8-K: First Citizens BancShares Issues $400M Series E Preferred Stock

First Citizens BancShares, Inc. has completed a public offering of 16,000,000 depositary shares, each representing a 1/40th interest in its newly established 6.625% Non-Cumulative Perpetual Preferred Stock, Series E, raising $400 million.

Summary

• The company filed a Certificate of Designation for its 6.625% Non-Cumulative Perpetual Preferred Stock, Series E (Series E Preferred Stock).
• Issued 16,000,000 depositary shares, each representing a 1/40th ownership interest in one share of the Series E Preferred Stock.
• The Series E Preferred Stock has a liquidation preference of $1,000 per share, equivalent to $25 per depositary share.
• Dividends on the Series E Preferred Stock are non-cumulative and payable quarterly.
• The initial dividend rate is 6.625% per annum from the issue date to, but excluding, March 15, 2031.
• From and including March 15, 2031, the dividend rate will reset to the five-year treasury rate as of the most recent reset dividend determination date plus 2.830% for each reset period.
• The Series E Preferred Stock ranks senior to the company's common stock and other junior securities, and on parity with its Series A, B, C, and D Preferred Stock.
• The company may redeem the Series E Preferred Stock at its option, in whole or in part, on any dividend payment date on or after March 15, 2031, or in whole but not in part, within 90 days following a Regulatory Capital Treatment Event, at a redemption price of $1,000 per share plus authorized, declared, and unpaid dividends.
• Holders of Series E Preferred Stock have no right to require redemption or repurchase.
• Holders have limited voting rights, primarily for certain fundamental changes or if dividends are not declared and paid in full for periods aggregating 18 months, which would grant the right to elect two directors.
• The public offering generated $400,000,000 in gross proceeds.
• Net proceeds (before expenses) to BancShares from the offering were $391,128,261.25.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a moderately positive development, as it successfully strengthens the company's capital base and provides financial flexibility, aligning with strategic capital management goals. The terms are standard for preferred stock offerings in the banking sector.

Positives

• Successful completion of a public offering, raising $400 million in capital, which strengthens the company's capital base.
• The issuance of perpetual preferred stock enhances the company's regulatory capital ratios without diluting common equity.
• Non-cumulative dividends provide financial flexibility for the company by not obligating future payments for missed dividends.
• The Series E Preferred Stock ranks senior to common stock in liquidation and dividends, offering a degree of protection to preferred shareholders.

Negatives

• Non-cumulative dividends mean that if the Board of Directors does not declare a dividend for a period, holders lose that dividend permanently.
• Holders of Series E Preferred Stock have no right to require the company to redeem or repurchase their shares, meaning they are perpetual unless the company chooses to redeem them.
• Limited voting rights for preferred shareholders, with significant voting power only triggered under specific, adverse conditions (e.g., 18 months of unpaid dividends).
• The dividend rate becomes floating after March 15, 2031, introducing interest rate risk for investors, as future dividend payments will fluctuate with the five-year treasury rate.

Risks

• Regulatory Capital Treatment Event: The company may redeem the Series E Preferred Stock if a Regulatory Capital Treatment Event occurs, which could lead to early redemption for investors.
• Non-Cumulative Dividends: If the Board of Directors does not authorize and declare a dividend, holders have no right to receive it for that period, and the company has no obligation to pay it in the future.
• Limited Voting Rights: Holders have no voting power except for specific fundamental changes or if 18 months of dividends are unpaid, which could limit their influence on corporate decisions.
• Interest Rate Risk: After March 15, 2031, the dividend rate resets based on the five-year treasury rate, exposing investors to fluctuations in interest rates, which could result in lower dividend payments if rates decline.
• No Maturity Date: The Series E Preferred Stock has no maturity date, meaning investors rely on the company's decision to redeem it, and there is no guaranteed return of principal at a specific time.

Future Outlook

The Series E Preferred Stock and Depositary Shares will remain outstanding indefinitely unless redeemed by the Company. The dividend rate will transition from a fixed rate of 6.625% to a floating rate (five-year treasury rate plus 2.830%) starting March 15, 2031. The Company intends to apply to list the depositary shares on the Nasdaq Global Select Market under the symbol FCNCN as soon as practicable after the date of the agreement and no more than 30 days after the Closing Date.

Management Comments

• The company's internal control over financial reporting was effective as of December 31, 2024.
• Since the end of the company's most recent audited fiscal year, there has been no material weakness in internal control over financial reporting, no fraud involving management, and no material adverse change in internal control over financial reporting.
• The company is well capitalized under applicable Federal Reserve regulations, and the Principal Banking Subsidiary is well capitalized (as defined at 12 C.F.R. § 324.403(b)(1)).
• Neither the company nor the Principal Banking Subsidiary has been informed by any Bank Regulatory Authority that its status as well capitalized will change within one year.

Industry Context

StockSavvy.ai notes that the issuance of perpetual non-cumulative preferred stock is a common strategy for financial institutions like First Citizens BancShares to raise Tier 1 capital, enhancing their regulatory capital ratios without diluting common equity or incurring mandatory redemption obligations. The fixed-to-floating rate structure is typical for such instruments, balancing initial investor certainty with long-term interest rate alignment. This move aligns with broader banking industry trends of optimizing capital structures to meet evolving regulatory requirements and support growth initiatives.

Comparison to Industry Standards

• The 6.625% initial non-cumulative dividend rate is competitive for preferred stock issuances by regional banks, often reflecting prevailing market interest rates and the issuer's credit profile. For example, similar issuances by peers like Truist Financial Corporation (TFC) or PNC Financial Services Group (PNC) have offered rates in a comparable range depending on market conditions at the time of issuance.
• The 1/40th ownership interest per depositary share is a standard practice to make preferred stock more accessible to a broader range of investors, reducing the per-share price from $1,000 to $25.
• The optional redemption feature after five years (March 15, 2031) or upon a Regulatory Capital Treatment Event is standard for preferred stock designed to qualify as Tier 1 capital, providing flexibility for the issuer to manage its capital stack.
• The limited voting rights, including the right to elect two directors if 18 months of dividends are unpaid, are consistent with typical preferred stock governance provisions in the banking sector, offering a baseline level of protection without granting significant control.

Corporate Governance

Stakeholder Impact

• Shareholders (Common Stock): Potential dilution of voting power if preferred shareholders gain the right to elect directors due to unpaid dividends. However, the capital raise strengthens the company's financial stability, which is generally positive.
• Preferred Shareholders (Series E): Receive a fixed (then floating) non-cumulative dividend. Have priority over common stock in liquidation and dividends. Limited voting rights provide some protection in extreme scenarios.
• Creditors: Enhanced capital base may improve the company's credit profile and financial stability.
• Regulators: The issuance of Tier 1 capital aligns with regulatory requirements for financial institutions.

Next Steps

• The company will apply to list the depositary shares on the Nasdaq Global Select Market under the symbol FCNCN as soon as practicable after the date of the agreement and no more than 30 days after the Closing Date.
• Quarterly dividend payments on the Series E Preferred Stock will commence on June 15, 2026.
• The dividend rate will reset on March 15, 2031, and every five years thereafter.

Key Dates

Recommendation

The successful capital raise through preferred stock issuance strengthens First Citizens BancShares' capital position, which is a positive for long-term stability. However, this is a standard financing activity and does not fundamentally alter the company's core business outlook or competitive landscape in a way that would warrant a 'buy' or 'sell' recommendation based solely on this filing. The non-cumulative nature of dividends and limited voting rights for preferred shareholders are typical for such instruments, suggesting a 'hold' for existing investors and a 'hold' for potential investors to further evaluate the company's broader financial performance and strategic initiatives.

Keywords

Preferred Stock, Depositary Shares, Capital Raise, SEC Filing, First Citizens BancShares, FCNCA, Fixed-to-Floating Rate, Non-Cumulative Dividends, Underwriting Agreement, Corporate Finance, Capital Structure, Financial Services