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 June 30, 1999 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 July 31, 1999
----- ----------------------------
VOTING COMMON STOCK, $5.00 PAR VALUE 882,766 SHARES
NON-VOTING COMMON STOCK, $5.00 PAR VALUE 36,409 SHARES
<PAGE>
<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - UNAUDITED (DOLLARS IN THOUSANDS)
JUNE 30, December 31, June 30,
1999 1998 1998
----------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . $ 116,823 $ 115,795 $ 96,354
Investment securities:
Held-to-maturity . . . . . . . . . . . . . . . . . . . . . . 23,299 591,286 584,746
Available-for-sale . . . . . . . . . . . . . . . . . . . . . 645,301 32,542 37,927
----------- -------------- -----------
Total securities . . . . . . . . . . . . . . . . . . . . . . . 668,600 623,828 622,673
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . 1,700 64,000 0
Gross loans. . . . . . . . . . . . . . . . . . . . . . . . . . 1,669,124 1,573,069 1,506,088
Less: Reserve for loan losses . . . . . . . . . . . . . . . (30,037) (28,306) (27,558)
----------- -------------- -----------
Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,639,087 1,544,763 1,478,530
Other real estate owned. . . . . . . . . . . . . . . . . . . . 133 402 568
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 135,724 134,980 123,393
----------- -------------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $2,562,067 $ 2,483,768 $2,321,518
=========== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 376,823 $ 354,239 $ 341,986
Time & Savings . . . . . . . . . . . . . . . . . . . . . . . 1,691,623 1,683,248 1,563,427
----------- -------------- -----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . 2,068,446 2,037,487 1,905,413
Federal funds purchased. . . . . . . . . . . . . . . . . . . . 0 0 4,000
Securities sold under repurchase agreements. . . . . . . . . . 243,518 204,702 177,806
Long-term debt:. . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000 50,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . 16,672 17,404 15,014
----------- -------------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 2,378,636 2,309,593 2,152,233
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 June 30, 1999,
December 31, 1998 and June 30, 1998 - 36,409 . . . . . . . 182 182 182
Voting common stock - $5.00 par value, authorized 2,000,000;
issued and outstanding June 30, 1999 - 882,766;
December 31, 1998 - 885,275; and June 30, 1998 - 891,748. . 4,414 4,426 4,459
Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 55,000 55,000
Undivided profits. . . . . . . . . . . . . . . . . . . . . . 113,402 102,888 93,789
Accumulated other comprehensive income . . . . . . . . . . . 7,151 8,397 12,573
----------- -------------- -----------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . 183,431 174,175 169,285
----------- -------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . $2,562,067 $ 2,483,768 $2,321,518
=========== ============== ===========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1999 1998 % 1999 1998 %
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME AND FEES:
Loans . . . . . . . . . . . . . . . . . $ 33,821 $ 32,065 5.48 $ 66,447 $ 62,978 5.51
United States Government obligations. . 7,922 8,360 (5.24) 15,575 16,109 (3.31)
Mortgage-backed securities. . . . . . . 8 15 (46.67) 17 32 (46.88)
Tax-exempt securities . . . . . . . . . 324 390 (16.92) 666 840 (20.71)
Other securities and federal funds sold 742 633 17.22 1,996 1,506 32.54
-------- -------- -------- --------
42,817 41,463 3.27 84,701 81,465 3.97
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits. . . . . . . . . . . . . . . . 14,333 14,975 (4.29) 28,853 29,684 (2.80)
Short-term borrowings . . . . . . . . . 2,826 2,421 16.73 5,703 4,879 16.89
Long-term borrowings. . . . . . . . . . 1,031 1,145 (9.96) 2,062 1,507 36.83
-------- -------- -------- --------
18,190 18,541 (1.89) 36,618 36,070 1.52
-------- -------- -------- --------
Net interest income . . . . . . . . . . . 24,627 22,922 7.44 48,083 45,395 5.92
Provision for loan losses . . . . . . . . 1,817 2,001 (9.20) 2,480 2,282 8.68
-------- -------- -------- --------
Net interest income after
provision for loan losses . . . . . . . 22,810 20,921 9.03 45,603 43,113 5.78
-------- -------- -------- --------
NONINTEREST INCOME:
Service charges on deposit accounts . . 4,624 4,168 10.94 8,724 7,889 10.58
Fees for other customer services. . . . 2,707 2,443 10.81 5,148 4,737 8.68
Gain on sale of securities. . . . . . . 8 28 (71.43) 8 28 (71.43)
Other . . . . . . . . . . . . . . . . . 590 636 (7.23) 1,558 1,263 23.36
-------- -------- -------- --------
7,929 7,275 8.99 15,438 13,917 10.93
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits. . . . . 9,970 8,918 11.80 20,356 17,668 15.21
Net occupancy expense . . . . . . . . . 717 710 0.99 1,550 1,458 6.31
Furniture and equipment expense . . . . 519 476 9.03 1,044 910 14.73
Depreciation expense. . . . . . . . . . 1,832 1,230 48.94 3,513 2,607 34.75
Amortization of intangibles . . . . . . 1,402 1,905 (26.40) 2,814 3,919 (28.20)
Other . . . . . . . . . . . . . . . . . 7,022 6,328 10.97 14,098 12,096 16.55
-------- -------- -------- --------
21,462 19,567 9.68 43,375 38,658 12.20
-------- -------- -------- --------
Income before income taxes. . . . . . . . 9,277 8,629 7.51 17,666 18,372 (3.84)
Income taxes. . . . . . . . . . . . . . . 3,214 2,965 8.40 6,138 6,389 (3.93)
-------- -------- -------- --------
NET INCOME. . . . . . . . . . . . . . . . $ 6,063 $ 5,664 7.04 $ 11,528 $ 11,983 (3.80)
======== ======== ======== ========
NET INCOME PER COMMON SHARE -
BASIC AND DILUTED . . . . . . . . . . . . $ 6.55 $ 6.01 8.97 $ 12.44 $ 12.81 (2.86)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING. . . . . . . . . . . . 919,175 928,819 (1.04) 919,520 929,024 (1.02)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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, 1997. . . . $ 3,282 $ 182 $ 4,464 $ 55,000 $ 82,287 $ 13,203 $ 158,418
Comprehensive income:
Net income 11,983
Change in unrealized losses
on investment securities
available-for-sale, net of tax
benefit of $339 (630)
Total comprehensive income 11,353
Reacquired voting common stock (5) (396) (401)
Preferred stock dividends (85) (85)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at June 30, 1998. . . . . . 3,282 182 4,459 55,000 93,789 12,573 169,285
Comprehensive income:
Net income 11,635
Change in unrealized losses
on investment securities
available-for-sale, net of tax
benefit of $2,249 (4,176)
Total comprehensive income 7,459
Reacquired voting common stock (33) (2,450) (2,483)
Preferred stock dividends (86) (86)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at December 31, 1998. . . . 3,282 182 4,426 55,000 102,888 8,397 174,175
Comprehensive income:
Net income 11,528
Change in unrealized losses
on investment securities
available-for-sale, net of tax
benefit of $671 (1,246)
Total comprehensive income 10,282
Reacquired voting common stock (12) (930) (942)
Preferred stock dividends (84) (84)
---------- ------- -------- -------- ----------- --------------- ----------
Balance at June 30, 1999. . . . . . $ 3,282 $ 182 $ 4,414 $ 55,000 $ 113,402 $ 7,151 $ 183,431
========== ======= ======== ======== =========== =============== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,528 $ 11,983
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 2,480 2,282
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 6,114 6,523
Amortization of investment securities . . . . . . . . . . . . . . . 313 240
Provision for deferred income taxes . . . . . . . . . . . . . . . . (14,755) (13,504)
Gains on sales of premises and equipment. . . . . . . . . . . . . . (173) (60)
Increase in interest income accrued, not collected. . . . . . . . . (9) (2,164)
(Decrease)/increase in accrued interest payable . . . . . . . . . . (535) 416
Originations of loans held for resale . . . . . . . . . . . . . . . (81,245) (69,608)
Proceeds from sales of loans held for resale. . . . . . . . . . . . 86,254 69,029
Gains on sales of loans held for resale . . . . . . . . . . . . . . (421) (240)
Decrease in other assets. . . . . . . . . . . . . . . . . . . . . . 14,636 12,467
(Decrease)/increase in other liabilities . . . . . . . . . . . . . . (197) 610
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . 23,990 17,974
========== ==========
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . (101,392) (77,691)
Calls, maturities and prepayments of securities, available-for-sale 153,306 0
Purchases of investment securities, available-for-sale. . . . . . . (201,890) (6,998)
Calls, maturities and prepayments of securities, held-to-maturity . 2,642 34,523
Purchases of investment securities, held-to-maturity. . . . . . . . (1,060) (62,998)
Net decrease in interest bearing deposits in financial institutions 0 7,700
Decrease in federal funds sold. . . . . . . . . . . . . . . . . . . 62,300 11,900
Proceeds from sales of premises and equipment . . . . . . . . . . . 3,068 901
Purchases of premises and equipment . . . . . . . . . . . . . . . . (8,420) (13,448)
Decrease in other real estate owned . . . . . . . . . . . . . . . . 269 4
Net decrease in intangible assets . . . . . . . . . . . . . . . . . (534) (451)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . (91,711) (106,558)
========== ==========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits. . . . . . . . . . . . . . . . . . . . . . 30,959 25,993
Increase/(decrease) in federal funds purchased and securities sold
under agreements to repurchase. . . . . . . . . . . . . . . . . . 38,816 (2,362)
Net increase in long term borrowing . . . . . . . . . . . . . . . . 0 52,000
Principal repayments on long-term debt. . . . . . . . . . . . . . . 0 (16,483)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (84) (85)
Reacquired common stock . . . . . . . . . . . . . . . . . . . . . . (942) (401)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . 68,749 58,662
========== ==========
INCREASE/(DECREASE) IN CASH AND DUE FROM BANKS. . . . . . . . . . . . . 1,028 (29,922)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD. . . . . . . . . . . . . 115,795 126,276
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD. . . . . . . . . . . . . . . . $ 116,823 $ 96,354
========== ==========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS)
A summary of the significant accounting policies of First Citizens
Bancorporation of South Carolina, Inc. ("Bancorporation") is set forth in Note 1
to the Consolidated Financial Statements in Bancorporation's Annual Report on
Form 10-K for 1998. The significant accounting policies used during the current
quarter are unchanged from those disclosed in the 1998 Annual Report, except for
the following:
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133-an amendment of FASB Statement No. 133". SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued in
June 1998. It establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for 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. SFAS
No. 133, as issued, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. SFAS No. 137
amended SFAS No. 133 by delaying the effective date to all fiscal quarters of
all fiscal years beginning after June 15, 2000. The FASB continues to encourage
early adoption of SFAS No. 133.
Bancorporation adopted SFAS No. 133 effective January 1, 1999. Accordingly,
although Bancorporation does not have derivative instruments, management, as of
January 1, 1999, has elected to transfer the U.S. Government obligation portion
of its held-to-maturity securities into the available-for-sale category, as
permitted by SFAS No. 133. The total transferred to the available-for-sale
category was $568,944 with an adjustment to stockholders' equity for $1,854, net
of tax effect of $998.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage Backed
Securities Retained After the Securitization of Mortgages Held for Sale by a
Mortgage Banking Enterprise". SFAS No. 134 requires that after an entity that is
engaged in mortgage banking activities has securitized mortgage loans that are
held-for-sale, it must classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. The statement is effective for fiscal years beginning after
December 15, 1998. Bancorporation adopted SFAS No. 134 as of January 1, 1999.
The effect of adoption is immaterial.
6
<PAGE>
MANAGEMENT'S OPINION
The preceding consolidated financial statements and the notes thereto are
unaudited; however, in the opinion of management, all adjustments comprising
normal recurring accruals necessary for a fair presentation of financial
statements have been recorded. Certain amounts in prior periods have been
reclassified to conform to the 1999 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
SUMMARY (dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
SELECTED AVERAGE BALANCES: 1999 1998 1999 1998
- ----------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total assets. . . . . . . . . . . . . . . $2,558,364 $2,327,745 $2,538,408 $2,296,540
Gross loans . . . . . . . . . . . . . . . 1,621,430 1,472,238 1,605,460 1,452,337
Short-term borrowed funds . . . . . . . . 253,411 196,325 257,565 200,731
Long-term debt. . . . . . . . . . . . . . 50,000 55,735 50,000 37,759
Noninterest bearing deposits. . . . . . . 366,321 325,916 359,215 322,207
Total deposits. . . . . . . . . . . . . . 2,056,125 1,889,619 2,036,218 1,876,207
Stockholders' equity. . . . . . . . . . . 181,581 170,030 179,293 166,151
QUALITY DATA:
- -------------
Nonperforming assets. . . . . . . . . . . 2,566 3,334 2,566 3,334
Net chargeoffs(recoveries). . . . . . . . 540 749 749 859
Reserve for loan losses . . . . . . . . . 30,037 27,558 30,037 27,558
Gross loans . . . . . . . . . . . . . . . 1,669,124 1,506,088 1,669,124 1,506,088
RATIOS:
- -------
Return on assets. . . . . . . . . . . . . .95% .97% .90% 1.04%
Return on equity. . . . . . . . . . . . . 13.36% 13.26% 12.86% 14.42%
Nonperforming assets to gross loans . . . .15% .22% .15% .22%
Annualized net chargeoffs(recoveries) to
gross loans . . . . . . . . . . . . . . .13% .20% .09% .11%
Reserve for loan losses to gross loans. . 1.80% 1.83% 1.80% 1.83%
Reserve for loan losses times
nonperforming assets. . . . . . . . . . 11.71X 8.27X 11.71X 8.27x
</TABLE>
INVESTMENT SECURITIES (dollars in thousands)
As of June 30, 1999, the investment portfolio was $668,600 compared to $622,673
as of June 30, 1998. 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 92.13% U.S. Government
obligations as of June 30, 1999, as compared to 89.55% as of June 30, 1998. 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. As a part of Year 2000 cash
management planning, Bancorporation transferred the U.S. Government obligations
portion of its held-to-maturity securities into the available-for-sale category,
as permitted by SFAS No. 133. The total transferred in the first quarter to the
available-for-sale category was $568,944 with an adjustment to stockholders'
equity for $1,854, net of tax effect of $998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
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 1999. The growth was funded
primarily through core deposits and short-term borrowings.
<TABLE>
<CAPTION>
CAPITAL RATIOS
June 30,
--------------
1999 1998
------ ------
<S> <C> <C>
Tier I leverage ratio. . . . . 8.41% 8.21%
Risk-based capital ratio total 14.48% 14.39%
Tier I . . . . . . . . . . . 13.06% 12.98%
Tier II. . . . . . . . . . . 1.42% 1.41%
</TABLE>
Regulatory agencies divide capital into Tier I, consisting of stockholders'
equity 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 that 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 second quarter was due to growth in
interest-earning assets, primarily commercial and residential mortgage loans.
8
<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)
QUARTER ENDED JUNE 30,
- -----------------------------------------------------
Average Volume Interest Average Rate Variance Due To
- ---------------------- ---------------- ---------- ------------------------------
1999 1998 1999 1998 1999 1998 Rate Volume Variance
- ---------- ---------- ------- ------- ---- ---- -------- -------- ----------
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C>
INTEREST-EARNING ASSETS:
$1,631,430 $1,472,238 $33,958 $32,179 8.26 8.67 Loans ($1,508) $ 3,287 $ 1,779
636,586 613,726 8,047 8,398 5.02 5.43 Taxable investment securities (638) 287 (351)
23,036 27,279 498 601 8.65 8.81 Non-taxable investment securities (11) (92) (103)
54,941 32,373 625 493 4.51 6.04 Federal funds sold (122) 254 132
0 7,023 0 117 0.00 6.61 Other earning assets (117) 0 (117)
-------- -------- ----------
2,345,993 2,152,639 43,128 41,788 7.29 7.70 Total interest-earning assets (2,396) 3,736 1,340
- ---------- ---------- ------- ------- -------- -------- ----------
NONINTEREST-EARNING ASSETS:
106,208 82,785 Cash and due from banks
81,252 66,822 Premises and equipment
24,911 25,499 Other, less reserve for loan losses
212,371 175,106 Total noninterest-earning assets
$2,558,364 $2,327,745 TOTAL ASSETS
========== ==========
INTEREST-BEARING LIABILITIES:
$1,689,804 $1,563,703 $14,333 $14,975 3.37 3.80 Deposits ($1,704) $ 1,062 ($642)
Federal funds purchased and securities
253,411 196,325 2,826 2,421 4.42 4.89 sold under agreements to repurchase (226) 631 405
50,000 55,735 1,031 1,145 8.18 8.15 Long-term debt 3 (117) (114)
-------- -------- ----------
1,993,215 1,815,763 18,190 18,541 3.62 4.05 Total interest-bearing liabilities (1,927) 1,576 (351)
- ---------- ---------- ------- ------- -------- -------- ----------
NONINTEREST-BEARING LIABILITIES:
366,321 325,916 Demand deposits
17,247 16,036 Other liabilities
383,568 341,952 Total noninterest-bearing liabilities
181,581 170,030 Stockholders' equity
TOTAL LIABILITIES AND
$2,558,364 $2,327,745 STOCKHOLDERS' EQUITY
========== ==========
3.67 3.65 Interest rate spread
==== ====
$24,938 $23,247 4.22 4.29 Net Interest Margin ($469) $ 2,160 $ 1,691
======= ======= ==== ==== ======== ======== ==========
<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>
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)
SIX MONTHS ENDED JUNE 30,
- -----------------------------------------------------
Average Volume Interest Average Rate Variance Due To
- ---------------------- ---------------- ---------- ------------------------------
1999 1998 1999 1998 1998 1998 Rate Volume Variance
- ---------- ---------- ------- ------- ---- ---- -------- -------- ----------
<C> <C> <C> <C> <C> <C> <S> <C> <C> <C>
INTEREST-EARNING ASSETS:
$1,605,460 $1,452,337 $66,731 $63,211 8.38 8.78 Loans ($2,896) $ 6,416 $ 3,520
619,304 589,500 15,804 16,297 5.15 5.57 Taxable investment securities (1,260) 767 (493)
23,653 29,628 1,024 1,293 8.66 8.73 Non-taxable investment securities (10) (259) (269)
76,889 41,096 1,784 1,110 4.68 5.45 Federal funds sold (164) 838 674
0 7,360 0 240 0.00 6.58 Other earning assets (240) 0 (240)
-------- -------- ----------
2,325,306 2,119,921 85,343 82,151 7.40 7.81 Total interest-earning assets (4,570) 7,762 3,192
- ---------- ---------- ------- ------- -------- -------- ----------
NONINTEREST-EARNING ASSETS:
106,812 85,707 Cash and due from banks
80,763 64,386 Premises and equipment
25,527 26,526 Other, less reserve for loan losses
213,102 176,619 Total noninterest-earning assets
$2,538,408 $2,296,540 TOTAL ASSETS
========== ==========
INTEREST-BEARING LIABILITIES:
$1,677,003 $1,554,000 $28,853 $29,684 3.47 3.85 Deposits ($2,965) $ 2,134 ($831)
Federal funds purchased and securities
257,565 200,731 5,703 4,879 4.47 4.90 sold under agreements to repurchase (446) 1,270 824
50,000 37,759 2,062 1,507 8.32 8.05 Long-term debt 46 509 555
-------- -------- ----------
1,984,568 1,792,490 36,618 36,070 3.72 4.06 Total interest-bearing liabilities (3,365) 3,913 548
- ---------- ---------- ------- ------- -------- -------- ----------
NONINTEREST-BEARING LIABILITIES:
359,215 322,207 Demand deposits
15,332 15,692 Other liabilities
374,547 337,899 Total noninterest-bearing liabilities
179,293 166,151 Stockholders' equity
TOTAL LIABILITIES AND
$2,538,408 $2,296,540 STOCKHOLDERS' EQUITY
========== ==========
3.68 3.75 Interest rate spread
==== ====
$48,725 $46,081 4.23 4.38 Net interest margin ($1,205) $ 3,849 $ 2,644
======= ======= ==== ==== ======== ======== ==========
<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>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
RESERVE FOR LOAN LOSSES (dollars in thousands)
The reserve for loan losses reflects management's assessment of losses inherent
in the loan portfolio. Factors considered in this assessment include growth and
mix of the loan portfolio, credit quality, current and anticipated economic
conditions and historical credit loss experience.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
RESERVE FOR LOAN LOSSES: 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $28,760 $26,306 $28,306 $26,135
Provision for loan losses. . . 1,817 2,001 2,480 2,282
-------- -------- -------- --------
Chargeoffs . . . . . . . . . . (924) (974) (1,509) (1,683)
Recoveries . . . . . . . . . . 384 225 760 824
-------- -------- -------- --------
Net chargeoffs . . . . . . . . (540) (749) (749) (859)
-------- -------- -------- --------
Balance at end of period . . . $30,037 $27,558 $30,037 $27,558
-------- -------- -------- --------
Nonperforming assets . . . . . $ 2,566 $ 3,334 $ 2,566 $ 3,334
Annualized net chargeoffs to:
Average loans. . . . . . . . .13% .20% .09% .11%
Loans at end of period . . . .13% .20% .09% .11%
Reserve for loan losses. . . 7.19% 10.87% 4.99% 6.23%
</TABLE>
NONINTEREST INCOME AND EXPENSE (dollars in thousands)
Total noninterest income increased $654 or 8.99% and $1,521 or 10.93%,
respectively, for the quarter and six months ended June 30, 1999. Growth in
both periods was primarily due to an increase in service charges on deposit
accounts.
Total noninterest expense was up $1,895 or 9.68% and $4,717 or 12.20%,
respectively, for the quarter and six months ended June 30, 1999. Most of the
increase in both periods was due to normal operating expenses associated with
growth and expenses associated with the Year 2000 remediation and preparation
effort.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
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 also may 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 of
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.
COSTS - Bancorporation is determined to use all 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.
Expenses for the incurred through June 30, 1999 were $1,431. Bancorporation is
expensing all costs associated with required system changes as those costs are
incurred and such costs are being funded through operating cash flows.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
YEAR 2000 (CONTINUED)
AWARENESS - During March 1997, Bancorporation developed its plan to address the
Y2K issue. Bancorporation hired consultants to direct Y2K compliance efforts. A
Y2K Program Office ("PMO") consisting of in-house personnel is responsible for
leading the overall Y2K process. The PMO is supported by the Executive Steering
Committee ("Committee"), a group of senior managers within the organization that
is chaired by the Chief Financial Officer. Both the PMO and the Committee meet
monthly to review Y2K progress. 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 systems
supported by FCBNC. The PMO meets bi-monthly with FCBNC to monitor the status of
their compliance efforts. Quarterly progress reports are made to
Bancorporation's Board of Directors on the overall Y2K Program progress.
ASSESSMENT - 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 remediation with Bancorporation's staff, which, in most cases,
entails the installation of upgrades provided by outside vendors. Of 88
non-mainframe systems, 83 have been remediated and tested. The 5 remaining
non-mainframe systems are scheduled to be completed as of July 31, 1999, pending
on vendor delivery of documentation or product upgrade.
Non-IT systems are more difficult to analyze for Y2K compliance and are
dependent on vendor feedback to determine what will be necessary to achieve Y2K
compliance. Bancorporation has mailed 101 environmental letters, involving
heating, air conditioning, utilities, etc, to vendors with respect to its
mission critical non-IT systems. Responses from 75 vendors indicated they are
compliant and the remaining 26 responded that they would be compliant by June
1999. The remaining vendors will be contacted in the third quarter to verify
compliance.
CONFIRMATION - To prove that the new, modified or updated systems are Y2K
compliant, testing is performed in an isolated environment to ensure that all
date sensitive data is accurately processed. 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 testing of each system.
There were 35 mainframe applications to be tested and all those applications
have been tested and compliant as of June 30, 1999.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
YEAR 2000 (CONTINUED)
During early 1998, Bancorporation identified all commercial credit customers
whose existing aggregate borrowings from the Bank exceeded $300. Discussions
have been held with each 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 discussions. 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. Consumer customers are not being monitored for Y2K as most of
their loans are secured with collateral, and losses, should they occur, are not
expected to be material.
An analysis was performed in March 1999 to determine the readiness of the Bank's
large deposit base customers (over $500) as related to Y2K issues. Accounts
were grouped in high or low/moderate risk categories. Low/moderate risk consists
of accounts for municipalities trust accounts, Home Office accounts or accounts
classified as low risk on the initial report done in April 1998. In the
high-risk category, there are accounts that do not fit into the low/moderate
risk description or were classified as high risk on the April 1998 report. Total
account breakdown was 98 low/moderate and 41 high-risk accounts totaling
$216,000 and $40,000, respectively.
Based on additional analysis and questionnaire completion by customers, only 5
customers remain in the High Risk category. These represent customers who can
not be excluded by type of account, credit criteria for Y2K readiness evaluation
or satisfactory completion of Y2K survey. The total balance in this risk
category has been reduced to $5,099. Municipalities, classified as low/moderate
risk, represented approximately $110,000.
Bancorporation has reviewed its liquidity needs in terms of being able to
respond to deposit base erosion because 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 another source of funds. Loan assets, to be used as collateral for
borrowing at the discount window, has been reviewed by the Federal Reserve. In
addition, the Bond Portfolio of the Bank has been adjusted to hold additional
government bonds maturing in the fourth quarter.
CONTINGENCY PLANS - As of June 30, 1999, contingency plans for operational
functions have been established to insure continued operation in critical areas.
Bancorporation has tied individual contingency plans to the core business
processes to determine minimum requirements to provide our customers with
adequate service. Business management contingency plans for uncontrollable
functions, such as phone, water and electrical services, are complete as of June
30, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented as part of Bancorporation's
Annual Report on Form 10K for the year ended December 31, 1998.
14
<PAGE>
SUBSEQUENT EVENT
On July 20, 1999, the shareholders of Exchange Bank of South Carolina,
Kingstree, S.C. ("Exchange Bank") approved the Agreement and Plan of Merger
between Exchange Bank and Bancorporation. The approved transaction will merge
Exchange Bank into a newly-formed, wholly-owned corporate subsidiary of
Bancorporation. Each outstanding share of Exchange Bank common stock will be
converted into either (i) 0.70 shares of Bancorporation's common stock, (ii) a
promissory note of Bancorporation in the principal sum of $210.00, (iii) $210.00
in cash and/or (iv) a combination of Bancorporation's common stock, notes and/or
cash. The merger is scheduled to take place at the close of business on August
20, 1999.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
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.
The annual meeting of shareholders of Registrant was held on April 28, 1999. At
the meeting, Shareholders voted to fix the number of Directors at 16 for 1999,
and the 16 Nominees named in Registrant's Proxy Statement, dated March 22, 1999,
were elected as Directors for a term of 1 year. No other matters were voted on
at the meeting, and there was no solicitation in opposition to management's
Nominees listed in the Proxy Statement.
Item 5. Other Information
Registrant has entered an agreement to purchase a branch, located in Johnston
S.C., from another financial institution. Total assets purchased will be
approximately $2,900 and deposits assumed will be approximately $7,900. The
premium to be paid for this acquisition is based on deposit levels at closing
and is estimated to be $634. This acquisition is expected to close in the
fourth quarter of 1999.
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 June 30,
1999.
16
<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: 08/09/99 By: /s/ Jay C. Case
-------------- ------------------
Jay C. Case, Executive Vice President
(Chief Financial Officer)
17
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. (A)
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income. . . . . . . . . . . . . . $ 6,063 $ 5,664 $ 11,528 $ 11,983
Less: Preferred stock dividend . . . 42 43 84 85
-------- -------- -------- --------
Net income applicable to common stock $ 6,021 $ 5,621 $ 11,444 $ 11,898
Weighted average common shares
outstanding . . . . . . . . . . . . 919,175 928,819 919,520 929,024
Earnings per common share . . . . . . $ 6.55 $ 6.01 $ 12.44 $ 12.81
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 116823
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 645301
<INVESTMENTS-CARRYING> 23299
<INVESTMENTS-MARKET> 29674
<LOANS> 1669124
<ALLOWANCE> (30037)
<TOTAL-ASSETS> 2562067
<DEPOSITS> 2068446
<SHORT-TERM> 243518
<LIABILITIES-OTHER> 16672
<LONG-TERM> 50000
0
3282
<COMMON> 4596
<OTHER-SE> 175553
<TOTAL-LIABILITIES-AND-EQUITY> 2562067
<INTEREST-LOAN> 66447
<INTEREST-INVEST> 16258
<INTEREST-OTHER> 1996
<INTEREST-TOTAL> 84701
<INTEREST-DEPOSIT> 28853
<INTEREST-EXPENSE> 36618
<INTEREST-INCOME-NET> 48083
<LOAN-LOSSES> 2480
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 43375
<INCOME-PRETAX> 17666
<INCOME-PRE-EXTRAORDINARY> 17666
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11528
<EPS-BASIC> 12.44
<EPS-DILUTED> 12.44
<YIELD-ACTUAL> 7
<LOANS-NON> 2433
<LOANS-PAST> 1113
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 23737
<ALLOWANCE-OPEN> 28306
<CHARGE-OFFS> 1509
<RECOVERIES> 760
<ALLOWANCE-CLOSE> 30037
<ALLOWANCE-DOMESTIC> 30037
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11225
</TABLE>
