8-K/AAcquisitions & DispositionsExhibits & Filings

FIRST CITIZENS BANCSHARES INC /DE/ 8-K/A Report, Acquisition Completed (May 10, 2011)

Filed May 10, 2011For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens Bancshares Inc. (FCNCA) announced the completion of an FDIC-assisted acquisition of substantially all assets and liabilities of United Western Bank on January 21, 2011. This strategic move involved acquiring eight branches and a significant portfolio of loans and deposits. The transaction was recorded at fair value, resulting in a discount of $213.0 million on the assets acquired. FCB assumed liabilities valued at $2.2 billion, including substantial deposit balances, and acquired assets totaling $1.7 billion, primarily composed of loans. A key feature of this acquisition is the extensive loss-share agreements with the FDIC, designed to protect FCB from significant credit losses on the acquired loans and other real estate. These agreements cover 80% of covered loan losses for single-family residential mortgages up to certain thresholds and also provide substantial coverage for other loan and ORE losses. While these agreements mitigate risk, they also introduce complexity, including a potential true-up payment to the FDIC in 2021 based on actual losses.

Key Highlights

  • 1FCB completed an FDIC-assisted acquisition of United Western Bank's assets and liabilities on January 21, 2011.
  • 2The acquisition included eight branches and involved the assumption of $2.2 billion in liabilities (including $1.6 billion in deposits) and the purchase of $1.7 billion in assets (including $767.2 million in loans).
  • 3FCB received a discount of $213.0 million on the acquired assets.
  • 4Significant loss-share agreements with the FDIC provide substantial protection against credit losses on acquired loans and other real estate for 5-10 years.
  • 5The transaction resulted in a $65.5 million gain, to be recognized in noninterest income for the quarter ending March 31, 2011.
  • 6The acquired loan portfolio had a fair value of $767.2 million, with significant fair value adjustments reflecting market conditions.
  • 7FCB received $542.1 million in cash from the FDIC as part of the transaction.

Frequently Asked Questions

The FDIC loss-share agreements significantly mitigate FCB's risk of loss on the acquired loan portfolio and other real estate. The FDIC will cover a substantial percentage (up to 80%) of covered losses above certain thresholds, providing FCB with considerable protection against credit deterioration in the acquired assets.

The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date. Based on these fair value estimates and the discount received, no goodwill was recorded. The transaction resulted in a gain of $65.5 million, which will be reported as noninterest income.

United Western Bank had a significant concentration of deposits from institutional depositors. FCB elected to reduce interest rates on these brokered deposits, leading to a substantial runoff. While this reduces dependency on potentially volatile deposits, it necessitates managing liquidity and potentially seeking alternative funding sources.

The loss-share agreements include a provision for a 'true-up payment' to the FDIC. Current estimates suggest FCB may need to pay the FDIC $10.5 million in 2021. This payment is contingent on the actual net losses realized on the acquired assets compared to initial estimates and is calculated based on specific formulas outlined in the agreement.