First Citizens Reports Earnings For Second Quarter 2012

RALEIGH, N.C., Aug. 8, 2012 (GLOBE NEWSWIRE) -- First Citizens BancShares Inc. (Nasdaq:FCNCA) reports earnings for the quarter ending June 30, 2012, of $37.6 million, compared to $21.3 million for the corresponding period of 2011, according to Frank B. Holding Jr., chairman of the board. The increase in net income in 2012 resulted from higher net interest income and a reduction in provision for loan and lease losses, partially offset by lower noninterest income and an increase in noninterest expense.

Per share income for the second quarter 2012 totaled $3.66, compared to $2.04 for the same period a year ago. First Citizens' current quarter results generated an annualized return on average assets of 0.71 percent and an annualized return on average equity of 7.80 percent, compared to respective returns of 0.42 percent and 4.94 percent for the same period of 2011.

For the six-month period ending June 30, 2012, net income equaled $73.1 million, compared to $83.1 million for the corresponding period of 2011. Earnings for 2011 included an acquisition gain of $63.5 million resulting from an FDIC-assisted transaction involving United Western Bank of Denver, Colorado (United Western). No acquisition gains have been recorded in 2012. The after-tax impact of the 2011 gain was $38.6 million. The increase in net income excluding acquisition gains was the result of higher net interest income offset by a reduction in noninterest income.

Per share income for the six-month period ending June 30, 2012, totaled $7.11, compared to $7.96 for the same period a year ago. First Citizens' year-to-date results generated an annualized return on average assets of 0.69 percent and an annualized return on average equity of 7.70 percent, compared to respective returns of 0.79 percent and 9.43 percent for the same period of 2011.

The general level and comparability of BancShares' results of operations for 2012 and 2011 are affected by FDIC-assisted transactions. Acquisition gains are recorded at the date of the transaction and result from the difference between the estimated fair values of acquired assets and assumed liabilities. Various post-acquisition adjustments to the carrying value of acquired assets may have a significant impact on net interest income, provision for loan and lease losses and noninterest income. Accretable fair value discounts recorded on acquired loans are recognized in income over the estimated life of the loans, with accelerated accretion recognized if repayments occur sooner than originally estimated. In cases where post-acquisition deterioration of credit quality is identified for acquired loans, allowances are established through the provision for loan and lease losses. When credit quality improves subsequent to the acquisition date, fair value discounts that were initially identified as nonaccretable are reclassified as accretable and are recognized as interest income over the remaining life of the loan. For loans and other real estate (OREO) covered under FDIC loss share agreements, the net increase or decrease in the estimated recoverable amount resulting from deterioration or improvement is recognized as an adjustment to the FDIC receivable with an offset to noninterest income.

2012 HIGHLIGHTS

  • Second quarter and year-to-date net interest income equaled $215.4 million and $436.4 million respectively, up 3.9 percent and 6.1 percent from 2011.  
  • Average loans and leases for the second quarter of 2012, including those acquired in FDIC-assisted transactions, fell $416.0 million, or 3.0 percent from the second quarter of 2011.  
  • Average interest-earning assets increased $241.0 million, or 1.3 percent, as compared to the second quarter of 2011.  
  • Average interest-bearing liabilities, including those assumed in FDIC-assisted transactions, decreased $600.3 million, or 4.0 percent, from the second quarter of 2011 to the second quarter of 2012. Average total deposits, including noninterest-bearing balances, were unchanged at $17.7 billion.  
  • Second quarter 2012 and 2011 earnings were influenced by several significant items arising from FDIC-assisted transactions, including:
  • $18.7 million and $41.2 million of provision for loan and lease losses
  • $60.9 million and $71.1 million in interest income from accretion of fair value discounts, including discounts related to large unscheduled payments
  • $14.1 million and $13.7 million charges to noninterest income arising from adjustments to the FDIC receivable
  • Year-to-date 2012 and 2011 earnings included various items arising from the FDIC-assisted transactions:
  • $28.3 million and $73.8 million of provision for loan and lease losses  
  • $125.8 million and $122.8 million in interest income from accretion of fair value discounts, including discounts related to unscheduled repayments  
  • $40.9 million and $24.1 million of charges to noninterest income arising from adjustments to the FDIC receivable
  • Net charge-offs on noncovered loans equaled $12.2 million for the quarter, or an annualized 0.43 percent of average noncovered loans, up 20.8 percent from the second quarter of 2011.  
  • Year-to-date 2012 net charge-offs on noncovered loans totaled $27.9 million, or an annualized 0.48 percent of average noncovered loans, up $7.3 million from year-to-date 2011.  
  • Excluding acquisition gains and the effect of post-acquisition adjustments from the FDIC-assisted transactions, noninterest income decreased 11.2 percent during the second quarter of 2012 and 7.5 percent during the six-month period ending June 30, 2012, when compared to the prior year.  
  • Second quarter 2012 noninterest expenses were up $7.3 million, or 3.9 percent, primarily caused by higher foreclosure-related expenses for assets covered under loss share agreements.

NET INTEREST INCOME

Second quarter net interest income increased $8.1 million, or 3.9 percent, from the same period of 2011, due to lower balances and rates on interest-bearing liabilities. Average interest-earning assets increased $241.0 million, or 1.3 percent, due in part to the assets acquired in the Colorado Capital Bank (CCB) acquisition in the third quarter of 2011. Accretion of discounts on acquired assets, including accretion caused by large unscheduled loan payments and other adjustments recorded during the second quarter of 2012, resulted in $60.9 million of interest income, compared to $71.1 million recorded in the second quarter of 2011. Accretion related to large unscheduled payments or other favorable events resulted in a corresponding reduction in the FDIC receivable, recorded as a reduction in noninterest income. The taxable-equivalent net yield on interest-earning assets increased 12 basis points when compared to the second quarter of 2011. The increase in the net yield was primarily due to reduced deposit costs and the favorable impact of acquired loans and assumed deposits, including the impact of fair value discounts accreted into income during the second quarter of 2012.

During the second quarter of 2012, interest-earning assets averaged $18.98 billion, an increase of $241.0 million, or 1.3 percent, from the second quarter of 2011. The increase was due to higher levels of investment securities and overnight investments offset in part by lower loans and leases.

Average interest-bearing liabilities decreased by $600.3 million, or 4.0 percent, during the second quarter of 2012, due to lower levels of interest-bearing deposits and long term obligations. The rate on interest-bearing liabilities fell 32 basis points to 0.70 percent during the second quarter of 2012, due principally to an improved mix of lower rate interest-bearing checking and money market balances versus time deposits.

Net interest income increased $25.0 million, or 6.1 percent, during the six-month period ended June 30, 2012, when compared to the same period of 2011. Net interest income for the six months ended June 30, 2012, included $125.8 million of accretion income, compared to $122.8 million recognized during the six months ended June 30, 2011.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan and lease losses equaled $29.7 million during the second quarter of 2012, a $24.3 million decrease from the same period of 2011, due primarily to a $22.5 million reduction in the amount recognized for post-acquisition deterioration of acquired loans covered by FDIC loss share agreements. The favorable change in provision for loan and lease losses for acquired loans was due to lower post-acquisition deterioration of loans, the reversal of previously recorded allowances due to improvements in expected cash flows and reduced charge-offs during the second quarter of 2012. The provision for noncovered loan and lease losses recorded during the second quarter of 2012 equaled $11.0 million, down $1.8 million from the second quarter of 2011 as a result of a change in the threshold used to identify impaired loans that will be individually evaluated, offset by smaller increases in commercial loan provisions. Effective April 1, 2012, impaired loans greater than or equal to $500,000 are individually evaluated, compared to the prior threshold of $1.0 million.

Net charge-offs on noncovered loans during the second quarter of 2012 equaled $12.2 million, compared to $10.1 million during the second quarter of 2011. Charge-offs in the second quarter of 2012 included a $2.2 million loss on a commercial and land development loan. On an annualized basis, noncovered loan net charge-offs for the second quarter of 2012 represented 0.43 percent of average noncovered loans and leases, compared to 0.35 percent for the same period of 2011. Net charge-offs resulting from post-acquisition deterioration of covered loans equaled $17.0 million during the second quarter of 2012, down from $26.4 million for the second quarter of 2011.

For the six months ended June 30, 2012, the provision for loan and lease losses equaled $60.4 million, a $38.0 million decrease from the same period of 2011, due to a $45.5 million reduction in the amount recognized for post-acquisition deterioration of acquired loans covered by FDIC loss share agreements. The provision for noncovered loan and lease losses recorded during the first six months of 2012 equaled $32.1 million, an increase of $7.5 million from the first six months of 2011, the result of reduced provisions for loans now individually evaluated for impairment due to the lower threshold that became effective April 1, 2012, offset by higher net charge-offs. The favorable change in provision for loan and lease losses for acquired loans was partially offset by $16.8 million in higher charges to noninterest income as a result of larger reductions in the FDIC receivable in the six months ended June 30, 2012 resulting from the net favorable changes in covered assets, as compared to the same period of 2011.

Net charge-offs on noncovered loans during the first six months of 2012 equaled $27.9 million, compared to $20.5 million during the first six months of 2011. Charge-offs in 2012 included a $7.2 million loss on a commercial construction and land development loan. On an annualized basis, noncovered net charge-offs for the six months ended June 30, 2012, represented 0.48 percent of average noncovered loans and leases, compared to 0.36 percent for the same period of 2011. Net charge-offs resulting from post-acquisition deterioration of covered loans equaled $29.7 million for the six months ended June 30, 2012, down from $55.6 million for the same period of 2011.

NONINTEREST INCOME

Noninterest income for the second quarter of 2012 equaled $57.3 million, compared to $66.6 million in the comparable period of 2011. This decrease of $9.4 million was primarily caused by reductions in cardholder and merchant services income, due to limitations imposed by the Dodd-Frank Act and a reduction in mortgage income.

During the first six months of 2012, noninterest income amounted to $104.2 million, compared to $196.2 million during the same period of 2011. The majority of the $92.0 million decrease during 2012 is due to $63.5 million in acquisition gains recognized in conjunction with the United Western FDIC-assisted transaction in 2011. As a result of adjustments to the FDIC receivable caused by favorable events impacting covered assets, noninterest income was reduced by $40.9 million during 2012, compared to $24.1 million during 2011. Noninterest income for 2012 also included a $10.2 million decline in cardholder and merchant services income resulting from the fourth quarter 2011 enactment of debit interchange fee limits mandated by the Dodd-Frank Act.

NONINTEREST EXPENSE

Noninterest expense increased $7.3 million in the second quarter of 2012 to $194.8 million, compared to $187.5 million in the second quarter of 2011 as a result of an increase in foreclosure-related expenses offset by a reduction in expenses for card loyalty programs. Foreclosure-related expenses in the second quarter of 2012 increased $12.0 million from the comparable period of 2011 to $15.8 million. The increase in foreclosure-related expenses resulted from the resolution of assets acquired in FDIC-assisted transactions, the majority of which are reimbursable under the various loss sharing agreements.

Noninterest expense equaled $378.1 million for the first six months of 2012, a $618,000, or 0.2 percent, increase over the $377.5 million recorded during the same period of 2011. During 2012, noninterest expense included an $11.2 million increase in foreclosure and loan collection costs and a $2.5 million increase in employee benefits expense. These increased costs were offset by a $9.6 million reduction in other expenses, including card loyalty expenses and processing fees paid for institutional deposits from United Western. In addition, FDIC insurance expenses declined $5.0 million resulting from adjustments to the assessment calculation that were effective beginning in the second quarter of 2011.

INCOME TAXES

Income tax expense totaled $10.7 million and $11.3 million for the second quarters of 2012 and 2011, representing effective tax rates of 22.1 percent and 34.6 percent during the respective periods. For the first six months of 2012, income tax expense totaled $29.0 million compared to $48.6 million during 2011. The effective tax rates for the six-month periods equals 28.4 percent and 36.9 percent, respectively.

The lower effective tax rates for 2012 result from recognition of a $6.4 million credit to income tax expense resulting from the favorable outcome of state tax audits for the period 2008-2010, net of additional federal taxes.

NONPERFORMING ASSETS

As of June 30, 2012, BancShares' nonperforming assets amounted to $507.6 million, or 3.7 percent of total loans and leases plus OREO, compared to $553.8 million, or 3.9 percent, on December 31, 2011 and $540.4 million, or 3.8 percent, on June 30, 2011. Of the $507.6 million in nonperforming assets on June 30, 2012, $388.8 million is covered by FDIC loss share agreements, with the remaining $118.9 million not covered by loss share agreements. Nonperforming assets not covered by loss share agreements are relatively stable at approximately 1.0 percent of noncovered loans and leases plus OREO. Covered nonperforming assets declined from previous periods, due to the sale and write-down of other real estate and the resolution of nonaccrual loans offset in part by new foreclosures and loans placed on nonaccrual.

As of June 30, 2012, BancShares had total assets of $21.24 billion.

CAPITAL

First Citizens BancShares remains well-capitalized with a tier 1 leverage capital ratio of 10.21 percent on June 30, 2012, up 71 basis points from June 30, 2011, despite a consistent asset base. Both the total risk-based capital and tier 1 risk-based capital ratios increased from June 30, 2011, to levels of 17.66 percent and 15.97 percent on June 30, 2012, respectively.

ABOUT FIRST CITIZENS BANCSHARES

BancShares is the financial holding company for First Citizens Bank. First Citizens Bank provides a broad range of financial services to individuals, businesses, professionals and the medical community through a network of 416 branch offices, telephone banking, online banking and ATMs. For more information, visit First Citizens' website at firstcitizens.com.

This news release may contain forward-looking statements. A discussion of factors that could cause First Citizens' actual results to differ materially from those expressed in such forward-looking statements is included in First Citizens' filings with the SEC.
CONDENSED STATEMENTS OF INCOME
  Three Months Ended June 30 Six Months Ended June 30
(thousands, except share data; unaudited) 2012 2011 2012 2011
Interest income $ 240,519 $ 245,604 $ 487,271 $ 490,804
Interest expense 25,087 38,229 50,887 79,442
Net interest income 215,432 207,375 436,384 411,362
Provision for loan and lease losses 29,667 53,977 60,382 98,396
Net interest income after provision for loan and lease losses 185,765 153,398 376,002 312,966
Gains on acquisitions 63,474
Other noninterest income 57,296 66,649 104,239 132,755
Noninterest expense 194,797 187,482 378,128 377,510
Income before income taxes 48,264 32,565 102,113 131,685
Income taxes 10,681 11,265 29,035 48,625
Net income $ 37,583 $ 21,300 $ 73,078 $ 83,060
Taxable-equivalent net interest income $ 216,194 $ 208,301 $ 437,960 $ 413,240
Net income per share $ 3.66 $ 2.04 $ 7.11 $ 7.96
Cash dividends per share 0.30 0.30 0.60 0.60
Profitability Information (annualized)        
Return on average assets 0.71 % 0.42 % 0.69 % 0.79 %
Return on average equity 7.80 4.94 7.70 9.43
Taxable-equivalent net yield on interest-earning assets 4.58 4.46 4.69 4.41
 
CONDENSED BALANCE SHEETS
  June 30 December 31 June 30
(thousands, except share data; unaudited) 2012 2011 2011
Assets      
Cash and due from banks $ 571,004 $ 590,801 $ 537,717
Investment securities 4,635,826 4,058,245 4,016,339
Loans covered by FDIC loss share agreements 1,999,351 2,362,152 2,399,738
Loans and leases not covered by FDIC loss share agreements 11,462,458 11,581,637 11,528,854
Less allowance for loan and lease losses 272,929 270,144 250,050
Receivable from FDIC for loss share agreements 313,978 539,511 522,507
Other assets 2,531,302 2,019,291 2,266,545
       
Total assets $ 21,240,990 $ 20,881,493 $ 21,021,650
Liabilities and shareholders' equity      
Deposits $ 17,801,646 $ 17,577,274 $ 17,662,966
Other liabilities 1,509,554 1,443,091 1,549,414
Shareholders' equity 1,929,790 1,861,128 1,809,270
       
Total liabilities and shareholders' equity $ 21,240,990 $ 20,881,493 $ 21,021,650
Book value per share $ 187.88 $ 180.97 $ 174.02
 
SELECTED AVERAGE BALANCES
  Three Months Ended June 30 Six Months Ended June 30
(thousands, except shares outstanding; unaudited) 2012 2011 2012 2011
Total assets $ 21,085,228 $ 21,042,081 $ 20,964,172 $ 21,212,600
Investment securities 4,598,141 4,162,397 4,369,650 4,364,180
Loans and leases 13,612,114 14,028,109 13,718,532 13,966,406
Interest-earning assets 18,983,321 18,742,282 18,785,636 18,903,914
Deposits 17,667,221 17,678,210 17,583,165 17,870,861
Interest-bearing liabilities 14,418,509 15,018,805 14,448,704 15,279,695
Shareholders' equity 1,906,884 1,803,385 1,887,695 1,776,131
Shares outstanding 10,271,343 10,422,857 10,277,593 10,428,623
         
CAPITAL INFORMATION
    June 30 December 31 June 30
(dollars in thousands; unaudited)   2012 2011 2011
Tier 1 capital   $ 2,143,496 $ 2,072,610 $ 2,006,394
Total capital   2,369,999 2,323,022 2,253,087
Risk-weighted assets   13,422,294 13,447,702 13,045,475
Tier 1 capital ratio   15.97 % 15.41 % 15.38 %
Total capital ratio   17.66 17.27 17.27
Leverage capital ratio   10.21 9.90 9.50
 
ASSET QUALITY DISCLOSURES
  2012 2011 Six months ended June 30
  Second First Fourth Third Second    
(dollars in thousands; unaudited) Quarter Quarter Quarter Quarter Quarter 2012 2011
Allowance for loan and lease losses at beginning of period $ 272,500 $ 270,144 $ 254,184 $ 250,050 $ 232,597 $ 270,144 $ 227,765
Provision for loan and lease losses:              
Covered by loss share agreements 18,678 9,603 70,408 30,317 41,196 28,281 73,753
Not covered by loss share agreements 10,989 21,112 18,845 14,311 12,781 32,101 24,643
Net charge-offs of loans and leases:              
Charge-offs (30,934) (30,379) (74,698) (42,314) (38,222) (61,312) (77,859)
Recoveries 1,696 2,020 1,405 1,820 1,698 3,715 1,748
Net charge-offs of loans and leases (29,238) (28,359) (73,293) (40,494) (36,524) (57,597) (76,111)
Allowance for loan and lease losses at end of period $ 272,929 $ 272,500 $ 270,144 $ 254,184 $ 250,050 $ 272,929 $ 250,050
Allowance for loan and lease losses at end of period allocated to loans and leases:              
Covered by loss share agreements $ 87,797 $ 86,117 $ 89,261 $ 75,050 $ 69,435 $ 87,797 $ 69,435
Not covered by loss share agreements 185,132 186,383 180,883 179,134 180,615 185,132 180,615
Allowance for loan and lease losses at end of period $ 272,929 $ 272,500 $ 270,144 $ 254,184 $ 250,050 $ 272,929 $ 250,050
Detail of net charge-offs of loans and leases:              
Covered by loss share agreements $ 16,998 $ 12,747 $ 56,197 $ 24,702 $ 26,390 $ 29,745 $ 55,566
Not covered by loss share agreements 12,240 15,612 17,096 15,792 10,134 27,852 20,545
Total net charge-offs $ 29,238 $ 28,359 $ 73,293 $ 40,494 $ 36,524 $ 57,597 $ 76,111
Reserve for unfunded commitments $ 7,869 $ 7,789 $7,789 $7,962 $7,854 $7,869 $7,854
Average loans and leases:              
Covered by loss share agreements 2,076,199 2,254,636 2,443,665 2,500,807 2,490,964 2,167,436 2,461,115
Not covered by loss share agreements 11,535,335 11,567,590 11,649,368 11,672,417 11,537,145 11,551,096 11,505,291
Loans and leases at period-end:              
Covered by loss sharing agreements 1,999,351 2,183,869 2,362,152 2,557,450 2,399,738 1,999,351 2,399,738
Not covered by loss sharing agreements 11,462,458 11,489,529 11,581,637 11,603,526 11,528,854 11,462,458 11,528,854
Risk Elements              
Nonaccrual loans and leases:              
Covered by loss share agreements $ 271,381 $ 292,229 $ 302,102 $ 291,890 $ 267,333 $ 271,381 $ 267,333
Not covered by loss share agreements 69,406 66,363 52,741 59,603 73,441 69,406 73,441
Other real estate:              
Covered by loss share agreements 117,381 142,418 148,599 160,443 150,636 117,381 150,636
Not covered by loss share agreements 49,454 48,092 50,399 48,616 49,028 49,454 49,028
Total nonperforming assets $ 507,622 $ 549,102 $ 553,841 $ 560,552 $ 540,438 $ 507,622 $ 540,438
Nonperforming assets covered by loss share agreements $ 388,762 $ 434,647 $ 450,701 $ 452,333 $ 417,969 $ 388,762 $ 417,969
Nonperforming assets not covered by loss share agreements 118,860 114,455 103,140 108,219 122,469 118,860 122,469
Total nonperforming assets $ 507,622 $ 549,102 $ 553,841 $ 560,552 $ 540,438 $ 507,622 $ 540,438
Accruing loans and leases greater than 90 days past due:              
Covered by loss share agreements $ 254,580 $ 268,403 $ 292,194 $ 289,833 $ 210,334 $ 254,580 $ 210,334
Not covered by loss share agreements 12,907 13,828 14,840 17,887 15,208 12,907 15,208
Ratios              
Net charge-offs (annualized) to average loans and leases:              
Covered by loss share agreements 3.29 % 2.27 % 9.12 % 3.92 %  4.25 % 2.76 % 4.55 %
Not covered by loss share agreements 0.43 0.54 0.58 0.54 0.35 0.48 0.36
Allowance for loan and lease losses to total loans and leases:              
Covered by loss share agreements 4.39 3.94 3.78 2.93 2.89 4.39 2.89
Not covered by loss share agreements 1.62 1.62 1.56 1.54 1.57 1.62 1.57
Nonperforming assets to total loans and leases plus other real estate:              
Covered by loss share agreements 18.37 18.68 17.95 16.64 16.39 18.37 16.39
Not covered by loss share agreements 1.03 0.99 0.89 0.93 1.06 1.03 1.06
Total 3.72 3.96 3.92 3.90 3.83 3.72 3.83
CONTACT: Barbara Thompson         First Citizens BancShares         (919) 716-2716