01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
First Citizens BancShares (FCNCA) reported a weaker 2008 as credit costs surged, though its balance sheet remained strong.
Net income fell 16.2% to $91.1 milliona ($8.73 per share) from $108.6 million ($10.41) in 2007, with return on average assets declining to 0.56% from 0.68% and return on average equity to 6.13% from 7.92%. The drop was driven mainly by a provision for credit losses that nearly doubled to $65.8 million, while net interest income grew 4.0% to $499.8 million on balance sheet growth. Noninterest income rose 5.6% to $312.1 million and noninterest expense rose 5.5% to $606.5 million.
Asset quality deteriorated sharply, concentrated in residential construction loans in the Atlanta, Georgia and southwest Florida markets. Nonperforming assets reached $71.7 millionb (0.61% of loans plus other real estate), up from $19.9 million a year earlier, and net charge-offs rose to $45.3 million (0.40% of average loans) from $28.0 million. Management stated that $42.3 million of nonperforming assets arose from these two markets, and that it expects additional residential construction loans to move to nonaccrual in 2009 and ISB to operate at a loss at least through 2009.
Capital and liquidity remain a relative strength. Tier 1 risk-based capital was 13.20%c, total risk-based capital 15.49%, and the leverage ratio 9.88%, all well above well-capitalized thresholds. Management declined to apply for TARP Capital Purchase Program funds, citing adequate capital, and elected into the TLGP expanded deposit insurance program but not the debt guarantee.
Deposits grew 6.1% to $13.71 billiond, and the company declared a quarterly dividend of $0.275 per share, unchanged from prior periods, payable April 6, 2009. Investors should weigh the stable dividend and strong capital against rising credit losses, the drag from the de novo IronStone Bank subsidiary, and a Q4 2008 return on equity of just 3.43%.
02—Key points
Key Highlights
- Net income declined 16.2% to $91.1 million ($8.73 per share) from $108.6 million ($10.41 per share) in 2007, with ROA falling to 0.56% and ROE to 6.13%.
- Provision for credit losses rose 95.9% to $65.8 million, driven mainly by residential construction loan deterioration in Atlanta and southwest Florida.
- Nonperforming assets rose to $71.7 million (0.61% of loans plus OREO) from $19.9 million (0.18%) a year earlier; net charge-offs were $45.3 million (0.40% of average loans).
- Net interest income grew 4.0% to $499.8 million on loan growth of 6.9% to $11.72 billion, though the taxable-equivalent net yield held roughly flat at 3.40%.
- Capital remained strong, with Tier 1 risk-based capital of 13.20%, total risk-based capital of 15.49%, and a leverage ratio of 9.88%; management did not apply for TARP funds.
- IronStone Bank (ISB) lost $28.9 million in 2008 and is expected to remain unprofitable at least through 2009, with its results weighed down by new-market expansion costs.
- Quarterly dividend held at $0.275 per share ($1.10 annually), with a 30.0-cent dividend declared January 26, 2009; Q4 2008 net income fell 50.7% to $12.9 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Interest Expense | $314.94M |
| Net Income | $91.06M |
05—Questions
Frequently Asked Questions
Why did First Citizens' 2008 earnings decline?
Net income fell $17.6 million, or 16.2%, to $91.1 million. The main driver was a $32.2 million (95.9%) increase in the provision for credit losses to $65.8 million, reflecting weakness in residential construction loans in Atlanta and southwest Florida, plus higher noninterest expense of $31.8 million. These were partly offset by a $19.4 million increase in net interest income and a $16.6 million increase in noninterest income.
How serious is the credit deterioration, and where is it concentrated?
Nonperforming assets more than tripled to $71.7 million, and net charge-offs rose to 0.40% of average loans from 0.27%. Management says $42.3 million of nonperforming assets came from residential construction loans in Atlanta and southwest Florida, where $67.4 million of additional loans were identified as potential problems. Management expects more construction loans to move to nonaccrual in 2009, so further provisions are likely.
Is First Citizens adequately capitalized, and why didn't it take TARP money?
Yes. Tier 1 risk-based capital was 13.20%, total risk-based capital 15.49%, and the leverage ratio 9.88%, all above the well-capitalized thresholds, and both bank subsidiaries remain well-capitalized. Management said its existing capital was adequate, so it did not apply for funds under the TARP Capital Purchase Program. It did elect into the TLGP expanded deposit insurance program but not the debt guarantee program.
What is the outlook for IronStone Bank and the dividend?
IronStone Bank, the federally chartered thrift launched in 1997, lost $28.9 million in 2008 and management expects it to operate at a loss at least through 2009. BancShares has infused $349.8 million of capital into ISB since its formation. The company's dividend has been held at $0.275 per quarter, and management expects comparable dividends to continue, though payments depend on earnings and projected capital needs.
What are the key risks for investors beyond credit quality?
The filing highlights deposit competition and funding pressure, with management prioritizing deposit attraction in 2009 and noting that loan growth could be constrained without new low-cost deposits. Interest rate risk appears modest in simulations, though the company holds a large share of Treasury and agency securities and has a single medical-sector concentration representing 23.4% of loans. Stock price volatility and the geographic dispersion of ISB's new markets are also cited as risks.
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