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First Citizens BancShares Reports Second Quarter 2023 Earnings

RALEIGH, N.C., Aug. 3, 2023 /PRNewswire/ -- First Citizens BancShares, Inc. ("BancShares") (Nasdaq: FCNCA) reported earnings for the second quarter ended June 30, 2023.

Chairman and CEO Frank B. Holding, Jr. said: "We are proud of our continued strong financial performance in the second quarter as we drove momentum in our legacy business lines and began to realize the long-term strategic and financial value of our combination with SVB. Our performance was supported by the progress we made integrating SVB and our continuing efforts to provide stability and continuity for our clients and associates. We also continue to build on the strengths of our combined team, including leveraging SVB's deep innovation economy expertise and maintaining their unique approach to serving clients. As we navigate an uncertain macroeconomic environment, we remain focused on maintaining strong capital and liquidity positions as well as delivering long-term stockholder value."

PURCHASE AND ASSUMPTION OF CERTAIN ASSETS AND LIABILITIES OF SILICON VALLEY BRIDGE BANK FROM THE FDIC

On March 27, 2023, BancShares announced that through its banking subsidiary, First-Citizens Bank & Trust Company, it assumed all customer deposits and certain other liabilities and acquired substantially all loans and certain other assets of Silicon Valley Bridge Bank, N.A. (the "Acquisition"), as successor to Silicon Valley Bank, from the Federal Deposit Insurance Corporation (the "FDIC"). In connection with the Acquisition, BancShares identified a new business segment (the "SVB segment") which includes the assets, liabilities and results of operations related to the Acquisition.

The Acquisition included total assets with estimated fair values of approximately $107.26 billion and total loans with estimated fair values of approximately $68.46 billion, including Global Fund Banking, Private Bank and the Technology & Life Science and Healthcare loan portfolios, and $35.31 billion in cash and interest-earning deposits at banks. BancShares also assumed approximately $55.90 billion in customer deposits and entered into a five-year note payable to the FDIC (the "Purchase Money Note") of approximately $36.07 billion, bearing an interest rate of 3.50%. The deposits were acquired without a premium and the assets were acquired at a discount of $16.45 billion.

FINANCIAL HIGHLIGHTS

Results for the second quarter included a full quarter impact from the Acquisition. Measures referenced as adjusted below are non-GAAP financial measures (refer to the supporting tables for a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure). Net income for the three months ended June 30, 2023, was $682 million compared to $9.52 billion for the three months ended March 31, 2023. Net income available to common stockholders for the three months ended June 30, 2023, was $667 million, or $45.87 per diluted common share, compared to $9.50 billion, or $653.64 per diluted common share in the first quarter of 2023.

As a result of the Acquisition, second quarter net income includes an increase to the preliminary gain on acquisition of $55 million (net of tax) as we refined our estimates of the fair value of net assets acquired and liabilities assumed. Adjusted net income available to common stockholders was $765 million, or $52.60 per diluted common share, a $473 million increase from $292 million, or $20.09 per diluted common share, in the first quarter of 2023.

Second quarter 2023 results were impacted by the following items which accounted for the difference between reported and adjusted net income described in the preceding paragraph:

  • Acquisition-related expenses of $205 million,

  • Additional preliminary gain on acquisition of $55 million (net of tax),

  • Intangible asset amortization of $18 million,

  • Unrealized loss on fair value adjustments on marketable equity securities of $10 million,

  • Gain on sale of leasing equipment of $4 million, and

  • Benefit for credit losses on investment securities available for sale of $1 million.

The following bullets highlight significant changes in the components of net income and adjusted net income between the second quarter of 2023 and the first quarter of 2023:

  • Net interest income totaled $1.96 billion, up from $850 million in the first quarter. The $1.11 billion increase in net interest income was due to a $1.74 billion increase in interest income, partially offset by a $631 million increase in interest expense.

  • The $1.74 billion increase in interest income was due to a $1.34 billion increase in interest income on loans and a $393 million increase in interest on overnight investments. A higher average balance, increased loan accretion from the full quarter impact of the Acquisition, a higher yield on loans and loan growth in both the General Bank and Commercial Bank contributed to the increase in interest income on loans. The increase in interest income on overnight investments was due to a higher yield and average balance.

  • The $631 million increase in interest expense was due to a $344 million increase in borrowing costs primarily due to the Purchase Money Note related to the Acquisition and a $287 million increase in interest expense on deposits due to a higher average balance from the full quarter impact of the Acquisition, growth in the Direct Bank and a higher rate paid.

  • Net interest margin was 4.10%, an increase of 69 basis points over the first quarter. The yield on interest-earning assets was 6.18%, an increase of 133 basis points over the first quarter. The increase in yield on interest-earning assets was primarily due to a higher yield on earning assets and increased loan accretion resulting from the full quarter impact of the Acquisition. Accretion on loans acquired in the Acquisition was $233 million for the second quarter. The increase in yield on interest-earning assets was partially offset by an increase in the rate paid on interest-bearing deposits.

  • Noninterest income totaled $658 million compared to $10.26 billion in the first quarter. The decrease was primarily due to a $9.82 billion preliminary gain on acquisition in the first quarter, partially offset by the full quarter impact of the Acquisition. Adjusted noninterest income totaled $462 million compared to $309 million in the first quarter, an increase of $153 million. The increase was primarily due to the full quarter impact of the Acquisition and included a $50 million increase in client investment fees that are earned for managing off-balance sheet client funds and a $28 million increase in international fees related to customer foreign currency transactions. Fee income and other services charges increased $22 million primarily due to unused line of credit fees in the SVB segment. Service charges on deposits and cardholder services income both increased $20 million from higher volume associated with the full quarter impact of the Acquisition.

  • Noninterest expense totaled $1.57 billion compared to $855 million in the first quarter. Adjusted noninterest expense totaled $1.20 billion compared to $677 million in the first quarter, an increase of $525 million. The increases in noninterest expense and adjusted noninterest expense were primarily due to the full quarter impact of the Acquisition and included higher personnel costs of $355 million, higher equipment expense of $75 million, higher marketing costs of $26 million and higher third-party processing fees of $24 million. The increase in marketing costs were primarily associated with the Direct Bank.

BALANCE SHEET SUMMARY

  • Loans totaled $133.02 billion at June 30, 2023, a decline of $5.27 billion compared to $138.29 billion as of March 31, 2023. The decline was primarily driven by a $7.37 billion decline in the SVB segment mostly concentrated in Global Fund Banking. The decline in the SVB segment was partially offset by $1.37 billion of growth (12.6% annualized) in the General Bank (driven by business and commercial loans) and $749 million of growth (10.4% annualized) in the Commercial Bank (driven by loans in our industry verticals). The yield on loans was 7.06% for the second quarter compared to 5.57% in the first quarter of 2023. The increase was primarily due to variable rate loan resets and accretion on loans acquired in the Acquisition.

  • Deposits totaled $141.16 billion at June 30, 2023, an increase of $1.11 billion, or by 3.2% on an annualized basis compared to $140.05 billion as of March 31, 2023. The increase was concentrated in Direct Bank deposits, which grew by $10.4 billion, partially offset by an $8.40 billion decline in the SVB segment. Deposits in the SVB segment totaled $40.86 billion at June 30, 2023, and remained relatively stable from the levels previously disclosed ($41.40 billion as of May 5, 2023). Branch Network deposits declined by $1.11 billion primarily due to seasonal tax payments. Noninterest-bearing deposits represented 31.6% of total deposits as of June 30, 2023, compared to 39.0% of total deposits at March 31, 2023. The decline was primarily due to a $9.1 billion decrease in noninterest-bearing deposits in the SVB segment and the previously discussed increase of $10.4 billion in Direct Bank interest-bearing deposits. The cost of average total deposits was 1.68% for the second quarter, up 44 basis points compared to the first quarter of 2023.

  • Total borrowings decreased $5.96 billion during the quarter, primarily due to the $6.08 billion decline in Federal Home Loan Bank ("FHLB") borrowings.

PROVISION FOR CREDIT LOSSES AND CREDIT QUALITY

  • Provision for credit losses totaled $151 million compared to $783 million in the first quarter, a decrease of $632 million, primarily related to the Acquisition, which included provisions for credit losses of $462 million for non-PCD loans and $254 million for unfunded commitments in the first quarter of 2023. Adjusted provision for credit losses totaled $152 million compared to $63 million in the first quarter of 2023, an increase of $89 million. The increase was primarily due to higher net charge-offs of $107 million.

  • Net charge-offs totaled $157 million, representing 0.47% of average loans, compared to $50 million, or 0.27% of average loans during the first quarter of 2023. The increase in net charge offs was primarily due to $97 million of net charge offs in the SVB segment ($85 million of which were reserved for in connection with the Acquisition).

  • Nonaccrual loans were $929 million, or 0.70% of total loans, at June 30, 2023, compared to $828 million, or 0.60% of total loans at March 31, 2023. The increase is primarily due to an increase in commercial real estate nonaccrual loans at June 30, 2023.

  • The allowance for credit losses totaled $1.64 billion or 1.23% of total loans at June 30, 2023, an increase of $32 million and 1.16% of total loans at March 31, 2023. The reserve build for the quarter was a result of deteriorating CECL macroeconomic forecasts, specifically related to the CRE index, partially offset by portfolio run-off in the SVB segment.

EARNINGS CALL DETAILS

BancShares will host a conference call to discuss the company's financial results on Thursday, August 3, 2023, at 9:00 a.m. Eastern time.

To access this call, dial:

United States: 1-833-470-1428
Canada: 1-833-950-0062
All other locations: 1-929-526-1599
Access code: 109282

The second quarter 2023 earnings presentation and this news release are available on the company's website at ir.firstcitizens.com. After the event, a replay of the call will be available via webcast at ir.firstcitizens.com.

ABOUT FIRST CITIZENS BANCSHARES

First Citizens BancShares, Inc., a top 20 U.S. financial institution with more than $200 billion in assets, is the financial holding company for First-Citizens Bank & Trust Company ("First Citizens Bank"). Headquartered in Raleigh, N.C., and now celebrating the 125th anniversary of its founding, First Citizens Bank has built a unique legacy of strength, stability and long-term thinking that has spanned generations. First Citizens offers an array of general banking services including a network of 560 branches and offices in 23 states; commercial banking expertise delivering best-in-class lending, leasing and other financial services coast to coast; and a nationwide direct bank. First Citizens Bank, Member FDIC. Discover more at firstcitizens.com.

FORWARD-LOOKING STATEMENTS

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, asset quality, future performance, and other strategic goals 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, including changes in competitive pressures among financial institutions and the impacts related to or resulting from recent bank failures and other volatility, the financial success or changing conditions or strategies of BancShares' vendors or customers, including changes in demand for deposits, loans and other financial services, fluctuations in interest rates, changes in the quality or composition of BancShares' loan or investment portfolio, 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"), changes to estimates of future costs and benefits of actions taken by BancShares, BancShares' ability to main adequate sources of funding and liquidity, the potential impact of decisions by the Federal Reserve on BancShares' capital plans, adverse developments with respect to U.S. or global economic conditions, including the significant turbulence in the capital or financial markets, the impact of the current inflationary environment, the impact of implementation and compliance with current or proposed laws, regulations and regulatory interpretations, including the interagency proposed rule on regulatory capital, along with the risk that such laws, regulations and regulatory interpretations may change, the availability of capital and personnel, and the failure to realize the anticipated benefits of BancShares' previous acquisition transactions, including the Acquisition and the recently completed transaction with CIT Group Inc. ("CIT"), which acquisition risks include (1) disruption from the transactions 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 or increased regulatory compliance obligations or oversight, (3) reputational risk and the reaction of the parties' customers to the transactions, (4) the risk that the cost savings and any revenue synergies from the transactions may not be realized or take longer than anticipated to be realized, (5) difficulties experienced in the integration of the businesses, (6) the ability to retain customers following the transactions and (7) adjustments to BancShares' estimated purchase accounting impacts of the Acquisition.

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, 2022, its Quarterly Report on Form 10-Q for the period ended March 31, 2023, and its other filings with the Securities and Exchange Commission (the "SEC").

NON-GAAP MEASURES

Certain measures in this release and supporting tables, including those referenced as "Adjusted," 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. Each non-GAAP measure is reconciled to the most comparable GAAP measure in the non-GAAP reconciliation table below and notable items are summarized in a separate table. 

 

Dollars in millions, except per share data





YTD

YTD

Summary Financial Data & Key Metrics

2Q23

1Q23

2Q22

6/30/23

6/30/22

Results of Operations:






Net interest income

$         1,961

$            850

$            700

2,811

1,349

Provision for credit losses

151

783

42

934

506

Net interest income after provision for credit losses

1,810

67

658

1,877

843

Noninterest income

658

10,259

424

10,917

1,274

Noninterest expense

1,572

855

745

2,427

1,555

Income before income taxes

896

9,471

337

10,367

562

Income tax expense (benefit)

214

(47)

82

167

36

Net income

682

9,518

255

10,200

526

Preferred stock dividends

15

14

17

29

24

Net income available to common stockholders

$            667

$         9,504

$            238

10,171

$            502

Adjusted net income available to common stockholders(1)

$            765

$            292

$            270

$         1,057

$            569

Pre-tax, pre-provision net revenue (PPNR)(1)

$         1,047

$       10,254

$            379

$       11,301

$         1,068







Per Share Information:






Diluted earnings per common share (EPS)

$         45.87

$       653.64

$         14.86

699.53

31.48

Adjusted diluted earnings per common share (EPS)(1)

52.60

20.09

16.86

72.69

35.67

Book value per common share

1,300.93

1,262.76

609.95

1,300.93

609.95

Tangible book value per common share (TBV)(1)

1,253.20

1,213.82

578.92

1,253.20

578.92







Key Performance Metrics:






Return on average assets (ROA)

1.31 %

33.23 %

0.95 %

12.62 %

0.97 %

Adjusted ROA(1)

1.49

1.07

1.07

1.34

1.10

PPNR ROA(1)

2.00

35.80

1.41

13.98

1.98

Adjusted PPNR ROA(1)

2.34

1.69

1.56

2.11

1.44

Return on average common equity (ROE)

14.35

367.47

9.87

140.82

10.51

Adjusted ROE(1)

16.46

11.30

11.19

14.63

11.91

Return on average tangible common equity (ROTCE)(1)

14.91

386.69

10.40

146.99

11.11

Adjusted ROTCE(1)

17.10

11.89

11.80

15.27

12.58

Efficiency ratio

60.06

7.70

66.34

17.68

59.26

Adjusted efficiency ratio(1)

49.65

58.39

57.55

52.47

59.50

Net interest margin (NIM)(2)

4.10

3.41

3.04

3.86

2.89







Select Balance Sheet Items at Period End:






Total investment securities

$       22,171

$       19,527

$       19,136



Total loans and leases

133,015

138,288

67,735



Total operating lease equipment, net

8,531

8,331

7,971



Total deposits

141,164

140,050

89,329



Total borrowings

40,139

46,094

4,459



Loan to deposit ratio

94.23 %

98.74 %

75.83 %



Noninterest-bearing deposits to total deposits

31.56

39.02

29.75









Capital Ratios at Period End: (3)






Total risk-based capital ratio

15.84 %

14.86 %

14.46 %



Tier 1 risk-based capital ratio

14.00

13.13

12.37



Common equity Tier 1 ratio

13.38

12.53

11.35



Tier 1 leverage capital ratio

9.50

16.72

9.85









Asset Quality at Period End:






Nonaccrual loans to total loans and leases

0.70 %

0.60 %

0.76 %

0.70 %

0.76 %

Allowance for credit losses (ACL) to loans and leases

1.23

1.16

1.26

1.23

1.26

Net charge-off ratio

0.47

0.27

0.13

0.39

0.11







(1) Denotes a non-GAAP measure. Refer to the non-GAAP reconciliation subsequently included in these materials for a reconciliation to the most directly comparable GAAP measure. "Adjusted" items exclude the impact of Notable Items.

(2) Calculated net of average credit balances of factoring clients.






(3) Capital ratios for the current quarter are preliminary pending completion of quarterly regulatory filings.

 

Dollars in millions, except share and per share data





YTD

YTD

Income Statement (unaudited)

2Q23

1Q23

2Q22

6/30/23

6/30/22

Interest income






Interest and fees on loans

$           2,353

$           1,017

$             655

3,370

1,276

Interest on investment securities

120

107

89

227

172

Interest on deposits at banks

480

87

13

567

19

Total interest income

2,953

1,211

757

4,164

1,467

Interest expense






Deposits

575

288

42

863

81

Borrowings

417

73

15

490

37

Total interest expense

992

361

57

1,353

118

Net interest income

1,961

850

700

2,811

1,349

Provision for credit losses

151

783

42

934

506

Net interest income after provision for credit losses

1,810

67

658

1,877

843

Noninterest income






Rental income on operating lease equipment

238

233

213

471

421

Fee income and other service charges

69

47

37

116

71

Client investment fees

52

2

54

Wealth management services

51

40

37

91

72

International fees

32

4

2

36

4

Service charges on deposit accounts

44

24

28

68

55

Factoring commissions

20

19

27

39

54

Cardholder services, net

41

21

26

62

51

Merchant services, net

14

10

9

24

19

Insurance commissions

14

13

11

27

23

Realized loss on sale of investment securities available for sale, net

(14)

(14)

Fair value adjustment on marketable equity securities, net

(10)

(9)

(6)

(19)

(3)

Bank-owned life insurance

2

5

9

7

17

Gain on sale of leasing equipment, net

4

4

5

8

11

Gain on acquisition

55

9,824

9,879

431

Gain on extinguishment of debt

6

Other noninterest income 

32

36

26

68

42

Total noninterest income

658

10,259

424

10,917

1,274

Noninterest expense






Depreciation on operating lease equipment

91

89

89

180

170

Maintenance and other operating lease expenses

56

56

47

112

90

Salaries and benefits

775

420

345

1,195

701

Net occupancy expense

64

50

48

114

96

Equipment expense

133

58

54

191

106

Professional fees

21

11

11

32

23

Third-party processing fees

54

30

26

84

50

FDIC insurance expense

22

18

9

40

21

Marketing expense

41

15

9

56

17

Acquisition-related expenses

205

28

34

233

169

Intangible asset amortization

18

5

6

23

12

Other noninterest expense

92

75

67

167

100

Total noninterest expense

1,572

855

745

2,427

1,555

Income before income taxes

896

9,471

337

10,367

562

Income tax expense (benefit)

214

(47)

82

167

36

Net income

$              682

$           9,518

$             255

10,200

526

Preferred stock dividends

15

14

17

29

24

Net income available to common stockholders

$              667

$           9,504

$             238

10,171

502







Basic earnings per common share

$           45.90

$         654.22

$          14.87

$         700.10

$           31.52

Diluted earnings per common share

$           45.87

$         653.64

$          14.86

$         699.53

$           31.48

Weighted average common shares outstanding (basic)

14,528,134

14,526,693

16,023,613

14,527,417

15,918,978

Weighted average common shares outstanding (diluted)

14,537,938

14,539,709

16,035,090

14,539,176

15,937,826

 

Dollars in millions





Balance Sheet (unaudited)

June 30, 2023

March 31, 2023

June 30, 2022

Assets




Cash and due from banks

$                  917

$               1,598

$                  583

Interest-earning deposits at banks

37,846

38,522

6,476

Securities purchased under agreements to resell

298

Investment in marketable equity securities

76

85

94

Investment securities available for sale

11,894

9,061

9,210

Investment securities held to maturity

10,201

10,381

9,832

Assets held for sale

117

94

38

Loans and leases

133,015

138,288

67,735

Allowance for credit losses

(1,637)

(1,605)

(850)

Loans and leases, net of allowance for credit losses

131,378

136,683

66,885

Operating lease equipment, net

8,531

8,331

7,971

Premises and equipment, net

1,782

1,743

1,415

Goodwill

346

346

346

Other intangible assets

347

364

150

Other assets

5,769

7,450

4,673

Total assets

$           209,502

$           214,658

$           107,673





Liabilities




Deposits:




Noninterest-bearing

$             44,547

$             54,649

$             26,576

Interest-bearing

96,617

85,401

62,753

Total deposits

141,164

140,050

89,329

Credit balances of factoring clients

1,067

1,126

1,070

Borrowings:




Short-term borrowings

454

1,009

646

Long-term borrowings

39,685

45,085

3,813

Total borrowings

40,139

46,094

4,459

Other liabilities

7,361

8,172

2,173

Total liabilities

$           189,731

$           195,442

$             97,031





Stockholders' equity




Preferred stock

881

881

881

Common stock:




Class A - $1 par value

14

14

15

Class B - $1 par value

1

1

1

Additional paid in capital

4,106

4,104

5,345

Retained earnings

15,541

14,885

4,865

Accumulated other comprehensive loss

(772)

(669)

(465)

Total stockholders' equity

19,771

19,216

10,642

Total liabilities and stockholders' equity

$           209,502

214,658

107,673





 

Dollars in millions, except share per share data





YTD

YTD

Notable Items (1)

2Q23

1Q23

2Q22

6/30/23

6/30/22

Noninterest income






Rental income on operating lease equipment (2)

$            (147)

$            (145)

$            (136)

(292)

(260)

Realized gain on sale of investment securities available for sale, net

14

14

Fair value adjustment on marketable equity securities, net

10

9

6

19

3

Gain on sale of leasing equipment, net

(4)

(4)

(5)

(8)

(11)

Gain on acquisition

(55)

(9,824)

(9,879)

(431)

Gain on extinguishment of debt

(6)

Other noninterest income (3)

(6)

(6)

Noninterest income - total adjustments

$            (196)

$         (9,950)

$            (141)

(10,146)

(711)

Noninterest expense






Depreciation on operating lease equipment (2)

(91)

(89)

(89)

(180)

(170)

Maintenance and other operating lease equipment expense (2)

(56)

(56)

(47)

(112)

(90)

Acquisition-related expenses

(205)

(28)

(34)

(233)

(169)

Intangible asset amortization

(18)

(5)

(6)

(23)

(12)

Other noninterest expense (4)

(3)

24

Noninterest expense - total adjustments

$            (370)

$            (178)

$            (179)

(548)

(417)

Day 2 provision, including provision for unfunded commitments

(716)

(716)

(513)

Provision for credit losses - investment securities available for sale

1

(4)

(3)

Provision for credit losses - total adjustments

$                  1

$            (720)

$                —

(719)

(513)

Impact of notable items on pre-tax income

$              173

$         (9,052)

$                38

$         (8,879)

$              219

Income tax impact (5)

75

160

6

235

152

Impact of notable items on net income

$                98

$         (9,212)

$                32

(9,114)

67

Impact of notable items on diluted  EPS

$             6.73

$        (633.55)

$             2.00

(626.84)

4.19








(1) Notable items include income and expense for infrequent transactions and certain recurring items (typically noncash) that Management believes should be excluded from adjusted measures (Non-GAAP) to enhance understanding of operations and comparability to historical periods. Management utilizes both GAAP and adjusted measures (Non-GAAP) to analyze the Company's performance. Refer to the Non-GAAP reconciliation table(s) at the end of this earnings release for a reconciliation of Non-GAAP measures to the most directly comparable GAAP measures.

(2) Depreciation and maintenance and other operating lease expenses are reclassified from noninterest expense to a reduction of rental income on operating lease equipment. There is no net impact to earnings for this notable item as adjusted noninterest income and expense are reduced by the same amount. Adjusted rental income on operating lease equipment (non-GAAP) is net of depreciation and maintenance expense for operating lease equipment. Management believes this measure enhances comparability to banking peers, primarily due to the extent of our rail and other equipment rental activities. Refer to the Non-GAAP reconciliation table(s) at the end of this earnings release for a reconciliation of Non-GAAP measures to the most directly comparable GAAP measure.

(3) Includes gain on sale of the corporate jet acquired from CIT.

(4) Includes specific litigation reserve for the HAMP litigation.

(5) For the periods presented the income tax impact may include tax discrete items and changes in the estimated annualized effective tax rate.

 

Dollars in millions, except share and per share data

Condensed Income Statement (unaudited) - Adjusted for Notable Items (1)




BancShares

BancShares

2Q23

1Q23

2Q22

6/30/23

6/30/22

Interest income

$           2,953

$           1,211

$              757

4,164

1,467

Interest expense

992

361

57

1,353

118

Net interest income

1,961

850

700

2,811

1,349

Provision (benefit) for credit losses

152

63

42

215

(7)

Net interest income after provision for credit losses

1,809

787

658

2,596

1,356

Noninterest income

462

309

283

771

563

Noninterest expense

1,202

677

566

1,879

1,138

Income before income taxes

1,069

419

375

1,488

781

Income tax expense

289

113

88

402

188

Net income

$              780

$              306

$              287

1,086

593

Preferred stock dividends

15

14

17

29

24

Net income available to common stockholders

$              765

$              292

$              270

1,057

569







Basic earnings per common share

$           52.64

$           20.11

$           16.87

72.75

35.71

Diluted earnings per common share

$           52.60

$           20.09

$           16.86

72.69

35.67

Weighted average common shares outstanding (basic)

14,528,134

14,526,693

16,023,613

14,527,417

15,918,978

Weighted average common shares outstanding (diluted)

14,537,938

14,539,709

16,035,090

14,539,176

15,937,826


(1) The GAAP income statements and notable items are included previously in this communication. The condensed adjusted income statements above (non-GAAP) exclude the impacts of notable items. Refer to the Non-GAAP reconciliation table(s) at the end of this earnings release for a reconciliation of Non-GAAP measures to the most directly comparable GAAP measure.

 

Dollars in millions





Loans & Leases by Class (end of period)

June 30, 2023

March 31, 2023

June 30, 2022

Loans & Leases by Class




Commercial




Commercial construction

$                3,182

$                2,971

$                2,783

Owner-occupied commercial mortgages

14,748

14,456

13,795

Non-owner-occupied commercial mortgages

10,733

10,292

9,167

Commercial and industrial

25,376

24,508

23,554

Leases

2,130

2,163

2,178

Total commercial

$              56,169

$              54,390

$              51,477





Consumer




Residential mortgage

$              14,065

$              13,727

$              12,441

Revolving mortgage

1,900

1,916

1,893

Consumer auto

1,425

1,452

1,338

Consumer other

657

632

586

Total consumer

$              18,047

$              17,727

$              16,258





SVB




Global fund banking

$              29,333

$              36,097

$                    —

Investor dependent - early stage

1,840

1,994

Investor dependent - growth stage

4,052

4,418

Innovation C&I and cash flow dependent

8,905

9,193

Private Bank

9,580

9,476

CRE

2,530

2,444

Other

2,559

2,549

Total SVB

$              58,799

$              66,171

$                    —

Total loans and leases

$            133,015

$            138,288

$              67,735

Less: Allowance for credit losses

(1,637)

(1,605)

(850)

Total loans and leases, net of allowance for credit losses

$            131,378

$            136,683

$              66,885










Deposits by Type (end of period)

June 30, 2023

March 31, 2023

June 30, 2022

Demand

$              44,547

$              54,649

$              26,645

Checking with interest

24,809

23,743

16,285

Money market

29,149

30,598

24,699

Savings

26,389

17,932

13,319

Time

16,270

13,128

8,381

Total deposits

$            141,164

$            140,050

$              89,329





 

Dollars in millions





YTD

YTD

Credit Quality & Allowance

2Q23

1Q23

2Q22

6/30/23

6/30/22

Nonaccrual loans

$          929

$          828

$          513



Ratio of nonaccrual loans to total loans

0.70 %

0.60 %

0.76 %









Charge-offs

$        (176)

$          (62)

$          (41)

(238)

(74)

Recoveries

19

12

19

31

37

Net charge-offs

$        (157)

$          (50)

$          (22)

(207)

(37)

Net charge-off ratio

0.47 %

0.27 %

0.13 %

0.39 %

0.11 %







Allowance for credit losses to loans ratio

1.23 %

1.16 %

1.26 %

1.23 %

1.26 %







Allowance for credit losses - beginning

$       1,605

$          922

$          848

922

178

Initial PCD ACL

20

200

(12)

220

272

Day 2 provision, excluding provision for unfunded commitments

462

462

454

Provision (benefit) for credit losses

169

71

36

240

(17)

Net charge-offs

(157)

(50)

(22)

(207)

(37)

Allowance for credit losses - ending

$       1,637

$       1,605

$          850

1,637

850







 

Dollars in millions




Average Balance Sheet

2Q23

1Q23

2Q22

Avg Balance

Income/Expense

Yield/Rate

Avg Balance

Income/Expense

Yield/Rate

Avg Balance

Income/Expense

Yield/Rate

Loans and leases (1)(2)

$ 133,528

$     2,353

7.06 %

$   73,900

$     1,017

5.57 %

$   65,298

$        655

4.03 %

Investment securities

19,806

117

2.36

19,416

107

2.21

19,185

89

1.85

Securities purchased under agreements to resell

191

3

4.92

Interest-earning deposits at banks

38,014

480

5.07

7,585

87

4.61

7,629

13

0.72

Total interest-earning assets (2)

$ 191,539

$     2,953

6.18 %

$ 100,901

$     1,211

4.85 %

$   92,112

$        757

3.28 %











Operating lease equipment, net (including held for sale)

$     8,405



$     8,236



$     7,973



Cash and due from banks

1,161



595



524



Allowance for credit losses

(1,600)



(936)



(849)



All other noninterest-earning assets

9,804



7,368



7,815



Total assets

$ 209,309



$ 116,164



$ 107,575



Interest-bearing deposits










Checking with interest

$   24,164

$        118

1.92 %

$   16,494

$         22

0.50 %

$   16,503

$           4

0.12 %

Money Market

29,066

148

2.04

21,216

80

1.53

25,468

18

0.28

Savings

21,979

188

3.44

17,521

110

2.54

13,303

11

0.34

Time deposits

14,958

121

3.24

12,126

76

2.55

8,796

9

0.38

Total interest-bearing deposits

90,167

575

2.56

67,357

288

1.73

64,070

42

0.26

Borrowings:










Securities sold under customer repurchase agreements

456

1

0.31

455

0.30

627

0.16

Short-term FHLB borrowings

110

1

5.17

328

4

4.67

Short-term borrowings

566

2

1.26

783

4

2.13

627

0.16

FHLB borrowings

5,558

74

5.35

3,284

40

4.96

386

2

1.64

Senior unsecured borrowings

798

4

2.11

883

5

2.06

894

4

2.05

Subordinated debt

1,045

10

3.59

1,048

9

3.54

1,057

8

3.06

Other borrowings

35,168

327

3.74

1,978

15

2.95

83

1

2.37

Long-term borrowings

42,569

415

3.91

7,193

69

3.84

2,420

15

2.43

Total borrowings

43,135

417

3.88

7,976

73

3.68

3,047

15

1.96

Total interest-bearing liabilities

$ 133,302

$        992

2.98 %

$   75,333

$        361

1.94 %

$   67,117

$         57

0.34 %











Noninterest-bearing deposits

$   47,241



$   26,482



$   26,551



Credit balances of factoring clients

1,168



1,007



1,189



Other noninterest-bearing liabilities

8,077



1,973



2,151



Stockholders' equity

19,521



11,369



10,567



Total liabilities and stockholders' equity

$ 209,309



$ 116,164



$ 107,575













Net interest income


$     1,961



$        850



$        700


Net interest spread (2)



3.20 %



2.91 %



2.94 %

Net interest margin (2)



4.10 %



3.41 %



3.04 %











(1) Loans and leases include non-PCD and PCD loans, nonaccrual loans and held for sale. Interest income on loans and leases includes accretion income and loan fees.

(2) The balance and rate presented is calculated net of average credit balances of factoring clients.

Note: Certain items above do not precisely recalculate as presented due to rounding.


 

Dollars in millions




Average Balance Sheet

YTD 6/30/2023

YTD 6/30/2022

Avg Balance

Income/Expense

Yield/Rate

Avg Balance

Income/Expense

Yield/Rate

Loans and leases (1)(2)

$ 103,878

$     3,370

6.53 %

$   64,724

$     1,276

3.96 %

Investment securities

19,612

224

2.29

19,338

172

1.78

Securities purchased under agreements to resell

96

3

4.92

Interest-earning deposits at banks

22,884

567

4.99

9,542

19

0.40

Total interest-earning assets (2)

$ 146,470

$     4,164

5.72 %

$   93,604

$     1,467

3.14 %








Operating lease equipment, net (including held for sale)

$     8,321



$     7,949



Cash and due from banks

880



530



Allowance for credit losses

(1,270)



(882)



All other noninterest-earning assets

8,593



7,776



Total assets

$ 162,994



$ 108,977



Interest-bearing deposits







Checking with interest

$   20,350

$        140

1.35 %

$   16,578

$           9

0.11 %

Money Market

25,162

228

1.82

25,832

33

0.26

Savings

19,762

298

3.04

13,480

20

0.30

Time deposits

13,550

197

2.93

9,293

19

0.40

Total interest-bearing deposits

78,824

863

2.21

65,183

81

0.25

Borrowings:







Securities sold under customer repurchase agreements

456

1

0.31

614

0.16

Short-term FHLB borrowings

218

5

4.79

Short-term borrowings

674

6

1.76

614

0.16

FHLB borrowings

4,427

114

5.20

513

4

1.41

Senior unsecured borrowings

840

9

2.09

1,801

16

1.80

Subordinated debt

1,047

19

3.57

1,059

16

3.01

Other borrowings

18,665

342

3.70

84

1

2.20

Long-term borrowings

24,979

484

3.90

3,457

37

2.12

Total borrowings

25,653

490

3.85

4,071

37

2.12

Total interest-bearing liabilities

$ 104,477

$     1,353

2.61 %

$   69,254

$        118

0.34 %








Noninterest-bearing deposits

$   36,919



$   25,936



Credit balances of factoring clients

1,088



1,175



Other noninterest-bearing liabilities

5,065



2,117



Stockholders' equity

15,445



10,495



Total liabilities and stockholders' equity

$ 162,994



$ 108,977










Net interest income


$     2,811



$     1,349


Net interest spread (2)



3.11 %



2.80 %

Net interest margin (2)



3.86 %



2.89 %

(1) Loans and leases include non-PCD and PCD loans, nonaccrual loans and held for sale. Interest income on loans and leases includes accretion income and loan fees.

(2) The balance and rate presented is calculated net of average credit balances of factoring clients.

Note: Certain items above do not precisely recalculate as presented due to rounding.


 

Dollars in millions, except share and per share data







YTD

YTD

Non-GAAP Reconciliations



2Q23

1Q23

2Q22

6/30/2023

6/30/2022









Net income and EPS








Net income (GAAP)


a

$          682

$       9,518

$          255

$     10,200

$          526

Preferred stock dividends



15

14

17

29

24

Net income available to common stockholders (GAAP)


b

667

9,504

238

10,171

502

Total notable items, after income tax


c

98

(9,212)

32

(9,114)

67

Adjusted net income (non-GAAP)


d = (a+c)

780

306

287

1,086

593

Adjusted net income available to common stockholders (non-GAAP)


e = (b+c)

$          765

$          292

$          270

$       1,057

$          569

Weighted average common shares outstanding








Basic


f

14,528,134

14,526,693

16,023,613

14,527,417

15,918,978

Diluted


g

14,537,938

14,539,709

16,035,090

14,539,176

15,937,826

EPS (GAAP)








Basic


b/f

$       45.90

$     654.22

$       14.87

$     700.10

$       31.52

Diluted


b/g

45.87

653.64

14.86

699.53

31.48

Adjusted EPS (non-GAAP)








Basic


e/f

$       52.64

$       20.11

$       16.87

$       72.75

$       35.71

Diluted


e/g

52.60

20.09

16.86

72.69

35.67









Noninterest income and expense








Noninterest income


h

$          658

$     10,259

$          424

$     10,917

$       1,274

Impact of notable items, before income tax



(196)

(9,950)

(141)

(10,146)

(711)

Adjusted or core noninterest income


i

$          462

$          309

$          283

$          771

$          563









Noninterest expense


j

$       1,572

$          855

$          745

$       2,427

$       1,555

Impact of notable items, before income tax



(370)

(178)

(179)

(548)

(417)

Adjusted or core noninterest expense


k

$       1,202

$          677

$          566

$       1,879

$       1,138









Provision (benefit) for credit losses








Provision (benefit) for credit losses



$          151

$          783

$            42

$          934

$          506

Plus: Day 2 provision for credit losses



(716)

(716)

(513)

Plus: Specific reserve for AFS securities



1

(4)

(3)

Adjusted provision (benefit) for credit losses



$          152

$            63

$            42

$          215

$            (7)









PPNR








Net income (GAAP)


a

$          682

$       9,518

$          255

10,200

526

Plus:








Provision for credit losses



151

783

42

934

506

Income tax expense (benefit)



214

(47)

82

167

36

PPNR (non-GAAP)


l

$       1,047

$     10,254

$          379

11,301

1,068

Plus: total notable items, before income tax



174

(9,772)

38

(9,598)

(294)

Adjusted PPNR (non-GAAP)


m

$       1,220

$          482

$          417

1,702

774









Note: Certain items above do not precisely recalculate as presented due to rounding.









Dollars in millions, except share and per share data







YTD

YTD

Non-GAAP Reconciliations (continued)



2Q23

1Q23

2Q22

6/30/2023

6/30/2022









ROA








Net income (GAAP)


a

$          682

$       9,518

$          255

$     10,200

$          526

Annualized net income


n = a annualized

2,734

38,602

1,023

20,569

1,061

Adjusted net income (non-GAAP)


d

780

306

287

1,086

593

Annualized adjusted net income


p = d annualized

3,126

1,244

1,151

2,190

1,195

Average assets


o

209,309

116,164

107,575

162,994

108,977

ROA


n/o

1.31 %

33.23 %

0.95 %

12.62 %

0.97 %

Adjusted ROA


p/o

1.49

1.07

1.07

1.34

1.10









PPNR ROA








PPNR (non-GAAP)


l

$       1,047

$     10,254

$          379

$     11,301

$       1,068

Annualized PPNR


q = l annualized

4,200

41,586

1,519

22,789

2,154

Adjusted PPNR (non-GAAP)


m

1,220

482

417

1,702

774

Annualized PPNR


r = m annualized

4,893

1,954

1,672

3,432

1,560

PPNR ROA


q/o

2.00 %

35.80 %

1.41 %

13.98 %

1.98 %

Adjusted PPNR ROA


r/o

2.34

1.69

1.56

2.11

1.44









ROE and ROTCE








Annualized net income available to common stockholders


s = b annualized

$       2,675

$     38,543

$          955

$     20,510

$       1,012

Annualized adjusted net income available to common stockholders


t = e annualized

$       3,067

$       1,185

$       1,083

$       2,131

$       1,146

Average stockholders' equity (GAAP)



$     19,521

$     11,369

$     10,567

$     15,445

$     10,495

Less: average preferred stock



881

881

881

881

871

Average common stockholders' equity (non-GAAP)


u

$     18,640

$     10,488

$       9,686

$     14,564

$       9,624

Less: average goodwill



346

346

346

346

346

Less: average other intangible assets



357

175

153

266

168

Average tangible common equity (non-GAAP)


v

$     17,937

$       9,967

$       9,186

13,952

9,110

ROE


s/u

14.35 %

367.47 %

9.87 %

140.82 %

10.51 %

Adjusted ROE


t/u

16.46

11.30

11.19

14.63

11.91

ROTCE


s/v

14.91

386.69

10.40

146.99

11.11

Adjusted ROTCE


t/v

17.10

11.89

11.80

15.27

12.58









Tangible common equity to tangible assets








Stockholders' equity (GAAP)


w

$     19,771

$     19,216

$     10,642

19,771

10,642

Less: preferred stock



881

881

881

881

881

Common equity (non-GAAP)


x

$     18,890

$     18,335

$       9,761

18,890

9,761

Less: goodwill



346

346

346

346

346

Less: other intangible assets



347

364

150

347

150

Tangible common equity (non-GAAP)


y

$     18,197

$     17,625

$       9,265

18,197

9,265

Total assets (GAAP)


z

209,502

214,658

107,673

209,502

107,673

Tangible assets (non-GAAP)


aa

208,809

213,948

107,177

208,809

107,177

Total equity to total assets


w/z

9.44 %

8.95 %

9.88 %

9.44 %

9.88 %

Tangible common equity to tangible assets (non-GAAP)


y/aa

8.71

8.24

8.64

8.71 %

8.64 %

Note: Certain items above do not precisely recalculate as presented due to rounding.









Dollars in millions, except share and per share data







YTD

YTD

Non-GAAP Reconciliations (continued)



2Q23

1Q23

2Q22

6/30/2023

6/30/2022









Book value and tangible book value per common share








Common shares outstanding at period end


bb

14,520,034

14,519,993

16,002,385

14,520,034

16,002,387

Book value per share


x/bb

$  1,300.93

$  1,262.76

$     609.95

1,300.93

609.95

Tangible book value per share


y/bb

1,253.20

1,213.82

578.92

1,253.20

578.92









Efficiency ratio








Net interest income


cc

$       1,961

$          850

$          700

2,811

1,349

Efficiency ratio (GAAP)


j / (h + cc)

60.06 %

7.70 %

66.34 %

17.68 %

59.26 %

Adjusted efficiency ratio (non-GAAP)(1)


k / (i + cc)

49.65

58.39

57.55

52.47 %

59.50 %









Rental income on operating lease equipment








Rental income on operating lease equipment



$          238

$          233

$          213

$          471

$          421

Less:








Depreciation on operating lease equipment



91

89

89

180

170

Maintenance and other operating lease expenses



56

56

47

112

90

Adjusted rental income on operating lease equipment



$            91

$            88

$            77

$          179

$          161









Income tax expense








Income tax expense (benefit)



$          214

$          (47)

$            82

$          167

$            36

Impact of notable items



75

160

6

235

152

Adjusted income tax expense



$          289

$          113

$            88

$          402

$          188









Note: Certain items above do not precisely recalculate as presented due to rounding.

 

Contact:

Deanna Hart

Barbara Thompson


Investor Relations

Corporate Communications


919-716-2137

919-716-2716

 

 

SOURCE First Citizens BancShares, Inc.