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8-K - 8-K - FIRST CITIZENS BANCSHARES INC /DE/earningscover_8kxq12016.htm

 
NEWS RELEASE
 
 
For Immediate Release
April 27, 2016
Contact:
Barbara Thompson
 
First Citizens BancShares
 
(919) 716-2716
 
 
 
FIRST CITIZENS BANCSHARES REPORTS EARNINGS FOR FIRST QUARTER 2016
RALEIGH, N.C. -- First Citizens BancShares Inc. (BancShares) (Nasdaq: FCNCA) announced its financial results for the quarter ended March 31, 2016. Net income for the first quarter of 2016 was $52.1 million, or $4.34 per share, compared to $42.7 million, or $3.56 per share, for the fourth quarter of 2015, and $67.2 million, or $5.59 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 0.66 percent and an annualized return on average equity of 7.17 percent, compared to respective returns of 0.53 percent and 5.92 percent for the fourth quarter of 2015 and 0.90 percent and 10.00 percent for the first quarter of 2015.
Earnings for the first quarter of 2016 included an acquisition gain of $1.7 million recognized in connection with an FDIC-assisted transaction involving certain assets and liabilities assumed of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin, acquired on March 11, 2016. The NMSB acquisition contributed $35.3 million in loans and $46.3 million in deposit balances at March 31, 2016. Earnings for the first quarter of 2015 included a $42.9 million gain on the February 13, 2015, acquisition of Capitol City Bank & Trust (CCBT).
FIRST QUARTER HIGHLIGHTS
Loans grew by $177.7 million to $20.42 billion during the first quarter of 2016, reflecting originated portfolio growth and the NMSB acquisition.
Deposits increased $434.5 million, or by 6.4 percent on an annualized basis, from December 31, 2015, primarily due to organic growth in low-cost demand deposit and savings accounts.
Net charge-offs were $4.3 million, or 0.08 percent of average loans and leases on an annualized basis, compared to $6.3 million, or 0.12 percent, during the fourth quarter of 2015.
The taxable-equivalent net interest margin increased by 6 basis points to 3.18 percent from the fourth quarter of 2015 due to originated loan growth and improvement in the overnight investment yield, partially offset by continued runoff of the purchased credit impaired (PCI) loan portfolio.
Noninterest income was $105.3 million and $99.1 million in the first quarter of 2016 and fourth quarter of 2015, respectively. The increase was driven primarily by investment securities gains of $4.6 million, lower adjustments to the FDIC receivable and the $1.7 million gain on the acquisition of NMSB in the current quarter.
BancShares remained well-capitalized under Basel III capital requirements with a Tier 1 risk-based capital ratio of 12.58 percent, common equity Tier 1 ratio of 12.58 percent, total risk-based capital ratio of 14.10 percent and leverage capital ratio of 9.00 percent at March 31, 2016.
LOANS AND DEPOSITS
Loans at March 31, 2016, were $20.42 billion, a net increase of $177.7 million compared to December 31, 2015, representing growth of 3.5 percent on an annualized basis. Originated loans increased by $182.3 million primarily due to continued commercial portfolio growth. PCI loans decreased by $4.6 million, reflecting loan runoff of $39.9 million, partially offset by net loans acquired from NMSB of $35.3 million at March 31, 2016.




At March 31, 2016, deposits were $27.37 billion, an increase of $434.5 million, or by 1.6 percent, since December 31, 2015. The increase during the quarter was due to organic growth primarily in low-cost demand deposit and savings accounts.
ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses was $206.8 million at March 31, 2016, an increase of $567 thousand compared to December 31, 2015. The allowance as a percentage of total loans at March 31, 2016, was 1.01 percent, compared to 1.02 percent at December 31, 2015.
BancShares recorded net provision expense of $4.8 million for loan and lease losses for the first quarter of 2016, and $7.0 million and $5.8 million for the fourth quarter of 2015 and first quarter of 2015, respectively. The $2.2 million decrease in net provision expense compared to the fourth quarter of 2015 was due to lower net charge-offs on non-PCI loans and higher impairment reversals on PCI loans. The $949 thousand decline in net provision expense from the first quarter of 2015 was primarily due to lower originated loan growth, partially offset by lower impairment reversals on PCI loans.
The non-PCI loan provision expense was $6.8 million for the first quarter of 2016, compared to provision expense of $7.9 million and $8.7 million for the fourth quarter of 2015 and first quarter of 2015, respectively. The PCI loan portfolio net provision credit was $2.0 million during the first quarter of 2016, compared to net provision credits of $903 thousand and $2.9 million during the fourth quarter of 2015 and first quarter of 2015, respectively.
NONPERFORMING ASSETS
At March 31, 2016, BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $162.8 million, down from $169.0 million at December 31, 2015. The $6.2 million, or 3.6 percent, decrease was due to a $5.7 million reduction in nonaccrual loans primarily in the commercial non-PCI loan portfolio and a $491 thousand decline in OREO due to problem asset resolutions.
NET INTEREST INCOME
Net interest income increased $2.0 million, or by 0.9 percent, to $232.7 million from the fourth quarter of 2015. The increase primarily resulted from higher interest income earned on excess cash held in overnight investments of $1.6 million and lower interest expense of $750 thousand due to reduced borrowing and deposit funding costs. The December 2015 increase in federal funds rate of 25 basis points contributed to higher interest income earned on overnight investments. These favorable impacts were offset by lower PCI loan income resulting from PCI loan portfolio runoff.
Net interest income increased $12.6 million, or by 5.7 percent, from the first quarter of 2015. Loan interest income was up $5.5 million as a result of originated loan growth, and investment securities interest income improved by $3.7 million as proceeds from maturities and sales were reinvested into higher yielding investments. Net interest income also benefited from higher income earned on overnight investments as a result of the increase in the federal funds rate and lower interest expense due to lower interest-bearing deposit costs. These favorable impacts were offset by lower PCI loan income resulting from PCI loan portfolio runoff.
The taxable-equivalent net interest margin was 3.18 percent for the first quarter of 2016, an increase of 6 basis points from the fourth quarter of 2015. The margin improvement was due to continued originated loan growth, improvement in investment yields and lower borrowing costs, partially offset by PCI loan portfolio runoff. The taxable equivalent net interest margin was unchanged from 3.18 percent from the same quarter in the prior year.
NONINTEREST INCOME
Total noninterest income was $105.3 million for the first quarter of 2016, an increase of $6.1 million from the fourth quarter of 2015 primarily the result of $4.6 million in securities gains, lower adjustments to the FDIC receivable of $6.7 million and the $1.7 million NMSB acquisition gain. These improvements were partially offset by a $2.3 million decrease in recoveries of PCI loans previously charged-off and a $1.9 million reduction in mortgage income. The reduction in mortgage income was due to a $1.9 million impairment charge on mortgage servicing assets, which was driven by a decline in interest rates during the quarter.




Noninterest income excluding acquisition gains decreased by $4.2 million from the same quarter in the prior year due to a $3.2 million decline in mortgage income, a $2.6 million decrease in recoveries of PCI loans previously charged-off, higher unfavorable adjustments to the FDIC receivable of $1.5 million and a $1.2 million decline in wealth management income. These decreases were partially offset by a $3.1 million increase in merchant income due to higher sales volume.
NONINTEREST EXPENSE
Noninterest expense decreased by $4.2 million to $251.7 million in comparison to the fourth quarter of 2015. The decrease was primarily due to a $2.9 million reduction in merger-related expenses, a $2.7 million decline in advertising costs, a $1.1 million decline in personnel expenses and a $1.0 million decrease in equipment expense. These decreases were partially offset by a $3.7 million increase in foreclosure-related expenses primarily due to a net loss on sales of acquired OREO in the current quarter.
Noninterest expense decreased by $6.5 million from the same quarter last year, primarily the result of a $5.4 million decline in personnel expenses related to lower pension and higher deferrals of salary costs related to loan origination activity and a $3.0 million decrease in merger-related expenses. These decreases were partially offset by a $2.4 million increase in merchant and card processing expense related to higher sales volume.
INCOME TAXES
Income tax expense was $29.4 million, $24.2 million and $39.8 million for the first quarter of 2016, fourth quarter of 2015, and first quarter of 2015, representing effective tax rates of 36.1 percent, 36.1 percent and 37.2 percent during the respective periods. The higher effective tax rate for the first quarter of 2015 was primarily attributable to increased pre-tax earnings as a result of the CCBT acquisition gain.
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 online banking, mobile banking, ATMs and telephone banking. As of March 31, 2016, BancShares had total assets of $32.20 billion.
For more information, visit First Citizens’ website at firstcitizens.com. First Citizens Bank. Forever First®.
###





CONSOLIDATED FINANCIAL HIGHLIGHTS
 
Three months ended
(Dollars in thousands, except share data; unaudited)
March 31, 2016
 
December 31, 2015
 
March 31, 2015
SUMMARY OF OPERATIONS
 
 
 
 
 
Interest income
$
243,112

 
$
241,861

 
$
231,510

Interest expense
10,392

 
11,142

 
11,345

Net interest income
232,720

 
230,719

 
220,165

Provision for loan and lease losses
4,843

 
7,046

 
5,792

Net interest income after provision for loan and lease losses
227,877

 
223,673

 
214,373

Gain on acquisition
1,704

 

 
42,930

Noninterest income excluding gain on acquisition
103,578

 
99,135

 
107,823

Noninterest expense
251,671

 
255,886

 
258,166

Income before income taxes
81,488

 
66,922

 
106,960

Income taxes
29,416

 
24,174

 
39,802

Net income
$
52,072

 
$
42,748

 
$
67,158

Taxable-equivalent net interest income
$
234,187

 
$
232,147

 
$
221,452

PER SHARE DATA
 
 
 
 
 
Net income
$
4.34

 
$
3.56

 
$
5.59

Cash dividends
0.30

 
0.30

 
0.30

Book value at period-end
246.55

 
239.14

 
230.53

CONDENSED BALANCE SHEET
 
 
 
 
 
Cash and due from banks
$
457,758

 
$
534,086

 
$
495,901

Overnight investments
2,871,105

 
2,063,132

 
2,458,923

Investment securities
6,687,483

 
6,861,548

 
7,045,550

Loans and leases
20,417,689

 
20,239,990

 
19,096,959

Less allowance for loan and lease losses
(206,783
)
 
(206,216
)
 
(205,553
)
FDIC loss share receivable
7,474

 
4,054

 
21,340

Other assets
1,960,931

 
1,979,340

 
1,949,812

Total assets
$
32,195,657

 
$
31,475,934

 
$
30,862,932

Deposits
$
27,365,245

 
$
26,930,755

 
$
26,300,830

Other liabilities
1,869,218

 
1,673,070

 
1,793,383

Shareholders' equity
2,961,194

 
2,872,109

 
2,768,719

Total liabilities and shareholders' equity
$
32,195,657

 
$
31,475,934

 
$
30,862,932

SELECTED PERIOD AVERAGE BALANCES
 
 
 
 
 
Total assets
$
31,705,658

 
$
31,753,223

 
$
30,414,322

Investment securities
6,510,248

 
6,731,183

 
6,889,752

Loans and leases
20,349,091

 
20,059,556

 
18,922,028

Interest-earning assets
29,558,629

 
29,565,715

 
28,231,923

Deposits
26,998,026

 
27,029,650

 
25,833,068

Interest-bearing liabilities
19,067,251

 
18,933,443

 
19,171,958

Shareholders' equity
$
2,920,611

 
$
2,867,177

 
$
2,724,719

Shares outstanding
12,010,405

 
12,010,405

 
12,010,405

SELECTED RATIOS
 
 
 
 
 
Annualized return on average assets
0.66
%
 
0.53
%
 
0.90
%
Annualized return on average equity
7.17

 
5.92

 
10.00

Taxable-equivalent net interest margin
3.18

 
3.12

 
3.18

Efficiency ratio (1)
75.88

 
77.57

 
79.96

Tier 1 risk-based capital ratio
12.58

 
12.65

 
12.92

Common equity Tier 1 ratio
12.58

 
12.51

 
12.77

Total risk-based capital ratio
14.10

 
14.03

 
14.42

Leverage capital ratio
9.00

 
8.96

 
8.90

(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
(Dollars in thousands, unaudited)
March 31, 2016
 
December 31, 2015
 
March 31, 2015
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
 
 
 
 
 
ALLL at beginning of period
$
206,216

 
$
205,463

 
$
204,466

Provision (credit) for loan and lease losses:
 
 
 
 
 
PCI loans (1)
(1,997
)
 
(903
)
 
(2,864
)
Non-PCI loans (1)
6,840

 
7,949

 
8,656

Net charge-offs of loans and leases:
 
 
 
 
 
Charge-offs
(6,780
)
 
(8,551
)
 
(7,176
)
Recoveries
2,504

 
2,258

 
2,471

Net charge-offs of loans and leases
(4,276
)
 
(6,293
)
 
(4,705
)
ALLL at end of period
$
206,783

 
$
206,216

 
$
205,553

ALLL at end of period allocated to loans and leases:
 
 
 
 
 
PCI
$
13,757

 
$
16,312

 
$
17,619

Non-PCI
193,026

 
189,904

 
187,934

ALLL at end of period
$
206,783

 
$
206,216

 
$
205,553

Net charge-offs of loans and leases:
 
 
 
 
 
PCI
$
558

 
$
342

 
$
1,146

Non-PCI
3,718

 
5,951

 
3,559

Total net charge-offs
$
4,276

 
$
6,293

 
$
4,705

Reserve for unfunded commitments
$
407

 
$
379

 
$
404

SELECTED LOAN DATA
 
 
 
 
 
Average loans and leases:
 
 
 
 
 
PCI
$
939,839

 
$
996,637

 
$
1,200,484

Non-PCI
19,409,252

 
19,062,919

 
17,721,544

Loans and leases at period-end:
 
 
 
 
 
PCI
945,887

 
950,516

 
1,252,545

Non-PCI
19,471,802

 
19,289,474

 
17,844,414

RISK ELEMENTS
 
 
 
 
 
Nonaccrual loans and leases:
 
 
 
 
 
Covered under loss share agreements
$
2,968

 
$
2,992

 
$
21,440

Not covered under loss share agreements
94,806

 
100,441

 
71,536

Other real estate:
 
 
 
 
 
Covered
9,734

 
6,817

 
17,302

Noncovered
55,334

 
58,742

 
72,690

Nonperforming assets:
 
 
 
 
 
Covered
$
12,702

 
$
9,809

 
$
38,742

Noncovered
150,140

 
159,183

 
144,226

 Total nonperforming assets
$
162,842

 
$
168,992

 
$
182,968

Accruing loans and leases 90 days or more past due
$
69,687

 
$
77,066

 
$
99,130

RATIOS
 
 
 
 
 
Net charge-offs (annualized) to average loans and leases:
 
 
 
 
 
PCI
0.24
%
 
0.14
%
 
0.39
%
Non-PCI
0.08

 
0.12

 
0.08

Total
0.08

 
0.12

 
0.10

ALLL to total loans and leases:
 
 
 
 
 
PCI
1.45

 
1.72

 
1.41

Non-PCI
0.99

 
0.98

 
1.05

Total
1.01

 
1.02

 
1.08

Ratio of nonperforming assets to total loans, leases and other real estate owned:
 
 
 
 
 
Covered
4.74

 
3.51

 
8.42

Noncovered
0.74

 
0.79

 
0.77

Total
0.80

 
0.83

 
0.95

(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
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 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
$
20,349,091

 
$
217,732

 
4.30

%
$
20,059,556

 
$
218,048

 
4.32

%
$
18,922,028

 
$
211,885

 
4.54

%
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U. S. Treasury
1,533,028

 
2,880

 
0.76

 
1,686,269

 
3,092

 
0.73

 
2,355,234

 
4,593

 
0.79

 
Government agency
463,597

 
1,031

 
0.89

 
599,048

 
1,282

 
0.86

 
938,356

 
1,708

 
0.73

 
Mortgage-backed securities
3,404,123

 
15,892

 
1.87

 
4,437,936

 
18,632

 
1.68

 
3,592,499

 
13,220

 
1.47

 
State, county and municipal
196

 
1

 
2.73

 

 

 

 
3,663

 
53

 
5.77

 
Other
1,109,304

 
3,377

 
1.22

 
7,930

 
205

 
10.30

 

 

 

 
Total investment securities
6,510,248

 
23,181

 
1.43

 
6,731,183

 
23,211

 
1.38

 
6,889,752

 
19,574

 
1.14

 
Overnight investments
2,699,290

 
3,666

 
0.54

 
2,774,976

 
2,030

 
0.29

 
2,420,143

 
1,338

 
0.22

 
Total interest-earning assets
$
29,558,629

 
$
244,579

 
3.32

%
$
29,565,715

 
$
243,289

 
3.27

%
$
28,231,923

 
$
232,797

 
3.34

%
INTEREST-BEARING LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Checking with interest
$
4,317,299

 
$
200

 
0.02

%
$
4,234,147

 
$
204

 
0.02

%
$
4,608,049

 
$
415

 
0.04

%
Savings
1,944,805

 
145

 
0.03

 
1,887,520

 
142

 
0.03

 
1,765,540

 
92

 
0.02

 
Money market accounts
8,335,030

 
1,642

 
0.08

 
8,175,228

 
1,605

 
0.08

 
7,821,438

 
1,641

 
0.09

 
Time deposits
3,061,333

 
2,672

 
0.35

 
3,200,354

 
2,900

 
0.36

 
3,515,525

 
3,481

 
0.40

 
Total interest-bearing deposits
17,658,467

 
4,659

 
0.11

 
17,497,249

 
4,851

 
0.11

 
17,710,552

 
5,629

 
0.13

 
Repurchase agreements
655,787

 
433

 
0.27

 
728,526

 
471

 
0.26

 
305,918

 
121

 
0.16

 
Other short-term borrowings
2,551

 
1

 
0.12

 
3,203

 
7

 
1.39

 
694,775

 
1,813

 
1.05

 
Long-term obligations
750,446

 
5,299

 
2.82

 
704,465

 
5,813

 
3.30

 
460,713

 
3,782

 
3.28

 
Total interest-bearing liabilities
$
19,067,251

 
$
10,392

 
0.22

 
$
18,933,443

 
$
11,142

 
0.23

 
$
19,171,958

 
$
11,345

 
0.24

 
Interest rate spread
 
 
 
 
3.10

%
 
 
 
 
3.04

%
 
 
 
 
3.10

%
Net interest income and net yield on interest-earning assets
 
 
$
234,187

 
3.18

%
 
 
$
232,147

 
3.12

%
 
 
$
221,452

 
3.18

%
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 March 31, 2016, December 31, 2015 and March 31, 2015, respectively. The taxable-equivalent adjustment was $1,467, $1,428 and $1,287 for the three months ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively.