RALEIGH, N.C.—First Citizens BancShares, Inc. ("BancShares") (Nasdaq: FCNCA) reported earnings for the second quarter and year-to-date period ended June 30, 2022.
Chairman and CEO, Frank B. Holding, Jr. on second quarter results, "We are pleased to announce another quarter of solid results. Our integration efforts remain on track, and we completed our first major customer conversion of the OneWest Bank division and certain CIT treasury management customers. Merger integration is now substantially complete with some optimization efforts continuing into 2023. In addition, we are excited to announce that our Board of Directors approved a share repurchase plan which will allow us to repurchase up to 1.5 million shares of our Class A common stock over the next 12 months. Returning excess capital to our shareholders is a key strategic focus and we are excited about the opportunity to execute on the plan.
"Loan growth was strong this quarter, and pre-provision net revenue continued its momentum as our net interest margin expanded, our fee income producing lines of business performed well and expense control remained solid. We remain committed to achieving our cost savings goal as we continue to optimize our operations."
Second quarter net income available to common stockholders was $238 million, or $14.86 per share, compared to first quarter net income available to common stockholders of $264 million, or $16.70 per share. Adjusted for notable items, second quarter net income available to common stockholders was $270 million or $16.86, down from $299 million or $18.95 per share in the first quarter of 2022.
The primary driver of the decline in adjusted net income was a provision expense in the second quarter totaling $42 million versus a $49 million benefit in the first quarter. The increase in provision expense was largely offset by solid pre-provision net revenue growth.
BancShares completed the acquisition of CIT Group, Inc. ("CIT") on January 3, 2022 (the "CIT Merger"). BancShares' financial information presented for the periods ended March 31, 2022, and June 30, 2022, reflects the acquisition of CIT. Certain historical financial information referenced as "Combined" in the commentary below reflects the combination of BancShares and CIT for historical periods prior to completion of the CIT Merger. For Combined financial information, refer to pages 4 through 8 of the First Citizens BancShares Second Quarter 2022 Financials (PDF), Opens in a new tab. For GAAP financial information, refer to pages 1 through 3. Certain financial results referenced as "Adjusted" in the commentary below exclude notable items, which are detailed on page 6. For Adjusted financial information, refer to page 7. The Combined and Adjusted financial information are non-GAAP measures.
2Q22 vs 1Q22:
- Adjusted pre-provision net revenue increased by $60 million over the first quarter due to growth in net revenue as net interest margin expanded and fee income grew, while expenses declined.
- Net interest income increased by $51 million. Interest income increased $47 million due to higher interest income on loans, as earning asset yields rose, and we experienced strong loan growth. Interest expense declined by $4 million as an increase in interest expense on deposits was more than offset by a decline in interest on borrowings.
- Net interest margin expanded from 2.73% to 3.04% due primarily to higher loan yields and balances, the impact of the $3 billion debt redemption in the first quarter and higher yields on investment securities and overnight investments, partially offset by higher deposit rates and lower SBA-PPP income.
- Adjusted noninterest income increased by $3 million. The increase was primarily due to higher capital markets and wealth management revenue, partially offset by a decline in rental income on operating leases, net.
- Adjusted noninterest expense decreased by $6 million primarily due to a decline in personnel expense.
- Provision for credit losses, adjusted for the CECL Day 2 provision, increased by $91 million primarily due to changes in CECL macroeconomic forecasts and loan growth.
- Total loans increased $2.2 billion or by 13.5% on an annualized basis. We experienced strong growth in our branch network and residential mortgage portfolio as well as in our commercial bank from a number of our industry verticals, middle market banking and business capital.
- Deposits declined $2.3 billion or by 9.9% on an annualized basis. The main components of the decline were a $3.0 billion decline in interest-bearing deposits (money market deposits and time deposits) as we saw sensitive customers begin to move funds in response to recent rate increases. The reductions were primarily concentrated in acquired higher cost channels including the direct bank and legacy OneWest branches, offset by growth in our branch network. These declines in interest-bearing deposits were offset by growth in noninterest-bearing deposits of $747 million, or 11.6% annualized.
2Q22 vs 2Q21 (Combined):
- Adjusted pre-provision net revenue increased by $114 million or 37.6% due to double-digit percentage growth in net revenue as net interest margin expanded and fee income grew, while expenses increased at a modest pace.
- Net interest income increased by $88 million. Interest income increased $24 million due to higher yields on investment securities and overnight investments, partially offset by reduced accretion income on acquired loans and SBA-PPP income. Interest expense declined $64 million driven primarily by lower borrowings.
- Net interest margin improved from 2.56% to 3.04% due primarily to the impact of the $3 billion debt redemption in the first quarter, higher earning asset yields, partially offset by lower SBA-PPP income, lower accretion income and a reduction in loan balances.
- Adjusted noninterest income increased by $37 million primarily due to higher rental income on operating leases, net and increases in wealth management income, service charges on deposits and card income.
- Adjusted noninterest expense increased $11 million due to higher personnel costs, increased occupancy and equipment expense and higher third-party processing fees, partially offset by declines in professional fees and FDIC insurance expense.
- Provision for credit losses increased by $136 million primarily due to changes in CECL macroeconomic forecasts, releases of COVID-related reserves in the second quarter of 2021 and loan growth.
- Loans increased $1.3 billion or by 2.0%. Excluding the impact of SBA-PPP loans and purchase accounting adjustments, loans increased $2.8 billion or by 4.3%. Growth was attributable to the same factors as noted for the linked quarter above.
- Deposits declined $367 million or by 0.4% compared to the prior year quarter. The decline was a result of a $2.5 billion reduction in interest-bearing deposits partially offset by a $2.1 billion increase in noninterest-bearing deposits. The changes are due to similar reasons as noted for the linked quarter.
Earnings Call Details
BancShares will host a conference call to discuss the company's financial results on Thursday, July 28, 2022, at 9 a.m. Eastern time.
To access this call, dial:
All other locations: 1-929-526-1599
Access code: 158564
The second quarter 2022 earnings presentation and this news release are available on the company's website at www.firstcitizens.com/investor-relations.
After the conference call, you may access a replay of the call through August 18, 2022, by dialing 1-866-813-9403 (domestic), 1-226-828-7578 (Canada) or +44 204-525-0658 (all other locations) using the access code 908758.
About First Citizens
First Citizens BancShares is the financial holding company for First Citizens Bank. In January 2022, BancShares and CIT Group Inc. merged—creating one of the top 20 U.S. financial institutions, with more than $100 billion in assets.
First Citizens Bank helps personal, business, commercial and wealth clients build financial strength that lasts. As the largest family-controlled bank in the United States, First Citizens Bank is continuing a unique legacy of strength, stability and long-term thinking that has spanned generations. Founded in 1898 and headquartered in Raleigh, N.C., First Citizens Bank also operates a nationwide direct bank and a network of more than 550 branches in 22 states. Industry specialists bring a depth of expertise that helps businesses and individuals meet their specific goals at every stage of their financial journey. First Citizens Bank brings together personal service and powerful tools to help customers do more with their money—and make more of their future. Visit FirstCitizens.com. First Citizens Bank. Forever First®
This communication contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the financial condition, results of operations, business plans and future performance of BancShares. Words such as "anticipates," "believes," "estimates," "expects," "predicts," "forecasts," "intends," "plans," "projects," "targets," "designed," "could," "may," "should," "will," "potential," "continue," "aims" or other similar words and expressions are intended to identify these forward-looking statements. These forward-looking statements are based on BancShares' current expectations and assumptions regarding BancShares' business, the economy, and other future conditions.
Because forward-looking statements relate to future results and occurrences, they are subject to inherent risks, uncertainties, changes in circumstances and other risk factors that are difficult to predict. Many possible events or factors could affect BancShares' future financial results and performance and could cause the actual results, performance or achievements of BancShares to differ materially from any anticipated results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, general competitive, economic, political, geopolitical events (including the military conflict between Russia and Ukraine) and market conditions, the impacts of the global COVID-19 pandemic on BancShares' business and customers, the financial success or changing conditions or strategies of BancShares' customers or vendors, fluctuations in interest rates, actions of government regulators, including the recent and projected interest rate hikes by the Board of Governors of the Federal Reserve Board (the "Federal Reserve"), the potential impact of decisions by the Federal Reserve on BancShares' capital plans, adverse developments with respect to U.S. or global economic conditions, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares' previous acquisition transaction(s), including the recently completed transaction with CIT, which acquisition risks include (1) disruption from the transaction, or recently completed mergers, with customer, supplier or employee relationships, (2) the possibility that the amount of the costs, fees, expenses and charges related to the transaction may be greater than anticipated, including as a result of unexpected or unknown factors, events or liabilities, (3) reputational risk and the reaction of the parties' customers to the transaction, (4) the risk that the cost savings and any revenue synergies from the transaction may not be realized or take longer than anticipated to be realized, and (5) difficulties experienced in the integration of the businesses.
Except to the extent required by applicable laws or regulations, BancShares disclaims any obligation to update forward-looking statements or to publicly announce the results of any revisions to any of the forward-looking statements included herein to reflect future events or developments. Additional factors which could affect the forward-looking statements can be found in BancShares' Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and its other filings with the Securities and Exchange Commission (the "SEC").
Supplemental Financial Tables
The First Citizens BancShares Second Quarter 2022 Financials (PDF), Opens in a new tab include supplemental financial information and key performance metrics for current and historical periods.
Certain measures in these tables, including the previously defined Combined and Adjusted financial information, are "Non-GAAP," meaning they are not presented in accordance with generally accepted accounting principles in the U.S. and also are not codified in U.S. banking regulations currently applicable to BancShares. BancShares believes that Non-GAAP financial measures, when reviewed in conjunction with GAAP financial information, can provide transparency about or an alternative means of assessing its operating results and financial position to its investors, analysts and management. The Non-GAAP measures are reconciled to the most comparable GAAP measure, in the Non-GAAP reconciliation table(s).