First Citizens BancShares Reports Earnings For Second Quarter 2019

RALEIGH, N.C. — First Citizens BancShares Inc. (BancShares) (Nasdaq: FCNCA) reported strong earnings for the second quarter of 2019, according to Frank B. Holding, Jr., Chairman of the Board. Key results for the quarter ended June 30, 2019, are presented below:

FINANCIAL HIGHLIGHTS

• Net income for the second quarter of 2019 totaled $119.4 million, an increase of $26.1 million, or 27.9% compared to the same quarter in 2018. Net income increased $2.79 on a per share basis, or 35.9%, to $10.56 in the second quarter of 2019, from $7.77 per share during the same period in 2018.
• Return on average assets for the second quarter of 2019 improved by 21 basis points over the second quarter of 2018 to 1.29%. The increase was primarily due to higher net interest margin. Return on average equity for the second quarter of 2019 improved 250 basis points over the second quarter of 2018 to 13.50%.
• BancShares reported total net interest income of $327.3 million for the second quarter of 2019, an increase of $31.1 million or 10.5%, compared to the same quarter in 2018. The taxable-equivalent net interest margin (NIM) was 3.79% for the second quarter of 2019, up 15 basis points from 3.64% during the same quarter in 2018.
• Noninterest income totaled $106.9 million for the second quarter of 2019, compared to $100.9 million for the same quarter of 2018. Noninterest expense was $273.4 million for the second quarter of 2019, compared to $266.0 million during the same quarter of 2018.
• Total loans grew to $26.73 billion, an increase of $1.26 billion since March 31, 2019. Of this growth, $1.03 billion was due to recently acquired banks and the remainder was due to organic growth. Provision expense totaled $5.2 million for the second quarter of 2019, a decrease of $3.2 million compared to the same quarter in 2018. The net charge-off ratio was 0.11% for the second quarter of 2019, unchanged for the same quarter in 2018.
• Total deposits grew to $32.72 billion, an increase of $1.52 billion since March 31, 2019. The growth from recent acquisitions totaled $1.04 billion, while the remaining $484.5 million was due to organic growth.
• BancShares repurchased 205,500 shares of its Class A common stock during the second quarter of 2019 totaling approximately $89.8 million. At June 30, 2019, BancShares remained well capitalized with a total risk-based capital ratio of 13.3%, a Tier 1 risk-based capital ratio and common equity Tier 1 ratio of 12.0% and a leverage ratio of 9.4%.

RECENT MERGER ACTIVITY

On April 23, 2019, BancShares’ bank subsidiary, First-Citizens Bank & Trust Company (First Citizens Bank) and Entegra Financial Corp. (Entegra), entered into a definitive merger agreement for the acquisition by First Citizens Bank of Franklin, North Carolina-based Entegra and its bank subsidiary, Entegra Bank. Under the terms of the agreement, cash consideration of $30.18 per share will be paid to the shareholders of Entegra for each share of common stock and for each restricted stock unit after conversion to common stock, and each outstanding option to purchase Entegra common stock will be canceled and each option holder will receive a cash payment. The total transaction value is anticipated to be approximately $219.8 million. The transaction is anticipated to close during the second half of 2019, subject to the receipt of regulatory approvals, the approval of Entegra’s shareholders and the satisfaction of other customary closing conditions. As of March 31, 2019, Entegra reported $1.67 billion in consolidated assets, $1.08 billion in loans and $1.25 billion in deposits.

On May 1, 2019, First Citizens Bank completed the merger of Spartanburg, South Carolina-based First South Bancorp, Inc. (First South Bancorp) and its bank subsidiary, First South Bank. Under the terms of the agreement, cash consideration of $1.15 per share was paid to the shareholders of First South Bancorp for each share of common stock, totaling approximately $37.5 million. The merger allowed First Citizens Bank to expand its presence in South Carolina. The merger contributed $253.0 million in consolidated assets, which included $179.2 million in loans and $207.6 million in deposits as of the merger date.

On April 2, 2019, First Citizens Bank completed the merger of Coconut Grove, Florida-based Biscayne Bancshares, Inc. (Biscayne Bancshares) and its bank subsidiary, Biscayne Bank. Under the terms of the agreement, cash consideration of $25.05 per share was paid to the shareholders of Biscayne Bancshares for each share of common stock, totaling approximately $118.9 million. The merger allowed First Citizens Bank to expand its presence in Florida and enhance banking efforts in South Florida. The merger contributed $1.08 billion in consolidated assets, which included $863.4 million in loans, and $786.5 million in deposits as of the merger date.

NET INTEREST INCOME

Net interest income for second quarter of 2019 totaled $327.3 million, an increase of $31.1 million, or 10.5%, compared to the second quarter of 2018. The taxable-equivalent NIM was 3.79% in the second quarter of 2019, an increase of 15 basis points from 3.64% for the same quarter in the prior year. The primary driver of this growth was a $42.1 million, or 24 basis points, increase in interest and fees on loans due to a rise in average loans outstanding, as well as higher loan yields. This growth was partially offset by a $14.6 million, or 30 basis points, increase in interest expense on deposits due to higher rates on time deposits and money market accounts.

Net interest income for the six months ended June 30, 2019, totaled $647.8 million, an increase of $67.2 million, or 11.6%, compared to the same period of 2018. The taxable-equivalent NIM was 3.84% for the six months ended June 30, 2019, an increase of 23 basis points for the same period in the prior year. Similar to the discussion above, the primary driver of the growth was an $81.1 million, or 27 basis points, increase to interest and fees on loans due to a rise in average loans outstanding, as well as a higher loan yields. This growth was partially offset by a $23.8 million, or 25 basis points, increase to interest expense on deposits due to higher rates on time deposits and money market accounts.

Although net interest margin has expanded in recent years, management does not believe this trend will continue as new loan yields are declining due to changes in forward rate expectations and increased competition. This trend, coupled with higher interest expense on deposits will likely result in margin compression for the remainder of 2019.

PROVISION FOR LOAN AND LEASE LOSSES

BancShares recorded net provision expense of $5.2 million and $16.9 million for the three and six months ended June 30, 2019, as compared to $8.4 million and $16.0 million, respectively, for the same periods in 2018. The fluctuations in provision expense are primarily due to variances in loan growth balances for the periods, as well as changes in portfolio composition and credit quality. The net charge-off ratio remained stable at 0.11% for all periods presented.

NONINTEREST INCOME

Noninterest income for the second quarter of 2019 totaled $106.9 million, an increase of $5.9 million from the second quarter of 2018. Noninterest income, excluding realized gains on securities sales and a positive fair value adjustment on marketable equity securities, totaled $98.0 million for the three months ended June 30, 2019, compared to $96.5 million for the same period in 2018. This $1.5 million increase was primarily driven by a $3.6 million increase in cardholder services income due to increased interchange rates and transaction volume, as well as reduced processing fees. This increase was partially offset by a $0.9 million decline in recoveries on acquired loans, as well as a $0.9 million decrease in wealth services income.

Noninterest income for the first six months of 2019 totaled $210.5 million, a decrease of $13.1 million from the same period of 2018. Noninterest income, excluding gains on extinguishment of debt, realized gains on securities sales and a positive fair value adjustment on marketable equity securities, totaled $190.3 million for the six months ended June 30, 2019, compared to $192.4 million for the same period in 2018. This $2.0 million reduction was primarily driven by a $2.9 million decrease in service charges on deposit accounts and ATM income and a $2.6 million decrease in recoveries on acquired loans. Offsetting these reductions was a $5.4 million increase in cardholder services income due to increased transaction volume and interchange rates, as well as reduced processing fees.

NONINTEREST EXPENSE

Noninterest expense totaled $273.4 million for the second quarter of 2019, a $7.4 million increase compared to the same period in 2018. The increase was largely driven by a $7.2 million increase in personnel-related expenses primarily due to increased salaries and wages as a result of merit increases and personnel additions from recent acquisitions, a $3.3 million increase in equipment expense and a $1.7 million increase in merger-related expense due to recent acquisition activity. Offsetting these increases were a $2.7 million reduction in FDIC insurance expense as the large bank surcharge was eliminated in the fourth quarter of 2018 and a $1.2 million decline in processing fees paid to third parties driven by the elimination of fees on recently converted acquired banks.

Noninterest expense totaled $541.1 million for the first six months of 2019, a $7.0 million increase compared to the same period of 2018. The increase was largely driven by a $10.8 million increase in personnel-related expenses largely due to increased salaries and wages as a result of merit increases, as well as increased headcount from recent acquisitions, a $5.1 million increase in equipment expense and a $2.8 million increase in merger-related expense due to recent acquisition activity. Offsetting these increases were a $5.8 million reduction in FDIC insurance expense and a $2.4 million decline in processing fees paid to third parties.

INCOME TAXES

Income tax expense totaled $36.3 million and $29.4 million for the second quarter of 2019 and 2018, respectively, representing effective tax rates of 23.3% and 24.0% for the respective periods.

Income tax expense totaled $69.6 million and $60.6 million for the first six months of 2019 and 2018, respectively, representing effective tax rates of 23.2% and 23.9% for the respective six month periods.

LOANS AND DEPOSITS

At June 30, 2019, loans totaled $26.73 billion, an increase of $1.26 billion since March 31, 2019. Of this current quarter increase, $1.03 billion was due to the recent acquisitions of Biscayne Bancshares and First South Bancorp while the remaining $230.9 million was primarily due to organic growth in the commercial mortgage and residential mortgage portfolios. Total loans have increased $1.20 billion since December 31, 2018; excluding acquired loans, total loans increased $171.4 million, or by 1.4% on an annualized basis.

At June 30, 2019, deposits totaled $32.72 billion, an increase of $1.52 billion since March 31, 2019. Of this current quarter increase, $1.04 billion was due to the recent acquisitions of Biscayne Bancshares and First South Bancorp while the remaining $484.5 million was primarily due to organic growth in checking, money market, and time deposit accounts. Total deposits have increased $2.05 billion since December 31, 2018; excluding acquired deposits, total deposits increased $1.01 billion, or by 6.6% on an annualized basis.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $226.6 million at June 30, 2019, compared to $228.8 million at March 31, 2019. The reduction in the allowance during the second quarter was primarily due to changes in overall portfolio composition and credit quality, as well as declines in the reserves on specifically reviewed loans. The allowance as a percentage of total loans was 0.85% at June 30, 2019, compared to 0.90% at March 31, 2019 and 0.88% at December 31, 2018. The net charge-off ratio remained stable at 0.11% for all periods presented.

NONPERFORMING ASSETS

BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned, were $151.2 million or 0.57% of total loans at June 30, 2019, compared to $133.9 million or 0.53% of total loans at March 31, 2019. The $17.3 million increase was primarily due to an increase in nonaccrual loans primarily within the commercial and residential mortgage portfolios, as well as nonperforming assets acquired from Biscayne Bancshares and First South Bancorp of $7.9 million.

SHARES REPURCHASED

In October 2018, BancShares’ Board of Directors authorized the repurchase of up to 800,000 of BancShares’ Class A common stock for the period November 1, 2018, through October 31, 2019. During the second quarter of 2019, BancShares repurchased 205,500 shares for approximately $89.8 million at an average cost per share of $436.81. As of June 30, 2019, a total of 630,500 shares have been repurchased under the current Board authority, including 425,000 shares repurchased in the first quarter of 2019. There were no repurchases made during the first six months of 2018.

In April 2019, the Board authorized additional repurchases not to exceed 800,000 of BancShares’ Class A common stock for the period July 1, 2019 through June 30, 2020. This authorization was effective July 1, 2019 and supersedes the authorization approved in October 2018.

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 June 30, 2019, BancShares had total assets of $37.66 billion.

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

DISCLOSURES ABOUT FORWARD LOOKING STATEMENTS

The discussions included in this Press Release may contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995, including Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. For the purposes of these discussions, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Such statements are often characterized by the use of qualifying words such as "expects," "anticipates," "believes," "estimates," "plans," "projects," or other statements concerning opinions or judgments of the Registrant and its management about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those described in the statements. The accuracy of such forward-looking statements could be affected by factors beyond the Registrant’s control, including, but not limited to, the financial success or changing conditions or strategies of the Registrant’s customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel, the delay in closing (or failure to close) one or more of our previously announced acquisition transaction(s), the failure to realize the anticipated benefits of our previously announced acquisition transaction(s), or general competitive, economic, political, and market conditions. These forward-looking statements are made only as of the date of this Press Release, and the Registrant undertakes no obligation to revise or update these statements following the date of this Press Release, except as may be required by law.

Download the First Citizens BancShares Second Quarter 2019 Financials (PDF).

Contact Information:

Barbara Thompson
919-716-2716
First Citizens Bank