10-QPeriod: Q2 FY2019

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 6, 2019For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a strong financial performance for the second quarter and the first six months of 2019, driven by significant growth in net income, net interest income, and total assets. The company's strategic focus on organic growth and acquisitions has yielded positive results, with net income increasing by 27.9% year-over-year for the quarter and 19.2% year-to-date. This growth was supported by an expanding loan and deposit base, fueled by both strategic mergers and organic expansion, particularly in commercial and residential mortgage portfolios. Profitability metrics such as return on average assets and return on average equity showed substantial improvement, reflecting efficient operations and effective capital deployment. The company maintained strong capital ratios, exceeding regulatory requirements, indicating a robust financial position. While noninterest income saw a slight dip year-to-date, primarily due to a large debt extinguishment gain in the prior year, core fee income drivers like cardholder services showed healthy growth. Management's outlook suggests potential margin compression due to changing interest rate expectations and increased competition, but the company's disciplined lending standards and focus on core deposit growth provide a solid foundation for navigating future market dynamics.

Financial Highlights

33 data points
Beta

Net Income

$119.36M

EPS (Diluted)

$10.56

Total Assets

$37.66B

Cash & Equivalents

$284.15M

Free Cash Flow

$48.73M

Financial Statements
Beta
Interest Expense$23.37M
Net Income$119.36M
EPS (Basic)$10.56
Shares Outstanding (Basic)11.29M

Key Highlights

  • 1Net income for Q2 2019 was $119.4 million, a 27.9% increase YoY, with EPS rising to $10.56 from $7.77.
  • 2Year-to-date net income reached $230.7 million, up 19.2% YoY, with EPS of $20.23 compared to $16.11.
  • 3Net interest income increased by 10.5% to $327.3 million in Q2 2019, and the net interest margin (NIM) improved to 3.79%.
  • 4Total loans grew by $1.26 billion in the quarter to $26.73 billion, with acquisitions contributing significantly to this growth.
  • 5Total deposits also saw substantial growth, increasing by $1.52 billion in the quarter to $32.72 billion.
  • 6The company completed three strategic acquisitions in Q2 2019: First South Bancorp, Biscayne Bancshares, and is proceeding with Entegra Financial Corp.
  • 7BancShares maintained strong capital adequacy ratios, exceeding regulatory minimums, indicating financial stability.

Frequently Asked Questions

The primary drivers for the increase in net income were higher net interest income due to growth in average loans and improved loan yields, coupled with improved returns on average assets and equity. Acquisitions also contributed significantly to the balance sheet growth.

The acquisitions of First South Bancorp and Biscayne Bancshares contributed significantly to the growth in total loans and deposits during the quarter. These acquisitions added approximately $1.04 billion in loans and $994.1 million in deposits, bolstering the company's balance sheet and revenue base.

While the NIM expanded in recent periods, management anticipates potential margin compression for the remainder of 2019. This is due to declining new loan yields, expected increases in interest expense on deposits, and rising deposit betas, influenced by market interest rate expectations and increased competition.

The company manages credit risk through disciplined lending standards, periodic reviews of originated loans, and careful evaluation of acquired loans. The allowance for loan and lease losses is maintained to account for potential losses, and nonperforming assets are closely monitored. The overall credit quality of the portfolio remains in line with risk tolerances.