10-QPeriod: Q1 FY2008

FIRST CITIZENS BANCSHARES INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 8, 2008For Securities:FCNCAFCNCPFCNCBFCNCOFCNCN

Summary

First Citizens BancShares, Inc. (FCNCA) reported a net income of $32.4 million for the first quarter of 2008, an 11.7% increase from $29.0 million in the prior year's first quarter. This growth was primarily driven by a significant gain from the redemption of Visa, Inc. stock and a reversal of an accrued liability related to Visa membership, partially offset by a notably higher provision for credit losses. Total assets grew to $16.75 billion, up from $15.85 billion in the prior year, with loans and leases increasing by 7.5% to $11.03 billion. While net interest income saw a modest increase, the taxable-equivalent yield on interest-earning assets declined. The company continues to prioritize asset quality, balance sheet liquidity, and capital conservation over short-term profitability, maintaining capital ratios well above regulatory requirements.

Key Highlights

  • 1Net income increased by 11.7% year-over-year to $32.4 million, largely due to a gain on Visa stock redemption and liability reversal.
  • 2Total assets grew to $16.75 billion, with loans and leases increasing by 7.5% to $11.03 billion.
  • 3The provision for credit losses significantly increased to $10.1 million from $3.5 million in the prior year's first quarter.
  • 4Noninterest income saw a substantial boost, rising 21.2% to $83.7 million, primarily from the $8.1 million securities gain related to Visa.
  • 5Despite balance sheet growth, the taxable-equivalent yield on interest-earning assets decreased from 6.38% to 6.00%.
  • 6The company's subsidiary, IronStone Bank (ISB), continues to operate at a loss due to its de novo growth strategy, with a net loss of $4.6 million in the quarter.
  • 7Capital ratios remain strong, with Tier 1 capital at 13.12% and leverage capital at 9.80%, exceeding regulatory minimums.

Frequently Asked Questions

The primary driver of the net income increase was a significant gain realized from the redemption of Visa, Inc. stock in conjunction with its initial public offering, along with the reversal of an accrued liability related to Visa member bank liabilities. This one-time event contributed substantially to the overall earnings growth.

The loan portfolio grew by 7.5% to $11.03 billion. However, the provision for credit losses increased significantly due to higher net charge-offs and the movement of $27.9 million in residential construction loans to nonaccrual status in markets like Atlanta and Southwest Florida. The company also identified $42.2 million in additional residential construction loans as potential problem loans, indicating ongoing concerns about real estate market softness impacting credit quality.

IronStone Bank (ISB), the company's federally-chartered thrift institution, continues to operate at a loss as part of its de novo growth strategy. It recorded a net loss of $4.6 million in the first quarter of 2008, compared to a smaller loss in the prior year, primarily due to increased provisions for credit losses and ongoing operating expenses associated with expansion into new markets.

The company actively manages interest rate risk by structuring its balance sheet and maintaining liquidity. The taxable-equivalent yield on interest-earning assets decreased from 6.38% to 6.00% in the first quarter of 2008 due to lower market rates. Management anticipates a significant reduction in the yield on the investment securities portfolio for the remainder of 2008 due to sharply lower market rates on new security purchases.