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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.

/EIN News/ -- 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 expense 10,933     10,514     11,180     21,447     21,572  
Net interest income 261,609     250,343     232,189     511,952     464,909  
Provision for loan and lease losses 12,324     8,231     4,562     20,555     9,405  
Net interest income after provision for loan and lease losses 249,285     242,112     227,627     491,397     455,504  
Gain on acquisitions 122,728     12,017     3,290     134,745     4,994  
Noninterest income excluding gain on acquisitions 125,472     115,275     136,960     240,747     240,538  
Noninterest expense 285,606     264,345     258,303     549,951     509,974  
Income before income taxes 211,879     105,059     109,574     316,938     191,062  
Income taxes 77,219     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 dividends 0.30     0.30     0.30     0.60     0.60  
Book value at period-end 269.75     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 investments 2,882,789     2,736,514     2,276,080     2,882,789     2,276,080  
Investment securities 6,596,530     7,119,944     6,557,736     6,596,530     6,557,736  
Loans and leases 22,871,465     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 assets 2,091,092     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 liabilities 2,073,661     1,914,941     1,936,925     2,073,661     1,936,925  
Shareholders’ equity 3,239,851     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 securities 7,112,267     7,084,986     6,786,463     7,098,702     6,648,355  
Loans and leases 22,575,323     21,951,444     20,657,094     22,265,106     20,503,093  
Interest-earning assets 32,104,717     31,298,970     29,976,629     31,704,069     29,767,629  
Deposits 29,087,852     28,531,166     27,212,814     28,811,046     27,105,420  
Interest-bearing liabilities 19,729,956     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 outstanding 12,010,405     12,010,405     12,010,405     12,010,405     12,010,405  
SELECTED RATIOS                  
Annualized return on average assets 1.58 %   0.82 %   0.87 %   1.20 %   0.76 %
Annualized return on average equity 17.10     8.96     9.33     13.11     8.26  
Taxable-equivalent net interest margin 3.28     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 ratio 12.69     12.57     12.63     12.69     12.63  
Common equity Tier 1 ratio 12.69     12.57     12.63     12.69     12.63  
Total risk-based capital ratio 14.07     13.99     14.10     14.07     14.10  
Leverage capital ratio 9.33     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

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