Our overall analysis finds that CIT Bank is a safe bank. It’s important to note that CIT bank was merged with First Citizens Bank in January 2022, so this analysis focuses on the merged entity that operates under the parent company First Citizens BancShares Inc. (Nasdaq:FCNCA) Our analysis finds that First Citizens Bank is a safe bank. We feel that it is a reasonably-operated bank with sufficient safety for depositors.
Update: On March 26, 2023, First Citizens acquired Silicon Valley Bridge Bank in a transaction with the FDIC. The figures analyzed in this report will therefore change, so we will update this analysis once First Citizens reports its updated statements upon closing the transaction. The overall thrust of the analysis remains valid though and we do not believe that the FDIC would have allowed First Citizens to undertake this transaction if it had worsened the bank’s position.
CIT has a long history of operation, including a bankruptcy in 2009, although it was not formally a bank back then. Since its resurrection, it continued operations and evolved into a bank until its final merger with First Citizens. CIT brought a more commercial focused loan book and online banking to FCNCA.
Who Regulates CIT Bank and First Citizens Bank?
First-Citizens Bank & Trust Company, the parent of CIT Bank, is regulated by US Federal Deposit Insurance Corporation and the Consumer Finance Protection Bureau. As First Citizens is a State Chartered Bank (in North Carolina), it is not a member of the US Federal Reserve System.
FDIC Insurance
One of the most important aspects of banking safety is whether your deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is an independent agency of the U.S. government that protects up to $250,000 per depositor, per insured bank, for each account ownership category in case of a bank failure.
First-Citizens Bank & Trust Company is an FDIC member (FDIC certificate #11063), which means that your checking, savings, money market, CD, and IRA accounts are covered by this insurance. You can use the FDIC’s online tool to verify First Citizen Bank’s status.
It’s important to note that as CIT Bank was acquired by First Citizens, FDIC covers CIT Bank depositors through First Citizens Bank. CIT Bank is not separately covered by the FDIC.
Financial Metrics & Stability
It’s also extremely important to consider how financially stable and safe CIT Bank, a subsidiary of First Citizen, is truly. While FDIC insurance can protect you from losing your money if a bank fails, it’s still preferable to avoid such a situation in the first place. And if your cash balance exceeds the FDIC limit, then it’s very important that you pay attention to this analysis.
Analysts working on Wall Street look at many different factors when evaluating the stability of a bank. Based on my experience of analyzing stocks, companies, and banks in my career, I have compiled a list of the most important metrics and provided a brief summary of the ones I think are relevant and what they mean for you. The goal here isn’t to inundate you with data and technical terms, so I’ve kept the discussion at a relatively high level.
Balance Sheet
The balance sheet of any business indicates its financial health and the same goes for a bank too. The banking industry and analysts use specific terms and ratios to assess the health of the bank. We’ve discussed these below, so let’s dive in.
Capital Ratios & Leverage
One way to assess a bank’s financial health is to look at its capital ratio, which measures how much equity it has relative to its assets. A higher capital ratio means that a bank has more cushion to absorb losses and withstand economic shocks. The bank’s capital consists of money invested by shareholders, bond holders, and prior earnings that were retained within the bank (instead of being dividended out).
As of the year-end of 2022, FCNCA’s CET1 ratio was 10.08%, which is higher than the typical 7% Federal Reserve imposed minimum requirement on the bigger banks. Tier 1 ratio was 11.06% and total capital ratio was 13.18%. All these figures have dropped from the same time in 2021, but are still at healthy levels. For context, these figures are marginally higher than that of Ally Bank, which indicates that First Citizens (and hence CIT Bank) have lower leverage on their balance sheet than Ally Bank.
Loan Portfolio
We’re getting a bit in to the weeds here, but it’s worth having a quick look at a bank’s loan portfolio to gauge how stable a bank will be in a bad economic scenario. When a bank lends money, it wants to ensure that it can get all of it back along with the interest. Therefore, banks that have a risky loan portfolio may be at greater risk of stress in a recession.
Prior to the acquisition of CIT, FCNCA’s total loan portfolio was $32 billion. This swelled to nearly $68 billion upon closing the merger. At the end of 2022, the loan book stood at nearly $71 billion. First Citizen’s loan portfolio was primarily exposed to both residential and commercial mortgages. The merger with CIT brought in a big commercial and industrial exposure to the loan book.
After the SVB merger, the combined company will have a well-diversified loan book totaling nearly $143 billion in assets and focused across many different sectors. SVB’s loan book brings in much more of VC- and startup-oriented loans which could potentially face some losses if we encounter a severe downturn.
FCNCA’s non-performing assets (pre-SVB merger) are 0.89% of total assets, which is very slightly on the higher side, but not surprising given they merged their loan portfolio with that of CIT. FCNCA’s loan book is 79% of its deposits, which indicates that a good chunk of its deposits are lent out. This figure is healthy and in line with major banking standards.
Deposits & Other Funding Sources
Just like with the loans, deposits are important because they provide funding to the bank to carry out its operations. First Citizen has $89 billion in deposits, of which only 12% is from time deposits. The rest is in relatively shorter-term interest-bearing and non-interest bearing deposits.
From a stability perspective, banks tend to prefer having the locked-in time deposits as this capital cannot be withdrawn easily by depositors. The negative aspect of course is that banks must pay a higher interest rate on these.
First Citizen has a further $6.6 billion in borrowings from other sources, like debt or wholesale funding. As part of the SVB deal, the FDIC has lent $35 billion to First Citizen on a 5-year term.
Overall, it looks like FCNCA has a good funding profile. Of course no bank is immune to a bank run, but I do not see anything FCNA-specific or CIT-specific here as a cause for concern. SVB did have a big base of uninsured deposits but most of those were withdrawn during the bank fun. We will update the details once the merged statements are released and we have details on the deposits.
Assets
The bank also has a further $19.4 billion in securities, from which $9 billion are marked as available-for-sale and $10.3 billion are classified as held-to-maturity.
While having a big investment book of stable securities is generally a good thing, having an excessively large AFS portfolio in a rising interest rate environment can be a source of stress. Thankfully, FCNCA has managed its interest rate risk profile well and has only encountered mark-to-market losses of around $750 million in 2022. This is much better than Ally who recorded $4 billion in losses during this period!
Income Statement
The income statement of a business gives us insight in to how a business earns and spends its money. Most importantly, it also shows how profitable the organization is. Let’s look at what’s most important for a bank.
Net Interest Income & Net Interest Margins
A bank takes money from the depositors and lends it out to borrowers. It pays interest to the depositor and charges interest to the borrower. The difference between those two is what is called net interest income. FCNCA earned net interest income of $2.9 billion in fiscal year 2022 and its net interest margin was a reasonable 3.14% for the year. Both figures are reasonable.
Non-Interest Income
This is typically fee income that is generated from the other services that a bank provides – like investment management, wealth advisory, or other fees like transfer fees, and ATM charges. Larger banks may have a capital markets division that can be quite profitable as well. A good balance between income from lending and income from other sources shows if a bank is well diversified in its revenue sources.
FCNCA reported $2.1 billion in non-interest income which is healthy. Once adjusted for some one-time benefits, this figure is closer to a still healthy figure of $1.7 billion. This component is 42% of net revenue, which is very good for a bank of this size.
Return on Equity
The ROE is a way of measuring the rate of return for equity investors. Within reason, a higher ROE indicates a better business. First Citizen’s return on equity (ROE) was 12.78% in the last fiscal year, which is roughly in line with its 5-year average of 12.9%, and demonstrates strong performance. It indicates that the bank can stand a reasonable decline in its income without going into stress.
FAQs
Who is CIT Bank owned by?
CIT Bank is owned by First-Citizens Bank & Trust Company.
Is CIT Bank same as Citibank?
No, CIT Bank is different from Citibank.
