10-K: First Citizens BancShares Details Capital Structure and Regulatory Compliance in 10-K Filing

First Citizens BancShares' 10-K filing outlines its capital stock structure, regulatory environment, and recent acquisitions, including Silicon Valley Bridge Bank.

Summary

• First Citizens BancShares' 10-K filing details the company's authorized capital stock, which includes 32 million shares of Class A common stock, 2 million shares of Class B common stock, and 20 million shares of preferred stock.
• Class A common stock has one vote per share, while Class B common stock has 16 votes per share, and both classes share equally in dividends and liquidation proceeds.
• The company's Class A common stock is listed on the Nasdaq Global Select Market under the symbol FCNCA, while its Class B common stock trades over-the-counter under the symbol FCNCB.
• The document also describes the rights and preferences of the company's outstanding preferred stock, including Series A, Series B, and Series C, which have varying dividend rates and liquidation preferences.
• The filing highlights the company's recent acquisitions, including Silicon Valley Bridge Bank (SVBB) in March 2023, which added $38.48 billion in deposits, and CIT Group in January 2022, which added $39.43 billion in deposits.
• First Citizens BancShares operates a network of more than 600 branches and offices in 30 states, with total consolidated assets of $213.76 billion as of December 31, 2023.
• The company is subject to extensive regulation by various federal and state agencies, including the Federal Reserve, FDIC, and CFPB, and is considered a Category IV banking organization under the Dodd-Frank Act.
• The filing also discusses the potential impact of proposed regulatory changes, including enhanced capital requirements, long-term debt requirements, and changes to brokered deposit rules.
• The company's human capital strategy focuses on attracting, retaining, and developing diverse talent, with women and ethnically diverse associates making up approximately 56% and 37% of total employees, respectively.
• The document also outlines various risk factors, including strategic, operational, credit, market, liquidity, capital adequacy, compliance, asset, and financial reporting risks.

Sentiment

Score: 5

Explanation: The document is a factual 10-K filing, which is generally neutral in tone. However, the document highlights several risks and challenges, including regulatory hurdles, competition, and potential economic downturns, which temper any positive sentiment. The document also notes the company's strong capital position and diverse workforce, which are positive factors.

Positives

• The company has a strong capital position, exceeding Basel III requirements and PCA well capitalized thresholds.
• The company has a diverse workforce, with women and ethnically diverse associates making up a significant portion of total employees.
• The company has a strong corporate culture, competitive compensation and benefits structure, and commitment to career development.
• The company has a well-defined risk management framework and a low risk appetite for liquidity.
• The company has a large branch network and a nationwide digital bank, providing a broad range of financial services to individuals, businesses and professionals.

Negatives

• The company is subject to heightened supervision and enhanced regulatory standards as a large banking organization with over $100 billion in total consolidated assets.
• The company faces significant competition from national, regional, and local financial services providers, including non-bank entities.
• The company is subject to various laws and regulations that may limit its ability to pay dividends or make other capital distributions.
• The company is subject to reputational risks that could harm its business and prospects.
• The company is subject to cyberattacks, information or security breaches, or technology outages that could adversely affect its business.
• The company's allowance for credit losses may prove to be insufficient to absorb losses in its credit portfolios.
• The company's financial performance is subject to risks associated with the loss of customer confidence and demand.
• The company's ability to grow is contingent upon access to capital, which may not be readily available.

Risks

• The company may be adversely affected by risks associated with completed, pending or any potential future acquisitions.
• The company encounters significant competition that may reduce its market share and profitability.
• The company faces significant operational risks in its businesses and may fail to maintain appropriate operational infrastructure and oversight.
• A cyberattack, information or security breach, or a technology outage of ours or of a third-party could adversely affect our ability to conduct our business.
• If the company fails to effectively manage credit risk, its business and financial condition will suffer.
• The company's allowance for credit losses may prove to be insufficient to absorb losses in its credit portfolios.
• Unfavorable economic or political conditions could adversely affect the company's business.
• Failure to effectively manage the company's interest rate risk could adversely affect it.
• If the company's current level of balance sheet liquidity were to experience pressure, it could affect its ability to pay deposits and fund its operations.
• The company is subject to enhanced liquidity risk management requirements as a Category IV banking organization.
• The company's ability to grow is contingent upon access to capital, which may not be readily available to it.
• The company and FCB are subject to capital adequacy and liquidity guidelines and, if they fail to meet these guidelines, their financial condition and ability to make capital distributions would be adversely affected.
• The company operates in a highly regulated industry, and the laws and regulations that govern its operations may adversely affect it.
• The company may not be able to realize its entire investment in the equipment that it leases to its customers.
• Accounting standards may change and increase the company's operating costs or otherwise adversely affect its results.
• The company's accounting policies and processes are critical to the reporting of its financial condition and results of operations.

Future Outlook

The company expects any future bank mergers and acquisitions may be impacted in the near term by the enhanced regulatory review. Additionally, in light of the bank failures in early 2023, the bank regulators are re-evaluating regulatory requirements and standards applicable to banking organizations with $100 billion or more in total consolidated assets, and have proposed amendments to several key regulations and requirements for such organizations. As BancShares continues to grow, it may cross additional risk-based asset thresholds, subjecting it to additional regulatory requirements.

Management Comments

• Throughout its history, the operations of BancShares have been significantly influenced by descendants of Robert P. Holding, who came to control FCB during the 1920s.
• The Chairman of the Boards and Chief Executive Officer, Frank B. Holding, Jr., is the grandson of Robert P. Holding.
• Hope Holding Bryant, Vice Chairwoman of the Boards, is Robert P. Holdings granddaughter.
• Peter M. Bristow, President and member of the Boards, is the brother-in-law of Frank B. Holding, Jr. and Hope Holding Bryant.

Industry Context

The financial services industry is highly competitive and continues to evolve as a result of changes in regulation, technology, product delivery systems, the accelerating pace of consolidation among financial service providers, and the general market and economic climate. The ability of non-bank financial entities to provide services previously limited to commercial banks has intensified competition. More than ever, customers have the ability to select from a variety of traditional and nontraditional alternatives.

Comparison to Industry Standards

• FCB's deposit market share as of June 30, 2023 in North Carolina and South Carolina was 11.0% and 9.3%, respectively, which makes FCB the third largest bank in North Carolina and the fourth largest bank in South Carolina based on deposit market share according to the FDIC Deposit Market Share Report.
• The two banks larger than FCB based on deposits in both North Carolina and South Carolina were Bank of America and Truist Bank.
• The additional bank larger than FCB based on deposits in South Carolina was Wells Fargo.
• These banks collectively held 60.8% and 41.9% of North Carolina and South Carolina deposits, respectively.

Related Party Transactions

• BancShares has, and expects to have in the future, banking transactions in the ordinary course of business with directors, officers and their associates (Related Persons) and entities controlled by Related Persons.

Stakeholder Impact

• The company's ability to pay dividends may be limited by regulatory requirements.
• The company's financial performance is subject to risks associated with the loss of customer confidence and demand.
• The company's ability to attract and retain employees is key to its success.
• The company's operations are subject to various laws and regulations designed to protect consumers.

Next Steps

• BancShares will submit a capital plan in 2024.
• BancShares will participate in the Federal Reserves CCAR process in the first instance in 2024.
• BancShares is continuing to develop its compliance and enterprise risk management program to integrate the entities acquired in connection with the CIT Merger and SVBB Acquisition.

Key Dates

Keywords

capital stock, regulatory compliance, bank holding company, financial services, risk management, acquisitions, preferred stock, common stock, banking, deposits