Nov. 2, 2021, 5:03 p.m. EDT

10-Q: FIRST CITIZENS BANCSHARES INC /DE/

(EDGAR Online via COMTEX) -- Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis ("MD&A") of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and its subsidiaries ("BancShares"). This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented within this Quarterly Report on Form 10-Q along with our financial statements and related MD&A of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report"). Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2021, the reclassifications had no effect on shareholders' equity or net income as previously reported. Unless otherwise noted, the terms "we," "us" and "BancShares" refer to the consolidated financial position and consolidated results of operations for BancShares. EXECUTIVE OVERVIEW BancShares conducts its banking operations through its wholly-owned subsidiary First-Citizens Bank & Trust Company ("FCB"), a state-chartered bank organized under the laws of the state of North Carolina. BancShares' earnings and cash flows are primarily derived from our commercial and retail banking activities. We gather deposits from retail and commercial customers and also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in interest-earning assets, including loans and leases, investment securities and overnight investments. We also invest in bank premises, hardware, software, furniture and equipment used to conduct our commercial and retail banking business. We provide treasury services products, cardholder and merchant services, wealth management services and various other products and services typically offered by commercial banks. The fees and service charges generated from these products and services are primary sources of noninterest income which is an essential component of our total revenue. We are focused on expanding our position in legacy and target markets through organic growth and strategic acquisitions. We believe our franchise is positioned for continued growth as a result of our client centric banking principles, disciplined lending standards, and our people. Refer to our 2020 Annual Report for further discussion of our strategy. RECENT ECONOMIC AND INDUSTRY DEVELOPMENTS During the first quarter of 2020, a novel strain of coronavirus ("COVID-19") spread throughout the world, causing significant disruptions to the domestic and global economies. In response to the outbreak, governments imposed restrictions resulting in business shutdowns, regional quarantines, disruptions of supply chains, changes in consumer behavior and overall economic instability. Although vaccines for COVID-19 have been made available to the general public in the United States and many places around the world, vaccination rates vary and effectiveness may decrease over time. We cannot predict how widely utilized the vaccines and boosters will be or whether and for how long they will be effective in preventing the spread of COVID-19 (including its variants).

Although we cannot predict when or if normal economic activity and business operations will resume, we observed general declines in the level of economic uncertainty and stabilization of macroeconomic forecasts during the first three quarters of 2021. The US experienced an uptick in the number of new cases during the third quarter of 2021. We are unable to predict whether these trends will continue and how this will affect the overall economy at the current time. However, we remain vigilant in our review and monitoring efforts around the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the overall economy and our financial results.

During the third quarter of 2021, the Federal Reserve's Federal Open Market Committee ("FOMC") maintained the federal funds rate at a target range of 0.00% to 0.25%. The FOMC acknowledged the economy's accelerating recovery from the COVID-19 pandemic, but maintained that the recovery is incomplete and economic risks remain. The FOMC expects to maintain this target range, but rate hikes are expected in late 2022 or early 2023. Further, the committee suggested that they will begin tapering asset purchases, potentially as early as the fourth quarter of 2021 if economic progress continues as expected.







        Table 1
        SBA-PPP LOAN FORGIVENESS STATUS
        (Dollars in thousands)
                                                 Round 1                                Round 2
        Status                      $ of Loans       % of Round Total      $ of Loans       % of Round Total
        Total Funded               $ 3,199,897                100.0  %    $ 1,223,797                100.0  %
        Payments Received            3,121,746                 97.6           175,660                 14.4
        Total Remaining            $    78,151                  2.4  %    $ 1,048,137                 85.6  %
        


Through September 30, 2021, over 99% of all COVID-19-related loan extensions have begun repayment. Delinquency trends among loans entering repayment are in line with the remainder of the portfolio, and we have not seen significant declines in overall credit quality.

SIGNIFICANT EVENTS IN 2021

FINANCIAL PERFORMANCE SUMMARY







        Table 2
        SELECTED QUARTERLY DATA
                                                                              2021                                                   2020
                                                        Third                Second                 First                Fourth                 Third                 Nine months ended September 30
        (Dollars in thousands, except share data)      Quarter               Quarter               Quarter               Quarter               Quarter                  2021                    2020
        SUMMARY OF OPERATIONS
        Interest income                            $    361,855          $    361,825          $    355,323          $    376,876          $    374,334          $     1,079,003           $  1,107,150
        Interest expense                                 14,968                15,432                15,671                18,160                20,675                   46,071                 77,697
        Net interest income                             346,887               346,393               339,652               358,716               353,659                1,032,932              1,029,453
        Provision (credit) for credit losses             (1,120)              (19,603)              (10,974)                5,403                 4,042                  (31,697)                52,949
        Net interest income after provision for
        credit losses                                   348,007               365,996               350,626               353,313               349,617                1,064,629                976,504
        Noninterest income                              122,944               134,150               136,649               126,765               120,572                  393,743                349,985
        Noninterest expense                             312,818               301,578               295,926               305,373               291,662                  910,322                883,312
        Income before income taxes                      158,133               198,568               191,349               174,705               178,527                  548,050                443,177
        Income taxes                                     34,060                45,780                44,033                36,621                35,843                  123,873                 89,538
        Net income                                      124,073               152,788               147,316               138,084               142,684                  424,177                353,639
        Net income available to common
        shareholders                               $    119,437          $    148,152          $    142,680          $    133,448          $    138,048          $       410,269           $    344,213
        Net interest income, taxable equivalent    $    347,451          $    347,035          $    340,271          $    359,370          $    354,256          $     1,034,758           $  1,031,395
        PER COMMON SHARE DATA
        Net income                                 $      12.17          $      15.09          $      14.53          $      13.59          $      14.03          $         41.79           $      33.96
        Cash dividends on common shares                    0.47                  0.47                  0.47                  0.47                  0.40                     1.41                   1.20
        Market price at period end (Class A)             843.17                832.74                835.77                574.27                318.78                   843.17                 318.78
        Book value per share at period-end               432.07                421.39                405.59                396.21                380.43                   432.07                 380.43
        SELECTED QUARTERLY AVERAGE BALANCES
        Total assets                               $ 55,922,358          $ 54,399,331          $ 51,409,634          $ 49,557,803          $ 48,262,155          $    53,926,971           $ 44,834,045
        Investment securities                        10,707,519            10,534,348             9,757,650             9,889,124             9,930,197               10,336,652              8,774,840
        Loans and leases (1)                         32,707,591            33,166,049            33,086,656            32,964,390            32,694,996               32,985,376             31,148,683
        Interest-earning assets                      52,371,165            51,519,684            48,715,279            46,922,823            45,617,376               50,882,100             42,151,861
        Deposits                                     49,107,087            47,751,103            44,858,198            43,123,312            41,905,844               47,254,360             38,612,836
        Interest-bearing liabilities                 29,662,791            28,909,320            27,898,525            26,401,222            25,591,707               28,830,007             24,388,339
        Securities sold under customer repurchase
        agreements                                      672,114               677,451               641,236               684,311               710,237                  663,713                614,920
        Other short-term borrowings                           -                     -                     -                     -                     -                        -                 67,522
        Long-term borrowings                          1,222,452             1,227,755             1,235,576             1,250,682             1,256,331                1,228,546              1,164,475
        Common shareholders' equity                   4,196,655             4,058,236             3,935,267             3,786,158             3,679,138                4,063,386              3,651,132
        Shareholders' equity                       $  4,536,592          $  4,398,173          $  4,275,204          $  4,126,095          $  4,019,075          $     4,403,323           $  3,896,645
        Common shares outstanding                     9,816,405             9,816,405             9,816,405             9,816,405             9,836,629                9,816,405             10,137,321
        SELECTED QUARTER-END BALANCES
        Total assets                               $ 56,901,977          $ 55,175,318          $ 53,908,606          $ 49,957,680          $ 48,666,873          $    56,901,977           $ 48,666,873
        Investment securities                        10,875,354            10,894,227            10,222,107             9,922,905             9,860,594               10,875,354              9,860,594
        Loans and leases                             32,516,189            32,689,652            33,180,851            32,791,975            32,845,144               32,516,189             32,845,144
        Deposits                                     50,065,762            48,410,596            47,330,997            43,431,609            42,250,606               50,065,762             42,250,606
        Securities sold under customer repurchase
        agreements                                      663,575               692,604               680,705               641,487               693,889                  663,575                693,889
        Other short-term borrowings                           -                     -                     -                     -                     -                        -                      -
        Long-term borrowings                          1,219,229             1,224,488             1,230,326             1,248,163             1,252,016                1,219,229              1,252,016
        Shareholders' equity                       $  4,581,295          $  4,476,490          $  4,321,400          $  4,229,268          $  4,074,414          $     4,581,295           $  4,074,414
        Common shares outstanding                     9,816,405             9,816,405             9,816,405             9,816,405             9,816,405                9,816,405              9,816,405
        SELECTED RATIOS AND OTHER DATA
        Return on average assets (annualized)              0.88  %               1.13  %               1.16  %               1.11  %               1.18  %                  1.05   %               1.05  %
        Return on average common shareholders'
        equity (annualized)                               11.29                 14.64                 14.70                 14.02                 14.93                    13.50                  12.59
        Net yield on interest-earning assets
        (taxable equivalent)                               2.61                  2.68                  2.80                  3.02                  3.06                     2.69                   3.23
        Net charge-offs to average loans and
        leases (annualized)                                0.06                  0.02                  0.03                  0.06                  0.03                     0.04                   0.07
        Allowance for credit losses to total loans
        and leases(2):
        PCD                                                4.94                  4.73                  5.30                  5.18                  5.07                     4.94                   5.07
        Non-PCD                                            0.51                  0.53                  0.57                  0.62                  0.61                     0.51                   0.61
        Total                                              0.56                  0.58                  0.63                  0.68                  0.68                     0.56                   0.68
        Ratio of total nonperforming assets to
        total loans, leases and other real estate
        owned                                              0.63                  0.71                  0.73                  0.74                  0.73                     0.63                   0.73
        Total risk-based capital ratio                    14.30                 14.15                 14.14                 13.81                 13.70                    14.30                  13.70
        Tier 1 risk-based capital ratio                   12.32                 12.13                 12.02                 11.63                 11.48                    12.32                  11.48
        Common equity Tier 1 ratio                        11.34                 11.14                 11.00                 10.61                 10.43                    11.34                  10.43
        Tier 1 leverage capital ratio                      7.68                  7.67                  7.84                  7.86                  7.80                     7.68                   7.80
        Dividend payout ratio                              3.86                  3.11                  3.23                  3.46                  2.85                     3.37                   3.53
        Average loans and leases to average
        deposits                                          66.60                 69.46                 73.76                 76.44                 78.02                    69.80                  80.67
        


(1) Average loan and lease balances include PCD loans, non-PCD loans and leases, loans held for sale and nonaccrual loans and leases.







        Table of Contents
        BUSINESS COMBINATIONS
        CIT Group Inc.
        On October 15, 2020, BancShares and CIT, entered into the Merger Agreement by
        and among BancShares, FCB, the Merger Sub, and CIT, the parent company of CIT
        Bank. Pursuant to the terms and subject to the conditions set forth in the
        Merger Agreement, Merger Sub and CIT will ultimately merge with and into FCB,
        with FCB as the surviving entity. The Merger Agreement further provides that
        immediately following the consummation of the Mergers, CIT Bank will merge with
        and into FCB, with FCB as the surviving bank.
        The Merger Agreement was unanimously approved by the Board of Directors of each
        of BancShares and CIT. The transaction has been approved by the shareholders of
        . . .
        


Nov 02, 2021

COMTEX_396246114/2041/2021-11-02T17:02:58

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