10-QPeriod: Q3 FY2012

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 9, 2012For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. reported a net income of $39.5 million for the third quarter of 2012, a decrease from $81.4 million in the same quarter of the prior year. This decline was primarily due to the absence of significant acquisition gains realized in 2011 from FDIC-assisted transactions. Core operations showed mixed results, with net interest income decreasing slightly due to loan shrinkage, while the provision for loan and lease losses significantly decreased due to improved cash flow projections on FDIC-covered loans. The company continues to manage the impacts of past FDIC-assisted transactions, with ongoing adjustments to the FDIC receivable affecting noninterest income. The company also experienced a decline in noninterest income from cardholder and merchant services, partly attributed to new regulations on debit card interchange fees. Noninterest expenses were managed down year-over-year. Capital ratios remain strong and well above regulatory requirements, though the company is preparing for the impact of Basel III regulations and the phasing out of trust preferred securities from tier 1 capital.

Financial Highlights

32 data points
Beta

Net Income

$39.52M

EPS (Diluted)

$3.85

Total Assets

$21.17B

Cash & Equivalents

$606.11M

Free Cash Flow

$24.59M

Financial Statements
Beta
Interest Expense$21.32M
Net Income$39.52M
EPS (Basic)$3.85
Shares Outstanding (Basic)10.26M

Key Highlights

  • 1Net income for Q3 2012 was $39.5 million, down from $81.4 million in Q3 2011, largely due to the absence of acquisition gains from FDIC-assisted transactions in the current year.
  • 2Net interest income slightly decreased to $215.4 million in Q3 2012 from $217.2 million in Q3 2011, driven by lower average loan balances.
  • 3The provision for loan and lease losses decreased significantly to $17.6 million in Q3 2012 from $44.6 million in Q3 2011, reflecting improved credit quality and cash flow projections on FDIC-covered loans.
  • 4Noninterest income declined substantially due to the lack of acquisition gains and lower cardholder/merchant services income, impacted by regulatory changes.
  • 5Noninterest expenses decreased by 6.7% to $190.1 million in Q3 2012 compared to $203.8 million in Q3 2011, primarily due to lower foreclosure and card loyalty program expenses.
  • 6Capital ratios (Tier 1 risk-based, Total risk-based, and Leverage) remain strong and exceed regulatory minimums.
  • 7The company is actively managing the impact of regulatory changes, including Basel III, and the phase-out of trust preferred securities from tier 1 capital.

Frequently Asked Questions

The primary driver of the decrease in net income from $81.4 million in Q3 2011 to $39.5 million in Q3 2012 is the absence of significant acquisition gains from FDIC-assisted transactions, which contributed $86.9 million in the prior year's third quarter.

Loans covered by FDIC loss share agreements decreased from $2.56 billion in Q3 2011 to $1.90 billion in Q3 2012, reflecting normal run-off and payoffs. The provision for loan and lease losses on these covered loans significantly decreased due to improved cash flow projections and lower post-acquisition deterioration. The company continues to manage the FDIC receivable, which is impacted by adjustments to loss estimates.

Regulatory changes, specifically the Dodd-Frank Act's limitations on debit card interchange fees, have led to a notable decrease in cardholder and merchant services income. The company also expects ongoing impacts from these regulations in future periods.

First Citizens BancShares maintains strong capital ratios that comfortably exceed regulatory requirements. The company is proactively managing the anticipated impact of Basel III regulations and the phasing out of trust preferred securities from tier 1 capital, which is expected to reduce its capital ratios but keep them well above required levels.