01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
First Citizens BancShares (FCNCA) reported 2009 net income of $116.3 milliona, or $11.15 per share, up from $91.1 million ($8.73 per share) in 2008.
The improvement was driven by a $104.4 millionb pre-tax bargain purchase gain from the FDIC-assisted acquisitions of Temecula Valley Bank and Venture Bank, which offset higher credit costs, FDIC premiums, and foreclosure expenses. Excluding the acquisition gains, underlying profitability was weaker: return on average assets was 0.66% and return on average equity 7.94%, and the company flagged that its returns have historically compared unfavorably with similarly sized peers. Credit quality deteriorated in the legacy portfolio.
Provision for loan losses rose 20.4% to $79.4 millionc and net charge-offs reached $64.7 million. Nonperforming assets climbed to $374.3 million from $71.7 million, though $220.2 million of that is covered by FDIC loss-share agreements that protect the bank from most losses on the acquired loans. Noncovered nonperforming assets rose to $154.0 million, driven largely by restructured loans and residential construction exposure in Atlanta and southwest Florida, where IronStone Bank is concentrated.
Balance sheet growth and capital remained strong. Deposits grew 11.8% to $15.3 billiond, total assets reached $18.5 billion, and the Tier 1 risk-based capital ratio was 13.34%.
Management expects the bank industry to report weak earnings and low capital generation in 2010, and it intends to pursue further FDIC-assisted acquisitions, including First Regional Bank in January 2010. The filing also highlights that the Holding family controls roughly 47% of voting power, and that the company's 2010 dividend was declared at $0.30 per share.
02—Key points
Key Highlights
- Net income rose to $116.3M ($11.15/share) from $91.1M ($8.73/share), but about $104.4M of pre-tax gains from the TVB and VB FDIC-assisted acquisitions drove the increase; underlying earnings were weaker.
- Nonperforming assets jumped to $374.3M from $71.7M; $220.2M is covered by FDIC loss-share agreements, leaving $154.0M noncovered (up from $71.7M).
- Provision for loan losses increased 20.4% to $79.4M; net charge-offs rose to $64.7M (0.56% of noncovered loans vs. 0.40% in 2008).
- Deposits grew 11.8% to $15.34B, with $954.8M attributable to the 2009 acquisitions; total assets reached $18.47B.
- Capital remained strong: Tier 1 risk-based ratio 13.34%, total risk-based 15.59%, leverage 9.54%; all subsidiary banks are well-capitalized.
- ROA of 0.66% and ROE of 7.94% remained modest; management acknowledges returns have historically trailed similarly sized peers.
- Management expects weak industry earnings in 2010 and plans continued FDIC-assisted acquisitions; the January 2010 First Regional Bank deal added about $1.94B in loans.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Interest Expense | $227.64M$314.94M | −27.7% |
| Net Income | $116.33M$91.06M | +27.8% |
| Shares Outstanding (Basic) | 10.43M— | — |
05—Questions
Frequently Asked Questions
How much of the 2009 earnings increase came from one-time acquisition gains?
The $104.4 million pre-tax bargain purchase gain from the TVB and VB acquisitions contributed about $63.5 million after tax, which is more than the entire $25.2 million increase in net income. Excluding these gains, core earnings declined, as higher provisions, FDIC premiums, and foreclosure costs outweighed net interest income growth.
How protected is the company from losses on the acquired loans?
The FDIC loss-share agreements reimburse 80% of losses on covered loans up to stated thresholds and 95% above them. Covered assets totaled $1.27 billion, including $220.2 million of nonperforming assets. Some protection periods are five years for non-residential loans and ten years for residential loans, so the benefit depends on the bank properly administering the agreements.
What are the main credit risks investors should monitor?
Noncovered nonperforming assets rose to $154.0 million, driven mainly by restructured loans and residential construction exposure in Atlanta and southwest Florida. About 73.5% of loans are secured by real estate, and 25.1% of noncovered loans are to medical-related borrowers, a significant concentration. Charge-offs in commercial, unsecured revolving, and revolving mortgage portfolios also increased.
Who controls the company and what does that mean for minority shareholders?
Members of the Holding family own about 38% of Class A and 49% of Class B shares, representing roughly 47% of voting control, and a trust for a family member holds additional shares that bring total family-related influence to about 70% of votes. Class B shares carry 16 votes each. This concentration limits the influence of other shareholders over major corporate decisions.
Is the dividend at risk, and how well capitalized is the company?
The company paid $1.20 per share in 2009 and declared a $0.30 quarterly dividend for 2010, with management expecting comparable payments to continue. Capital ratios are well above the well-capitalized thresholds, and the company says it does not expect capital to be a material constraint on acquisitions. However, the subsidiary bank's dividend capacity is limited, and dividends above $459.2 million would cause FCB to lose its well-capitalized status.
06—Continue