10-QPeriod: Q3 FY2010

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 8, 2010For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported its financial results for the quarterly period ended September 30, 2010. The company experienced significant balance sheet growth primarily driven by FDIC-assisted acquisitions, notably the takeovers of First Regional Bank and Sun American Bank. These acquisitions contributed substantially to net income through bargain purchase gains, alongside an increase in net interest income due to balance sheet expansion and discount accretion on acquired loans. Despite overall profit growth year-over-year for the nine-month period, the third quarter showed a year-over-year decrease in net income, largely due to the absence of significant acquisition gains recorded in the prior year's comparable period. Asset quality, while showing some improvement in net charge-offs for non-covered loans, presented challenges with an increase in nonperforming assets, particularly those covered by FDIC loss share agreements, stemming from the recent acquisitions. The company's capital position remained strong, exceeding regulatory requirements. Management highlighted a focus on managing credit risk, interest rate risk, and liquidity, with plans for a merger between its two banking subsidiaries, FCB and ISB, expected in early 2011 to streamline operations and enhance commercial lending capabilities.

Financial Highlights

30 data points
Beta

Net Income

$27.75M

Total Assets

$21.05B

Cash & Equivalents

$493.79M

Free Cash Flow

-$104.85M

Financial Statements
Beta
Interest Expense$48.69M
Net Income$27.75M
Shares Outstanding (Basic)10.43M

Key Highlights

  • 1Net income for the nine months ended September 30, 2010, was $163.0 million, a significant increase from $97.3 million in the same period of 2009, driven by acquisition gains and improved net interest income.
  • 2The company completed two FDIC-assisted acquisitions in 2010: First Regional Bank and Sun American Bank, which significantly boosted total assets and contributed to bargain purchase gains.
  • 3Net interest income saw substantial growth, increasing by 70.0% in the third quarter and 48.3% year-to-date, driven by balance sheet expansion from acquisitions and discount accretion on acquired loans.
  • 4Nonperforming assets increased to $615.6 million at September 30, 2010, up from $311.4 million at September 30, 2009, with a significant portion covered by FDIC loss share agreements.
  • 5The provision for loan and lease losses increased significantly to $59.9 million in Q3 2010 (vs. $18.3 million in Q3 2009), largely due to post-acquisition deterioration of acquired loans covered by loss share agreements.
  • 6Total assets grew to $21.05 billion at September 30, 2010, from $18.51 billion at September 30, 2009, primarily due to FDIC-assisted transactions.
  • 7First Citizens BancShares plans to merge its two banking subsidiaries, FCB and ISB, in early 2011 to improve operational efficiency and expand commercial lending.

Frequently Asked Questions

The primary driver of the company's balance sheet growth was the participation in FDIC-assisted transactions, notably the acquisitions of First Regional Bank and Sun American Bank in 2010. These acquisitions significantly increased total assets and also contributed to overall net income through bargain purchase gains.

The FDIC-assisted acquisitions had a dual impact on profitability. They generated significant bargain purchase gains, contributing directly to net income. Additionally, the acquired loans, when repaid ahead of schedule, allowed for accelerated accretion of purchase discounts, boosting net interest income. However, these acquisitions also led to an increase in the provision for loan and lease losses due to post-acquisition deterioration in some acquired loans.

Net interest income has shown strong growth, fueled by balance sheet expansion from acquisitions and discount accretion. However, management cautions that the contribution from discount accretion is unpredictable as it relies on unscheduled loan payments, and the yield on interest-earning assets may decline or be volatile in future periods if these large payments are not sustained. Continued balance sheet growth and managing deposit costs are key to future net interest income performance.

Key risks highlighted include unfavorable changes in economic conditions, potential complications with mergers and acquisitions (including regulatory approvals and integration challenges), instability in real estate markets, liquidity risk, potential downward adjustments to acquisition gains, increasing deposit insurance premiums, and changes in banking laws and regulations. Credit risk and interest rate risk are also significant ongoing concerns.