First Citizens BancShares and South State Bank Take a Hit from First Brands Bankruptcy
The recent bankruptcy of U.S. auto parts manufacturer, First Brands, has had a significant impact on a number of regional banks. The latest financial institutions to disclose credit losses related to the bankruptcy are First Citizens BancShares and South State Bank. Both banks reported an increase in net charge-offs during the third quarter due to their exposure to First Brands. However, they have sought to reassure investors that these losses are contained.
Insight into First Citizens BancShares Exposure to First Brands
First Citizens BancShares reported a sharp increase in net charge-offs for the period ending Sept. 30, with the majority of the increase stemming from their exposure to First Brands. Net charge-offs totaled $234 million, an increase of $89 million, or 61.4%, compared to the same quarter last year. The significant hike was driven by a single charge-off of $82 million tied to the bankruptcy of First Brands.
First Citizens’ supply chain portfolio consists of $300 million of loans across 24 borrowers. “We don’t have the level of concentration in the remainder of that portfolio that we did with First Brands,” Andrew Giangrave, First Citizens’ chief credit officer, explained during the company’s third-quarter earnings call.
The bank reassured investors that the losses related to First Brands are isolated. “We don’t believe this loss is reflective of broader issues within our supply chain finance portfolio, and we’re confident in the strength of our broader loan portfolio,” said Craig Nix, First Citizens’ chief financial officer.
Impact on South State Bank
Similarly, South State Bank revealed during its earnings call that its third-quarter charge-offs of $32.2 million were primarily due to a loan to First Brands. “That news happened pretty fast,” South State CEO John Corbett admitted during the call. “We’re going to use it as a learning lesson for our credit team and management associates.”
Corbett further clarified that the First Brands exposure was the “only supply chain finance credit” in the bank’s portfolio, suggesting that the impact of the bankruptcy should be limited.
Looking Forward
Despite the hits from the First Brands bankruptcy, both banks are confident about the future. First Citizens BancShares expects that its net charge-offs will decline in the fourth quarter, predicting a range of 35-45 basis points, versus 65 basis points in the third quarter.
In terms of growth strategy, First Citizens is currently focused on the impending regulatory changes associated with being designated as a Category III bank, which will occur when the bank surpasses $250 billion of assets. “Beyond BMO, we have no specific M&A plans,” said Nix. “When we do enter the market, we will be the same opportunistic buyer focused on accretive M&A that brings more scale and enhances our ability to compete, and makes us a better bank.”
This article was written using insights from a report by Nathan Place for American Banker. The original report can be found Here.
