First Citizens BancShares(FCNCA) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2021 net income was $124.1 million, or$ 12.17 per share, down from $15.09 in Q2 and$ 14.03 in Q3 2020 [5][11] - Return on average assets was 0.88%, and return on average equity was 11.29% [11] - Net interest income increased slightly over Q2 despite a $7.1 million decline in SBA-PPP income and continued interest rate headwinds [12] - Noninterest income decreased by$ 11.2 million compared to Q2, primarily due to a decline in securities gains and fair market value adjustments [18] - Noninterest expense increased by $11.2 million over Q2, driven by higher personnel costs, occupancy, and equipment expenses [20] Business Line Performance - Total loans adjusted for SBA-PPP runoff grew$ 437 million in Q3, or 5.6% annualized, with strong growth in both consumer and commercial lines [6] - Deposits grew by $1.7 billion in Q3, representing an annualized growth rate of 13.6% [6] - Wealth management income increased, driven by higher advisory and brokerage fees, as well as additional trust income [18] - Mortgage income declined due to lower production volume, but wealth and payments-related businesses are expected to maintain momentum [19] Market and Regional Performance - Loan growth excluding PPP loans was 5.6% annualized, with commercial and industrial loans, occupied commercial real estate, and consumer loans leading the growth [21] - Deposit growth was strong, with money market accounts and demand deposits leading the way, growing at an annualized rate of 13.6% [24] - Noninterest-bearing deposits accounted for approximately 43% of total deposits at the end of Q3 [24] Company Strategy and Industry Competition - The company remains focused on its planned merger with CIT Group, which is expected to create a premier nationwide commercial and consumer bank [7][8] - Digital transformation efforts are ongoing, with the final phase of transitioning business and treasury commercial clients to a new commercial platform [8] - The company is investing in talent development and retention to ensure a high-performing, sustainable organization [9] Management Commentary on Operating Environment and Future Outlook - Management highlighted the challenges of excess liquidity and low interest rates, which continue to pressure net interest margins [16][17] - The company expects mid-single-digit loan growth moving forward, dependent on continued economic expansion [22] - Management remains confident in the merger with CIT and is actively engaged in integration planning [7][8] Other Important Information - The company released$ 41.1 million in reserves compared to a $36.1 million reserve build last year, reflecting improved macroeconomic factors and sustained credit quality [14] - The CET1 ratio was 11.34%, and the total risk-based capital ratio was 14.3% at the end of Q3 [26] Q&A Session Summary Question: Expense base and compensation increase [28] - The increase in personnel costs was driven by temporary expenses related to technology projects and revenue-driven incentives, particularly in wealth management [28] - Future expenses are expected to be in the$ 300 million to $305 million range, excluding merger-related costs [29] Question: Accretable yield and CIT merger impact [30][32] - The company expects accretable yield to continue decreasing as the portfolio runs off [31] - Purchase accounting accretion from CIT will be updated upon closing the merger [32] Question: Excess liquidity and investment strategy [34][36] - The company is monitoring rates closely and aims to redeploy excess liquidity opportunistically, with a preference for operating with cash around 4% of earning assets [36] - The merger with CIT may influence the company's liquidity strategy [36] Question: Loan growth outlook [40] - The company expects mid-single-digit loan growth, driven by a strong pipeline and economic recovery [40] Question: Interest rate sensitivity and deposit growth [42][45] - The company is asset-sensitive, with a 10 basis point parallel shift in the yield curve equating to a 1% annualized increase in net interest income [43] - Deposit growth has been strong, with some transitory deposits from government stimulus, but core growth is expected to continue [46] Question: Hiring and technology investments [49][50] - The company continues to hire new associates and invest in technology to improve transaction costs and efficiency [49][50]