10-Q/APeriod: Q2 FY2007

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

Filed August 7, 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 same periods in 2006. Net income for the second quarter was $30.9 million, down from $31.7 million in Q2 2006, while the six-month net income was $59.8 million, down from $60.4 million. This decline was primarily driven by increased noninterest expenses and a marginal decrease in net interest income, partially offset by stronger noninterest income and a significant reduction in the provision for credit losses. The company's balance sheet shows a modest increase in total assets to $16.01 billion as of June 30, 2007, up from $15.73 billion at the end of 2006. Loans and leases grew by 4.4% year-over-year to $10.47 billion. Deposits remained stable, totaling $12.77 billion. Short-term borrowings saw a notable increase, indicating a greater reliance on non-deposit funding. The company continues to maintain strong capital adequacy ratios, exceeding regulatory minimums.

Key Highlights

  • 1Net income decreased by 2.7% in Q2 2007 and 0.9% for the first six months of 2007 compared to the prior year, primarily due to higher noninterest expenses.
  • 2Total assets grew to $16.01 billion as of June 30, 2007, up from $15.73 billion at the end of 2006.
  • 3Loans and leases increased by 4.4% to $10.47 billion as of June 30, 2007, driven by growth in commercial mortgage and commercial and industrial loans.
  • 4Interest-bearing liabilities increased significantly, with short-term borrowings rising by approximately 42% year-over-year, suggesting a shift in funding strategy.
  • 5Noninterest income showed a healthy increase of 7.9% for the first six months of 2007, driven by cardholder/merchant services and commission income.
  • 6The provision for credit losses decreased significantly by $5.2 million for the first six months of 2007, indicating improved credit quality or changes in allowance methodology.
  • 7IronStone Bank (ISB), the de novo expansion subsidiary, reported a net loss of $1.3 million for the first six months of 2007, reflecting ongoing expansion costs.

Frequently Asked Questions

The primary drivers for the decrease in net income were higher noninterest expenses, particularly salaries and wages, occupancy, and other expenses, coupled with a slight reduction in net interest income. These were partially offset by improved noninterest income and a significantly lower provision for credit losses.

The loan and lease portfolio grew by 4.4% to $10.47 billion as of June 30, 2007. Growth was mainly in commercial mortgage and commercial and industrial loans. The company reported strong asset quality with nonperforming assets at $18.8 million, or 0.18% of loans and leases plus other real estate.

Deposits remained relatively stable, but short-term borrowings increased substantially by approximately 42% from June 30, 2006, to June 30, 2007. This indicates an increasing reliance on non-deposit funding sources to support balance sheet growth.

ISB, the company's de novo expansion subsidiary, reported a net loss of $1.3 million for the first six months of 2007. Management expects losses to continue in the foreseeable future due to ongoing expansion costs in new markets, partially offset by growth in noninterest income.