“Initial stabilization efforts are complete” when it comes to First Citizens Bank's integration of Silicon Valley Bank.
That’s according to Frank Holding Jr., CEO of Raleigh-based First Citizens, which is now a $200 billion bank that bought SVB assets earlier this year after the bank was taken over by federal regulators.
While Holding acknowledged headwinds in the innovation economy – from a tough fundraising environment to limited exit opportunities pressuring startups – he told analysts the outlook is good.
“While U.S. VC firms investment levels may continue to fall in the near term, we believe the long-term outlook remains positive, primarily related to tailwinds that remain intact despite the most recent dislocation,” Holding said on an earnings call Thursday. While valuations of 2021 are likely over “for some time, if ever … there is substantial dry powder waiting to be invested, which gives us confidence in the long term prospects of the innovation economy."
First Citizens (Nasdaq: FCNCA) shares shot up Thursday, closing at $1,414.47, up nearly 8.7 percent. The bank's stock has jumped more than 88 percent year to date.
First Citizens did experience an increase in net charge-offs in the quarter, a majority of which were “related to investor dependent loans in the SVB portfolio,” Holding said.
“While we continue to monitor this portfolio closely, given some of the macroeconomic headwinds facing the innovation economy, we remain encouraged by the resiliency of our clients in the face of elevated inflation and rising interest rates,” Holding told analysts.
First Citizens CFO Craig Nix told analysts charge-offs were concentrated in SVB’s investor dependent loans. They totaled $88 million in the third quarter compared to $49 million last quarter.
Nix said that at the end of the quarter, the portfolio totaled $5.7 billion, or 10 percent of SVB segment loans with $1.7 billion in early-stage companies. Early stage – the highest risk category – represented 3 percent of SVB’s segment loans.
Holding said to expect charge-offs to remain elevated through the first half of next year “and then we’ll see what happens in the second half.”
The company did find efficiencies, as expenses declined by $71 million – 85 percent of which was related to synergies arising from the SVB deal.
First Citizens reported acquisition related expenses of $121 million.
The bank recently launched a nationwide campaign it calls “Yes, SVB” to increase awareness that the entrepreneurially-focused firm is open for business. It’s also investing in new capabilities, such as what it calls SVB Go, an online digital banking platform that Holding described as being “designed for how our founders and innovation leaders run their businesses rather than how banks operate.”
Overall, First Citizens reported $133.3 billion in loans as of the end of September, $187 million more than the June quarter. Deposits totaled $146.2 billion, an increase of $5 billion over the previous quarter. The bank reported $752 million in net income for the quarter.
