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First Citizens BancShares Reports Earnings For Second Quarter 2016

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

Source:First Citizens BancShares Inc.