10-QPeriod: Q3 FY2005

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 8, 2005For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a significant increase in net income for the third quarter and the first nine months of 2005 compared to the prior year. This growth was primarily driven by higher net interest income, benefiting from rising interest rates and an asset-sensitive balance sheet. Noninterest income also contributed positively, bolstered by strong performance in cardholder and merchant services, alongside gains from mortgage loan securitization. The company's expansion strategy, particularly through its subsidiary IronStone Bank (ISB), is noted as a significant factor affecting its financial performance. While ISB continues to experience net losses due to ongoing growth and expansion costs, the core operations of First-Citizens Bank & Trust Company (FCB) demonstrated robust profitability. BancShares maintains strong capital adequacy ratios, exceeding regulatory requirements.

Key Highlights

  • 1Net income increased significantly year-over-year, reaching $29.95 million in Q3 2005 ($16.87 million in Q3 2004) and $85.03 million for the first nine months of 2005 ($50.07 million for the same period in 2004).
  • 2Net interest income rose by 16.5% in Q3 2005 and 16.4% year-to-date, benefiting from a 32.1% increase in interest income driven by higher yields on loans and investment securities.
  • 3Total assets grew to $14.48 billion as of September 30, 2005, up from $13.03 billion in the prior year, with a notable increase in investment securities available for sale.
  • 4Loan and lease growth was modest, totaling $9.36 billion, with notable increases in commercial real estate and construction loans, partially offset by the securitization of revolving mortgage loans.
  • 5Noninterest income increased by 7.0% in Q3 2005 and 5.2% year-to-date, driven by cardholder/merchant services and other fees, despite a decline in service charges on deposit accounts.
  • 6IronStone Bank (ISB) continued to report net losses ($3.3 million year-to-date), attributed to expansion costs, while First-Citizens Bank & Trust Company (FCB) reported strong net income of $98.0 million year-to-date.
  • 7The company maintains strong capital adequacy, with its Tier 1 capital ratio at 12.51% and total capital ratio at 15.08% as of September 30, 2005, well above regulatory minimums.

Frequently Asked Questions

The significant increase in net income is primarily attributed to improved net interest income, driven by higher interest rates and an asset-sensitive balance sheet, along with higher noninterest income. Additionally, a lower provision for credit losses compared to the previous year contributed to the improved earnings.

IronStone Bank (ISB) continues to incur net losses due to ongoing expansion and the costs associated with opening new branches. While ISB's total assets have grown, its net losses ($3.3 million year-to-date) adversely affect overall profitability. The company expects these net losses to continue in the foreseeable future due to planned expansion.

The loan and lease portfolio saw modest growth, increasing to $9.36 billion. Key areas of growth include commercial real estate and construction/land development loans, particularly within ISB markets. However, there was a decrease in revolving mortgage loans, partly due to the securitization and sale of $256.2 million in revolving mortgage loans during the second quarter of 2005.

The rising interest rates have positively impacted net interest income, increasing interest income from loans and investment securities. On the liabilities side, higher rates have led to increased interest expense on deposits, particularly time deposits, as customers shifted funds seeking higher yields. This has resulted in a higher average rate paid on interest-bearing liabilities.