FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998 Commission File Number 0-11172
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0738665
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1230 MAIN STREET
COLUMBIA, SOUTH CAROLINA 29201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 733-3456
---------------
NO CHANGE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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 12 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 90 days. YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
- --------------------------------------------------------------------------------
VOTING COMMON STOCK, $5.00 PAR VALUE 886,124 SHARES
NON-VOTING COMMON STOCK, $5.00 PAR VALUE 36,409 SHARES
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<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - UNAUDITED (DOLLARS IN THOUSANDS)
SEPTEMBER 30, December 31, September 30,
1998 1997 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 101,758 $ 126,276 $ 95,303
Interest-bearing deposits in financial institutions . . . . . . . . 0 7,700 8,325
Investment securities:
Held-to-maturity. . . . . . . . . . . . . . . . . . . . . . . . . 516,987 556,496 545,610
Available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . 33,039 31,913 29,883
--------------- -------------- ---------------
Total securities. . . . . . . . . . . . . . . . . . . . . . . . . . 550,026 588,409 575,493
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . 48,700 11,900 0
Gross loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,538,328 1,428,437 1,382,262
Less: Reserve for loan losses. . . . . . . . . . . . . . . . . . (28,147) (26,135) (25,564)
--------------- -------------- ---------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,510,181 1,402,302 1,356,698
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . 449 572 490
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,385 113,318 110,607
--------------- -------------- ---------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,339,499 $ 2,250,477 $ 2,146,916
=============== ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 346,148 $ 346,934 $ 303,644
Time & Savings. . . . . . . . . . . . . . . . . . . . . . . . . . 1,589,258 1,532,486 1,492,629
--------------- -------------- ---------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,935,406 1,879,420 1,796,273
Securities sold under repurchase agreements . . . . . . . . . . . . 166,619 184,168 171,049
Long-term debt:
Company-obligated mandatorily redeemable capital securities
of subsidiary trust holding solely junior subordinated debentures
of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 0 0
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 14,483 15,108
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 17,877 13,988 13,081
--------------- -------------- ---------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 2,169,902 2,092,059 1,995,511
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 3,282 3,282 3,282
Non-voting common stock - $5.00 par value, authorized
1,000,000; issued and outstanding September 30, 1998,
December 31, 1997 and September 30, 1997 - 36,409 . . . . . . . 182 182 182
Voting common stock - $5.00 par value, authorized 2,000,000;
issued and outstanding September 30, 1998 - 887,489;
December 31, 1997 and September 30, 1997 - 892,813 . . . . . . . 4,437 4,464 4,464
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 55,000 55,000
Undivided profits . . . . . . . . . . . . . . . . . . . . . . . . 97,992 82,287 76,596
Accumulated other comprehensive income. . . . . . . . . . . . . . 8,704 13,203 11,881
--------------- -------------- ---------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . 169,597 158,418 151,405
--------------- -------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . $ 2,339,499 $ 2,250,477 $ 2,146,916
=============== ============== ===============
</TABLE>
Page 2
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<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME - UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
1998 1997 % 1998 1997 %
-------- --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME AND FEES:
Loans . . . . . . . . . . . . . . . . . $ 33,169 $ 30,376 9.19 $ 96,147 $ 86,933 10.60
United States Government obligations. . 7,837 7,318 7.09 23,946 20,527 16.66
Mortgage-backed securities. . . . . . . 12 21 (42.86) 44 68 (35.29)
Tax-exempt securities . . . . . . . . . 370 476 (22.27) 1,210 1,522 (20.50)
Other securities and federal funds sold 418 569 (26.54) 1,924 1,846 4.23
-------- --------- -------- -------- --------- -------
41,806 38,760 7.86 123,271 110,896 11.16
-------- --------- -------- -------- --------- -------
INTEREST EXPENSE:
Deposits. . . . . . . . . . . . . . . . 15,279 14,677 4.10 44,963 41,871 7.38
Short-term borrowings . . . . . . . . . 2,312 1,928 19.92 7,191 5,679 26.62
Long-term borrowings. . . . . . . . . . 1,035 225 360.00 2,542 598 325.08
-------- --------- -------- -------- --------- -------
18,626 16,830 10.67 54,696 48,148 13.60
-------- --------- -------- -------- --------- -------
Net interest income . . . . . . . . . . . 23,180 21,930 5.70 68,575 62,748 9.29
Provision for loan losses . . . . . . . . 1,432 448 219.64 3,714 2,848 30.41
-------- --------- -------- -------- --------- -------
Net interest income after
provision for loan losses . . . . . . . 21,748 21,482 1.24 64,861 59,900 8.28
-------- --------- -------- -------- --------- -------
NONINTEREST INCOME:
Service charges on deposit accounts . . 4,222 3,760 12.29 12,111 10,416 16.27
Fees for other customer services. . . . 2,566 2,239 14.60 7,303 6,345 15.10
Gain on sale of securities. . . . . . . 0 3 (100.00) 28 51 (45.10)
Other . . . . . . . . . . . . . . . . . 546 540 1.11 1,809 1,492 21.25
-------- --------- -------- -------- --------- -------
7,334 6,542 12.11 21,251 18,304 16.10
-------- --------- -------- -------- --------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits. . . . . 9,127 8,071 13.08 26,795 24,360 10.00
Net occupancy expense . . . . . . . . . 828 739 12.04 2,286 2,081 9.85
Furniture and equipment expense . . . . 515 519 (0.77) 1,425 1,318 8.12
Depreciation expense. . . . . . . . . . 1,386 1,207 14.83 3,993 3,152 26.68
Amortization of intangibles . . . . . . 1,540 2,168 (28.97) 5,459 6,508 (16.12)
Other . . . . . . . . . . . . . . . . . 6,901 5,576 23.76 18,997 15,983 18.86
-------- --------- -------- -------- --------- -------
20,297 18,280 11.03 58,955 53,402 10.40
-------- --------- -------- -------- --------- -------
Income before income taxes. . . . . . . . 8,785 9,744 (9.84) 27,157 24,802 9.50
Applicable income taxes . . . . . . . . . 2,999 3,409 (12.03) 9,388 8,765 7.11
-------- --------- -------- -------- --------- -------
NET INCOME. . . . . . . . . . . . . . . . $ 5,786 $ 6,335 (8.67) $ 17,769 $ 16,037 10.80
======== ========= ======== ======== ========= =======
- ------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC . . . $ 6.20 $ 6.77 (8.45) $ 19.01 $ 17.12 11.01
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING. . . . . . . . . . . . 926,579 929,222 (0.28) 928,216 929,222 (0.11)
</TABLE>
Page 3
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<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(DOLLARS IN THOUSANDS)
Non- Accumulated Total
Voting Voting Other Stock-
Preferred Common Common Undivided Comprehensive holders'
Stock Stock Stock Surplus Profits Income Equity
---------- ------- -------- -------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 . . . . . $ 3,282 $ 182 $ 4,464 $ 55,000 $ 60,688 $ 9,025 $ 132,641
Comprehensive income:
Net income 16,037
Change in unrealized gain
on investment securities
available-for-sale, net of taxes
of $1,538 2,856
Total comprehensive income 18,893
Preferred stock dividends (129) (129)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at September 30, 1997. . . . . 3,282 182 4,464 55,000 76,596 11,881 151,405
Comprehensive income:
Net income 5,733
Change in unrealized gain
on investment securities
available-for-sale, net of taxes
of $712 1,322
Total comprehensive income 7,055
Preferred stock dividends (42) (42)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at December 31, 1997 . . . . . 3,282 182 4,464 55,000 82,287 13,203 158,418
Comprehensive income:
Net income 17,769
Change in unrealized loss
on investment securities
available-for-sale, net of taxes
of ($2,422) (4,499)
Total comprehensive income 13,270
Reacquired voting common stock (27) (1,936) (1,963)
Preferred stock dividends (128) (128)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at September 30, 1998. . . . . $ 3,282 $ 182 $ 4,437 $ 55,000 $ 97,992 $ 8,704 $ 169,597
========== ======= ======== ======== =========== =============== ==========
</TABLE>
Page 4
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<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED (DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,769 $ 16,037
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 3,714 2,848
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 9,452 9,740
Amortization/(accretion) of investment securities . . . . . . . . . 227 (116)
Provision for deferred income taxes . . . . . . . . . . . . . . . . (19,074) (19,430)
(Gains)/losses on sales of premises and equipment . . . . . . . . . (18) 2
Increase in interest income accrued, not collected. . . . . . . . . (1,837) (1,221)
Increase in accrued interest payable. . . . . . . . . . . . . . . . 621 162
Originations of loans held for resale . . . . . . . . . . . . . . . (104,414) (51,483)
Proceeds from sales of loans held for resale. . . . . . . . . . . . 103,094 54,852
(Gains)/losses on sales of loans held for resale. . . . . . . . . . (387) 150
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . 18,873 8,935
Increase in other liabilities . . . . . . . . . . . . . . . . . . . 3,268 247
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . 31,288 20,723
========== ==========
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . (109,886) (113,468)
Proceeds from maturities of investment securities, held to maturity 102,299 187,901
Purchases of investment securities, held to maturity. . . . . . . . (62,998) (265,597)
Purchases of investment securities, available-for-sale. . . . . . . (8,066) 0
Net decrease in interest bearing deposits in financial institutions 7,700 2,975
Increase in federal funds sold. . . . . . . . . . . . . . . . . . . (36,800) 0
Proceeds from sales of premises and equipment . . . . . . . . . . . 2,084 634
Purchases of premises and equipment . . . . . . . . . . . . . . . . (21,436) (9,317)
Decrease/(increase) in other real estate owned. . . . . . . . . . . 123 28
Net decrease in intangible assets . . . . . . . . . . . . . . . . . (689) (436)
Purchase of institutions, net of cash acquired. . . . . . . . . . . 0 77,247
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . (127,669) (120,033)
========== ==========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits. . . . . . . . . . . . . . . . . . . . . . 55,986 47,632
(Decrease)/increase in federal funds purchased and securities sold
under agreements to repurchase. . . . . . . . . . . . . . . . . . (17,549) 38,158
Net increase in short term borrowing. . . . . . . . . . . . . . . . 2,000 5,108
Net increase in long term borrowing . . . . . . . . . . . . . . . . 50,000 0
Principal repayments on long-term debt. . . . . . . . . . . . . . . (16,483) 0
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (128) (129)
Reacquired common stock . . . . . . . . . . . . . . . . . . . . . . (1,963) 0
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . 71,863 90,769
========== ==========
DECREASE IN CASH AND DUE FROM BANKS . . . . . . . . . . . . . . . . . . (24,518) (8,541)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD. . . . . . . . . . . . . 126,276 103,844
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD. . . . . . . . . . . . . . . . $ 101,758 $ 95,303
========== ==========
</TABLE>
Page 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies of First Citizens
Bancorporation of South Carolina, Inc. ("Bancorporation") significant accounting
policies is set forth in Note 1 to the Consolidated Financial Statements in
Bancorporation's Annual Report on Form 10-K for 1997. The significant
accounting policies used during the current quarter are unchanged from those
disclosed in the 1997 Annual Report, except for the following:
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information", which establishes new standards for
business segment reporting. Requirements of SFAS No. 131 include reporting of
(a) financial and descriptive information about reportable operating segments,
(b) a measure of segment profit or loss, certain specific revenue and expense
items and segment assets with reconciliations of such amounts to
Bancorporation's financial statements, and (c) information regarding revenues
derived from Bancorporation's products and services, information about major
customers, and information related to geographic areas. Bancorporation has
adopted SFAS No. 131 effective January 1, 1998. Provisions of this Statement
dictate that segmented information need not be applied to the interim financial
statements in the initial year of application; therefore, Bancorporation's
statements do not reflect segmented reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", an amendment of SFAS Nos. 87, 88
and 106. SFAS No. 132 revises employers' disclosures about pensions and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. Bancorporation has adopted SFAS No. 132 effective January 1,
1998.
On June 15, 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Bancorporation anticipates that due to its non-use of derivative instruments,
the adoption of SFAS No. 133 will not have any significant effect on the results
of operations.
MANAGEMENT'S OPINION
The preceding financial statements and the notes thereto are unaudited; however,
in the opinion of management, all adjustments comprising all normal recurring
accruals necessary for a fair presentation of financial statements have been
included. Certain amounts in prior periods have been reclassified to conform to
the 1998 presentation.
Page 6
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<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------
SUMMARY (dollars in thousands)
Quarter Ended Nine months ended
September 30, September 30,
------------------------ ------------------------
SELECTED AVERAGE BALANCES: 1998 1997 1998 1997
- ------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total assets. . . . . . . . . . . . . . . . . . . . . . $2,333,847 $2,120,211 $2,309,112 $2,048,409
Gross loans . . . . . . . . . . . . . . . . . . . . . . 1,524,282 1,365,995 1,476,582 1,325,418
Short-term borrowed funds . . . . . . . . . . . . . . . 187,744 156,463 196,354 155,838
Long-term debt. . . . . . . . . . . . . . . . . . . . . 50,000 11,456 41,884 9,993
Noninterest bearing deposits. . . . . . . . . . . . . . 330,178 302,211 324,893 290,402
Total deposits. . . . . . . . . . . . . . . . . . . . . 1,905,496 1,789,980 1,886,077 1,726,618
Stockholders' equity. . . . . . . . . . . . . . . . . . 172,536 147,188 168,303 141,518
QUALITY DATA:
- -------------------------------------------------------
Nonperforming assets. . . . . . . . . . . . . . . . . . 2,922 3,183 2,922 3,183
Net chargeoffs/(recoveries) . . . . . . . . . . . . . . 843 (200) 1,702 767
Reserve for loan losses . . . . . . . . . . . . . . . . 28,147 25,564 28,147 25,564
Gross loans . . . . . . . . . . . . . . . . . . . . . . 1,538,328 1,382,262 1,538,328 1,382,262
RATIOS:
- -------------------------------------------------------
Return on assets. . . . . . . . . . . . . . . . . . . . .99% 1.20% 1.03% 1.04%
Return on equity. . . . . . . . . . . . . . . . . . . . 13.41% 17.22% 14.08% 15.11%
Nonperforming assets to gross loans . . . . . . . . . . .19% .23% .19% .23%
Annualized net chargeoffs/(recoveries) to gross loans
.22% (.06)% .15% .08%
Reserve for loan losses to gross loans. . . . . . . . . 1.83% 1.85% 1.83% 1.85%
Reserve for loan losses times nonperforming assets
9.63X 8.03X 9.63X 8.03x
</TABLE>
INVESTMENT SECURITIES (dollars in thousands)
As of September 30, 1998, the investment portfolio was $550,026 compared to
$575,493 for the same period in 1997. Bancorporation continues to invest
primarily in short-term U.S. Government obligations, thereby minimizing credit,
interest rate and liquidity risk. The portfolio was comprised of 89.20% U.S.
Government obligations as of September 30, 1998, as compared to 88.74% for the
same period in 1997. The remainder of the investment portfolio primarily
consists of municipal bonds owned by First-Citizens Bank and Trust Company of
South Carolina ("Bank") and equity securities owned by Bancorporation.
LOANS
Growth in loans was attributed primarily to strong loan demand due to favorable
interest rates. The loan portfolio mix did not change significantly and no
major change is expected for the remainder of 1998. The growth was funded by an
increase in core deposits, short-term borrowings and long-term borrowings.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS (CONTINUED)
- ------------------------
<TABLE>
<CAPTION>
CAPITAL RATIOS
September 30,
--------------
1998 1997
------ ------
<S> <C> <C>
Tier I leverage ratio. . . . . 8.26% 5.78%
Risk-based capital ratio total 14.39% 10.52%
Tier I . . . . . . . . . . . . 13.09% 9.12%
Tier II. . . . . . . . . . . . 1.30% 1.40%
</TABLE>
Regulatory agencies divide capital into Tier I, consisting of stockholders'
equity and a limited amount of qualifying preferred stock instruments less
ineligible intangible assets, and Tier II, consisting of the allowable portion
of the reserve for loan losses and certain long-term debt. Capital adequacy is
measured by applying both capital levels to the Bank's risk-adjusted assets and
off-balance sheet items. Regulatory requirements presently specify that Tier I
capital should exclude the market appreciation or depreciation of securities
available-for-sale arising from valuation adjustments under SFAS No. 115. In
addition to these capital ratios, regulatory agencies have established a Tier I
leverage ratio which measures Tier I capital to average assets less ineligible
intangible assets.
Regulatory guidelines require a minimum total capital to risk-adjusted assets
ratio of 8 percent (with 50 percent consisting of tangible common stockholders'
equity) and a minimum Tier I leverage ratio of 3 percent. Banks which meet or
exceed a Tier I ratio of 6 percent, a total risk-based capital ratio of 10
percent and a Tier I leverage ratio of 5 percent are considered well-capitalized
by regulatory standards.
NET INTEREST INCOME (dollars in thousands)
The increase in net interest income in the third quarter was due to growth in
interest-earning assets, primarily commercial and residential mortgage loans.
PROVISION AND RESERVE FOR LOAN LOSSES (dollars in thousands)
The provision for loan losses reflects management's assessment of the adequacy
of the reserve for loan losses to absorb potential losses inherent in the loan
portfolio due to a decline in credit conditions or change in risk profile.
Factors considered in this assessment include growth and mix of the loan
portfolio, current and anticipated economic conditions and historical credit
loss experience. The third quarter earnings decrease from a year ago resulted
primarily from a one time loan recovery of $493 in the third quarter of 1997.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
RESERVE FOR LOAN LOSSES: 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $27,558 $24,916 $26,135 $23,483
Provision for loan losses. . . 1,432 448 3,714 2,848
-------- -------- -------- --------
Chargeoffs . . . . . . . . . . (1,259) (560) (2,941) (2,203)
Recoveries . . . . . . . . . . 416 760 1,239 1,436
-------- -------- -------- --------
Net chargeoffs . . . . . . . . (843) 200 (1,702) (767)
-------- -------- -------- --------
Balance at end of period . . . $28,147 $25,564 $28,147 $25,564
-------- -------- -------- --------
Nonperforming assets . . . . . $ 2,922 $ 3,183 $ 2,922 $ 3,183
Annualized net chargeoffs to:
Average loans. . . . . . . . . .22% (.06)% .15% .08%
Loans at end of period . . . . .22% (.06)% .15% .07%
Reserve for loan losses. . . . 11.98% (3.13)% 8.06% 4.00%
</TABLE>
Page 8
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<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME (CONTINUED):
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS* (DOLLARS IN THOUSANDS)
QUARTER ENDED SEPTEMBER 30,
- ----------------------------------------------------
Average Volume Interest Average Rate Variance Due To
- ---------------------- ---------------- ---------- -----------------
1998 1997 1998 1997 1998 1997 Rate Volume Variance
- ---------- ---------- ------- ------- ---- ---- ------- -------- ----------
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C>
INTEREST-EARNING ASSETS:
$1,524,282 $1,365,995 $33,305 $30,578 8.67 8.88 Loans ($704) $ 3,431 $ 2,727
575,480 520,797 7,935 7,398 5.47 5.64 Taxable investment securities (211) 748 537
25,879 34,201 569 731 8.79 8.55 Non-taxable investment securities 21 (183) (162)
24,104 26,050 333 361 5.48 5.50 Federal funds sold (1) (27) (28)
0 8,936 0 150 0.00 6.66 Other earning assets (150) 0 (150)
- ---------- ---------- ------- ------- ------- -------- ----------
2,149,745 1,955,979 42,142 39,218 7.78 7.96 Total interest-earning assets (1,045) 3,969 2,924
- ---------- ---------- ------- ------- ------- -------- ----------
NONINTEREST-EARNING ASSETS:
85,853 79,962 Cash and due from banks
72,829 55,123 Premises and equipment
25,420 29,147 Other, less reserve for loan losses
- ---------- ----------
184,102 164,232 Total noninterest-earning assets
- ---------- ----------
$2,333,847 $2,120,211 TOTAL ASSETS
========== ==========
INTEREST-BEARING LIABILITIES:
$1,575,318 $1,487,769 $15,279 $14,677 3.85 3.91 Deposits ($241) $ 843 $ 602
Federal funds purchased and securities
187,744 156,463 2,311 1,927 4.88 4.89 sold under agreements to repurchase 2 382 384
50,000 11,456 1,036 225 8.22 7.79 Long-term debt 19 792 811
- ---------- ---------- ------- ------- ------- -------- ----------
1,813,062 1,655,688 18,626 16,829 4.08 4.03 Total interest-bearing liabilities (220) 2,017 1,797
- ---------- ---------- ------- ------- ------- -------- ----------
NONINTEREST-BEARING LIABILITIES:
330,178 302,211 Demand deposits
18,071 15,124 Other liabilities
- ---------- ----------
348,249 317,335 Total noninterest-bearing liabilities
- ---------- ----------
172,536 147,188 Stockholders' equity
- ---------- ----------
TOTAL LIABILITIES AND
$2,333,847 $2,120,211 STOCKHOLDERS' EQUITY
========== ==========
3.70 3.93 Interest rate spread
==== ====
$23,516 $22,389 4.34 4.54 Net Interest Margin ($825) $ 1,952 $ 1,127
======= ======= ==== ==== ======= ======== ==========
<FN>
* Interest income and yields are presented on a fully taxable equivalent basis using the federal income tax rate and state tax
rates, as applicable.
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME (CONTINUED):
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS* (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------
Average Volume Interest Average Rate Variance Due To
- ---------------------- ------------------ ---------- -----------------
1998 1997 1998 1997 1998 1997 Rate Volume Variance
- ---------- ---------- -------- -------- ---- ---- ------- -------- ---------
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C>
INTEREST-EARNING ASSETS:
$1,476,582 $1,325,418 $ 96,516 $ 87,191 8.74 8.80 Loans ($584) $ 9,909 $ 9,325
584,775 487,766 24,232 20,782 5.54 5.70 Taxable investment securities (581) 4,031 3,450
28,365 36,496 1,861 2,341 8.75 8.55 Non-taxable investment securities 54 (534) (480)
35,370 29,424 1,443 1,165 5.45 5.29 Federal funds sold 35 243 278
4,879 9,792 240 494 6.58 6.75 Other earning assets (12) (242) (254)
- ---------- ---------- -------- -------- ------- -------- ---------
2,129,971 1,888,896 124,292 111,973 7.80 7.93 Total interest-earning assets (1,088) 13,407 12,319
NONINTEREST-EARNING ASSETS:
85,756 79,156 Cash and due from banks
67,231 52,752 Premises and equipment
26,154 27,605 Other, less reserve for loan losses
- ---------- ----------
179,141 159,513 Total noninterest-earning assets
- ---------- ----------
$2,309,112 $2,048,409 TOTAL ASSETS
- ---------- ----------
INTEREST-BEARING LIABILITIES:
$1,561,184 $1,436,216 $ 44,963 $ 41,871 3.85 3.90 Deposits ($516) $ 3,608 $ 3,092
Federal funds purchased and securities
196,354 155,838 7,191 5,679 4.90 4.87 sold under agreements to repurchase 23 1,489 1,512
41,884 9,993 2,542 598 8.11 8.00 Long-term debt 4 1,940 1,944
- ---------- ---------- -------- -------- ------- -------- ---------
1,799,422 1,602,047 54,696 48,148 4.06 4.02 Total interest-bearing liabilities (489) 7,037 6,548
- ---------- ---------- -------- -------- ------- -------- ---------
NONINTEREST-BEARING LIABILITIES:
324,893 290,402 Demand deposits
16,494 14,442 Other liabilities
- ---------- ----------
341,387 304,844 Total noninterest-bearing liabilities
- ---------- ----------
168,303 141,518 Stockholders' equity
- ---------- ----------
TOTAL LIABILITIES AND
$2,309,112 $2,048,409 STOCKHOLDERS' EQUITY
========== ==========
3.74 3.91 Interest rate spread
==== ====
$ 69,596 $ 63,825 4.37 4.52 Net interest margin ($599) $ 6,370 $ 5,771
======== ======== ======= ======== =========
<FN>
* Interest income and rates are presented on a fully taxable equivalent basis using the federal income tax rate and state tax
rates, as applicable.
</TABLE>
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS (CONTINUED)
- ------------------------
NONINTEREST INCOME AND EXPENSE (dollars in thousands)
Total noninterest income increased $792 or 12.11% and $2,947 or 16.10%,
respectively, for the quarter and nine months ended September 30, 1998. Most of
the increase was due to an increase in service charges on deposit accounts and
other fee income.
Total noninterest expense was up $2,017 or 11.03% and $5,553 or 10.40%,
respectively, for the quarter and nine months ended September 30, 1998. Most of
the increase was due to the growth in the number of branches and related
increases in salaries, employee benefits and other operating expenses.
YEAR 2000 (Dollars in thousands)
GENERAL - The Year 2000 ("Y2K") issue confronting Bancorporation and its
suppliers, customers, customers' suppliers and competitors centers on the
inability of computer systems to recognize the year 2000. Many existing
computer programs and systems originally were programmed with six digit dates
that provided only two digits to identify the calendar year in the date field.
With the impending new millennium, these programs and computers will recognize
"00" as the year 1900 rather than the year 2000. Problems may also arise from
other sources as well, such as the use of special codes and conventions in
software that make use of the date field.
Financial institution regulators recently have increased their focus upon Y2K
compliance issues and have issued guidance concerning the responsibilities of
senior management and directors. The Federal Financial Institutions Examination
Council ("FFIEC") has issued several interagency statements on Y2K Project
Management Awareness. These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect to data exchange and the potential impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each
federally regulated financial institution to survey its exposure, measure its
risk and prepare a plan to address the Y2K issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository institutions, such as the Bank, to assure resolution of any
Y2K problems. The federal banking agencies have asserted that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and, thus, that an institution's failure to address appropriately the Y2K
issue could result in supervisory action, including the reduction of the
institution's supervisory ratings, the denial of applications for approval for
mergers or acquisitions, or the imposition of civil money penalties.
RISKS - Like most financial service providers, Bancorporation and its operations
may be significantly affected by the Y2K issue due to its dependence on
information technology and date-sensitive data. Computer hardware and software
and other equipment, both within and outside Bancorporation's direct control,
and third parties with whom Bancorporation electronically or operationally
interfaces (including without limitation its customers and third party vendors)
are likely to be affected. If computer systems are not modified in order to be
able to identify the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on date field
information, such as interest payments or due dates and other operating
functions, could generate results which are significantly misstated, and
Bancorporation could experience an inability to process transactions, prepare
statements or engage in similar normal business activities. Likewise, under
certain circumstances, a failure to adequately address the Y2K issue could
adversely affect the viability of Bancorporation's suppliers and creditors and
the creditworthiness of its borrowers. Thus, if not adequately addressed, the
Y2K issue could result in a significant adverse impact on Bancorporation's
operations and, in turn, its financial condition and results of operations.
Page 11
<PAGE>
YEAR 2000 (CONTINUED)
COSTS - Bancorporation is determined to use any resources required to resolve
any significant Y2K issues. Bancorporation's estimated aggregate expenses
associated with Y2K matters are $3,000. This includes costs directly related to
solving Y2K problems, such as modifying software and hiring Y2K consultants.
The Y2K budget for 1998 was increased to $1,151 from $535 in the third quarter
of 1998. Expenses for the first nine months of 1998 were $594. Bancorporation
is expensing all costs associated with required system changes as those costs
are incurred and are being funded through operating cash flows.
STATE OF READINESS - During March 1997, Bancorporation developed its plan to
address the Y2K issue. A substantial portion of Bancorporation's data
processing functions are performed by First-Citizens Bank & Trust Company,
Raleigh, North Carolina ("FCBNC") on its mainframe systems and/or on systems
supported by FCBNC. Bancorporation and FCBNC have hired consultants to plan and
direct their Y2K compliance efforts, and Bancorporation participates on a
committee made up of representatives of the consultants, FCBNC, and each of the
other financial institutions for which FCBNC provides data processing services.
The Committee meets periodically to monitor the status of FCBNC's compliance
efforts. Periodic progress reports are made to Bancorporation's Board of
Directors.
During the assessment phase of Bancorporation's Y2K plan, all systems were
categorized as mainframe systems or non-mainframe systems, and as information
technology ("IT") systems or non-IT systems. Further, each system was assigned
to one of the following priority groups:
1. Mission Critical - Significantly impacts external customers, regulatory
reporting, or solvency.
2. Operationally Dependent - Impacts the amount of time, effort or type of
equipment used to accomplish the task.
3. Supporting Function - Assists in service delivery.
A general plan for dealing with each system was developed and responsibilities
for each system were assigned to the appropriate personnel. This phase has been
completed.
REMEDIATION - For each system, a determination was made as to whether system
modification, upgrade or replacement was necessary to achieve Y2K compliance, or
whether the system was already Y2K compliant.
For IT mainframe systems, FCBNC has remediated all applicable software.
For IT non-mainframe systems, FCBSC's outside consultant is responsible for
coordinating with Bancorporation staff the remediation, which, in most cases,
entails the installation of upgrades provided by outside vendors. Out of 90
non-mainframe systems, 26, or 29%, of the systems have been remediated and
tested.
Non-IT systems are more difficult to analyze for Y2K compliance and are
dependant on the vendors feedback to determine what will be necessary to achieve
Y2K compliance. Bancorporation has mailed environmental letters to vendors with
respect to its mission critical non-IT systems, whose responses were due by
October 30, 1998. Bancorporation's Steering committee will determine in the
first quarter of 1999, the action to take on the operationally dependant and
supporting non-IT systems.
CONFIRMATION - To prove that the new, modified or updated systems are Y2K
compliant, testing is performed in an isolated environment to assure all date
sensitive data is processed accurately. Bancorporation, in conjunction with
FCBNC, is testing all systems with a minimum of three dates of December 31,
1999, January 3, 2000 and February 29, 2000. Additional dates are tested, if
needed, to complete comprehensive testing of each system.
Page 12
<PAGE>
YEAR 2000 (CONTINUED)
There are 89 mainframe applications to be tested. As of September 30, 1998, 22,
or 25%, of the systems had been tested, with 17 being approved. The 5
remaining were in the review process and not approved as of September 30, 1998.
Based on its current testing schedule, Bancorporation should have completed 89%
of its testing on all applications, including 92% of Mission Critical
applications, by December 31, 1998. Testing on all remaining applications is
due to be completed in the first half of 1999.
During early 1998, Bancorporation identified commercial customers whose existing
aggregate borrowings from the Bank exceeded $300,000. Discussions have been
held with each borrowing customer to assess the customer's plan for and progress
toward addressing the Y2K issue. Each customer was weighted as a high, medium
or low risk based on the results of the meetings. These ratings were based on
the customer's preparedness, vulnerability and plans for Y2K systems. Customers
rated in the medium to high risk categories will be followed up and monitored on
a periodic basis. Based on these discussions, Bancorporation's management does
not believe that the impact of the Y2K issue on its commercial loan portfolio
will be material. The reserve for loan losses is sufficient to mitigate this
risk, if needed. Consumer customers are not being monitored for Y2K as most of
the loans are secured with collateral and losses, should they occur, are not
expected to be material.
An analysis has been performed to determine the readiness of the Bank's large
deposit base customers, (over $500,000) as related to Y2K issues. A letter and
questionnaire were developed and mailed to customers on June 15, 1998, to be
completed and returned by June 30, 1998. Out of 143 customers, 65, or 45%,
responded. An overall review of the responses indicates awareness of the Y2K
issue and that actions are being implemented to address those issues. While
customers profess their readiness, they are still subject to the availability
and readiness of vendors and suppliers. Bancorporation has reviewed its
liquidity needs in terms of being able to respond to deposit base erosion as a
result of Y2K concerns. Lines of credit have been established at other
financial institutions to provide a potential source of funds and authority has
been received from the Executive Committee of Bancorporation's Board of
Directors to use the Federal Reserve Discount window as a source of funds, if
needed.
CONTINGENCY PLANS - As of September 30, 1998, contingency plans for operational
functions have been completed to insure continued operations in critical areas.
Crisis management contingency plans for uncontrollable functions, such as phone,
water and electrical services, are 50% completed as of the third quarter and
will be 100% completed by year end.
Page 13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Registrant and its subsidiaries are not parties to, nor is any of their property
the subject of, any material or other pending legal proceeding, other than
ordinary routine proceedings incidental to their business.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information
Registrant has entered into an agreement to purchase two offices from another
financial institution. Total assets purchased will be approximately $776 and
deposits assumed will be approximately $25,297. The premium to be paid for this
acquisition is based on deposit levels at closing and is estimated to be $2,593.
This acquisition is expected to close in the fourth quarter of 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1998.
Page 14
<PAGE>
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 BANCORPORATION
OF SOUTH CAROLINA, INC.
(Registrant)
Dated: 11/10/98 By: /s/ Jay C. Case
-------------- -------------------------------------
Jay C. Case, Executive Vice President
(Chief Financial Officer)
Page 15
<PAGE>
ITEM 6. (A)
EXHIBIT 11
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------
1998 1997 1998 1997
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Net income. . . . . . . . . . . . . . $ 5,786 $ 6,335 $ 17,769 $ 16,037
Less: Preferred stock dividend . . . 44 43 128 129
-------- ------------ -------- --------
Net income applicable to common stock $ 5,742 $ 6,292 $ 17,641 $ 15,908
Weighted average common shares
outstanding . . . . . . . . . . . . . 926,579 929,222 928,216 929,222
Earnings per common share . . . . . . $ 6.20 $ $6.77 $ 19.01 $ 17.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 101758
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 48700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33039
<INVESTMENTS-CARRYING> 516987
<INVESTMENTS-MARKET> 554731
<LOANS> 1538328
<ALLOWANCE> (28147)
<TOTAL-ASSETS> 2339499
<DEPOSITS> 1935406
<SHORT-TERM> 166619
<LIABILITIES-OTHER> 17877
<LONG-TERM> 50000
0
3282
<COMMON> 4619
<OTHER-SE> 161696
<TOTAL-LIABILITIES-AND-EQUITY> 2339499
<INTEREST-LOAN> 96147
<INTEREST-INVEST> 25200
<INTEREST-OTHER> 1924
<INTEREST-TOTAL> 123271
<INTEREST-DEPOSIT> 44963
<INTEREST-EXPENSE> 54696
<INTEREST-INCOME-NET> 68575
<LOAN-LOSSES> 3714
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 58955
<INCOME-PRETAX> 27157
<INCOME-PRE-EXTRAORDINARY> 27157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17769
<EPS-PRIMARY> 19.01
<EPS-DILUTED> 19.01
<YIELD-ACTUAL> 7.80
<LOANS-NON> 2473
<LOANS-PAST> 1590
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 20141
<ALLOWANCE-OPEN> 26135
<CHARGE-OFFS> 2941
<RECOVERIES> 1239
<ALLOWANCE-CLOSE> 28147
<ALLOWANCE-DOMESTIC> 28147
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11082
</TABLE>
