FIRST CITIZENS BANCSHARES INC /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2004

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission File Number: 0-16471

First Citizens BancShares, Inc
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(Exact name of Registrant as specified in its charter)

Delaware 56-1528994
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

3128 Smoketree Court, Raleigh, North Carolina 27604
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(Address of principle executive offices) (Zip code)

(919) 716-7000
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(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes X No

Class A Common Stock-$1 Par Value-8,758,670 shares
Class B Common Stock-$1 Par Value-1,677,675 shares
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(Number of shares outstanding, by class, as of May 5, 2004)

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at March 31, 2004,
December 31, 2003,and March 31, 2003 4

Consolidated Statements of Income for the three-month
periods ended March 31, 2004 and March 31, 2003 5

Consolidated Statements of Changes in Shareholders'
Equity for the three-month periods ended March 31, 2004,
and March 31, 2003 6

Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2004, and March 31, 2003 7
Notes to Consolidated Financial Statements 8-9

Item 2. Management's Discussion and Analysis of Financial 10-27
Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk 21

Item 4. Controls and Procedures

(a) BancShares' Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of the design and operation of BancShares'
disclosure controls and procedures in accordance with Rule 13a-14 of
the Securities Exchange Act of 1934 (Exchange Act). Based on their
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report,
BancShares' disclosure controls and procedures were effective in
enabling it to record, process, summarize and report in a timely
manner the information required to be disclosed in reports it files
under the Exchange Act. (b) During the quarter, there were no
significant changes in Registrant's internal controls over financial
reporting or in other factors that could significantly affect these
controls.

(b) No change in BancShares' internal control over financial reporting
occurred during the first quarter of 2004 that materially affected, or
is reasonably likely to materially affect, BancShares' internal
control over financial reporting.

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32 Certifications of Chief Executive Officer and
Chief Financial Officer

(b) Reports on Form 8-K. During the quarter ended March 31, 2004,
Registrant filed no Current Reports on Form 8-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

FIRST CITIZENS BANCSHARES, INC.
(Registrant)

Dated: May 7, 2004 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

* Unaudited
# Derived from the Consolidated Balance Sheets included in the 2002 Annual
Report on Form 10-K.

See accompanying Notes to Consolidated Financial
Statements.

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Notes to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries

Note A
Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.
In the opinion of management, the consolidated financial statements contain
all material adjustments necessary to present fairly the financial position of
First Citizens BancShares, Inc. as of and for each of the periods presented, and
all such adjustments are of a normal recurring nature. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes included in the 2003 First
Citizens BancShares, Inc. Annual Report, which is incorporated by reference on
Form 10-K. Certain amounts for prior periods have been reclassified to conform
with statement presentations for 2004. However, the reclassifications have no
effect on shareholders' equity or net income as previously reported.

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Note B
Operating Segments
BancShares conducts its banking operations through its two wholly-owned
subsidiaries, First-Citizens Bank & Trust Company (FCB) and IronStone Bank
(ISB). Although FCB and ISB offer similar products and services to customers,
each entity operates in distinct geographic markets and each entity has a
separate management group. Additionally, the financial results and trends of ISB
reflect the de novo nature of its growth.
FCB is a mature banking institution that operates from a single charter
from its branch network in North Carolina, Virginia and West Virginia. ISB began
operations in 1997 and currently operates branches in Georgia, Florida, Texas,
Arizona and California under a federal thrift charter.
In the aggregate, FCB and its consolidated subsidiaries, which are integral
to its branch operation, and ISB account for more than 90 percent of
consolidated assets, revenues and net income. Other includes activities of the
parent company, Neuse, Incorporated, a subsidiary that owns real property used
in the banking operation and American Guaranty Insurance Corporation, a property
insurance company.
The adjustments in the accompanying tables represent the elimination of the
impact of certain inter-company transactions. The adjustments to interest income
and interest expense neutralize the earnings and cost of inter-company
borrowings. The adjustments to noninterest income and noninterest expense
reflect the elimination of management fees and other services fees paid by one
company to another within BancShares' consolidated group.

March 31, 2004
ISB FCB Other Total Adjustments Consolidated

Interest income $ 15,193 $ 108,446 $ 571 $ 124,210 $ (516) $ 123,694
Interest expense 4,562 21,720 5,461 31,743 (516) 31,227
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Net interest income 10,631 86,726 (4,890) 92,467 - 92,467
Provision for loan losses 699 7,148 - 7,847 - 7,847
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Net interest income after 9,932 79,578 (4,890) 84,620 - 84,620
provision for loan losses
Noninterest income 1,255 59,540 2,430 63,225 (1,682) 61,543
Noninterest expense 11,152 108,697 729 120,578 (1,682) 118,896
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Income (loss) before income taxes 35 30,421 (3,189) 27,267 - 27,267
Income taxes 62 10,975 (1,101) 9,936 - 9,936
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Net income (loss) $ (27) $ 19,446 $ (2,088) $ 17,331 $ - $ 17,331
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Period-end assets $ 1,248,913 $ 11,334,414 $ 1,551,014 $ 14,134,341 $ (1,427,386) $12,706,955

March 31, 2003
ISB FCB Other Total Adjustments Consolidated

Interest income $ 14,568 $ 116,339 $ 6,152 $ 137,059 $ (5,985) $ 131,074
Interest expense 5,299 32,169 10,675 48,143 (5,985) 42,158
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Net interest income 9,269 84,170 (4,523) 88,916 - 88,916
Provision for loan losses 196 5,367 - 5,563 5,563
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Net interest income after 9,073 78,803 (4,523) 83,353 - 83,353
provision for loan losses
Noninterest income 1,233 56,796 (538) 57,491 (1,104) 56,387
Noninterest expense 10,189 101,356 841 112,386 (1,104) 111,282
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Income (loss) before income taxes 117 34,243 (5,902) 28,458 - 28,458
Income taxes 50 12,200 (2,086) 10,164 10,164
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Net income (loss) $ 67 $ 22,043 $ (3,816) $ 18,294 $ - $ 18,294
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Period-end assets $ 1,095,895 $ 11,201,620 $ 1,747,422 $ 14,044,937 $ (1,656,196) $ 12,388,741

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Note C
Employee Benefits

BancShares recognized pension expense totaling $2,703 and $2,300,
respectively, in the quarters ended March 31, 2004 and 2003. Pension expense is
included as a component of employee benefits expense.

Components of Net Periodic Benefit Cost 2004 2003

Service cost $2,891 $1,847
Interset cost 3,744 2,663
Expected return on plan assets (4,473) (2,403)
Amortization of prior service cost 38 29
Recognized net actuarial loss 503 164
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Net periodic benefit cost $2,703 $2,300

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Financial Summary Table 1

2004 2003
(thousands, except per share data First Fourth Third Second First
and ratios) Quarter Quarter Quarter Quarter Quarter
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Summary of Operations
Interest income $ 123,694 $ 125,343 $ 124,887 $ 129,173 $ 131,074
Interest expense 31,227 32,301 34,573 39,505 42,158
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Net interest income 92,467 93,042 90,314 89,668 88,916
Provision for loan losses 7,847 5,079 6,353 7,192 5,563
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Net interest income after provision
for loan losses 84,620 87,963 83,961 82,476 83,353
Noninterest income 61,543 58,601 62,736 66,550 56,049
Noninterest expense 118,896 120,089 118,478 115,577 110,944
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Income before income taxes 27,267 26,475 28,219 33,449 28,458
Income taxes 9,936 9,901 8,672 12,677 10,164
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Net income $ 17,331 $ 16,574 $ 19,547 $ 20,772 $ 18,294
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Net interest income-taxable equivalent $ 92,758 $ 93,297 $ 90,568 $ 89,926 $ 89,200
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Selected Quarterly Averages
Total assets $ 12,508,227 $ 12,449,537 $ 12,287,273 $ 12,203,618 $ 12,054,717
Investment securities 2,340,956 2,602,630 2,665,203 2,594,983 2,476,426
Loans 8,454,599 8,140,751 7,946,501 7,811,739 7,642,673
Interest-earning assets 11,138,812 11,100,897 10,994,308 10,890,420 10,741,160
Deposits 10,634,865 10,612,173 10,441,989 10,394,829 10,283,143
Interest-bearing liabilities 9,210,244 9,178,628 9,126,076 9,177,931 9,173,567
Long-term obligations 289,161 261,333 253,351 253,379 253,389
Shareholders' equity $ 1,037,260 $ 1,020,181 $ 1,002,524 $ 991,047 $ 974,900
Shares outstanding 10,436,345 10,436,345 10,436,345 10,465,909 10,472,065
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Selected Quarter-End Balances
Total assets $ 12,706,955 $ 12,552,227 $ 12,387,281 $ 12,394,744 $ 12,388,741
Investment securities 2,150,738 2,469,447 2,646,829 2,475,821 2,362,130
Loans 8,616,987 8,326,598 8,026,502 7,857,220 7,704,492
Interest-earning assets 11,389,937 11,090,450 10,941,968 10,951,437 10,991,877
Deposits 10,795,536 10,711,332 10,563,135 10,558,616 10,594,380
Interest-bearing liabilities 9,327,152 9,251,903 9,165,645 9,158,867 9,293,396
Long-term obligations 289,118 289,277 256,752 253,376 253,386
Shareholders' equity $ 1,047,083 $ 1,029,305 $ 1,015,678 $ 999,789 $ 983,635
Shares outstanding 10,436,345 10,436,345 10,436,345 10,436,345 10,470,236
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Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.56 % 0.53 % 0.63 % 0.68 % 0.62 %
Shareholders' equity 6.72 6.45 7.74 8.41 7.61
Dividend payout ratio 16.57 17.30 14.71 13.89 15.71
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Liquidity and Capital Ratios (averages)
Loans to deposits 79.50 % 76.71 % 76.10 % 75.15 % 74.32 %
Shareholders' equity to total assets 8.29 8.19 8.16 8.12 8.09
Time certificates of $100,000 or more to
total deposits 10.69 10.31 10.22 10.34 10.44
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Per Share of Stock
Net income $ 1.66 $ 1.59 $ 1.87 $ 1.98 $ 1.75
Cash dividends 0.275 0.275 0.275 0.275 0.275
Book value at period end 100.33 98.63 97.32 95.80 93.95
Tangible book value at period end 89.25 87.56 86.95 85.36 83.39
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First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Outstanding Loans by Type Table 2

2004 2003
First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
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Real estate:
Construction and land development $ 878,790 $ 854,660 $ 839,650 $ 835,209 $ 834,027
Mortgage:
1-4 family residential 912,015 904,082 923,691 950,555 975,010
Commercial 2,462,854 2,347,792 2,221,741 2,140,521 2,077,633
Revolving 1,646,662 1,598,603 1,530,096 1,466,454 1,404,014
Other 159,668 160,043 160,222 157,597 148,684
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Total real estate 6,059,989 5,865,180 5,675,400 5,550,336 5,439,368
Commercial and industrial 986,819 929,039 909,314 937,125 936,387
Consumer 1,345,782 1,303,718 1,233,856 1,174,807 1,135,622
Lease financing 162,765 160,390 146,416 140,133 137,562
Other 61,632 68,271 61,516 54,819 55,553
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Total loans 8,616,987 8,326,598 8,026,502 7,857,220 7,704,492
Less reserve for loan losses 121,957 119,357 117,747 115,382 113,382
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Net loans $8,495,030 $8,207,241 $7,908,755 $7,741,838 $7,591,110
================================================================================================================================

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Investment Securities Table 3

March 31, 2004 March 31, 2003
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Average Taxable Average Taxable
Fair Maturity Equivalent Fair Maturity Equivalent
(thousands) Cost Value (Yrs./Mos.) Yield Cost Value (Yrs./Mos.) Yield
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Investment securities held to maturity:
U. S. Government:
Within one year $ 924,355 $ 928,562 0/6 1.94 % $ 1,364,403 $ 1,369,721 0/5 2.42 %
One to five years 122,207 122,749 1/5 1.75 600,271 608,015 1/5 2.30
Five to ten years 56 59 5/8 8.00 88 94 6/9 8.00
Ten to twenty years 15,229 15,914 13/1 5.55 23,247 24,250 14/1 5.55
Over twenty years 709 733 24/8 7.23 1,617 1,690 25/8 7.14
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Total 1,062,556 1,068,017 0/10 1.97 1,989,626 2,003,770 0/11 2.42
State, county and municipal:
Within one year - - - -
One to five years 355 355 1/3 5.55 480 502 2/3 5.55
Five to ten years 145 156 5/1 5.88 144 155 6/1 5.88
Ten to twenty years 1,420 1,581 14/1 6.02 1,416 1,555 15/1 6.02
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Total 1,920 2,092 11/0 5.92 2,040 2,212 11/5 5.90
Other
Within one year 25 25 1/0 1.05 - -
One to five years 250 250 24/4 7.75 - -
Five to ten years - - 250 250 5/4 7.75
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Total 275 275 4/11 7.14 250 250 5/8 7.54
Total investment securities
held to maturity 1,064,751 1,070,384 0/10 1.98 1,991,916 2,006,232 0/11 2.43
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Investment securities available for sale:
U. S. Government:
Within one year 788,447 789,772 0/3 2.67 292,223 293,238 0/3 3.05
One to five years 214,270 214,877 1/8 1.81 20,446 20,593 1/4 1.90
Five to ten years 706 724 8/8 5.04 569 547 8/10 4.48
Ten to twenty years 1,990 1,986 14/0 4.61 - -
Over twenty years 19,013 19,099 28/11 5.24 145 145 29/8 1.15
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1,024,426 1,026,458 1/2 2.55 313,383 314,523 0/4 2.97
State, county and municipal:
Within one year 1,233 1,234 0/2 1.89 - -
One to five years 4,029 4,059 2/11 2.53 - -
Five to ten years 2,149 2,168 6/9 4.25 - -
Ten to twenty years - - - - - -
Over twenty years 145 145 28/9 1.15 - -
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Total 7,556 7,606 4/1 2.89 - -
Marketable equity securities 30,929 51,923 40,526 55,691
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Total investment securities
available for sale 1,062,911 1,085,987 1/2 353,909 370,214 0/4
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Total investment securities $ 2,127,662 $ 2,156,371 $ 2,345,825 $ 2,376,446
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Average maturity assumes callable securities mature on their earliest call date;
yields are based on amortized cost; yields related to securities that are exempt
from federal and/or state income taxes are stated on a taxable-equivalent basis
assuming statutory rates of 35% for federal income tax purposes and 6.9% for
state income taxes for all periods.

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Average loan balances include nonaccrual loans. Yields related to loans and
securities exempt from both federal and state income taxes, federal income taxes
only, or state income taxes only are stated on a taxable-equivalent basis
assuming a statutory federal income tax rate of 35% and state income tax rate of
6.90% for each period. The taxable-equivalent adjustment was $291 for 2004 and
$284 for 2003.

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

INTRODUCTION
Management's discussion and analysis of earnings and related financial data
are presented to assist in understanding the financial condition and results of
operations of First Citizens BancShares, Inc. and Subsidiaries (BancShares).
BancShares is a financial holding company with two wholly-owned banking
subsidiaries: First-Citizens Bank & Trust Company (FCB), a North
Carolina-chartered bank, and IronStone Bank (ISB), a federally-chartered thrift
institution. FCB operates branches in North Carolina, West Virginia, and
Virginia. ISB operates in Georgia, Florida, Texas, Arizona, California, New
Mexico and Colorado.
This discussion and analysis should be read in conjunction with the
unaudited Consolidated Financial Statements and related notes presented within
this report. Intercompany accounts and transactions have been eliminated.
Although certain amounts for prior years have been reclassified to conform to
statement presentations for 2004, the reclassifications have no effect on
shareholders' equity or net income as previously reported.

SUMMARY
BancShares' earnings and cash flows are derived primarily from the
commercial banking activities conducted by its banking subsidiaries, which
include commercial and consumer lending, deposit and cash management products,
cardholder and merchant services, trust and retail broker-dealer services as
well as various other products and services typically associated with commercial
banking. FCB and ISB gather interest-bearing and noninterest-bearing deposits
from retail and commercial customers. BancShares and its subsidiaries also
provide supplemental short-term and long-term funding through various
non-deposit sources. The liquidity generated from these funding sources is
primarily used to invest in interest-earning assets consisting of various types
of loans, investment securities and overnight investments. In addition, funds
are invested in bank premises as well as furniture and equipment used in the
subsidiaries' commercial banking business.
Various external factors influence customer demand for our deposit and loan
products. During 2003, economic uncertainty in our primary market areas
restrained customer demand for loan products. However, in early 2004, economic
conditions have shown signs of improvement, and we have experienced robust loan
demand. Additionally, the low level of interest rates continues to affect the
composition of our deposit base, as customers have largely avoided investing in
low-rate time deposits and have instead chosen to allow liquidity to reside in
transaction, savings and money market accounts.
The general strength of the economy also influences the quality and
collectibility of the loan portfolio, as consumer bankruptcy rates and business
debt service levels tend to reflect the general economic cycle. Utilizing
various asset-liability management and asset quality tools, we strive to
minimize the potentially adverse financial impact of unforeseen and unfavorable
economic trends and to take advantage of favorable economic conditions where
appropriate.
Financial institutions frequently focus their strategic and operating
emphasis on maximizing profitability, and therefore measure their relative
success by reference to profitability measures such as return on average assets
or return on average shareholders' equity. BancShares' return on average assets
and return on average equity have historically compared unfavorably to the
returns of similarly sized financial holding companies. BancShares has
historically placed significant emphasis upon asset quality, balance sheet
liquidity and capital conservation, even when those priorities may be
detrimental to current earnings.
Our strategic analysis and the competitive position of BancShares within
the financial services industry indicate continued opportunities for growth and
expansion. We operate in diverse and growing geographic markets and believe that
through superior customer service, opportunities exist to increase earnings by
attracting customers of larger competitors and customers of banks that have
focused on merger transactions. We seek opportunities to increase fee income in
areas such as merchant processing, client bank services, factoring, insurance,
cash management, wealth management and private banking services.
We focus substantial attention on the risks that can endanger our
profitability and growth prospects. Such risks fall generally into categories of
economic, industry systemic, competitive and regulatory. We view economic risk
as the greatest exposure, since the potential impact is so great and we are
unable to exercise any meaningful control over this area. Specific economic
risks include recession, rapid movements in interest rates and significant
increases in inflation expectations. Compared to our larger competitors, our
relatively small asset size and our limited capital resources result in
significant management focus on economic risk.
Detailed information regarding the components of net income and other key
financial data over the most recent five quarters is provided in Table 1. Table
4 provides information on net interest income. Table 5 provides information
related to asset quality.
Net income. BancShares realized a decrease in earnings during the first
quarter of 2004 compared to the first quarter of 2003. Consolidated net income
during the first quarter of 2004 was $17.3 million, compared to $18.3 million
earned during the corresponding period of 2003. The $963,000 or 5.3 percent
reduction resulted from higher noninterest expense and provision for loan
losses, partially offset by increases in net interest and noninterest income.
Net income for the first quarter of 2004 included pretax securities gains of
$1.9 million and a $2.1 million pretax gain on ISB for the sale of real
property. Net income for the first quarter of 2003 included securities losses of
$975,000.
Net income per share during the first quarter of 2004 totaled $1.66,
compared to $1.75 during the first quarter of 2003, a 5.1 percent reduction.
Return on average assets was 0.56 percent for the first quarter of 2004 and 0.62
percent for the first quarter of 2003. Return on average equity for the first
quarter of 2004 was 6.72 percent compared to 7.61 percent during the first
quarter of 2003.
Including the $2.1 million property sale gain, ISB reported a net loss of
$27,000 during the first quarter of 2004, compared to net income of $67,000
during the first quarter of 2003. Since its inception, ISB has generated a net
loss of $23.4 million. Based on the magnitude of recent branch growth and plans
for market expansion, ISB's net losses will likely extend into the foreseeable
future.
Shareholders' Equity. BancShares and its banking subsidiaries continue to
exceed all minimum regulatory capital requirements, and the financial
institutions remain well-capitalized. In recent years, the continued de novo
growth and expansion of ISB has consumed significant amounts of capital.
BancShares infused $15.0 million into ISB during the first quarter of 2004 to
support its expansion into Oregon and its rapidly expanding balance sheet. We
expect an additional $15.0 million will be infused into ISB during 2004. Through
March 31, 2004, BancShares has provided $215.0 million in capitalization for
ISB. BancShares' prospective capacity to provide capital to support the growth
and expansion of ISB is dependent upon FCB's ability to return capital through
dividends to BancShares.

INTEREST-EARNING ASSETS
Interest-earning assets include loans, investment securities and overnight
investments, all of which reflect varying interest rates based on the risk level
and maturity of the underlying asset. Accordingly, riskier investments typically
carry a higher interest rate, but expose the investor to potentially higher
levels of default. We have historically focused on maintaining high asset
quality, which results in a loan portfolio subjected to strenuous underwriting
and monitoring procedures. Our investment securities portfolio includes
high-quality assets, primarily United States Treasury and government agency
securities. Generally, the investment securities portfolio grows and shrinks
based on loan and deposit trends. When deposit growth exceeds loan demand, we
invest excess funds in the securities portfolio. Conversely, when loan demand
exceeds deposit growth, we use proceeds from maturing securities to fund loan
demand. Overnight investments are selectively made with other financial
institutions that are within our risk tolerance.
During the first quarter of 2004, interest-earning assets averaged $11.14
billion, an increase of $397.7 million or 3.7 percent from the first quarter of
2003. This increase resulted from growth in the loan portfolio, partially offset
by reductions in overnight investments and investment securities.
Loans. At March 31, 2004 and 2003, gross loans totaled $8.62 billion and
$7.70 billion, respectively. As of December 31, 2003, gross loans were $8.33
billion. The $912.5 million or 11.8 percent growth in loans from March 31, 2003
to March 31, 2004 results from growth within BancShares' commercial mortgage,
revolving mortgage loans and consumer portfolios. This growth has resulted from
improved customer demand and BancShares' continued focus on these product lines
during this period.
Commercial real estate loans totaled $2.46 billion at March 31, 2004,
representing 28.6 percent of total gross loans. This represents an increase of
$385.2 million or 18.5 percent since March 31, 2003. Demand for commercial real
estate loans continues to be strong at both FCB and ISB.
Revolving mortgage loans totaled $1.65 billion at March 31, 2004,
representing 19.1 percent of total loans outstanding. This component of the loan
portfolio increased $242.6 million or 17.3 percent since March 31, 2003.
However, originations of new lines of credit have declined since the third
quarter of 2003, and the $48.1 million in growth since December 31, 2003
represents an annual growth rate of 12.0 percent.
Consumer loans totaled $1.35 billion at March 31, 2004, an increase of
$210.2 million or 18.5 percent from March 31, 2003. The $42.1 million increase
since December 31, 2003 represents an annual growth rate of 12.9 percent. This
growth results from strong automobile sales finance origination activity during
2003 and 2004.
During the first quarter of 2004, loans averaged $8.45 billion, an increase
of $811.9 million or 10.6 percent from the comparable period of 2003. Demand
among commercial, Equity Line and consumer customers and BancShares' ability to
offer desirable products fueled the strong growth in loans.
Our recent growth through ISB has allowed us to mitigate our historic
exposure to geographic concentration in North Carolina and Virginia. Although
these markets have endured economic instability in the past, we are pleased with
the diversification that we are beginning to realize by the growth of ISB. We
are aware that, in the absence of rigorous underwriting and monitoring controls,
rapid loan growth in new markets may present incremental lending risks. During
the expansion of ISB into new markets, we have endeavored to ensure that such
controls are functioning effectively and will continue to place emphasis upon
maintaining strong lending standards in new markets.
Recent improvements in general economic conditions in certain of our
markets have resulted in stronger loan demand among our business customers
during 2004. Management anticipates continued growth in commercial mortgage and
revolving real estate loans during 2004. Consumer loan demand may be constrained
due to soft labor growth in many of our market areas. All loan projections are
subject to change as a result of further economic deterioration or improvement.
Loan projections are also dependent on interest rate movements, which are
subject to the influence of inflation expectations and Federal Reserve actions.
Investment Securities. At March 31, 2004 and 2003, the investment portfolio
totaled $2.15 billion and $2.36 billion, respectively. At December 31, 2003, the
investment portfolio was $2.47 billion. Table 3 presents detailed information
relating to the investment securities portfolio.
Investment securities held to maturity totaled $1.06 billion at March 31,
2004, compared to $1.99 billion at March 31, 2003. The $927.2 million reduction
in investment securities held to maturity resulted from our decision during 2003
to reinvest a portion of the proceeds from maturing held-to-maturity securities
in securities classified as available for sale. This redirection of the
investment securities portfolio enhances the overall liquidity and flexibility
of the balance sheet. The average maturity of the held-to-maturity portfolio has
shortened from 11 months at March 31, 2003 to 10 months at March 31, 2004.
Securities that are classified as held to maturity reflect BanchShares' ability
and positive intent to hold those investments until maturity.
Investment securities available for sale totaled $1.09 billion at March 31,
2004, compared to $370.2 million at March 31, 2003. The $715.8 million increase
from March 31, 2003 results from the decision to invest in available-for-sale
securities in order to further enhance balance sheet liquidity and flexibility.
Available-for-sale securities are reported at their aggregate fair value.
Total investment securities averaged $2.34 billion during the first quarter
of 2004, compared to $2.48 billion during the first quarter of 2003, a decrease
of $135.5 million or 5.5 percent. The reduction in average total investment
securities resulted from liquidity needs arising from strong loan demand.
Overnight investments. Overnight investments averaged $343.3 million during
the first quarter of 2004, a decrease of $278.8 million or 44.8 percent from the
first quarter of 2003. The lower balance in overnight investments resulted from
liquidity management decisions.
Income on Interest-Earning Assets. Interest income amounted to $123.7
million during the first quarter of 2004, a 5.6 percent decrease from the first
quarter of 2003. Lower yields caused the decrease in interest income in the
first quarter of 2004 when compared to the same period of 2003, although
interest-earning asset growth and a higher mix of loans within interest-earning
assets partially offset the impact of the lower yields. The taxable-equivalent
yield on interest-earning assets for the first quarter of 2004 was 4.47 percent,
compared to 4.95 percent for the corresponding period of 2003. The lower asset
yields resulted from continued repricing of loans to current market rates.
Loan interest income for the first quarter of 2004 was $109.6 million, a
decrease of $3.8 million or 3.4 percent from the first quarter of 2003, the
result of lower yields offset largely by higher average loan balances. The
taxable-equivalent yield on the loan portfolio was 5.22 percent during the first
quarter of 2004, compared to 6.02 percent during the same period of 2003. The
lower loan yields resulted from the competitive environment associated with
current origination activity as well as customer-initiated refinancing of
fixed-rate loans.
Interest income earned on the investment securities portfolio amounted to
$13.3 million during the first quarter of 2004 and $15.8 million during the same
period of 2003, a decrease of $2.6 million or 16.3 percent. This decrease in
income is the result of the 32 basis point reduction in the taxable-equivalent
yield and the $135.5 million decrease in average securities. The investment
securities portfolio taxable-equivalent yield decreased from 2.60 percent for
the quarter ended March 31, 2003, to 2.28 percent for the quarter ended March
31, 2004. Maturing securities not needed to fund loan growth were reinvested in
securities with lower yields than the maturing or called securities.
Interest income from overnight investments was $838,000 during the first
quarter of 2004, a decrease of $952,000 or 53.2 percent from the $1.8 million
earned during the first quarter of 2003, the combined result of a 44.8 percent
reduction in average overnight investments and a 19 basis points reduction in
the earned yield.

INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include our interest-bearing deposits as well
as short-term borrowings and long-term obligations. Deposits are our primary
funding source, although we also utilize non-deposit borrowings to stabilize our
liquidity base and, in some cases, to fulfill commercial customer requirements
for cash management services. Certain of our long-term borrowings also provide
capital strength under existing guidelines established by the Federal Reserve.
At March 31, 2004 and 2003, interest-bearing liabilities totaled $9.33
billion and $9.29 billion, respectively, compared to $9.25 billion as of
December 31, 2003. During the first quarter of 2004, interest-bearing
liabilities averaged $9.21 billion, an increase of $36.7 million or 0.4 percent
from the first quarter of 2003. This increase primarily resulted from higher
levels of short-term borrowings and long-term obligations, offset by reductions
in interest-bearing deposits.
Deposits At March 31, 2004, total deposits were $10.80 billion, an increase
of $201.2 million or 1.9 percent over March 31, 2003. Compared to the December
31, 2003 balance of $10.71 billion, total deposits have increased $84.2 million.
Average interest-bearing deposits were $8.49 billion during the first
quarter of 2004. Total interest-bearing deposits decreased by $6.3 million from
the first quarter of 2003. Average time deposits decreased $227.9 million or 5.8
percent to $3.71 billion from March 31, 2003 to March 31, 2004. Offsetting the
decline in time deposits, average Checking With Interest increased $130.0
million or 9.8 percent from the first quarter of 2003 to the same period of
2004. Average savings balances increased $57.8 million or 8.7 percent, while
average money market accounts increased $33.8 million or 1.3 percent from first
quarter of 2003 to the first quarter of 2004.
We attribute the ongoing run-off of time deposits to the continuing low
interest rate environment, and expect that time deposits balances may continue
to erode until market interest rates increase significantly. Although demand for
time deposits remains weak, BancShares continues to offer competitively-priced
products in an effort to attract and retain core deposit relationships.
Short-term Borrowings At March 31, 2004, short-term borrowings totaled
$467.9 million compared to $430.2 million at December 31, 2003 and $438.4
million at March 31, 2003. For the quarters ended March 31, 2004 and 2003,
short-term borrowings averaged $435.6 million and $428.4 million, respectively.
The growth in short-term borrowings is the result of higher FHLB borrowings and
federal funds purchased, partially offset by lower repurchase agreements and
master notes.
Long-term Obligations. Long-term obligations averaged $289.2 million during
the first quarter of 2004, an increase of $35.8 million or 14.1 percent. The
growth in average long-term borrowings was primarily due to additional borrowing
to provide liquidity for ISB's rapidly expanding loan portfolio.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $31.2 million during the first quarter of 2004, a $10.9 million or
25.9 percent decrease from the first quarter of 2003. The lower interest expense
was the result of lower rates. The rate on average interest-bearing liabilities
was 1.36 percent, a 50 basis point decrease in the aggregate blended rate on
interest-bearing liabilities as compared to the first quarter of 2003.

NET INTEREST INCOME
Net interest income totaled $92.5 million during the first quarter of 2004,
an increase of $3.6 million or 4.0 percent from the first quarter of 2003. The
taxable-equivalent net yield on interest-earning assets was 3.35 percent for the
first quarter of 2004, compared to the 3.37 percent achieved for the first
quarter of 2003.
The taxable-equivalent interest rate spread for the first quarter of 2004
was 3.11 percent compared to 3.09 percent for the same period of 2003. The 48
basis point yield reduction on interest-earning assets was slightly less than
the 50 basis point rate reduction on interest-bearing liabilities.
As the economy continues to strengthen, inflation concerns could prompt the
Federal Reserve to increase interest rates earlier than previously anticipated.
Management believes a rate increase in the third quarter of 2004 is possible.
However, until the job market strengthens, action by the Federal Reserve could
be delayed until the fourth quarter of 2004 at the earliest. Continued asset
growth and strong loan demand should prevent reductions in net interest income
during the remaining quarters of 2004. Any increase in interest rates by the
Federal Reserve resulting in a higher prime lending rate would have a positive
effect on the interest rate spread due to BancShares' one-year positive interest
rate gap.
A principal objective of BancShares' asset/liability management function is
to manage interest rate risk or the exposure to changes in interest rates.
Management maintains portfolios of interest-earning assets and interest-bearing
liabilities with maturities or repricing opportunities that minimize the
potential for wide interest rate fluctuations, thereby limiting, to the extent
possible, the ultimate interest rate exposure. Management is aware of the
potential negative impact that movements in market interest rates may have on
net interest income.
Market risk is the potential economic loss resulting from changes in market
prices and interest rates. This risk can either result in diminished current
fair values of financial instruments or reduced net interest income in future
periods. As of March 31, 2004, BancShares' market risk profile has not changed
significantly from December 31, 2003. Changes in fair value that result from
movement in market rates can not be predicted with any degree of certainty.
Therefore, the impact that future changes in market rates will have on the fair
values of financial instruments is uncertain.

ASSET QUALITY
The maintenance of excellent asset quality is one of our primary areas of
focus. We have historically dedicated significant resources to ensuring we are
prudent in our lending practices. Accordingly, we have focused on asset quality
as a key performance measure.
Nonperforming assets. At March 31, 2004, BancShares' nonperforming assets
amounted to $20.2 million or 0.23 percent of gross loans plus foreclosed
properties, compared to $24.1 million at December 31, 2003, and $25.1 million at
March 31, 2003. Management views these levels of nonperforming assets as
evidence of strong asset quality. Management continues to closely monitor
nonperforming assets, taking necessary actions to minimize potential exposure.
Reserve for loan losses. Management continuously analyzes the growth and
risk characteristics of the total loan portfolio under current economic
conditions in order to evaluate the adequacy of the reserve for loan losses.
Such factors as the financial condition of borrowers, fair market value of
collateral and other considerations are recognized in estimating probable credit
losses. At March 31, 2004, the reserve for loan losses amounted to $122.0
million or 1.42 percent of loans outstanding. This compares to $119.4 million or
1.43 percent at December 31, 2003, and $113.4 million or 1.47 percent at March
31, 2003.
The provision for loan losses charged to operations during the first
quarter of 2004 was $7.8 million, compared to $5.6 million during the first
quarter of 2003. The $2.3 million increase in the provision for loan loss during
2004 resulted from reserves established due to growth in the loan portfolio and
moderately higher net charge-offs. Net loan charge-offs during the first quarter
of 2004 were $5.2 million compared to $4.7 million during the first quarter of
2003. On an annualized basis, these net charge-offs represent 0.25 percent of
average loans outstanding during both periods. Table 5 provides details
concerning the reserve and provision for loan losses over the past five
quarters.
Management considers the established reserve adequate to absorb estimated
probable losses that relate to loans outstanding at March 31, 2004. While
management uses available information to establish the reserve for loan losses,
future additions to the reserve may be necessary based on changes in economic
conditions or other factors. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the reserve for
loan losses. Such agencies may require the recognition of adjustments to the
reserve based on their judgments of information available to them at the time of
their examination.

NONINTEREST INCOME
The growth of noninterest income is essential to our ability to sustain
adequate levels of profitability. The primary sources of noninterest income are
service charges on deposit accounts, cardholder and merchant services income,
various types of commission-based income including the sale of investments by
our broker-dealer subsidiary, fees from processing services for client banks,
mortgage income and various types of revenues derived from wealth management
services.
During the first three months of 2004, noninterest income was $61.5
million, compared to $56.0 million during the same period of 2003. The $5.5
million or 9.8 percent increase was primarily due to gains on securities
transactions and growth in cardholder and merchant services income, service
charge income, trust income and fees from processing services.
During the first quarter of 2004, securities transactions generated a net
gain of $1.9 million compared to a net loss of $975,000 in 2003, an improvement
of $2.8 million. In 2004, cardholder and merchant services income increased $1.7
million or 14.1 percent to $14.1 million during the first quarter. This increase
resulted from higher merchant discount income, which is the result of higher
transaction volume.
Service charge income was $19.4 million and $18.4 million for the first
quarter of 2004 and 2003, respectively. The $927,000 or 5.0 percent increase was
primarily the result of higher fees collected for bad checks and overdrafts.
Fees from processing services totaled $5.9 million in the first quarter of
2004 and $5.1 million in the first quarter of 2003. The $717,000 or 14.0 percent
increase was primarily the result of a new fee schedule that was effective
January 1, 2004.
Trust income improved $587,000 or 15.8 percent to $4.3 million during the
first quarter of 2004 due to new sales activity and favorable results from
accounts that generate fees based on asset values. Commission-based income
increased $536,000 or 8.9 percent to $6.6 million during the first quarter due
to improved results from First Citizens Investor Services and insurance sales.
Partially offsetting these favorable increases was a $1.7 million decrease
in mortgage income. Mortgage income was $3.7 million in the first quarter of
2003 and $2.0 million in the first quarter of 2004. This decrease resulted from
significantly lower mortgage origination activity during 2004. Management
anticipates that mortgage origination activity during 2004 will lag behind that
achieved in 2003, resulting in a continuing reduction in mortgage income.

NONINTEREST EXPENSE
The primary components of noninterest expense are salaries and related
employee benefit costs, occupancy costs related to branch offices and support
facilities, and equipment costs related to branch offices and technology.
Noninterest expense equaled $118.9 million for the first three months of
2004, a 7.2 percent increase over the $110.9 million recorded during the same
period of 2003. A significant portion of the $8.0 million increase in total
noninterest expense relates to personnel and occupancy expenses, with ISB
expansion contributing to the magnitude of the increases. During the first
quarter of 2004, noninterest expense includes a $2.1 million gain recognized on
the sale of property.
Salaries and wages increased $2.9 million during 2004 when compared to the
same period of 2003 due to merit increases and higher salary costs at ISB.
Employee benefits expense totaled $12.6 million for the first three months of
2004, an increase of $1.1 million. This 9.6 percent increase was the result of
higher employee health and pension costs.
Occupancy expense was $11.3 million during the first quarter of 2004 and
$10.2 million during the first quarter of 2003. The $1.1 million or 10.7 percent
increase resulted from higher rent expense and other occupancy costs arising
from ISB's continued branch expansion.
Equipment expense increased $682,000 to $12.7 million for the first quarter
of 2004 when compared to the same period in 2003. Much of the 5.7 percent
increase in equipment expense is related to software and hardware depreciation.
Other expenses increased $2.1 million or 7.3 percent from the first quarter
of 2003 to the first quarter of 2004, due to higher card processing, legal and
advertising costs. Partially offsetting these negative variances was a $1.2
million favorable variance recorded in net loss on asset sales, primarily
resulting from a $2.1 million gain recognized on the sale of property during the
first quarter of 2004.

INCOME TAXES
Income tax expense amounted to $9.9 million during the three months ended
March 31, 2004, compared to $10.2 million during the same period of 2003. The
2.2 percent decrease in income tax expense was primarily the result of lower
pre-tax income. The effective tax rates for these periods were 36.4 percent and
35.7 percent, respectively.

LIQUIDITY
Management relies on the investment portfolio as a primary source of
liquidity, with maturities designed to provide needed cash flows. Further,
deposits generated throughout the branch network have enabled management to fund
asset growth and maintain adequate levels of liquidity. In the event additional
liquidity is needed, BancShares maintains sources for borrowed funds through
federal funds lines of credit and other borrowing facilities. Loan growth during
the first quarter was funded primarily by maturities and calls of investment
securities. Deposits are expected to display seasonal patterns through the
remainder of 2004, building in the third and fourth quarters to provide a
portion of the required funding for anticipated loan growth.

SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all minimum
regulatory capital requirements. At March 31, 2004 and 2003, the leverage
capital ratios of BancShares were 9.42 percent and 9.30 percent, respectively,
surpassing the minimum level of 3 percent. As a percentage of risk-adjusted
assets, BancShares' Tier 1 capital ratios were 12.61 percent at March 31, 2004
and 13.44 percent at March 31, 2003. The minimum ratio allowed is 4 percent of
risk-adjusted assets. The total risk-adjusted capital ratios were 13.96 percent
at March 31, 2004 and 14.77 percent as of March 31, 2003. The minimum total
capital ratio is 8 percent. BancShares and its subsidiary banks exceed the
capital standards established by their respective regulatory agencies.

SEGMENT REPORTING
BancShares conducts its banking operations through its two banking
subsidiaries, FCB and ISB. Although FCB and ISB offer similar products and
services to customers, each entity operates in distinct geographic markets and
has separate management groups. We monitor growth and financial results in these
institutions separately and, within each institution, by geographic segregation.
Although FCB has grown through acquisition in certain of its markets,
throughout its history much of its expansion has been accomplished on a de novo
basis. However, because of FCB's size, market share and maturity as well as the
current modest expansion of its branch network, the costs associated with de
novo branching are not material to FCB's financial performance. Since it first
opened in 1997, ISB has followed a similar business model for growth and
expansion. Yet, due to the magnitude of the number of immature branch offices
that have yet to attain sufficient size for profitability, the financial results
and trends of ISB are significantly affected by its current and continuing
growth. Each new market ISB enters creates additional operating costs that are
typically not fully offset by operating revenues until the third year after
initial opening. ISB's rapid growth in new markets in recent years has continued
to adversely impact its financial performance.
IronStone Bank. At March 31, 2004, ISB operated 45 branches in Florida,
Georgia, Texas, Arizona, California and New Mexico and has loan production
offices in Colorado and New Mexico. Substantially all of ISB's growth has been
on a de novo basis, and ISB continues efforts to build a customer base in
demographically superior markets. Our business model and our growth expectations
are contingent on two fundamental operating criteria. First, we are recruiting
and hiring experienced bankers who are established in the markets we are
entering and who are focused on strong asset quality and delivering high quality
customer service. Second, we are occupying attractive and accessible branch
facilities. Both of these are costly goals, but we believe are critical to
establishing a solid foundation for future success in these new markets.
ISB's total assets increased from $1.10 billion at March 31, 2003 to $1.25
billion at March 31, 2004, an increase of $153.0 million or 14.0 percent. ISB's
net interest income increased $1.4 million or 14.7 percent during the first
quarter of 2004 , the result of balance sheet growth. When compared to the same
period of 2003, average interest-earning assets increased $155.4 million,
primarily due to loan growth. Partially offsetting the favorable impact of this
asset growth were yield reductions among interest-earning assets. The
taxable-equivalent yield on interest-earning assets declined 59 basis points,
from 6.01 percent during 2003 to 5.42 percent during 2004. The provision for
loan losses increased $503,000 during the first quarter of 2004 due to reserves
needed for current loan growth. Net charge-offs declined from $196,000 in the
first quarter of 2003 to $99,000 in the first quarter of 2004.
ISB's noninterest income increased slightly during 2004, as growth in
service charge income was more than offset by reduced mortgage income.
Noninterest expense increased $963,000 or 9.5 percent during the first quarter
of 2004, versus the same period of 2003. The continuing expansion resulted in a
$770,000 or 17.8 percent increase in salary expense, a $332,000 or 43.0 percent
increase in employee benefits expense, a $561,000 or 28.9 percent increase in
occupancy expense and a $238,000 or 35.6 percent increase in equipment expense.
These increases are likely to continue through 2004 as we continue to open new
ISB facilities. These increases were partially offset by a $2.1 million gain on
the sale of property that is included in other noninterest expense.
ISB recorded a net loss of $27,000 during the first quarter of 2004,
inclusive of the favorable impact of the $2.1 million pretax gain on sale of
property, compared to net income of $67,000 recorded during the same period of
2003. This represents an unfavorable variance of $94,000.
In March 2004, Atlantic States Bank changed its corporate name to ISB,
simultaneously changing the name under which branches in Georgia and Florida
operated. Since initial opening, branches in all other states operated under the
ISB name as a division of Atlantic States Bank. ISB has recently opened
facilities in New Mexico and Colorado and has received approval to operate in
Oregon and Washington. ISB continues to evaluate other markets for further
expansion. As this growth continues, ISB will continue to incur incremental
operating costs, particularly in the areas of personnel, occupancy and
equipment. As a result of the de novo status of much of the ISB franchise and
plans for continued expansion, ISB's net losses will likely extend into the
foreseeable future. First Citizens Bank. At March 31, 2004, FCB operated 337
branches in North Carolina, Virginia and West Virginia, compared to 341 branches
at March 31, 2003.
FCB's total assets increased from $11.20 billion at March 31, 2003 to
$11.33 billion at March 31, 2004, an increase of $132.8 million or 1.2 percent,
the result of strong loan growth, offset by reductions in investment securities
and overnight investments. FCB's net interest income increased $2.6 million or
3.0 percent during 2004, as the favorable impact of increased loan balances more
than offset the impact of falling asset yields. The strong loan growth also
resulted in higher provision for loan losses, which increased $1.8 million or
33.2 percent during 2004.
FCB's noninterest income increased $2.7 million or 4.8 percent during the
first quarter of 2004, primarily the result of higher service charge, cardholder
and merchant services and commission-based income. Noninterest expense increased
$7.3 million or 7.2 percent during 2004, due to higher personnel and occupancy
costs.
FCB recorded net income of $19.4 million during the first quarter of 2004
compared to $22.0 million during the same period of 2003. This represents a $2.6
million or 11.8 percent decrease in net income.

CURRENT ACCOUNTING AND REGULATORY ISSUES
In December 2003, the FASB issued SFAS No. 132 (revised), Employers'
Disclosures about Pensions and Other Postretirement Benefits (Statement 132).
Statement 132 prescribes employers' disclosures about pension plans and other
postretirement benefit plans, but does not change the measurement or recognition
of those plans. Statement 132 retains and revises the disclosure requirements
contained in the original statement. It also requires additional disclosures
about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other postretirement benefit plans. Statement
132 is effective for fiscal years ending after December 15, 2003. The
disclosures made elsewhere in this report conform to the requirements of
Statement 132.
During March 2004, the SEC issued Staff Accounting Bulletin 105 Application
of Accounting Principles to Loan Commitments (SAB 105). SAB 105 addresses the
accounting for loan commitments and provides that the required fair value
measurement include only differences between the guaranteed interest rate in the
loan commitment and a market interest rate excluding any expected future cash
flows related to the customer relationship or loan servicing. SAB 105 applies to
mortgage loan commitments accounted for as derivatives and entered into after
March 31, 2004. Substantially all of our mortgage loan commitments are based on
rates provided by third party correspondents, who have agreed to purchase
resulting loans at those rates. As a result, we are protected from interest rate
risk, and the adoption of SAB 105 will not have a material impact on our
consolidated financial statements.
Management is not aware of any current recommendations by regulatory
authorities that, if implemented, would have or would be reasonably likely to
have a material effect on liquidity, capital ratios or results of operations.

FORWARD-LOOKING STATEMENTS
This discussion may contain statements that could be deemed forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act, which statements are
inherently subject to risks and uncertainties. Forward-looking statements are
statements that include projections, predictions, expectations or beliefs about
future events or results or otherwise are not statements of historical fact.
Such statements are often characterized by the use of qualifying words (and
their derivatives) such as "expect," "believe," "estimate," "plan," "project,"
"anticipate," or other statements concerning opinions or judgments of BancShares
and its management about future events. Factors that could influence the
accuracy of such forward-looking statements include, but are not limited to, the
financial success or changing strategies of BancShares' customers, actions of
government regulators, the level of market interest rates, and general economic
conditions.

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004

Exhibit 31.1

CERTIFICATION

I, Lewis R. Holding, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Citizens
BancShares, Inc.;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and

(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.

Date: May 5, 2004

/s/ Lewis R. Holding
Lewis R. Holding
Chief Executive Officer

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

Exhibit 31.2

CERTIFICATION

I, Kenneth A. Black, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Citizens
BancShares, Inc.;

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and

(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and

(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.

Date: May 5, 2004

/s/ Kenneth A. Black
Kenneth A. Black
Chief Financial Officer

First Citizens BancShares, Inc and Subsidiaries
First Quarter 2004

Exhibit 32

CERTIFICATION

The undersigned hereby certifies that, to his or her knowledge, (i) the
Form 10-Q filed by First Citizens BancShares, Inc. (the "Issuer") for the
quarter ended September 30, 2003, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the
information contained in that report fairly presents, in all material respects,
the financial condition and results of operations of the Issuer on the dates and
for the periods presented therein.

May 5, 2004 /s/ Lewis R. Holding
Lewis R. Holding
Chairman and Chief Executive Officer

/s/ Kenneth A. Black
Kenneth A. Black
Vice President and Chief Financial Officer

First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2004