10-QPeriod: Q1 FY2006

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 8, 2006For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported solid financial results for the first quarter ended March 31, 2006. The company demonstrated a notable increase in net income, driven primarily by higher interest income from both loans and investment securities, as well as growth in noninterest income streams like cardholder services and commissions. Despite a slight increase in noninterest expenses, largely due to expansion initiatives and higher personnel costs, the company managed to improve its profitability ratios, including return on average assets and return on average equity, compared to the prior year. The balance sheet shows continued growth in total assets and deposits, with a strategic shift in the investment securities portfolio towards available-for-sale instruments. Asset quality remains strong, with nonperforming assets at a low level relative to total loans, though the provision for credit losses saw an increase due to higher net charge-offs.

Key Highlights

  • 1Net income increased by 14.6% to $28.7 million for Q1 2006 compared to $25.0 million in Q1 2005.
  • 2Net income per share rose to $2.75 from $2.40 year-over-year.
  • 3Total assets grew to $15.1 billion at March 31, 2006, up from $13.6 billion at March 31, 2005.
  • 4Total deposits increased by 7.6% to $12.5 billion compared to the previous year.
  • 5Investment securities available for sale saw a significant increase of $1.06 billion, reflecting a shift in investment strategy.
  • 6Noninterest income grew by 7.4% to $65.7 million, driven by strong performance in cardholder/merchant services and commissions.
  • 7Nonperforming assets remained low at 0.22% of loans and leases plus foreclosed properties as of March 31, 2006.

Frequently Asked Questions

The increase in net income was primarily driven by a significant rise in interest income, stemming from higher yields and increased average balances in both loans and investment securities. Growth in noninterest income, particularly from cardholder and merchant services and commissions, also contributed positively.

The loan and lease portfolio grew by 4.3% to $9.81 billion. Growth was notable in commercial and industrial loans and construction and land development loans. The company maintained strong asset quality, with nonperforming assets at a low 0.22% of total loans and leases plus foreclosed properties.

First Citizens BancShares strategically increased its holdings in 'investment securities available for sale' by $1.06 billion year-over-year. This shift reflects a strategy to manage liquidity and potentially capture higher yields in the current interest rate environment, while also seeing a decrease in 'investment securities held to maturity'.

While overall profitability improved, noninterest expenses increased by 8.5% due to ongoing expansion, particularly with IronStone Bank (ISB), and higher personnel costs. The company's profitability measures (ROA and ROE) improved year-over-year, but management notes that historically, these have compared unfavorably to similar-sized financial holding companies, with a historical emphasis on asset quality, liquidity, and capital conservation potentially impacting short-term profitability.