Silicon Valley Bank buy stands to double First Citizens' tangible book value

First Citizens BancShares Inc. just doubled in asset size for the second time in about two years, with a deal that was even better received than its early 2022 merger of equals, owing to a discount for Silicon Valley Bridge Bank NA that stands to deliver an enormous financial boost.

First Citizens' acquisition of most of failed Silicon Valley Bank will add $72.11 billion of gross loans and $56.49 billion of deposits. First Citizens' shares soared 53.7% on March 27, a day after the deal was announced, as investors did the arithmetic on a $16.45 billion discount the bank secured from the Federal Deposit Insurance Corp. That would potentially double First Citizens' tangible common equity of $8.30 billion at the end of 2022.

First Citizens CFO Craig Nix said accretion to tangible book value (TBV) per share of 50% to 100% was a relevant potential range while responding to an analyst question on a conference call. Though he hedged that 0% to 100% is also a relevant range, Nix added, "We do expect significant TBV accretion, and it's pretty obvious from the discount we did on the assets."

Deal math

New York Community Bancorp Inc.'s acquisition of the bulk of failed lender Signature Bank included a discount of about $2.73 billion on gross loans of $12.87 billion and deposits of $33.99 billion.

New York Community stock jumped 31.7% during the first trading day after the deal and was up 35.2% through March 27.

After taking into account items such as fair value marks against loans, a payment to the FDIC giving it a piece of the gain in New York Community's stock after the deal, and additional intangible assets, New York Community estimated TBV accretion per share at about 15%.

First Citizens said it would give accretion estimates once its purchase accounting marks were complete. Following steps similar to those laid out by New York Community and making assumptions about items including fair value marks, Janney Montgomery Scott analyst Christopher Marinac estimated First Citizens' TBV per share accretion at 108.3%.

Liquidity protection

The Silicon Valley Bank acquisition would push First Citizens to a pro forma loans-to-deposits ratio of 97.9%, according to data from S&P Global Market Intelligence, during a period when concerns about liquidity are foremost.

– Set email alerts for future data dispatch articles. – Download a template to generate a bank's regulatory profile. – Download a template to compare a bank's financials to industry aggregate totals.

However, First Citizens is adding $35 billion in cash through borrowings from the FDIC at a rate of 3.5% as part of the deal, and the agency is providing a $70 billion line of credit. The amounts are well in excess of the acquired deposits and provide protection against outflows. After the drain Silicon Valley Bank experienced during its collapse and the aftermath, First Citizens is aiming to win back some of the failed bank's lost deposits.

Nix said First Citizens had already built its cash by about $6 billion before the acquisition through precautionary borrowing from the Federal Home Loan Banks.

About 63% of the deposits First Citizens is acquiring are noninterest bearing. Including the new borrowing from the FDIC and other shifts, First Citizens executive Elliot Howard said the bank's net interest margin will probably not be "all that dissimilar from where First Citizens was previous quarter."

Climbing the ranks

One notable aspect of the deal is that it will put the remains of two of the five largest US bank failures under the same roof. CIT Group Inc., First Citizens' merger-of-equals partner in 2022, bought the successor to IndyMac Federal Bank FSB in 2015.

First Citizens said the merger with CIT, formerly subject to the Federal Reserve's stress tests, helped equip it with the infrastructure needed to meet heightened regulatory standards as a big bank.

However, at nearly $220 billion of assets after the Silicon Valley Bank acquisition, which approaches the next regulatory threshold of $250 billion, First Citizens has "no current plans to sort of go up to the next level," Nix said.