10-QPeriod: Q2 FY2007

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 3, 2007For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a slight decrease in net income for the second quarter and the first six months of 2007 compared to the prior year, primarily due to higher noninterest expenses and a slightly lower net interest income, which were partially offset by improved noninterest income and a significant reduction in the provision for credit losses. Total assets grew to $16.01 billion by June 30, 2007. The company's loan and lease portfolio expanded by 4.4% to $10.47 billion, with notable growth in commercial mortgage and commercial and industrial loans. While overall asset quality remains strong with low nonperforming assets, the company is actively expanding its geographic footprint, particularly through its IronStone Bank subsidiary, which is incurring initial operating costs and losses due to de novo growth. Despite the slight dip in profitability, First Citizens BancShares continues to operate above regulatory capital requirements, demonstrating a solid capital base. The company's strategic focus includes increasing fee-based income and diversifying its business through expansion into new markets. Management emphasizes its commitment to asset quality, balance sheet liquidity, and capital conservation, even if these priorities sometimes impact short-term profitability. Investors should note the ongoing expansion efforts of IronStone Bank and its expected impact on earnings in the near term, balanced by the consistent performance of First-Citizens Bank & Trust Company.

Key Highlights

  • 1Total assets reached $16.01 billion as of June 30, 2007, an increase from $15.53 billion in the prior year.
  • 2Net income for the six months ended June 30, 2007, was $59.8 million, a slight decrease from $60.4 million in the same period of 2006.
  • 3Loans and leases grew by 4.4% to $10.47 billion, driven by increases in commercial mortgage and commercial and industrial loans.
  • 4The provision for credit losses decreased significantly, contributing positively to net income.
  • 5Noninterest income increased by 7.9% for the first six months of 2007, driven by growth in cardholder/merchant services and commission income.
  • 6IronStone Bank (ISB) continues its de novo expansion, leading to an increase in operating costs and a net loss of $1.3 million for ISB in the first six months of 2007.
  • 7The company maintains strong capital ratios, exceeding regulatory minimums.

Frequently Asked Questions

First Citizens BancShares experienced a slight decrease in net income for both the second quarter and the first six months of 2007 compared to the same periods in 2006. This was primarily due to increased noninterest expenses and a marginal decline in net interest income, partially offset by stronger noninterest income and a lower provision for credit losses.

The loan and lease portfolio grew by 4.4% to $10.47 billion, with significant increases in commercial mortgage and commercial and industrial loans. Asset quality remains strong, as indicated by low levels of nonperforming assets. The company also noted a concentration in loans to the medical community, representing 18.0% of total loans and leases.

IronStone Bank (ISB) is undergoing significant de novo expansion into new geographic markets. This expansion has led to increased operating costs and resulted in a net loss of $1.3 million for ISB in the first six months of 2007. Management expects these expansion-related costs to continue impacting financial performance in the near future.

First Citizens BancShares continues to exceed regulatory capital requirements, maintaining strong capital ratios. The company prioritizes liquidity by relying on its deposit base and maintaining access to borrowing facilities. Investment securities also provide a source of liquidity.