Yahoo Finance A year after buying failed SVB, is Raleigh’s First Citizens Bank ready to go on offense?
Before it collapsed, Silicon Valley Bank routinely required clients with active loans to keep at least 80% of their total funds in SVB accounts. As the bank supported its core customers, early-stage tech startups, it wanted that trust returned.
This industry standard shifted in March 2023 when a bank run on Silicon Valley Bank prompted the federal government to take control. Startup leaders who had sweated getting their money out before accounts froze were now skittish to park the bulk of their deposits at any single institution, especially one that had just failed. So, when Raleigh-based First Citizens Bank bought SVB later that month from the Federal Deposit Insurance Corp., the new owner lowered the fund threshold to 50%.
In 2024, however, First Citizens has returned the higher account minimum, 80%, for SVB clients with outstanding loans (though the company says there is flexibility on this requirement “as appropriate.”)
“We’re as aggressive as we can possibly be to acquire deposits,” First Citizens Bank President Peter Bristow said in an interview earlier this month. “We understand that in the first year, we were going to be patient on that.”
More than 12 months removed from last spring’s turmoil, First Citizens is projecting increasing confidence over its big acquisition —and the numbers, so far, justify this optimism.
When it purchased SVB, First Citizens immediately doubled the value of its tangible assets and has since seen its share price similarly rise, from around $900 a share in late March 2023 to $1,780 today. The government agreement First Citizens entered included a loss-share provision that gave the Raleigh bank financial cover should many legacy SVB clients leave, but after an exodus during the first few weeks post-sale, deposits and loan balances in the SVB division have stabilize. As of March 31, SVB had $55 billion in loans and $38 billion deposits — a small decrease since last June but about the same from the start of 2024.
First Citizens says 81% of clients who banked with SVB prior to the FDIC takeover maintain active accounts.
Many, though not all, Triangle-area startup founders describe the transition from legacy SVB to SVB under First Citizens as seamless. The local SVB office was relocated five miles north from the WeWork building near the Warehouse District to First Citizens’ corporate headquarters in North Hills. And in its latest earnings report, First Citizens shared four in five SVB banker and relationship advisors have remained.
“In general, SVB and First Citizens have done a great job,” said Ryan Bethencourt, founder of the plant-based pet food company Wild Earth in Durham. “The big banks are really restrictive. They have terrible online portals. (SVB is) easier to use, less restrictive, much more flexible, fast, easy, convenient.”
“(SVB) still seems they’re the go-to (for early-stage startups),” said Igor Jablokov, founder of the Raleigh AI management firm Pryon. “The larger-scale entities are finding it difficult to recreate their relationship-oriented style of working with startups.”
Despite apparent differences — the Bay Area-based SVB had catered to early-stage startups while First Citizens is a traditional, family-owned bank in the South — the cultures of the two institutions have melded well, Bristow said. First Citizens had extensive experience buying distressed financial institutions; since 2009, its completed 15 FDIC-assisted deals. And though Silicon Valley Bank failed, its core banking model was not seen as the cause (instead, an ill-advised bet on long-term bonds doomed SVB when interest rates rose).
“At the end of the day, we’re all trying to serve clients in a way that competes really heavily with the larger banks,” Bristow said.
First Citizens is now the 15th-biggest U.S. bank with assets totaling $218 billion. It’s eclipsed in size by North Carolina counterparts Bank of America and Truist, but its president says recent acquisitions have allowed First Citizens to advance from a “regional-focused bank to a full-service bank.”
Waiting on the unicorns
Investors are interested to see where this evolution goes.
“I think as you get into Year Two, (First Citizens) can go on the offense and figure out where they can push for new business,” said Christopher Marinac, the Atlanta-based director of research for the financial advisory firm Janney Montgomery Scott.
Marinac applauded First Citizens executives for integrating SVB carefully. He said the company has properly graded the risk of its new loans and backed them with sufficient reserves. And in contrast to the “big, clunky deposits” of legacy SVB, Marinac said Silicon Valley Bank under First Citizens is much less vulnerable to a bank run.
“I think because they’re family owned, they’re less worried about making an analyst estimate for next quarter,” he said. “I just think they manage in the next two to three years, and not the next two to three hours.”
First Citizens was founded in the Johnston County town of Smithfield in 1898, and for most of the past century, it’s been led by three generations of the Holding family. Frank Holding Jr. is the current CEO, and Bristow married into the family. Around 530 employees report to its North Hills headquarters, with another 170 workers at a nearby wealth and business unit in Raleigh.
While Marinac said First Citizens’ conservative approach has been a plus, he expects to soon see greater aggression from the SVB division, including heightened loan activity to venture capital-backed startups and greater IPO banking. In its April 25 earnings report, First Citizens estimated more than 700 U.S. tech startups with valuations above $1 billion (known as “unicorns”) are ready to IPO once interest rates recede and an “IPO window” opens.
The current fundraising climate for startups remains harsh, however, and upcoming earnings reports will reveal whether First Citizens has continued to stabilize — or even grow – its SVB accounts. Silicon Valley Bank was the undisputed leader of startup banking for decades, but its collapse has opened a window for competitors both bigger and smaller than First Citizens to lure accounts. And there is doubt when favorable conditions will return for companies to go public.
One founder of a smaller Triangle-area startup, who requested not to be named, expressed frustration with what he described as infrequent communication with his new SVB bankers since the sale. Most reactions though — from startups, analysts and certainly investors — seem positive. Given the fear surrounding SVB in March 2023, this has surprised some.
“There were just so many reasons why this could go wrong, and it didn’t,” said Richard Warr, a finance professor at North Carolina State University. “Now, SVB is in a good position. They have the know-how of the industry and have a really strong bank backing it.”
NC Reality Check is an N&O series holding those in power accountable and shining a light on public issues that affect the Triangle or North Carolina. Have a suggestion for a future story? Email realitycheck@newsobserver.com
