First Citizens BancShares, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015, with fourth-quarter results also disclosed. The filing is an annual report, not a standalone quarterly filing. BancShares operates through First-Citizens Bank & Trust Company, with 559 branches in 18 states and the District of Columbia. Total assets were $31.48 billion at year-end.
Financial performance and condition
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net interest income | $924.9 million | $710.1 million | +30.3% |
| Noninterest income | $467.1 million | $343.2 million | +36.1% |
| Noninterest expense | $1.039 billion | $849.1 million | +22.4% |
| Net income | $210.4 million | $138.6 million | +51.8% |
| Diluted or basic EPS as reported | $17.52 | $13.56 | +29.2% |
| Return on average assets | 0.68% | 0.57% | Improved |
| Return on average equity | 7.52% | 6.14% | Improved |
| Taxable-equivalent net interest margin | 3.22% | 3.21% | |
| Net cash from operating activities | $233.1 million | $182.2 million | +27.9% |
Loan and lease balances increased 7.8% to $20.24 billion, led by $1.71 billion of organic non-PCI loan growth. Deposits increased 4.9% to $26.93 billion, primarily from demand, checking-with-interest and savings accounts; time deposits declined by $410.9 million.
Net charge-offs declined to $18.9 million, or 0.10% of average loans, from $29.6 million, or 0.20%, in 2014. The allowance for loan and lease losses was $206.2 million, or 1.02% of total loans, compared with 1.09% in 2014. Nonperforming assets declined modestly to $169.0 million, or 0.83% of loans, leases and other real estate, from $170.9 million, or 0.91%.
Liquidity remained supported by $2.06 billion of overnight investments, $3.96 billion of unencumbered securities, $740.0 million of available unsecured borrowing capacity and $5.57 billion of additional secured FHLB borrowing capacity. Short-term borrowings declined to $594.7 million from $987.2 million, while long-term obligations increased to $704.2 million, primarily due to $350.0 million of additional FHLB borrowings used to mitigate interest-rate risk.
At December 31, 2015, BancShares reported a Tier 1 risk-based capital ratio of 12.65%, common equity Tier 1 ratio of 12.51%, total risk-based capital ratio of 14.03% and leverage ratio of 8.96%. BancShares and FCB exceeded applicable minimums and remained well capitalized.
Material changes versus the prior comparable period
- The full-year effect of the October 2014 Bancorporation merger materially increased assets, loans, deposits, revenue and expenses. FCB-SC merged into FCB on January 1, 2015.
- FCB acquired certain assets and assumed liabilities of Capitol City Bank & Trust in February 2015, adding approximately $154.5 million of loans and $266.4 million of deposits. The transaction produced a $42.9 million pretax acquisition gain, or $26.4 million after tax.
- Noninterest income benefited from the CCBT gain, higher merchant and cardholder services, mortgage income, securities gains and PCI loan recoveries. The prior year included a separate $29.1 million gain related to Bancorporation shares canceled in the merger.
- Noninterest expense increased due to the full-year merger impact, higher salaries, benefits, pension costs, core deposit intangible amortization and technology depreciation. Merger-related activities were complete at year-end, and management anticipated no further Bancorporation merger expenses.
- The PCI loan portfolio declined $236.0 million to $950.5 million, reflecting runoff partly offset by CCBT-acquired loans. Acquisition-related accretion income remained significant at $133.3 million.
- For the fourth quarter, net income fell to $42.7 million from $62.9 million. Net interest income increased 6.2% to $230.7 million, but noninterest income declined to $99.1 million, primarily because the prior-year quarter included the $29.1 million Bancorporation-share gain and 2015 had higher FDIC receivable adjustments.
Outlook, management commentary, risks and unusual items
Management did not provide formal numerical earnings or revenue guidance. Its stated priorities were core loan and fee-income growth, expense control, branch-network optimization, technology modernization and selective strategic acquisitions. Continued originated loan growth in 2016 was described as dependent on economic conditions, competition and other external factors.
Technology modernization projects were substantially completed by year-end after total costs of approximately $115.0 million. Management expects operating expenses to increase as the completed projects are amortized.
- Basel III capital conservation requirements began phasing in on January 1, 2016. Trust-preferred securities included in Tier 1 capital declined from $128.5 million at year-end 2014 to $32.1 million at year-end 2015; the remaining amount was expected to phase out on January 1, 2016.
- FDIC loss-share protection is expiring for additional non-single-family residential assets during 2016. BancShares reported a $126.5 million FDIC clawback payable and expected to receive only $4.1 million of remaining FDIC cash payments, exclusive of the clawback amount.
- Key credit concentrations include real-estate-secured loans of $15.59 billion, or 77.0% of total loans, medical and dental-related loans of $4.28 billion, or 21.2%, and revolving mortgage loans with approximately 64.3% secured by junior liens.
- Interest-rate risk could pressure margins as rates rise. The filing estimates that a 300-basis-point instantaneous increase would reduce 24-month net interest income by 0.75% and economic value of equity by 3.92%.
- Other principal risks include regulatory and consumer-protection requirements, competition, deposit retention, credit deterioration, real-estate values, FDIC reimbursement disputes, operational and cybersecurity risks, litigation, goodwill impairment and pension assumptions.
- Unfunded loan commitments were $7.95 billion and standby letters of credit were $77.9 million at year-end. Management stated that existing legal proceedings were not expected to have a material effect on consolidated financial statements.
Important facts for investors to verify
- Separate recurring earnings from the $42.9 million CCBT acquisition gain, acquisition-related accretion and other FDIC-assisted transaction effects.
- Assess whether organic loan growth can continue without weakening underwriting standards or increasing provisions and nonperforming assets.
- Monitor the expiration of FDIC loss-share agreements, the $126.5 million clawback payable and the reduction in related receivables.
- Reconcile capital ratios after the final phaseout of trust-preferred securities and during the Basel III capital-conservation-buffer phase-in.
- Evaluate sensitivity to higher interest rates, including loan-yield compression, deposit repricing and the disclosed interest-rate-risk scenarios.
- Review real-estate, junior-lien, medical and dental loan concentrations and related allowance assumptions.
- Confirm liquidity availability, collateral requirements and maturity schedules for FHLB borrowings, deposits and other obligations.
- Consider the effect of ongoing technology amortization, pension expense and core deposit intangible amortization on future efficiency and profitability.