First Citizens Bancshares, Inc. · NASDAQ:FCNCA
First Citizens Bancshares — Q2 2022 Earnings Presentation
49 slides from First Citizens Bancshares's earnings presentation, Jul 28, 2022
Slide 1: Second Quarter 2022 Earnings Conference Call
First Citizens BancShares, Inc. Second Quarter 2022 Earnings Conference Call July 28, 2022
Slide 2: Agenda
Agenda Page(s) Section I – Merger Integration Update 5 – 7 Section II – Commercial Bank Credit Update 8 – 11 Section III – Second Quarter 2022 Financial Results 12 – 32 Key Take-Aways 13 Financial Highlights 14 Earnings Highlights 15 – 16 Notable Items 17 Net interest income and margin 18 – 20 Nonin
Slide 3: Important Notices
Important Notices 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 and future performance of First Citizens BancShare
Slide 4: Merger Integration Update
Merger Integration Update Section I
Slide 5: Merger Integration is Substantially Complete
Merger Integration is Substantially Complete We are committed to successful execution of our integration plan to deliver a timely and smooth transition for our customers and associates. Update • We completed a number of key milestones including the recent OneWest Bank and Treasury Management Service
Slide 6: Focus on Achieving Cost Saves Included in Run-Rate
6 Focus on Achieving Cost Saves Included in Run-Rate 2022 2023 ~$170 MM Run-rate in 2Q22 (68% of target) ~$200 MM Run-rate by 4Q22 (80% of target) ~$250 MM Run-rate by 4Q23 (100% of target) On track to achieve estimated costs saves of ~$250 million • Reduced personnel expense by $120 million and pro
Slide 7: Commercial Bank and Rail
7Commercial Bank and Rail Focused on leveraging the combined company’s expertise and capabilities to serve our customers. Commercial Finance • Talent retention and continuity of leadership in the businesses sets the team up for current and future growth. • Demand remains strong with pipelines well a
Slide 8: Commercial Bank Segment Credit Update
Commercial Bank Segment Credit Update Section II
Slide 9: Commercial Bank Credit Profile
- Cash Flow - CRE - Equip. Finance - Asset-Backed - Consumer Mortgages - Rail (2) - Factoring - HOA - ABL - Sub-Prime Mortgages - Mezz-Sub CRE + Pvt. Student Loans - Cash Flow - Commercial Air - Equip. Finance (international) - Equip. Finance (domestic) - Asset-Backed - Rail - Factoring - ABL - Stud
Slide 10: Commercial Bank Portfolio Successfully Weathered the Pandemic
1.89% 3.26% 2.95% 2.73% 2.58% 2.43% Note – Excludes aviation lending portfolio that was moved to held for sale. Commercial Bank Portfolio Successfully Weathered the Pandemic The strong risk culture and credit risk discipline established after 2007 enabled the credit portfolio to weather the stress i
Slide 11: Combined Credit Risk Appetite
Combined Credit Risk Appetite The company has a moderate credit risk appetite. • Legacy First Citizens: 49% • Legacy CIT: 51% Outstandings (1) • Legacy First Citizens: 54% • Legacy CIT: 46% Exposure (1) 76% High - Moderate 86% Moderate - Low 29% + 47% 24% 21% 79% 14% 33% 53% (1) Credit metrics are a
Slide 12: Second Quarter 2022 Financial Results
Second Quarter 2022 Financial Results Section III
Slide 13: Key Take-Aways - Second Quarter Financial Performance
Share repurchase plan for repurchase of 1,500,000 shares approved by the Board on July 26th. Key Take-Aways - Second Quarter Financial Performance 1 Strong growth in pre-provision net revenue driven by net interest and noninterest income growth and good expense control. 2 Credit remains in good shap
Slide 14: Financial Highlights
Note – Adjusted metrics account for certain notable items outlined on the following pages. (1) For QTD & YTD June 2021, reported and adjusted (non-GAAP) metrics for EPS, ROE, ROTCE and ROA are for legacy BancShares and do not include legacy CIT results. (2) For QTD & YTD June 2021, reported and adju
Slide 15: Earnings Highlights - Quarter
Reported Increase (decrease) QTD 1Q22 2Q21 2Q22 1Q22 2Q21 $ % $ % Net interest income $ 700 $ 649 $ 612 $ 51 7.9 % $ 88 14.4% Noninterest income 424 850 484 (426) (50.1) (60) (12.4) Net revenue 1,124 1,499 1,096 (375) (25.0) 28 2.6 Noninterest expense 745 810 691 (65) (8.0) 54 7.8 Pre-provision net
Slide 16: Earnings Highlights - Year-to-Date
Reported YTD Increase (decrease) 2022 2021 YTD 21 - YTD 22 $ % Net interest income $ 1,349 $ 1,218 $ 131 10.8% Noninterest income 1,274 1,046 228 21.8 Net revenue 2,623 2,264 359 15.9 Noninterest expense 1,555 1,399 156 11.2 Pre-provision net revenue 1,068 865 203 23.5 Provision (benefit) for credit
Slide 17: Notable Items
Notable Items ($ in millions) 2Q22 1Q22 2Q21 YTD 22 YTD 21 Rental income on operating leases, net $ (136) $ (124) $ (137) $ (260) $ (274) Realized gain on sales of investment securities available for sale, net — — (19) — (133) Fair value adjustment on marketable equity securities, net 6 (3) (12) 3 (
Slide 18: Net Interest Income and Margin
$612 $604 $619 $649 $700 $1,218 $1,349 2.56% 2.53% 2.56% 2.73% 3.04% 2.58% 2.89% NII NIM 2Q21 3Q21 4Q21 1Q22 2Q22 YTD Jun 21 YTD Jun 22 2Q22 vs 1Q22 • Net interest income increased by $51 million due to a $47 million increase in interest income and a $4 million decrease in interest expense. NIM expa
Slide 19: NIM Rollforward
NIM Rollforward Note – The information provided on this page is presented as if legacy BancShares and legacy CIT were combined for the historical periods. 2.56% 0.29% 0.16% 0.09% 0.05% 0.05% 0.04% (0.10)% (0.05)% (0.05)% 3.04% 2Q21 Debt redemption Loan yield Yield on investments Yield on overnight i
Slide 20: 2Q22 Interest Rate Sensitivity
2Q22 Interest Rate Sensitivity 20 Net interest income and margin rate sensitivity Note – The above information is an illustrative example of changes in net interest income and net interest margin using a static balance sheet and forward swap curves in place as of the end of June. Actual results may
Slide 21: Noninterest Income
$347 $294 $325 $726 $318 $772 $1,014 $246 $240 $266 $280 $283 $491 $563$101 $54 $59 $446 $281 $451 Core (1) Non-core 2Q21 3Q21 4Q21 1Q22 2Q22 YTD Jun 21 YTD Jun 22 2Q22 vs 1Q22 • Core noninterest income increased $3 million. Significant components of the change were: ◦ Fee income and other service c
Slide 22: Noninterest Expense
$530 $580 $567 $686 $609 $1,125 $1,295 $17 $18 $114 $43 $28 $157 64.73% 66.58% 62.51% 61.57% 57.55% 64.17% 59.50% Core (1) Non-core Efficiency Ratio 2Q21 3Q21 4Q21 1Q22 2Q22 YTD Jun 21 YTD Jun 22 Highlights Noninterest expense ($ in millions) Note – The financial data and ratios provided on this pag
Slide 23: Noninterest Income and Expense Composition
60%18% 17% 5% Personnel ($341) Occupancy & equipment ($102) Other expenses - core ($97) Third-party processing fees ($26) 27% 14% 13% 12% 10% 10% 10% 4% Rental income on operating leases, net ($77) Fee income and other service charges ($39) Wealth management services ($37) Cardholder and merchant se
Slide 24: Balance Sheet Highlights
24 Increase (decrease) 2Q22 vs 1Q22 2Q22 vs 2Q21 Select balances 2Q22 1Q22 2Q21 $ % $ % Interest-earning deposits at banks $ 6,476 $ 9,285 $ 13,006 $ (2,809) (30.3) % $ (6,530) (50.2) % Investment securities 19,136 19,469 16,129 (333) (1.7) % 3,007 18.6 % Loans and leases 67,735 65,524 66,401 2,211
Slide 25: Loans and Leases HFI
$66,401 $65,977 $65,211 $65,524 $67,735 $15,507 $15,405 $15,132 $15,423 $16,257 $50,894 $50,572 $50,079 $50,101 $51,478 Commercial Consumer 2Q21 3Q21 4Q21 1Q22 2Q22 25 Loans and Leases HFI ($ in millions) Note – the financial data and/or ratios provided on this slide are presented as if legacy BancS
Slide 26: 2Q22 Loans and Leases HFI Composition
26 2Q22 Loans and Leases HFI Composition ($ in billions) Note – the financial data and/or ratios provided on this slide are presented as if legacy BancShares and legacy CIT were combined for the historical periods. Rail assets / operating leases are not included in the loan totals. The Commercial Ba
Slide 27: Deposits
$89,696 $90,320 $90,777 $91,597 $89,329 $65,191 $65,408 $66,088 $65,699 $62,684 $24,505 $24,912 $24,689 $25,898 $26,645 27 bps 25 bps 23 bps 19 bps 19 bps Interest-bearing Noninterest-bearing Cost of deposits 2Q21 3Q21 4Q21 1Q22 2Q22 27 Deposits ($ in millions) Highlights 2Q22 vs. 1Q22 • Total depos
Slide 28: 2Q22 Deposit Composition
70% 15% 9% 5% 1% Branch Network, Wealth & Other ($62.6 B) Direct Bank ($13.3 B) Community Association Banking ($7.6 B) Commercial Bank ($4.4 B) Corporate ($1.4 B) 28 2Q22 Deposit Composition ($ in billions) Note – the financial data and/or ratios provided on this slide are presented as if legacy Ban
Slide 29: Funding Mix
0.67% 0.64% 0.62% 0.35% 0.34% 0.37% 0.34% 0.32% 0.24% 0.26% 0.27% 0.25% 0.23% 0.19% 0.19% Cost of interest-bearing liabilities Cost of interest-bearing deposits Cost of deposits 2Q21 3Q21 4Q21 1Q22 2Q22 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% Cost of funds Additional sources of liquidity Cat
Slide 30: ACL and Credit Quality Trends
$(94) $(71) $(77) $(49) $42 Provision (benefit) for credit losses 2Q21 3Q21 4Q21 1Q22 2Q22 $(100) $(50) $0 $50 $100 ACL and Credit Quality Trends ($ in millions) Net charge-offs (NCO) & NCO ratio Provision (benefit) for credit losses $26 $7 $7 $15 $22 0.16% 0.04% 0.04% 0.09% 0.13% NCO $ NCO ratio 2Q
Slide 31: Allowance for Credit Losses (ACL)
31 Allowance for credit losses (ACL) ($ in millions) Highlights 2Q22 vs 1Q22 • Total ACL increased $2 million compared to the linked quarter. • We saw declines in the ACL from improved credit quality as well as a change in portfolio mix due to loans moving out of portfolios with higher reserve rates
Slide 32: Capital
7.67% 7.68% 7.59% 9.55% 9.85% Tier 1 Leverage Ratio 2Q21 3Q21 4Q21 1Q22 2Q22 Risk-based capital ratios Capital ratio rollforward Tier 1 Leverage ratio Tangible book value per share Capital Risk-Based Capital Tier 1 LeverageTotal Tier 1 CET1 December 31, 2021 14.35% 12.47% 11.50% 7.59% CIT acquisitio
Slide 33: Financial Outlook
Financial Outlook Section IV
Slide 34: Key Earnings Estimate Assumptions
Metric 2Q22 - adjusted baseline 3Q22 FY21 - adjusted baseline FY22 Loans $67.7 billion Mid-single digit % growth $65.2 billion Mid- to high-single digit % growth Deposits $89.3 billion Slightly negative % decline $90.8 billion Negative low to mid- single digit % decline Interest rates Expectation of
Slide 35: Appendix
Appendix Section V A First Citizens BancShares
Slide 36: Consolidated Balance Sheets
2Q22 1Q22 2Q21 Reported Reported FCB GAAP CIT GAAP FCB/CIT Combined ASSETS Cash and due from banks $ 583 $ 523 $ 395 $ 147 $ 542 Interest-earning deposits at banks 6,476 9,285 7,871 5,135 13,006 Securities purchased under agreements to resell — — — 150 150 Investment securities 19,136 19,469 10,895
Slide 37: Consolidated Balance Sheets - Prior Quarters
2Q22 4Q21 3Q21 Reported FCB GAAP CIT GAAP FCB/CIT Combined FCB GAAP CIT GAAP FCB/CIT Combined ASSETS Cash and due from banks $ 583 $ 338 $ 141 $ 479 $ 337 $ 170 $ 507 Interest-earning deposits at banks 6,476 9,115 2,874 11,989 9,875 4,429 14,304 Securities purchased under agreements to resell — — —
Slide 38: Consolidated Income Statements
2Q22 1Q22 2Q21 Reported Reported FCB GAAP CIT GAAP FCB/CIT INTEREST INCOME Interest and fees on loans $ 655 $ 621 $ 324 $ 356 $ 680 Interest on investment securities 89 83 36 15 51 Interest on deposits at banks 13 6 2 — 2 Total interest income 757 710 362 371 733 INTEREST EXPENSE Deposits 42 39 8 51
Slide 39: Consolidated Income Statements
Consolidated Income Statements – (unaudited) ($ in millions) 2Q22 4Q21 3Q21 Reported FCB GAAP CIT GAAP FCB/CIT FCB GAAP CIT GAAP FCB/CIT INTEREST INCOME Interest and fees on loans $ 655 $ 328 $ 340 $ 668 $ 320 $ 342 $ 662 Interest on investment securities 89 39 21 60 40 14 54 Interest on deposits at
Slide 40: Consolidated Income Statements - Year-to-Date
Consolidated Income Statements – (unaudited) ($ in millions) YTD 22 YTD 21 Reported FCB GAAP CIT GAAP FCB/CIT INTEREST INCOME Interest and fees on loans $ 1,276 $ 647 $ 720 $ 1,367 Interest on investment securities 172 66 36 102 Interest on deposits at banks 19 4 2 6 Total interest income 1,467 717
Slide 41: Noninterest Income
Noninterest income ($ in millions) 2Q22 Change vs Quarter-to-date 1Q22 2Q21 2Q22 1Q22 4Q21 3Q21 2Q21 $ % $ % Rental income on operating leases $ 213 $ 208 $ 204 $ 186 $ 188 $ 5 2.4 % $ 25 13.3 % Fee income and other service charges 39 35 39 37 39 4 11.4 % — — % Wealth management services 37 35 33 32
Slide 42: Noninterest Expense
Noninterest expense ($ in millions) 2Q22 Change vs Quarter-to-date 1Q22 2Q21 2Q22 1Q22 4Q21 3Q21 2Q21 $ % $ % Depreciation on operating lease equipment $ 89 $ 81 $ 88 $ 85 $ 83 $ 8 9.9 % $ 6 7.2 % Maintenance and other operating lease expense 47 43 52 51 54 4 9.3 % (7) (13.0) % Salaries and benefits
Slide 43: Debt Securities Overview
43 Debt Securities Overview (1) (1) Includes the debt securities portfolio; excludes marketable equity securities. (2) Carrying value represents fair value for AFS and amortized cost for HTM portfolios. (3) Yield represents actual accounting yield recognized during the quarter. 2Q22(1) ($ in million
Slide 44: Average Balances, Income/Expense and Yields
Change vs. 2Q22 1Q22 2Q21 1Q22 2Q21 Avg. Balance Income / Expense Yield / Rate Avg. Balance Income / Expense Yield / Rate Avg. Balance Income / Expense Yield / Rate Avg. Balance Income / Expense Yield / Rate Avg. Balance Income / Expense Yield / Rate Loans and leases $ 65,298 $ 655 4.01 % $ 64,144 $
Slide 45: Commercial Banking Segment Highlights
45 Commercial Banking Segment Highlights • The Commercial Bank had a strong quarter of loan growth, as robust growth in Commercial Finance (22% annualized) and Business Capital (20% annualized) offset by a decline in Real Estate Finance. • Within Commercial Finance, growth was concentrated in Middle
Slide 46: General Banking Segment Highlights
46 General Banking Segment Highlights • The General Bank had strong loan growth on both a quarterly and year-to-date basis, with the primary drivers being growth in our branch network and residential mortgages. • While noninterest bearing deposit growth has continued to be strong, we experienced a d
Slide 47: Rail Segment Highlights
47 Rail Segment Highlights • Fleet utilization increased to 96.2% in 2Q22, which was up 0.72% compared to the linked quarter, and up 6.20% from the prior year quarter and is at the highest level since 2Q19. • Net revenue on operating leases declined by $9 million, due primarily to increased deprecia
Slide 48: Preliminary purchase accounting marks
48 Preliminary purchase accounting marks ($ in millions) June 30, 2022 March 31, 2022 December 31, 2021 Loans and leases (1) Beginning balance - unamortized fair value $ (145) $ (40) $ (65) Additions - Merger with CIT Group Inc. — (388) — PCD “gross up” — 284 — Accretion (1) (1) 25 Ending balance $
Slide 49: Rating agency focus
49 Rating agency focus Credit Ratings S&P Moody’s Fitch First Citizens BancShares, Inc. BBB Baa2 BBB First-Citizens Bank & Trust Company BBB+ Baa1 BBB Outlook Negative Stable Stable • Solid business profile, strong franchise and diversified business model. • Historically conservative risk appetite w
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