First Citizens BancShares Reports Fourth Quarter 2023 Earnings
- None.
- A notable decrease in net income compared to the third quarter of 2023
- Increase in acquisition-related expenses, FDIC insurance special assessment, and intangible asset amortization
- Decrease in noninterest income and increase in noninterest expense
- Decrease in deposits
Insights
The reported earnings of First Citizens BancShares for Q4 2023 reveal a significant quarter-over-quarter decline in net income, from $752 million to $514 million. This is noteworthy as it may signal a change in the bank's profitability trajectory, which can influence investor sentiment and stock performance. The decrease in net income available to common stockholders, down to $499 million, or $34.33 per diluted common share, represents a substantial drop from the previous quarter's $737 million, or $50.67 per diluted common share. Such a decline could potentially lead to a reassessment of the bank's valuation by the market.
Adjusted net income figures, which exclude certain non-recurring expenses and gains, also declined, albeit at a less steep rate. This adjusted metric is crucial for investors as it provides a more normalized view of the bank's earnings power. The reported decrease in net interest income, primarily due to an increase in interest expense, could be indicative of rising funding costs in the current interest rate environment, a concern for future margin sustainability.
From a capital allocation perspective, the dividend declaration of $1.64 per share of common stock is a key factor for income-focused investors. It reflects the bank's confidence in its capital position and liquidity, which remains strong as indicated by the reported capital ratios and liquid assets. However, the increase in provision for credit losses suggests a cautious stance on credit quality, which is an important consideration for risk management going forward.
First Citizens BancShares' performance in Q4 2023 may be reflective of broader market trends, particularly in the banking sector. The bank's increase in loans and leases, especially in the General Bank and Commercial Bank segments, aligns with a strategy to grow core lines of business. However, the decline in the Silicon Valley Banking segment could be indicative of a cooling in the technology and innovation sectors, which have been experiencing headwinds such as reduced funding and increased cash burn rates.
The decrease in noninterest-bearing deposits as a percentage of total deposits, coupled with the increased cost of average total deposits, suggests a shift in the deposit mix that could affect the bank's cost of capital. This shift may reflect changes in consumer behavior and competition for deposits in a rising rate environment.
Understanding the impact of acquisition-related expenses and the FDIC insurance special assessment is crucial as these expenses can significantly affect net income. The fair value adjustments on marketable equity securities, although a smaller component, are also relevant, as they can be volatile and impact earnings unpredictably.
The economic implications of First Citizens BancShares' Q4 2023 financial results are multifaceted. The increase in interest expense reflects the broader macroeconomic environment of rising interest rates, which can dampen loan growth due to higher borrowing costs. Additionally, the bank's commentary on prudent risk management and maintaining solid capital and liquidity positions suggests a strategic focus on resilience in the face of potential economic headwinds.
The bank's integration with CIT and the stabilization of SVB indicate a strategic expansion and consolidation phase, which could lead to economies of scale and a stronger competitive position in the long run. However, the short-term costs associated with these activities, as seen in the acquisition-related expenses, can weigh on earnings.
The report mentions changes in macroeconomic forecasts as a factor contributing to the reserve build for loan losses. This is a critical aspect, as it reflects the bank's outlook on economic conditions and their potential impact on credit quality. Investors and stakeholders should consider how shifts in economic indicators, such as GDP growth, unemployment rates and inflation, could affect the bank's financial health and strategic decisions.
Chairman and CEO Frank B. Holding, Jr. said: "Our fourth quarter financial results remained solid as we completed what was a truly exceptional year. While celebrating our bank's 125th anniversary, we completed our integration with CIT and finished strong with the stabilization of SVB, all while our teams continued to support our clients. We now look forward to 2024, remaining focused on prudent risk management, growing our core lines of business, and maintaining solid capital and liquidity positions. We continue to be well-positioned to deliver strong financial results and long-term tangible book value growth for our stockholders."
FINANCIAL HIGHLIGHTS
Measures referenced as adjusted below are non-GAAP financial measures (refer to the Financial Supplement available at ir.firstcitizens.com or www.sec.gov for a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure). Net income for the three months ended December 31, 2023 was
For the fourth quarter, adjusted net income available to common stockholders was
Fourth quarter 2023 results were impacted by the following notable items to arrive at adjusted net income available to common stockholders:
- Acquisition-related expenses of
,$116 million - Decrease in the preliminary gain on acquisition of
,$83 million - FDIC insurance special assessment of
,$64 million - Intangible asset amortization of
,$17 million - Fair value adjustment on marketable equity securities of
.$9 million
Financial highlights comparing significant components of net income and adjusted net income from the fourth quarter of 2023 to the third quarter of 2023 are summarized below:
- Net interest income totaled
compared to$1.91 billion in the third quarter. The$1.99 billion decrease in net interest income was due to a$79 million increase in interest expense, partially offset by a$86 million increase in interest income.$7 million - Interest income was
compared to$3.12 billion in the third quarter. The$3.11 billion increase in interest income was due to an increase of$7 million in interest on investment securities from a higher average balance and increased yield, partially offset by a$61 million decrease in interest on loans and a$35 million decrease in interest on interest-earning deposits at banks. The decline in interest on loans was due to a$19 million decrease in loan accretion, primarily related to the acquisition of Silicon Valley Bridge Bank, N.A. (the "Acquisition"), partially offset by a$77 million increase in interest income on loans due to a higher yield. The$42 million decline in interest income on interest-earning deposits at banks was due to a lower average balance resulting from purchases of short duration investment securities.$19 million - Interest expense was
compared to$1.21 billion in the third quarter. The$1.12 billion increase in interest expense was due to a$86 million increase in interest expense on deposits, primarily from growth in the Direct Bank and a higher rate paid, partially offset by a$96 million decrease in borrowing costs from a lower rate paid and a lower average balance.$10 million - Net interest margin was
3.86% , a decrease of 21 basis points compared to the third quarter. The yield on interest-earning assets was6.30% , a decrease of 7 basis points from the third quarter. The decrease in yield on interest-earning assets was primarily due to a decrease of 9 basis points in the yield on loans, including a decrease of 16 basis points from lower loan accretion, which was partially offset by higher yields on loans. The rate on interest-bearing liabilities increased 17 basis points, primarily due to higher rates paid and average balances for interest-bearing deposits. - Noninterest income totaled
, a decrease of$543 million compared to the third quarter. The decrease was mainly due to a fourth quarter reduction of$72 million in the gain on acquisition as we further refined income tax estimates related to the Acquisition. This decrease was partially offset by the$83 million realized loss in the prior quarter from the sale of the municipal bond portfolio acquired in the Acquisition and a$12 million increase in the net fair value adjustment on marketable equity securities.$10 million - Adjusted noninterest income totaled
in the fourth quarter compared to$455 million in the third quarter, a decrease of$468 million . The decrease was primarily driven by an$13 million decrease in other noninterest income from a decline in the fair value of customer derivative positions as a result of declining interest rates, a$11 million decrease in adjusted rental income on operating lease equipment due to higher maintenance costs, and a$5 million decrease in cardholder services due to lower volume and higher rewards expense. The declines were partially offset by higher capital markets fees that led to a$5 million increase in fee income and other service charges.$9 million - Noninterest expense totaled
compared to$1.49 billion in the third quarter, an increase of$1.42 billion . The increase was largely related to the FDIC insurance special assessment in the amount of$76 million . Adjusted noninterest expense totaled$64 million compared to$1.14 billion in the third quarter, an increase of$1.13 billion . The increases in adjusted noninterest expense were primarily due to increases of$3 million in professional fees,$12 million in other noninterest expense, and$12 million in third-party processing fees, partially offset by an$11 million decrease in FDIC insurance expense and a$18 million decrease in salaries and benefits.$13 million
BALANCE SHEET SUMMARY
- Loans and leases totaled
at December 31, 2023, an increase of$133.30 billion compared to$100 million as of September 30, 2023. The increase was mostly related to$133.20 billion of growth in the General Bank ($1.25 billion 10.8% annualized) and of growth in the Commercial Bank ($716 million 9.4% annualized). General Bank growth was primarily related to commercial and business loan growth in the branch network. Commercial Bank growth was driven primarily by strong performance in many of our industry verticals and middle market banking. The increases were partially offset by a decline in the Silicon Valley Banking segment (the "SVB segment"), mostly concentrated in Global Fund Banking and Technology and Healthcare Banking portfolios.$1.85 billion - Total investment securities were
at December 31, 2023, an increase of$30.00 billion since September 30, 2023. The increase was primarily due to purchases of approximately$3.18 billion in short duration$4.33 billion U.S. Treasury andU.S. agency mortgage-backed investment securities available for sale during the quarter, which were partially offset by paydowns and maturities. - Deposits totaled
at December 31, 2023, a decrease of$145.85 billion , or$379 million 1.0% on an annualized basis, since September 30, 2023. Deposits grew by in the General Banking segment, mainly due to a$1.63 billion increase in the Direct Bank, partially offset by a$2.02 billion decrease in the branch network as a result of seasonal outflows. Deposits in the SVB segment declined by$492 million , primarily due to continued client cash burn and muted fund raising activity in the innovation economy.$1.49 billion - Noninterest-bearing deposits represented
27.3% of total deposits as of December 31, 2023, compared to29.5% at September 30, 2023. The cost of average total deposits was2.35% for the fourth quarter, compared to2.12% for the third quarter. While the cost of deposits increased 23 basis points, the pace decelerated from prior quarters. - Funding mix remained stable with
79.5% of the total funding composed of deposits.
PROVISION FOR CREDIT LOSSES AND CREDIT QUALITY
- Provision for credit losses totaled
for the fourth quarter compared to$249 million in the third quarter, an increase of$192 million . Fourth quarter provision for credit losses included$57 million for loan and lease losses, partially offset by a$251 million benefit for off-balance sheet credit exposure.$2 million - The provision for loan and lease losses increased
, primarily related to a net reserve build driven by specific reserves on individually evaluated loans as net charge-offs were flat over the prior quarter.$39 million - The benefit for off-balance sheet credit exposure decreased
, primarily due to a higher decline in unfunded commitments during the prior quarter.$15 million
- The benefit for credit losses for investment securities available for sale decreased
compared to the third quarter.$3 million - Net charge-offs totaled
during the fourth quarter, representing$177 million 0.53% of average loans, compared to , or$176 million 0.53% of average loans, during the third quarter. Net charge-offs in the Commercial Bank were , an increase of$94 million from the third quarter, and were primarily in Equipment Finance, real estate finance and the energy vertical. Net charge-offs in the SVB segment were$36 million , a decrease of$65 million from the third quarter, and were primarily concentrated in the investor dependent portfolios. Net charge-offs in the General Bank were unchanged at$35 million .$18 million - Nonaccrual loans were
, or$969 million 0.73% of loans, at December 31, 2023, compared to , or$899 million 0.68% of loans, at September 30, 2023. - The allowance for loan and lease losses totaled
, or$1.75 billion 1.31% of total loans, at December 31, 2023, an increase of compared to the third quarter of 2023. The$74 million reserve build for the quarter was primarily the result of mild credit quality deterioration in our commercial portfolios, including general office, increases in specific reserves in the investor dependent portfolio and changes in the macroeconomic forecasts.$74 million
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
15.74% ,13.94% ,13.36% , and9.83% , respectively, at December 31, 2023. - During the fourth quarter, a dividend of
per share of common stock was declared.$1.64 - Liquidity position remains strong as liquid assets were
at December 31, 2023 compared to$57.28 billion at September 30, 2023.$57.02 billion
EARNINGS CALL/ WEBCAST DETAILS
BancShares will host a conference call to discuss the company's financial results on Friday, January 26, 2024, at 9:00 a.m. Eastern time.
The call may be accessed via webcast on the company's website at ir.firstcitizens.com, or through the dial in details below:
All other locations: 1-929-526-1599
Access code: 268898
Our earnings release, investor presentation, and financial supplement are available at ir.firstcitizens.com. In addition, these materials will be furnished to the Securities and Exchange Commission (the "SEC") on a Form 8-K and will be available on the SEC website at www.sec.gov. 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
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
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 in BancShares' subsequent quarterly reports on Form 10-Q and its other filings with 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
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919-716-2137 | 919-716-2716 |
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SOURCE First Citizens BancShares, Inc.
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