First Citizens projects up to $40M hit to revenue from reducing overdraft fees

First Citizens BancShares Inc. is the latest U.S. bank to update its overdraft practices in order to "remain competitive," said Chairman and CEO Frank Holding Jr. on the company's fourth-quarter 2021 earnings call.

The Raleigh, N.C.-based company announced on Jan. 26 that it is nixing non-sufficient funds, or NSF, fees and reducing its overdraft fee on consumer accounts to $10 from $36. The announcement comes on the heels of a busy month full of similar moves from the largest U.S. banks, including Wells Fargo & Co., Bank of America Corp., Truist Financial Corp., U.S. Bancorp and Regions Financial Corp.

"We believe these changes are necessary to remain competitive in the current marketplace," Holding said on the call.

First Citizens expects the changes, which will be implemented around midyear, to reduce revenue by $15 million to $20 million in 2022. On a full-year basis going forward, the company expects the changes to reduce revenue by $35 million to $40 million.

The company's banking subsidiary First-Citizens Bank & Trust Co. reported $11.9 million in overdraft fees during the third quarter of 2021.

Consumer NSF and overdraft fees currently make up about 50% of the bank's service charge line item, CFO Craig Nix said on the call. The impending update to NSF and overdraft fees will reduce service charge revenue by 35% to 40%, he said.

Despite the expected hit to service charge income and mortgage revenue in 2022, First Citizens expects noninterest income to grow by low single digits this year as its wealth and payments businesses continue to grow, Nix said.