First Citizens BancShares(FCNCA) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Net income for Q1 2021 was $147.3 million, a 158% increase compared to Q1 2020 and a 6.7% increase from the linked quarter [13] - Return on average assets was 1.16%, and return on average equity was 14.7% [13] - Net income per common share was $14.53, up $9.07 from Q1 2020, driven by increases in pre-provision net revenue, strong credit performance, and share repurchase activity [14] - Pre-provision net revenue increased by $77.9 million (76.1%) compared to Q1 2020, primarily due to a $67.4 million favorable change in the fair value adjustment on marketable equity securities [15] - Net charge-offs were at a historic low of 4 basis points, down from 10 basis points in Q1 2020 and 7 basis points in the linked quarter [16] Business Line Performance - Noninterest income totaled $136.6 million, up $10 million from the linked quarter and $73 million from Q1 2020, driven by strong performance in wealth management and merchant services [22] - Mortgage banking revenue remained strong, benefiting from a $3.1 million reversal of previously recorded MSR impairment [23] - Wealth management and merchant services are expected to continue driving noninterest income growth, while mortgage production is expected to moderate due to higher mortgage rates [24] Market and Loan Portfolio Trends - Loans increased by $389 million (4.8% annualized) in Q1 2021, with $364 million attributed to SBA-PPP loans [27] - Total PPP loan originations reached $4.3 billion, with $2.8 billion net of fees remaining at the end of Q1 2021 [28] - Deposit growth was strong, with deposits increasing by $3.9 billion (36.4% annualized) in Q1 2021, driven by government stimulus, PPP loan fundings, and organic growth [33] - Noninterest-bearing deposits accounted for 43.3% of total deposits, and total deposit costs declined to 8 basis points [35] Company Strategy and Industry Competition - The company is progressing toward the completion of its merger with CIT, which is expected to close in mid-2021, pending regulatory approvals [10] - The merger is expected to create a stronger bank with complementary strengths, benefiting customers, associates, and communities [9] - The company has established a core merger and integration management team to ensure a smooth transition and achieve strategic objectives [11] Management Commentary on Operating Environment and Future Outlook - Management remains optimistic about the economic recovery and expects loan growth ex-PPP to pick up to mid-single digits as the economy continues to expand [27] - Net interest margin is expected to face continued pressure due to excess liquidity and low interest rates, partially offset by improvements in new loan yields and lower deposit rates [38] - Credit quality is expected to remain strong, with potential for further reserve releases as the allowance for credit losses moves closer to pre-pandemic levels [40] Other Important Information - The company has enhanced its PPP loan forgiveness process, with 69.2% of round 1 loan amounts submitted for forgiveness and $43.9 million received from the SBA [29] - The allowance for credit losses ratio was 0.69% ex-PPP loans at the end of Q1 2021, down from 0.74% in Q4 2020 [32] Q&A Session Summary Question: Loan Yield and New Loan Production - New loan yields remained stable at around 3% for business, commercial, and mortgage loans, with expectations of improvement in Q2 due to the steepening yield curve [43][44] - The company expects some decline in loan yield but anticipates it will moderate as higher-yielding loans mature or are refinanced [45] Question: Regulatory Approval for CIT Merger - The company anticipates no significant delays in regulatory approval and expects the merger to close in mid-2021, pending customary closing conditions [46] Question: Excess Liquidity and Funding Synergies - The company is building excess liquidity to optimize funding mix post-merger with CIT, with cash positions currently at 12% of earning assets, above the typical 3%-4% range [48] Question: Allowance for Credit Losses (ACL) Ratio - The company expects the ACL ratio to drift back toward pre-pandemic levels if credit quality trends continue, with potential for further reserve releases [51] Question: Deposit Trends and Funding Synergies - Deposit growth has been strong, with organic growth contributing significantly, and the company expects funding synergies to materialize post-merger with CIT [61][62] Question: Core Noninterest Income Trends - Core noninterest income of $112 million is considered representative of a run-rate going forward, with stable recurring sources from wealth and merchant services [65]