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First Citizens Bancshares Reports Earnings For Fourth Quarter 2016

RALEIGH, N.C., Jan. 25, 2017 (GLOBE NEWSWIRE) -- First Citizens BancShares Inc. (BancShares) (Nasdaq:FCNCA) reports earnings for the quarter ended December 31, 2016. Net income for the fourth quarter of 2016 was $52.7 million, or $4.39 per share, compared to $51.4 million, or $4.28 per share, for the third quarter of 2016, and $42.7 million, or $3.56 per share, for the corresponding period of 2015, according to Frank B. Holding, Jr., chairman of the board. BancShares’ current quarter results generated an annualized return on average assets of 0.63 percent and an annualized return on average equity of 6.86 percent, compared to respective returns of 0.63 percent and 6.69 percent for the third quarter of 2016 and 0.53 percent and 5.92 percent for the fourth quarter of 2015.

For the years ended December 31, 2016 and 2015, net income was $225.5 million, or $18.77 per share, and $210.4 million, or $17.52 per share, respectively. Returns on average assets and average equity were 0.70 percent and 7.51 percent during 2016, compared to 0.68 percent and 7.52 percent during 2015. Earnings in 2016 included a pre-tax benefit of $16.6 million resulting from the early termination of FDIC loss share agreements during the second quarter of 2016 and gains of $5.8 million recognized in connection with the acquisition of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin, on March 11, 2016, and the acquisition of First CornerStone Bank (FCSB) of King of Prussia, Pennsylvania, on May 6, 2016. Earnings in 2015 included a $42.9 million gain on the February 13, 2015, acquisition of Capitol City Bank & Trust (CCBT) of Atlanta, Georgia.

FINANCIAL HIGHLIGHTS

  • Loans grew by $440.9 million during the fourth quarter and $1.50 billion for the year primarily as a result of strong originated portfolio growth.
  • Deposit growth continued, up $236.1 million and $1.23 billion from September 30, 2016, and December 31, 2015, respectively.
  • In addition to the acquisitions of FCSB and NMSB, First Citizens Bank completed the merger of Midlothian, Virginia-based Cordia Bancorp, Inc. (Cordia) and its subsidiary, Bank of Virginia, into First Citizens Bank on September 1, 2016. All three acquisitions contributed to growth in loans and deposits during 2016.
  • The taxable-equivalent net interest margin was 3.14 percent in the fourth quarter of 2016, an increase of 4 basis points from the third quarter of 2016. The increase was due to originated loan growth and an improvement in investment yields, partially offset by continued purchased credit impaired (PCI) loan portfolio runoff.
  • BancShares remained well-capitalized at December 31, 2016, under Basel III capital requirements with a leverage capital ratio of 9.05 percent, Tier 1 risk-based capital ratio of 12.42 percent, common equity Tier 1 ratio of 12.42 percent and total risk-based capital ratio of 13.85 percent.

LOANS AND DEPOSITS

Loans at December 31, 2016, were $21.74 billion, a net increase of $440.9 million compared to September 30, 2016, representing growth of 8.2 percent on an annualized basis. Originated loan growth was $499.9 million, primarily due to continued growth in the commercial portfolio. PCI loans decreased by $59.0 million, as a result of loan runoff.

Loan balances increased by a net $1.50 billion, or 7.4 percent, since December 31, 2015. This increase was primarily driven by $1.41 billion of organic growth in the non-PCI portfolio and the addition of $225.0 million to the non-PCI portfolio from the Cordia acquisition at December 31, 2016. The PCI portfolio declined over this period by $141.3 million, as a result of continued loan runoff of $206.6 million offset by net loans acquired from NMSB and FCSB, which were $29.5 million and $35.8 million, respectively, at December 31, 2016.

At December 31, 2016, deposits were $28.16 billion, an increase of $236.1 million since September 30, 2016, due to organic growth primarily in checking with interest accounts and money market accounts, offset by runoff in time deposits. Deposits increased by $1.23 billion, or 4.6 percent, since December 31, 2015, due to organic growth in low-cost demand deposits and checking with interest and the additions of deposit balances from the NMSB, FCSB and Cordia acquisitions of $318.2 million at December 31, 2016, offset by continued runoff in time deposits.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $218.8 million at December 31, 2016, an increase of $6.8 million and $12.6 million since September 30, 2016, and December 31, 2015, respectively. The allowance as a percentage of total loans at December 31, 2016, was 1.01 percent, compared to 1.00 percent and 1.02 percent at September 30, 2016, and December 31, 2015, respectively.

BancShares recorded net provision expense of $16.0 million for loan and leases losses during the fourth quarter of 2016, and $7.5 million and $7.0 million for the third quarter of 2016 and fourth quarter of 2015, respectively. The higher provision expense in the current quarter resulted from higher net charge-offs and increases in reserves on PCI loans.

Non-PCI loan provision expense was $13.9 million for the fourth quarter of 2016, compared to $7.4 million and $7.9 million for the third quarter of 2016 and fourth quarter of 2015, respectively. The increase in provision expense in the current quarter resulted from higher net charge-offs. The PCI loan portfolio provision expense was $2.1 million during the fourth quarter of 2016, compared to provision expense of $77 thousand and a net provision credit of $903 thousand during the third quarter of 2016 and fourth quarter of 2015, respectively. The increase in provision expense in the current quarter was due to higher loss rates for certain pools of PCI loans.

NONPERFORMING ASSETS

At December 31, 2016, BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $147.0 million, down from $160.1 million at September 30, 2016 and $169.0 million at December 31, 2015. The decreases from September 30, 2016, and December 31, 2015, were due to $5.4 million and $17.7 million reductions in nonaccrual loans, respectively, primarily in commercial loans, and $7.7 million and $4.3 million declines in OREO balances as a result of problem asset resolutions.

NET INTEREST INCOME

Net interest income increased $8.1 million, or by 3.4 percent, to $243.9 million from the third quarter of 2016. The increase was due to higher non-PCI loan interest income of $6.3 million related to originated loan volume and a $2.2 million increase in investment securities interest income due to improved yields and portfolio growth.

Net interest income increased $13.2 million, or by 5.7 percent, from the fourth quarter of 2015. The increase was primarily due to higher non-PCI loan interest income of $14.5 million as a result of originated loan growth, a $4.3 million improvement in interest income earned on investments and a $277 thousand reduction in interest expense. These favorable impacts were partially offset by a decline in PCI loan interest income of $5.9 million due to continued loan runoff.

The taxable-equivalent net interest margin was 3.14 percent in the fourth quarter of 2016, an increase of 4 basis points from the third quarter of 2016 and 2 basis points from the same quarter in the prior year. The margin improvement was due to originated loan volume and an improvement in investment yields, partially offset by continued PCI loan portfolio runoff. The current quarter also benefited from lower deposit funding rates compared to the fourth quarter of 2015.

NONINTEREST INCOME

Total noninterest income for the fourth quarter of 2016 was $124.7 million, an increase of $6.9 million from the third quarter of 2016. The increase was due to higher securities gains of $8.8 million and a $3.4 million increase in recoveries of PCI loans previously charged-off. These increases were partially offset by a $3.8 million gain on the sale of certain residential mortgage loans and a $837 thousand fair value refinement to the gain on the FCSB acquisition, both recognized in the third quarter of 2016.

Noninterest income increased $25.6 million from the fourth quarter of 2015, primarily driven by higher securities gains of $9.2 million, higher favorable adjustments to the FDIC receivable of $7.2 million and a $4.6 million increase in mortgage income due to favorable changes in valuation adjustments on mortgage servicing assets and increased production and sales of loans. Noninterest income also benefited from a $4.5 million increase in merchant and cardholder services as a result of higher sales volume and a $3.0 million increase in recoveries of PCI loans previously charged-off.

NONINTEREST EXPENSE

Noninterest expense increased by $4.3 million to $271.5 million compared to the third quarter of 2016. The increase was primarily due to a $4.9 million increase in salaries and wages related to higher termination pay and temporary labor, an increase in bank building repairs related to Hurricane Matthew of approximately $1.2 million and higher unfunded commitment reserves of $754 thousand resulting from refined loss estimates. These increases were offset by a $3.6 million reduction in merger-related expense.

Noninterest expense increased by $15.6 million from the same quarter last year due to a $7.2 million increase in salaries and wages related to higher temporary labor and annual merit increases. Noninterest expense also increased due to higher foreclosure-related expense of $3.9 million resulting from lower gains on OREO sales, which offset this expense, an increase in cardholder and merchant processing expense of $2.0 million due to higher sales volume, higher bank building repairs related to Hurricane Matthew and an increase in unfunded commitment reserves.

INCOME TAXES

Higher pre-tax earnings contributed to income tax expense of $28.4 million in the fourth quarter of 2016, up from $27.5 million and $24.2 million in the third quarter of 2016 and fourth quarter of 2015, respectively. Effective tax rates were 35.0 percent, 34.9 percent and 36.1 percent during the respective periods. Reductions in the North Carolina corporate income tax rate contributed to lower effective tax rates during 2016.

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 21 states, digital banking, ATMs and telephone banking. As of December 31, 2016, BancShares had total assets of $33.0 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
(Dollars in thousands, except share data; unaudited)December 31,
2016
September 30,
2016
December 31,
2015
2016 2015
SUMMARY OF OPERATIONS
Interest income$254,782 $246,494 $241,861 $987,757 $969,209
Interest expense10,865 10,645 11,142 43,082 44,304
Net interest income243,917 235,849 230,719 944,675 924,905
Provision for loan and lease losses16,029 7,507 7,046 32,941 20,664
Net interest income after provision for loan and lease losses227,888 228,342 223,673 911,734 904,241
Gain on acquisitions 837 5,831 42,930
Noninterest income124,698 117,004 99,135 482,240 424,158
Noninterest expense271,531 267,233 255,886 1,048,738 1,038,915
Income before income taxes81,055 78,950 66,922 351,067 332,414
Income taxes28,365 27,546 24,174 125,585 122,028
Net income$52,690 $51,404 $42,748 $225,482 $210,386
Taxable-equivalent net interest income$245,330 $237,146 $232,147 $949,768 $931,231
PER SHARE DATA
Net income$4.39 $4.28 $3.56 $18.77 $17.52
Cash dividends0.30 0.30 0.30 1.20 1.20
Book value at period-end250.82 256.76 239.14 250.82 239.14
CONDENSED BALANCE SHEET
Cash and due from banks$539,741 $495,705 $534,086 $539,741 $534,086
Overnight investments1,872,594 2,997,086 2,063,132 1,872,594 2,063,132
Investment securities7,006,678 6,384,940 6,861,548 7,006,678 6,861,548
Loans and leases21,737,878 21,296,980 20,239,990 21,737,878 20,239,990
Less allowance for loan and lease losses(218,795) (211,950) (206,216) (218,795) (206,216)
FDIC loss share receivable4,172 3,108 4,054 4,172 4,054
Other assets2,048,568 2,006,041 1,979,340 2,048,568 1,979,340
Total assets$32,990,836 $32,971,910 $31,475,934 $32,990,836 $31,475,934
Deposits28,161,343 27,925,253 26,930,755 28,161,343 26,930,755
Other liabilities1,817,066 1,962,909 1,673,070 1,817,066 1,673,070
Shareholders' equity3,012,427 3,083,748 2,872,109 3,012,427 2,872,109
Total liabilities and shareholders' equity$32,990,836 $32,971,910 $31,475,934 $32,990,836 $31,475,934
SELECTED PERIOD AVERAGE BALANCES
Total assets$33,223,995 $32,655,417 $31,753,223 $32,439,492 $31,072,235
Investment securities6,716,873 6,452,532 6,731,183 6,616,355 7,011,767
Loans and leases21,548,313 21,026,510 20,059,556 20,897,395 19,528,153
Interest-earning assets31,078,428 30,446,592 29,565,715 30,267,788 28,893,157
Deposits28,231,477 27,609,418 27,029,650 27,515,161 26,485,245
Interest-bearing liabilities19,357,282 19,114,740 18,933,443 19,158,317 18,986,755
Shareholders' equity$3,056,426 $3,058,155 $2,867,177 $3,001,269 $2,797,300
Shares outstanding12,010,405 12,010,405 12,010,405 12,010,405 12,010,405
SELECTED RATIOS
Annualized return on average assets0.63% 0.63% 0.53% 0.70% 0.68%
Annualized return on average equity6.86 6.69 5.92 7.51 7.52
Taxable-equivalent net interest margin3.14 3.10 3.12 3.14 3.22
Efficiency ratio (1)75.54 75.81 77.57 75.79 77.63
Tier 1 risk-based capital ratio12.42 12.50 12.65 12.42 12.65
Common equity Tier 1 ratio12.42 12.50 12.51 12.42 12.51
Total risk-based capital ratio13.85 13.96 14.03 13.85 14.03
Leverage capital ratio9.05 9.07 8.96 9.05 8.96
(1) 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 gains, acquisition gains and FDIC loss share termination 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
(Dollars in thousands, unaudited)December 31,
2016
September 30,
2016
December 31,
2015
2016 2015
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
ALLL at beginning of period$211,950 $208,008 $205,463 $206,216 $204,466
(Credit) provision for loan and lease losses:
Purchased credit-impaired (PCI) loans (1)2,137 77 (903) (1,929) (2,273)
Non-PCI loans (1)13,892 7,430 7,949 34,870 22,937
Net charge-offs of loans and leases:
Charge-offs(11,316) (6,210) (8,551) (30,201) (28,348)
Recoveries2,132 2,645 2,258 9,839 9,434
Net charge-offs of loans and leases(9,184) (3,565) (6,293) (20,362) (18,914)
ALLL at end of period$218,795 $211,950 $206,216 $218,795 $206,216
ALLL at end of period allocated to loans and leases:
PCI$13,769 $11,632 $16,312 $13,769 $16,312
Non-PCI205,026 200,318 189,904 205,026 189,904
ALLL at end of period$218,795 $211,950 $206,216 $218,795 $206,216
Net charge-offs of loans and leases:
PCI$ $ $342 $614 $3,044
Non-PCI9,184 3,565 5,951 19,748 15,870
Total net charge-offs$9,184 $3,565 $6,293 $20,362 $18,914
Reserve for unfunded commitments$1,133 $379 $379 $1,133 $379
SELECTED LOAN DATA
Average loans and leases:
PCI$831,858 $931,820 $996,637 $898,706 $1,112,286
Non-PCI20,716,455 19,725,274 19,062,919 19,998,689 18,415,867
Loans and leases at period-end:
PCI809,169 868,200 950,516 809,169 950,516
Non-PCI20,928,709 20,428,780 19,289,474 20,928,709 19,289,474
RISK ELEMENTS
Nonaccrual loans and leases:
PCI$3,451 $4,142 $7,579 $3,451 $7,579
Non-PCI82,307 87,043 95,854 82,307 95,854
Other real estate61,231 68,964 65,559 61,231 65,559
Total nonperforming assets$146,989 $160,149 $168,992 $146,989 $168,992
Accruing loans and leases 90 days or more past due$68,241 $69,312 $77,066 $68,241 $77,066
RATIOS
Net charge-offs (annualized) to average loans and leases:
PCI% % 0.14% 0.07% 0.27%
Non-PCI0.18 0.07 0.12 0.10 0.09
Total0.17 0.07 0.12 0.10 0.10
ALLL to total loans and leases:
PCI1.70 1.34 1.72 1.70 1.72
Non-PCI0.98 0.98 0.98 0.98 0.98
Total1.01 1.00 1.02 1.01 1.02
Ratio of nonperforming assets to total loans, leases and other real estate
Covered0.66 0.75 3.51 0.66 3.51
Noncovered0.67 0.75 0.79 0.67 0.79
Total0.67 0.75 0.83 0.67 0.83

(1) 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, 2016 September 30, 2016 December 31, 2015
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$21,548,313 $226,651 4.19 %$21,026,510 $220,480 4.17 %$20,059,556 $218,048 4.32 %
Investment securities:
U. S. Treasury1,593,610 3,328 0.83 1,528,010 3,018 0.79 1,686,269 3,092 0.73
Government agency172,037 396 0.92 321,664 711 0.88 599,048 1,282 0.86
Mortgage-backed securities4,802,198 20,937 1.74 4,470,507 18,833 1.69 4,437,936 18,632 1.68
Corporate bonds54,255 772 5.69 43,535 648 5.95
Other94,773 253 1.06 88,816 316 1.41 7,930 205 10.30
Total investment securities6,716,873 25,686 1.53 6,452,532 23,526 1.46 6,731,183 23,211 1.38
Overnight investments2,813,242 3,858 0.55 2,967,550 3,785 0.51 2,774,976 2,030 0.29
Total interest-earning assets$31,078,428 $256,195 3.28 %$30,446,592 $247,791 3.24 %$29,565,715 $243,289 3.27 %
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Checking with interest$4,696,279 $261 0.02 %$4,475,963 $231 0.02 %$4,234,147 $204 0.02 %
Savings2,080,598 161 0.03 2,055,877 157 0.03 1,887,520 142 0.03
Money market accounts8,113,686 1,619 0.08 8,060,290 1,568 0.08 8,175,228 1,605 0.08
Time deposits2,892,143 2,411 0.33 2,900,840 2,501 0.34 3,200,354 2,900 0.36
Total interest-bearing deposits17,782,706 4,452 0.10 17,492,970 4,457 0.10 17,497,249 4,851 0.11
Repurchase agreements726,318 485 0.27 766,893 489 0.25 728,526 471 0.26
Other short-term borrowings12,749 52 1.63 12,162 51 1.68 3,203 7 1.39
Long-term obligations835,509 5,876 2.81 842,715 5,648 2.68 704,465 5,813 3.30
Total interest-bearing liabilities$19,357,282 $10,865 0.22 %$19,114,740 $10,645 0.22 %$18,933,443 $11,142 0.23 %
Interest rate spread 3.06 % 3.02 % 3.04 %
Net interest income and net yield on interest-earning assets $245,330 3.14 % $237,146 3.10 % $232,147 3.12 %

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 3.1 percent, 5.5 percent and 5.5 percent for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively. The taxable-equivalent adjustment was $1,413, $1,297 and $1,428 for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015, respectively. The rate/volume variance is allocated equally between the changes in volume and rate.

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

Source:First Citizens BancShares Inc.