First Citizens BancShares' stock price rose sharply on Thursday after the Raleigh, North Carolina, company reported resilient deposit growth and its fourth-quarter forecast topped analysts' expectations.
Shares in the Raleigh, North Carolina, bank rose almost 9% on the day, closing at their highest level since July.
The strong third-quarter earnings and improved fourth-quarter forecast continued a year of transformation for First Citizens. The $213.8 billion-asset bank has spent much of the year integrating the parts of Silicon Valley Bank that it purchased after SVB's March failure. Improved outlooks for loan growth and noninterest income in the fourth quarter are the latest potential signs the process is going well.
"We continue to see stabilization in our loan and deposit balances in the quarter," CEO Frank Holding said Thursday on a call with analysts.
The bank lost about $890 million of deposits from former SVB customers in the third quarter. But it still managed to boost its total deposits by 3.6% to more than $146 billion. Almost all of that growth came in First Citizens' direct bank segment,
Deposit growth in both the second and third quarters allowed First Citizens to reduce some of its more costly borrowings with the Federal Home Loan Banks, executives said. At the same time, the combination of more deposits and higher interest rates led to higher deposit costs. Total deposit costs were 2.12% between July and September, up from 1.68% in the second quarter.
The bank also outlined a fourth-quarter earnings forecast that exceeded analysts' expectations. First Citizens foresees year-end loan balances of between $132 billion and $134 billion, higher than the $131 million anticipated by equity analysts at Wedbush Securities. And the North Carolina bank pegged noninterest income in the fourth quarter in the $430 million to $450 million range, which compares with a $430 million estimate from Wedbush.
First Citizens' stock performance has beat its peers and the industry at large this year, with shares up close to 85% since the beginning of 2023. The stock price jumped after the bank
Still, First Citizens' first year catering to a customer base largely made up of start-ups has posed new challenges. Challenging economic conditions for start-ups and early-stage companies have resulted in some large charge-offs for First Citizens, Holding said Thursday. Most of the charge-offs are on investor-dependent loans in the portfolio acquired from SVB, he said.
"The muted fundraising and investment pace, coupled with limited exit opportunities, continues to put pressure on innovation companies across all sectors and stages of development," Holding said.
First Citizens' net charge-off ratio rose to 0.53%, up from 0.47% in the second quarter and 0.10% a year ago, before the SVB acquisition. About 57% of the loans charged off by First Citizens in the third quarter were issued by SVB, the bank said.
"The one negative takeaway from this quarter was credit quality," Wedbush analyst David Chiaverini wrote in a research note.
First Citizens will not execute share buybacks until the second half of 2024 at the earliest, Holding said. The bank had said in July that it would
The bank's common equity Tier 1 capital ratio rose to 13.23% in the third quarter, up from 10.37% a year earlier.
