8-K: First Citizens BancShares Launches $500M Preferred Stock Offering

First Citizens BancShares, Inc. has completed a public offering of 500,000 depositary shares, each representing a 1/100th interest in its new 7.000% Non-Cumulative Perpetual Preferred Stock, Series D, raising $495 million in net proceeds.

Summary

• The company filed a Certificate of Designation with the Secretary of State of Delaware, establishing the 7.000% Non-Cumulative Perpetual Preferred Stock, Series D, with a liquidation preference of $100,000 per share.
• A public offering of 500,000 depositary shares was completed, with each depositary share representing a 1/100th ownership interest in a share of the Series D Preferred Stock.
• The public offering price was $1,000 per depositary share, and the underwriting discount was $10 per depositary share.
• Net proceeds to BancShares from the offering, before expenses, amounted to $495,000,000.
• Dividends on the Series D Preferred Stock are non-cumulative and will be payable quarterly, in arrears, commencing on March 15, 2026.
• The initial dividend rate is 7.000% per annum from the issue date until December 15, 2030.
• From and including December 15, 2030, the dividend rate will reset every five years to the five-year treasury rate as of the most recent reset dividend determination date plus 3.301%.
• The Series D Preferred Stock ranks on parity with the company's Series A, Series B, and Series C Preferred Stock, and senior to its common stock, with respect to dividends and upon liquidation.
• The company may redeem the Series D Preferred Stock at its option, in whole or in part, on any dividend payment date on or after December 15, 2030, or in whole (but not in part) within 90 days following a Regulatory Capital Treatment Event.
• Holders of Series D Preferred Stock have no voting rights, except for certain fundamental changes or if dividends are not declared and paid in full for periods aggregating 18 months, which would grant them the right to elect two directors.

Sentiment

Score: 7

Explanation: The successful completion of a significant preferred stock offering at a competitive rate is a positive for the company's capital structure and financial flexibility, despite the non-cumulative nature of dividends and optional redemption features which are standard for such instruments.

Positives

• Successful completion of a $500 million preferred stock offering strengthens the company's capital position.
• The offering provides an attractive 7.000% non-cumulative dividend rate for investors until the first reset date.
• Diversifies the company's funding sources and enhances financial flexibility.

Negatives

• Dividends on the Series D Preferred Stock are non-cumulative, meaning if the board does not declare a dividend for a period, holders have no right to receive it later.
• The Series D Preferred Stock does not have a maturity date, and redemption is at the company's option, not the holder's.
• Holders of Series D Preferred Stock have limited voting rights, primarily triggered only by prolonged dividend non-payment.

Risks

• A Regulatory Capital Treatment Event could lead to the company redeeming the preferred stock, potentially at a time unfavorable to investors.
• Future dividend rates after December 15, 2030, are subject to the five-year treasury rate, which could decrease, reducing investor returns.
• The non-cumulative nature of dividends means investors bear the risk of lost income if the company's board chooses not to declare a dividend.
• Any redemption of the Series D Preferred Stock is subject to prior approval by the Board of Governors of the Federal Reserve System, adding a regulatory contingency.

Future Outlook

The Series D Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed by the Company. Dividends will accrue at a fixed 7.000% rate until December 15, 2030, after which they will reset based on the five-year treasury rate plus a spread.

Industry Context

This preferred stock offering is a common strategy for financial institutions like First Citizens BancShares to raise Tier 1 Capital, strengthen their balance sheet, and diversify funding sources, especially in a dynamic interest rate environment. The fixed-to-floating rate structure is typical for preferred securities, appealing to investors seeking stable income initially with potential for rate adjustments.

Comparison to Industry Standards

• The 7.000% non-cumulative perpetual preferred stock offering is consistent with capital-raising activities seen across the banking sector.
• Many regional and national banks issue preferred stock to optimize their capital structure and meet regulatory requirements.
• The fixed-to-floating rate mechanism is a standard feature designed to attract a broad investor base by offering initial yield stability and future interest rate protection.
• Similar offerings by other regional banks in recent years have featured initial dividend rates ranging from 5.5% to 7.5%, depending on market conditions and credit ratings at the time of issuance.
• The $100,000 liquidation preference per share (or $1,000 per depositary share) is also a common denomination for institutional preferred stock offerings.

Corporate Governance

Related Party Transactions

• First Citizens Capital Securities, LLC, a subsidiary of BancShares, participated in the offering as an underwriter.
• The company does not intend to use any proceeds from the sale of shares to repay outstanding debt owed to any affiliate of the underwriters.

Stakeholder Impact

• Shareholders (Common Stock): The issuance of preferred stock ranks senior to common stock in terms of dividends and liquidation preference, potentially diluting common shareholders' claims on earnings and assets. However, it strengthens the company's capital base, which can be beneficial long-term.
• Preferred Shareholders (Series D): Receive a fixed 7.000% non-cumulative dividend until the first reset date, offering a stable income stream. However, dividends are not guaranteed and missed payments are not recoverable. They have limited voting rights, primarily triggered by prolonged dividend non-payment.
• Creditors: A stronger capital base generally improves the company's credit profile, potentially benefiting creditors.
• Underwriters: J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, First Citizens Capital Securities, LLC, and TD Securities (USA) LLC earned underwriting discounts from the offering.

Next Steps

• Quarterly dividend payments on the Series D Preferred Stock will commence on March 15, 2026.
• The dividend rate will reset on December 15, 2030, and every five years thereafter based on the five-year treasury rate plus a spread.

Key Dates

Recommendation

The successful preferred stock offering strengthens First Citizens BancShares' capital position, which is a positive for financial stability. However, the non-cumulative nature of the dividends and the optional redemption feature are standard for preferred stock and do not present a significant change in the company's fundamental investment thesis for common shareholders. The offering is primarily a capital management event rather than an indicator of operational performance or strategic shift that would warrant a 'buy' or 'sell' recommendation. Investors should 'hold' and monitor the company's core business performance and future capital deployment strategies.

Keywords

First Citizens BancShares, FCNCA, Preferred Stock, Series D, Capital Raise, Depositary Shares, Dividend, Non-Cumulative, SEC Filing, Banking, Financial Services, Underwriting Agreement