10-QPeriod: Q1 FY2011

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 10, 2011For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported its first quarter 2011 financial results, demonstrating a mixed performance shaped by significant FDIC-assisted acquisitions and a challenging economic environment. While net income declined compared to the prior year, largely due to one-time acquisition gains recognized in Q1 2010, the company saw substantial growth in net interest income driven by balance sheet expansion and discount accretion from acquired loans. The acquisition of United Western Bank in January 2011 contributed positively, adding scale and market presence, with FDIC loss-share agreements mitigating substantial credit risk. However, the company faced increased provision for loan losses and higher noninterest expenses related to integration and operational costs. Despite the year-over-year decrease in net income, FCNCA maintained strong capital adequacy ratios, exceeding regulatory requirements and positioning itself as well-capitalized. The company's strategic focus on retaining core deposits and prudent management of interest rate and liquidity risks remain key priorities. Investors should note the significant impact of FDIC-assisted transactions on the financial statements, particularly the acquisition gains and discount accretion, which can cause volatility in earnings and net interest income.

Financial Highlights

31 data points
Beta

Net Income

$61.76M

Total Assets

$21.17B

Cash & Equivalents

$406.25M

Free Cash Flow

$325.71M

Financial Statements
Beta
Interest Expense$41.21M
Net Income$61.76M
Shares Outstanding (Basic)10.43M

Key Highlights

  • 1Net income for Q1 2011 was $62.7 million ($6.01 per share), a decrease from $106.6 million ($10.22 per share) in Q1 2010, largely due to $136 million in acquisition gains recorded in the prior year.
  • 2Net interest income increased significantly by 35.1% to $204.0 million, driven by balance sheet growth from FDIC-assisted acquisitions and discount accretion on acquired loans, including unscheduled payments.
  • 3The company completed the FDIC-assisted acquisition of United Western Bank in January 2011, adding $1.68 billion in assets and generating a $65.5 million acquisition gain.
  • 4Provision for loan and lease losses increased to $44.4 million in Q1 2011 from $16.9 million in Q1 2010, primarily due to post-acquisition deterioration of acquired loans covered by FDIC loss-share agreements.
  • 5Total assets grew to $21.17 billion at March 31, 2011, up from $20.81 billion at December 31, 2010, reflecting the impact of acquisitions.
  • 6Noninterest income decreased by 38.2% to $131.1 million, primarily due to lower acquisition gains compared to the prior year.
  • 7Capital ratios remained strong, with Tier 1 risk-based capital at 15.24% and Total risk-based capital at 17.32%, well above regulatory minimums.

Frequently Asked Questions

The primary driver for the year-over-year decrease in net income was the absence of significant one-time acquisition gains recorded in the first quarter of 2010 ($136 million from two FDIC-assisted transactions). While the acquisition of United Western Bank in Q1 2011 also generated an acquisition gain ($65.5 million), it was lower than the prior year's gains.

The FDIC-assisted acquisitions, particularly United Western Bank, significantly contributed to balance sheet growth and generated substantial acquisition gains. These transactions also provided FDIC loss-share agreements, which mitigate a significant portion of the credit risk associated with the acquired loan portfolios. However, they also led to an increase in the provision for loan losses due to post-acquisition deterioration of acquired loans and increased noninterest expenses related to integration.

The receivable from the FDIC represents the estimated reimbursements the company expects to receive under loss-share agreements for covered loans and other real estate owned acquired in FDIC-assisted transactions. This receivable is adjusted prospectively as loss estimates change and impacts noninterest income. At March 31, 2011, this receivable was $624.3 million.

The company monitors interest rate risk by simulating net interest income under various rate scenarios and utilizes market value of equity analysis. While they do not typically use extensive derivatives, they have two interest rate swaps to manage exposure. Liquidity is primarily managed through its deposit base, with access to alternative funding sources like Federal Home Loan Bank borrowings and federal funds lines of credit. The company maintains a strong focus on deposit retention.