10-QPeriod: Q1 FY2009

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 8, 2009For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a significant year-over-year decline in net income for the first quarter of 2009, driven by a challenging economic environment. Net income fell to $8.7 million from $32.4 million in the prior year's quarter, with earnings per share dropping to $0.83 from $3.10. This decline was attributed to multiple factors including reduced noninterest income, increased noninterest expenses, a higher provision for credit losses, and a decrease in net interest income. The company's balance sheet showed growth in total assets to $17.2 billion from $16.7 billion in the prior year, largely fueled by an increase in deposits, which rose by 7.6% to $14.2 billion. However, the loan and lease portfolio also grew by 5.4% to $11.6 billion, with notable increases in commercial mortgage and revolving mortgage loans, though construction and land development loans saw a decrease. The provision for credit losses increased substantially by 85% year-over-year, reflecting the impact of economic weakness on asset quality, particularly in residential construction loans in Georgia and Florida.

Key Highlights

  • 1Net income decreased significantly to $8.7 million in Q1 2009 from $32.4 million in Q1 2008.
  • 2Earnings per share dropped to $0.83 from $3.10 year-over-year.
  • 3Total assets grew to $17.2 billion at March 31, 2009, from $16.7 billion at March 31, 2008.
  • 4Total deposits increased by 7.6% to $14.2 billion, indicating strong deposit gathering.
  • 5The provision for credit losses rose by 85.0% to $18.7 million, reflecting increased credit risk.
  • 6Net interest income declined by 5.1% to $115.8 million, impacted by lower yields and increased balance sheet liquidity.
  • 7Nonperforming assets increased to $98.8 million (0.85% of loans) from $43.2 million (0.39% of loans) year-over-year, primarily due to issues in residential construction loans.

Frequently Asked Questions

The primary driver behind the significant drop in net income was the challenging economic environment and financial market disruptions. This led to a decrease in noninterest income, an increase in noninterest expenses, a substantial rise in the provision for credit losses, and a decline in net interest income. Specifically, the provision for credit losses increased by 85.0% year-over-year.

Total assets increased to $17.2 billion as of March 31, 2009, up from $16.7 billion in the prior year. This growth was supported by a strong increase in total deposits, which rose by 7.6% to $14.2 billion, reflecting customer confidence and a flight to safety in the current economic climate. The loan and lease portfolio also grew by 5.4% to $11.6 billion.

Asset quality and credit risk are significant concerns, evidenced by the nearly doubling of nonperforming assets to $98.8 million (0.85% of loans) from $43.2 million (0.39% of loans) year-over-year. This increase is largely attributed to deterioration in residential construction loans in the Atlanta, Georgia, and southwest Florida markets, which have experienced significant over-development and property value declines. The provision for credit losses also increased significantly to cover potential loan losses.

The Federal Reserve's near-zero interest rate policy has adversely impacted net interest income. While the company's net interest income decreased by 5.1% to $115.8 million, the net yield on interest-earning assets also declined to 3.09% from 3.40% year-over-year. This compression is due to lower yields on investment securities and loans, which are not fully offset by the ability to reduce deposit rates.