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First Citizens BancShares, inc (FCNCA) Q3 2021 Earnings Call Transcript

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FCNCA earnings call for the period ending September 30, 2021.

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First Citizens BancShares, inc (FCNCA 0.21%)
Q3 2021 Earnings Call
Oct 27, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Citizens BancShares Third Quarter Earnings Conference Call. [Operator Instructions]

I would now like to introduce host of this conference call, Ms. Deanna Hart, Senior Vice President of Investor Relations. You may begin.

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Deanna Hart -- Senior Vice President of Investor Relations

Thank you, Julie.

Good morning and thank you for joining us today. It is my pleasure to introduce our Chairman and Chief Executive Officer, Frank Holding, as well as our Chief Financial Officer, Craig Nix who will provide an overview of our third quarter 2021 results and will be referencing our investor presentation, which you can find on our Investor Relations website. We are pleased to have several other members of our leadership team here with us today, who will be available for questions if needed. After the presentation, we'll be happy to take any questions you may have. As we have not closed the transaction with CIT Group, we will be speaking today on First Citizens BancShares stand-alone performance only and will provide an update of our planned merger with CIT.

Our comments will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These risks are outlined for your review on page 2 of the presentation. We will also reference non-GAAP financial measures in the presentation. Reconciliations of these measures against most directly comparable GAAP measures are available in the appendix.

With that, I'll hand it over to Frank.

Frank B. Holding -- Chairman and Chief Executive Officer

Thank you, Deanna. And good morning, everyone. We appreciate you joining us today.

This morning, we reported third quarter net income of $124.1 million or $12.17 per share, delivering another quarter of strong financial results to our shareholders. We continue to see positive trends in net interest income despite continued pressure on margins from our growing level of excess liquidity and the sustained low rate environment. Noninterest income from our core fee income producing lines of business also remained robust during the quarter and was up over the prior quarter. Additionally, credit quality remained solid, resulting in another net provision benefit, albeit smaller than in previous quarter's benefit. We achieved another consecutive quarter of loan and deposit growth, both of which continue to be bright spots for our Company as we remain focused on building long-term relationships with our customers.

Total loans adjusted for SBA-PPP runoff grew $437 million during the third quarter or by 5.6% on an annualized basis. We saw strong growth in both our consumer and commercial lines of business. Deposits were up $1.7 billion during the third quarter, representing an annualized growth rate of 13.6%.

I'm sure many of you are looking for an update on our planned merger with CIT Group. On September 30, we announced that First Citizens and CIT agreed to amend our merger agreement to extend the original outside date. In the merger agreement from October 15, 2021 to March 1, 2022 as we wait for the remaining regulatory approval from the Federal Reserve Board. Not much has changed since that time, and our understanding is that the application remained at the governor level.

As we noted in the last announcement, we stay in regular touch with the Federal Reserve Board and we have responded to all their questions. We have not been provided a timeframe for their decision. We understand and share the frustration regarding the length of time that has been required to obtain the necessary approvals for this merger. But this process can require patience. As we noted last quarter, we have not been made aware of any regulatory problems with our application and we're confident in our ability to close this deal as soon as practical following approval.

Our goal has always been to build value for our shareholders, and we remain committed to this goal and our merger with CIT. When we announced this merger, we stated that it was financially compelling and that it would create a premier nationwide commercial and consumer bank with enhanced scale to drive growth, improve profitability and enhance shareholder value. We believe this remains the case, and our collective teams are excited about the opportunities that lie ahead for the combined Company.

As we've said before, we continue to work on integration planning with our CIT counterparts and leaders from both organizations remained actively engaged in and committed to a successful combination of our companies. In addition to merger and integration planning, we continue to leverage our digital investments to drive revenue and accelerate our digital transformation. We're now in the final phase of transitioning business and treasury commercial clients to our new commercial platform, which has been well received by these important clients. We've also been working to implement process improvements to support our back office, and recently completed an upgrade to our branch platform.

This change to a state of the art digital system allows for more efficient transaction processing, and positions us to adapt quickly to changing customer needs. As you can see by the growth in our wealth management income, we're focusing on deepening client relationships to grow this line of business. We continue to grow our wealth business by both expanding into new markets and by enhancing the products and services available to help our wealth clients meet their financial goals. Our people are our top priority. We continue to focus on talent development and retention of our associates. Our objective here is to ensure we attract, retain and develop associates to create a high performing sustainable company that will meet the strategic financial and operational goals of the organization.

As with many of our peers, our ability to attract and retain talent has been tested this year as the number of people leaving the workforce and the competition for top talent is putting pressure on teams to retain their talent. While the current environment for attracting talent is challenging, we believe that First Citizens is a desirable place to work and we have a lot to offer recruits as well as existing associates.

I'll now turn it over to Craig for a closer look at our financial results. And then we'll open the line for questions.

Craig L. Nix -- Chief Financial Officer

Thank you, Frank, and good morning, everyone.

I'll start with page 4 of the investor presentation and I'll cover our third quarter earnings highlights. Earnings for the third quarter, as Frank mentioned, were $124.1 1 million, down $28.7 million from the linked quarter and down $18.6 million from the same quarter a year ago. While earnings were down compared to both periods, we are pleased with our core earnings performance. Earnings for the third quarter translated into a return on average assets of 0.88% and a return on average equity of 11.29%. Net income per common share was $12.17, down from $15.09 in the second quarter and $14.03 in the comparable quarter a year ago.

For the linked quarter, the most significant impacts leading to lower earnings were a decline in the benefit from provision for credit losses, lower positive fair market value adjustments on our equity portfolio, a declining gain on sales of securities and higher noninterest expense. Lower earnings from the comparable quarter a year ago were due to the same factors except for the provision benefit and the impact of fair market value adjustments. Compared to the second quarter, pre-provision net revenue declined by $22 million, driven by decreases in SBA-PPP income, securities gains, fair market value adjustments and higher noninterest expense. The first three factors contributed to a $23.2 million decline in pre-provision net revenue from the second quarter, so they were mostly responsible for the decline in PP&R during the quarter. Net interest income was slightly up over the second quarter despite a $7.1 million decline in SBA-PPP income and continued interest rate headwinds.

Another bright spot was a $4.8 million increase in core noninterest income. Higher noninterest expense during the quarter was driven by higher personnel costs, occupancy and equipment expense and merger costs. We continued to experience strong credit quality and low net charge-offs. In addition, macroeconomic factors continued to improve resulting in a further reserve release, albeit a smaller one than in the second quarter, resulting in an $18.5 million decline in net benefit from the provision for credit losses. For the year, as macroeconomic factors have improved and we have sustained good credit quality, we have released $41.1 million in reserves compared to a reserve build of $36.1 million last year related to the uncertainty surrounding COVID-19.

Turning the pages 5 and 6. I will cover trends in net interest income and net interest margin. Given another quarter of strong deposit growth, our cash balance with the Fed increased. Consistent with prior quarters, we continue to monitor rates closely and look for opportunities to redeploy excess liquidity into loans and investments to grow net interest income despite lower reinvestment yields. Despite a decline in SBA-PPP income and continued low interest rate, net interest income was up slightly over the linked quarter, higher investment yields and average balances, loan growth ex-PPP and slightly lower deposit costs more than offset rate pressure on loans and a decline in SBA-PPP income. While SBA-PPP loans continued to support overall net interest income, the contribution from these loans is declining as forgiveness activity continues. SBA-PPP loans contributed $20 million in interest and fee income during the third quarter compared to $27.2 million in the second quarter.

Net interest income declined by $6.8 million compared to the same quarter in 2020. This was primarily due to an $8.9 million decline in SBA-PPP income and lower earning asset yields, partially offset by higher average loans and investments as well as lower rates paid on interest bearing deposits. While we were pleased with the increase in the absolute level of net interest income during the quarter, as expected, net interest margin declined by 7 basis points from the linked quarter. As discussed in prior quarters, we continue to operate with liquidity above normal operating ranges, which puts downward pressure on net interest margin. We've been pleased by the level of loan growth in the second and third quarters, which has helped to somewhat protect net interest margin from the impacts of low interest rates.

In addition, we have opportunistically deployed money out of cash into the investment portfolio since last year. Our investment portfolio grew by $985 million or just over 10% since September 30, 2020. Consistent with the prior quarter, the decline in margin was mostly attributable to earning asset mix as our cash balance with the Fed continued to grow. One bright spot during the quarter was the investment portfolio yield was accretive to margins by 3 basis points. We expect that net interest margin will continue to remain a headwind mostly due to continued excess liquidity for low rate environment and a reduction in SBA-PPP loan income. Quarter-over-quarter declines in net interest margin have moderated from the declines we experienced in 2020 and earlier this year, and we will continue to seek opportunities to grow absolute levels of net interest income to offset declines in margins, or in margin through organic loan growth and opportunistic additions to our investment portfolio.

Turning to page 7. I will cover noninterest income which totaled $122.9 million for the third quarter. Noninterest income decreased by $11.2 million compared to the linked quarter. The decline was mostly attributable to a decline in securities gains and fair market value adjustments totaling $16.1 million. Core noninterest income increased $4.8 million when compared to the linked quarter due primarily to higher net service charges on deposits. While linked quarterly income did not increase for wealth card and merchant taken collectively, we continue to see momentum in these businesses supporting our bottom line.

Noninterest income increased $2.4 million when compared to the third quarter of 2020. Taken together, securities gains and fair market value adjustments were down $7.3 million. So core noninterest income was up by $9.7 million. The most significant factor in the increase was in wealth income as we continue to grow assets under management, driving higher advisory and brokerage fees, as well as additional trust income. We also saw increases in service charges and income from card and merchant services. These improvements were partially offset by a decline in mortgage income driven by lower production volume.

For the remainder of 2021, we expect continued momentum in the wealth and payments related businesses. We expect mortgage income growth will be a challenge as refinance activity slows as mortgage rates have risen. But we do expect core noninterest income to be in the $109 million to $110 million range in the fourth quarter.

Tuning to page 8, I'll cover noninterest expense. Noninterest expense increased by $11.2 million over the linked quarter. The largest increase was in personnel expense, which was up $4.2 million over the second quarter. The increase was driven by increases in temporary personnel costs, revenue driven incentives and net staff additions, partially offset by lower health insurance costs. Outside of merger related expenses, other increases in expense were spread among various categories and were mostly due to our continued investments in supporting revenue generating businesses and improving internal processes. We expect core noninterest expense ex merger related costs to remain in line with the recent run rate of approximately $300 million to $305 million per quarter.

Turning to page 9, we provide balance sheet highlights and key ratios. I will cover the significant components of the balance sheet on subsequent pages.

On page 10, I'll cover loan growth for the linked quarter and year-over-year periods. Loans decreased by $174 million or by 2.1% on an annualized basis this quarter, primarily due to a $611 million net decrease in SBA-PPP loans. Excluding PPP loans, we experienced solid annualized organic growth of 5.6% over the second quarter. The largest components were commercial and industrial, owner occupied commercial real estate and consumer loans. On a year-over-year basis, loans were relatively stable as PPP forgiveness almost completely offset a 5.7% increase in organic loans. Overall, we are pleased with organic loan growth this year, and we believe that it will be a mid-single digit percentage growth range moving forward. The ultimate level of loan growth will be dependent upon continued economic expansion in our market.

Turning the pages 11 and 12. I'll cover our credit quality trends and allowance for credit losses. Credit quality continues to be a source of strength. The net charge-off ratio was 6 basis points during the quarter. One charge-off was primarily responsible for the increase from 3 basis points in the prior quarter. The nonperforming assets to total loans and other real estate ratio was 0.65 at quarter-end, the lowest level since the second quarter of 2019. Given these trends and improvement in macroeconomic factors, we released $41.4 million in reserves to date compared to a $36.1 million reserve build last year, as I mentioned earlier.

Our allowance ratio ex-PPP loans declined modestly from 0.61% in the second quarter to 0.58% in the third, covering net charge-offs during the current quarter, almost 10 times, compared to a loan book with an average life of approximately four years. We are now operating with an allowance ratio just below where it was when we adopted CECL on January 1, 2020 or looking at it another way, near the pre-pandemic level. We remain comfortable with our allowance level and while we do not expect that net charge-offs will remain at these historically low levels perpetually, we have seen little indication that charge-offs going forward will have a significant impact on the level of our allowance.

Moving to pages 13 and 14, I will cover deposit trends and our funding mix. We continued to experience strong deposit growth during the third quarter, with money market accounts and demand deposits leading the way. Deposits grew at an annualized rate of 13.6% since the end of the second quarter and by 18.5% on a year-over-year basis. Our balance sheet continues to be funded predominantly by core deposits, with deposits representing over 96% of our funding base at the end of the quarter. We are pleased that most of our deposit growth occurred in core checking accounts, and at the end of the third quarter, noninterest bearing deposits accounted for approximately 43% of total deposits. Consistent with the second quarter, the total deposit cost was 7 basis points, which was down 6 basis points from the same quarter a year ago.

Looking forward, we expect the deposits will remain elevated and low deposit costs will continue to be a source of strength with respect to our net interest margin.

And turning to page 15, our capital position remains strong with all ratios above or within our target ranges. As of the end of the third quarter, Our CET1 ratio was 11.34% and our total risk based capital ratio was 14.3%. Most of the growth in our risk based capital ratios is attributable to strong earnings during the year, partially offset by growth in total risk weighted assets. As we noted in prior quarters, our Tier 1 leverage ratio continues to be impacted by significant deposit growth. But it remains above internal thresholds as earnings are mostly mitigating the impact of increased average assets. We are comfortable operating at the level.

This concludes my comments. Thank you for joining us today and I will now open it up for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Brady Gailey with KBW.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Hey, thanks. Good morning, guys.

Craig L. Nix -- Chief Financial Officer

Good morning.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

So I wanted to start on the expense base compensation was up about $7 million linked quarter, I think it was a little more than we had expected. I know in the slides, you call out some kind of temporary increase in personnel costs. I wonder if you could just talk a little bit more about that and how we should think about that comp line going forward legacy FCNCA?

Craig L. Nix -- Chief Financial Officer

Okay. Thank you for the question. I would say that the third quarter was a little lumpy, with some episodic expenses in there. And I hope the expectation would be for quarterly expenses to be between $300 million and $305 million ex merger related costs. But the third quarter was a little lumpy. We were up $11.2 million. Approximately 40% of that increase was related to personnel costs. And if you break those components down, we had an increase in temporary personnel costs, primarily related to our business online banking platform replacement that Frank mentioned in his comments. And they were -- that was followed very closely by revenue driven incentives and primarily that was in the wealth area -- that wealth income is up approximately 28% on a year-over-year basis. So they're really tied into revenue or temporary given a technology related project.

Also, processing fees for third parties increased and they're pretty much volume related primarily in wealth as well. That really tracks with the increase in assets under management. And then also those expenses were up with our digital account opening efforts. Consulting and advertising costs were up a bit to support our digital banking efforts. Those are -- those in line with our budget expectations, some of those just hit in the third quarter. And then we also replaced some branch equipment, teller stations. And those were below our capitalization limit in the third quarter. So we wouldn't expect a lot of those expenses to repeat every quarter. Hopefully, the revenue driven expenses do repeat because that means we're doing well and well in our other income producing lines of business. But we do expect expenses to be in that $300 million to $305 million range in future quarters ex merge related costs. Also we had an increase in merger related costs during the quarter as I already mentioned in that increase.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

All right. That's helpful. And then my second question is on accretable yield. Year-to-date, you guys have kind of been in that, $11 million to $13 million per quarter legacy FCNCA yield accretion. How much is left in that bucket going forward, excluding anything that is going to be realized from CIT?

Craig L. Nix -- Chief Financial Officer

I do not have the actual remaining deferred or accretable yield number in front of me. But we do expect that line item will continue to decrease in line with what you see in linked quarters. I don't know if anybody has that number here available. It doesn't look we have that number available. But we would expect that line item to continue to decrease as that portfolio runs off.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Great. And Craig, actually one more just on that same -- one more on that same topic. I know when you announced CIT, you kind of called out about $63 million of kind of net purchase accounting accretion. I know the marks have changed a lot over the last year, but it feels like that $63 million number could come down pretty notably. Any idea how much purchase accounting accretion we should expect from CIT next year?

Craig L. Nix -- Chief Financial Officer

We will be updating that when we close. We're in the process of doing the evaluations now. We don't have that information at this time.

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. All right. Thank you, guys.

Craig L. Nix -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Kevin Fitzsimmons with D.A. Davidson.

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

Hey, good morning, everyone.

Frank B. Holding -- Chairman and Chief Executive Officer

Good morning, Kevin.

Craig L. Nix -- Chief Financial Officer

Good morning, Kevin.

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

I just had a question about the excess liquidity is obviously a drag for all banks, and it seems like there was an increased drag this quarter for you all. And some banks are kind of reaching the point where they had been hesitating from being more aggressive and putting that money to work in the bond portfolio, but we've heard some banks this quarter really kind of change their tune on that and indicate that they're going to be stepping up more aggressively. So can you -- I know there's a lot of different variables here between maybe what your outlook for legacy loan growth is, what your outlook for rates are, that if we're closer to rising rates, and then obviously, the opportunities from the merger in terms of what you can do to the balance sheet. Can you kind of stack rank those or maybe there's other variables I'm not thinking of in terms of why you might not -- why you're opting maybe not to be more aggressive on that front. Thanks.

Craig L. Nix -- Chief Financial Officer

Thank you, Kevin. I would tell you that we are trying to be opportunistic and redeploying this excess liquidity. As I mentioned in our comments, we have increased our investment portfolio year-over-year by approximately $1 billion, which is about a 10% increase. I can tell you that we are closely monitoring rates. And just to give you some idea of the challenge, at the beginning of the third quarter, in July, the five, seven and 10 year treasury fell by 17 basis points, 24 basis points and 26 basis points respectively. And it took the entire quarter for those to reverse versus the end of the second quarter. So during the third quarter, while we added during the second quarter, we didn't think it was prudent to add during the third quarter given where rates were. Now we think we have -- we may have some opportunities going into the fourth quarter as those rates have rebounded. So we'll continue to try to invest opportunistically there but we don't think it was very prudent to invest into a lower rate environment when implied yield appear to be up as we move toward the end of the year.

We would prefer to operate with cash somewhere around the 4% of earning assets level. And as you can look at our balance sheet and see we're operating at around 19%. And that's really due to the fact that deposits remain elevated. And we don't really see that changing in the short term. And I'm glad you pointed out this is not unique to First Citizens. I think it's an industrywide issue. So it is a priority for us to grow organically loan growth or invest to protect our net interest margin as much as possible. And I also think that having some excess liquidity, and this is intentional to some degree, will help us optimize our balance sheet when we do ultimately merge with CIT. So we may be a little more elevated due to that than we would have been otherwise had we not contemplated a merger of this transaction. I hope that makes sense. But I think the punch line is, we're trying to be opportunistic, but we don't want to make short-term decisions that will [Indecipherable] interest rate risk as we move forward.

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

No, thanks, Craig. That's very helpful. One other question on the -- and I completely understand the sensitivity to it that you can't really comment with the merger application at the Board level. But maybe you can help us in terms of how to look at this, there was a recent media report that disclosed a few complaint letters that were issued, which -- listen, I estimate that those kind of letters come with every deal and not -- I don't know how much weight a regulator would put on an unsigned letter. But is there any way to help us -- help us gauge how to view those? Because, on the one hand, I think everyone is scratching their head thinking -- trying to come up with a reason why it's taking this long. On the other hand, I wonder if these letters -- I would suspect you would know it's an issue if it was a real issue, and you've made it clear that you're not getting questions from them. And secondly, the FDIC has approved the merger already. I would suspect that they see these letters as well. So given just a few of those factors, is there any way to help us how we should view those kind of storylines when they come out?

Craig L. Nix -- Chief Financial Officer

Well, Kevin, the first thing I'd say about the letter is that it was dated in February, mid-February, and that was during the normal public comment period. Since then and before then we've been in constant communication with our regulators, two of which have approved the transaction while this letter was out there. In terms of the Fed, I'm not going to speculate on how they do it. But we have addressed any issues they've had, in general, not necessarily specific to that letter. Since that time, and we're unaware of any problems out there, issues with our application. So that's the best answer I can provide about that letter and about the approval process.

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

Yeah, that's great. I really appreciate that. One last one for me, just on loan growth. When you say mid-single digit, I know payoffs are an issue for the industry. But with your footprint and economies reopening and rebounding, could we be more on the way the march toward high single digit, but maybe it's just payoffs that are keeping you conservative right now?

Craig L. Nix -- Chief Financial Officer

I would say it probably would not be prudent for us to project high single digit loan growth. I think we just based on our pipeline, which we feel like are pretty strong right now, we expect mid-single digit loan growth going forward.

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

Okay. Great, guys. Thank you very much.

Craig L. Nix -- Chief Financial Officer

Thank you, Kevin.

Operator

Your next question comes from Brian Foran with Autonomous.

Brian D. Foran -- Autonomous Research -- Analyst

Maybe on interest rates, as we think about, maybe the Fed raising rates in '22, '23 whatever year it ends up being, I mean, it seems like there should be pretty decent upside for both you and CIT side. But there's a lot of moving parts about due to some deposits flowing out, you deploy excess cash or the rate sensitivities we get, kind of match reality. I was hoping you could just give us whether you want to do qualitatively or quantitatively, like when you think of rates going up 100 bps as a standard scenario, how do you -- clearly there is earning upside, but how do you think about how much or how big that earnings upside could be, either for First Citizens or ideally the pro forma?

Craig L. Nix -- Chief Financial Officer

This is a rule of thumb, and I think this comment will be directional. But every 10 basis points parallel shift in the yield curve up or down for us is equal to about a 1% annualized increase in net interest income. So think $15 million of pre-tax income for every 10 basis points parallel shift in the curve. So obviously, 100 basis points would add around 10% growth to net interest income. So they are asset sensitive. So we definitely would benefit from rising rates.

Brian D. Foran -- Autonomous Research -- Analyst

And then maybe sticking with the same topic on prior calls, you've given some good front book versus back book pricing color. Can you just kind of give us the mark-to-market on what that looks like now? And is there still a little bit of a gap there? Are they starting to converge?

Craig L. Nix -- Chief Financial Officer

If you look at the second quarter, new rates were about 47 basis points lower than the runoff. So new rates are around 3.28. Runoff was around 3.75. So 47 basis points gap there. That narrowed the 43 basis points in the third quarter, new rates came on, while at lower rates, loans ran off at lower rates as well. So that gap stayed fairly stable 45 down to -- 47 down to 45. And that's all commercial loans. And that's where the bulk of the -- sort of bulk of the production is. So we're still facing that interest rate headwind on loan -- from a perspective of loan yield. Fortunately, during the quarter, though, investment yields increased enough to overcome that drag on margin.

Brian D. Foran -- Autonomous Research -- Analyst

And then if I could sneak in a last one. The deposit growth has obviously been kind of lights out, I mean, you've gone from $35 billion pre-pandemic to $50 billion now. I wonder if you can speak to kind of two issues. One on the negative side, do you still think there's surge deposits and client excess liquidity that you kind of mentally have to haircut? Or do you think $50 billion is kind of a full base you can work off of going forward? And then on the positive side, kind of just remind us or update us on the kind of key strategies and opportunities to continue to grow.

Craig L. Nix -- Chief Financial Officer

Well, I think our go-to-market strategy is relationship focused. So that's sort of inherent in what we do. And that's -- I attribute a lot of that growth to that. But we do believe some of the growth and deposits are transitory in nature, for instance, since the end of last year, we try to trace what's coming in from government stimulus and what remains. Since the last year, we had about approximately $1.2 billion in government stimulus deposits in the base. And we think that's somewhere around $400 million now. So despite that decline, deposits grew from -- in first quarter 36.4% annualized, second quarter, 9.1% annualized, and this quarter, 13.6% annualized. So we do think some of its transitory but we also think given that we've established relationships with customers that these -- some of these deposits are going to stick. We really can't quantify what that will be. But we're pleased with the deposit growing somewhat and all of it, it just keeps growing. These double digit annualized rates quarter -- on linked quarterly basis. Most of it's coming from our commercial customers. And I think looking at earnings releases for other banks we're not alone in that. But we do believe some of this will stick, some of it's transitory as exhibited by the fact we had $1.2 billion increase this year or earlier this year, and those deposits are around $400 million now. So [Indecipherable] core growth is sort of overcoming the transitory deposits.

Brian D. Foran -- Autonomous Research -- Analyst

That's great. Thank you for all the color.

Craig L. Nix -- Chief Financial Officer

Yeah. Thank you for your questions.

Operator

Your next question comes from Christopher Marinac.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Yes. Thanks. Good morning. I wanted to ask Frank or you about the idea of impacting new hires within your markets, whether it's in your home state, North Carolina, or in other parts of the footprint. Do you see new commercial lenders and other staff coming on in this timeframe even before the merger is closed?

Frank B. Holding -- Chairman and Chief Executive Officer

Christopher, this is Frank Holding. We continue to hire new associates and we're doing all we can to do that. And we've been reasonably successful in that space, where the orientation process for new associates continues. We have a strong robust process there that helps people -- that helps our associates become productive in a reasonable timeframe. So while the competition for talent is very strong, we're holding our own in that space in our story. Whether it's pay and benefits and work environment, we think we have a strong story in that space. So there's no major element as being more challenging. We are getting the job done.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great. Thank you for that. I appreciate it. And just a follow-up, I guess, on the impact of the tech spending that you outlined earlier in the call. Does that drop overall per transaction costs in the future? And do you see a material kind of change in efficiency? And again, I'm just thinking for First Citizen stand-alone prior to the merger savings?

Craig L. Nix -- Chief Financial Officer

That certainly is the goal. I mentioned process improvement related technology investment. And the reason to make that investment is to get a payback in terms of transaction costs over time.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great. Thanks very much for taking the questions.

Craig L. Nix -- Chief Financial Officer

Thank you.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to our host for any closing remarks.

Deanna Hart -- Senior Vice President of Investor Relations

Great. Thank you. And thank you, everyone, for joining this morning. As always, we're appreciative of your ongoing interest in our Company. If you have any further questions or need additional information, please feel free to reach out. I hope everyone has a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Deanna Hart -- Senior Vice President of Investor Relations

Frank B. Holding -- Chairman and Chief Executive Officer

Craig L. Nix -- Chief Financial Officer

Brady Gailey -- Keefe, Bruyette & Woods, Inc. -- Analyst

Kevin Fitzsimmons -- D.A. Davidson & Co. -- Analyst

Brian D. Foran -- Autonomous Research -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

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