10-QPeriod: Q2 FY2009

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 10, 2009For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a significant decline in net income for the second quarter and first half of 2009 compared to the same periods in 2008, largely due to weak economic conditions impacting loan demand, noninterest income, and increasing provisions for credit losses. Despite these headwinds, the company maintained strong capital ratios and experienced robust deposit growth, enhancing its liquidity. A notable event during the quarter was the acquisition of Temecula Valley Bank (TVB), which is expected to increase risk-weighted assets and impact capital ratios but is anticipated to be completed in the third quarter. The company's strategy prioritizes asset quality, balance sheet liquidity, and capital conservation over short-term profitability. This approach, while potentially impacting short-term earnings, positions FCNCA for stability and future growth in diverse geographic markets. Management is actively managing credit and interest rate risks through rigorous underwriting, portfolio monitoring, and prudent balance sheet structuring.

Financial Highlights

28 data points
Beta

Net Income

$6.20M

Total Assets

$17.32B

Cash & Equivalents

$637.90M

Free Cash Flow

$10.94M

Financial Statements
Beta
Interest Expense$59.81M
Net Income$6.20M

Key Highlights

  • 1Net income for the second quarter of 2009 was $6.2 million ($0.59 per share), a significant decrease from $26.2 million ($2.51 per share) in the second quarter of 2008.
  • 2Total assets grew to $17.32 billion as of June 30, 2009, up from $16.42 billion as of June 30, 2008, driven by strong deposit growth.
  • 3Total deposits increased to $14.36 billion as of June 30, 2009, up 9.8% from $13.08 billion as of June 30, 2008, reflecting customer preference for safety.
  • 4The company maintained strong capital adequacy ratios, with Tier 1 risk-based capital at 13.30% and total risk-based capital at 15.59% as of June 30, 2009.
  • 5Provision for credit losses increased significantly to $20.8 million in Q2 2009 from $13.4 million in Q2 2008, and to $39.5 million year-to-date 2009 from $23.3 million year-to-date 2008.
  • 6Noninterest expense increased by 7.6% year-to-date 2009, largely due to a substantial rise in FDIC deposit insurance expense, including a special assessment.
  • 7First Citizens BancShares entered into an agreement to acquire Temecula Valley Bank (TVB) in July 2009, which will add approximately $1.5 billion in assets and is expected to increase risk-weighted assets.

Frequently Asked Questions

The primary reasons for the decline in net income were higher provisions for loan and lease losses, increased noninterest expenses (particularly FDIC insurance costs), and reduced revenues stemming from weak economic conditions which impacted loan demand and noninterest income.

The company is managing credit risk through rigorous underwriting processes, continuous monitoring of the loan portfolio, and maintaining adequate allowances for credit losses. They are closely monitoring nonperforming assets, especially in residential construction loans in the Atlanta and southwest Florida markets, which have been adversely affected by real estate market instability.

The acquisition of TVB, a California-based bank with approximately $1.5 billion in assets, is a strategic move to expand the company's presence in California. While the acquisition is expected to increase risk-weighted assets and reduce capital ratios, the company anticipates it will be completed in the third quarter of 2009 and is expected to contribute to future growth.

The investment securities portfolio has grown due to strong deposit inflows, with a significant portion in U.S. Government securities and corporate bonds guaranteed by the U.S. government, providing stability. However, yields on interest-earning assets, including investments, have declined due to the low interest rate environment, impacting interest income. The company focuses on maintaining balance sheet liquidity, and investment securities available for sale provide an immediate source of liquidity when needed.