10-QPeriod: Q3 FY2011

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 9, 2011For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. /DE/ (FCNCA) reported a significant increase in net income for the third quarter of 2011 compared to the prior year, driven primarily by gains from FDIC-assisted acquisitions. For the nine months ended September 30, 2011, net income remained largely stable year-over-year, with acquisition gains largely offsetting increases in operational expenses and provisions for loan losses. The company continued its strategy of growth through FDIC-assisted transactions, completing acquisitions of United Western Bank and Colorado Capital Bank, which contributed substantially to noninterest income through acquisition gains. Despite overall loan growth driven by these acquisitions, overall net interest income saw a slight decrease quarter-over-quarter due to lower yields on acquired loans and reduced discount accretion, although year-over-year net interest income increased due to higher discount accretion and favorable deposit costs. Despite economic challenges including lingering recessionary effects and soft loan demand, the company's capital ratios remained strong, exceeding regulatory requirements. Management expressed confidence in the company's liquidity position and ongoing strategies to manage credit and interest rate risks.

Financial Highlights

31 data points
Beta

Net Income

$81.42M

Total Assets

$21.02B

Cash & Equivalents

$539.34M

Free Cash Flow

-$142.26M

Financial Statements
Beta
Interest Expense$34.99M
Net Income$81.42M
Shares Outstanding (Basic)10.36M

Key Highlights

  • 1Net income for the third quarter of 2011 was $81.9 million, a significant increase from $27.7 million in the same period of 2010.
  • 2Acquisition gains from FDIC-assisted transactions, notably United Western Bank and Colorado Capital Bank, contributed $151.3 million year-to-date for 2011.
  • 3Total assets grew to $21.02 billion as of September 30, 2011, up from $20.81 billion at the end of 2010, largely due to acquisitions.
  • 4Total deposits remained relatively stable at $17.66 billion, reflecting a balance between deposit run-off from acquired institutions and moderate growth in legacy markets.
  • 5The provision for loan and lease losses decreased in the third quarter of 2011 to $44.6 million from $59.9 million in the prior year, but increased year-to-date to $143.0 million from $108.6 million.
  • 6Nonperforming assets increased to $739.9 million (5.2% of total loans and OREO) from $560.1 million (4.1%) at year-end 2010, with a significant portion covered by FDIC loss-share agreements.
  • 7Capital ratios remained strong, with the Tier 1 risk-based capital ratio at 15.46% and the Total risk-based capital ratio at 17.33% as of September 30, 2011, comfortably exceeding minimum regulatory requirements.

Frequently Asked Questions

The substantial increase in net income was primarily driven by acquisition gains from FDIC-assisted transactions, specifically the acquisitions of United Western Bank and Colorado Capital Bank, which added $87.8 million in acquisition gains in the third quarter of 2011.

The FDIC-assisted acquisitions have led to an increase in total assets, primarily driven by the acquisition of loans and other assets. Total assets stood at $21.02 billion at the end of Q3 2011, up from $20.81 billion at the end of 2010. The FDIC loss-share agreements provide protection against a substantial portion of the credit risk associated with acquired assets.

The company observed soft loan demand due to weak economic conditions, though there was a modest increase in commercial loan demand in the second and third quarters of 2011 due to successful pricing strategies. The company anticipates loan growth to remain limited in the near term. Interest rates are expected to remain low, impacting yields on interest-earning assets, though the company expects higher asset yields if the Federal Reserve begins to raise benchmark rates.

The company employs strenuous underwriting and monitoring procedures for all loans. For loans covered by FDIC loss-share agreements, they were recorded at fair value at acquisition and are subject to periodic reviews for credit deterioration. The FDIC loss-share agreements provide significant protection against credit losses on these acquired assets. The company also maintains an adequate allowance for loan and lease losses.