First Citizens BancShares(FCNCA) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Core deposit growth was strong with noninterest-bearing deposits growing by $1.2 billion since year-end, an annualized growth rate of 20% [17] - Net interest margin expanded by 17 basis points over the linked-quarter, with only 6 basis points attributable to purchase accounting [17] - Pre-provision net revenue increased by 8% over the linked quarter and by 18% over the comparable quarter a year ago [19] - GAAP net income was $264 million or $16.70 per share, yielding an annualized ROE of 11.18% and an ROA of 1% [22] - Adjusted net income was $299 million or $18.95 per share, yielding an annualized ROE of 12.68% and an ROA of 1.12% [22] Business Line Performance - Loan portfolio grew due to strong growth in the branch network and residential mortgages [17] - Positive momentum in fee income-producing lines of business such as rail, card, merchant, and wealth [18] - Core noninterest income increased by $16 million or about 6% over the linked-quarter, driven by higher rental income on operating leases and card/merchant income [37] - Mortgage income was negatively impacted by higher interest rates and reduced refinance activity [38] Market Performance - Total loans increased by $313 million over the linked-quarter or by 1.9% on an annualized basis [45] - Deposits grew at an annualized rate of approximately 4% or about $833 million, driven by a $1.2 billion increase in noninterest-bearing checking accounts [48] - Cost of deposits declined to 17 basis points during the quarter, down 6 basis points from the linked-quarter and 16 basis points from the first quarter of last year [48] Company Strategy and Industry Competition - Focus on timely and successful integration with CIT, with $200 million in cost savings expected to be in the run rate by the end of the year [12] - Shift from integration focus to execution, capturing synergistic value from the CIT merger on both revenue and expense sides [14] - Expect mid-single-digit percentage increase in loans for the full year 2022, with growth led by the branch network [47] Management Commentary on Operating Environment and Future Outlook - Despite geopolitical and macroeconomic uncertainties, the company remains optimistic about growth prospects [14] - Expect net interest margin to continue expanding, with loan growth and fee income generating lines of business showing momentum [9] - Inflation and wage pressures are being felt, but cost savings initiatives are expected to help neutralize expense growth [43] Other Important Information - Credit quality remained strong with a net charge-off ratio of 9 basis points [20] - The company ended the quarter with strong capital and liquidity, supporting the resumption of share repurchases in the second half of the year [20] - The combined ACL was $890 million at the end of 2021, with a day 1 combined ACL of $916 million post-CIT merger [52] Q&A Session Summary Question: Share Repurchase Plan - The company plans a robust stock repurchase plan in the second half of the year, with excess capital estimated at $1.1 billion at the end of Q1 and $1.6 billion by year-end [66][67] Question: Excess Liquidity Deployment - The company aims to redeploy excess liquidity into loans, which could be accretive to margin by 10 to 15 basis points and boost net interest income by $95 million to $143 million [69] Question: PPP Fees and Accretable Yield - SBA-PPP income in Q1 was $9.5 million, with $6 million in fee income [72] Question: Legacy CIT Portfolio and CECL Modeling - The legacy CIT portfolio is performing well, with credit quality back to or better than pre-pandemic levels [76][78] - The ACL is conservative, with 14.3 times coverage of annualized net charge-offs [53] Question: Investment Strategy - The company prioritizes lending over investing in securities, focusing on shorter-duration government-backed or sponsored mortgage-backed securities to reduce volatility in a rising rate environment [81][83] Question: Regional Performance and Customer Behavior - Strong markets across the country, with larger metropolitan areas showing more robust growth [85] - Loan rates are expected to stabilize and increase as higher-rate loans replace lower-rate ones [87]