How family-controlled First Citizens became a top-20 US bank

First Citizens will become the 16th-largest bank in the US by assets. Photo / Getty Images

A week before Silicon Valley Bank was seized by the Federal Deposit Insurance Corporation, the lender that would go on to acquire it was celebrating its 125th anniversary, having grown from a single branch based in rural North Carolina in the 19th century into one of the biggest banking dynasties in the US.

First Citizens Bank, which early on Monday morning won an auction brokered by the FDIC to buy SVB, has under three generations of family control capitalised on industry upheaval to expand its balance sheet and make its owners a multibillion-dollar fortune.

With the assumption of US$110 billion ($175.6b) of assets from failed SVB, including about US$70b in loans and US$40b in cash, the size of First Citizens’ balance sheet will more than double to US$219b. That will make it the 16th-largest bank in the US by assets, and put it just below the threshold at which it would be considered systemically important by the Federal Reserve.

Its history is in some ways similar to the fictional small lender in the classic 1940s film, It’s a Wonderful Life. It was founded as the Bank of Smithfield in 1898 with US$10,000 of capital and was the sole lender in Johnston County, where the majority of its customers worked on farms.

Chief executive Frank Holding worked his way up the bank with a succession of roles in its branches before taking the reins from his uncle, Lewis Holding, since deceased, during the 2008 financial crisis.

But while Holding speaks with a southern drawl and preaches a straightforward approach to lending, he is also a Wharton-educated dealmaker who has built First Citizens into a national banking presence by pouncing on distressed rivals being sold for bargain prices.

“[Holding] is not afraid to do any deal,” said Phil Timyan, a private investor who has owned shares in First Citizens for nearly two decades.

“He has been an opportunistic guy in building the bank,” said Timyan of First Citizens’ flurry of deals. “He knew what the assets were, bought them at a discount, and they were immediately accretive.”

Timyan called the SVB takeover transformative. “[Holding] is doubling the size and bought SVB at a US$16b discount,” he said, referring to First Citizens’ winning bid, which was about 15 per cent below the value at which SVB carried the assets on its books.

Holding, together with his sister Hope Bryant, the bank’s vice-chair, and his brother-in-law, Peter Bristow, its president, have acquired more than a dozen banks from the FDIC’s ownership over the past two decades. They have also pursued hostile attempts to buy publicly listed lenders.

The Holding family controls First Citizens, and its members own about US$2b of stock, according to Financial Times calculations. The bank’s shares soared more than 50 per cent on Monday after the purchase of SVB, resulting in a paper windfall of more than US$500 million for the family.

The two banks being combined could hardly be more different. SVB was a lender to Silicon Valley start-ups and their investors, who held large balances at the bank and were offered a host of lending products from credit lines used to smooth out dealmaking to large mortgages and even financing for wineries. The typical depositor had a much higher balance than the US$250,000 protected by a federal guarantee, and just 3 per cent of the bank’s deposits were insured.

Meanwhile, First Citizens operates a network of 550 branches that is about 30 times larger than SVB’s footprint. The lender caters for the most part to customers in small towns across the south-east of the US.

Nearly 70 per cent of First Citizens deposits are insured, according to FDIC data, meaning they are “sticky” and not as vulnerable to bank runs of the type that proved ruinous for SVB. Nor does First Citizens rely on wholesale funding, the cost of which has risen sharply in line with increases in interest rates.

In 2020, the bank struck its biggest acquisition, agreeing to buy business lender CIT Group for US$2b. The deal underscored its funding advantage.

“CIT wasn’t as profitable as it could have been because it was primarily funded with wholesale funding,” said Timyan. Holding “just put the assets on his balance sheet with their low deposit costs and materially increased what it earned”, he said.

On a conference call with analysts on Monday, Holding said First Citizens’ conservative financial profile had helped it win one of the largest FDIC auctions ever.

“We’re proud to be recognised in the banking sector for conservatism and strength,” said Holding. “This is a major reason why First Citizens has completed more FDIC transactions than almost any bank since 2009.”

First Citizens plans to expand in the technology and venture space where SVB had been dominant. Holding sees some overlap between SVB’s customers and its own clients in Raleigh, North Carolina, an area dubbed the “Research Triangle” because it is home to a number of top universities and biotech companies.

When not scouring the industry for distressed banking deals, Holding has a diverse range of business interests. He is, for instance, director of the Mount Olive Pickle Company, a local pickling business in an eponymous North Carolina town where First Citizens operates a branch.

- Additional reporting by Mark Vandevelde in New York

Written by: Antoine Gara and Stephen Gandel

© Financial Times