due to proposed rules (Basel III Endgame, long-term debt requirements).
  • Cybersecurity Risk: Increasing sophistication of cyberattacks poses a threat to data security and operational stability.

Opportunities

  • Deposit Growth: Continued success in attracting and retaining deposits through the branch network and digital channels.
  • Strategic Acquisitions: Potential for future acquisitions to enhance organizational value and expand market presence.
  • Diversification: Opportunities to diversify the loan portfolio and reduce concentration risks.
  • Operational Efficiency: Ongoing efforts to streamline processes and systems to improve productivity and reduce costs.

Uncommon Metrics

  • Global Fund Banking Portfolio: Significant concentration in loans to private equity and venture capital firms.
  • Direct Bank Deposits: Growing importance of the nationwide digital banking platform for deposit gathering.

Conclusion and Actionable Insights

First Citizens BancShares demonstrates a solid financial foundation with strong capital and deposit growth. However, investors should closely monitor the company’s ability to manage credit concentrations, interest rate sensitivity, and integration risks. The potential for increased regulatory scrutiny and compliance costs also warrants attention. A ‘Hold’ rating is recommended, pending further evidence of the company’s success in navigating these challenges and capitalizing on its growth opportunities.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for a bank.
  • Operating Profit Margin:

    • Ratio/Metric: Income Before Income Taxes / Total Revenue = $3,592 / $9,758 = 36.81%
    • Trend: ($12,077 / $18,787) = 64.28%. Percentage Change: (36.81 – 64.28) / 64.28 = -42.74%
    • Industry: Industry averages vary, but a well-managed bank typically has an operating profit margin between 30-50%. FCNCP is within this range.
  • Net Profit Margin:

    • Ratio/Metric: Net Income / Total Revenue = $2,777 / $9,758 = 28.46%
    • Trend: ($11,466 / $18,787) = 61.03%. Percentage Change: (28.46 – 61.03) / 61.03 = -53.37%
    • Industry: A good net profit margin for a bank is typically between 15-30%. FCNCP is within this range.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income / Average Total Assets = $2,777 / $219,800 = 1.26%
    • Trend: 5.90%. Percentage Change: (1.26 – 5.90) / 5.90 = -78.64%
    • Industry: Industry average ROA is typically between 1-1.5%. FCNCP is within this range.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income Available to Common Stockholders / Average Total Stockholders’ Equity = $2,716 / $22,297 = 12.18%
    • Industry: A good ROE for a bank is generally between 10-15%. FCNCP is within this range.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Diluted EPS = Net Income Available to Common Stockholders / Weighted Average Common Shares Outstanding (Diluted) = $2,716 / 14,342,655 = $189.41
    • Trend: $784.51. Percentage Change: (189.41 – 784.51) / 784.51 = -75.85%
    • Industry: EPS varies widely.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities. Need to calculate current assets and current liabilities from the balance sheet. Assuming cash, interest-earning deposits, securities purchased under agreements to resell, assets held for sale, and a portion of investment securities are current assets: $814 + $21,364 + $158 + $85 + $44,830 = $67,251. Assuming short-term borrowings and a portion of deposits are current liabilities: $367 + $155,229 = $155,596. Current Ratio = $67,251 / $155,596 = 0.43
    • Industry: A current ratio of less than 1 is typical for banks.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since banks don’t typically have inventory, this is the same as the current ratio = 0.43
    • Industry: A quick ratio of less than 1 is typical for banks.
  • Cash Ratio:

    • Ratio/Metric: Cash and Due from Banks / Current Liabilities = $814 / $155,596 = 0.0052
    • Industry: Banks generally operate with a very low cash ratio.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $201,492 / $22,228 = 9.06
    • Trend: $192,503 / $21,255 = 9.06. Percentage Change: (9.06 – 9.06) / 9.06 = 0%
    • Industry: A typical debt-to-equity ratio for a bank is between 7 and 10. FCNCP is within this range.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities / Total Assets = $201,492 / $223,720 = 0.90
    • Trend: $192,503 / $213,758 = 0.90. Percentage Change: (0.90 – 0.90) / 0.90 = 0%
    • Industry: Banks typically have high debt-to-assets ratios.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = ($3,592 + $5,210) / $5,210 = 1.7
    • Trend: ($12,077 + $3,679) / $3,679 = 4.28. Percentage Change: (1.7 – 4.28) / 4.28 = -60.28%
    • Industry: A ratio of 1.5 or higher is generally considered acceptable.

Activity/Efficiency

  • Inventory Turnover: Not applicable for a bank.
  • Days Sales Outstanding (DSO): Not directly applicable to a bank.
  • Days Payable Outstanding (DPO): Not directly applicable to a bank.
  • Asset Turnover:

    • Ratio/Metric: Total Revenue / Average Total Assets = $9,758 / $219,800 = 0.044
    • Industry: Banks typically have low asset turnover ratios.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $22.35 / $189.41 = 0.12
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Total Stockholders’ Equity = (12,712,436 + 1,005,185) * $400 / $22,228 = $5,487,048,400 / $22,228 = 246.86
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenue = (12,712,436 + 1,005,185) * $400 / $9,758 = $5,487,048,400 / $9,758 = 562.21
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash = $5,487,048,400 + $37,051 – $814 = $41,724,048,400. EBITDA = Net Income + Interest + Taxes + Depreciation & Amortization = $2,777 + $5,210 + $815 + $394 = $9,196. EV/EBITDA = $41,724,048,400 / $9,196 = 4,537.20

Growth Rates

  • Revenue Growth:
    • Ratio/Metric: (2024 Revenue – 2023 Revenue) / 2023 Revenue = ($9,758 – $18,787) / $18,787 = -48.06%
  • Net Income Growth:
    • Ratio/Metric: (2024 Net Income – 2023 Net Income) / 2023 Net Income = ($2,777 – $11,466) / $11,466 = -75.78%
  • EPS Growth:
    • Ratio/Metric: (2024 EPS – 2023 EPS) / 2023 EPS = ($189.41 – $784.51) / $784.51 = -75.85%

Other Relevant Metrics

  • Net Interest Margin (NIM):

    • Ratio/Metric: Net Interest Income / Average Interest-Earning Assets = $7,143 / $201,578 = 3.54%
    • Trend: 3.92%. Percentage Change: (3.54 – 3.92) / 3.92 = -9.69%
  • Efficiency Ratio:

    • Ratio/Metric: Noninterest Expense / Total Revenue = $5,735 / $9,758 = 58.77%
  • Loan-to-Deposit Ratio:

    • Ratio/Metric: Total Loans and Leases / Total Deposits = $140,221 / $155,229 = 90.33%
    • Trend: 91.39%. Percentage Change: (90.33 – 91.39) / 91.39 = -1.16%
  • Noninterest-bearing deposits to total deposits:

    • Ratio/Metric: Noninterest-bearing Deposits / Total Deposits = $38,633 / $155,229 = 24.89%
    • Trend: 27.29%. Percentage Change: (24.89 – 27.29) / 27.29 = -8.80%
  • Total Risk-Based Capital Ratio:

    • Ratio/Metric: Total Capital / Risk-Weighted Assets = $24,610 / (24,610 / 0.1504) = 15.04%
    • Trend: 15.75%. Percentage Change: (15.04 – 15.75) / 15.75 = -4.51%
  • Tier 1 Risk-Based Capital Ratio:

    • Ratio/Metric: Tier 1 Capital / Risk-Weighted Assets = $22,137 / (22,137 / 0.1353) = 13.53%
    • Trend: 13.94%. Percentage Change: (13.53 – 13.94) / 13.94 = -2.94%
  • Common Equity Tier 1 (CET1) Ratio:

    • Ratio/Metric: CET1 Capital / Risk-Weighted Assets = $21,256 / (21,256 / 0.1299) = 12.99%
    • Trend: 13.36%. Percentage Change: (12.99 – 13.36) / 13.36 = -2.77%
  • Tier 1 Leverage Ratio:

    • Ratio/Metric: Tier 1 Capital / Average Total Assets = $22,137 / $219,800 = 9.90%
    • Trend: 9.83%. Percentage Change: (9.90 – 9.83) / 9.83 = 0.71%
  • Ratio of Nonaccrual Loans to Total Loans:

    • Ratio/Metric: Nonaccrual Loans / Total Loans = $1,184 / $140,221 = 0.84%
    • Trend: 0.73%. Percentage Change: (0.84 – 0.73) / 0.73 = 15.07%
  • Allowance for Loan and Lease Losses (ALLL) to Loans Ratio:

    • Ratio/Metric: ALLL / Total Loans = $1,676 / $140,221 = 1.20%
    • Trend: 1.31%. Percentage Change: (1.20 – 1.31) / 1.31 = -8.40%
  • Net Charge-Off Ratio:

    • Ratio/Metric: Net Charge-Offs / Average Loans = $540 / $137,456 = 0.39%
    • Trend: 0.47%. Percentage Change: (0.39 – 0.47) / 0.47 = -17.02%

Commentary

First Citizens BancShares experienced a decline in profitability in 2024 compared to the exceptional performance in 2023, primarily driven by a decrease in noninterest income and a higher provision for credit losses. While capital ratios remain strong and above regulatory requirements, the decrease in net interest margin and the increase in nonperforming assets warrant attention. The bank’s loan-to-deposit ratio is healthy, and liquidity appears adequate. The successful integration of acquired entities, particularly SVB Commercial, will be crucial for future growth and efficiency.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️