First Citizens Bank: The Bank Buyers - [Business Breakdowns, EP.114]

Episode Summary

Executive Summary: The episode explains why First Citizens Bank is an unusually successful, under-the-radar regional bank: a century-old deposit franchise run by the Holding family, paired with a repeatable strategy of buying distressed banks cheaply and integrating them well. Investors Bill Negrin and Alex Fitch argue that its low-cost funding, disciplined risk management, and opportunistic M&A—especially the CIT and SVB deals—have created significant tangible book value and still leave the stock undervalued.

Main Topics: How banks actually make money and manage risk (Priority: 5/5): Bill frames banking as a leveraged spread business: cheap deposits fund longer-term loans, but success depends on managing credit risk, liquidity risk, and duration risk. The discussion emphasizes that banking is inherently risky and that people and discipline matter because small mistakes can wipe out equity. First Citizens as an obscure but elite franchise (Priority: 5/5): Alex describes First Citizens as a 125-year-old, family-controlled bank with more than $200 billion in assets and a history of strong stock performance, despite lacking the visibility of megabanks. Its roots in the Carolinas, low deposit costs, and conservative lending have driven long-run value creation. FDIC-assisted acquisitions as a core competency (Priority: 5/5): A major theme is First Citizens’ repeated success buying failed banks through FDIC auctions. The management team has developed a rare operational muscle memory for bidding, integrating, and communicating through distressed acquisitions, which helped create value in prior deals and in SVB. CIT and SVB as value-creating balance sheet combinations (Priority: 5/5): The CIT acquisition paired First Citizens’ cheap deposits with CIT’s higher-yielding assets, while SVB added balance sheet scale and assets that could be re-underwritten or repriced. The speakers argue these transactions were structured to preserve downside protection while creating tangible book value. Deposit franchise quality and sticky relationships (Priority: 4/5): The guests stress that deposit quality is the primary differentiator in banking. First Citizens benefits from long-standing customer relationships, local brand strength, and service-oriented banking, which keep funding costs low even in higher-rate environments. Valuation and the case for ongoing upside (Priority: 4/5): Both investors say First Citizens still screens cheap by traditional banking valuation yardsticks: around book value, below historical private-market multiples, and with earnings power that should justify a much higher multiple if integration goes well and deposits stabilize. Regulation, scale, and the future of banking (Priority: 3/5): The conversation argues that regulation has historically disadvantaged the largest banks, but recent turmoil may push the system toward more size, more liquidity, and more consolidation. The speakers see First Citizens as a potential beneficiary of industry-wide scale advantages and further M&A.

Key Arguments: Banking is fundamentally a spread business with embedded credit, liquidity, and duration risks; strong banks are those that manage those risks better than peers. First Citizens is valuable because it combines a durable low-cost deposit base with disciplined lending and unusually effective capital allocation through acquisitions. The Holding family’s ownership and long tenure align management with shareholders and make the bank more decisive in distressed situations. FDIC-assisted bank acquisitions are not random windfalls; they are a repeatable operating skill that First Citizens has developed over decades. The CIT deal was especially attractive because it combined cheap funding with high-yielding loans and offered meaningful cost synergies. The SVB acquisition was structured to limit downside through loss sharing, liquidity support, and capital protections, making the risk profile more manageable than many observers assume. First Citizens’ deposit franchise is sticky because customers value relationships, local presence, and service, not just the highest yield. Even after the stock’s strong move, First Citizens appears undervalued relative to its tangible book value, earnings power, and private-market transaction benchmarks. Interest-rate volatility matters as much as the level of rates; First Citizens is better positioned than most because of its balance sheet structure and liquidity support. The most important long-term lesson is to back owner-operators who think in terms of per-share value creation rather than short-term optics.

Data Points: Bank age: 125 years - First Citizens’ history as described by Alex Fitch Assets: More than $200 billion - Current size of First Citizens Bank Branches: 550 branches - Scale of First Citizens’ retail footprint U.S. ranking: 16th largest bank in the U.S. - First Citizens’ size relative to peers Ownership stake: About 24% of shares outstanding - Holding family ownership Voting control: Around 40% of the vote - Holding family control through Class B super-voting shares FDIC-assisted takeovers: Around 17 - Historical distressed-bank acquisitions attributed to First Citizens Total acquisitions: Some 27 acquisitions over 15 years - Broad M&A history, most FDIC-assisted Historic bargain purchase gains: Around $1 billion - Value created through bargain purchase accounting in FDIC deals CIT valuation at announcement: About 40% of book value - Why the CIT deal was seen as attractive Ownership in combined CIT deal: About 61% - First Citizens’ stake in the combined bank after the all-stock transaction Earnings per share impact from CIT: From about $50 to $75 per share - Illustrative earnings power increase from the CIT combination Deposit concentration in Carolinas: A third of deposits, or a little more - Regional concentration still present today Regulatory capital cushion: About 300 basis points above minimums - Post-SVB capital position Mark-to-market capital scenario: Still about 100 basis points above regulatory minimum - If all securities losses were realized by selling the portfolio SVB deposits remaining: $41 billion - Deposits left on SVB/First Citizens balance sheet after the run SVB deposits that left: About $130 billion - Deposits that ran off from SVB Liquidity vs deposits: More than 100% of deposits - Total liquidity on balance sheet including term loan, cash, and revolver Term loan from FDIC structure: $35 billion - Part of the SVB transaction financing Cash in transaction structure: $35 billion - Additional liquidity provided in the SVB deal Class B discount: About 10% discount - Super-voting shares traded at a discount to Class A shares Historical tangible book value per share growth: Mid-teens compound rate for almost 20 years - Long-run stock price and book value performance Post-SVB tangible book value: Jumped from $570 to about $1,250 - Estimated accretion from the SVB transaction Deposit premium benchmark: 7% to 10% - Illustrative private-market valuation of high-quality deposit franchises U.S. bank count then vs now: About 14,000+ 40 years ago vs just over 3,000 today - Industry consolidation over time

Pivotal Quotes: "First Citizens probably is the most important bank that almost no one has heard of." — Alex Fitch: Introducing the bank’s scale and obscurity despite its strong performance "Banking is all about risk, you're taking short-term deposits, you're making long-term loans." — Bill Negrin: Explaining why credit, liquidity, and duration risk are central to bank analysis "We are comforted by the fact that the holding family owns just under 25% of the shares of the business." — Alex Fitch: Why family ownership and alignment reduce concern around the SVB acquisition

Implications: The episode suggests that the best banks are owner-led, deposit-rich, and skilled at buying distress. For investors, First Citizens may still be undervalued; for the industry, scale, liquidity, and relationship banking matter more after SVB.