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First Citizens Bancshares Reports Earnings for Second Quarter 2017

RALEIGH, N.C., July 26, 2017 (GLOBE NEWSWIRE) -- First Citizens BancShares, Inc. (BancShares) (Nasdaq:FCNCA) announced its financial results for the quarter ended June 30, 2017. Net income for the second quarter of 2017 was $134.7 million, or $11.21 per share, compared to $67.6 million, or $5.63 per share, for the first quarter of 2017, and $69.3 million, or $5.77 per share, for the corresponding period of 2016, according to Frank B. Holding, Jr., chairman of the board. BancShares’ current quarter results generated an annualized return on average assets of 1.58 percent and an annualized return on average equity of 17.10 percent, compared to respective returns of 0.82 percent and 8.96 percent for the first quarter of 2017, and 0.87 percent and 9.33 percent for the second quarter of 2016.

Earnings for the second quarter of 2017 included a pre-tax acquisition gain of $122.7 million recognized in connection with the May 5, 2017, FDIC-assisted transaction involving certain assets and liabilities assumed of Guaranty Bank (Guaranty) of Milwaukee, Wisconsin, and investment securities gains of $3.4 million. The after-tax impact of the acquisition gain was $78.0 million. The Guaranty acquisition contributed $646.8 million in loans and $692.2 million in deposit balances at June 30, 2017. Earnings for the second quarter of 2016 included $16.6 million of pre-tax income due to the early termination of certain FDIC shared-loss agreements, $12.5 million in investment securities gains and $3.3 million in acquisition gains recognized in connection with the FDIC-assisted transactions of North Milwaukee State Bank (NMSB) of Milwaukee, Wisconsin and First CornerStone Bank (FCSB) of King of Prussia, Pennsylvania.

For the six months ended June 30, 2017, net income was $202.3 million, or $16.84 per share, compared to $121.4 million, or $10.11 per share, reported for the same period of 2016. Annualized returns on average assets and average equity were 1.20 percent and 13.11 percent, respectively, through June 30, 2017, compared to 0.76 percent and 8.26 percent, respectively, for the same period a year earlier. Year-to-date 2017 pre-tax earnings included gains of $134.7 million recognized in connection with the FDIC-assisted transactions of Guaranty and Harvest Community Bank (HCB) of Pennsville, New Jersey. Year-to-date 2016 earnings included gains of $5.0 million recognized in connection with the NMSB and FCSB acquisitions.

SECOND QUARTER HIGHLIGHTS

  • Loans grew by $965.0 million to $22.87 billion, or by 17.7 percent on an annualized basis, during the second quarter of 2017, reflecting the Guaranty acquisition and originated portfolio growth.

  • Deposits increased $453.6 million to $29.46 billion, or by 6.3 percent on an annualized basis, from March 31, 2017, primarily due to the deposit balances acquired from Guaranty and organic growth in low-cost demand deposit accounts.

  • Net interest income increased $11.3 million, or by 4.5 percent, compared to the first quarter of 2017. The increase was primarily due to originated loan growth and higher interest income earned on non-purchased credit impaired (non-PCI) loans, overnight investments and investment securities.

  • The taxable-equivalent net interest margin increased 3 basis points to 3.28 percent, compared to the first quarter of 2017, primarily due to a higher federal funds rate, favorable yields on investments and deposits and higher loan balances.

  • Net charge-offs on total loans and leases were $4.5 million, or 0.08 percent of average loans and leases on an annualized basis, compared to $6.1 million, or 0.11 percent, during the first quarter of 2017.

  • BancShares remained well capitalized under Basel III capital requirements with a Tier 1 risk-based capital ratio of 12.69 percent, common equity Tier 1 ratio of 12.69 percent, total risk-based capital ratio of 14.07 percent and leverage capital ratio of 9.33 percent at June 30, 2017.

LOANS AND DEPOSITS

Loans at June 30, 2017, were $22.87 billion, a net increase of $965.0 million compared to March 31, 2017, representing growth of 17.7 percent on an annualized basis. Non-PCI loans increased by $919.0 million, reflecting originated growth of $383.1 million and non-PCI loans acquired from Guaranty of $535.9 million at June 30, 2017. Purchased credit impaired (PCI) loans increased by $46.0 million reflecting net PCI loans acquired from Guaranty of $110.9 million at June 30, 2017, offset by loan run-off of $64.9 million.

Loan balances increased by a net $1.13 billion, or 10.5 percent on an annualized basis, since December 31, 2016. This increase was primarily driven by $512.0 million of organic growth in the non-PCI portfolio and $535.9 million in non-PCI loans acquired in the Guaranty acquisition at June 30, 2017. The PCI portfolio increased over this period by $85.7 million, reflecting net PCI loans acquired from Guaranty and HCB of $110.9 million and $74.4 million, respectively, at June 30, 2017, offset by loan run-off of $99.6 million.

At June 30, 2017, deposits were $29.46 billion, an increase of $453.6 million, or 6.3 percent on an annualized basis, since March 31, 2017. This increase was due to organic growth in demand deposit, interest-bearing savings and checking accounts and the deposit balances acquired from the Guaranty acquisition of $692.2 million at June 30, 2017, offset by run-off in time deposits and money market accounts. Deposits increased by $1.29 billion, or 4.6 percent, since December 31, 2016, due to organic growth of $514.8 million primarily in demand deposit, interest-bearing savings and checking accounts and the deposit balances from the Guaranty and HCB acquisitions of $692.2 million and $88.1 million, respectively, at June 30, 2017. These increases were offset by run-off in time deposits and money market accounts.

ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $228.8 million at June 30, 2017, an increase of $7.9 million and $10.0 million from March 31, 2017, and December 31, 2016, respectively. The allowance as a percentage of total loans at June 30, 2017, was 1.00 percent, down from 1.01 percent at both March 31, 2017, and December 31, 2016.

BancShares recorded net provision expense of $12.3 million for loan and lease losses for the second quarter of 2017, compared to $8.2 million for the first quarter of 2017. The $4.1 million increase in net provision expense was due to higher PCI provision expense of $5.4 million, partially offset by a decrease of $1.3 million in non-PCI provision expense. The increase in PCI loan provision expense was primarily due to updates in default rates for certain pools of PCI loans based on actual experience. The decrease in non-PCI provision expense was due to credit quality improvements in the commercial loan portfolio and lower net charge-offs, partially offset by higher originated loan growth and an increase in specific reserves on impaired loans and leases.

Net provision expense increased $7.8 million from the second quarter of 2016. Non-PCI provision expense increased $3.1 million primarily due to higher originated loan growth and higher net charge-offs. The PCI provision expense increased $4.7 million due to updates in default rates for certain pools of PCI loans based on actual experience.

NONPERFORMING ASSETS

At June 30, 2017, BancShares’ nonperforming assets, including nonaccrual loans and other real estate owned (OREO), were $150.2 million, up from $144.0 million at March 31, 2017, and $147.0 million at December 31, 2016. The increase from March 31, 2017, was due to a $4.3 million increase in OREO and a $1.9 million increase in nonaccrual loans. The increase from December 31, 2016, was due to a $3.6 million increase in nonaccrual loans, primarily in residential mortgage loans, offset by a $450 thousand decline in OREO.

NET INTEREST INCOME

Net interest income increased $11.3 million, or by 4.5 percent, to $261.6 million from the first quarter of 2017. The increase was due to higher non-PCI loan interest income of $8.0 million, a $1.9 million increase in interest income earned on overnight investments, an increase in PCI loan interest income of $1.1 million and higher investment securities interest income of $655 thousand. These increases were partially offset by an increase in interest expense of $419 thousand primarily related to higher rates paid on short-term borrowings.

Net interest income increased $29.4 million, or by 12.7 percent, from the second quarter of 2016. The increase was primarily due to a $20.2 million increase in non-PCI loan interest income due to originated loan volume and the contribution from the Guaranty acquisition, a $5.7 million increase in investment securities interest income and a $3.2 million increase in interest income earned on excess cash held in overnight investments. Interest income earned on overnight investments was positively impacted by two 25 basis point increases in the federal funds rate, one in March 2017 and the other in December 2016.

The taxable-equivalent net interest margin was 3.28 percent for the second quarter of 2017, an increase of 3 basis points from the first quarter of 2017 and an increase of 15 basis points from the same quarter in the prior year. The margin improvement compared to the first quarter of 2017 was primarily due to a higher federal funds rate, favorable yields on investments and deposits, as well as higher loan balances. The margin improvement compared to second quarter of 2016 was primarily due to improved investment yields and higher investment portfolio balances.

NONINTEREST INCOME

Total noninterest income for the second quarter of 2017 was $248.2 million and included the $122.7 million pre-tax gain on the acquisition of Guaranty. Noninterest income, excluding acquisition gains, increased by $10.2 million from the first quarter of 2017, due to higher merchant and cardholder income of $4.6 million resulting from higher sales volume, a $3.7 million increase in service charges on deposit accounts, investment securities gains of $3.4 million and higher wealth management fees of $1.0 million. These increases were partially offset by lower mortgage income of $2.6 million due to an unfavorable change in the value of interest rate lock commitments.

Noninterest income, excluding acquisition gains of $122.7 million in the second quarter of 2017 and $3.3 million in the second quarter of 2016, decreased by $11.5 million from the second quarter of 2016 primarily due to the $16.6 million pre-tax impact of the early termination of the FDIC shared-loss agreements recognized in the second quarter 2016 and a $9.2 million decrease in securities gains. These decreases were partially offset by higher merchant and cardholder income of $5.6 million due to higher sales volume, a $4.0 million increase in service charges on deposit accounts and lower FDIC receivable adjustments of $1.1 million.

NONINTEREST EXPENSE

Noninterest expense increased by $21.3 million to $285.6 million, compared to the first quarter of 2017. Merger-related expenses increased $6.0 million primarily related to the Guaranty acquisition. Salaries and wages increased $5.9 million primarily due to merit increases and increased headcount from the Guaranty acquisition. Other impacts included increases in consultant expense of $1.5 million, occupancy expense of $1.3 million and processing fees paid to third parties of $1.1 million. Additionally, other expenses increased primarily as a result of a higher write-downs on OREO of $1.4 million and a $1.2 million reversal of a repurchase reserve on a Small Business Administration (SBA) guaranteed loan recognized in the first quarter of 2017. These increases in noninterest expense were partially offset by lower employee benefits of $2.2 million related to payroll taxes and a decline in foreclosure-related expense of $1.9 million.

Noninterest expense increased by $27.3 million from the same quarter last year, primarily the result of a $15.5 million increase in personnel expense, due to merit increases and increased headcount, and higher merger-related expenses of $5.5 million from the Guaranty acquisition. Additionally, noninterest expense increased due to higher merchant and cardholder processing expense of $2.1 million related to higher sales volume, higher equipment expense of $1.9 million and an increase in foreclosure-related expense of $1.7 million.

INCOME TAXES

Income tax expense was $77.2 million, $37.4 million and $40.3 million for the second quarter of 2017, first quarter of 2017, and second quarter of 2016, representing effective tax rates of 36.4 percent, 35.6 percent and 36.7 percent during the respective periods.

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 22 states, including digital banking, mobile banking, ATMs and telephone banking. As of June 30, 2017, BancShares had total assets of $34.77 billion.

For more information, visit First Citizens’ website at firstcitizens.com. First Citizens Bank. Forever First®.

CONSOLIDATED FINANCIAL HIGHLIGHTS
Three months ended Six months ended
(Dollars in thousands, except share data; unaudited)June 30, 2017 March 31, 2017 June 30, 2016 June 30, 2017 June 30, 2016
SUMMARY OF OPERATIONS
Interest income$272,542 $260,857 $243,369 $533,399 $486,481
Interest expense10,933 10,514 11,180 21,447 21,572
Net interest income261,609 250,343 232,189 511,952 464,909
Provision for loan and lease losses12,324 8,231 4,562 20,555 9,405
Net interest income after provision for loan and lease losses249,285 242,112 227,627 491,397 455,504
Gain on acquisitions122,728 12,017 3,290 134,745 4,994
Noninterest income excluding gain on acquisitions125,472 115,275 136,960 240,747 240,538
Noninterest expense285,606 264,345 258,303 549,951 509,974
Income before income taxes211,879 105,059 109,574 316,938 191,062
Income taxes77,219 37,438 40,258 114,657 69,674
Net income$134,660 $67,621 $69,316 $202,281 $121,388
Taxable-equivalent net interest income$262,549 $251,593 $233,496 $514,142 $467,683
PER SHARE DATA
Net income$11.21 $5.63 $5.77 $16.84 $10.11
Cash dividends0.30 0.30 0.30 0.60 0.60
Book value at period-end269.75 258.17 252.76 269.75 252.76
CONDENSED BALANCE SHEET
Cash and due from banks$556,772 $502,273 $507,569 $556,772 $507,569
Overnight investments2,882,789 2,736,514 2,276,080 2,882,789 2,276,080
Investment securities6,596,530 7,119,944 6,557,736 6,596,530 6,557,736
Loans and leases22,871,465 21,906,449 20,742,571 22,871,465 20,742,571
Less allowance for loan and lease losses(228,798) (220,943) (208,008) (228,798) (208,008)
Other assets2,091,092 1,974,168 2,354,455 2,091,092 2,354,455
Total assets$34,769,850 $34,018,405 $32,230,403 $34,769,850 $32,230,403
Deposits$29,456,338 $29,002,768 $27,257,774 $29,456,338 $27,257,774
Other liabilities2,073,661 1,914,941 1,936,925 2,073,661 1,936,925
Shareholders’ equity3,239,851 3,100,696 3,035,704 3,239,851 3,035,704
Total liabilities and shareholders’ equity$34,769,850 $34,018,405 $32,230,403 $34,769,850 $32,230,403
SELECTED PERIOD AVERAGE BALANCES
Total assets$34,243,527 $33,494,500 $32,161,905 $33,871,083 $31,933,782
Investment securities7,112,267 7,084,986 6,786,463 7,098,702 6,648,355
Loans and leases22,575,323 21,951,444 20,657,094 22,265,106 20,503,093
Interest-earning assets32,104,717 31,298,970 29,976,629 31,704,069 29,767,629
Deposits29,087,852 28,531,166 27,212,814 28,811,046 27,105,420
Interest-bearing liabilities19,729,956 19,669,075 19,092,287 19,699,683 19,079,769
Shareholders’ equity$3,159,004 $3,061,099 $2,989,097 $3,111,388 $2,953,948
Shares outstanding12,010,405 12,010,405 12,010,405 12,010,405 12,010,405
SELECTED RATIOS
Annualized return on average assets1.58% 0.82% 0.87% 1.20% 0.76%
Annualized return on average equity17.10 8.96 9.33 13.11 8.26
Taxable-equivalent net interest margin3.28 3.25 3.13 3.27 3.16
Efficiency ratio (1)74.43 72.29 75.96 73.38 75.92
Tier 1 risk-based capital ratio12.69 12.57 12.63 12.69 12.63
Common equity Tier 1 ratio12.69 12.57 12.63 12.69 12.63
Total risk-based capital ratio14.07 13.99 14.10 14.07 14.10
Leverage capital ratio9.33 9.15 9.09 9.33 9.09
(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 shared-loss 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 Six months ended
(Dollars in thousands, unaudited) June 30, 2017 March 31, 2017 June 30, 2016 June 30, 2017 June 30, 2016
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
ALLL at beginning of period $220,943 $218,795 $206,783 $218,795 $206,216
Provision (credit) for loan and lease losses:
PCI loans (1) 2,572 (2,845) (2,146) (273) (4,143)
Non-PCI loans (1) 9,752 11,076 6,708 20,828 13,548
Net charge-offs of loans and leases:
Charge-offs (9,423) (8,709) (5,897) (18,194) (12,675)
Recoveries 4,954 2,626 2,560 7,642 5,062
Net charge-offs of loans and leases (4,469) (6,083) (3,337) (10,552) (7,613)
ALLL at end of period $228,798 $220,943 $208,008 $228,798 $208,008
ALLL at end of period allocated to loans and leases:
PCI $13,496 $10,924 $11,555 $13,496 $11,555
Non-PCI 215,302 210,019 196,453 215,302 196,453
ALLL at end of period $228,798 $220,943 $208,008 $228,798 $208,008
Net charge-offs of loans and leases:
PCI $ $ $56 $ $614
Non-PCI 4,469 6,083 3,281 10,552 6,999
Total net charge-offs $4,469 $6,083 $3,337 $10,552 $7,613
Reserve for unfunded commitments $1,133 $1,198 $399 $1,133 $399
SELECTED LOAN DATA
Average loans and leases:
PCI $858,053 $857,501 $931,820 $857,778 $935,830
Non-PCI 21,717,270 21,093,943 19,725,274 21,407,328 19,567,263
Loans and leases at period-end:
PCI 894,863 848,816 921,467 894,863 921,467
Non-PCI 21,976,602 21,057,633 19,821,104 21,976,602 19,821,104
RISK ELEMENTS
Nonaccrual loans and leases:
PCI $1,312 $1,458 $3,759 $1,312 $3,759
Non-PCI 88,067 86,086 89,006 88,067 89,006
Other real estate 60,781 56,491 67,089 60,781 67,089
Total nonperforming assets $150,160 $144,035 $159,854 $150,160 $159,854
Accruing loans and leases 90 days or more past due $76,778 $78,558 $79,824 $76,778 $79,824
RATIOS
Net charge-offs (annualized) to average loans and leases:
PCI % % 0.02% % 0.13%
Non-PCI 0.08 0.12 0.07 0.10 0.07
Total 0.08 0.11 0.06 0.10 0.07
ALLL to total loans and leases:
PCI 1.51 1.29 1.25 1.51 1.25
Non-PCI 0.98 1.00 0.99 0.98 0.99
Total 1.00 1.01 1.00 1.00 1.00
Ratio of nonperforming assets to total loans, leases and other real estate owned:
Covered 0.35 0.59 1.17 0.35 1.17
Noncovered 0.66 0.66 0.77 0.66 0.77
Total 0.65 0.66 0.77 0.65 0.77
(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
June 30, 2017 March 31, 2017 June 30, 2016
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands, unaudited) Balance Interest Rate (2) Balance Interest Rate (2) Balance Interest Rate (2)
INTEREST-EARNING ASSETS
Loans and leases (1) $22,575,323 $236,580 4.20% $21,951,444 $227,792 4.20% $20,657,094 $216,612 4.22%
Investment securities:
U. S. Treasury 1,622,936 4,453 1.10 1,644,598 4,199 1.04 1,540,669 2,993 0.78
Government agency 52,049 203 1.56 53,545 205 1.53 373,006 844 0.91
Mortgage-backed securities 5,278,731 24,756 1.88 5,241,296 24,322 1.86 4,787,719 20,554 1.72
Corporate bonds 60,356 932 6.17 57,104 980 6.87 12,533 197 6.27
Other 98,195 154 0.63 88,443 133 0.61 72,536 251 1.40
Total investment securities 7,112,267 30,498 1.72 7,084,986 29,839 1.69 6,786,463 24,839 1.47
Overnight investments 2,417,127 6,404 1.06 2,262,540 4,476 0.80 2,533,072 3,225 0.51
Total interest-earning assets $32,104,717 $273,482 3.42% $31,298,970 $262,107 3.39% $29,976,629 $244,676 3.28%
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Checking with interest $4,978,159 $253 0.02% $4,834,779 $252 0.02% $4,446,454 $218 0.02%
Savings 2,293,589 188 0.03 2,160,689 184 0.03 2,016,387 151 0.03
Money market accounts 8,107,107 1,688 0.08 8,343,092 1,859 0.09 8,084,829 1,644 0.08
Time deposits 2,745,473 2,003 0.29 2,815,682 2,141 0.31 2,986,103 2,588 0.35
Total interest-bearing deposits 18,124,328 4,132 0.09 18,154,242 4,436 0.10 17,533,773 4,601 0.11
Repurchase agreements 718,700 539 0.30 669,923 404 0.24 738,191 453 0.25
Other short-term borrowings 87,609 637 2.88 27,957 176 2.51 2,573 1 0.13
Long-term obligations 799,319 5,625 2.82 816,953 5,498 2.69 817,750 6,125 3.00
Total interest-bearing liabilities $19,729,956 $10,933 0.22 $19,669,075 $10,514 0.22 $19,092,287 $11,180 0.23
Interest rate spread 3.20% 3.17% 3.05%
Net interest income and net yield on interest-earning assets $262,549 3.28% $251,593 3.25% $233,496 3.13%
(1) Loans and leases include PCI loans, non-PCI loans, nonaccrual loans and loans held for sale.
(2) 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, 3.1 percent and 5.5 percent for the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively. The taxable-equivalent adjustment was $940, $1,250 and $1,307 for the three months ended June 30, 2017, March 31, 2017 and June 30, 2016, respectively.


Contact: Barbara Thompson First Citizens BancShares 919.716.2716

Source:First Citizens BancShares Inc.