Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Citizens BancShares Inc (FCNCA, Financial) delivered solid financial results with peer-leading return on assets, net interest margin, and loan growth.
- The Board approved a share repurchase plan of up to $3.5 billion, indicating strong capital management.
- The company experienced strong growth in business and commercial loans within its branch network.
- Deposit growth in the branch network exceeded expectations during the first half of the year.
- The commercial bank segment delivered strong loan growth, particularly in specialized industry verticals like project financing for energy and data centers.
Negative Points
- Reductions in interest rates are expected to cause margin compression.
- CRE volume remains challenged due to a higher for longer interest rate environment, with muted deal volume expected in the second half of the year.
- Portfolio stress is expected to remain above historic levels in equipment finance.
- Net interest income increased only slightly, with interest expense on deposits rising at a faster pace than interest income.
- Credit continues to stabilize, but net charge-offs were $130 million, and non-performing loans remained relatively stable.
Q & A Highlights
Q: Can you provide more details on the share repurchase plan?
A: Frank Holding, Chairman and CEO: The Board has approved a share repurchase plan allowing us to repurchase shares up to $3.5 billion. This plan aims to return capital to shareholders and manage our adjusted EBITDA ratio down to the 10.5% range by the end of 2025. We will assess capital management strategies based on balance sheet growth, earnings trajectory, and the economic and regulatory environment.
Q: What are the key drivers behind the strong loan growth in the commercial bank segment?
A: Frank Holding, Chairman and CEO: The strong loan growth is driven by several specialized industry verticals, primarily in project financing for energy and data centers. We also saw growth in our Global Fund Banking for capital call lending business, reflecting increased investment activity and success in winning new business.
Q: How is the company addressing the expected margin compression due to reductions in interest rates?
A: Frank Holding, Chairman and CEO: We are building strategies to mitigate the negative impact of margin compression, including focusing on the mix of our deposits by targeting operating accounts, growing quality loans, and improving non-interest income from all sources.
Q: Can you elaborate on the performance and outlook of the General Bank segment?
A: Frank Holding, Chairman and CEO: The General Bank segment saw positive loan trends, particularly in business and commercial loans within our branch network. Deposit growth exceeded expectations, and we anticipate further balance sheet growth through new production and client acquisition. However, we recognize that reductions in interest rates will cause margin compression.
Q: What are the expectations for the innovation economy and its impact on the bank's performance?
A: Frank Holding, Chairman and CEO: While it's too early to call an innovation economy turnaround, we are encouraged by increasing deal counts and investment trends. We expect gradual improvement in the second half of the year, driven by high levels of venture capital dry powder, but remain cautious about absolute levels of deposit growth due to continued headwinds.
Q: How is the company managing credit quality and reserves?
A: Craig Nix, Chief Financial Officer: Credit continues to stabilize, with net charge-offs at $130 million or 0.38%. Non-performing loans remained stable, and we noted no emerging problems outside of existing pressure points. The allowance ratio decreased slightly to 1.2%, driven by a mix shift in the Global Fund Banking portfolio and lower specific reserves.
Q: What are the key factors behind the increase in deposits?
A: Craig Nix, Chief Financial Officer: Deposits grew at an annualized rate of 40%, driven by strong core deposit growth in the General Bank and SEB commercial segments. This was partially offset by declines in brokered deposits and interest-bearing deposits. We continue to focus on expanding relationships with current customers and attracting new ones.
Q: How is the company handling expense management and cost savings from acquisitions?
A: Craig Nix, Chief Financial Officer: Adjusted non-interest expense increased by approximately 1%, mainly due to equipment expenses and higher marketing spend. We are close to achieving the lower end of our cost-saving efforts and anticipate maintaining this by the end of the year. We continue to execute on cost savings from acquisitions and maintain vigilance on overall expense management.
Q: What are the expectations for the commercial real estate (CRE) portfolio?
A: Craig Nix, Chief Financial Officer: While we saw modest improvement in our general office portfolio, we do not believe this indicates a shift in current stress levels. We continue to focus on CRE prepayment protection and remain well-reserved with an allowance of 11.84% on the commercial bank office portfolio.
Q: How is the company leveraging its nationwide online direct bank for funding?
A: Frank Holding, Chairman and CEO: Our nationwide online direct bank, with more than 700,000 core deposit accounts, aids funding for the Commercial Bank. We plan to continue using the direct bank to grow core deposits in the current environment where pricing pressure and competition remain high.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
