Earnings recap: Citigroup's OCC plan, First Guaranty layoffs

September 4, 2024 4:03 PM

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The Federal Reserve's much-anticipated rate cut can't come soon enough for bankers, as the elevated interest rate environment — combined with regulatory scrutiny, layoffs and dissolved partnerships — has weighed on second-quarter earnings among several large banks in the U.S.

Net interest income has been a particularly important area of impact, as seen in Comerica Bank's second-quarter earnings report. The Dallas-based bank's share prices fell last month in response to its 2024 net interest income guidance that dropped 14%, which, according to Citigroup analyst Ben Gerlinger, was more severe than previous projections.

Truist Financial was another institution that saw a dip in net interest income, recording a $77 million or 2.1% decrease year over year "primarily as a result of higher funding costs and lower earning assets," according to the bank's press release.

Not all were hampered by the continued inflation, with some institutions continuing to report record levels of growth since before the rate hikes.

Through strategic acquisitions of CIT Group and the failed Silicon Valley Bank over the last two years, the family-run First Citizens BancShares in Raleigh, North Carolina, has grown in leaps and bounds to more than $220 billion of assets. The stock has reflected that progress, closing at just over $2,000 per share on Tuesday.

"It is a fundamentally different bank," Casey Haire, an analyst at Jefferies, told American Banker's Catherine Leffert. "[But] the conservative approach of the Holding family has not changed at all. There has been no change in the conservative balance sheet culture at the top of the house. They are just now in a different business model, and in the innovation market."

Other notable results include New York Community Bancorp's proposed sale of its residential mortgage servicing business to Mr. Cooper, First Guaranty Bancshares laying off 15% of its workforce and more.

Read on for second-quarter earnings highlights showcasing how many of the major U.S. banks fared and what market factors contributed to their performance.

Elijah Nouvelage/Bloomberg

What put First Citizens’ earnings ahead of its peers?

First Citizens BancShares is in a different echelon than it was three years ago.

The Raleigh, North Carolina-based company has quadrupled in size since 2021, ballooning to $220 billion of assets. Through its high-profile acquisition of the failed Silicon Valley Bank, First Citizens expanded its footprint across the country and moved into lines of business it had never touched before. The deal came just over a year after First Citizens had already doubled in size with its acquisition of CIT Group.

But in an industry where speedy growth can be correlated with high risk, First Citizens has given investors confidence that it is prepared for the rapid increase in scale. In the last three years, the company's stock price has rocketed some 142%, more than any other publicly listed bank. Shares closed at $1,999.35 on August 20.

Read more:

How First Citizens became the top-performing big bank

A sign for Capital One's stock at the New York Stock Exchange.

Michael Nagle/Bloomberg

Capital One’s fallout from Walmart credit-card break up

Capital One Financial absorbed a financial blow in the second quarter from the unraveling of its credit-card partnership with Walmart.

Quarterly earnings at the McLean, Virginia-based card issuer took an $853 million hit when the Walmart deal ended.

Capital One's earnings were hurt by the addition of $826 million to its allowance for credit losses as a result of the deal's termination. Under the deal's terms, Capital One and Walmart had agreed to share the impact of credit losses.

Read more:

Capital One's profits fall sharply after Walmart charges

Comerica’s doomed bid for renewed Treasury contract

Comerica Bank has received notice from the Treasury Department that it will likely lose a lucrative government contract involving debit cards for Social Security recipients and veterans, which would wipe out more than $3 billion in noninterest bearing deposits at the Dallas bank. On July 19, Comerica disclosed that the $71.8 billion-asset bank received preliminary notification that it was rejected as the financial agent for the Treasury's Direct Express program, though it also said the contract decision is not yet final. The program offers a way to deliver government benefits to roughly 4.5 million Americans who do not have bank accounts.

"At this time we do not expect that Comerica Bank will retain the business long term," Jim Herzog, Comerica's chief financial officer, told analysts Friday. "The process remains fluid as contract negotiations are not yet final."

Read more:

Comerica likely won't be able to renew lucrative Treasury contract

Truist sets buyback plan in anticipation of returning loan demand

Truist Financial is sticking to its plan to use the billions it got from selling its insurance subsidiary, though its goal of using some of the proceeds to facilitate loan growth isn't panning out yet.

The Charlotte, North Carolina-based regional bank announced July 22 that it plans to buy back about $500 million of common shares during the third quarter. Buybacks of another $500 million are slated for the fourth quarter, and Truist will probably "enter next year [at] sort of the same kind of pace," CEO Bill Rogers told analysts during the company's second-quarter earnings call.

Those new details, which align with the company's previously announced plans for the $10.1 billion it snagged from the sale of its majority stake in Truist Insurance Holdings, come about three weeks after Truist said its board of directors authorized a $5 billion multiyear share repurchase program that will run through 2026.

Read more:

Truist sets a buyback plan, waits for loan demand to resume

NYCB challenges force planned sale of mortgage unit to Mr. Cooper

The hits keep coming for New York Community Bancorp, which reported another tough quarter and said that it plans to sell its residential mortgage servicing business to Mr. Cooper as part of a broader restructuring plan.

The embattled Long Island company — which has suffered a steep decline in its stock price amid troubles with commercial real estate loans, deficiencies in internal controls and a flurry of leadership changes — reported a net loss of $323 million, or $1.14 per share, for the second quarter.

That easily exceeded the net loss of 40 cents per share predicted by analysts surveyed by FactSet Research Systems, and it followed a $327 million net loss recorded in the first quarter.

Read more:

NYCB to sell unit to Mr. Cooper, expects more near-term challenges

Citi stays the course on expense forecast amid OCC plans

Two days after regulators levied more fines against Citigroup for poor data quality management, the megabank said that it's not changing its expense guidance for 2024, and it will aim to absorb any additional remediation-related costs into the firm's existing spending plan.

Citi also said it will adhere to its previously released capital distribution plan, which includes an increase to its common dividend, and it plans to repurchase $1 billion of common stock in the third quarter. In the first quarter of this year, Citi bought back $500 million of common stock.

The updates came during Citi's second-quarter earnings call, less than 48 hours after the Federal Reserve and the Office of the Comptroller of the Currency assessed a total of $136 million in civil money penalties against the bank for violating a pair of 2020 consent orders related to its risk management and internal controls systems.

Read more:

Citi sticks to expense forecast as it prepares key plan for OCC

First Guaranty lays off 15% of workforce, cuts dividend in half

First Guaranty Bancshares in Louisiana has trimmed its workforce by 15% as part of a business strategy revamp that involves cutting costs, slowing down growth and using more automation.

The $3.6 billion-asset company, which appointed a new chief executive in early June, eliminated 71 positions, it announced in a press release that included second-quarter earnings results. The change in business strategy, including the layoffs, is expected to reduce noninterest expenses by approximately $12 million pretax on an annual basis, the company said in the release.

First Guaranty also said it expects to cut its dividend in half, to 8 cents per common share, for the third and fourth quarters of this year. It had been paying 16 cents per share in prior quarters. The company did not say what types of positions were cut or when those cuts took place.

Read more:

First Guaranty lays off 15% of workforce, cuts dividend in half

PNC predicts record figures in 2025 following strong second-quarter earnings

PNC Financial Services Group in Pittsburgh reported stronger quarter-over-quarter earnings, and executives said the bank laid the foundation for robust results in 2025 by selling securities, cutting costs in some areas and expanding in key markets.

The $563 billion-asset bank announced in February that it had started renovating more than 1,200 existing offices and opening more than 100 new ones in a bid to expand in high-growth cities such as Dallas, Houston, San Antonio, Miami and Denver. PNC has said it plans to invest about $1 billion in the effort, with the new branches scheduled to be built between 2024 and 2028.

On July 16, PNC Chairman and CEO Bill Demchak pointed to the new markets' role in fueling what he described as a trajectory toward record net interest income in 2025.

Read more:

PNC ups cost savings goal, predicts record net interest income next year

UMB Financial gears up for tentative Heartland purchase

UMB Financial is taking several early steps toward its pending acquisition of Heartland Financial.

The Kansas City, Missouri-based regional bank — whose assets are poised to grow by roughly 45% upon the closure of the proposed $2 billion deal — has launched an integration program, submitted applications with regulators and conducted site visits and town hall meetings in which members of UMB's management team met with stakeholders throughout Heartland's five-state footprint.

The transaction, which was announced in April, is still expected to close during the first quarter of 2025, and a shareholder vote is scheduled to take place next week, UMB said July 31.

Read more:

UMB Financial starts checking items off to-do list for Heartland deal

JPMorgan’s investment-banking boost offsets rising credit costs

JPMorgan Chase's second-quarter earnings report highlighted the diverging fortunes of Main Street and Wall Street, as mounting credit costs pointed to consumer struggles, but the megabank also got a revenue boost from an investment banking boom.

High interest rates and inflation continued to put pressure on the country's largest bank, which kicked off bank earnings season on July 12. While JPMorgan enjoyed a 50% surge in investment banking fees from the previous year, a steady rise in credit card charge-offs put a drag on its profits.

Still, Chief Financial Officer Jeremy Barnum said the bank isn't worried about the health of the consumer, calling the rise in credit costs "not a very interesting story." JPMorgan increased its provisions for credit losses in the second quarter to $3.1 billion, up from $1.9 billion in the prior quarter, as it charged off bad loans and added to its coffers in case of more.

Read more:

JPMorgan gets lift from investment bank, offsetting jump in credit costs