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First Citizens BancShares Inc.$357.52$2.77.78%

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 First Citizens Reports Earnings for Fourth Quarter 2015
   Wednesday, January 27, 2016 12:30:20 PM ET

First Citizens BancShares Inc. (BancShares) (FCNCA ) reports earnings for the quarter ended December 31, 2015, of $42.7 million, compared to $56.0 million for the third quarter of 2015, and $62.9 million for the corresponding period of 2014, according to Frank B. Holding, Jr., chairman of the board.

Per share income was $3.56 for the fourth quarter of 2015, $4.66 for the third quarter of 2015 and $5.24 for the same period a year ago. BancShares’ current quarter results generated an annualized return on average assets of 0.53 percent and an annualized return on average equity of 5.92 percent, compared to respective returns of 0.71 percent and 7.86 percent for the third quarter of 2015 and 0.82 percent and 9.20 percent for the same period of 2014.

For the years ended December 31, 2015 and 2014, net income was $210.4 million, or $17.52 per share, and $138.6 million, or $13.56 per share, respectively. Returns on average assets and average equity were 0.68 percent and 7.52 percent during 2015, compared to 0.57 percent and 6.14 percent during 2014. When comparing net income for the year ended December 31, 2015, to the prior year, the increases were primarily driven by the impacts of the October 1, 2014, First Citizens Bancorporation, Inc. (Bancorporation) merger and the $42.9 million gain on the FDIC-assisted acquisition of Capitol City Bank & Trust (CCBT) of Atlanta, Ga., which occurred February 13, 2015. The impacts of the acquisitions are reflected in Bancshares’ financial results from the respective acquisition dates.

FINANCIAL HIGHLIGHTS

-- Loan growth was strong in 2015 as net balances increased by $384.2 million during the fourth quarter and $1.47 billion for the year primarily as a result of originated portfolio growth.

-- Deposit growth continued, up $211.4 million and $1.25 billion from September 30, 2015, and December 31, 2014, respectively, primarily due to organic growth in low-cost demand accounts.

-- The taxable-equivalent net interest margin was 3.12 percent in the fourth quarter of 2015, an increase of 3 basis points from the same quarter in the prior year due to originated loan growth, improvement in investment yields and lower funding costs, partially offset by continued purchased credit impaired (PCI) loan portfolio runoff.

-- BancShares remained well capitalized under Basel III capital requirements with a leverage capital ratio of 8.96 percent, Tier 1 risk-based capital ratio of 12.65 percent, common equity Tier 1 ratio of 12.51 percent and total risk-based capital ratio of 14.03 percent at December 31, 2015.

LOANS AND DEPOSITS

Loans at December 31, 2015, were $20.24 billion, a net increase of $384.2 million, or by 1.9 percent, during the fourth quarter. Originated loan growth was $477.7 million, primarily the result of continued growth in the commercial portfolio. PCI loans decreased by $93.5 million.

Loan balances increased by a net $1.47 billion, or 7.8 percent, since December 31, 2014. Growth was primarily driven by $1.71 billion of organic growth in the non-PCI portfolio. The PCI portfolio declined over this period by $236.0 million, reflecting continued loan runoff of $373.6 million, offset by net loans acquired from CCBT which totaled $137.6 million at December 31, 2015.

At December 31, 2015, deposits were $26.93 billion, an increase of $211.4 million, or by 0.8 percent, since September 30, 2015. The increase during the quarter was due to organic growth primarily in low-cost demand deposit accounts and checking with interest accounts, offset by runoff in time deposits. Deposits increased by $1.25 billion, or by 4.9 percent, since December 31, 2014, primarily due to organic growth in demand, checking with interest and savings accounts, offset by runoff in time deposits.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $206.2 million at December 31, 2015, representing increases of $753 thousand and $1.8 million since September 30, 2015, and December 31, 2014, respectively. The allowance as a percentage of total loans at December 31, 2015, was 1.02 percent, compared to 1.03 percent and 1.09 percent at September 30, 2015 and December 31, 2014. The decline in the allowance ratio at December 31, 2015, from both periods was due primarily to continued credit quality improvement.

BancShares recorded net provision expense of $7.0 million for loan and leases losses during the fourth quarter of 2015, and $107 thousand and $8.3 million for the third quarter of 2015 and fourth quarter of 2014, respectively. The $6.9 million increase in provision expense compared to the third quarter of 2015 was primarily due to a $4.1 million reversal of previously recorded specific reserves on impaired non-PCI loans in the prior quarter, loan growth and higher net charge-offs in the current quarter. This increase was offset by lower provision expense on PCI loans. The $1.3 million decline in net provision expense from the fourth quarter of 2014 was primarily due to improved credit quality in the loan portfolio, offset by higher net charge-offs and a lower net provision credit on PCI loans.

Non-PCI loan net provision expense was $7.9 million for the fourth quarter of 2015, compared to a net provision credit of $2.7 million and net provision expense of $10.9 million for the third quarter of 2015 and fourth quarter of 2014, respectively. The net provision expense in the current quarter primarily resulted from commercial loan growth and higher net charge-offs. The third quarter of 2015 net provision credit included a $4.1 million release of impaired loan reserves as refinements were made to discounted cash flow assumptions.

The PCI loan portfolio net provision credit was $0.9 million during the fourth quarter of 2015, compared to net provision expense of $2.8 million and net provision credit of $2.6 million during the third quarter of 2015 and fourth quarter of 2014, respectively. The net provision expense in the third quarter of 2015 was primarily due to a $3.9 million reclassification impacting accretion income and provision expense, which had no net impact on earnings. The lower net provision credit compared to the fourth quarter of 2014 was attributable to the continued decline in this portfolio.

NONPERFORMING ASSETS

At December 31, 2015, BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned (OREO) were $169.0 million, up from $162.5 million at September 30, 2015. The $6.5 million, or 4.0 percent, increase was due to $10.8 million higher nonaccrual loans with increases primarily in commercial and residential mortgage loans. This increase was offset by a $4.3 million decline in OREO balances to $65.6 million, primarily due to problem asset resolutions. Nonperforming assets declined $1.9 million from $170.9 million at December 31, 2014.

NET INTEREST INCOME

Net interest income decreased $8.7 million, or by 3.6 percent, from the third quarter of 2015, resulting primarily from lower accretion income in the PCI loan portfolio. The prior quarter had higher loan prepayments and a $3.9 million reclassification adjustment. Conversely, net interest income increased $13.5 million, or by 6.2 percent, to $230.7 million from the fourth quarter of 2014. Loan interest income was up $5.6 million as a result of higher interest income from originated loan growth, investment securities interest income improved by $3.8 million as matured cash flows were reinvested into higher yielding investments and interest expense declined by $3.7 million due to reduced borrowing and deposit funding costs.

The taxable-equivalent net interest margin for the fourth quarter of 2015 was 3.12 percent, a decline of 17 basis points from the third quarter of 2015, resulting from lower loan prepayments in the PCI loan portfolio and a $3.9 million reclassification adjustment. The taxable-equivalent net interest margin increased by 3 basis points from the same quarter in the prior year. The margin improvement was due to continued originated loan growth, improvement in investment yields and lower borrowing and deposit funding rates, partially offset by continued PCI loan portfolio runoff.

NONINTEREST INCOME

Noninterest income for the fourth quarter of 2015 was $99.1 million, down $10.6 million from the prior quarter. The decrease was due to $5.6 million of securities gains recognized in the third quarter of 2015, higher adjustments to the FDIC receivable of $5.1 million, a $4.0 million decline in wealth management income and lower mortgage income of $1.7 million. These decreases were partially offset by a $5.3 million increase in recoveries of PCI loans previously charged-off.

Noninterest income decreased by $36.6 million from the fourth quarter of 2014 primarily driven by the recognition of a $29.1 million gain recorded in 2014 on Bancorporation shares of stock owned by BancShares that were canceled on the merger date. Additionally, the decrease was due to higher adjustments to the FDIC receivable of $9.2 million, partially offset by a $4.3 million increase in recoveries of PCI loans previously charged-off.

NONINTEREST EXPENSE

Noninterest expense decreased by $4.3 million to $255.9 million in comparison to the third quarter of 2015, due primarily to a $3.6 million reduction in salaries and wages expense and lower foreclosure-related expenses of $3.1 million, offset by a $2.5 million increase in occupancy expenses. The decline in salaries and wages was primarily due to a reduction in costs following the conversion of Bancorporation systems in the third quarter of 2015. The prior quarter included a $2.5 million depreciation adjustment resulting from the conversion of Bancorporation systems.

Noninterest expense decreased by $1.3 million from the same quarter last year primarily as a result of declines of $5.6 million and $2.8 million in foreclosure-related and merger-related expenses, respectively. The decline was partially offset by a $6.7 million increase in employee benefits due primarily to higher pension and healthcare costs.

INCOME TAXES

Income tax expense was $24.2 million for the fourth quarter of 2015, down from $32.9 million and $24.5 million for the third quarter of 2015 and fourth quarter of 2014, representing effective tax rates of 36.1 percent, 37.0 percent and 28.1 percent during the respective periods. The lower effective tax rate during the fourth quarter of 2014 results primarily from the impact of the tax benefit of the Bancorporation shares of stock owned by BancShares at the date of acquisition.

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 18 states and the District of Columbia, online banking, mobile banking, ATMs and telephone banking. As of December 31, 2015, BancShares had total assets of $31.5 billion.

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

CONSOLIDATED FINANCIAL HIGHLIGHTS
                                                              Three months ended                                                                                                                           Year ended December 31
                                                              December 31,                                   September 30,                                  December 31,
(Dollars in thousands, except share data; unaudited)          2015                                           2015                                           2014                                           2015                                           2014
SUMMARY OF OPERATIONS
Interest income                                               $                     241,861                  $                     249,825                  $                     232,122                  $                     969,209                  $                     760,448
Interest expense                                              11,142                                         10,454                                         14,876                                         44,304                                         50,351
Net interest income                                           230,719                                        239,371                                        217,246                                        924,905                                        710,097
Provision for loan and lease losses                           7,046                                          107                                            8,305                                          20,664                                         640
Net interest income after provision for loan and lease losses 223,673                                        239,264                                        208,941                                        904,241                                        709,457
Gain on acquisition                                           --                                             --                                             --                                             42,930                                         --
Noninterest income                                            99,135                                         109,750                                        135,711                                        424,158                                        343,213
Noninterest expense                                           255,886                                        260,172                                        257,216                                        1,038,915                                      849,076
Income before income taxes                                    66,922                                         88,842                                         87,436                                         332,414                                        203,594
Income taxes                                                  24,174                                         32,884                                         24,540                                         122,028                                        65,032
Net income                                                    $                     42,748                   $                     55,958                   $                     62,896                   $                     210,386                  $                     138,562
Taxable-equivalent net interest income                        $                     232,147                  $                     240,930                  $                     218,436                  $                     931,231                  $                     714,085
PER SHARE DATA
Net income                                                    $                     3.56                     $                     4.66                     $                     5.24                     $                     17.52                    $                     13.56
Cash dividends                                                0.30                                           0.30                                           0.30                                           1.20                                           1.20
Book value at period-end                                      239.14                                         238.34                                         223.77                                         239.14                                         223.77
CONDENSED BALANCE SHEET
Cash and due from banks                                       534,086                                        546,444                                        604,182                                        534,086                                        604,182
Overnight investments                                         2,063,132                                      2,368,132                                      1,724,919                                      2,063,132                                      1,724,919
Investment securities                                         6,861,548                                      6,690,879                                      7,172,435                                      6,861,548                                      7,172,435
Loans and leases                                              20,239,990                                     19,855,806                                     18,769,465                                     20,239,990                                     18,769,465
Less allowance for loan and lease losses                      (206,216                                    )  (205,463                                    )  (204,466                                    )  (206,216                                    )  (204,466                                    )
FDIC loss share receivable                                    4,054                                          9,276                                          28,701                                         4,054                                          28,701
Other assets                                                  1,979,340                                      2,184,750                                      1,979,877                                      1,979,340                                      1,979,877
Total assets                                                  $                     31,475,934               $                     31,449,824               $                     30,075,113               $                     31,475,934               $                     30,075,113
Deposits                                                      26,930,755                                     26,719,375                                     25,678,577                                     26,930,755                                     25,678,577
Other liabilities                                             1,673,070                                      1,867,921                                      1,708,942                                      1,673,070                                      1,708,942
Shareholders’ equity                                          2,872,109                                      2,862,528                                      2,687,594                                      2,872,109                                      2,687,594
Total liabilities and shareholders’ equity                    $                     31,475,934               $                     31,449,824               $                     30,075,113               $                     31,475,934               $                     30,075,113
SELECTED PERIOD AVERAGE BALANCES
Total assets                                                  $                     31,753,223               $                     31,268,774               $                     30,376,207               $                     31,072,235               $                     24,104,404
Investment securities                                         6,731,183                                      7,275,290                                      7,110,799                                      7,011,767                                      5,994,080
Loans and leases                                              20,059,556                                     19,761,145                                     18,538,553                                     19,528,153                                     14,820,126
Interest-earning assets                                       29,565,715                                     29,097,839                                     28,064,279                                     28,893,157                                     22,232,051
Deposits                                                      27,029,650                                     26,719,713                                     25,851,672                                     26,485,245                                     20,368,275
Interest-bearing liabilities                                  18,933,443                                     18,911,455                                     19,011,554                                     18,986,755                                     15,273,619
Shareholders’ equity                                          $                     2,867,177                $                     2,823,967                $                     2,712,905                $                     2,797,300                $                     2,256,292
Shares outstanding                                            12,010,405                                     12,010,405                                     12,010,405                                     12,010,405                                     10,221,721
SELECTED RATIOS
Annualized return on average assets                           0.53                                        %  0.71                                        %  0.82                                        %  0.68                                        %  0.57                                        %
Annualized return on average equity                           5.92                                           7.86                                           9.20                                           7.52                                           6.14
Taxable-equivalent net interest margin                        3.12                                           3.29                                           3.09                                           3.22                                           3.21
Efficiency ratio                                              77.57                                          75.73                                          79.42                                          77.63                                                                82.85
Tier 1 risk-based capital ratio                               12.65                                          12.77                                          13.61                                          12.65                                          13.61
Common equity Tier 1 ratio                                    12.51                                          12.63                                                                N/A                      12.51                                                                N/A
Total risk-based capital ratio                                14.03                                          14.18                                          14.69                                          14.03                                          14.69
Leverage capital ratio                                        8.96                                           8.97                                           8.91                                           8.96                                           8.91
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                                              Year ended December 31
                                                                           December 31,        September 30,         December 31,
(Dollars in thousands, unaudited)                                          2015                2015                  2014                  2015                 2014
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
ALLL at beginning of period                                                $     205,463       $     208,317         $     200,905         $     204,466        $     233,394
(Credit) provision for loan and lease losses:
Purchased credit-impaired (PCI) loans                                      (903          )     2,769                 (2,622          )     (2,273          )    (14,620         )
Non-PCI loans                                                              7,949               (2,662          )     10,927                22,937               15,260
Net charge-offs of loans and leases:
Charge-offs                                                                (8,551        )     (5,698          )     (7,469          )     (28,348         )    (37,770         )
Recoveries                                                                 2,258               2,737                 2,725                 9,434                8,202
Net charge-offs of loans and leases                                        (6,293        )     (2,961          )     (4,744          )     (18,914         )    (29,568         )
ALLL at end of period                                                      $     206,216       $     205,463         $     204,466         $     206,216        $     204,466
ALLL at end of period allocated to loans and leases:
PCI                                                                        $     16,312        $     17,557          $     21,629          $     16,312         $     21,629
Non-PCI                                                                    189,904             187,906               182,837               189,904              182,837
ALLL at end of period                                                      $     206,216       $     205,463         $     204,466         $     206,216        $     204,466
Net charge-offs of loans and leases:
PCI                                                                        $     342           $     680             $     1,549           $     3,044          $     17,271
Non-PCI                                                                    5,951               2,281                 3,195                 15,870               12,297
Total net charge-offs                                                      $     6,293         $     2,961           $     4,744           $     18,914         $     29,568
Reserve for unfunded commitments                                           $     379           $     411             $     333             $     379            $     333
SELECTED LOAN DATA
Average loans and leases:
PCI                                                                        $     996,637       $     1,081,497       $     1,244,910       $     1,112,286      $     1,195,238
Non-PCI                                                                    19,062,919          18,679,648            17,293,643            18,415,867           13,624,888
Loans and leases at period-end:
PCI                                                                        950,516             1,044,064             1,186,498             950,516              1,186,498
Non-PCI                                                                    19,289,474          18,811,742            17,582,967            19,289,474           17,582,967
RISK ELEMENTS
Nonaccrual loans and leases:
Covered under loss share agreements                                        $     2,992         $     3,171           $     27,020          $     2,992          $     27,020
Not covered under loss share agreements                                    100,441             89,434                50,407                100,441              50,407
Other real estate:
Covered                                                                    6,817               8,152                 22,982                6,817                22,982
Noncovered                                                                 58,742              61,707                70,454                58,742               70,454
Nonperforming assets:
Covered                                                                    9,809               11,323                50,002                9,809                50,002
Noncovered                                                                 159,183             151,141               120,861               159,183              120,861
Total nonperforming assets                                                 $     168,992       $     162,464         $     170,863         $     168,992        $     170,863
Accruing loans and leases 90 days or more past due                         $     77,066        $     79,816          $     115,680         $     77,066         $     115,680
RATIOS
Net charge-offs (annualized) to average loans and leases:
PCI                                                                        0.14          %     0.25            %     0.49            %     0.27            %    1.44            %
Non-PCI                                                                    0.12                0.05                  0.07                  0.09                 0.09
ALLL to total loans and leases:
PCI                                                                        1.72                1.68                  1.82                  1.72                 1.82
Non-PCI                                                                    0.98                1.00                  1.04                  0.98                 1.04
Total                                                                      1.02                1.03                  1.09                  1.02                 1.09
Ratio of nonperforming assets to total loans, leases and other real estate
Covered                                                                    3.51                3.72                  9.84                  3.51                 9.84
Noncovered                                                                 0.79                0.77                  0.66                  0.79                 0.66
Total                                                                      0.83                0.82                  0.91                  0.83                 0.91

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
                                                             December 31, 2015                         September 30, 2015                       December 31, 2014
                                                             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                                             $     20,059,556   $   218,048   4.32   % $     19,761,145   $   225,955   4.54  % $     18,538,553   $   212,058   4.54   %
Investment securities:
U. S. Treasury                                               1,686,269          3,092         0.73     2,004,586          3,887         0.77    2,683,820          5,405         0.80
Government agency                                            599,048            1,282         0.86     756,474            1,922         1.02    1,012,044          901           0.36
Mortgage-backed securities                                   4,437,936          18,632        1.68     4,514,212          18,446        1.63    3,411,011          13,122        1.54
State, county and municipal                                  --                 --            --       --                 --            --      621                12            7.73
Other                                                        7,930              205           10.30    18                 --            --      3,303              126           15.13
Total investment securities                                  6,731,183          23,211        1.38     7,275,290          24,255        1.33    7,110,799          19,566        1.10
Overnight investments                                        2,774,976          2,030         0.29     2,061,404          1,174         0.23    2,414,927          1,689         0.28
Total interest-earning assets                                $     29,565,715   $   243,289   3.27   % $     29,097,839   $   251,384   3.43  % $     28,064,279   $   233,313   3.30   %
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Checking with interest                                       $     4,234,147    $   204       0.02   % $     4,180,364    $   225       0.02  % $     4,332,424    $   379       0.03   %
Savings                                                      1,887,520          142           0.03     1,866,161          119           0.03    1,206,860          91            0.03
Money market accounts                                        8,175,228          1,605         0.08     8,229,793          1,788         0.09    8,332,418          1,721         0.08
Time deposits                                                3,200,354          2,900         0.36     3,312,291          3,084         0.37    3,649,803          4,062         0.44
Total interest-bearing deposits                              17,497,249         4,851         0.11     17,588,609         5,216         0.12    17,521,505         6,253         0.14
Repurchase agreements                                        728,526            471           0.26     762,081            502           0.26    328,470            139           0.17
Other short-term borrowings                                  3,203              7             1.39     12,551             88            2.84    757,216            4,209         2.21
Long-term obligations                                        704,465            5,813         3.30     548,214            4,648         3.39    404,363            4,276         4.23
Total interest-bearing liabilities                           $     18,933,443   $   11,142    0.23   % $     18,911,455   $   10,454    0.22  % $     19,011,554   $   14,877    0.31   %
Interest rate spread                                                                          3.04   %                                  3.21  %                                  2.99   %
Net interest income and net yield on interest-earning assets                    $   232,147   3.12   %                    $   240,930   3.29  %                    $   218,436   3.09   %

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, 6.2 percent and 6.2 percent for the three months ended December 31, 2015, September 30, 2015 and December 31, 2014, respectively. The taxable-equivalent adjustment was $1,428, $1,559 and $1,190 for the three months ended December 31, 2015, September 30, 2015 and December 31, 2014, respectively. The rate/volume variance is allocated equally between the changes in volume and rate.

Contact:
Barbara Thompson
First Citizens BancShares
(919) 716-2716

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