First Citizens BancShares(FCNCA) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Q4 2021 net income was $123.3 million, down$ 800,000 from Q3 2021 and $14.8 million from Q4 2020 [16] - Return on average assets (ROAA) was 0.84% and return on average equity (ROAE) was 10.96% for Q4 2021 [16] - Full-year 2021 net income was$ 547.5 million, an 11.3% increase from 2020, with ROAA of 1% and ROAE of 12.84% [18] - Net interest income increased by 3% in Q4 2021, driven by higher SBA-PPP income and loan/investment balances, partially offset by lower yields [19] - Net interest margin declined by 3 basis points in Q4 2021 due to excess liquidity [21] - Noninterest income in Q4 2021 was $114.3 million, down$ 8.7 million from Q3 2021 and $12.5 million from Q4 2020 [26] Business Line Performance - Excluding PPP loans, organic loan growth was 5.7% annualized in Q4 2021, driven by commercial and industrial loans and owner-occupied commercial real estate loans [20][32] - Wealth management and payments-related businesses showed strong performance, with higher assets under management and increased service charges and card income [26] - Mortgage income declined due to higher mortgage rates and reduced refinance activity [26] - Service charge revenue is expected to decline by 35%-40% due to changes in NSF and overdraft fees, with a 2022 impact estimated at$ 15 million- $20 million [27][28] Market and Regional Performance - Deposit growth was strong in Q4 2021, with an annualized growth rate of 10.6% and year-over-year growth of 18.4% [36] - Over two-thirds of 2021 deposit growth came from core checking accounts, indicating strong customer retention and acquisition [37] - The company expects deposit growth to moderate in 2022 but remain elevated, supporting the balance sheet and margin even as interest rates rise [37] Strategic Direction and Industry Competition - The merger with CIT creates a top 20 U.S. financial institution with over$ 110 billion in assets, positioning the company for long-term growth and value creation [6][7] - The company is focused on integrating CIT, with OneWest Bank conversion expected in Q3 2022 and legacy Mutual of Omaha in Q4 2022 [12] - Strategic priorities include optimizing the balance sheet, reducing higher debt costs, and leveraging excess cash from deposit growth [24][25] - The company is investing in digital transformation and expanding its sales force in wealth management and high-growth markets [30] Management Commentary on Operating Environment and Outlook - Management highlighted strong credit quality, with a net recovery of 1 basis point in Q4 2021 and a nonperforming assets ratio of 0.50%, the lowest since Q2 2019 [34] - Macroeconomic improvements led to a $45.8 million reserve release in 2021, compared to a$ 35.9 million reserve build in 2020 [17][35] - The company expects net interest income ex-PPP to grow in 2022, but net interest margin may decline moderately due to excess liquidity and reduced SBA-PPP income [25] - Low single-digit percentage growth in core noninterest income is expected in 2022, driven by wealth and payments businesses offsetting lower mortgage and service charge income [28] Other Important Information - The company plans to redeem $2.9 billion of senior unsecured debt assumed in the CIT merger, with a weighted average coupon rate of 5% [24] - Changes to NSF and overdraft fees will reduce service charge revenue, with a full impact estimated at$ 35 million-$40 million annually [27][28] - The CET1 ratio was 11.50% and the total risk-based capital ratio was 14.35% at the end of Q4 2021, with strong earnings offsetting deposit growth impacts [38] Q&A Session Summary Question: Plans for deploying excess liquidity and increasing the securities portfolio [48] - The company plans to redeploy excess cash into investments and loans, targeting higher-cost deposits for replacement with lower-cost core deposits [49] Question: Timing for share buybacks post-merger integration [50] - Share buybacks will resume after demonstrating successful integration and building capital, with no specific timeframe provided [51] Question: Updates on the combined company's financial forecast and integration progress [53] - Pro forma financial information will be shared by early March 2022, with credit quality improvements being a key positive factor [54] Question: Impact of potential Fed rate hikes on net interest margin [55] - The company expects margin improvement in the second half of 2022 as rate hikes take effect, with PPP-adjusted net interest income bottoming out in Q1 2022 [56] Question: Share buyback strategy and capital ratio targets [59] - The company aims to remain active in buybacks but will consider price sensitivity and tangible book value payback periods [60] - The target CET1 ratio remains 9%-11%, with significant excess capital expected post-merger [61][63] Question: Loan growth expectations for the combined company [63] - Mid-single-digit loan growth is aspirational but challenging for the combined company, with further analysis needed on CIT's business units [64]