10-QPeriod: Q1 FY2013

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 9, 2013For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. /DE/ (FCNCA) reported solid first quarter 2013 results, demonstrating a significant year-over-year improvement in net income, driven by a substantial reduction in the provision for loan and lease losses and an increase in noninterest income. Net income rose to $55.6 million from $35.5 million in the prior year's quarter. This growth was primarily attributable to a considerable decrease in the provision for loan and lease losses, particularly for covered loans, reflecting improved cash flow projections and reversals of previously recognized impairments. The company also benefited from higher noninterest income, largely due to the sale of processing service relationships. Despite a decrease in net interest income due to lower asset yields and loan shrinkage, the bank's strategic participation in FDIC-assisted transactions continued to shape its balance sheet, with covered loan balances declining as expected. The company maintains strong capital adequacy ratios, exceeding regulatory minimums, and continues to manage its balance sheet prudently in a challenging economic environment. Management is focused on adapting to ongoing regulatory changes and investing in core technology systems to enhance future operations.

Financial Highlights

32 data points
Beta

Net Income

$55.59M

EPS (Diluted)

$5.78

Total Assets

$21.35B

Cash & Equivalents

$460.22M

Free Cash Flow

$64.58M

Financial Statements
Beta
Interest Expense$15.72M
Net Income$55.59M
EPS (Basic)$5.78
Shares Outstanding (Basic)9.62M

Key Highlights

  • 1Net income increased to $55.6 million in Q1 2013 from $35.5 million in Q1 2012, a substantial year-over-year improvement.
  • 2Provision for loan and lease losses significantly decreased, with a favorable shift of $32.2 million for covered loans and $17.1 million for noncovered loans, indicating improved asset quality or better-than-expected loan performance.
  • 3Noninterest income saw a notable increase of $10.6 million, largely driven by the sale of processing service relationships and positive adjustments related to FDIC loss share agreements.
  • 4Net interest income decreased by $16.1 million, primarily due to lower asset yields and a reduction in average loan balances.
  • 5The company's capital ratios remain strong, comfortably exceeding regulatory requirements, with Tier 1 capital at $1.97 billion.
  • 6Nonperforming assets decreased to $273.2 million (2.1% of total loans and leases plus OREO) from $549.1 million (4.0%) in the prior year's quarter, indicating improved asset quality.
  • 7The company is investing in technology modernization, with a significant project estimated at $100 million planned through 2016.

Frequently Asked Questions

The primary driver for the increase in net income was a significant reduction in the provision for loan and lease losses, particularly for covered loans, due to improved cash flow projections and reversals of previously recognized impairments. Additionally, higher noninterest income, driven by the sale of processing service relationships and adjustments to FDIC loss share agreements, contributed to the improved profitability.

Management expects noncovered loan growth to remain sluggish in the coming quarters due to generally weak demand. Covered loan balances are expected to continue declining due to repayments and charge-offs.

First Citizens BancShares maintains strong capital ratios, exceeding regulatory minimums. They are actively managing their capital structure, including a redemption of trust preferred securities due to provisions in the Dodd-Frank Act and are monitoring the implementation of Basel III regulations. Pro forma capital ratios remain robust even with the full phase-out of trust preferred securities.

The FDIC-assisted transactions continue to significantly influence the balance sheet and income statement. While they provided growth opportunities and FDIC loss share agreements offer credit protection, they also contribute to income statement volatility through fair value adjustments, accretion/amortization, and related adjustments to the FDIC receivable. The company is actively managing these acquired assets.