News Release · July 26, 2017

First Citizens BancShares Reports Earnings For Second Quarter 2017

RALEIGH, N.C. — 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®.

Download the First Citizens BancShares Second Quarter 2017 Financials (PDF).

Contact Information:

Barbara Thompson
919-716-2716
First Citizens BancShares

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