This is about First Citizens Bank, a 125-year-old family-run bank that never holds earnings calls but makes money by buying failed banks (including Silicon Valley Bank) and relationship lending. The guests (Oakmark fund) are bullish, saying its stock is cheap at just over book value. Key holdings: First Citizens (capital is strong even if securities are sold at a loss), SVB (deposits fell from $130B to $41B; retaining them is key), CIT (profit surged after acquisition).
First Citizens Bank is a 125-year-old bank distinguished by its refusal to hold quarterly earnings calls, instead rigorously executing a strategy of acquisitions and relationship-based lending. Oakmark's Bill Nygren and Alex Fitch note that the bank gains a competitive advantage through FDIC auction
Guests: Bill Nygren and Alex Fitch of Oakmark, long-term bank investors who have held First Citizens since 2021. This episode's main theme: analyzing how this 125-year-old bank, run by three generations of the same family and never holding quarterly earnings calls, generates excess returns through FDIC auction acquisitions (including SVB) and relationship-based lending. The most impactful assessment in the entire episode: After First Citizens acquired SVB, even if the securities portfolio were marked to market and assumed to be fully sold to realize losses, its regulatory capital would still exceed the minimum requirement by 100 basis points—an extremely rare position among current U.S. banks (Alex Fitch).
Bill Nygren argues that banking is inherently a risk business, with the key lying in how management teams balance credit risk, liquidity risk, and duration risk.
Nygren illustrates this with a simplified model of a hypothetical bank: with $100,000 in equity and $900,000 in deposits, if all funds are invested in Treasury bonds, the ROE is only 6%; if shifted to mortgage lending (with a +150bp spread), the ROE rises to 17%. However, this introduces three major risks—credit risk (borrower default), liquidity risk (deposits can be withdrawn at any time, while loans have a 30-year term), and duration risk (deposit costs float when interest rates rise, but loan returns are fixed).
Alex Fitch notes that First Citizens is "the most important bank no one has heard of": with a 125-year history, managed by the Holding family across three generations, over $200 billion in assets, 550 branches, and ranking as the 16th largest bank in the U.S., it has never held an investor conference or been the subject of sell-side research reports. Over the past 20 years, its stock price has grown at a compound annual rate of approximately 15%, in line with tangible book value.
Key data: First Citizens' loan charge-off rate during the 2008 financial crisis was lower than the pre-crisis average for U.S. banks; even in 2008, it still achieved a high single-digit ROE.
Alex Fitch believes that First Citizens possesses genuine "muscle memory" in FDIC auctions, a capability that the vast majority of large banks have never considered building.
Over the past 15 years, First Citizens has completed approximately 27 acquisitions, the vast majority of which were FDIC-assisted takeovers of failed banks. From 2009 to 2011, it completed about half a dozen FDIC-assisted transactions, generating roughly $1 billion in historical "bargain purchase gains."
Fitch breaks down the competitive landscape of the SVB acquisition: The FDIC later self-criticized itself for restricting the bidder pool too narrowly — prohibiting hedge funds, the top ten largest banks, banks smaller than SVB, banks requiring financing to complete the acquisition, and banks that had not previously purchased assets from the FDIC. This meant that among the roughly 20 banks that might have been eligible, the vast majority either lacked experience or needed financing. First Citizens was almost the only bidder that simultaneously met the conditions of "large enough + experienced + no need for financing."
Nygren adds: For most management teams, "succeeding in the conventional way is better than failing in an unconventional way." Being asked to build FDIC acquisition capabilities within days and potentially staking their careers on it, the vast majority of CEOs would not take the risk. In contrast, the Holding family, as the ultimate owner, faces no concern over short-term reputational risk and can make decisive decisions.
Alex Fitch emphasizes that the structural design of the SVB transaction allows First Citizens to operate safely under virtually all interest rate scenarios.
The transaction structure includes multiple protections:
Key data: First Citizens’ regulatory capital adequacy ratio after the SVB transaction is approximately 300 basis points above the minimum requirement. Even if the entire securities portfolio were marked to market and assumed to be sold at a loss, its capital would still be 100 basis points above the regulatory minimum — while the vast majority of U.S. banks would see their capital decline by 50%–70% under this scenario.
Nygren adds: The Holding family holds approximately 24% of shares and controls about 40% of voting rights. CEO Frank Holding has never sold a single share of stock, receives moderate compensation, and his personal wealth and family reputation are fully tied to the bank’s performance.
Alex Fitch believes that the deposit franchise is the most important differentiator for banks, and that First Citizens, with its 125-year brand and relationship-based service, enjoys extremely low funding costs.
First Citizens' core market is the Carolinas (accounting for roughly one-third of deposits), with a client base primarily consisting of affluent individuals and small businesses. Its strategy is not to become the "McDonald's of banking" (large scale, low cost, undifferentiated), but rather a relationship bank where "you walk in and someone knows your name."
Lessons from CIT: CIT had a portfolio of high-yield loan assets but suffered from extremely high funding costs (wholesale funding plus high-rate online deposits), resulting in a return on equity consistently below 10%. When First Citizens acquired CIT in an all-stock transaction in 2020, CIT's stock was trading at approximately 40% of book value. Post-merger, First Citizens contributed roughly 40% of assets but received about 61% of ownership—combining low-cost deposits with high-yield loans while cutting CIT's bloated operating costs, boosting earnings per share from around $50 to approximately $75.
Fitch notes: In a zero-interest-rate environment, high-quality and low-quality deposit franchises are nearly indistinguishable; however, when rates rise, the value of a high-quality deposit franchise becomes evident—it can pay lower rates than competitors while still retaining customers.
Alex Fitch believes the largest unknown variable for First Citizens' future profitability is how much of SVB's deposits it can retain.
Three months ago, SVB had approximately $130 billion in deposits, of which roughly $89 billion have already flowed out, leaving only about $41 billion. Worst-case scenario: these deposits continue to drain, and First Citizens gradually liquidates assets — even so, the tangible book value accretion of roughly $700 per share is already real value. Best-case scenario: retaining and growing these deposits by rebuilding relationships, the value of this $700 will far exceed that figure.
Nygren adds: On the day the deal was signed, First Citizens sent personnel to California to meet with SVB's key relationship managers. There are already signs that SVB's wine industry relationship managers are encouraging clients to give First Citizens a chance. First Citizens is actively reaching out to former depositors who have withdrawn funds and has seen some encouraging early results.
Fitch notes: SVB's securities business (capital markets services) was not acquired, but deposits have fallen by more than two-thirds from their peak, and the proportion driven by the securities business in the remaining base has significantly decreased. Additionally, SVB's capital call lending business (providing funding for PE/VC funds) has only experienced one loss in its 30-year history, aligning closely with First Citizens' conservative approach.
Bill Nygren and Alex Fitch believe that First Citizens' current share price is only slightly above 1x tangible book value, while the reasonable valuation for high-quality regional banks should be around 2x.
Nygren's Valuation Framework:
Fitch's Valuation Framework:
Unique Arbitrage Opportunity: First Citizens has two classes of stock. Class B shares carry super-voting rights (allowing the family to control about 40% of voting power with roughly 24% ownership), but due to lower liquidity, Class B shares trade at a discount of approximately 10% relative to Class A shares. For investors who do not need to build a large position, obtaining additional voting rights at a 10% discount is "a very good deal."
| Position | Analyst Stance | Key Data |
|---|---|---|
| First Citizens Bank | Bullish | Tangible book value rose from $570 to $1,250 (post-SVB transaction); stock price slightly above 1x tangible book value; both stock price and tangible book value have grown at approximately 15% CAGR over the past 20 years; Holding family owns 24% of shares and controls 40% of voting rights |
| CIT Group (acquired) | Historical case, positive assessment | Acquired at roughly 40% of book value; First Citizens contributed approximately 40% of assets to obtain roughly 61% ownership; post-merger EPS rose from $50 to $75 |
| Silicon Valley Bank (acquired) | Positive assessment of transaction structure | Deposits at acquisition were approximately $41 billion (peak $130 billion); $35 billion term loan + $35 billion cash liquidity; capital adequacy ratio 300bp above minimum requirement; even with securities portfolio marked to market, still 100bp above minimum |
| Goldman Sachs (Marcus) | Comparative case | Previously attracted deposits at 1.6%-2% interest rates, with funding costs far higher than First Citizens |
| Bank of America / J.P. Morgan | Comparative reference | As "too big to fail" banks, net beneficiaries in this crisis |
1. "Banking is inherently a risk business—you take short-term deposits to make long-term loans and hope people pay you back" (Bill Nygren). Support: Banks are highly leveraged—in other industries, a 10% asset risk equates to roughly 10% equity risk, but for banks, a 10% asset risk equals 100% equity risk. Therefore, management quality matters more than in any other industry.
2. "In the FDIC auction, First Citizens was almost the only bidder that simultaneously met the criteria of 'large enough + experienced + no need for financing'" (Alex Fitch). Support: The FDIC later admitted to restricting the bidding pool, including excluding banks that had not previously purchased assets from the FDIC. First Citizens has completed over 15 FDIC transactions, forming "muscle memory."
3. "Even if the entire securities portfolio were marked to market and assumed to be sold, First Citizens' capital would still be 100 basis points above the regulatory minimum—this is extremely rare among current U.S. banks" (Alex Fitch). Support: Under this scenario, the vast majority of U.S. banks would see their capital decline by 50%-70%.
4. "SVB deposit retention is the biggest unknown variable: in the worst-case scenario, the $700/share tangible book value accretion is already real value; in the best-case scenario, the value far exceeds $700" (Alex Fitch). Support: SVB deposits fell from $130 billion to $41 billion; First Citizens has begun contacting former depositors to rebuild relationships and has seen initial positive signals.
5. "Class B super-voting shares trade at a 10% discount to Class A common shares—for investors who do not need to build a large position, this is a good deal to gain extra voting rights at a discount" (Bill Nygren). Support: The family controls 40% of voting power with 24% ownership; Class B shares are mispriced by the market due to poor liquidity.
6. "When you are aligned with management and they act like owners, the things you cannot model tend to skew very positively" (Alex Fitch). Support: The SVB transaction was not anticipated at the time of purchase, but the Holding family's interests are fully aligned with shareholders—Frank Holding has never sold a single share, and his compensation is moderate.
7. "First Citizens is the opposite of 'the McDonald's of banking'—you walk in and someone knows your name" (Alex Fitch). Support: 125 years of brand equity, one-third of deposits in the Carolinas, clients primarily affluent individuals and small businesses; deposit costs consistently below the average of large banks.
8. "Bank stocks currently trade at less than half the P/E of the S&P 500, while historically they were about two-thirds—the industry itself is much healthier than during the GFC, presenting an exceptional opportunity" (Bill Nygren). Support: Management at nearly all large banks is now willing to return capital through buybacks and dividends when growth opportunities are lacking; regulatory focus has shifted from credit risk to liquidity risk.