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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.

/EIN News/ -- 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 expense 10,865     10,645     11,142     43,082     44,304  
Net interest income 243,917     235,849     230,719     944,675     924,905  
Provision for loan and lease losses 16,029     7,507     7,046     32,941     20,664  
Net interest income after provision for loan and lease losses 227,888     228,342     223,673     911,734     904,241  
Gain on acquisitions     837         5,831     42,930  
Noninterest income 124,698     117,004     99,135     482,240     424,158  
Noninterest expense 271,531     267,233     255,886     1,048,738     1,038,915  
Income before income taxes 81,055     78,950     66,922     351,067     332,414  
Income taxes 28,365     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 dividends 0.30     0.30     0.30     1.20     1.20  
Book value at period-end 250.82     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 investments 1,872,594     2,997,086     2,063,132     1,872,594     2,063,132  
Investment securities 7,006,678     6,384,940     6,861,548     7,006,678     6,861,548  
Loans and leases 21,737,878     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 receivable 4,172     3,108     4,054     4,172     4,054  
Other assets 2,048,568     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  
Deposits 28,161,343     27,925,253     26,930,755     28,161,343     26,930,755  
Other liabilities 1,817,066     1,962,909     1,673,070     1,817,066     1,673,070  
Shareholders' equity 3,012,427     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 securities 6,716,873     6,452,532     6,731,183     6,616,355     7,011,767  
Loans and leases 21,548,313     21,026,510     20,059,556     20,897,395     19,528,153  
Interest-earning assets 31,078,428     30,446,592     29,565,715     30,267,788     28,893,157  
Deposits 28,231,477     27,609,418     27,029,650     27,515,161     26,485,245  
Interest-bearing liabilities 19,357,282     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 outstanding 12,010,405     12,010,405     12,010,405     12,010,405     12,010,405  
SELECTED RATIOS                                      
Annualized return on average assets 0.63 %   0.63 %   0.53 %   0.70 %   0.68 %
Annualized return on average equity 6.86     6.69     5.92     7.51     7.52  
Taxable-equivalent net interest margin 3.14     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 ratio 12.42     12.50     12.65     12.42     12.65  
Common equity Tier 1 ratio 12.42     12.50     12.51     12.42     12.51  
Total risk-based capital ratio 13.85     13.96     14.03     13.85     14.03  
Leverage capital ratio 9.05     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 )
Recoveries 2,132     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-PCI 205,026     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-PCI 9,184     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-PCI 20,716,455     19,725,274     19,062,919     19,998,689     18,415,867  
Loans and leases at period-end:                  
PCI 809,169     868,200     950,516     809,169     950,516  
Non-PCI 20,928,709     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-PCI 82,307     87,043     95,854     82,307     95,854  
Other real estate 61,231     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-PCI 0.18     0.07     0.12     0.10     0.09  
Total 0.17     0.07     0.12     0.10     0.10  
ALLL to total loans and leases:                  
PCI 1.70     1.34     1.72     1.70     1.72  
Non-PCI 0.98     0.98     0.98     0.98     0.98  
Total 1.01     1.00     1.02     1.01     1.02  
Ratio of nonperforming assets to total loans, leases and other real estate                  
Covered 0.66     0.75     3.51     0.66     3.51  
Noncovered 0.67     0.75     0.79     0.67     0.79  
Total 0.67     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. Treasury 1,593,610     3,328     0.83     1,528,010     3,018     0.79     1,686,269     3,092     0.73    
Government agency 172,037     396     0.92     321,664     711     0.88     599,048     1,282     0.86    
Mortgage-backed securities 4,802,198     20,937     1.74     4,470,507     18,833     1.69     4,437,936     18,632     1.68    
Corporate bonds 54,255     772     5.69     43,535     648     5.95                
Other 94,773     253     1.06     88,816     316     1.41     7,930     205     10.30    
Total investment securities 6,716,873     25,686     1.53     6,452,532     23,526     1.46     6,731,183     23,211     1.38    
Overnight investments 2,813,242     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   %
Savings 2,080,598     161     0.03     2,055,877     157     0.03     1,887,520     142     0.03    
Money market accounts 8,113,686     1,619     0.08     8,060,290     1,568     0.08     8,175,228     1,605     0.08    
Time deposits 2,892,143     2,411     0.33     2,900,840     2,501     0.34     3,200,354     2,900     0.36    
Total interest-bearing deposits 17,782,706     4,452     0.10     17,492,970     4,457     0.10     17,497,249     4,851     0.11    
Repurchase agreements 726,318     485     0.27     766,893     489     0.25     728,526     471     0.26    
Other short-term borrowings 12,749     52     1.63     12,162     51     1.68     3,203     7     1.39    
Long-term obligations 835,509     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

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