By Niket Nishant and Tatiana Bautzer
(Reuters) -First Citizens BancShares' first-quarter profit beat expectations as the lender earned higher interest income and started seeing benefits of its acquisition of failed Silicon Valley Bank (SVB) last year.
Shares surged almost 10% in afternoon trading.
Adjusted profit attributable to common stockholders was $769 million, or $52.92 per share, for the three months ended March 31, the bank reported on Thursday, compared with analysts' average estimate of $43.32 per share, according to LSEG. JPMorgan Chase (NYSE:JPM)'s analyst Steven Alexopoulos considered the quarter "strong".
The Raleigh, North Carolina-based lender has been boosted by its buyout of SVB, which collapsed last year. The failure triggered the biggest banking crisis in 15 years and prompted unprecedented government rescue efforts.
A For the first time since the acquisition, SVB's loans steadied at $55 billion at the end of March versus December. After last year's plunge, deposits stabilized at $38 billion in the first quarter.
Through SVB's large network of relationships with entrepreneurs, tech companies and VCs, it handled capital market transactions and provided banking services for companies while also serving personal accounts.
JPMorgan's Alexopoulos said that "stabilizing balances for (SVB) loans and deposits could indicate that an inflection point has been reached," taking into account the low volume of venture capital investment.
First Citizens was encouraged by the steadying SVB business, which stayed resilient even as venture capital fundraising dropped last year to the lowest since 2017, Chief Financial Officer Craig Nix told analysts on a conference call.
"Despite the current environment, we are encouraged by the number of exit-ready companies poised to exit once the IPO market fully reopens," First Citizens' CEO Frank Brown Holding said in the same call, referring to initial public offerings. There is a "record backlog" of companies ready to IPO, signaling more activity later this year.
While there are some promising signs of a market recovery, the lender remains cautious, said Marc Cadieux, president of SVB. It is being careful in extending credit to tech and healthcare companies in the current downturn.
"We expect the challenges to our target markets to continue through '24, allowing we have some optimism around IPOs coming back and potentially deposits picking up in the second half."
First Citizens' net interest income - the difference between interest earned on loans and paid out on deposits - more than doubled from a year earlier to $1.82 billion and was above analysts' expectations of $1.81 billion.
Compared to the fourth quarter of last year, loans in the SVB Commercial segment jumped $335 million and net charge-offs, debts that are unlikely to be recovered, decreased by $31 million.
Since SVB's collapse and subsequent acquisition by First Citizens, banks including JPMorgan Chase and HSBC have tried to beef up their businesses catering to startups and venture capital (VC) firms.
First Citizens kept around 80% of former SVB bankers and relationship advisers, according to its earnings presentation. But the lender is also involved in a legal battle with HSBC over HSBC's hiring of former SVB bankers.
The turmoil sparked by SVB's collapse has had a lasting impact, shining light on weaknesses across the industry. Regional lenders still face ongoing challenges from rising deposit costs and risky office-building loans a year later.