First Citizens BancShares(US:FCNCA)2021-08-07 04:41Financial Data and Key Metrics - Net income for Q2 2021 totaled $152.8 million, up $5.5 million from the linked quarter but slightly down from Q2 2020 [12] - Return on average assets was 1.13%, and return on average equity was 14.64% [13] - Net income per common share was $15.09, up from $14.53 in Q1 and $14.74 in Q2 2020 [13] - Pre-provision net revenue declined slightly due to higher personnel costs [13] - Provision for credit losses increased from $11 million in Q1 to $19.6 million in Q2, driven by improved macroeconomic factors [15] - Net interest income increased by $6.7 million over the linked quarter, primarily due to investment portfolio yield improvements [14] Business Line Performance - Excluding SBA-PPP loans, loan growth was 4% annualized since December and 7% annualized in Q2 [10] - Deposit growth remained strong at a 23% annualized rate since year-end [10] - Noninterest income declined by $2.5 million compared to the linked quarter, primarily due to mortgage servicing rights impairment [24] - Core noninterest income grew by $20 million compared to Q2 2020, driven by wealth management, cardholder services, and deposit-related fees [27] Market Performance - Loan growth was driven by commercial real estate and residential mortgage loans, with owner-occupied commercial real estate leading the way [30] - Deposit growth was strong, with demand deposits and interest-bearing checking accounts leading the way [37] - Noninterest-bearing deposits accounted for 43% of total deposits at the end of Q2 [38] Strategic Direction and Industry Competition - The company is focused on its upcoming merger with CIT, expected to close in Q3 2021, pending Fed approval [7][41] - The merger aims to create a premier nationwide commercial and consumer bank with enhanced scale to drive growth and profitability [43] - The company is leveraging data to improve customer experience and upgrading its digital platforms [8] Management Commentary on Operating Environment and Future Outlook - Management remains optimistic about meeting strategic and financial goals for 2021, despite challenges from excess liquidity and low interest rates [11] - Net interest margin is expected to remain a headwind but will moderate in the coming quarters [23] - Core noninterest income is expected to remain consistent in Q3 and Q4, around $109-110 million [28] Other Important Information - The company released $35.3 million in reserves compared to a $36.1 million reserve build in the first half of 2020 due to COVID-19 uncertainties [15] - Credit quality remains strong, with a historically low net charge-off ratio of 3 basis points and a nonperforming asset ratio of 0.74% [32] - The CET1 ratio was 11.14%, and the total risk-based capital ratio was 14.15% at the end of Q2 [39] Q&A Session Summary Question: Loan Growth Drivers and Headwinds - Loan growth was driven by commercial real estate and residential mortgage loans, with new products and proactive customer outreach during the pandemic contributing to growth [47] - Headwinds may include potential future outbreaks, but the company expects mid-single-digit loan growth assuming economic expansion continues [48] Question: Excess Liquidity and Securities Portfolio - The company plans to continue opportunistically adding to its investment portfolio to optimize yield, with a goal of deploying close to $1 billion [50][51] Question: CIT Merger Progress - The merger is on track, with no significant obstacles, and is expected to close in Q3 2021 [52] Question: Combined Company Loan Growth - The company expects mid-single-digit loan growth for the combined entity, assuming the economy continues to expand [55] Question: Share Buyback Plans - The company plans to resume its share repurchase program post-CIT integration, given the attractive stock price [57] Question: Impact of CIT Merger on Financials - Improved credit quality trends may reduce the credit mark, positively impacting tangible book value, but EPS guidance remains unchanged [59] Question: CIT's Expensive Holding Company Debt - The company will mark CIT's debt to market and is evaluating the cost-benefit of addressing it post-merger [61] Question: Commercial Loan Growth and Line Utilization - Line utilization is driven by C&I activity, with no negative trends observed in line advances [65] Question: Pro Forma Capital Levels - Pro forma CET1 is expected to be higher than the 9.5% projected in October, with the company operating within a 9%-11% range [66][67]