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First Citizens BancShares Reports Third Quarter 2023 Earnings

10/26/2023

RALEIGH, N.C., Oct. 26, 2023 /PRNewswire/ -- First Citizens BancShares, Inc. ("BancShares") (Nasdaq: FCNCA) reported earnings for the third quarter ended September 30, 2023.

Chairman and CEO Frank B. Holding, Jr. said: "Our third quarter financial results were solid, marked by strong revenue growth and disciplined expense management. We continued to make great progress in our integration efforts with SVB. We continue to increase awareness that SVB is open for business and that we remain dedicated to supporting the innovation economy. We remain focused on managing credit risk prudently and our capital and liquidity positions remained solid due to strong earnings performance and our continued focus on core deposit gathering. We believe we are well-positioned to continue generating long-term tangible book value growth for our stockholders." 

 

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 $107.54 billion, total loans with estimated fair values of approximately $68.47 billion, including the Global Fund Banking, Private Bank and Technology & Life Science and Healthcare loan portfolios, and $35.31 billion in cash and interest-earning deposits at banks. BancShares also assumed approximately $56.01 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

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 September 30, 2023 was $752 million compared to $682 million for the three months ended June 30, 2023. Net income available to common stockholders for the three months ended September 30, 2023 was $737 million, or $50.67 per diluted common share, a $70 million increase from $667 million, or $45.87 per diluted common share, in the second quarter of 2023.

For the third quarter, adjusted net income available to common stockholders was $813 million, or $55.92 per diluted common share, a $48 million increase from $765 million, or $52.60 per diluted common share, in the second quarter of 2023.

Third quarter 2023 results were impacted by the following notable items:

  • Acquisition-related expenses of $121 million,

  • Additional preliminary gain on acquisition of $12 million (net of tax),

  • Intangible asset amortization of $17 million,

  • Gain on sale of leasing equipment of $10 million, and

  • Realized loss on sales of investment securities available for sale of $12 million.

Financial highlights comparing significant components of net income and adjusted net income from the third quarter of 2023 to the second quarter of 2023 are summarized below:

  • Net interest income totaled $1.99 billion, up from $1.96 billion in the second quarter. The $29 million increase in net interest income was due to a $157 million increase in interest income, partially offset by a $128 million increase in interest expense.

  • The increase in interest income of $157 million was due to increases of $73 million for interest on loans, $60 million for interest on investment securities, and $24 million for interest on interest-earning deposits at banks. The increase in interest on loans was attributable to an increase in loan accretion of $32 million, primarily related to the Acquisition, a higher yield, and loan growth in both the General Bank and Commercial Bank. The increase in interest income on investment securities was a result of a higher average balance and a higher yield. The increase in interest income on interest-earning deposits at banks was due to a higher yield.

  • The $128 million increase in interest expense was due to a $194 million increase in interest expense on deposits from growth in the Direct Bank and a higher rate paid, partially offset by a $66 million decrease in borrowing costs from a lower average balance and rate paid.

  • Net interest margin was 4.07%, a decrease of 3 basis points compared to the second quarter. The yield on interest-earning assets was 6.36%, an increase of 18 basis points over the second quarter. The increase in yield on interest-earning assets was primarily due to a 22 basis points increase in the yield on loans. The increase was mostly related to variable rate loan resets and the previously discussed increase in accretion on acquired loans. The increase in the yield on interest-earning assets was partially offset by a 20 basis points increase in the rate paid on interest-bearing liabilities.

  • Noninterest income totaled $615 million compared to $658 million in the second quarter. The decrease was mainly related to a $43 million lower adjustment to the gain on acquisition as we further refined our estimates for the fair value of net assets acquired and liabilities assumed in the Acquisition. Additionally, the $12 million realized loss from the sale of the municipal bond portfolio acquired in the Acquisition was offset by increases of $10 million in rental income on operating lease equipment and $2 million in fee income and other service charges. Adjusted noninterest income totaled $468 million compared to $462 million in the second quarter, an increase of $6 million. The previously discussed increases from rental income on operating lease equipment and fee income and other service charges were partially offset by slight declines of $2 million in wealth management services, $2 million in merchant services, and $2 million in mortgage income.

  • Noninterest expense totaled $1.42 billion compared to $1.57 billion in the second quarter, a decrease of $156 million. The decline was largely related to a reduction of $84 million in acquisition-related expenses. Adjusted noninterest expense totaled $1.13 billion compared to $1.20 billion in the second quarter, a decrease of $70 million. The decreases in noninterest expense and adjusted noninterest expense were primarily due to declines of $48 million in salaries and benefits, $16 million in equipment expense, $16 million in marketing expense, and $9 million in professional fees. The declines were partially offset by an increase of $14 million in FDIC insurance expense.

BALANCE SHEET SUMMARY

  • Loans totaled $133.20 billion at September 30, 2023, an increase of $187 million compared to $133.02 billion as of June 30, 2023. The increases were mostly related to $1.10 billion of growth in the General Bank (9.7% annualized) and $1.05 billion of growth in the Commercial Bank (14.3% annualized). The growth in the Commercial Bank was broad-based given strong performance in many of our industry verticals. The increases were partially offset by a $1.94 billion decline in the SVB segment, mostly concentrated in Global Fund Banking.

  • Total investment securities were $26.82 billion at September 30, 2023, an increase of $4.65 billion compared to $22.17 billion as of June 30, 2023. The increase was primarily due to purchases of approximately $5.38 billion in short duration U.S. Treasury and U.S. agency mortgage-backed investment securities available for sale during the quarter.

  • Deposits totaled $146.23 billion at September 30, 2023, an increase of $5.07 billion, or 14.2% on an annualized basis, compared to $141.16 billion as of June 30, 2023. The increase was concentrated in Direct Bank deposits, which grew by $6.42 billion, partially offset by an $890 million decline in the SVB segment. Deposits in the SVB segment totaled $39.97 billion at September 30, 2023 compared to $40.86 billion as of June 30, 2023. Noninterest-bearing deposits represented 29.5% of total deposits as of September 30, 2023, compared to 31.6% of total deposits at June 30, 2023. The cost of average total deposits was 2.12% for the third quarter, up 44 basis points compared to the second quarter.

  • Total borrowings decreased $2.43 billion during the third quarter, reflecting the payoff of borrowings from the Federal Home Loan Bank.

PROVISION FOR CREDIT LOSSES AND CREDIT QUALITY

  • Provision for credit losses totaled $192 million for the third quarter compared to $151 million in the second quarter, an increase of $41 million. The third quarter total provision for credit losses of $192 million included a $212 million provision for loan and lease losses, partially offset by benefits for credit losses of $3 million for investment securities available for sale and $17 million for off-balance sheet credit exposure. The provision for loan and lease losses increased $43 million compared to the second quarter as a result of deterioration in macroeconomic factors, credit quality, and higher net charge-offs. The benefit for losses for off-balance sheet credit exposure was $17 million in the second and third quarters.

  • Net charge-offs totaled $176 million, representing 0.53% of average loans, compared to $157 million, or 0.47% of average loans, during the second quarter. Net charge-offs in the SVB segment were $100 million, an increase of $3 million from the second quarter, and were primarily in early and growth stage investor dependent portfolios. Net charge-offs in the Commercial Bank were $58 million, an increase of $9 million from the second quarter. Consistent with prior quarters, Commercial Bank net charge-offs occurred primarily in the general office and small ticket equipment leasing portfolios.

  • Nonaccrual loans were $899 million, or 0.68% of average loans, at September 30, 2023, compared to $929 million, or 0.70% of average loans, at June 30, 2023.

  • The allowance for loan and lease losses totaled $1.67 billion, or 1.26% of total loans, at September 30, 2023, an increase of $36 million compared to the second quarter of 2023. The $36 million reserve build for the quarter was a result of deteriorating macroeconomic forecasts, specifically related to declining corporate profits and deterioration in the commercial real estate portfolio. These increases were partially offset by lower specific reserves and lower loan balances in the SVB segment.

CAPITAL AND LIQUIDITY

  • Capital position remains strong and capital ratios are well above regulatory requirements. The estimated total risk-based capital, Tier 1 risk-based capital, Common equity Tier 1 risk-based capital, and Tier 1 leverage ratios were 15.64%, 13.82% , 13.23% , and 9.72%, respectively, at September 30, 2023.

  • During the third quarter, a dividend of $0.75 per share of common stock was declared.

  • Liquidity position remains strong as liquid assets were $57.02 billion at September 30, 2023 compared to $53.42 billion at June 30, 2023.

EARNINGS CALL DETAILS

BancShares will host a conference call to discuss the company's financial results on Thursday, October 26, 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: 979664

The third 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 more than 500 branches and offices in 30 states; commercial banking expertise delivering best-in-class lending, leasing and other financial services coast to coast; innovation banking serving businesses at every stage; 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 conflicts in Ukraine, Israel and the Gaza Strip) 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 maintain 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 previously 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 transactions 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 completing 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 Reports on Form 10-Q for the periods ended March 31, 2023 and June 30, 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. 

 

Contact:

Deanna Hart

Barbara Thompson


Investor Relations

Corporate Communications


919-716-2137

919-716-2716

 

 

Supplemental Financial Tables

The First Citizens BancShares Third 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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