Unassociated Document

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, 2008

o 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

(Exact name of Registrant as specified in its charter)

Delaware 56-1528994

(State or other jurisdiction of (I.R.S. Employer Identification Number)

incorporation or organization)

4300 Six Forks Road, Raleigh, North Carolina 27609

(Address of principle executive offices) (Zip code)

(919) 716-7000

(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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘accelerated filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer x Accelerated filer Non-accelerated filer Smaller reporting company r

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No x

Class A Common Stock—$1 Par Value—8,756,778 shares

Class B Common Stock—$1 Par Value—1,677,675 shares

(Number of shares outstanding, by class, as of May 8, 2008)

INDEX

		Page(s)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets at March 31, 2008, December 31, 2007 and March 31, 2007	3

	Consolidated Statements of Income for the three-month periods ended March 31, 2008, and March 31, 2007	4

	Consolidated Statements of Changes in Shareholders’ Equity for the three-month periods ended March 31, 2008, and March 31, 2007	5

	Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2008, and March 31, 2007	6

	Notes to Consolidated Financial Statements	7-10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25

Item 4	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 6.

Exhibits.

PART I

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries

	March 31*		December 31#		March 31*
	2008		2007		2007
Assets	(thousands, except share data)
Cash and due from banks	$	734,581	$	793,788	$	847,202
Overnight investments		803,500		266,209		799,848
Investment securities available for sale		3,198,948		3,229,241		2,934,995
Investment securities held to maturity		7,189		7,594		96,803
Loans and leases		11,029,937		10,963,904		10,262,356
Less allowance for loan and lease losses		141,591		136,974		132,640
Net loans and leases		10,888,346		10,826,930		10,129,716
Premises and equipment		773,658		757,694		726,041
Income earned not collected		77,967		79,343		74,648
Goodwill		102,625		102,625		102,625
Other intangible assets		5,343		5,858		7,427
Other assets		154,361		142,825		134,473
Total assets	$	16,746,518	$	16,212,107	$	15,853,778

Liabilities
Deposits:
Noninterest-bearing	$	2,540,340	$	2,519,256	$	2,701,786
Interest-bearing		10,686,651		10,409,288		10,020,746
Total deposits		13,226,991		12,928,544		12,722,532
Short-term borrowings		1,270,813		1,305,287		1,245,025
Long-term obligations		609,335		404,392		405,356
Other liabilities		153,345		132,676		138,538
Total liabilities		15,260,484		14,770,899		14,511,451
Shareholders' Equity
Common stock:
Class A - $1 par value (8,756,778 shares issued for all periods)		8,757		8,757		8,757
Class B - $1 par value (1,677,675 shares issued for all periods)		1,678		1,678		1,678
Surplus		143,766		143,766		143,766
Retained earnings		1,275,989		1,246,473		1,175,449
Accumulated other comprehensive income		55,844		40,534		12,677
Total shareholders' equity		1,486,034		1,441,208		1,342,327
Total liabilities and shareholders' equity	$	16,746,518	$	16,212,107	$	15,853,778
* Unaudited
# Derived from the 2007 Annual Report on Form 10-K.
See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
	Three Months Ended March 31,
	2008		2007
Interest income	(thousands, except share and per share data)
Loans and leases	$	177,164	$	176,600
Investment securities:
U. S. Government		35,333		32,744
State, county and municipal		53		58
Other		772		774
Total investment securities interest and dividend income		36,158		33,576
Overnight investments		4,081		7,461
Total interest income		217,403		217,637
Interest expense
Deposits		79,259		80,011
Short-term borrowings		8,181		12,682
Long-term obligations		7,386		6,755
Total interest expense		94,826		99,448
Net interest income		122,577		118,189
Provision for credit losses		10,118		3,532
Net interest income after provision for credit losses		112,459		114,657
Noninterest income
Cardholder and merchant services income		23,050		22,377
Service charges on deposit accounts		19,981		17,157
Wealth management services		13,182		11,697
Fees from processing services		8,804		8,187
Other service charges and fees		4,090		3,751
Mortgage income		1,990		1,779
Insurance commissions		2,481		2,128
ATM income		1,659		1,587
Securities gains		8,051		-
Other		380		368
Total noninterest income		83,668		69,031
Noninterest expense
Salaries and wages		62,785		58,594
Employee benefits		18,183		13,177
Occupancy expense		15,349		13,855
Equipment expense		13,960		13,772
Other		35,364		39,197
Total noninterest expense		145,641		138,595
Income before income taxes		50,486		45,093
Income taxes		18,101		16,109
Net income	$	32,385	$	28,984
Average shares outstanding		10,434,453		10,434,453
Net income per share	$	3.10	$	2.78
See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
										Accumulated
	Class A		Class B							Other			Total
	Common		Common				Retained			Comprehensive			Shareholders'
	Stock		Stock		Surplus		Earnings			Income (loss)			Equity
	(thousands, except share data)
Balance at December 31, 2006	$	8,757	$	1,678	$	143,766	$	1,148,372		$	8,246		$	1,310,819
Adjustment resulting from adoption of
FASB Interpretation No. 48		-		-		-		962			-			962
Comprehensive income:
Net income		-		-		-		28,984			-			28,984
Unrealized securities gains arising during period,
net of $2,973 deferred tax		-		-		-		-			4,722			4,722
Change in unrecognized loss on cash flow hedge,
net of $190 deferred tax benefit		-		-		-		-			(291	)		(291	)
Total comprehensive income														33,415
Cash dividends		-		-		-		(2,869	)		-			(2,869	)
Balance at March 31, 2007	$	8,757	$	1,678	$	143,766	$	1,175,449		$	12,677		$	1,342,327

Balance at December 31, 2007	$	8,757	$	1,678	$	143,766	$	1,246,473		$	40,534		$	1,441,208
Comprehensive income:
Net income		-		-		-		32,385			-			32,385
Unrealized securities gains arising during period,
net of $10,551 deferred tax		-		-		-		-			17,501			17,501
Change in unrecognized loss on cash flow hedge,
net of $1,429 deferred tax benefit		-		-		-		-			(2,191	)		(2,191	)
Total comprehensive income														47,695
Cash dividends		-		-		-		(2,869	)		-			(2,869	)
Balance at March 31, 2008	$	8,757	$	1,678	$	143,766	$	1,275,989		$	55,844		$	1,486,034
See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries

	Three months ended March 31,
	2008			2007
	(thousands)
OPERATING ACTIVITIES
Net income	$	32,385		$	28,984
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles		515			573
Provision for credit losses		10,118			3,532
Deferred tax benefit		(5,866	)		(2,654	)
Change in current taxes payable		29,742			15,058
Depreciation		13,306			12,678
Change in accrued interest payable		(14,521	)		(907	)
Change in income earned not collected		1,376			(3,086	)
Securities gains		(8,051	)		-
Origination of loans held for sale		(153,883	)		(118,184	)
Proceeds from sale of loans		127,682			128,448
Loss (gain) on sale of loans		(244	)		(467	)
Net amortization of premiums and discounts		(388	)		(1,208	)
Net change in other assets		(14,792	)		(19,162	)
Net change in other liabilities		1,625			1,335
Net cash provided by operating activities		19,004			44,940
INVESTING ACTIVITIES
Net change in loans outstanding		(44,886	)		5,494
Purchases of investment securities available for sale		(410,582	)		(309,431	)
Proceeds from maturities of investment securities held to maturity		406			122,355
Proceeds from maturities of investment securities available for sale		477,365			385,229
Net change in overnight investments		(537,291	)		(451,251	)
Dispositions of premises and equipment		-			505
Additions to premises and equipment		(29,270	)		(32,140	)
Net cash used by investing activities		(544,258	)		(279,239	)
FINANCING ACTIVITIES
Net change in time deposits		68,199			(17,073	)
Net change in demand and other interest-bearing deposits		230,248			(3,719	)
Net change in short-term borrowings		(34,531	)		94,178
Origination of long-term obligations		205,000			-
Cash dividends paid		(2,869	)		(2,869	)
Net cash provided by financing activities		466,047			70,517

Change in cash and due from banks		(59,207	)		(163,782	)
Cash and due from banks at beginning of period		793,788			1,010,984
Cash and due from banks at end of period	$	734,581		$	847,202
CASH PAYMENTS FOR:
Interest	$	109,347		$	100,355
Income taxes		1,583			3,562
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities gains	$	28,052		$	7,695
Unrealized loss on cash flow hedge		(3,620	)		(2,274	)
See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Note A

Accounting Policies and Other Matters

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 notes 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 2007 First Citizens BancShares, Inc. Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2008. However, the reclassifications have no effect on shareholders’ equity or net income as previously reported.

At March 31, 2008, loans totaling $1,315,382 were pledged to secure debt obligations, compared to $265,548 at March 31, 2007. ISB's home equity loans and residential mortgage loans were pledged to the Federal Home Loan Bank of Atlanta (FHLB) during both periods. For March 31, 2008, ISB had also pledged its commercial real estate loans to the FHLB.

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 operates under a separate charter. The financial results and trends of ISB reflect the impact of the de novo nature of its growth.

FCB is a mature banking institution that operates under a state bank charter from its branch network in North Carolina, Virginia, West Virginia, Maryland and Tennessee. ISB began operations in 1997 and currently operates in Georgia, Florida, Texas, Arizona, California, New Mexico, Colorado, Oregon and Washington 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 and Neuse, Incorporated, a subsidiary that owns real property used in the banking operation.

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 service fees paid by one company to another within BancShares’ consolidated group.


	March 31, 2008
	ISB			FCB		Other			Total		Adjustments			Consolidated
	(thousands)
Interest income	$	35,899		$	178,948	$	8,410		$	223,257	$	(5,854	)	$	217,403
Interest expense		20,002			69,587		11,091			100,680		(5,854	)		94,826
Net interest income		15,897			109,361		(2,681	)		122,577		-			122,577
Provision for credit losses		5,716			4,402		-			10,118		-			10,118
Net interest income after provision for credit losses		10,181			104,959		(2,681	)		112,459		-			112,459
Noninterest income		3,133			83,189		(1	)		86,321		(2,653	)		83,668
Noninterest expense		20,658			127,012		624			148,294		(2,653	)		145,641
Income (loss) before income taxes		(7,344	)		61,136		(3,306	)		50,486		-			50,486
Income tax expense (credit)		(2,763	)		22,018		(1,154	)		18,101		-			18,101
Net income (loss)	$	(4,581	)	$	39,118	$	(2,152	)	$	32,385	$	-		$	32,385
At March 31, 2008:
Total assets	$	2,661,988		$	13,930,381	$	2,691,191		$	19,283,560	$	(2,537,042	)	$	16,746,518
Loans and leases		2,129,561			8,900,376		-			11,029,937		-			11,029,937
Allowance for loan and lease losses		27,715			113,876		-			141,591		-			141,591
Deposits		2,070,666			11,209,084		-			13,279,750		(52,759	)		13,226,991

	March 31, 2007
	ISB			FCB		Other			Total		Adjustments			Consolidated
	(thousands)
Interest income	$	33,808		$	181,867	$	9,851		$	225,526	$	(7,889	)	$	217,637
Interest expense		17,935			76,123		13,279			107,337		(7,889	)		99,448
Net interest income		15,873			105,744		(3,428	)		118,189		-			118,189
Provision for credit losses		318			3,214		-			3,532		-			3,532
Net interest income after provision for credit losses		15,555			102,530		(3,428	)		114,657		-			114,657
Noninterest income		3,201			69,022		(127	)		72,096		(3,065	)		69,031
Noninterest expense		19,105			122,436		119			141,660		(3,065	)		138,595
Income (loss) before income taxes		(349	)		49,116		(3,674	)		45,093		-			45,093
Income tax expense (credit)		(83	)		17,463		(1,271	)		16,109		-			16,109
Net income (loss)	$	(266	)	$	31,653	$	(2,403	)	$	28,984	$	-		$	28,984
At March 31, 2007:
Total assets	$	2,225,229		$	13,359,371	$	2,438,870		$	18,023,470	$	(2,169,692	)	$	15,853,778
Loans and leases		1,881,368			8,380,988		-			10,262,356		-			10,262,356
Allowance for loan and lease losses		22,580			110,060		-			132,640		-			132,640
Deposits		1,826,095			10,935,271		-			12,761,366		(38,834	)		12,722,532

Note C

Employee Benefits

BancShares recognized pension expense totaling $1,666 and $2,625, respectively, in the three-month periods ended March 31, 2008 and 2007. Pension expense is included as a component of employee benefit expense.

	Three month periods ended March 31,
Components of Net Periodic Benefit Cost	2008			2007
Service cost	$	5,457		$	4,235
Interest cost		9,087			5,250
Expected return on assets		(12,975	)		(7,442	)
Amortization of prior service cost		97			59
Amortization of net actuarial loss		-			523
Total net periodic benefit cost	$	1,666		$	2,625

The expected long-term rate of return on plan assets for 2008 is 8.50 percent, and the assumed discount rate is 6.25 percent.

Note D

Fair Value Disclosures

BancShares adopted the provisions of SFAS No. 157 Fair Value Measurements (Statement 157) and SFAS No. 159 The Fair Value Option for Financial Assets and Liabilities (Statement 159) on January 1, 2008.

Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement 157 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. Statement 157 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

Statement 157 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, BancShares considers the principal or most advantageous market in which those assets or liabilities are sold and considers assumptions that market participants would use when pricing those assets or liabilities. Fair values determined using level 1 inputs rely on active and observable markets to price identical assets or liabilities. In situations where identical assets and liabilities are not traded in active markets, fair values may be determined based on level 2 inputs, which exist when observable data exists for similar assets and liabilities. Fair values for assets and liabilities that are not actively traded in observable markets are based on level 3 inputs, which are considered to be unobservable.

Among BancShares’ assets and liabilities, investment securities available for sale and an interest rate swap accounted for as a cash flow hedge are reported at their fair values on a recurring basis. Certain other assets are adjusted to their fair value on a nonrecurring basis, including loans held for sale, which are carried at the lower of cost or market, and goodwill and other intangible assets, which are periodically tested for impairment. Loans held for investment, deposits, short-term borrowings and long-term obligations are not reported at fair value.

For assets and liabilities carried at fair value, the following table provides fair value information as of March 31, 2008:

		Fair value measurements at March 31, 2008 using:
Description	Fair value at March 31, 2008	Quoted prices in active markets for identical assets and liabilities (Level 1 inputs)	Quoted prices for similar assets and liabilities (Level 2 inputs)	Significant unobservable inputs (Level 3 inputs)
Assets measured at fair value	(thousands)
Investment securities available for sale	$ 3,198,948	$ 3,071,031	$ 79,521	$ 48,396


Liabilities measured at fair value
Cash flow hedge	8,974	-	8,974	-

Prices for US Treasury and government agency securities are readily available in the active markets in which those securities are traded, and the resulting fair values are shown in the ‘Level 1 input’ column. Prices for mortgage-backed securities and for state, county and municipal securities are obtained for similar securities, and the resulting fair values are shown in the ‘Level 2 input’ column. Prices for all other securities, which include a residual interest that was retained from a securitization transaction and other non-marketable investments, are determined based on various assumptions that are not observable. The fair values for these investment securities are shown in the ‘Level 3 input’ column. With respect to the residual interest in the asset securitization, the assumed prepayment speed, discount rate and credit spread are not observable in the market due to illiquidity and the uniqueness of the underlying assets. Non-marketable investment securities, which are carried at their purchase price, include those that may only be redeemed by the issuer.

Under the terms of the existing cash flow hedge, BancShares pays a fixed payment to the counterparty in exchange for receipt of a variable payment that is determined based on the 3-month LIBOR rate. The fair value of the cash flow hedge is therefore based on projected LIBOR rates for the duration of the hedge, values that, while observable in the market, are subject to adjustment due to pricing considerations for the specific instrument.

For those investment securities available for sale with fair values that are determined by reliance on significant unobservable inputs, the following table identifies the factors causing the change in fair value from January 1, 2008 to March 31, 2008:

Description	Investment securities available for sale with fair values based on significant unobservable inputs
	(thousands)
Beginning balance, January 1, 2008	$ 40,016
Total gains (losses), realized or unrealized:
Included in earnings
Included in other comprehensive income	411
Purchases, sales, issuances and settlements, net	7,969
Transfers in/out of Level 3	-
Ending balance, March 31, 2008	$ 48,396

No gains or losses were reported for the three-month period ended March 31, 2008 that relate to fair values estimated based on significant unobservable inputs.

Statement 159 allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period. The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings. Upon the adoption of Statement 159, BancShares did not elect to report any assets and liabilities at fair value.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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). 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 2008, the reclassifications have no effect on shareholders' equity or net income as previously reported.

OVERVIEW

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, Virginia, West Virginia, Maryland and Tennessee. ISB operates in Georgia, Florida, Texas, New Mexico, Arizona, California, Oregon, Washington, Colorado, Oklahoma, Missouri and Kansas. Unless otherwise noted, the terms we, us and BancShares refer to the consolidated financial position and consolidated results of operations for BancShares.

BancShares’ earnings and cash flows are derived primarily from the commercial banking activities conducted by its banking subsidiaries. These activities include commercial and consumer lending, deposit and cash management products, cardholder, merchant, wealth management services as well as various other products and services typically offered by commercial banks. FCB and ISB gather interest-bearing and noninterest-bearing deposits from retail and commercial customers. BancShares and its subsidiaries also secure funding through various non-deposit sources. We invest the liquidity generated from these funding sources in various types of interest-earning assets such as loans and leases, investment securities and overnight investments. We also invest in bank premises, furniture and equipment used to conduct the subsidiaries’ commercial banking business.

Various external factors influence customer demand for our loan, lease and deposit products. In an effort to stimulate and control the rate of growth of economic activity and inflation, monetary actions by the Federal Reserve are significant to the interest rate environment in which we operate. Interest rate decisions by the Federal Reserve have a significant impact on the pricing of and demand for loan, deposit and cash management products.

In addition to the interest rate environment, the general strength of the economy influences demand as well as the quality and collectibility of our loan and lease portfolio. External economic indicators such as consumer bankruptcy rates and business debt service capacity closely follow trends in the economic cycle.

Although we are unable to control the external factors that influence our business, through the utilization of various liquidity, interest rate and credit risk management tools, we seek to minimize the potentially adverse risks of unforeseen and unfavorable economic trends and take advantage of favorable economic conditions when 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’ profitability measures have historically compared unfavorably to the returns of similar-sized financial holding companies. Instead, we place primary emphasis upon asset quality, balance sheet liquidity and capital conservation, even when those priorities may be detrimental to short-term profitability.

Based on our organization’s competitive position and strategic focus within the financial services industry, we believe opportunities for significant growth and expansion exist. We operate in diverse and growing geographic markets and believe that by offering competitive products and superior customer service, we can increase our business volumes and profitability. In recent years, we have focused our efforts on customers who own their own businesses, medical and other professionals and financially active individuals.

We seek to increase fee income in areas such as cardholder and merchant services, insurance, cash management and wealth management services. Leveraging our investments in technology, we also focus on opportunities to generate income by providing processing services to other banks.

Financial Summary									Table 1

	2008		2007
	First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter
Summary of Operations	(thousands, except share data and ratios)
Interest income	$ 217,403		$ 230,826		$ 232,120		$ 223,473		$ 217,637
Interest expense	94,826		109,197		111,185		103,884		99,448
Net interest income	122,577		121,629		120,935		119,589		118,189
Provision for credit losses	10,118		11,795		17,333		934		3,532
Net interest income after provision
for credit losses	112,459		109,834		103,602		118,655		114,657
Noninterest income	83,668		76,534		77,285		72,620		69,031
Noninterest expense	145,641		146,285		146,906		142,878		138,595
Income before income taxes	50,486		40,083		33,981		48,397		45,093
Income taxes	18,101		13,920		11,362		17,546		16,109
Net income	$ 32,385		$ 26,163		$ 22,619		$ 30,851		$ 28,984
Net interest income-taxable equivalent	$ 124,430		$ 123,666		$ 122,980		$ 121,409		$ 119,964
Selected Quarterly Averages
Total assets	$ 16,307,994		$ 16,276,649		$ 16,092,009		$ 15,725,976		$ 15,572,613
Investment securities	3,183,636		3,272,015		3,162,011		3,047,753		3,092,261
Loans and leases	10,961,706		10,831,571		10,623,247		10,360,913		10,230,858
Interest-earning assets	14,691,141		14,655,309		14,476,247		14,118,884		13,908,622
Deposits	12,905,651		12,876,549		12,728,527		12,524,786		12,502,206
Interest-bearing liabilities	12,309,132		12,216,067		12,052,307		11,698,285		11,557,940
Long-term obligations	475,732		404,367		405,101		405,339		408,277
Shareholders' equity	$ 1,466,411		$ 1,420,348		$ 1,385,284		$ 1,353,739		$ 1,323,327
Shares outstanding	10,434,453		10,434,453		10,434,453		10,434,453		10,434,453
Selected Quarter-End Balances
Total assets	$ 16,746,518		$ 16,212,107		$ 16,311,870		$ 16,008,605		$ 15,853,778
Investment securities	3,206,137		3,236,835		3,266,150		3,023,799		3,031,798
Loans and leases	11,029,937		10,963,904		10,763,158		10,513,041		10,262,356
Interest-earning assets	15,039,574		14,466,948		14,542,241		14,232,802		14,094,002
Deposits	13,226,991		12,928,544		12,980,447		12,772,322		12,722,532
Interest-bearing liabilities	12,566,799		12,118,967		12,170,559		11,830,904		11,671,127
Long-term obligations	609,335		404,392		404,266		405,314		405,356
Shareholders' equity	$ 1,486,034		$ 1,441,208		$ 1,401,575		$ 1,367,980		$ 1,342,327
Shares outstanding	10,434,453		10,434,453		10,434,453		10,434,453		10,434,453
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets	0.80	%	0.64	%	0.56	%	0.79	%	0.75	%
Shareholders' equity	8.88		7.31		6.48		9.14		8.88
Dividend payout ratio	8.87		10.96		12.67		9.29		9.89
Liquidity and Capital Ratios (averages)
Loans and leases to deposits	84.94	%	84.12	%	83.46	%	82.72	%	81.83	%
Shareholders' equity to total assets	8.99		8.73		8.61		8.61		8.50
Time certificates of $100,000 or more to
total deposits	18.13		18.04		17.67		16.95		16.60
Per Share of Stock
Net income	$ 3.10		$ 2.51		$ 2.17		$ 2.96		$ 2.78
Cash dividends	0.275		0.275		0.275		0.275		0.275
Book value at period end	142.42		138.12		134.32		131.10		128.64
Tangible book value at period end	132.07		127.72		123.88		120.61		118.10

We attempt to mitigate certain of the risks that can endanger our profitability and growth prospects. While we are attentive to all areas of risk, economic risk is especially problematic due to the lack of control and the potential material impact upon our financial results. Specific economic risks include recession, rapid movements in interest rates, changes in the yield curve and significant shifts in inflation expectations.

PERFORMANCE SUMMARY

BancShares realized an increase in earnings during the first quarter of 2008 compared to the first quarter of 2007. Consolidated net income during the first quarter of 2008 equaled $32.4 million compared to $29.0 million earned during the corresponding period of 2007. The annualized return on average assets was 0.80 percent during the first quarter of 2008, compared to 0.75 percent during the same period of 2007. The annualized return on average equity was 8.88 percent during 2008, unchanged from 2007. Net income per share during the first quarter of 2008 totaled $3.10, compared to $2.78 during the first quarter of 2007, an 11.5 percent increase.

The $3.4 million or 11.7 percent earnings increase resulted primarily from a gain arising from the redemption of Visa, Inc. stock in conjunction with its initial public offering and the reversal of an accrued liability for Visa member bank liabilities established in 2007. Significantly higher provision for credit losses reduced current period earnings.

INTEREST-EARNING ASSETS

Interest-earning assets include loans and leases, investment securities and overnight investments, all of which reflect varying interest rates based on the risk level and repricing characteristics of the underlying asset. 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 and lease 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 trends among loans and leases, deposits and borrowings. When growth among deposits and borrowings exceeds loan and lease demand, we invest excess funds in the securities portfolio. Conversely, when loan and lease demand exceeds growth in deposit and borrowings, we use proceeds from maturing securities to fund loan and lease demand. Overnight investments are selectively made with other financial institutions that are within our risk tolerance.

During the first quarter of 2008, interest-earning assets averaged $14.69 billion, an increase of $782.5 million or 5.6 percent from the first quarter of 2007. This increase primarily reflects growth in the loan and lease portfolio.

Loans and leases. At March 31, 2008 and 2007, loans and leases totaled $11.03 billion and $10.26 billion, respectively. The $767.6 million or 7.5 percent growth from March 31, 2007 to March 31, 2008 resulted from growth within the commercial mortgage, revolving mortgage and commercial and industrial loan portfolios.

Commercial real estate loans totaled $4.05 billion at March 31, 2008, representing 36.8 percent of total loans and leases. This balance represents an increase of $313.8 million or 8.4 percent since March 31, 2007. Demand for loans secured by owner-occupied medical and professional facilities remained reasonably strong, particularly in expansion markets. These loans are underwritten based primarily upon the cash flow from the operation of the business rather than the value of the real estate collateral.

Commercial and industrial loans equaled $1.72 billion or 15.6 percent of total loans and leases outstanding. These loans have increased $170.4 million or 11.0 percent since March 31, 2007. Customer demand and expansion markets have supported the growth of these loans.

At March 31, 2008, revolving mortgage loans totaled $1.52 billion, representing 13.8 percent of total loans outstanding, an increase of $219.9 million or 16.9 percent compared to March 31, 2007. Retail customers have increased utilization of home equity loans due to lower market rates compared to other consumer debt alternatives.

Construction and land development loans totaled $817.8 million or 7.4 percent of total loans at March 31, 2008, an increase of $38.1 million or 4.9 percent since March 31, 2007. Given the continuing softening of real estate markets, we have lessened our focus on growth of this area of lending, particularly in the Atlanta, Georgia and Southwest Florida markets.

Loans and Leases					Table 2

	2008	2007
	First	Fourth	Third	Second	First
	Quarter	Quarter	Quarter	Quarter	Quarter
Real estate:	(thousands)
Construction and land development	$ 817,832	$ 810,818	$ 816,328	$ 784,960	$ 779,718
Commercial mortgage	4,053,773	3,982,496	3,899,289	3,815,113	3,739,948
Residential mortgage	1,027,469	1,029,030	1,037,460	1,038,602	1,020,945
Revolving mortgage	1,521,191	1,494,431	1,454,659	1,374,212	1,301,311
Other mortgage	147,082	145,552	153,487	159,421	157,576
Total real estate loans	7,567,347	7,462,327	7,361,223	7,172,308	6,999,498
Commercial and industrial	1,721,927	1,707,394	1,615,550	1,589,519	1,551,532
Consumer	1,308,269	1,368,228	1,375,001	1,362,356	1,345,631
Lease financing	340,620	340,601	329,535	315,965	302,581
Other	91,774	85,354	81,849	72,893	63,114
Total loans and leases	11,029,937	10,963,904	10,763,158	10,513,041	10,262,356
Less allowance for loan and lease losses	141,591	136,974	133,576	129,276	132,640
Net loans and leases	$ 10,888,346	$ 10,826,930	$ 10,629,582	$ 10,383,765	$ 10,129,716

We anticipate moderate growth in commercial mortgage and commercial and industrial loans in 2008, as our expansion into new markets continues to generate higher levels of loan and lease demand among our business customers. All growth projections are subject to change as a result of economic deterioration or improvement, competitive forces and other external factors.

Investment securities. Investment securities available for sale equaled $3.20 billion at March 31, 2008, compared to $2.93 billion at March 31, 2007. The $264.0 million or 9.0 percent increase resulted from growth in deposits and borrowings that was not absorbed by loan and lease growth. Available-for-sale securities are reported at their aggregate fair value. Investment securities held to maturity totaled $7.2 million at March 31, 2008, compared to $96.8 million at March 31, 2007. In order to augment liquidity, we continued to reinvest proceeds from maturities of held-to-maturity securities into securities designated as available-for sale. Securities that are classified as held to maturity reflect BancShares’ ability and positive intent to hold those investments until maturity.

Income on interest-earning assets. Interest income amounted to $217.4 million during the first quarter of 2008, a $234,000 decrease from the first quarter of 2007. During the first quarter of 2008, the impact of lower asset yields more than offset the impact of balance sheet growth when compared to the same period of 2007. The taxable-equivalent yield on interest-earning assets equaled 6.00 percent for the first quarter of 2008, compared to 6.38 percent for the corresponding period of 2007.

Loan and lease interest income for the first quarter of 2008 equaled $177.2 million, an increase of $564,000 from the first quarter of 2007, the combined result of lower yields offset by favorable growth in average loan and lease balances. The taxable-equivalent yield was 6.51 percent during the first quarter of 2008, a 50 basis point reduction from the same period of 2007. The reduced yields resulted from new loans and leases originated at current market rates and repricing of outstanding variable-rate loans. Average loans and leases increased $730.8 million or 7.1 percent from 2007 to 2008.

Investment Securities																Table 3

	March 31, 2008									March 31, 2007
					Average		Taxable							Average		Taxable
			Fair		Maturity		Equivalent					Fair		Maturity		Equivalent
	Cost		Value		(Yrs./Mos.)		Yield			Cost		Value		(Yrs./Mos.)		Yield
	(thousands)
Investment securities available for sale:
U. S. Government:
Within one year	$	1,575,484	$	1,596,864		0/6		4.85	%	$	1,522,251	$	1,515,123		0/6		4.06	%
One to five years		1,407,293		1,443,238		1/7		3.77			1,267,976		1,268,807		1/7		4.92
Five to ten years		4,362		4,376		5/8		4.85			6,335		6,139		6/4		4.88
Over ten years		75,168		75,776		26/9		5.47			71,151		70,047		27/5		5.45
Total		3,062,307		3,120,254		1/8		4.37			2,867,713		2,860,116		1/0		5.45
State, county and municipal:
Within one year		1,072		1,075		0/6		3.81			871		870		0/3		3.02
One to five years		1,875		1,877		2/4		4.23			2,726		2,692		2/6		3.97
Five to ten years		356		373		5/0		4.95			470		476		5/11		4.90
Over ten years		66		66		20/8		4.44			211		211		24/4		3.46
Total		3,369		3,391		2/4		4.15			4,278		4,249		3/6		3.86
Other
Within one year		-		-				-			-		-		-
One to five years		-		-				-			-		-		-
Five to ten years		-		-				-			-		-		-
Over ten years		7,053		8,672		12/1		11.13			9,566		10,039		11/2		10.66
Total		7,053		8,672		11/2		11.13			9,566		10,039		11/2		10.66
Equity securities		42,714		66,631							34,297		60,591
Total investment securities
available for sale	$	3,115,443	$	3,198,948						$	2,915,854	$	2,934,995
Investment securities held to maturity:
U. S. Government:
Within one year	$	-	$	-		-		-		$	88,294	$	87,889		0/4		3.71	%
One to five years		-		-		-		-			3		3		2/11		8.00
Five to ten years		5,163		5,267		9/0		5.54	%		1,175		1,165		9/11		5.71
Over ten years		191		226		19/3		6.31			5,500		5,502		10/1		5.59
Total		5,354		5,493		9/5		5.56			94,972		94,559		1/0		3.85
State, county and municipal:
Within one year		-		-							-		-
One to five years		149		153		1/1		5.88			149		154		4/1		5.88
Five to ten years		-		-							-		-
Over ten years		1,436		1,520		10/1		6.02			1,432		1,548		12/1		6.02
Total		1,585		1,673		9/3		6.01			1,581		1,702		10/3		6.01
Other
Within one year		-		-							-		-
One to five years		250		250		0/4		3.25			250		250		1/4		3.25
Five to ten years		-		-							-		-
Total		250		250		0/4		3.25			250		250		1/4		3.25
Total investment securities
held to maturity		7,189		7,416		9/1		5.58			96,803		96,511		1/0		3.88
Total investment securities	$	3,122,632	$	3,206,364