News Release · January 30, 2019

First Citizens BancShares Reports Earnings For Fourth Quarter 2018

RALEIGH, N.C. — First Citizens BancShares Inc. (BancShares) (Nasdaq: FCNCA) reported strong earnings for the year ended 2018 benefiting from net revenue growth and tax reform, according to Frank B. Holding, Jr., Chairman of the Board. Key results for the quarter and year ended December 31, 2018, are presented below:

For the quarter ended

4Q18

3Q18

4Q17

Net income (in millions)

$89.5

$117.3

$54.4

Net income per share

$7.62

$9.80

$4.53

Annualized return on average assets

1.00%

1.33%

0.62%

Annualized return on average equity

10.17%

13.41%

6.48%

For the year ended

12/31/2018

12/31/2017

Net income (in millions)

$400.3

$323.8

Net income per share

$33.53

$26.96

Annualized return on average assets

1.15%

0.94%

Annualized return on average equity

11.69%

10.10%

FINANCIAL HIGHLIGHTS

  • Net income for the fourth quarter of 2018 increased $35.1 million, or by 64.5 percent, compared to the fourth quarter of 2017. The increase was primarily the result of higher interest income due to loan growth and higher loan and investment yields, as well as lower income tax expense. Income tax expense was lower primarily due to the deferred tax asset re-measurement during the fourth quarter of 2017 as a result of tax reform. These net income improvements were partially offset by fair value adjustment losses on marketable equity securities.
  • Net income for the fourth quarter of 2018 decreased $27.8 million, or by 23.7 percent, compared to the third quarter of 2018. The decrease was primarily the result of fair value adjustment losses on marketable equity securities, higher provision for loan losses, and higher income tax expense. Income tax expense was higher primarily due to the tax benefit recognized during the third quarter of 2018. The tax benefit recognized represents a refinement of our original deferred tax asset adjustment recorded during the fourth quarter of 2017. These reductions to net income were partially offset by increased interest income due to loan growth and higher loan and investment yields.
  • Net income for the year ended 2018 increased $76.6 million, or by 23.6 percent, compared to the year ended 2017. The increase was primarily the result of higher interest income due to loan growth, higher loan and investment yields, as well as lower income tax expense. Income tax expense was lower primarily due to the reduction in the corporate federal income tax rate from 35 percent to 21 percent and the deferred tax re-measurement during the fourth quarter of 2017, both items resulting from tax reform. These increases to net income were partially offset by lower gains on acquisitions and higher personnel, occupancy and furniture, fixtures and equipment expenses.
  • Earnings in 2018 included pre-tax gains of $26.6 million resulting from the extinguishment of Federal Home Loan Bank (FHLB) debt obligations as well as favorable impacts from tax reform. Earnings in 2017 included pre-tax gains of $134.7 million recognized in connection with the FDIC-assisted transactions of Harvest Community Bank (HCB) of Pennsville, New Jersey, and Guaranty Bank (Guaranty) of Milwaukee, Wisconsin.
  • Loans grew by $636.9 million during the fourth quarter and by $1.93 billion for the year, reflecting originated loan growth of $329.5 million and $1.31 billion respectively. Acquired loans from HomeBancorp, Capital Commerce and Palmetto Heritage totaled $798.7 million at year end.
  • Deposits grew by $508.9 million during the fourth quarter and by $1.41 billion for the year, reflecting organic deposit growth of $223.7 million and $675.7 million, respectively. Acquired deposits from HomeBancorp, Capital Commerce and Palmetto Heritage totaled $730.5 million at year end.
  • BancShares remained well-capitalized at December 31, 2018, under Basel III capital requirements with a Tier 1 risk-based capital ratio and common equity Tier 1 ratio of 12.67 percent, total risk-based capital ratio of 13.99 percent and leverage capital ratio of 9.77 percent.

MERGER ACTIVITY

On January 10, 2019, First Citizens Bank (FCB) and First South Bancorp, Inc. (First South Bancorp) entered into a definitive merger agreement for the acquisition by FCB of Spartanburg, South Carolina-based First South Bancorp and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 will be paid to the shareholders of First South Bancorp for each share of common stock totaling approximately $37.5 million. The transaction is anticipated to close during the second quarter of 2019, subject to the receipt of regulatory approvals and the approval of First South Bancorp's shareholders. As of December 31, 2018, First South Bancorp reported $238.5 million in consolidated assets, $180.9 million in loans and $204.1 million in deposits.

On November 15, 2018, FCB and Biscayne Bancshares, Inc. (Biscayne Bancshares) entered into a definitive merger agreement for the acquisition by FCB of Coconut Grove, Florida-based Biscayne Bancshares and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 will be paid to the shareholders of Biscayne Bancshares for each share of common stock totaling approximately $118.7 million. The transaction is expected to close during the second quarter of 2019, subject to the receipt of regulatory approvals. As of December 31, 2018, Biscayne Bancshares reported $1.01 billion in consolidated assets, $850.3 million in loans and $746.4 million in deposits.

On November 1, 2018, FCB completed the merger of Pawleys Island, South Carolina-based Palmetto Heritage Bancshares, Inc. (Palmetto Heritage) and its subsidiary, Palmetto Heritage Bank & Trust, into FCB. Under the terms of the agreement, cash consideration of $135.00 per share was paid to the shareholders of Palmetto Heritage for each share of Palmetto Heritage's common stock with total consideration paid of $30.4 million. FCB acquired $162.2 million in assets, $135.1 million in loans and $124.9 million in deposits.

On October 2, 2018, FCB completed the merger of Milwaukee, Wisconsin-based Capital Commerce Bancorp, Inc. (Capital Commerce) and its subsidiary, Securant Bank & Trust, into FCB. Under the terms of the agreement, cash consideration of $4.75 per share was paid to the shareholders of Capital Commerce for each share of Capital Commerce's common stock with total consideration paid of $28.1 million. FCB acquired $221.9 million in assets, $184.1 million in loans and $172.4 million in deposits.

On May 1, 2018, FCB completed the merger of Tampa, Florida-based HomeBancorp, Inc. (HomeBancorp) and its subsidiary, HomeBanc, into FCB. Under the terms of the agreement, cash consideration of $15.03 per share was paid to the shareholders of HomeBancorp for each share of HomeBancorp's common stock with total consideration paid of $112.7 million. FCB acquired $842.7 million in assets, $566.2 million in loans and $619.6 million in deposits.

LOANS AND DEPOSITS

Loans at December 31, 2018, were $25.52 billion, a net increase of $636.9 million compared to September 30, 2018, representing growth of 10.2 percent on an annualized basis. The increase was driven by $374.3 million of organic growth in our commercial and residential mortgage portfolios, offset by pay downs on equity lines. Quarter end balances also included $294.0 million of non-PCI loans acquired in the Capital Commerce and Palmetto Heritage acquisitions. The growth in the non-PCI portfolio was partially offset by a net decline in the purchase credit impaired (PCI) portfolio of $31.4 million.

Loan balances increased by a net $1.93 billion, or 8.2 percent, since December 31, 2017. The increase was driven by $1.31 billion of originated loan growth in our commercial and residential mortgage portfolios, offset by pay downs of equity lines. Year end balances also included $770.2 million non-PCI loans acquired in the HomeBancorp, Capital Commerce and Palmetto Heritage acquisitions. The growth in the non-PCI portfolio was partially offset by a net decline in the PCI portfolio of $156.4 million.

At December 31, 2018, deposits were $30.67 billion, an increase of $508.9 million, or 1.7 percent, from September 30, 2018. The increase was due to organic growth of $223.7 million primarily in money market and time deposits accounts. In addition to organic growth, year end balances also included $164.5 million and $120.7 million in deposits related to the Capital Commerce and Palmetto Heritage acquisitions, respectively.

Deposits increased by $1.41 billion, or 4.8 percent, since December 31, 2017, due to organic growth of $675.7 million primarily in noninterest bearing demand deposit accounts. The remaining increase was due to deposit balances acquired from HomeBancorp, Capital Commerce and Palmetto Heritage.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $223.7 million at December 31, 2018, an increase of $4.5 million from September 30, 2018 and $1.8 million from December 31, 2017. The allowance as a percentage of total loans at December 31, 2018, and September 30, 2018, was 0.88 percent, compared to 0.94 percent at December 31, 2017.

BancShares recorded net provision expense of $11.6 million during the fourth quarter of 2018, compared to net provision expense of $840 thousand for the third quarter of 2018 and net provision credit of $2.8 million for the fourth quarter of 2017. The $10.7 million and $14.4 million increases, respectively, were largely driven by prior period provision decreases due to loan loss factor reductions as well as current quarter loan growth within higher reserve loan segments and increased net charge-offs.

NONPERFORMING ASSETS

BancShares' nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $133.9 million at December 31, 2018, up from $130.6 million at September 30, 2018, and down from $144.3 million at December 31, 2017. The increase from September 30, 2018, was primarily due to an increase in OREO, whereas the decrease from December 31, 2017, was primarily due to a decrease in nonaccrual commercial loans.

NET INTEREST INCOME

Net interest income for the fourth quarter of 2018 increased $13.5 million to $320.9 million, or by 4.4 percent, compared to the third quarter of 2018. The taxable equivalent net interest margin was 3.82 percent in the fourth quarter of 2018, an increase of 9 basis points from the prior quarter.

The increase was primarily due to:

  • A rising rate environment generating higher loan yields and increased loan balances predominantly in our commercial and residential loan portfolios;
  • Loan portfolios acquired from Capital Commerce and Palmetto Heritage.

Net interest income for the fourth quarter of 2018 increased $46.1 million, or by 16.8 percent, compared to the fourth quarter of 2017. The taxable-equivalent net interest margin was 3.82 percent in the fourth quarter of 2018, an increase of 48 basis points from the same quarter in the prior year.

Net interest income for the year ended 2018 increased $149.0 million, or by 14.1 percent, compared to the year ended 2017. The taxable-equivalent net interest margin was 3.69 percent for the year ended 2018, an increase of 39 basis points from the year ended 2017.

The increase was primarily due to:

A $40.8 million increase in net loan interest income due to higher loan yields and loan growth, primarily within our commercial and residential loan portfolios;

  • Improved yields on our investment portfolio;
  • Impact from loan portfolios acquired in the HomeBanc, Capital Commerce and Palmetto Heritage acquisitions;
  • Lower borrowing costs due to debt extinguishments in the first quarter of 2018.; partially offset by
  • Higher rates paid on deposits, primarily money market and time deposits.

NONINTEREST INCOME

Noninterest income for the fourth quarter of 2018 was $82.0 million, a decrease of $12.5 million from the third quarter of 2018. The decrease was primarily the result of a $20.7 million decline in the fair value adjustment to marketable equity securities due to market volatility, partially offset by an increase of $6.6 million in cardholder and merchant income resulting from higher sales volume and increased vendor incentives.

Noninterest income decreased $26.6 million from the fourth quarter of 2017, primarily driven by a $16.9 million decline in the fair value adjustment to marketable equity securities and a $12.4 million decrease in gains on extinguishment of debt. These decreases were partially offset by an increase of $6.8 million in cardholder and merchant income driven primarily by higher sales volume and increased vendor incentives.

NONINTEREST EXPENSE

Noninterest expense increased by $7.8 million to $275.4 million compared to the third quarter of 2018. The increase was primarily the result of higher operational expenses driven by repairs for hurricane damage, acquisition related expenses and other miscellaneous expense items.

Noninterest expense increased by $12.3 million from the same quarter last year largely due to an increase in personnel expenses, primarily related to payroll incentives and annual merit increases, as well as increased headcount from the HomeBancorp, Capital Commerce and Palmetto Heritage acquisitions. These increases were partially offset by a reduction in FDIC assessment fees.

INCOME TAXES

Quarterly income tax expense and effective tax rates are shown below:

For the quarter ended

4Q18

3Q18

4Q17

Income tax expense (in millions)

$25.5

$16.2

$68.7

Effective tax rate

22.8%

12.1%

55.8%

The Tax Cuts and Jobs Act of 2017 (Tax Act), enacted on December 22, 2017, reduced the federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018.

During the fourth quarter of 2017, as a result of the reduction in the tax rate, income tax expense was increased by $25.8 million to re-measure our deferred tax asset. Excluding the effects of the Tax Act adjustment, the effective tax rate for the fourth quarter of 2017 would have been 34.9 percent.

During the third quarter of 2018, income tax expense was reduced by $15.7 million to record a tax benefit related to the effects of the Tax Act. The benefit recorded represents an update of the original Tax Act adjustment recorded during the fourth quarter of 2017. Excluding the effects of the Tax Act, the effective tax rate for the third quarter of 2018 would have been 23.9 percent.

The accounting for the effects of the Tax Act was initiated in the fourth quarter of 2017 and was completed in the fourth quarter of 2018 with no additional material adjustments to income tax expense during the fourth quarter.

ABOUT FIRST CITIZENS BANCSHARES

BancShares is the financial holding company for Raleigh, North Carolina-headquartered 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 December 31, 2018, BancShares had total assets of $35.4 billion.

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

Download the First Citizens BancShares Fourth Quarter 2018 Financials (PDF).

Contact Information:

Barbara Thompson
919-716-2716
First Citizens Bank

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