First Citizens predicts fewer Fed rate cuts will boost interest income

Elijah Nouvelage/Bloomberg

First Citizens BancShares Inc., which scooped up Silicon Valley Bank after the lender failed last year, rose after boosting its guidance for lending income for 2024 given expectations for fewer interest rate cuts by the Federal Reserve.

The bank now expects net interest income of $7.1 billion to $7.3 billion this year after having previously forecast $6.9 billion to $7.1 billion of loan profits. For the first quarter, its net interest income —  the difference between what banks collect from loans and payout to depositors — met expectations. Shares jumped as much as 7.8% on Thursday morning, the most intraday in three months, and were up 6% at 10:15 a.m. in New York.

"We posted solid loan and deposit growth and credit quality held up well," Chief Executive Officer Frank Holding Jr. said in a statement. "Our capital and liquidity levels increased, positioning our balance sheet well for further growth.

"The trajectory of lending profits has been in focus for first-quarter earnings reports from banks amid uncertainty about the Federal Reserve's path forward for interest rates. Among regional banking peers, Truist Financial Corp.'s NII missed estimates earlier this week, and U.S. Bancorp has dialed back its forecast for the metric.

At Raleigh, North Carolina-based First Citizens, the new NII projection comes as the bank expects zero to three Fed interest-rate cuts, down from three to six when it last gave a forecast for lending income. For the second quarter, the bank expects NII of $1.7 billion to $1.8 billion.

Executives said during a conference call with analysts Thursday that they're confident share buybacks will be an option in the second half of the year. They also said the bank completed its 2024 capital plan and submitted it to the Fed earlier this month, with the process including a full stress test, and called it an important milestone in the company's regulatory process.

First Citizens was a key winner among regional banks last year as it snapped up Silicon Valley Bank, with shares more than doubling since the end of 2022.The acquisition pushed the lender's assets above $200 billion and handed it a windfall of lending income, as the bank doubled its annual net interest income last year to more than $6 billion. Still, the takeover came with growing pains: First Citizens has privately tried to satisfy demands from the Federal Reserve including bolstering its internal governance to better fit its rapid growth, Bloomberg News reported earlier this month, citing people with knowledge of the matter.

Holding said on Thursday's conference call that the firm has always focused on compliance with regulatory expectations, though its growth has driven First Citizens to a "significantly increased level of regulatory oversight" and the firm is being proactive in enhancing its readiness.

"While there is more work to be done, we have made meaningful progress in maturing and refining our processes to support the change in our size and complexity," he said, pointing to developments including the creation of a dedicated oversight team for regulatory remediation.

(Updates with shares, executive comments starting in first paragraph.)