First Citizens BancShares : Reports Earnings For Fourth Quarter 2016

January 25, 2017

RALEIGH, N.C. -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.

This news release may contain forward-looking statements. A discussion of factors that could cause BancShares' actual results to differ materially from those expressed in such forward-looking statements is included in BancShares' filings with the SEC.

Download the First Citizens BancShares Fourth Quarter 2016 Financials.

Barbara Thompson919.716.2716First Citizens BancShares