First Citizens BancShares Reports Earnings For Second Quarter 2020

RALEIGH, N.C. — First Citizens BancShares Inc. ("BancShares") (Nasdaq: FCNCA) reported strong earnings for the second quarter of 2020. Key results for the quarter ended June 30, 2020, are presented below:

FINANCIAL HIGHLIGHTS

• Net income for the second quarter of 2020 totaled $153.8 million, an increase of $34.4 million, or 28.8% compared to the same quarter in 2019. Net income per common share increased to $14.74 in the second quarter of 2020, from $10.56 per share during the same quarter in 2019.
• Return on average assets for the second quarter of 2020 was 1.36%, up from 1.29% in the same quarter in 2019. Return on average equity for the second quarter of 2020 was 16.43%, up from 13.50% in the same period of 2019.
• BancShares reported total net interest income of $337.4 million for the second quarter of 2020, an increase of $10.0 million, or 3.1% compared to the same quarter in 2019. The taxable-equivalent net interest margin ("NIM") was 3.14% for the second quarter of 2020, down 63 basis points from 3.77% during the same quarter in 2019 and down 41 basis points from 3.55% during the first quarter of 2020.
• The allowance for credit losses ("ACL") was $222.5 million at June 30, 2020, compared to $225.1 million at December 31, 2019. The change relates primarily to a $37.9 million reduction in the ACL as a result of adopting the Current Expected Credit Loss model ("CECL"), partially offset by a reserve build of $36.1 million due to an increase in potential loan losses related to the impact of COVID‑19.
• Noninterest income totaled $165.4 million for the second quarter of 2020, compared to $106.9 million for the same quarter of 2019, an increase of $58.5 million or 54.8%, primarily driven by favorable market value adjustments on the equity portfolio and gains on the sale of available for sale investment securities. Noninterest expense was $291.7 million for the second quarter of 2020, compared to $273.4 million during the same quarter of 2019, an increase of $18.3 million or 6.7%.
• Total loans grew to $32.42 billion, an increase of $3.54 billion, or 24.6% on an annualized basis, since December 31, 2019. Excluding $3.08 billion of loans originated under the Small Business Administration Paycheck Protection Program ("SBA-PPP") and loans acquired in 2020, total loans increased $440.1 million since December 31, 2019, or by 3.1% on an annualized basis. The net charge-off ratio was 0.09% and 0.10% for the three and six months ended June 30, 2020, respectively, compared to 0.11% for both the three and six months ended June 30, 2019.
• Total deposits grew to $41.48 billion, an increase of $7.05 billion, or 41.2% on an annualized basis since December 31, 2019. Excluding deposits from bank acquisitions, estimated SBA-PPP and stimulus check deposits which combined totaled $3.56 billion, total deposits increased $3.49 billion since December 31, 2019, or 20.4% on an annualized basis.
• During the second quarter of 2020, BancShares repurchased 346,000 shares of its Class A common stock totaling $127.0 million. At June 30, 2020, BancShares remained well capitalized with a total risk-based capital ratio of 13.6%, a Tier 1 risk-based capital ratio of 11.4%, a common equity Tier 1 ratio of 10.3% and a Tier 1 leverage ratio of 8.1%.

COVID‑19 CRISIS PREPAREDNESS AND RESPONSE

Chairman and CEO, Frank B. Holding, Jr. Comments

"I'm proud of the dedication and above-and-beyond efforts of our associates to assist our customers and communities in a difficult and evolving operating environment. I'm also grateful for the opportunity to support our business clients and their vital role in the markets we serve. Even in the midst of economic uncertainty, our company realized solid balance-sheet growth and maintained a high level of liquidity, which position us well to face stresses posed by this environment. We appreciate our clients' ongoing trust in us while we've focused on serving their financial needs and keeping them and our employees safe. We take great pride in taking care of our customers. It's who we've been for 122 years, and it's more important than ever in these unique times."

Continued Monitoring and Response

BancShares remains in a very strong capital and liquidity position providing stability in navigating this crisis. Our leadership team continues to ensure appropriate measures are in place to protect the welfare of our employees and soundness of the organization, while continuing to support our customers. Approximately 95% of our branches have re-opened with enhanced safety protocols and our corporate locations remain at limited occupancy due to current virus trends.

As of July 24, 2020, COVID‑19 related loan extensions totaled approximately $2.1 billion in outstanding loan balances, representing approximately $53 million in payment deferrals. The first wave of loans with payment deferrals have completed their extension period and the volume of extension requests declined during the second quarter. A significant portion of the original payment extensions, approximately $4.9 billion, have moved to active status as of July 24, 2020. We have not seen significant shifts in credit line utilization or declines in overall credit quality.

BancShares originated approximately 23,000 SBA-PPP loan requests with an outstanding balance of $3.08 billion at June 30, 2020. We have collected all $116.9 million in SBA-PPP related loan fees per the program terms. These fees are deferred and are being recognized in interest income over the life of the respective loans. Once the forgiveness requirements and procedures are finalized by the regulatory bodies, we anticipate acceleration of the fee income as borrower requests are processed.

Strong Liquidity and Capital Position

We maintain a strong level of liquidity. As of June 30, 2020, liquid assets (available cash and unencumbered high quality liquid assets at market value) totaled approximately $8.04 billion, representing 16.8% of consolidated assets as of June 30, 2020.

In addition to liquid assets, we had contingent sources of liquidity totaling approximately $11.97 billion in the form of Federal Home Loan Bank borrowing capacity, Federal Reserve Discount Window availability, fed funds lines and a committed line of credit.

At June 30, 2020, BancShares' regulatory capital ratios were well in excess of Basel III capital requirements with a total risk-based capital ratio of 13.6%, a Tier 1 risk-based capital ratio of 11.4%, a common equity Tier 1 ratio of 10.3%, a Tier 1 leverage ratio of 8.1% and a capital conservation buffer of 5.4%, twice the required level of 2.5%.

NET INTEREST INCOME

Net interest income for the second quarter of 2020 totaled $337.4 million, an increase of $10.0 million, or 3.1%, compared to the second quarter of 2019. The increase in net interest income was primarily due to an increase in interest earned on loans, driven by SBA-PPP loans and organic loan growth, and lower rates paid on interest-bearing deposits, partially offset by declines in yields on other earning assets and higher borrowings. SBA-PPP loans contributed $19.0 million in interest and fee income during the quarter. The taxable-equivalent NIM was 3.14% during the second quarter of 2020, a decrease of 63 basis points from 3.77% for the comparable quarter in the prior year. The margin decline was primarily due to a decrease in yields on earning assets, partially offset by a decline in rates paid on deposits. The taxable-equivalent NIM declined 41 basis points from 3.55% in the linked quarter primarily related to declines in yields on interest-earning assets, partially offset by declines in rates paid on interest-bearing deposits.

Net interest income for the six months ended June 30, 2020, totaled $675.8 million, an increase of $28.0 million, or 4.3% compared to the same period of 2019. The change in net interest income was primarily due to SBA-PPP loans and organic loan growth, partially offset by declines in yields on other earning assets, an increase in borrowings and higher balances and rates paid on deposits (money markets and time deposits). The taxable equivalent NIM decreased 48 basis points to 3.33% compared to 3.81% for the six months ended June 30, 2019, primarily due to a decline in yield on interest earning assets coupled with an increase in total borrowings and higher rates paid on deposits.

PROVISION FOR CREDIT LOSSES

Provision expense was $20.6 million and $48.9 million for the three and six month periods ended June 30, 2020, respectively, as compared to $5.2 million and $16.9 million for the three and six month periods ended June 30, 2019, respectively. The increases for both the three and six month periods were primarily COVID‑19 related as loss estimates consider the potential impact of slower economic activity and elevated unemployment, as well as potential mitigants due to unprecedented government stimulus and loan accommodations. The quarter-to-date and year-to-date provision expense includes $14.6 million and $36.1 million, respectively, of additions to the allowance for credit losses specifically related to the potential impacts of COVID‑19.

Total net charge-offs in the second quarter of 2020 were $7.4 million, consistent with the second quarter of 2019. Net charge-offs were $14.9 million and $14.1 million for the six months ended June 30, 2020 and 2019, respectively. The net charge-off ratio was 0.09% and 0.10% for the three and six month periods ended June 30, 2020, respectively, compared to 0.11% for both the three and six month periods ended June 30, 2019. Excluding the impact of SBA-PPP loans on average loan balances, the net charge-off ratio was 0.10% for both the three and six month periods ended June 30, 2020.

NONINTEREST INCOME

Noninterest income for the second quarter of June 30, 2020 totaled $165.4 million, an increase of $58.5 million, or 54.8% compared to the second quarter of 2019. Excluding fair value adjustments on marketable equity securities totaling $64.6 million (including $37.0 million of realized gains) and realized gains on available for sale securities totaling $13.8 million, noninterest income was $87.1 million for the three months ended June 30, 2020, compared to $98.0 million for the same period in 2019. This $10.9 million decrease was primarily driven by an $8.3 million decrease in net service charges on deposits and a $4.2 million reduction in purchased credit impaired recoveries, which subsequent to CECL adoption are reported through the allowance for credit losses, and a $2.2 million decline in wealth advisory services income. These declines were partially offset by higher mortgage income of $4.8 million due to increased production resulting from lower mortgage interest rates.

Noninterest income for the first six months of 2020 totaled $229.4 million, an increase of $18.9 million or 9.0% compared to the same period of 2019. Noninterest income, excluding realized gains on available for sale securities totaling $33.5 million, fair value adjustments on marketable equity securities totaling $13.2 million, and impairment of mortgage servicing rights of $4.0 million, was $186.7 million for the six months ended June 30, 2020, compared to $190.3 million for the same period in 2019. This decrease was driven primarily by a $6.9 million decrease in net service charges on deposits, and a $8.2 million decrease in purchased credit impaired recoveries. These declines were partially offset by a $10.4 million increase in mortgage income due to increased production resulting from lower mortgage interest rates.

NONINTEREST EXPENSE

Noninterest expense totaled $291.7 million for the second quarter of 2020, an $18.3 million, or 6.7% increase compared to the same period in 2019. The increase was largely driven by a $10.3 million increase in personnel-related expenses primarily due to increased salaries and wages as a result of net staff additions, including personnel from acquisitions, and merit increases. This was combined with increases in processing fees paid to third parties and occupancy expenses of $3.5 million and $2.7 million, respectively.

Noninterest expense totaled $591.7 million for the first six months of 2020, a $50.6 million, or 9.4% increase compared to the same period of 2019. The increase was largely driven by a $29.1 million increase in personnel expenses as a result of merit increases and headcount from acquisitions, a $6.8 million increase in processing fees paid to third parties and a $4.1 million increase in pension expense which is recorded in other expenses.

INCOME TAXES

Income tax expense totaled $36.8 million and $36.3 million for the second quarter of 2020 and 2019, respectively, representing effective tax rates of 19.3% and 23.3% for the respective periods.

Income tax expense totaled $53.7 million and $69.6 million for the first six months of 2020 and 2019, respectively, representing effective tax rates of 20.3% and 23.2% for the respective six month periods.

The effective tax rate for the second quarter 2020 was favorably impacted by $6.9 million due to BancShares' decision to utilize an allowable alternative for computing its 2020 federal income tax liability. Without this alternative, the effective tax rate would have been approximately 23%. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax. As a result of this favorable federal tax rate benefit, the effective tax rate for the remainder of 2020 is estimated to be approximately 21%. The actual 2020 effective tax rate will depend upon the nature and amount of future income and expenses as well as transactions with discrete tax effects.

LOANS AND DEPOSITS

At June 30, 2020, loans totaled $32.42 billion, an increase of $3.54 billion since December 31, 2019. Of this growth, $12.3 million was related to bank acquisitions and $3.08 billion to loans originated in relation to the SBA-PPP. Excluding acquired and SBA-PPP loans, total loans increased $440.1 million since December 31, 2019, or by 3.1% on an annualized basis.

At June 30, 2020, deposits totaled $41.48 billion, an increase of $7.05 billion since December 31, 2019. This growth includes $2.99 billion in SBA-PPP reciprocal deposits (estimated at the time of funding) and $526.0 million of government stimulus deposits (estimated at the time of issuance), as well as $43.0 million of deposits obtained through acquisitions. Excluding the cumulative impact of these deposits, total deposits increased $3.49 billion since December 31, 2019, or by 20.4% on an annualized basis.

ALLOWANCE FOR CREDIT LOSSES ("ACL")

The ACL was $222.5 million at June 30, 2020, compared to $225.1 million at December 31, 2019. The ACL as a percentage of total loans was 0.69% at June 30, 2020, compared to 0.78% at December 31, 2019. The reduction was due primarily to the adoption of CECL resulting in a $37.9 million reduction in the ACL, partially offset by a reserve build of $36.1 million due to an increase in potential loan losses related to the impact of COVID‑19. Excluding SBA-PPP loans, which have no associated ACL, the ACL as a percentage of total loans was 0.76% as of June 30, 2020. The ACL as of June 30, 2020, excluding SBA-PPP loans, covered approximately 7.5 times annualized year to date net charge-offs compared to 6.5 times at January 1, 2020 CECL adoption.

NONPERFORMING ASSETS

Nonperforming assets, including nonaccrual loans and other real estate owned, were $251.6 million, or 0.77% of total loans and other real estate owned at June 30, 2020, compared to $168.3 million or 0.58% at December 31, 2019. The increase was largely due to the dissolution of purchased credit impaired ("PCI") pools as part of the adoption of CECL, which moved loans from performing PCI pools into nonaccrual status, contributing $35.9 million of nonaccrual loans as June 30, 2020. Excluding the impact of the accounting change, the nonperforming asset ratio at June 30, 2020 would have been relatively consistent with December 31, 2019.

CAPITAL TRANSACTIONS

During the second quarter of 2020, BancShares repurchased 346,000 shares of Class A common stock for $127.0 million at an average cost per share of $366.98 compared to a total of 205,500 shares of Class A common stock for $89.8 million at an average cost per share of $436.81 for the second quarter of 2019. For the six months ended June 30, 2020, BancShares repurchased 695,390 shares of Class A common stock for $286.7 million at an average cost per share of $412.23 compared to 448,500 shares of Class A common stock for $190.5 million at an average cost per share of $424.77 for the six months ended June 30, 2019. All Class A common stock repurchases completed in 2020 and 2019 were consummated under previously approved authorizations.

EARNINGS CALL DETAILS

First Citizens BancShares will host a conference call to discuss the company's financial results on Wednesday, July 29, 2020, at 9 a.m. Eastern time.

To access this call, dial:

Domestic: 833‑519‑1268
International: 914‑800‑3840
Conference ID: 9797043

The second quarter 2020 earnings presentation will be available on the company's website at www.firstcitizens.com/earningspresentation.

After the conference call, access the replay through Aug. 6, 2020, by dialing 855-859-2056 (domestic) or 404-537-3406 (international) with conference ID 9797043.

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, 2020, BancShares had total assets of $47.87 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 or events 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 impacts of COVID‑19 on our business or customers, 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 2020 Financials (PDF).

Contact Information:

Barbara Thompson
919-716-2716
First Citizens Bank