Earnings Call Transcript - FCNCA Q1 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s conference is being recorded. I would now like to introduce the host of this conference call, Ms. Deanna Hart, Senior Vice President of Investor Relations. You may begin.

Deanna Hart, Senior Vice President of Investor Relations

Good morning, everyone, and thank you for joining us today to review First Citizens BancShares first quarter 2022 financial results. It is my pleasure to introduce our Chairman and Chief Executive Officer, Frank Holding, as well as our Chief Financial Officer, Craig Nix. During the call, they will be referencing our investor presentation which you can find on our website. We are also pleased to have several other members of our leadership team in attendance with us today who are available to participate in the question-and-answer portion of our call, if needed. Following the completion of our formal presentation materials, we’ll be happy to take any questions you may have. As you are aware, we closed the merger with CIT Group on January 3, 2022, and first quarter results are for the combined company. Given the magnitude of this merger on our legacy results, we have included combined numbers for the historical periods for comparison purposes. There are footnotes within the presentation to indicate when historical numbers are combined or on a First Citizens standalone basis. As a reminder, our comments during today’s presentation will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. We assume no obligation to update these statements. These risks are outlined for you on page 3 of the presentation. We will also reference non-GAAP financial measures in the presentation. Reconciliations of these measures against the most directly comparable GAAP measures are available in the appendix. Finally, First Citizens is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. With that, I’ll hand it over to Frank.

Frank Holding, Chairman and CEO

Thank you, Deanna, and good morning, everyone. We appreciate all of you joining us today. We are pleased to announce solid first quarter results this morning. We continue to remain focused on ensuring a timely and successful integration with CIT and made good progress during the quarter. We’re very excited about our prospects moving forward. As Craig will discuss when he covers our financial outlook, we expect net interest margin to continue to expand. Our customers are generally in good shape, so we feel optimistic about loan growth. We also expect continued momentum in our fee income generating lines of business and further progress on our cost save target. We are focused on ensuring a timely and successful merger integration for our customers and associates. Our dedicated integration management office, comprised of execution-oriented leaders with experience in multiple acquisitions, conversions, and integrations, is working hard to ensure the value of the deal is realized for employees, customers, and shareholders. I am pleased to say we are on track to meet our expectations at this point in time. Our teams are coordinated and aligned with our integration timeline. Integration risk is manageable in this merger due to the structure of CIT. Instead of converting a large bank over a long weekend, we have diverse and unique business units that will include some conversions, like One West slated for mid-July, but will also involve replatforming other lines of business, managed individually and sequenced for a smooth integration over the next few months. I want to thank all our associates for their dedication, hard work, and sacrifice to ensure we are progressing on our integration milestones. We are pleased with our progress on our cost saves target of $250 million, and we expect that $200 million will be reflected in the run rate by the end of this year. During the first quarter, we achieved positive operating leverage as net revenue grew faster than expenses, leading to strong core earnings and pre-provision net revenue growth. We will continue to focus on redeploying excess liquidity into loans and investments at higher rates to boost net interest income and margin. We look forward to making further progress on merger integration and delivering strong results in the second quarter. Despite some uncertainty due to geopolitical and macroeconomic issues, we remain excited and optimistic about our growth prospects. We are already shifting from integration focus to execution in many areas throughout the bank, working hard to capture the synergistic value from the CIT merger on both the revenue and expense sides, which is already yielding results. We are well-positioned to perform well, given our long-term focus, emphasis on relationships, our risk appetite, the diversity of our business segments, and our enhanced earnings profile from the CIT merger. Now, Craig will provide a closer look at our financial quarter results, and then we’ll open the line for questions.

Craig Nix, CFO

Thank you, Frank, and good morning, everyone. As you may have noticed, our first-quarter results include some variability due to purchase accounting and merger-related factors. While I will address this variability in my remarks today, I want to emphasize the solid first-quarter results that Frank just discussed. I will start by highlighting several positive aspects of the quarter. We saw strong core deposit growth, with noninterest-bearing deposits increasing by $1.2 billion since the end of last year, reflecting an annualized growth rate of 20%. Our loan portfolio expanded, driven by robust growth in our branch network and residential mortgages. In addition to organic loan growth, we also redeployed excess cash into investment securities at favorable entry points. Our net interest margin grew by 17 basis points from the prior quarter, despite a decrease in SBA-PPP income. Only 6 basis points of this margin expansion was due to purchase accounting. We are generating positive momentum in our rail, card, merchant, and wealth fee-income producing areas. We managed our noninterest expenses effectively, and as Frank mentioned, we are confident about achieving our cost savings target. Our net revenues outpaced expenses, resulting in positive operating leverage for the quarter compared to both the linked and prior year quarters. Consequently, pre-provision net revenue increased by 8% from the previous quarter and by 18% from the same quarter last year. Credit quality remained robust, with a net charge-off ratio of 9 basis points. We ended the quarter with a strong capital and liquidity position, which supports our plan to resume share repurchases in the second half of the year. Lastly, as Frank highlighted, the merger integration process is progressing positively and is on schedule. Now, I’ll discuss the financial highlights for the quarter. We are providing both GAAP results and supplemental adjusted reporting to reflect the after-tax impact of notable items such as merger-related expenses and gains and losses on sales. I'm pleased to announce a GAAP net income of $264 million, or $16.70 per share, leading to an annualized ROE of 11.18% and an ROA of 1%. On an adjusted basis, net income was $299 million, or $18.95 per share, yielding an annualized ROE of 12.68% and an ROA of 1.12%. The EPS, ROE, and ROA comparisons for prior periods shown here are for First Citizens BancShares on a standalone basis. The net interest margin and net charge-off ratio are presented as if the companies were consolidated during the historical periods. I will delve into these components shortly as we analyze the underlying trends that produced our results. The income statements provided illustrate our reported GAAP results and an adjusted version that accounts for notable items. Both are shown as if FCB and CIT merged during previous periods. The middle section summarizes the notable items influencing the adjusted results from the reported figures. The most significant were the estimated $431 million bargain purchase gain, a $513 million day 2 CECL provision, and $135 million in merger-related expenses from the CIT merger. A detailed breakdown of the notable items affecting the quarter is available, along with their impact on net income and diluted earnings per share. I will focus now on the adjusted results. Pre-provision net revenue rose by $26 million, or 8% from the previous quarter, and by $54 million, or 18% from the same quarter last year, driven by positive operating leverage. Net income available to common shareholders was $299 million, up from $291 million in the fourth quarter but down from $323 million in the first quarter of last year. The increase in net income from the previous quarter stemmed from a rise in pre-provision net revenue and lower preferred dividends, partially offset by a decline in the credit losses benefit. The decline compared to the same quarter last year was also due to the drop in credit losses benefit, only partially countered by a rise in pre-provision net revenue. The details on notable items are on page 11, with most related to our merger with CIT. It's worth noting that we will report rental income on operating leases net of depreciation and maintenance, which will lower both GAAP noninterest income and noninterest expense by the same amount. These adjustments are neutral to pre-provision net revenue, pretax income, and net income overall. In summary, noninterest income was adjusted down by $570 million, mainly due to the bargain purchase gain. For core noninterest expense, adjustments reflect a decrease of $238 million, while pretax income was adjusted upward by $181 million after accounting for the day 2 CECL effect, adding $1.90 to reported EPS. Moving on, I will discuss the major trends affecting our operating results. Unless specified otherwise, the financial trends in the following pages assume the CIT merger occurred during the historical period presented. Our net interest income was $649 million for the quarter, a $30 million or 5% increase from the previous quarter. This increase was driven by a $54 million reduction in interest expense, countered by a $24 million drop in interest income. The decline in interest expense resulted from a $40 million decrease on borrowings and a $14 million decrease on deposits. Of the $54 million reduction in interest expense, $31 million was attributed to purchase accounting adjustments, while the remaining $23 million was linked to the $3 billion debt redemption in February and lower deposit rates. The cost of deposits dropped by 6 basis points during the quarter due to maturing higher-priced time deposits. Although we anticipate that interest expenses on deposits will rise due to Fed rate hikes, we plan to continue letting these higher-priced time deposits, including brokered CDs, mature, which should alleviate some of the pressure from rising rates in the near term. Interest income was adversely affected by decreases in legacy CIT interest accretion, accounting for a $23 million drop, alongside a $7 million reduction in SBA-PPP income and a lower day count. These effects were partially offset by improved investment yields and an advantageous earning asset mix as we redeployed excess liquidity into investment securities and saw organic loan growth. Our interest earnings from investments rose by $23 million from the previous quarter due to a 36 basis-point increase in yield and a $1.9 billion increase in average balance. Of this increase, $7 million and 14 basis points stemmed from purchase accounting, with the remaining benefits from higher reinvestment rates and reduced prepayments on the MBS portfolio. Excluding the effects of lower accretion, SBA-PPP income, and day count, interest income rose by $32 million due to higher investment portfolio yields and improved earning asset mix. Loan yields, excluding accretion and PPP loans, remained stable compared to the last quarter. Net interest income rose by $42 million compared to the same quarter last year, and net interest margin went up by 15 basis points. The increase in net interest income was for similar reasons as mentioned for the prior quarter, although interest income faced headwinds from earning asset mix compared to last year. We are now examining the factors contributing to the 17 and 15 basis points margin expansion from the linked and comparable prior year quarters, respectively. Purchase accounting contributed positively to both quarters with 6 basis points. Excluding this, the net interest margin increased by 11 basis points from the previous quarter and 9 from the comparable quarter. The improvement for the linked quarter resulted from a combination of enhanced funding, earning asset mix, higher investment yields, and lower deposit costs, all of which surpassed the negative effects of lower SBA-PPP income. Similar factors applied to the margin increase from the comparable quarter, with the decline in deposit rates being more beneficial and the earning asset mix having a more pronounced negative impact due to a $3.5 billion decrease in average loans. Looking ahead to the rest of 2022, while we expect interest expenses to rise, we foresee interest income increasing at a faster rate, promoting growth in net interest income in upcoming quarters. Additionally, we expect earning asset yields to rise faster than the costs of funding them, leading to continued net interest margin expansion. As shown, our balance sheet remains funded mainly by core deposits, which constituted over 96% of our funding base at the quarter's end. Credit quality remains exceptionally strong. Even though the net charge-off ratio rose from 5 to 9 basis points from the previous quarter, it remains low. This, coupled with improving macroeconomic conditions, resulted in a negative provision of $49 million during the quarter, excluding day 2 CECL provisions. The ACL ratio decreased from 1.36 at the close of last year to 1.29 by the end of the first quarter. Combined ACL at the end of 2021 was $890 million. Following the acquisition date in March, we cleared CIT’s ACL of $712 million and set aside a reserve for PCD loans of $284 million and a day 2 provision for non-PCD loans of $454 million, leading to a $26 million increase in CIT's ACL for year-end. This increase related primarily to changes in specific reserves on loans evaluated for impairment at the acquisition date, resulting in a combined day 1 ACL of $916 million. After acquisition day, we released $68 million in reserves, reducing the ACL to $848 million, representing 1.29% of total loans. This release resulted from improvements in macroeconomic scenarios used for allowance estimation, particularly concerning real estate values, alongside enhancements in specific reserves on impaired loans during the quarter. The ACL at quarter-end covered annualized net charge-offs by a factor of 14.3. Our capital position remains robust, with all ratios exceeding or nearing the upper range of our target limits. As of the end of the first quarter, our CET1 ratio was 11.36%, and our total risk-based capital ratio was 14.48%. After accounting for merger impacts that were slightly dilutive to our risk-based capital ratio but accretive to our Tier 1 leverage ratio, growth during the quarter was due to strong earnings partially offset by increases in total risk-weighted assets and dividend distributions. The leverage ratio saw further increases stemming from the average asset impact of the debt redemption completed on February 24. Our tangible book value per share rose by 40% to $574.09 during the quarter, bolstered by value created from the CIT acquisition. As we conclude, we will discuss our financial outlook, which assumes that the U.S. economy continues to perform positively overall. This includes GDP growth, managing the effects of the ongoing pandemic, the geopolitical situation in Ukraine not disrupting the economy, tighter monetary policy as the Fed aims to manage inflation, and the resolution of supply chain and geopolitical issues, while maintaining low unemployment and stable income tax levels. For our loan growth outlook, we forecast mid-single-digit percentage growth in both Q2 and for the entire year. Despite ongoing mid- to high-single-digit growth in our branch network, we anticipate some challenges in the real estate finance portfolio due to accelerated prepayment activity amid a competitive market. We're continuing to add bankers in our wealth management, middle-market banking, and large metro branch network areas to enhance loan growth. We expect our funding costs to provide competitive advantages in the large commercial sector, and collaboration across legacy teams will help drive increased loan volumes as integration progresses. On the deposit side, we don't foresee continuing the robust growth levels seen in the past two years, focusing instead on optimizing funding by replacing higher-cost deposits with lower-cost core checking accounts. Although first-quarter growth was strong, we expect seasonal outflows in the second quarter, resulting in a slight decrease in deposits. For the year, we anticipate flat to low single-digit growth, but further upside in noninterest-bearing accounts could enhance this outlook. We expect demand deposits to grow at a mid-single-digit percentage rate but will be counterbalanced by ongoing optimization of the funding base, which may lead to reductions in higher-cost CDs and money market accounts. For net charge-offs, we expect a gradual return to pre-pandemic non-stressed levels, predicting net charge-offs in the 10 to 20 basis point range for Q2 and 15 to 25 basis points for the year. This projection increase does not stem from apparent portfolio stress but rather is influenced by inflation and rising rates potentially returning losses to historical levels. We foresee continued growth in net interest income in Q2 in the mid-single digits compared to Q1, with low- to mid-teens percentage growth expected for the full year. Regarding core noninterest income, we anticipate a slight decline compared to Q1 as operating lease renewal rates increase and maintenance costs normalize. For the year, we expect upper single-digit growth, driven by net rental income on operating leases and ongoing growth in wealth, merchant, and card income. In terms of core noninterest expenses, we foresee stability or a slight decline in Q2 against Q1 due to merit increase impacts balancing with seasonal declines and continued recognition of merger cost savings. Yearly growth in noninterest expenses is expected to be low single digits. We project $100 million in cost saves will be part of our current run rate, rising to $200 million by the fourth quarter, and $250 million by Q4 2023. In conclusion, we are quite pleased with our first-quarter results and the efforts of our team. With that, I will now return the call to the operator for questions.

Operator, Operator

And your first question will come from Brady Gailey.

Brady Gailey, Analyst

So, as we approach the back half of this year, which is when you guys have signaled you’ll reengage in the buyback, how do we think about the size of what that buyback could be? I mean, you guys clearly have a lot of excess capital. And I know historically, when you have been engaged in the buyback, you’ve done it in size, like I think in 2019 and then 2020. Each of those years, you repurchased about 8% of the company. So, any thoughts on how you think about the size of what the buyback could be at the back half of this year and next year?

Frank Holding, Chairman and CEO

Brady, this is Frank Holding. I’m going to give some sort of context for this question, and I’m going to let Craig answer it a little more specifically. Given our early success in integration and demonstrating solid safety and soundness metrics with stable systems, we remain confident having a, I’ll describe it as a robust stock repurchase plan in the second half of the year, as we’ve discussed before. Simply, our deep experience in integration is proving out here. And we felt strong capital levels were prudent in a merger of this size, but our early success and the greater line of sight in projections around integration efforts along with strong safety and soundness metrics. But again, we feel that it’s prudent, and we feel very good about having our second half plans for a, I’ll describe it as robust stock repurchase plan is warranted. Craig, do you want to talk about anything, you want to expand on that?

Craig Nix, CFO

Yes, Frank. I’ll address this regarding our CET1 capital target range. If we aim for the middle of that range, that would set CET1 around 10%. Our excess capital at the end of the quarter would be about $1.1 billion, and by the end of the year, it should be around $1.6 billion. That offers some insight into our excess capital. While I'm not specifying the exact amount we will request for our repurchase plan, based on our EPS targets, every $1 billion repurchase—assuming the stock price remains at the recent market close—could increase EPS by about 10%. We haven't included this in our forecast, but we think it could be an effective strategy for enhancing EPS going forward.

Brady Gailey, Analyst

Given the recent increase in long-term bond rates, your bond reinvestment rates are now significantly higher. How are you approaching the deployment of this excess liquidity? Are you considering leaving some funds available to manage more expensive CIT funding, or are you looking to invest more aggressively into the bond portfolio now that rates have risen? What is your strategy regarding the excess liquidity at this time?

Craig Nix, CFO

I think I’ll let Tom Eklund speak to this. If I missed anything, Tom, please jump in. In an ideal situation, we would like to see our earning asset mix consist of about 4% to 5% in overnight investments, 19% to 20% in the investment portfolio, and 74% to 77% in loans. Currently, we are at the high end of that range with our overnight investment. We have the excess liquidity and are about where we want to be with the investment portfolio. However, we would like to redeploy that excess liquidity into the loan portfolio. Given the current yield curve, redeploying the excess liquidity could increase our margin by 10 to 15 basis points and would result in an absolute net interest income value ranging from $95 million to $143 million, which is not included in our current projections. We should keep in mind that we are limited in how much we can redeploy into loans due to liquidity reserve requirements for stress tests and high-quality liquid assets against our deposits, but we believe we have considerable balance sheet capacity to enhance earnings beyond our projections. Tom, did I miss anything?

Tom Eklund, Speaker

No, I think you hit the points really well there, Craig. So, no further comments from me.

Brady Gailey, Analyst

Great. That’s good color. And then, just one more quick one, if I can. Can you all give us the amount of PPP fees that were in spread income and the amount of accretable yield that was realized in the first quarter?

Craig Nix, CFO

I can provide the details regarding purchase accounting if you give me a moment. In the first quarter, when you look at the purchase accounting impact on net interest income, it was approximately $33 million pretax or 14 basis points. If you exclude that from the margin perspective, our margin was 2.73%, which would have adjusted to 2.59%. Instead of the actual increases of 17 and 15 basis points, we would have seen increases of 9 and 11. This highlights the impact on net interest income. As for the fee income side, I don't believe there was a significant purchase accounting impact.

Elliot Howard, Speaker

For the SBA-PPP, we had $9.5 million of income in the first quarter, Brady.

Craig Nix, CFO

So, you’re discussing interest income. Let me check back with you on the exact split. For some perspective on the margin, our headline margin increased by 15 basis points compared to the same quarter last year and 17 basis points compared to the last quarter. When we exclude the impacts of purchase accounting and PPP, the increase would have been 18 basis points for both periods. While there are various factors at play, this suggests that core net interest income is improving significantly. We removed the effects of PPP and purchase accounting adjustments.

Operator, Operator

Your next question will come from Stephen Scouten with Piper Sandler.

Stephen Scouten, Analyst

Craig, I wanted to follow up on something you said regarding the share repurchase. I think you said you’re not targeting what you will request. So, is that indicative of the fact that a request hasn’t been yet submitted to regulators? And if that’s correct, do you have any insights on what timing from them would be from approval or kind of what the process looks like to get approval on your repurchase plan?

Craig Nix, CFO

Yes, we are actively engaging with our regulators and not remaining idle. However, the approval process typically takes about a month. Therefore, we expect to have that process underway during this quarter, and it will happen soon.

Stephen Scouten, Analyst

Okay. That’s very helpful. Thank you. And then, I guess, the market today is kind of discounting all the money that banks and including you guys will probably earn some higher rates and careful about a recession and potential credit issues and whatnot. Can you give any color on how the legacy CIT book is looking in your view relative to your recent marks? And then, maybe if you had any changes in qualitative factors around your CECL modeling or how you guys are waiting towards Moody’s economic scenarios or kind of however you’re determining your CECL weightings and so forth?

Craig Nix, CFO

We feel very positive about the CIT portfolio, as the credit quality is strong. The credits were underwritten with stress scenarios in mind, and CIT successfully resisted market pressures that could have compromised credit quality and terms. Overall, we are optimistic. Regarding the Allowance for Credit Losses (ACL), we are in a strong position, and we believe our reserve is conservative. When I compared our current position to the end of the first quarter and the fourth quarter of 2019, which we consider a pre-pandemic benchmark, the combined company's ACL was 1.29%, compared to 1.43% in late 2019. The net charge-off ratio is now 9, down from 28 at the end of 2019, giving us 14% coverage, which is significantly higher than the 5 times coverage we had pre-pandemic. Additionally, our Chief Credit Officer, Marisa Harney, monitors how much our allowance covers nonaccruals; currently, we are covered 1.56 times, up from 1.47 times previously. Metrics like 30-day and 60-day past dues have decreased, nonaccrual loans to total loans are down, and criticized loans have remained steady with classified loans seeing a slight increase. Most indicators indicate that we have a prudent allowance for loan losses, and I don’t foresee any immediate stress in the portfolio that would alter our perspective. Marisa, if you're on the line, feel free to add any insights.

Marisa Harney, Chief Credit Officer

Yes. No, everything that Craig said is absolutely true. The legacy CIT portfolios are, frankly, performing at some of their best levels from a credit quality perspective, even in the context of pre-pandemic, which is what I look at. A lot of people talk about, "Oh, it’s improved since 2020." Well, a lot has improved since 2020. But, our indicators are suggesting that we are back to, if not better than our pre-pandemic asset quality levels. And I think some of that is a testament to, as Craig indicated, our very balanced underwriting approach to what has been a very, very competitive loan market, not just in terms of pricing, but in terms of terms as well. So, I reiterate what Craig said. I don’t see anything on the near horizon from a sector perspective or from a specific transactional perspective that gives me concern at this time. We’re obviously watching all the macroeconomic indicators going forward. And as Craig said, we underwrite to stress scenarios. So, all is well.

Craig Nix, CFO

One thing I would say just to make sure that we disclaim a little bit of it. The ACL on our CECL is highly influenced by the S3 Moody’s severe economic forecast. And a lot of what you saw this quarter where we had the reversal was due to the fact that those macroeconomic factors in terms of unemployment and CRE price index, home price index, all of that improved in the severe scenario while the baseline stayed pretty moderate. With the news today, with the print today, that could change next quarter. So, we might see some pressure. Obviously, we see pressure, not to have negative provision, but we could see pressure to start building reserves back. So, that’s one qualification that I would give to all that. But in terms of the portfolio, we’re feeling really good about the way it’s performing and its credit quality.

Stephen Scouten, Analyst

Got it. Very helpful. And then, just one last thing from my side. How are you all considering incremental growth? I know you mentioned wanting to maintain liquidity for loan growth and that you feel confident about the current state of the securities book. However, as interest rates continue to rise, how do you view the relative spreads available in the securities book, which theoretically carry much less risk than the loan book, especially with geopolitical events potentially introducing greater risk? What is your perspective on that dynamic?

Craig Nix, CFO

Our top priority is to provide loans and maintain liquidity. The investment portfolio mainly serves to utilize any excess liquidity we have, and we aim to optimize that yield while also safeguarding against potential declines in tangible book value and market value as interest rates increase. In relation to our securities portfolio, we generally focus on purchasing residential government-backed or sponsored Ginnie Mae mortgage-backed securities with shorter durations to mitigate volatility in a rising rate environment. We are either acquiring securities backed by seasoned 30-year mortgages or those backed by 15-year mortgages, resulting in a portfolio duration that is likely shorter than our peers. Currently, we are in discussions about extending the duration with reinvested cash flows while seeking securities with more predictable cash flows, resembling bullet-like cash flows. We believe this could yield better returns and more consistent cash flows. However, we are cautious about extending our duration right now since we are at the start of the rate cycle increase, and we don't see it as a wise decision at this moment. I'll let Tom provide any additional details if he wishes.

Tom Eklund, Speaker

No, I think Craig covered most of the key points. We're currently focusing on front-end cash flows and believe in purchasing stable seasoned mortgages that have already navigated past rate fluctuations and the initial refinancing boom. As we progress and our currently locked-out cash flows start to materialize, we will consider adding more duration exposure. Right now, we are concentrating on secure options. When it comes to buying duration, we are particularly interested in defined cash flows that have less optionality compared to newly issued 30-year mortgages.

Stephen Scouten, Analyst

Great. Thanks, guys, for all the color. And congrats on all the progress that’s already been made.

Craig Nix, CFO

Thank you.

Operator, Operator

Your next question will come from Christopher Marinac.

Christopher Marinac, Analyst

I wanted to ask Frank about the regions of the country that are performing well within First Citizens footprint and any of that perhaps are weaker? And then, also any changes you’ve seen in customer behavior the last two months?

Frank Holding, Chairman and CEO

This is Frank Holding. We observe strong markets throughout the country. There are no areas of weakness that we identify. Some regions are certainly performing better than others. Generally, the larger metropolitan areas we serve are experiencing more substantial growth compared to some suburban or rural areas, but we don’t see any signs of weakness. We have noted no weakness in any specific part of the country.

Christopher Marinac, Analyst

Great. That’s helpful. And then, Craig, just a quick question about being able to increase loan rates as the Fed has raised in March and then again, expected this quarter.

Craig Nix, CFO

Loan rates, what I think you’ll see is our loan yield sort of stabilized this quarter. And the rate sheets right now are higher than loans are rolling off. So we’re going to naturally start to see a pickup in our loan yield. And the same thing is true for our investment portfolio yield.

Frank Holding, Chairman and CEO

Chris, I’m going to add a little bit to that. You have to realize that outside of the Carolinas, all the markets that we expand into, we basically chose because the metrics there were that they had stronger population growth and greater household income and growth of that household income versus national averages. So, I don’t want to say that the whole U.S. is performing equally, but we didn’t choose those markets equally either.

Operator, Operator

Thank you, speakers. I’m not showing any further questions at this time. I would like to turn the call back over to our host for any closing remarks.

Deanna Hart, Senior Vice President of Investor Relations

Thank you, and thank you, everyone, for participating in our call today. We appreciate your interest in our company. And if you have any further questions or need additional information, please feel free to reach out. I hope everyone has a great day.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect. Have a wonderful day.