RALEIGH, N.C., May 10, 2023 /PRNewswire/ -- First Citizens BancShares, Inc. ("BancShares") (Nasdaq: FCNCA) reported earnings for the first quarter ended March 31, 2023.
Chairman and CEO Frank B. Holding, Jr. said: "We are pleased with our solid financial performance in the first quarter, marked by continued momentum across all our lines of business. Since the completion of our acquisition of certain assets and liabilities of Silicon Valley Bridge Bank, N.A. on March 27, 2023, we have made strides to integrate our two companies, including meaningful engagement with key Silicon Valley Bank leaders and clients. Building on the considerable strengths Silicon Valley Bank brings to the business, including exceptional talent and expertise, significant scale, geographic diversity, and meaningful solutions for customers, we are confident we will continue to deliver long-term value for our shareholders. In an environment of macroeconomic challenges and uncertainties, we continue to operate with solid capital and liquidity positions. We remain encouraged by the resiliency of our clients in the face of elevated inflation and rising interest rates and we look forward to continuing to support them."
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 $106.60 billion and total loans with estimated fair values of approximately $68.50 billion, including Global Fund Banking, Private Bank, and the Technology & Life Science and Healthcare loan portfolios and $35.28 billion in cash and interest-earning deposits at banks. BancShares also assumed approximately $55.96 billion in customer deposits and entered into a five-year note payable to the FDIC (the "Purchase Money Note") of approximately $35.15 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.
- In connection with the Acquisition, BancShares granted the FDIC a value appreciation instrument with a value of up to $500 million payable in cash. The FDIC exercised its option on March 28, 2023, and BancShares paid the FDIC $500 million in cash in April of 2023.
FINANCIAL HIGHLIGHTS
The results for the first quarter include 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 March 31, 2023, was $9.52 billion compared to $257 million for the three months ended December 31, 2022. Net income available to common stockholders for the three months ended March 31, 2023, was $9.50 billion, or $653.64 per diluted common share, compared to $243 million, or $16.67 per diluted common share in the fourth quarter of 2022.
As a result of the Acquisition, net income includes a preliminary gain on acquisition of $9.82 billion (net of tax) , a provision for acquired non-purchased credit deteriorated ("non-PCD") loan and lease losses of $462 million and a provision for unfunded commitments of $254 million. Adjusted net income available to common stockholders was $292 million, or $20.09 per diluted common share, down from $306 million, or $20.94 per diluted common share in the fourth quarter of 2022.
First quarter 2023 results were impacted by the following items:
- Preliminary gain on acquisition of $9.82 billion (net of tax) related to the acquisition,
- Provision for acquired non-PCD loan and lease losses of $462 million and a provision for unfunded commitments of $254 million related to the Acquisition,
- Acquisition-related expenses of $28 million,
- Realized loss on the sale of an investment security of $14 million,
- Unrealized loss on fair value adjustments on marketable equity securities of $9 million,
- Intangible asset amortization of $5 million,
- Gain on sale of leasing equipment of $4 million, and
- Provision for credit losses on investment securities available for sale of $4 million.
The following bullets highlight significant changes in the components of net income and adjusted net income between the first quarter of 2023 and the fourth quarter of 2022:
- Net interest income totaled $850 million, up from $802 million in the fourth quarter. The SVB segment contributed $65 million during the quarter.
- Net interest margin was 3.41%, an increase of 5 basis points over the fourth quarter, as the rising interest rate environment increased yields on our earning assets coupled with average loan growth, partially offset by higher rates paid on interest-bearing deposits and borrowings.
- Noninterest income totaled $10.26 billion compared to $429 million in the fourth quarter. The increase was primarily due to a $9.82 billion gain on acquisition. Adjusted noninterest income totaled $309 million compared to $290 million in the fourth quarter, an increase of $19 million. The increase was primarily due a $14 million gain on customer derivative positions, a $7 million increase in wealth management services due to increased brokerage transactions and higher assets under management, a $4 million increase in fee income associated with higher capital markets fees, and a $8 million increase spread among various items, partially offset by a $7 million decline in factoring commissions, a $5 million decrease in cardholder services, and a $2 million decline in income from bank-owned life insurance.
- Noninterest expense totaled $855 million compared to $760 million in the fourth quarter. Adjusted noninterest expense totaled $677 million compared to $590 million in the fourth quarter, an increase of $87 million. The increases in noninterest expense and adjusted noninterest expense were primarily the result of higher personnel costs of $66 million due to seasonal adjustments associated with the savings plan and payroll taxes, promotions and annual merit adjustments, a $13 million increase in FDIC insurance expense, the impact from the SVB segment, and a $14 million increase spread among various items, partially offset by a $6 million decrease in marketing expenses in the Direct Bank.
BALANCE SHEET SUMMARY
- Loans totaled $138.29 billion, an increase of $67.51 billion compared to $70.78 billion as of December 31, 2022. The increase is primarily due to SVB segment loans of $66.17 billion as of March 31, 2023. The remaining $1.3 billion increase occurred among various businesses, including Mortgage, Commercial Services, Real Estate Finance and Retail Services. The yield on loans was 5.57% for the first quarter compared to 5.10% in the fourth quarter of 2022.
- Deposits totaled $140.05 billion, an increase of $50.64 billion compared to $89.41 billion as of December 31, 2022. The increase is primarily due to SVB segment deposits of $49.26 billion as of March 31, 2023. The remaining $1.26 billion increase was due to a $2.32 billion increase in time deposits and a $1.3 billion increase in savings account balances, partially offset by a $914 million decrease in money market deposits, a $472 million decrease in checking with interest accounts, and a $817 million decline in noninterest bearing deposits driven by a reduction in commercial deposit balances. Noninterest-bearing deposits represented 39.0% of total deposits as of March 31, 2023, compared to 27.9% of total deposits at December 31, 2022. The cost of average total deposits was 1.24% for the first quarter, up 46 basis points compared to the fourth quarter of 2022.
- Total borrowings increased $39.45 billion during the quarter, primarily due to the $35.15 billion Purchase Money Note related to the Acquisition and the $4.25 billion increase in Federal Home Loan Bank ("FHLB") borrowings.
PROVISION FOR CREDIT LOSSES AND CREDIT QUALITY
- Provision for credit losses totaled $783 million compared to $79 million in the fourth quarter, an increase of $704 million. The increase was primarily related to the Acquisition, which included provisions for credit losses of $462 million for non-PCD loans and $254 million for unfunded commitments. Adjusted provision for credit losses totaled $63 million compared to $79 million in the fourth quarter of 2022, a decrease of $16 million. The decrease was due to a $23 million decrease in the reserve for unfunded commitments and a $19 million decrease in reserve build (from $40 million in the fourth quarter of 2022 to $21 million in the first quarter of 2023), partially offset by a $26 million increase in net charge-offs. The $21 million reserve build for the quarter was a result of loan growth and deterioration in credit quality, partially offset by portfolio mix and CECL macroeconomic forecasts. Net charge-offs totaled $50 million, or a ratio of 0.27% of average loans, compared to $24 million, or a ratio of 0.14% of average loans, during the fourth quarter of 2022.
- Nonaccrual loans were $828 million or 0.60% of total loans, at March 31, 2023 compared to $627 million, or 0.89% of total loans at December 31, 2022. The increase is primarily due to $224 million of nonaccrual loans in the SVB segment at March 31, 2023.
- Delinquencies at March 31, 2023 of $1.2 billion increased $349 million compared to December 31, 2022. The increase is primarily due to $206 million of delinquent loans in the SVB segment and an increase in past due commercial loans at March 31, 2023.
- The allowance for credit losses totaled $1.6 billion, or 1.16% of total loans at March 31, 2023, an increase of $683 million from December 31, 2022. The Acquisition resulted in a $662 million increase in the allowance for credit losses, which included $200 million related to PCD loans and $462 million related to non-PCD loans. The remaining $21 million increase was primarily related to portfolio growth, mild credit quality deterioration, and higher specific reserves partially offset by improvement in the macroeconomic forecasts.
EARNINGS CALL DETAILS
BancShares will host a conference call to discuss the company's financial results on Wednesday, May 10, 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: 197515
The first quarter 2023 earnings presentation and this news release are available on the company's website at ir.firstcitizens.com.
After the conference call, you may access a replay of the call through May 31, 2023, by dialing 1-866-813-9403 (United States), 1-226-828-7578 (Canada) or 44-204-525-0658 (all other locations) using the access code 328418.
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 more than 550 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 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, 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, 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.
Supplemental Financial Tables
The First Citizens BancShares First Quarter 2023 Financials (PDF), Opens in a new tab include supplemental financial information and key performance metrics for current and historical periods.
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SOURCE First Citizens BancShares, Inc.