10-QPeriod: Q2 FY2005

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 8, 2005For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported strong financial performance for the six months ended June 30, 2005, with net income increasing significantly by 65.9% to $55.1 million compared to the same period in 2004. This growth was driven by a substantial rise in net interest income, improved noninterest income, and a lower provision for credit losses. The company also saw a marked improvement in profitability ratios, with return on average assets increasing to 0.82% and return on average equity to 10.04% on an annualized basis. The balance sheet expanded, with total assets growing to $14.02 billion as of June 30, 2005. Deposit growth was robust, with total deposits reaching $11.76 billion, up 7.3% year-over-year. This growth, coupled with proceeds from debt issuance and loan securitization, funded an increase in interest-earning assets, particularly loans and investment securities. While the company's de novo subsidiary, IronStone Bank (ISB), continued to incur net losses due to expansion costs, the core banking operations, led by First-Citizens Bank & Trust Company (FCB), demonstrated solid profitability and asset growth.

Key Highlights

  • 1Net income for the first six months of 2005 surged to $55.1 million, a 65.9% increase from $33.2 million in the prior year, driven by higher net interest income and noninterest income, alongside reduced provision for credit losses.
  • 2Total assets grew by 9.2% year-over-year to $14.02 billion as of June 30, 2005, reflecting strong balance sheet expansion.
  • 3Deposits increased by 7.3% to $11.76 billion year-over-year, indicating a growing customer base and a stable funding source.
  • 4Interest income from loans saw a significant increase of 24.7% in the second quarter of 2005 compared to the prior year, driven by higher yields and loan portfolio growth.
  • 5The company successfully issued $125 million in subordinated debt, strengthening its capital base and qualifying as Tier 2 capital.
  • 6Despite continued net losses at its de novo subsidiary IronStone Bank (ISB) due to expansion, the core First-Citizens Bank & Trust Company (FCB) subsidiary reported a 57.6% increase in net income for the first six months of 2005.
  • 7Nonperforming assets decreased to $18.4 million (0.20% of loans plus other real estate) from $23.9 million (0.27%) a year prior, indicating improved asset quality.

Frequently Asked Questions

The substantial increase in net income to $55.1 million was primarily driven by higher net interest income resulting from increased yields and asset growth, improved noninterest income, and a notable reduction in the provision for credit losses compared to the same period in 2004.

Total assets grew by 9.2% to $14.02 billion as of June 30, 2005. Deposits also showed strong growth, increasing by 7.3% to $11.76 billion, indicating an expansion in the company's funding base.

IronStone Bank (ISB), the company's de novo subsidiary, continued to report net losses due to significant costs associated with its rapid expansion and new branch openings. Management expects these losses to continue into the foreseeable future, although the impact on the consolidated results is managed by the profitability of the core First-Citizens Bank & Trust Company (FCB).

The company actively manages its interest rate risk by maintaining a balance between interest-earning assets and interest-bearing liabilities with maturities or repricing characteristics designed to mitigate significant fluctuations. Management believes the current balance sheet structure is asset-sensitive, meaning future interest rate hikes are expected to benefit net interest income. They do not use interest rate swaps or other derivative instruments for hedging.