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First Citizens BancShares(FCNCA) - 2024 Q2 - Earnings Call Transcript
FCNCAFirst Citizens BancShares(FCNCA)2024-07-25 20:34
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Financial Data and Key Metrics - The company delivered solid financial results with peer-leading return on assets, net interest margin, adjusted efficiency ratio, loan growth, CET1 ratio, and loan portfolio yield [15] - Headline net interest income increased slightly over the last quarter, with higher interest income partially offset by lower accretion and higher deposit costs [28] - Adjusted non-interest income was slightly better than expected due to higher client investment fees and increased average balances in SVB commercial off-balance sheet client funds [31] - Adjusted non-interest expense increased sequentially by approximately 1%, with expense growth concentrated in equipment expenses and higher marketing expenses [32] - Net charge-offs were 132millionor0.38132 million or 0.38%, on the low end of the guidance range, and non-performing loans remained relatively stable [34] - The allowance ratio decreased by 6 basis points to 1.22%, driven by a mix shift from recent growth in the global fund banking portfolio and lower specific reserves on individually evaluated loans [36] Business Segment Performance - The General Bank saw positive loan trends, particularly in business and commercial loans, with strong growth in SBA, SVB private, and wealth channels [20] - SVB commercial achieved quarter-over-quarter loan growth driven by high-quality loans in the global fund banking and capital call lending business [24] - The commercial bank segment continued to deliver strong loan growth, primarily in project financing for energy and data centers [16] - Deposit growth in the branch network during the first half of the year exceeded expectations, with new production and client acquisition contributing to further balance sheet growth [23] Market Performance - Loans grew by 4 billion over the linked quarter, an annualized growth rate of 11.8%, led by a 2.1billionincreaseinFCDcommercial[37]−Depositsgrewatanannualizedrateof42.1 billion increase in FCD commercial [37] - Deposits grew at an annualized rate of 4%, or by 1.4 billion to 1.5billion,drivenbystrongcoredepositgrowthinSVBcommercialandthegeneralbank[38]−Thedeclineindirectbankdepositswasduetoa1.5 billion, driven by strong core deposit growth in SVB commercial and the general bank [38] - The decline in direct bank deposits was due to a 1.9 billion decrease in time deposits, partially offset by a 1.8billionincreaseinsavingsaccounts[39]StrategicPrioritiesandIndustryCompetition−Thecompanyremainsfocusedondeepeningcustomerrelationships,prudentlygrowingcoredepositsandloans,andallocatingcapital[51]−Thecompanyisbuildingstrategiestomitigatetheexpectednegativeimpactofinterestratereductions,includingtargetingoperatingaccounts,growingqualityloans,andimprovingnon−interestincome[16]−Thecompanyplanstocontinueusingthedirectbankasalevertogrowcoredepositsinthecurrenthigh−pricingpressureandcompetitiveenvironment[21]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Thecompanyexpectshighsingle−digitannualizedpercentageloangrowthinthethirdquarter,drivenbroadlyacrossbusinesssegments[41]−Thecompanyanticipatesheadlinenetinterestincometoberelativelyflatinthethirdquarterifthereisoneratecut,withloweraccretionandslightlyhigherdepositcostsoffsetbyhigherinvestmentsecuritiesyield[45]−Thecompanyexpectsadjustednon−interestincometobeintherangeof1.8 billion increase in savings accounts [39] Strategic Priorities and Industry Competition - The company remains focused on deepening customer relationships, prudently growing core deposits and loans, and allocating capital [51] - The company is building strategies to mitigate the expected negative impact of interest rate reductions, including targeting operating accounts, growing quality loans, and improving non-interest income [16] - The company plans to continue using the direct bank as a lever to grow core deposits in the current high-pricing pressure and competitive environment [21] Management Commentary on Operating Environment and Future Outlook - The company expects high single-digit annualized percentage loan growth in the third quarter, driven broadly across business segments [41] - The company anticipates headline net interest income to be relatively flat in the third quarter if there is one rate cut, with lower accretion and slightly higher deposit costs offset by higher investment securities yield [45] - The company expects adjusted non-interest income to be in the range of 1.85 billion to 1.9billionforthefullyear,slightlyhigherthanpreviousguidance[63]−Thecompanyanticipatesachievingthelower251.9 billion for the full year, slightly higher than previous guidance [63] - The company anticipates achieving the lower 25% band of its cost base goal by the end of 2024, with savings offset by continued capability build-out for regulatory capabilities [48] Other Important Information - The company's board approved a share repurchase plan allowing the repurchase of shares up to 3.5 billion [15] - The company was recently included in the Fortune 500 list for the first time [15] - The company expects to complete its next capital plan in the first quarter of 2025 [26] Q&A Session Summary Question: Share Repurchase Plan and CET-1 Ratio Target - The company plans to execute the $3.5 billion share repurchase plan over the next four to five quarters, aiming to manage the adjusted CET-1 ratio down to the 10.5% range by the end of 2025 [53][97] - The company may consider another share repurchase plan in the back half of 2025 if earnings accretion continues to outpace organic growth [97] Question: Venture Capital Space Outlook - The outlook for venture investment remains mixed, with a slight uptick in the second quarter but no clear signs of significant improvement in the near term [74] Question: SVB Depositors and Loan-to-Deposit Ratio - The company is encouraged by deposit growth in SVB commercial but is focused on holistic client relationships and product suitability rather than narrowly focusing on deposit growth [75] Question: Net Interest Income (NII) Outlook - The company expects NII to remain relatively flat over the next several quarters, with potential rate cuts and loan growth balancing out the impact [79][91] Question: Asset Sensitivity and Rate Cuts - The company has reduced its asset sensitivity from 20% to 14% over the past four quarters and aims to reach a 10% to 12% range, which would mitigate the impact of potential rate cuts [86]