First Citizens Reports Earnings for Fourth Quarter 2008

January 26, 2009

RALEIGH, N.C. - First Citizens BancShares Inc. (Nasdaq: FCNCA) reports earnings for the year ending December 31, 2008, of $91.1 million, compared to $108.6 million earned during 2007, according to Lewis R. Holding, chairman of the board.

Lower net income during 2008 resulted from higher provision for credit losses and noninterest expense. Net income benefited from improved net interest income and noninterest income.

Per share income for 2008 totaled $8.73, compared to $10.41 for 2007. First Citizens' return on average assets equaled 0.56 percent for 2008, compared to 0.68 percent for 2007. The return on average equity was 6.13 percent during 2008, compared to 7.92 percent for 2007.

Net interest income during 2008 increased $19.4 million, or 4.0 percent versus 2007. For 2008, the impact of a $618.6 million increase in average interest-earning assets more than offset the unfavorable impact of lower interest rates. The taxable-equivalent net yield on interest-earning assets equaled 3.40 percent during 2008 compared to 3.41 percent during 2007.

The provision for credit losses increased $32.2 million during 2008, the result of higher net charge-offs and deterioration in the residential construction loan portfolio. Net charge-offs for 2008 totaled $45.3 million, compared to $28.0 million recorded during 2007. The increased level of net charge-offs in 2008 resulted from higher losses among retail and residential construction loans. The ratio of net charge-offs to average loans and leases in 2008 equaled 0.40 percent, compared to 0.27 percent for the prior year. Nonperforming assets totaled $71.7 million or 0.61 percent of loans plus other real estate owned as of December 31, 2008, compared to $19.9 million and 0.18 percent as of December 31, 2007. The increase in nonperforming assets is primarily attributable to the residential construction loan portfolio.

Noninterest income increased $16.6 million or 5.6 percent during 2008. Service charges on deposit accounts increased $4.5 million or 5.8 percent in 2008 primarily due to higher commercial service charge income resulting from lower interest rates. Fees from processing services increased $3.1 million or 9.4 percent as a result of continued expansion in the customer base. Wealth management services income fell $1.1 million or 2.3 percent caused by a decline in the market values of assets under management. Securities gains totaled $8.1 million during 2008 due to gains recognized on the redemption of Visa stock, compared to $1.4 million during 2007.

Noninterest expense increased $31.8 million or 5.5 percent during 2008. Salaries and wages increased $15.4 million or 6.3 percent during 2008 as a result of additional costs from new branch locations and merit increases offset partially by reduced incentive-based compensation. Benefit costs were up $6.2 million or 11.7 percent for the year due to higher health and executive retirement costs. Occupancy costs grew $3.9 million or 6.9 percent due to new branches and expenses related to the new headquarters building.

Net income for the quarter ending December 31, 2008, equaled $12.9 million, compared to $26.2 million for the corresponding period of 2007. Results for the fourth quarter 2008 include a significant increase in the provision for credit losses and higher noninterest expense when compared to the same period of 2007. While net interest income improved during the fourth quarter of 2008, noninterest income declined.

Per share income for the fourth quarter 2008 totaled $1.24, compared to $2.51 for the same period a year ago. First Citizens' results generated an annualized return on average assets of 0.31 percent for the fourth quarter of 2008, compared to 0.64 percent for the fourth quarter of 2007. The annualized return on average equity was 3.43 percent during the current quarter, compared to 7.31 percent for the same period of 2007.

Net interest income increased $2.5 million or 2.1 percent during the fourth quarter of 2008 due to a $638.1 million or 4.4 percent increase in average interest-earning assets when compared to the same period of 2007. However, falling interest rates had a greater impact on asset yields than on liabilities, causing the taxable-equivalent net yield on interest-earning assets to drop 8 basis points to 3.27 percent.

The provision for credit losses increased $10.3 million during the fourth quarter of 2008, up 87.7 percent versus the same period of 2007, due primarily to deterioration in the residential construction loan portfolio. Net charge-offs equaled $18.0 million during the fourth quarter of 2008, compared to $8.4 million during the fourth quarter of 2007. Net charge-offs for 2008 increased due to higher losses among retail and residential construction loans. The annualized ratio of net charge-offs to average loans and leases equaled 0.61 percent during the fourth quarter of 2008, compared to 0.31 percent during the same period of 2007.

Noninterest income decreased $4.4 million or 5.7 percent during the fourth quarter of 2008. The decline resulted from general economic weakness causing reductions in wealth management services, cardholder and merchant services income and service charge income. Noninterest expense increased $9.5 million during the fourth quarter of 2008. This 6.5 percent increase resulted primarily from higher personnel, advertising and foreclosure-related expenses. Salary expense increased $3.4 million or 5.5 percent, due to merit increases, new branch offices and severance costs, partially offset by lower incentive-based compensation. Employee benefits expense increased $2.5 million due to higher employer health expense and current year costs related to an enhanced 401(k) plan.

As of December 31, 2008, First Citizens had total assets of $16.7 billion. BancShares' banking subsidiaries, First Citizens Bank and IronStone Bank, provide a broad range of financial services to individuals, businesses, professionals and the medical community through a network of 400 branch offices, telephone banking, online banking and ATMs. For more information, visit First Citizens' Web site at firstcitizens.com.

Download First Citizens' Fourth Quarter 2008 Financials.

Barbara Thompson
919.716.2716
First Citizens Bank