First Citizens BancShares Reports Earnings For Third Quarter 2018
RALEIGH, N.C. — First Citizens BancShares, Inc. (BancShares) (Nasdaq: FCNCA) announced its financial results for the quarter ended September 30, 2018. Net income for the third quarter of 2018 was $117.3 million, or $9.80 per share, compared to $93.3 million, or $7.77 per share, for the second quarter of 2018, and $67.1 million, or $5.58 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 1.33 percent and an annualized return on average equity of 13.41 percent, compared to respective returns of 1.08 percent and 11.00 percent for the second quarter of 2018, and 0.77 percent and 8.10 percent for the third quarter of 2017.
For the nine months ended September 30, 2018, net income was $310.8 million, or $25.91 per share, compared to $269.3 million, or $22.43 per share, reported for the same period of 2017. Annualized returns on average assets and average equity were 1.20 percent and 12.22 percent, respectively, through September 30, 2018, compared to 1.06 percent and 11.37 percent, respectively, for the same period a year earlier. Year-to-date 2018 earnings included a pre-tax gain of $26.5 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). 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).
THIRD QUARTER HIGHLIGHTS
- Loans grew by $347.9 million to $24.89 billion, or by 5.6 percent on an annualized basis, during the third quarter of 2018 primarily as the result of originated portfolio growth.
- A tax benefit of $15.7 million was recorded during the third quarter of 2018, as a result of updating the original provisional amount recorded for the effects of the Tax Act.
- Net interest income increased $11.1 million, or by 3.8 percent, compared to the second quarter of 2018. The increase was primarily due to higher loan balances and yields, as well as improved investment yields.
- The taxable-equivalent net interest margin increased 9 basis points to 3.73 percent, compared to the second quarter of 2018, primarily due to higher loan yields and balances, as well as improved investment yields.
- BancShares remained well capitalized with a Tier 1 risk-based capital ratio and common equity Tier 1 ratio of 13.23 percent, total risk-based capital ratio of 14.57 percent and leverage capital ratio of 10.11 percent at September 30, 2018.
- BancShares’ acquisition of Capital Commerce Bancorp, Inc. (Capital Commerce) as previously announced in the second quarter of 2018 received all regulatory and shareholder approvals. The transaction closed on October 2, 2018.
LOANS AND DEPOSITS
Loans at September 30, 2018, were $24.89 billion, a net increase of $347.9 million compared to June 30, 2018, representing growth of 5.6 percent on an annualized basis. Growth was primarily related to growth in the commercial mortgage portfolio and was offset by a decline in purchased credit impaired (PCI) loans of $36.3 million.
Loan balances increased by a net $1.29 billion, or 7.3 percent on an annualized basis since December 31, 2017. This increase was primarily driven by $902.9 million of organic growth and $511.6 million in non-PCI loans (balance as of September 30, 2018) acquired in the HomeBancorp, Inc. (HomeBancorp) acquisition on May 1, 2018. The PCI portfolio decreased over this period by $125.0 million.
Deposits at September 30, 2018 were $30.16 billion, a decrease of $245.3 million since June 30, 2018. The decrease was primarily due to declines in money market and interest-bearing checking account balances, offset by growth in demand deposit account balances.
Deposits increased by $897.3 million, or by 3.1 percent, since December 31, 2017, due to organic growth of $367.3 million primarily in demand deposits, savings and interest-bearing checking account balances, as well as the deposit balances acquired from HomeBancorp of $530.0 million (balance as of September 30, 2018). These increases were offset by runoff 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 $219.2 million at September 30, 2018, a decrease of $5.7 million and $2.7 million from June 30, 2018, and December 31, 2017, respectively. The allowance as a percentage of total loans at September 30, 2018, was 0.88 percent, down from 0.92 percent and 0.94 percent at June 30, 2018, and December 31, 2017, respectively.
BancShares recorded net provision expense of $840 thousand during the third quarter of 2018, compared to $8.4 million for the second quarter of 2018 and $7.9 million for the third quarter of 2017. The $7.6 million and $7.1 million decrease, respectively, in net provision expense was largely driven by sustained improvements in credit quality, partially offset by loan growth.
At September 30, 2018, BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $130.6 million, down from $133.3 million at June 30, 2018, and $144.3 million at December 31, 2017. The decrease from June 30, 2018, was primarily due to a $3.0 million decline in OREO balances. The decrease from December 31, 2017, was due to a $7.5 million decline in OREO balances and a $6.2 million decrease in nonaccrual loans, primarily in commercial and residential mortgage loans. The decline in OREO balances in both periods was due to sales and write-downs outpacing additions.
NET INTEREST INCOME
Net interest income increased $11.1 million to $307.4 million, or by 3.8 percent, from the second quarter of 2018. The increase was primarily due to higher loan yields and balances, and higher investment yields. These were primarily offset by a decrease in interest income earned on overnight investments.
Net interest income increased $34.2 million, or by 12.5 percent, from the third quarter of 2017. The increase was primarily due to a $25.9 million increase in net loan interest income due to loan growth and improved yields, as well as the contribution from the HomeBancorp acquisition. Net interest income also benefited from improved yields on investment securities and a decline in interest expense largely related to lower borrowing costs due to the debt extinguishments in the first quarter of 2018. These positive drivers were partially offset by a $3.6 million decrease in interest income earned on overnight investments.
The taxable-equivalent net interest margin was 3.73 percent for the third quarter of 2018, an increase of 9 basis points from the second quarter of 2018 and an increase of 38 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 borrowing costs.
Noninterest income decreased by $6.4 million to $94.5 million compared to the second quarter of 2018. The decrease was primarily due to a decline in PCI loan recoveries of $2.4 million, lower FDIC receivable adjustments of $1.2 million and a decrease in wealth management fees of $1.1 million.
Noninterest income decreased by $1.5 million compared to the third quarter of 2017. The decrease was primarily due to lower mortgage income of $2.7 million as a result of a decline in gains on sale of mortgage loans and a decrease in PCI loan recoveries of $2.5 million. These decreases were partially offset by higher wealth management fees of $3.2 million driven primarily by increases in sales volume and assets under management.
Noninterest expense increased by $1.5 million to $267.5 million compared to the second quarter of 2018. The increase was largely the result of higher personnel expenses of $3.2 million, offset by a decrease of $1.3 million in merger-related expenses primarily related to the HomeBancorp acquisition.
Noninterest expense increased by $9.9 million compared to the third quarter of 2017. This growth was primarily the result of a $12.4 million increase in personnel expenses and a $2.0 million increase in equipment expenses. These increases were partially offset by a decline in processing fees paid to third parties of $1.9 million primarily due to acquired bank contract terminations and a decrease in other expenses of $1.5 million.
Income tax expense was $16.2 million for the third quarter of 2018, $29.4 million for the second quarter of 2018 and $36.6 million for the third quarter of 2017, representing effective tax rates of 12.1 percent, 24.0 percent and 35.3 percent during the respective periods. The income tax expense and effective tax rate decreases during the third and second quarters of 2018 compared to the third quarter of 2017 were primarily due to the impact of the Tax Act. Additional information was obtained in the third quarter of 2018 affecting the provisional amount initially recorded for the quarter ended December 31, 2017, to account for the effects of the Tax Act. As a result, a tax benefit of $15.7 million was recorded in the third quarter of 2018. The ultimate impact will be finalized in the fourth quarter and may differ due to additional analysis, changes in interpretations and assumptions as well as additional regulatory guidance that may be issued.
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 September 30, 2018, BancShares had total assets of $34.95 billion.
For more information, visit First Citizens’ website at firstcitizens.com. First Citizens Bank. Forever First®.
First Citizens BancShares
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