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First Citizens BancShares Reports Earnings For Second Quarter 2016

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RALEIGH, N.C., July 27, 2016 (GLOBE NEWSWIRE) -- First Citizens BancShares Inc. (BancShares) (Nasdaq: FCNCA) announced its financial results for the quarter ended June 30, 2016. Net income for the second quarter of 2016 was $69.3 million, or $5.77 per share, compared to $52.1 million, or $4.34 per share, for the first quarter of 2016, and $44.5 million, or $3.71 per share, for the corresponding period of 2015, according to Frank B. Holding, Jr., chairman of the board. BancShares' current quarter results generated an annualized return on average assets of 0.87 percent and an annualized return on average equity of 9.33 percent, compared to respective returns of 0.66 percent and 7.17 percent for the first quarter of 2016, and 0.58 percent and 6.42 percent for the second quarter of 2015.

Earnings for the second quarter of 2016 included an acquisition gain of $2.1 million recognized in connection with an FDIC-assisted transaction involving certain assets and liabilities assumed of First CornerStone Bank (FCSB) of King of Prussia, Pennsylvania, acquired on May 6, 2016. The FCSB acquisition contributed $42.0 million in loans and $82.7 million in deposit balances at June 30, 2016. Earnings for the second quarter of 2016 also included an additional $1.2 million gain on the March 11, 2016, acquisition of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin, due to a refinement of initial fair value estimates.

For the six months ended June 30, 2016, net income was $121.4 million, or $10.11 per share, compared to $111.7 million, or $9.30 per share, reported for the same period of 2015. Annualized returns on average assets and average equity were 0.76 percent and 8.26 percent, respectively, through June 30, 2016, compared to 0.74 percent and 8.19 percent, respectively, for the same period a year earlier. Year-to-date 2016 earnings included gains of $5.0 million recognized in connection with the NMSB and FCSB acquisitions. Year-to-date 2015 earnings included a $42.9 million gain on the February 13, 2015, acquisition of Capitol City Bank & Trust (CCBT).

LOSS SHARE TERMINATION

On June 14, 2016, BancShares' bank subsidiary, First Citizens Bank, entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to terminate five of the bank's nine loss share agreements. Under the terms of the agreement, First Citizens Bank made a net payment of $20.1 million to the FDIC as consideration for early termination of the loss share agreements. The early termination resulted in a one-time expense of $3.4 million during the second quarter of 2016. As a result of entering the termination agreement, assets that were covered by the loss share agreements, including loans of $46.3 million and other real estate owned (OREO) of $8.2 million at March 31, 2016, were reclassified as non-covered at June 30, 2016.

In conjunction with the early termination, First Citizens Bank adjusted its clawback liabilities under the two remaining loss share agreements with clawback provisions and released other related reserves. The clawback liabilities were adjusted in order to conform to the methodology used to determine the net termination payment. The total one-time pre-tax benefit of these adjustments was $20.0 million.

The total impact to pre-tax earnings from the early termination of the FDIC loss share agreements was $16.6 million during the second quarter of 2016.

MERGER AGREEMENT WITH CORDIA BANCORP INC.

On May 19, 2016, First Citizens Bank and Cordia Bancorp, Inc. (Cordia) entered into a definitive merger agreement. The agreement provides for the acquisition by First Citizens Bank of Midlothian, Virginia-based Cordia and its bank subsidiary, Bank of Virginia. Under the terms of the agreement, cash consideration of $5.15 will be paid to Cordia's shareholders for each of their shares of Cordia's common stock. Total consideration is estimated to be $35.0 million based on Cordia's common stock outstanding at March 31, 2016. The transaction is expected to close no later than the fourth quarter of 2016, subject to the receipt of regulatory approvals and the approval of Cordia's shareholders.

SECOND QUARTER HIGHLIGHTS

  • Loans grew by $324.9 million to $20.74 billion during the second quarter of 2016, reflecting originated portfolio growth and the FCSB acquisition.
  • Net charge-offs were $3.3 million, or 0.06 percent of average loans and leases on an annualized basis, compared to $4.3 million, or 0.08 percent, during the first quarter of 2016.
  • Total noninterest income was $140.3 million in the second quarter of 2016, up $35.0 million from the first quarter of 2016. The increase was driven primarily by the $16.6 million impact of the early termination of the FDIC loss share agreements, higher investment securities gains of $12.5 million and the $3.3 million gain on the acquisitions of FCSB and NMSB recognized in the current quarter.
  • BancShares remained well-capitalized under Basel III capital requirements with a Tier 1 risk-based capital ratio of 12.63 percent, common equity Tier 1 ratio of 12.63 percent, total risk-based capital ratio of 14.10 percent and leverage capital ratio of 9.09 percent at June 30, 2016.

LOANS AND DEPOSITS

Loans at June 30, 2016, were $20.74 billion, a net increase of $324.9 million compared to March 31, 2016, representing growth of 6.4 percent on an annualized basis. Originated loan growth was $349.3 million primarily due to continued growth in the commercial portfolio. Purchased credit impaired (PCI) loans decreased by $24.4 million, reflecting loan runoff of $66.4 million, offset by net loans acquired from FCSB of $42.0 million at June 30, 2016.

Loan balances increased by a net $502.6 million, or 5.0 percent on an annualized basis, since December 31, 2015. Growth was primarily driven by $531.6 million of organic growth in the non-PCI portfolio. The PCI portfolio declined over this period by $29.0 million, reflecting continued loan run-off of $105.6 million offset by net loans acquired from NMSB and FCSB, which were $34.6 million and $42.0 million, respectively, at June 30, 2016.

At June 30, 2016, deposits were $27.26 billion, a decrease of $107.5 million since March 31, 2016, due to runoff in time deposits and money market accounts, offset by organic growth primarily in low-cost demand deposit accounts and the deposit balances from the FCSB acquisition. Deposits increased by $327.0 million, or 1.2 percent, since December 31, 2015, primarily due to organic growth in demand and savings deposit accounts and the deposit balances from the NMSB and FCSB acquisitions, offset by runoff in time deposits and money market accounts.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $208.0 million at June 30, 2016, an increase of $1.2 million and $1.8 million from March 31, 2016, and December 31, 2015, respectively. The allowance as a percentage of total loans at June 30, 2016, was 1.00 percent, compared to 1.01 percent and 1.02 percent at March 31, 2016, and December 31, 2015, respectively.

BancShares recorded net provision expense of $4.6 million for loan and lease losses for the second quarter of 2016, and $4.8 million and $7.7 million for the first quarter of 2016 and second quarter of 2015, respectively. The $281 thousand decrease in net provision expense compared to the first quarter of 2016 was due to continued credit quality improvements and lower net charge-offs on loans and leases, offset by higher originated loan growth. The $3.2 million decline in net provision expense from the second quarter of 2015 was primarily due to lower originated loan growth, offset by changes in reserves on impaired non-PCI loans.

The non-PCI loan provision expense was $6.7 million for the second quarter of 2016, compared to provision expense of $6.8 million and $9.0 million for the first quarter of 2016 and second quarter of 2015, respectively. The PCI loan portfolio net provision credit was $2.1 million during the second quarter of 2016, compared to net provision credits of $2.0 million and $1.3 million during the first quarter of 2016 and second quarter of 2015, respectively.

NONPERFORMING ASSETS

At June 30, 2016, BancShares' nonperforming assets, including nonaccrual loans and OREO, were $159.9 million, down from $162.8 million at March 31, 2016, and $169.0 million at December 31, 2015. The decreases from March 31, 2016, and December 31, 2015 were due to $5.0 million and $10.6 million reductions in nonaccrual loans, respectively, primarily in commercial loans, offset by $2.0 million and $1.5 million increases in OREO as additions outpaced sales during the quarter.

NET INTEREST INCOME

Net interest income decreased $531 thousand, or by 0.2 percent, to $232.2 million from the first quarter of 2016. The decrease was primarily due to lower PCI loan income of $1.6 million as a result of PCI loan portfolio runoff and an increase in interest expense of $788 thousand primarily due to additional Federal Home Loan Bank (FHLB) borrowings used to mitigate interest rate risk from long-term fixed rate loans. These decreases in net interest income were offset by higher investment securities interest income of $1.7 million as proceeds from maturities and sales were reinvested into higher yielding investments and an increase in non-PCI loan interest income of $666 thousand related to originated loan volume.

Net interest income decreased $2.5 million, or by 1.0 percent, from the second quarter of 2015. Loan interest income was down $7.2 million, primarily due to lower PCI loan income of $13.7 million as a result of PCI loan portfolio runoff. This decrease in net interest income was offset by a $6.5 million increase in non-PCI loan interest income due to originated loan volume, a $2.9 million improvement in investment securities interest income as proceeds from maturities and sales were reinvested into higher yielding investments and a $1.7 million increase in interest income earned on excess cash held in overnight investments. The December 2015 increase in the federal funds rate of 25 basis points contributed to higher interest income earned on overnight investments in the current quarter.

The taxable-equivalent net interest margin was 3.13 percent for the second quarter of 2016, a decrease of 5 basis points from the first quarter of 2016 and a decrease of 18 basis points from the same quarter in the prior year. The margin compression for both periods was primarily due to continued PCI loan portfolio runoff, offset by originated loan growth and an improvement in investment yields. Higher FHLB borrowings also contributed to the margin decline from the first quarter of 2016.

NONINTEREST INCOME

Total noninterest income was $140.3 million in the second quarter of 2016, up $35.0 million from the first quarter of 2016. The increase was driven primarily by the $16.6 million impact of the early termination of the FDIC loss share agreements, higher investment securities gains of $12.5 million and the $3.3 million gain on the acquisitions of FCSB and NMSB recognized in the current quarter. Noninterest income also benefited from a $4.0 million increase in merchant and cardholder services as a result of higher sales volume and a $3.2 million increase in mortgage income, due to lower impairment charges on mortgage servicing assets and increased production and sales of loans.

Noninterest income excluding acquisition gains increased by $29.5 million from the same quarter in the prior year primarily due to the impact of the early termination of the FDIC loss share agreements and a $12.4 million increase in securities gains.

NONINTEREST EXPENSE

Noninterest expense increased by $6.6 million to $258.3 million in comparison to the first quarter of 2016. The increase was primarily due to a $1.7 million increase in merchant and cardholder processing expenses aligned with increased sales volume, a $1.3 million increase in merger-related expenses from the NMSB and FCSB acquisitions, a $1.0 million increase in consultant services, a $758 thousand increase in advertising expense and an increase in other expense primarily as a result of certain litigation related costs of $2.3 million. These increases were partially offset by a $2.8 million decrease in foreclosure-related expenses primarily due to higher reimbursements on Small Business Administration (SBA) guaranteed loans.

Noninterest expense decreased by $6.4 million from the same quarter last year, primarily the result of an $8.2 million decline in personnel expenses related to lower pension costs and higher deferrals of salary costs related to loan origination activity and a $3.2 million decrease in merger-related expenses. These decreases were partially offset by a $2.2 million increase in merchant and card processing expense related to higher sales volume and an increase in other expense primarily as a result of certain litigation related costs of $2.3 million.

INCOME TAXES

Income tax expense was $40.3 million, $29.4 million and $25.2 million for the second quarter of 2016, first quarter of 2016, and second quarter of 2015, representing effective tax rates of 36.7 percent, 36.1 percent and 36.1 percent during the respective periods.

ABOUT FIRST CITIZENS BANCSHARES

BancShares is the financial holding company for Raleigh, North Carolina-headquartered First-Citizens Bank & Trust Company (First Citizens Bank). First Citizens Bank provides a broad range of financial services to individuals, businesses, professionals and the medical community through branch offices in 20 states, including online banking, mobile banking, ATMs and telephone banking. As of June 30, 2016, BancShares had total assets of $32.23 billion.

For more information, visit First Citizens' website at firstcitizens.com. First Citizens Bank. Forever First®.

 
CONSOLIDATED FINANCIAL HIGHLIGHTS
 
 Three months ended Six months ended
(Dollars in thousands, except share data; unaudited)June 30, 2016 March 31, 2016 June 30, 2015 June 30, 2016 June 30, 2015
SUMMARY OF OPERATIONS         
Interest income$243,369  $243,112  $246,013  $486,481  $477,523 
Interest expense11,180  10,392  11,363  21,572  22,708 
Net interest income232,189  232,720  234,650  464,909  454,815 
Provision for loan and lease losses4,562  4,843  7,719  9,405  13,511 
Net interest income after provision for loan and lease losses227,627  227,877  226,931  455,504  441,304 
Gain on acquisitions3,290  1,704    4,994  42,930 
Noninterest income excluding gain on acquisitions136,960  103,578  107,450  240,538  215,273 
Noninterest expense258,303  251,671  264,691  509,974  522,857 
Income before income taxes109,574  81,488  69,690  191,062  176,650 
Income taxes40,258  29,416  25,168  69,674  64,970 
Net income$69,316  $52,072  $44,522  $121,388  $111,680 
Taxable-equivalent net interest income$233,496  $234,187  $236,456  $467,683  $457,907 
PER SHARE DATA         
Net income$5.77  $4.34  $3.71  $10.11  $9.30 
Cash dividends0.30  0.30  0.30  0.60  0.60 
Book value at period-end252.76  246.55  232.62  252.76  232.62 
CONDENSED BALANCE SHEET         
Cash and due from banks$507,569  $457,758  $514,404  $507,569  $514,404 
Overnight investments2,276,080  2,871,105  1,703,341  2,276,080  1,703,341 
Investment securities6,557,736  6,687,483  7,350,545  6,557,736  7,350,545 
Loans and leases20,742,571  20,417,689  19,520,185  20,742,571  19,520,185 
Less allowance for loan and lease losses(208,008) (206,783) (208,317) (208,008) (208,317)
FDIC loss share receivable5,281  7,474  5,808  5,281  5,808 
Other assets2,349,174  1,960,931  2,010,889  2,349,174  2,010,889 
Total assets$32,230,403  $32,195,657  $30,896,855  $32,230,403  $30,896,855 
Deposits$27,257,774  $27,365,245  $26,511,896  $27,257,774  $26,511,896 
Other liabilities1,936,925  1,869,218  1,591,069  1,936,925  1,591,069 
Shareholders' equity3,035,704  2,961,194  2,793,890  3,035,704  2,793,890 
Total liabilities and shareholders' equity$32,230,403  $32,195,657  $30,896,855  $32,230,403  $30,896,855 
SELECTED PERIOD AVERAGE BALANCES         
Total assets$32,161,905  $31,705,658  $30,835,749  $31,933,782  $30,626,200 
Investment securities6,786,463  6,510,248  7,149,691  6,648,355  7,020,440 
Loans and leases20,657,094  20,349,091  19,354,823  20,503,093  19,139,621 
Interest-earning assets29,976,629  29,558,629  28,660,246  29,767,629  28,447,268 
Deposits27,212,814  26,998,026  26,342,821  27,105,420  26,089,355 
Interest-bearing liabilities19,092,287  19,067,251  18,933,611  19,079,769  19,052,128 
Shareholders' equity$2,989,097  $2,920,611  $2,781,648  $2,953,948  $2,750,964 
Shares outstanding12,010,405  12,010,405  12,010,405  12,010,405  12,010,405 
SELECTED RATIOS         
Annualized return on average assets0.87% 0.66% 0.58% 0.76% 0.74%
Annualized return on average equity9.33  7.17  6.42  8.26  8.19 
Taxable-equivalent net interest margin3.13  3.18  3.31  3.16  3.24 
Efficiency ratio (1)72.43  75.88  77.41  74.09  78.65 
Tier 1 risk-based capital ratio12.63  12.58  12.66  12.63  12.66 
Common equity Tier 1 ratio12.63  12.58  12.52  12.63  12.52 
Total risk-based capital ratio14.10  14.09  14.10  14.10  14.10 
Leverage capital ratio9.09  9.00  8.92  9.09  8.92 
(1) The efficiency ratio is a non-GAAP financial measure which measures productivity and is generally calculated as noninterest expense divided by total revenue (net interest income and noninterest income). The efficiency ratio removes the impact of BancShares' securities and acquisition gains from the calculation. Management uses this ratio to monitor performance and believes this measure provides meaningful information to investors.


ALLOWANCE FOR LOAN AND LEASE LOSSES AND ASSET QUALITY DISCLOSURES
    
 Three months ended Six months ended
(Dollars in thousands, unaudited)June 30, 2016 March 31, 2016 June 30, 2015 June 30, 2016 June 30, 2015
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)                   
ALLL at beginning of period$206,783  $206,216  $205,553  $206,216  $204,466 
(Credit) provision for loan and lease losses:         
PCI loans (1)(2,146) (1,997) (1,275) (4,143) (4,139)
Non-PCI loans (1)6,708  6,840  8,994  13,548  17,650 
Net charge-offs of loans and leases:         
Charge-offs(5,897) (6,780) (6,926) (12,675) (14,102)
Recoveries2,560  2,504  1,971  5,062  4,442 
Net charge-offs of loans and leases(3,337) (4,276) (4,955) (7,613) (9,660)
ALLL at end of period$208,008  $206,783  $208,317  $208,008  $208,317 
ALLL at end of period allocated to loans and leases:         
PCI$11,555  $13,757  $15,468  $11,555  $15,468 
Non-PCI196,453  193,026  192,849  196,453  192,849 
ALLL at end of period$208,008  $206,783  $208,317  $208,008  $208,317 
Net charge-offs of loans and leases:         
PCI$56  $558  $876  $614  $2,022 
Non-PCI3,281  3,718  4,079  6,999  7,638 
Total net charge-offs$3,337  $4,276  $4,955  $7,613  $9,660 
Reserve for unfunded commitments$399  $407  $389  $399  $389 
SELECTED LOAN DATA         
Average loans and leases:         
PCI$931,820  $939,839  $1,173,105  $935,830  $1,186,719 
Non-PCI19,725,274  19,409,252  18,181,718  19,567,263  17,952,902 
Loans and leases at period-end:         
PCI921,467  945,887  1,123,239  921,467  1,123,239 
Non-PCI19,821,104  19,471,802  18,396,946  19,821,104  18,396,946 
RISK ELEMENTS         
Nonaccrual loans and leases:         
PCI$3,759  $7,319  $8,672  $3,759  $8,672 
Non-PCI89,006  90,455  73,435  89,006  73,435 
Other real estate67,089  65,068  73,248  67,089  73,248 
Total nonperforming assets$159,854  $162,842  $155,355  $159,854  $155,355 
Accruing loans and leases 90 days or more past due$79,824  $75,280  $86,015  $79,824  $86,015 
RATIOS         
Net charge-offs (annualized) to average loans and leases:         
PCI0.02% 0.24% 0.30% 0.13% 0.34%
Non-PCI0.07  0.08  0.09  0.07  0.09 
Total0.06  0.08  0.10  0.07  0.10 
ALLL to total loans and leases:         
PCI1.25  1.45  1.38  1.25  1.38 
Non-PCI0.99  0.99  1.05  0.99  1.05 
Total1.00  1.01  1.07  1.00  1.07 
Ratio of nonperforming assets to total loans, leases and other real estate owned:         
Covered1.17  4.74  4.70  1.17  4.70 
Noncovered0.77  0.74  0.73  0.77  0.73 
Total0.77  0.80  0.79  0.77  0.79 
               

(1) Loans and leases are evaluated at acquisition and where a discount is noted at least in part due to credit quality, the loans are accounted for under the guidance in ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Loans for which it is probable at acquisition that all required payments will not be collected in accordance with the contractual terms are considered purchased credit-impaired (PCI) loans. PCI loans and leases are recorded at fair value at the date of acquisition. No allowance for loan and lease losses is recorded on the acquisition date as the fair value of the acquired assets incorporates assumptions regarding credit risk. An allowance is recorded if there is additional credit deterioration after the acquisition date. Conversely, Non-PCI loans include originated and purchased non-impaired loans.

  
AVERAGE BALANCE AND NET INTEREST MARGIN SUMMARY 
  
 Three months ended 
 June 30, 2016 March 31, 2016 June 30, 2015 
 Average    Yield/ Average    Yield/ Average   Yield/ 
(Dollars in thousands, unaudited)Balance Interest  Rate Balance Interest  Rate Balance Interest Rate 
INTEREST-EARNING ASSETS                  
Loans and leases$20,657,094  $216,612  4.22 %$20,349,091  $217,732  4.30 %$19,354,823  $224,235  4.65 %
Investment securities:                  
U. S. Treasury1,540,669  2,993  0.78  1,533,028  2,880  0.76  2,224,933  4,346  0.78  
Government agency373,006  844  0.91  463,597  1,031  0.89  915,976  2,195  0.96  
Mortgage-backed securities4,787,719  20,554  1.72  4,467,186  19,012  1.70  4,008,782  15,518  1.55  
Corporate bonds12,533  197  6.27  10,659  166  6.23        
State, county and municipal      196  1  2.73        
Other72,536  251  1.40  35,582  91  1.02        
Total investment securities6,786,463  24,839  1.47  6,510,248  23,181  1.43  7,149,691  22,059  1.23  
Overnight investments2,533,072  3,225  0.51  2,699,290  3,666  0.54  2,155,732  1,525  0.28  
Total interest-earning assets$29,976,629  $244,676  3.28 %$29,558,629  $244,579  3.32 %$28,660,246  $247,819  3.47 %
INTEREST-BEARING LIABILITIES                  
Interest-bearing deposits:                  
Checking with interest$4,446,454  $218  0.02 %$4,317,299  $200  0.02 %$4,712,074  $428  0.04 %
Savings2,016,387  151  0.03  1,944,805  145  0.03  1,833,259  98  0.02  
Money market accounts8,084,829  1,644  0.08  8,335,030  1,642  0.08  7,666,121  1,629  0.09  
Time deposits2,986,103  2,588  0.35  3,061,333  2,672  0.35  3,414,991  3,379  0.40  
Total interest-bearing deposits17,533,773  4,601  0.11  17,658,467  4,659  0.11  17,626,445  5,534  0.13  
Repurchase agreements738,191  453  0.25  655,787  433  0.27  622,547  387  0.25  
Other short-term borrowings2,573  1  0.13  2,551  1  0.12  211,185  1,271  2.41  
Long-term obligations817,750  6,125  3.00  750,446  5,299  2.82  473,434  4,171  3.52  
Total interest-bearing liabilities$19,092,287  $11,180  0.23  $19,067,251  $10,392  0.22  $18,933,611  $11,363  0.24  
Interest rate spread    3.05 %    3.10 %    3.23 %
Net interest income and net yield on interest-earning assets  $233,496  3.13 %  $234,187  3.18 %  $236,456  3.31 %
                            

Loans and leases include PCI loans, non-PCI loans, nonaccrual loans and loans held for sale. Yields related to loans, leases and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming statutory federal income tax rates of 35.0 percent for each period and state income tax rates of 5.5 percent, 5.5 percent and 6.0 percent for the three months ended June 30, 2016, March 31, 2016 and June 30, 2015, respectively. The taxable-equivalent adjustment was $1,307, $1,467 and $1,806 for the three months ended June 30, 2016, March 31, 2016 and June 30, 2015, respectively.

 

Contact: Barbara Thompson First Citizens BancShares (919) 716-2716

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