Market Overview

First Citizens BancShares Reports Earnings for Second Quarter 2018

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RALEIGH, N.C., July 26, 2018 (GLOBE NEWSWIRE) -- First Citizens BancShares, Inc. (BancShares) (NASDAQ:FCNCA) announced its financial results for the quarter ended June 30, 2018. Net income for the second quarter of 2018 was $93.3 million, or $7.77 per share, compared to $100.2 million, or $8.35 per share, for the first quarter of 2018, and $134.7 million, or $11.21 per share, for the corresponding period of 2017, according to Frank B. Holding, Jr., chairman of the board. BancShares' current quarter results generated an annualized return on average assets of 1.08 percent and an annualized return on average equity of 11.00 percent, compared to respective returns of 1.58 percent and 17.10 percent for the second quarter of 2017, and 1.19 percent and 12.20 percent for the first quarter of 2018.

For the six months ended June 30, 2018, net income was $193.5 million, or $16.11 per share, compared to $202.3 million, or $16.84 per share, reported for the same period of 2017. Annualized returns on average assets and average equity were 1.13 percent and 11.59 percent, respectively, through June 30, 2018, compared to 1.20 percent and 13.11 percent, respectively, for the same period a year earlier. Year-to-date 2018 earnings included a pre-tax gain of $25.7 million resulting from the extinguishment of Federal Home Loan Bank (FHLB) debt obligations as well as favorable impacts from the Tax Cuts and Jobs Act of 2017 (Tax Act), which reduced the federal tax rate to 21.0 percent. Year-to-date 2017 earnings included pre-tax acquisition gains of $134.7 million recognized in connection with the FDIC-assisted transactions of Guaranty Bank (Guaranty) and Harvest Community Bank (HCB).

MERGER ACTIVITY

On May 1, 2018, BancShares' bank subsidiary, First-Citizens Bank & Trust Company (First Citizens Bank) completed the merger of Tampa, Florida-based HomeBancorp, Inc. (HomeBancorp) and its subsidiary, HomeBanc, into First Citizens Bank. Under the terms of the merger agreement, cash consideration of $15.03 was paid to the shareholders of HomeBancorp for each share of HomeBancorp's common stock and total consideration was $112.7 million. The merger allowed FCB to expand its footprint in Florida by entering into two new markets in Tampa and Orlando. The HomeBancorp acquisition contributed $1.19 billion in consolidated amounts which included $566.2 million in loans and leases and $619.6 million in deposit balances at the acquisition date.

On June 27, 2018, First Citizens Bank and Capital Commerce Bancorp, Inc. entered into a definitive merger agreement. The agreement provides for the acquisition of Milwaukee, Wisconsin-based Capital Commerce Bancorp by First Citizens Bank. Under the terms of the agreement, cash consideration of $4.75 per share will be paid to the shareholders of Capital Commerce Bancorp for each share of Capital Commerce Bancorp's common stock totaling approximately $28.1 million. The transaction is expected to close no later than the fourth quarter of 2018, subject to the receipt of regulatory approvals and the approval of Capital Commerce Bancorp's shareholders. As of March 31, 2018, Capital Commerce Bancorp reported $216.2 million in consolidated assets, $180.6 million in loans and $171.0 million in deposits.

On July 25, 2018, First Citizens Bank and Palmetto Heritage Bancshares, Inc. announced the signing of a definitive merger agreement. The agreement provides for the acquisition of Pawley's Island-based Palmetto Heritage Bancshares. Under the terms of the agreement, cash consideration of $135.00 per share will be paid to the shareholders of Palmetto Heritage Bancshares for each share of Palmetto Heritage's common stock. The transaction is expected to close during the fourth quarter of 2018, subject to the receipt of regulatory approvals and the approval of Palmetto Heritage Bancshares' shareholders. As of June 30, 2018, Palmetto Heritage Bancshares reported $167.9 million in consolidated assets, $137.8 million in loans and $126.4 million in deposits.

SECOND QUARTER HIGHLIGHTS

  • Loans grew by $926.4 million to $24.54 billion, or by 15.7 percent on an annualized basis, during the second quarter of 2018, due to the HomeBancorp acquisition and originated portfolio growth.
  • Deposits increased $439.6 million to $30.41 billion, or by 5.9 percent on an annualized basis, during the second quarter of 2018, primarily due to the deposit balances acquired from HomeBancorp and organic growth in demand deposit and interest-bearing savings and checking account balances.
  • Net interest income increased $11.8 million, or by 4.1 percent, compared to the first quarter of 2018. The increase was primarily due to higher loan balances and yields, improved investment yields and a decline in interest expense.
  • The taxable-equivalent net interest margin increased 7 basis points to 3.64 percent, compared to the first quarter of 2018, primarily due to higher loan yields and improved loan mix, improved investment yields and reductions of debt balances, offset by lower PCI interest income.
  • BancShares remained well capitalized with a Tier 1 risk-based capital ratio and common equity Tier 1 ratio of 13.06 percent, total risk-based capital ratio of 14.43 percent and leverage capital ratio of 9.99 percent at June 30, 2018.

LOANS AND DEPOSITS

During the second quarter, loans grew by $926.4 million, or 15.7 percent on an annualized basis. Loan growth was attributable to $412.6 million of organic growth and $558.9 million acquired from HomeBancorp, offset by $45.1 million in PCI run-off.

Year-to-date loan balances increased by a net $941.6 million, or 8.0 percent on an annualized basis. This increase was due to organic growth of $486.9 million and $558.9 million acquired from HomeBancorp, offset by $104.2 million in PCI run-off.

At June 30, 2018, deposits were $30.41 billion, an increase of $439.6 million since March 31, 2018, and $1.14 billion since December 31, 2017. These increases during the three and six months ended June 30, 2018, were due to organic growth in demand deposit and interest-bearing savings and checking account balances as well as the deposit balances acquired from the HomeBancorp acquisition of $582.2 million. These positive drivers were offset by run-off in time deposits and lower money market account balances.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $224.9 million at June 30, 2018, an increase of $1.7 million and $3.0 million from March 31, 2018, and December 31, 2017, respectively. The allowance as a percentage of total loans at June 30, 2018, was 0.92 percent, down from 0.94 percent at both March 31, 2018, and December 31, 2017.

BancShares recorded a net provision expense of $8.4 million for loan and lease losses during the second quarter of 2018, compared to $7.6 million for the first quarter of 2018 and $12.3 million for the second quarter of 2017. The $833 thousand increase in net provision expense compared to the first quarter of 2018 was largely driven by an increase in the non-PCI provision as a result of loan growth, partially offset by a decrease in the PCI provision. The $3.9 million decline in net provision expense from the second quarter of 2017 was primarily due to a decrease in the non-PCI provision.

NONPERFORMING ASSETS

At June 30, 2018, BancShares' nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $133.3 million, down from $138.9 million at March 31, 2018, and $144.3 million at December 31, 2017. The decrease from March 31, 2018, was due to a $4.2 million decrease in nonaccrual loans and a $1.5 million decline in OREO balances. The decrease from December 31, 2017, was due to a $6.5 million decline in nonaccrual loans and a $4.5 million decrease in OREO balances as sales and write-downs outpaced additions.

NET INTEREST INCOME

Net interest income increased $11.8 million to $296.2 million, or by 4.1 percent, from the first quarter of 2018. The increase was primarily due to higher net loan interest income of $9.1 million due to higher loan yields and balances. Net interest income also benefited from an increase in investment securities interest income of $2.2 million resulting from higher investment yields as well as a $506 thousand decrease in interest expense as a result of lower borrowings.

Net interest income increased $34.6 million, or by 13.2 percent, from the second quarter of 2017. The increase was primarily due to a $25.4 million increase in net loan interest income resulting from originated loan growth and improved yields, as well as the contribution from the HomeBancorp acquisition. Net interest income also benefited from an increase in investment securities interest income of $6.8 million due to improved yields and a decline in interest expense of $3.3 million largely related to lower borrowings.

The taxable-equivalent net interest margin was 3.64 percent for the second quarter of 2018, an increase of 7 basis points from the first quarter of 2018 and an increase of 36 basis points from the same quarter in the prior year. The margin improvement for both periods was primarily due to improved loan and investment yields, higher loan balances and lower borrowings costs.

NONINTEREST INCOME

Noninterest income, excluding a gain of $25.7 million due to the extinguishment of FHLB debt obligations in the first quarter of 2018, increased by $4.1 million from the prior quarter. This increase was primarily due to growth of $3.5 million in the fair value adjustment to marketable equity securities and a $1.9 million increase in wealth management fees, partially offset by a $836 thousand decrease in insurance commissions.

Noninterest income, excluding acquisition gains of $122.7 million in the second quarter of 2017, increased by $6.0 million from the same period last year, which was primarily due to an increase in the fair value adjustment to marketable equity securities of $4.4 million and higher wealth management fees of $3.6 million. These net increases were offset by an investment securities gain of $3.4 million in the second quarter of 2017.

NONINTEREST EXPENSE

Noninterest expense decreased by $2.1 million to $266.0 million, compared to the first quarter of 2018. The decrease was largely the result of lower occupancy expenses of $1.9 million and a decline in personnel expenses of $1.7 million. Partially offsetting these decreases was an increase of $1.8 million in merger-related expenses primarily related to the HomeBancorp acquisition.

Noninterest expense increased by $10.9 million compared to the second quarter of 2017. This increase was primarily the result of a $12.3 million increase in personnel expenses as well as increased processing fees paid to third parties of $2.5 million primarily related to the Guaranty acquisition. These increases were partially offset by declines in merger-related expenses of $4.4 million and other miscellaneous expense improvements.

INCOME TAXES

Income tax expense was $29.4 million for the second quarter of 2018, $31.2 million for the first quarter of 2018 and $77.2 million for the second quarter of 2017, representing effective tax rates of 24.0 percent, 23.8 percent and 36.4 percent during the respective periods. The income tax expense and effective tax rate decreases during the second and first quarters of 2018 compared to the second quarter of 2017 were primarily due to the impact of the Tax Act.

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 19 states, including digital banking, mobile banking, ATMs and telephone banking. As of June 30, 2018, BancShares had total assets of $35.09 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, 2018   March 31, 2018   June 30, 2017   June 30, 2018   June 30, 2017
SUMMARY OF OPERATIONS                  
Interest income $ 303,877     $ 292,601     $ 272,542     $ 596,478     $ 533,399  
Interest expense 7,658     8,164     10,933     15,822     21,447  
Net interest income 296,219     284,437     261,609     580,656     511,952  
Provision for loan and lease losses 8,438     7,605     12,324     16,043     20,555  
Net interest income after provision for loan and lease losses 287,781     276,832     249,285     564,613     491,397  
Gain on acquisitions         122,728         134,745  
Noninterest income excluding gain on acquisitions 100,927     122,684     94,913     223,611     182,542  
Noninterest expense 265,993     268,063     255,047     534,056     491,746  
Income before income taxes 122,715     131,453     211,879     254,168     316,938  
Income taxes 29,424     31,222     77,219     60,646     114,657  
Net income $ 93,291     $ 100,231     $ 134,660     $ 193,522     $ 202,281  
Taxable-equivalent net interest income $ 297,021     $ 285,248     $ 262,549     $ 582,269     $ 514,142  
PER SHARE DATA                  
Net income $ 7.77     $ 8.35     $ 11.21     $ 16.11     $ 16.84  
Cash dividends 0.35     0.35     0.30     0.70     0.60  
Book value at period-end 286.99     280.77     269.75     286.99     269.75  
CONDENSED BALANCE SHEET                  
Cash and due from banks $ 260,525     $ 248,139     $ 556,772     $ 260,525     $ 556,772  
Overnight investments 1,223,311     1,946,882     2,882,789     1,223,311     2,882,789  
Investment securities 7,190,545     6,967,921     6,596,530     7,190,545     6,596,530  
Loans and leases 24,538,437     23,611,977     22,871,465     24,538,437     22,871,465  
Less allowance for loan and lease losses (224,865 )   (223,116 )   (228,798 )   (224,865 )   (228,798 )
Other assets 2,100,613     1,884,634     2,091,092     2,100,613     2,091,092  
Total assets $ 35,088,566     $ 34,436,437     $ 34,769,850     $ 35,088,566     $ 34,769,850  
Deposits $ 30,408,884     $ 29,969,245     $ 29,456,338     $ 30,408,884     $ 29,456,338  
Other liabilities 1,232,796     1,095,078     2,073,661     1,232,796     2,073,661  
Shareholders' equity 3,446,886     3,372,114     3,239,851     3,446,886     3,239,851  
Total liabilities and shareholders' equity $ 35,088,566     $ 34,436,437     $ 34,769,850     $ 35,088,566     $ 34,769,850  
SELECTED PERIOD AVERAGE BALANCES                  
Total assets $ 34,673,927     $ 34,267,945     $ 34,243,527     $ 34,471,833     $ 33,871,083  
Investment securities 7,091,442     7,053,001     7,112,267     7,072,328     7,098,702  
Loans and leases 24,205,363     23,666,098     22,575,323     23,937,221     22,265,106  
Interest-earning assets 32,669,810     32,320,431     32,104,717     32,496,086     31,704,069  
Deposits 30,100,615     29,472,125     29,087,852     29,788,106     28,811,046  
Interest-bearing liabilities 18,885,168     19,031,404     19,729,956     18,957,881     19,699,683  
Shareholders' equity $ 3,400,867     $ 3,333,114     $ 3,159,004     $ 3,366,990     $ 3,111,388  
Shares outstanding 12,010,405     12,010,405     12,010,405     12,010,405     12,010,405  
SELECTED RATIOS                  
Annualized return on average assets 1.08 %   1.19 %   1.58 %   1.13 %   1.20 %
Annualized return on average equity 11.00     12.20     17.10     11.59     13.11  
Taxable-equivalent net interest margin 3.64     3.57     3.28     3.61     3.27  
Efficiency ratio (1) 67.73     70.48     72.22     69.09     71.14  
Tier 1 risk-based capital ratio 13.06     13.38     12.69     13.06     12.69  
Common equity Tier 1 ratio 13.06     13.38     12.69     13.06     12.69  
Total risk-based capital ratio 14.43     14.70     14.07     14.43     14.07  
Leverage capital ratio 9.99     10.02     9.33     9.99     9.33  
(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 gains, acquisition gains, one-time gains on extinguishment of debt, fair market value adjustment on marketable equity securities and FDIC shared-loss termination 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, 2018   March 31, 2018   June 30, 2017   June 30, 2018   June 30, 2017
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)                  
ALLL at beginning of period $ 223,116     $ 221,893     $ 220,943     $ 221,893     $ 218,795  
Provision (credit) for loan and lease losses:                  
PCI loans (1) 161     2,354     2,572     2,515     (273 )
Non-PCI loans (1) 8,277     5,251     9,752     13,528     20,828  
Net charge-offs of loans and leases:                  
Charge-offs (9,712 )   (9,697 )   (9,423 )   (19,409 )   (18,194 )
Recoveries 3,023     3,315     4,954     6,338     7,642  
Net charge-offs of loans and leases (6,689 )   (6,382 )   (4,469 )   (13,071 )   (10,552 )
ALLL at end of period $ 224,865     $ 223,116     $ 228,798     $ 224,865     $ 228,798  
ALLL at end of period allocated to loans and leases:                  
PCI $ 12,423     $ 12,296     $ 13,496     $ 12,423     $ 13,496  
Non-PCI 212,442     210,820     215,302     212,442     215,302  
ALLL at end of period $ 224,865     $ 223,116     $ 228,798     $ 224,865     $ 228,798  
Net charge-offs of loans and leases:                  
PCI $ 34     $ 84     $     $ 118     $  
Non-PCI 6,655     6,298     4,469     12,953     10,552  
Total net charge-offs $ 6,689     $ 6,382     $ 4,469     $ 13,071     $ 10,552  
Reserve for unfunded commitments $ 1,554     $ 1,116     $ 1,133     $ 1,554     $ 1,133  
SELECTED LOAN DATA                  
Average loans and leases:                  
PCI $ 682,521     $ 733,830     $ 858,053     $ 708,034     $ 857,778  
Non-PCI 23,522,842     22,932,268     21,717,270     23,229,187     21,407,328  
Loans and leases at period-end:                  
PCI 674,269     703,837     894,863     674,269     894,863  
Non-PCI 23,864,168     22,908,140     21,976,602     23,864,168     21,976,602  
RISK ELEMENTS                  
Nonaccrual loans and leases:                  
PCI $ 1,570     $ 1,580     $ 1,312     $ 1,570     $ 1,312  
Non-PCI 85,055     89,260     88,067     85,055     88,067  
Other real estate 46,633     48,089     60,781     46,633     60,781  
Total nonperforming assets $ 133,258     $ 138,929     $ 150,160     $ 133,258     $ 150,160  
Accruing loans and leases 90 days or more past due $ 44,445     $ 51,259     $ 76,778     $ 44,445     $ 76,778  
RATIOS                  
Net charge-offs (annualized) to average loans and leases:                  
PCI 0.02 %   0.05 %   %   0.03 %   %
Non-PCI 0.11     0.11     0.08     0.11     0.10  
Total 0.11     0.11     0.08     0.11     0.10  
ALLL to total loans and leases:                  
PCI 1.84     1.75     1.51     1.84     1.51  
Non-PCI 0.89     0.92     0.98     0.89     0.98  
Total 0.92     0.94     1.00     0.92     1.00  
Ratio of total nonperforming assets to total loans, leases and other real estate owned 0.54     0.59     0.65     0.54     0.65  

(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. Non-PCI loans include originated and purchased non-impaired loans.

   
AVERAGE BALANCE AND NET INTEREST MARGIN SUMMARY  
   
  Three months ended  
  June 30, 2018   March 31, 2018   June 30, 2017  
  Average        Yield/   Average        Yield/   Average       Yield/  
(Dollars in thousands, unaudited) Balance   Interest    Rate (2)   Balance   Interest    Rate (2)   Balance   Interest   Rate (2)  
INTEREST-EARNING ASSETS                                    
Loans and leases (1) $ 24,205,363     $ 261,703     4.34   % $ 23,666,098     $ 252,627     4.32   % $ 22,575,323     $ 236,580     4.20   %
Investment securities:                                    
U. S. Treasury 1,532,868     7,139     1.87     1,567,388     6,774     1.75     1,622,936     4,453     1.10    
Government agency 84,640     468     2.21     14,952     100     2.67     52,049     203     1.56    
Mortgage-backed securities 5,270,891     28,184     2.14     5,295,273     27,093     2.05     5,278,731     24,756     1.88    
Corporate bonds and other 94,401     1,298     5.50     66,009     1,010     6.12     60,356     932     6.17    
State, county and municipal 764     8     4.07                            
Marketable equity securities 107,878     267     0.99     109,379     209     0.77     98,195     154     0.63    
Total investment securities 7,091,442     37,364     2.11     7,053,001     35,186     2.00     7,112,267     30,498     1.72    
Overnight investments 1,373,005     5,612     1.64     1,601,332     5,599     1.42     2,417,127     6,404     1.06    
Total interest-earning assets $ 32,669,810     $ 304,679     3.75   % $ 32,320,431     $ 293,412     3.67   % $ 32,104,717     $ 273,482     3.42   %
INTEREST-BEARING LIABILITIES                                    
Interest-bearing deposits:                                    
Checking with interest $ 5,228,803     $ 314     0.02   % $ 5,091,670     $ 293     0.02   % $ 4,978,159     $ 253     0.02   %
Savings 2,468,677     194     0.03     2,378,499     171     0.03     2,293,589     188     0.03    
Money market accounts 7,989,268     2,125     0.11     8,139,405     1,749     0.09     8,107,107     1,688     0.08    
Time deposits 2,401,434     1,888     0.32     2,340,698     1,543     0.27     2,745,473     2,003     0.29    
Total interest-bearing deposits 18,088,182     4,521     0.10     17,950,272     3,756     0.08     18,124,328     4,132     0.09    
Repurchase agreements 516,999     373     0.29     585,627     548     0.37     718,700     539     0.30    
Other short-term borrowings 46,614     448     3.82     91,440     886     3.88     87,609     637     2.88    
Long-term obligations 233,373     2,316     3.96     404,065     2,974     2.94     799,319     5,625     2.82    
Total interest-bearing liabilities $ 18,885,168     $ 7,658     0.16     $ 19,031,404     $ 8,164     0.17     $ 19,729,956     $ 10,933     0.22    
Interest rate spread         3.59   %         3.50   %         3.20   %
Net interest income and net yield on interest-earning assets     $ 297,021     3.64   %     $ 285,248     3.57   %     $ 262,549     3.28   %

(1) Loans and leases include PCI and non-PCI loans, nonaccrual loans and loans held for sale.

(2) 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 21.0 percent, 21.0 percent and 35.0 percent as well as state income tax rates of 3.4 percent, 3.4 percent and 3.1 percent for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively. The taxable-equivalent adjustment was $802, $811 and $940 for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively.

Contact:
Barbara Thompson
First Citizens BancShares
919.716.2716

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