10-QPeriod: Q3 FY2007

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 6, 2007For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported its third quarter and nine-month results ending September 30, 2007, revealing a decline in net income compared to the prior year. For the third quarter, net income fell to $22.6 million from $32.9 million in Q3 2006, primarily due to a significant increase in the provision for credit losses and higher noninterest expenses, partially offset by increased noninterest income. The nine-month period saw net income decrease to $82.5 million from $93.3 million year-over-year. Despite the dip in profitability, the company experienced asset growth, with total assets reaching $16.31 billion. Loan and lease portfolios grew by 5.9% year-over-year, driven by increases in commercial mortgage and commercial & industrial loans. Deposit growth also continued, with total deposits rising to $12.98 billion. However, the company faces headwinds from an inverted yield curve, which is impacting net interest income, and increased operational costs associated with the expansion of its IronStone Bank (ISB) subsidiary.

Key Highlights

  • 1Net income for Q3 2007 decreased by 31.3% to $22.6 million compared to $32.9 million in Q3 2006.
  • 2Year-to-date net income for the first nine months of 2007 was $82.5 million, down from $93.3 million in the same period of 2006.
  • 3Total assets grew to $16.31 billion at September 30, 2007, up from $15.63 billion at September 30, 2006.
  • 4Loans and leases increased by 5.9% to $10.76 billion, with commercial mortgage and C&I loans showing notable growth.
  • 5Total deposits grew by 2.4% to $12.98 billion.
  • 6The provision for credit losses significantly increased in both the third quarter and year-to-date periods, impacting profitability.
  • 7The company is experiencing increased noninterest expenses, driven by expansion costs for its IronStone Bank (ISB) subsidiary and higher personnel/benefit costs.

Frequently Asked Questions

The primary reasons for the decline in net income were a significant increase in the provision for credit losses and higher noninterest expenses. These factors more than offset the growth in noninterest income.

The loan and lease portfolio showed growth, increasing by 5.9% year-over-year to $10.76 billion. Key drivers of this growth were commercial mortgage loans and commercial and industrial loans, reflecting expansion and stable demand in these areas.

The company notes that an inverted yield curve is adversely impacting net interest income. While interest income increased due to asset growth and improved yields, higher interest expenses on liabilities, driven by increased rates and balances, have compressed net interest margins.

IronStone Bank (ISB) continues to expand its footprint but reported a net loss of $5.2 million for the first nine months of 2007, compared to a small profit in the prior year. This loss is attributed to higher operating costs from expansion, increased provision for credit losses, and lower net interest income. Management expects losses to continue in the foreseeable future due to ongoing expansion and associated costs.