First Citizens BancShares bucked the industry trend of tepid growth in loans and deposits,
The Raleigh, North Carolina-based company saw its stock price shoot up some 7% Thursday after its second-quarter performance beat analysts' estimates, and it announced a $3.5 billion share repurchase plan.
First Citizens, which has revived the SVB brand and sought to appeal to the failed bank's startup-heavy customer base, also
Increased activity in private equity and venture capital helped boost commercial loans in the bank's SVB unit to $42 billion, up 6% from the previous quarter, First Citizens Chairman and CEO Frank Holding Jr. told analysts.
And commercial deposits in the SVB unit grew for the first time since the beginning of 2022, hitting $35.9 billion in the second quarter.
"As we look ahead, it's too early to call an innovation economy turnaround, despite increasing deal counts and encouraging investment trends," Holding said. "We're encouraged that the rebound will be significant, as high levels of VC dry powder remain a strong catalyst for future growth."
Holding added that the bank is expecting the momentum to play out over the rest of the year, but First Citizens will "remain guarded about the absolute levels of deposit growth given the continued headwinds in the environment."
While the $220 billion-asset bank expects two interest rate cuts in the second half of the year, resulting in a compressed net interest margin, it also anticipates that client acquisition will help grow its balance sheet.
In the second quarter, First Citizens recorded net income of $707 million, which was above estimates from analysts, but down 3% from the previous quarter. The company's bottom line was hurt by economic factors that tamped down on net interest income and the ongoing expenses of folding in SVB.
Holding said in an interview with American Banker on Thursday afternoon that First Citizens' expansion opportunities aren't exclusive to one line of business or sector, but are dispersed across the bank.
"The combination of what we've created here, the organization we are, is a very diverse platform," Holding said. "And we're gratified that we've gotten growth from multiple sectors, not just our SVB team. … That gives us great confidence that we have additional growth ahead of us."
Steven Alexopoulos, an analyst at JPMorgan, wrote in a note Thursday that, "with all eyes on Silicon Valley Bank performance, it was a better-than-expected quarter." The uptick in deposits and loans, he added, indicate an "accelerating pace of former clients returning to SVB."
"On an overall basis, we see this as a strong quarter with SVB balances inflecting favorably and showing that clients are returning to the franchise," Alexopoulos wrote. "While the market will likely respond favorably to the quarter and news of the buyback, to us the real highlight of the quarter is the SVB franchise starting to once again move into the pole position as the bank of the innovation economy."
First Citizens acquired $110 billion of SVB's assets from the Federal Deposit Insurance Corp. when the Santa Clara, California-based institution failed last spring. Since then, First Citizens' share price has more than tripled. Last month, the bank was listed on the Fortune 500 list of largest companies by revenue for the first time.
Given the steep growth, the bank has been focused on enhancing its risk management framework, Holding said Thursday.
First Citizens' common equity tier 1 capital ratio has hovered around 13% for the last year. The bank's $3.5 billion share buyback program is part of its plan to manage that ratio down to 10.5% by the end of next year.
Chief Financial Officer Craig Nix said the bank will continue to assess its capital management strategy based on its earnings and the economic environment.
"Using capital to support organic growth remains our top priority," Nix said. "The strong earnings have led to an excess capital position. Share repurchases provide an opportunity for us to return capital to our shareholders and to more efficient capital levels for the time."
