UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the period ended March 31, 1997
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)
239 Fayetteville Street, Raleigh, North Carolina 27601
(Address of principal 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 _____
Class A Common Stock--$1 Par Value-- 9,637,882 shares
Class B Common Stock--$1 Par Value-- 1,757,774 shares
(Number of shares outstanding, by class, as of May 14, 1997)
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1997, December 31, 1996, and March 31, 1996
Consolidated Statements of Income for the three-month
periods ended March 31, 1997, and March 31, 1996
Consolidated Statements of Changes in Shareholders' Equity
for the three-month periods ended March 31, 1997,
and March 31, 1996
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1997, and March 31, 1996
Note to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. During the quarter ended
March 31, 1997, Registrant filed no Current Reports
on Form 8-K.
<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 BANCSHARES, INC.
(Registrant)
Dated: May 14, 1997 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1997
<PAGE>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
March 31* December 31# March 31*
(thousands, except share data) 1997 1996 1996
<S> <C> <C> <C>
Assets
Cash and due from banks $351,892 $437,029 $428,612
Investment securities 2,063,526 2,138,831 2,005,645
Federal funds sold 207,000 156,000 90,160
Loans 4,955,135 4,930,508 4,837,073
Less reserve for loan losses 81,459 81,439 80,433
Net loans 4,873,676 4,849,069 4,756,640
Premises and equipment 236,459 229,496 213,832
Income earned not collected 56,782 60,175 59,127
Other assets 186,282 184,972 182,146
Total assets $7,975,617 $8,055,572 $7,736,162
Liabilities
Deposits:
Noninterest-bearing $1,044,176 $1,087,474 $956,846
Interest-bearing 5,867,630 5,866,554 5,787,067
Total deposits 6,911,806 6,954,028 6,743,913
Short-term borrowings 343,448 392,006 326,833
Long-term obligations 6,827 6,922 15,608
Other liabilities 84,271 87,109 79,550
Total liabilities 7,346,352 7,440,065 7,165,904
Shareholders' equity
Common stock:
Class A-$1 par value( 9,637,882; 9,651,900;
and 9,661,517 shares issued, respectively) 9,638 9,652 9,662
Class B-$1 par value(1,757,774; 1,758,980;
and 1,766,464 shares issued, respectively) 1,758 1,759 1,766
Surplus 143,760 143,760 141,402
Retained earnings 466,240 453,640 417,428
Unrealized gains on equity securities, net of tax 7,869 6,696
Total shareholders' equity 629,265 615,507 570,258
Total liabilities and shareholders' equity $7,975,617 $8,055,572 $7,736,162
* Unaudited
# Derived from the Consolidated Balance Sheets included in the 1996 Annual Report on Form 10-K.
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1997
<PAGE>
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended March 31
(thousands, except per share data, unaudited) 1997 1996
<S> <C> <C>
Interest income
Loans $103,808 $100,112
Investment securities:
U. S. Government 30,073 27,740
State, county and municipal 77 90
Other 34 45
Total investment securities interest income 30,184 27,875
Federal funds sold 2,447 1,581
Total interest income 136,439 129,568
Interest expense
Deposits 57,377 58,171
Short-term borrowings 4,187 3,866
Long-term obligations 142 387
Total interest expense 61,706 62,424
Net interest income 74,733 67,144
Provision for loan losses 1,567 1,544
Net interest income after provision for loan losses 73,166 65,600
Noninterest income
Trust income 2,778 2,267
Service charges on deposit accounts 9,930 10,033
Credit card income 4,066 3,265
Other service charges and fees 6,447 5,790
Other 193 2,530
Total noninterest income 23,414 23,885
96,580 89,485
Noninterest expense
Salaries and wages 30,376 27,302
Employee benefits 5,938 4,896
Occupancy expense 5,737 5,426
Equipment expense 6,951 6,004
Other 21,582 19,657
Total noninterest expense 70,584 63,285
Income before income taxes 25,996 26,200
Income taxes 9,404 9,374
Net income $16,592 $16,826
Per Share
Net income $1.46 $1.52
Cash dividends 0.25 0.225
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Unrealized Gain
Class A Class B on Marketable
Common Common Retained Equity Securities, Total
(thousands, except share data, unaudited) Stock Stock Surplus Earnings Net of Taxes Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 - $520,837
Issuance of 668,959 shares of Class A
common stock for acquisition 669 32,734 33,403
Issuance of 8,746 shares of Class A
common stock pursuant to the
Dividend Reinvestment Plan 9 114 123
Issuance of 34,414 shares of Class A
common stock pursuant to employee
stock purchase plans 34 1,600 1,634
Net income 16,826 16,826
Cash dividends (2,565) (2,565)
Balance at March 31, 1996 $9,662 $1,766 $141,402 $417,428 - $570,258
Balance at December 31, 1996 $9,652 $1,759 $143,760 $453,640 $6,696 $615,507
Redemption of 14,018 shares of Class A
common stock and 1,206 shares of
Class B common stock (14) (1) (1,139) (1,154)
Net income 16,592 16,592
Unrealized gain on marketable equity
securities, net of taxes 1,173 1,173
Cash dividends (2,853) (2,853)
Balance at March 31, 1997 $9,638 $1,758 $143,760 $466,240 $7,869 $629,265
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Month Ended March 31
(thousands, unaudited) 1997 1996
<S> <C> <C>
Operating Activities
Net income $16,592 $16,826
Adjustments:
Amortization of intangibles 2,117 1,787
Provision for loan losses 1,567 1,544
Deferred tax benefit (1,833) (726)
Change in current taxes payable 9,565 9,484
Depreciation 4,461 4,187
Change in accrued interest payable (9,464) (7,244)
Change in income earned not collected 3,393 186
Origination of loans held for sale (52,676) (26,893)
Proceeds from sale of loans 31,279 21,244
Loss (gain) on mortgage loans 2,829 (222)
Net amortization of premiums and discounts 1,657 4,378
Net change in other assets (1,506) (6,232)
Net change in other liabilities (1,854) (5,941)
Net cash provided by operating activities 6,127 12,378
Investing Activities
Net increase in loans outstanding (7,606) (46,341)
Purchases of investment securities (139,752) (269,164)
Proceeds from maturities of investment securities 213,400 260,533
Net change in federal funds sold (51,000) (49,715)
Dispositions of premises and equipment 305 1,680
Additions to premises and equipment (11,729) (9,472)
Purchase of institutions, net of cash acquired - 7,584
Net cash used by investing activities 3,618 (104,895)
Financing Activities
Net change in time deposits 34,830 123,970
Net change in other deposits (77,052) 23,467
Net change in short-term borrowings (48,653) (74,130)
Repurchases of common stock (1,154) -
Proceeds from issuance of stock - 1,757
Cash dividends paid (2,853) (2,565)
Net cash provided by financing activities (94,882) 72,499
Change in cash and due from banks (85,137) (20,018)
Cash and due from banks at beginning of period 437029 448,630
Cash and due from banks at end of period $351,892 $428,612
Cash payments for:
Interest $71,170 $69,668
Income taxes 26 960
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions - $33,403
Long-term obligations issued for acquisitions - 1,468
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
NOTE A
ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
statements. In the opinion of management, the consolidated statements contain
all material adjustments necessary to present fairly the financial position of
First Citizens BancShares, Inc. ("BancShares") as of and for each of the periods
presented, and all such adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the financial statements
and notes included in the 1996 First Citizens BancShares Annual Report, which is
incorporated by reference on Form 10-K.
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
1997 1996
First Fourth Third Second First
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $136,439 $137,655 $134,270 $132,702 $129,568
Interest income - taxable equivalent 136,961 138,222 134,837 133,283 130,159
Interest expense 61,706 62,964 61,378 61,484 62,424
Net interest income - taxable equivalent 75,255 75,258 73,459 71,799 67,735
Taxable equivalent adjustment 522 567 567 581 591
Net interest income 74,733 74,691 72,892 71,218 67,144
Provision for loan losses 1,567 3,321 1,787 2,255 1,544
Net interest income after provision for loan losses 73,166 71,370 71,105 68,963 65,600
Noninterest income 23,414 28,082 26,077 25,260 23,885
Noninterest expense 70,584 69,023 78,097 68,263 63,285
Income before income taxes 25,996 30,429 19,085 25,960 26,200
Income taxes 9,404 10,611 6,647 9,575 9,374
Net income $16,592 $19,818 $12,438 $16,385 $16,826
Selected Quarterly Averages
Total assets $7,903,566 $7,935,197 $7,670,538 $7,658,682 $7,462,756
Investment securities 2,094,376 2,097,690 1,919,935 1,990,346 1,984,027
Loans 4,921,346 4,895,815 4,907,435 4,884,818 4,679,692
Interest-earning assets 7,196,138 7,209,982 6,989,109 6,975,341 6,779,461
Deposits 6,823,697 6,831,926 6,641,427 6,660,204 6,477,795
Interest-bearing liabilities 6,203,598 6,185,161 6,017,476 6,043,119 5,934,180
Long-term obligations 6,809 6,866 7,762 15,676 23,763
Shareholders' equity $619,956 $599,953 $589,618 $576,742 $546,603
Shares outstanding 11,398,246 11,415,943 11,441,007 11,432,661 11,072,395
Profitability Ratios (averages)
Rate of return(annualized) on:
Total average assets 0.85 % 0.99 % 0.65 0.86 0.91 %
Average shareholders' equity 10.85 13.14 8.39 11.43 12.38
Dividend payout ratio 17.12 14.37 19.57 15.73 14.80
Liquidity and Capital Ratios (averages)
Loans to deposits 72.12 % 71.66 % 8.56 % 73.34 % 72.24 %
Shareholders' equity to total assets 7.84 7.56 7.69 7.53 7.32
Time certificates of $100,000 or more to total deposits 9.30 8.79 8.61 9.23 9.59
Per Share of Stock
Net income $1.46 $1.74 $1.15 $1.43 $1.52
Cash dividends 0.25 0.250 0.225 0.225 0.225
Book value at period-end 55.22 53.94 51.89 51.03 50.19
Tangible book value at period-end 46.89 45.42 43.03 42.19 41.13
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Outstanding Loans by Type
<TABLE>
<CAPTION>
Table 2
1997 1996
First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development $103,361 $109,806 $107,651 $110,162 $110,520
Mortgage:
1-4 family residential 1,529,972 1,542,836 1,587,352 1,615,712 1,604,954
Commercial 906,408 882,067 850,358 833,733 799,800
Equity Line 430,924 411,856 411,893 409,121 401,501
Other 134,852 132,954 135,241 137,463 134,128
Commercial and industrial 533,812 514,535 516,857 506,913 483,245
Consumer 1,230,501 1,251,704 1,218,605 1,223,871 1,222,243
Lease financing 69,496 68,694 69,984 67,647 63,943
Other 15,809 16,056 16,807 17,152 16,739
Total loans 4,955,135 4,930,508 4,914,748 4,921,774 4,837,073
Less reserve for loan losses 81,459 81,439 81,192 81,026 80,433
Net loans $4,873,676 $4,849,069 $4,833,556 $4,840,748 $4,756,640
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Investment Securities
<TABLE>
<CAPTION>
Table 3
March 31, 1997 March 31, 1996
Average Taxable Average Taxable
Book Market Maturity Equivalent Book Market Maturity Equivalent
(thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government:
Within one year $859,427 $856,108 0/7 5.77 % $890,553 $893,026 0/6 5.72 %
One to five years 1,185,615 1,177,229 1/10 5.84 1,093,492 1,088,506 2/0 5.68
Five to ten years 3,106 3,029 6/10 5.67 2,454 2,423 7/0 6.17
Over 10 years 7,256 7,287 18/10 7.45 9,289 9,380 18/8 7.51
Total 2,055,404 2,043,653 1/4 5.81 1,995,788 1,993,335 1/5 5.70
State, county and municipal:
Within one year 1,227 1,433 0/6 6.31 666 668 0/4 6.84
One to five years 3,671 3,729 2/9 7.07 3,989 4,249 2/9 6.62
Five to ten years 1,119 1,136 5/5 6.17 2,025 2,091 5/11 7.56
Over 10 years 185 185 12/5 1.30 195 195 21/5 9.14
Total 6,202 6,483 3/4 7.00 6,875 7,203 3/11 6.99
Other
Within one year 750 747 0/3 3.91 1,059 1,060 0/5 5.66
One to five years 1,135 1,123 1/6 12.58 1,878 1,865 2/0 10.25
Five to ten years 35 35 5/4 6.96 45 45 6/2 8.00
Total 1,920 1,905 11/4 10.45 2,982 2,970 1/8 8.58
Total investment securities $2,063,526 $2,052,041 1/4 5.83 % $2,005,645 $2,003,508 1/5 5.71 %
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
<TABLE>
<CAPTION>
Table 4
1997 1996 Increase (decrease) due to:
Interest Interest
Average Income Yield Average Income Yield Yield
(thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans:
Secured by real estate $3,080,505 $62,950 8.21 % $2,921,551 $61,041 8.32 % $2,981 ($1,072) $1,909
Commercial and industrial 521,449 11,301 8.37 475,654 10,758 8.70 968 (425) 543
Consumer 1,235,238 28,274 9.13 1,204,973 27,317 9.03 667 290 957
Lease financing 68,406 1,460 8.54 61,286 1,222 7.98 147 91 238
Other 15,748 304 7.83 16,228 316 7.82 (11) (1) (12)
Total loans 4,921,346 104,289 8.54 4,679,692 100,654 8.63 4,752 (1,117) 3,635
Investment securities:
U. S. Government 2,085,995 30,073 5.85 1,973,763 27,740 5.65 1,462 871 2,333
State, county and municipal 6,142 118 7.79 7,290 139 7.67 (22) 1 (21)
Other 2,239 34 6.16 2,974 45 6.09 (11) 0 (11)
Total investment securities 2,094,376 30,225 5.85 1,984,027 27,924 5.66 1,429 872 2,301
Federal funds sold 180,416 2,447 5.50 115,742 1,581 5.49 869 (3) 866
Total interest-earning assets $7,196,138 $136,961 7.68 % $6,779,461 $130,159 7.71 % $7,050 ($248) $6,802
Liabilities
Deposits:
Checking with Interest $901,767 $2,415 1.09 % $855,162 $2,983 1.40 % $123 ($691) ($568)
Savings 710,509 3,621 2.07 703,574 3,783 2.16 16 (178) (162)
Money market accounts 878,538 7,794 3.60 808,401 7,125 3.54 581 88 669
Time deposits 3,338,882 43,547 5.29 3,204,344 44,280 5.56 1,622 (2,355) (733)
Total interest-bearing deposits 5,829,696 57,377 3.99 5,571,481 58,171 4.20 2,342 (3,136) (794)
Federal funds purchased 36,438 570 6.34 54,033 751 5.59 (262) 81 (181)
Repurchase agreements 23,128 238 4.17 21,229 233 4.41 19 (14) 5
Master notes 285,340 3,014 4.28 240,322 2,604 4.36 471 (61) 410
U. S. Treasury tax and loan accounts 12,879 224 7.05 14,123 182 5.18 (20) 62 42
Other short-term borrowings 9,308 141 6.14 9,229 96 4.18 1 44 45
Long-term obligations 6,809 142 8.46 23,763 387 6.55 (315) 70 (245)
Total interest-bearing liabilities $6,203,598 $61,706 4.03 % $5,934,180 $62,424 4.23 % $2,236 ($2,954) ($718)
Interest rate spread 3.65 % 3.48 %
Net interest income and net yield on
interest-earning assets $75,255 4.24 % $67,735 4.02 % $4,814 $2,706 $7,520
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
<PAGE>
Summary of Loan Loss Experience and Risk Elements
<TABLE>
<CAPTION>
Table 5
1997 1996
First Fourth Third Second First
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Reserve balance at beginning of period $81,439 $81,192 $81,026 $80,433 $78,495
Reserve of acquired institution - - - - 1,387
Provision for loan losses 1,557 3,321 1,787 2,255 1,544
Net charge-offs:
Charge-offs (3,538) (3,860) (2,697) (2,663) (2,433)
Recoveries 2,001 786 1,076 1,001 1,440
Net charge-offs (1,537) (3,074) (1,621) (1,662) (993)
Reserve balance at end of period $81,459 $81,439 $81,192 $81,026 $80,433
Historical Statistics
Balances
Average total loans $4,921,346 $4,895,815 $4,907,435 $4,884,818 $4,679,692
Total loans at period-end 4,955,135 4,930,508 4,914,748 4,921,774 4,837,073
Risk Elements
Nonaccrual loans $14,628 $12,810 $14,213 $14,695 $13,489
Other real estate acquired through foreclosure 1,337 1,160 1,634 1,436 2,555
Total nonperforming assets $15,965 $13,970 $15,847 $16,131 $16,044
Accruing loans 90 days or more past due $5,748 $4,983 $5,601 $4,928 $5,300
Ratios
Net charge-offs (annualized) to average total loans 0.13 % 0.25 % 0.13 % 0.14 % 0.09 %
Reserve for loan losses to total loans at period-end 1.64 1.65 1.65 1.65 1.66
Nonperforming assets to total loans plus foreclosed real
estate at period-end 0.32 0.28 0.32 0.33 0.33
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1997
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"). It should be read in conjunction with
the unaudited Consolidated Financial Statements and related note
presented elsewhere in this report. The focus of this discussion
concerns BancShares' financial institution subsidiaries, because
BancShares itself made an insignificant contribution to the consolidated
totals. First-Citizens Bank & Trust Company ("FCB") operates branches
in North Carolina and Virginia; Bank of Marlinton ("Marlinton") and
Bank of White Sulphur Springs ("WSS") operate in West Virginia; and
Atlantic States Bank ("ASB"), which began operations during April 1997,
has offices in North Carolina and Georgia.
SUMMARY
BancShares realized a decrease in earnings of 1.4 percent during the
first quarter of 1997 compared to the first quarter of 1996.
Consolidated net income during the first quarter of 1997 was $16.6
million, compared to $16.8 million earned during the corresponding
period of 1996. The decrease in earnings resulted from lower
noninterest income. Net income per share during the first quarter of
1997 totaled $1.46, compared to $1.52 during the first quarter of 1996.
Return on average assets was 0.85 percent for the first quarter of 1997
compared to 0.91 percent during the same period of 1996. Other
profitability, liquidity and capital ratios are presented in Table 1.
To understand the changes and trends in interest-earning assets and
interest-bearing liabilities, refer to the average balances, interest
income and expense, and yields and rates presented in Table 4.
INTEREST-EARNING ASSETS
Average interest-earning assets for the first quarter of
1997 totaled $7.20 billion, an increase of $416.7 million or 6.15
percent from the first quarter of 1996. Most of this increase results
from growth in the investment and loan portfolios. Loans. At March 31,
1997, and 1996, gross loans totaled $4.96 billion and $4.84 billion,
respectively. As of December 31, 1996, gross loans were $4.93 billion.
The $118.1 million growth in loans from March 31, 1996 to March 31, 1997
results growth within BancShares' commercial loan products and home
equity loans during 1996. Table 2 details outstanding loans by type for
the past five quarters. During the first quarter of 1997, average total
loans were $4.92 billion, an increase of $241.7 million or 5.2 percent
from the comparable period of 1996. Consumer loans averaged $1.24
billion during the first quarter of 1997, compared to $1.20 billion
during the same period of 1996, an increase of $30.3 million or 2.5
percent. Average loans secured by real estate increased $159 million
between the two periods, a 5.4 percent increase. Retail loan demand
within the branch network remains at modest levels, while demand for
commercial-purpose lending has improved during the past six months. As
of March 31, 1997, $142.7 million in fixed-rate residential mortgage
loans are held for sale. Due to unrealized losses existing in this
portfolio as of March 31, 1997, a valuation reserve of $3.3 million
exists to adjust the loans to their fair value. Given the current upward
pressure on interest rates, loan growth for the remainder of 1997 is
likely to be constrained, as higher rates will likely deter retail
borrowers and may also impair commercial customers. Investment
securities. At March 31, 1997, and 1996, the investment portfolio
totaled $2.06 billion and $2.01 billion, respectively. At December 31,
1996, the investment portfolio was $2.14 billion. The 2.9 percent
increase in the investment portfolio in one year resulted from deposit
growth that has resulted in excess liquidity being invested in the
investment securities portfolio. All investment securities are
classified as held-to-maturity, as BancShares has the ability and the
positive intent to hold its investment portfolio until maturity. Table
3 presents detailed information relating to the investment securities
portfolio. Income on Interest-Earning Assets. Taxable equivalent
interest income amounted to $137 million during the first quarter of
1997, a 5.2 percent increase over the first quarter of 1996. Taxable
equivalent interest income benefitted from favorable volume variances,
as balance sheet growth contributed to higher interest income in the
first quarter of 1997 when compared to the same period of 1996. The
average yield on total interest-earning assets for the first quarter of
1997 was 7.68 percent, compared to 7.71 percent for the corresponding
period of 1996, a 3 basis point decrease resulting from lower yields on
the loan portfolio. Taxable equivalent loan interest income for the
first quarter of 1997 was $104.3 million, an increase of $3.6 million or
3.6 percent from first quarter of 1996, primarily due to growth in the
portfolio of loans secured by real estate. The taxable equivalent yield
on the loan portfolio was 8.54 percent during the first quarter of 1997,
compared to 8.63 percent during the same period of 1996. Taxable
equivalent income earned on the investment securities portfolio amounted
to $30.2 million during the first quarter of 1997 and $27.9 million
during the same period of 1996, an increase of $2.3 million or 8.2
percent resulting from an average portfolio increase of $110.3 million.
Additionally, the securities portfolio experienced a 19 basis point
increase in the taxable equivalent yield, increasing from 5.66 percent
for the quarter ended March 31, 1996, to 5.85 percent for the quarter
ended March 31, 1997.
INTEREST-BEARING LIABILITIES.
At March 31, 1997 and 1996, interest-bearing liabilities totaled $6.22
billion and $6.13 billion, respectively, compared to $6.27 billion as of
December 31, 1996. Average interest-bearing liabilities for the first quarter
of 1997 totaled $6.20 billion, an increase of 4.5 percent from the first quarter
of 1996. Interest-bearing deposits account for much of the growth. Deposits. At
March 31, 1997, total deposits were $6.91 billion, an increase of $167.9 million
or 2.5 percent over March 31, 1996. Compared to the December 31, 1996 balance of
$6.95 billion, total deposits have decreased $42 million. Average
interest-bearing deposits were $5.83 billion during the first quarter of 1997
compared to $5.57 billion during the first quarter of 1996, an increase of 4.6
percent. Much of the increase is attributed to average time deposits and average
money market accounts, which increased $134.5 million and $70.1 million,
respectively, from the first quarter of 1996 to the first quarter of 1997.
Average Checking With Interest accounts increased $46.6 million from the first
quarter of 1996 to the first quarter of 1997. Time deposits of $100,000 or more
averaged 9.3 percent of total average deposits during the first quarter of 1997,
compared to 9.6 percent during the same period of 1996. Management does not
consider the level of these volatile deposits to be excessive at the current
levels. Borrowed Funds. At March 31, 1997, short-term borrowings totaled $343.4
million compared to $392 million at December 31, 1996 and $326.8 million at
March 31, 1996. For the quarters ended March 31, 1997 and 1996, short-term
borrowings averaged $367.1 million and $338.9 million, respectively. The growth
is due to a $45 million increase in average Master Note borrowings. Long-term
obligations averaged $6.8 million during the first quarter of 1997, compared to
$23.8 million during the first quarter of 1996, that reduction reflecting the
reclassification of borrowings from long-term to short-term as the scheduled
maturity date becomes less than one year hence. Expense on Interest-Bearing
Liabilities. BancShares' interest expense amounted to $61.7 million during the
first quarter of 1997, a $718,000 or 1.2 percent decrease from the first quarter
of 1996. The lower interest expense resulted from the 20 basis point decrease in
the aggregate rate on interest bearing liabilities, more than offsetting the
impact of a $269.4 million increase in average interest-bearing liabilities.
The rate on these liabilities was 4.03 percent during the first quarter of 1997,
compared to 4.23 percent during the first quarter of 1996.
NET INTEREST INCOME
Taxable equivalent net interest income totaled $75.3 million during the
first quarter of 1997, an increase of 11.1 percent from the first quarter of
1996. The average net yield on interest-earning assets was 4.24 percent for the
first quarter of 1997, 22 basis points above the net yield recorded during the
first quarter of 1996. The taxable equivalent interest rate spread for the
first quarter of 1997 was 3.65 compared to 3.48 percent for the same period of
1996. The higher net yield and interest rate spreads resulted from lower
interest rates paid on interest-bearing liabilities. Currently, upward pressure
on interest rates may result in higher market rates on interest sensitive assets
and liabilities. Such increases could result in a reduction in the net yield.
Management is aware of the potential negative impact increases in interest rates
may have on net interest income. A principal objective of BancShares' asset
liability function is to manage interest rate risk or the exposure to changes in
interest rates. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure.
ASSET QUALITY
Reserve for loan losses. Management continuously analyzes the growth
and risk characteristics of the total loan portfolio under current and
projected economic conditions in order to evaluate the adequacy of the
reserve for loan losses. Such factors as the financial condition of the
borrower, fair market value of collateral and other considerations are
recognized in estimating possible credit losses. At March 31, 1997, the
reserve for loan losses amounted to $81.5 million or 1.64 percent of
loans outstanding. This compares to $81.4 million or 1.65 percent at
December 31, 1996, and $80.4 million or 1.66 percent at March 31, 1996.
The provision for loan losses charged to operations during the first
quarter of 1997 was $1.6 million, compared to $1.5 million during the
first quarter of 1996. Net charge-offs for the quarter ended March 31,
1997 totalled $1.5 million, compared to net charge-offs of $1.0 million
during the same period of 1996. The higher net charge-offs recorded
during the first quarter of 1997 resulted from higher net charge-offs in
the installment and credit card portfolios. Management anticipates
losses within the retail loan portfolios will continue in the coming
quarters at levels similar to those experienced during the first
quarter. However, management remains confident that the established
reserves are adequate to absorb losses that relate to loans outstanding
at March 31, 1997. While management uses available information to
establish provisions for loan losses, future additions to the reserve
may be necessary based on changes in economic conditions or other
factors. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the reserve for loan
losses. Such agencies may require the recognition of additions to the
reserve based on their judgments of information available to them at the
time of their examination. Table 5 provides details concerning the
reserve and provision for loan losses over the past five quarters.
Nonperforming assets. At March 31, 1997, BancShares' nonperforming
assets amounted to $16 million or 0.32 percent of gross loans plus
foreclosed properties, compared to $14 million at December 31, 1996, and
$16 million at March 31, 1996. Management continues to closely monitor
nonperforming assets, taking necessary actions to minimize potential
exposure.
NONINTEREST INCOME
Noninterest income decreased 2.0 percent during the first quarter of
1997 to $23.4 million. This compares to $23.9 million for the first
quarter of 1996. The decrease in noninterest income during the first
quarter of 1997 is the result of writedowns of $3 million taken to
reduce the carrying value of the mortgage loans available for sale to
their fair value. These writedowns, which are classified as other
noninterest income, became necessary due to higher balances classified
as available for sale as well as adverse changes in market rates during
the first quarter. Service charges remain the principal source of
noninterest income, representing $10 million during the first quarter of
1997 and $10 million during the same period of 1996. Despite growth in
deposit accounts, service charge income was flat due to a higher
earnings credit on commercial deposit accounts. Other service charges
and fees contributed $6.4 million during the first quarter of 1997,
compared to $5.8 million during the same period of 1996. This 11.3
percent increase between the two periods resulted from earnings
generated by services provided to affiliate banks as well as higher fee
income generated by First Citizens Investor Services. Credit card
income amounted to $4.1 million, an increase of 24.5 percent over 1996
due to higher merchant income and higher interchange income.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1997 amounted to $70.6
million. This was a 11.5 percent increase over the first quarter of
1996. Salaries and wages increased 11.3 percent between the periods,
primarily the result of merit raises which became effective in April
1996 and the growth in sales incentive payments to branch associates.
Further increases resulted from the addition of personnel related to the
FCDirect, the alternative delivery network that saw significant
expansion during 1996. Occupancy expense increased 5.7 percent during
the first quarter of 1997, compared to the corresponding period of 1996
due to increased depreciation expense resulting from new and renovated
branch facilities. Other expenses increased by $1.9 million or 9.8
percent. This increase is largely the result of higher advertising
expense, legal expense, and intangible amortization expense. INCOME
TAXES Income tax expense amounted to $9.4 million during the first
quarter of 1997, compared to $9.4 million during the first quarter of
1996. The effective tax rates for these periods were 36.2 percent and
35.8 percent, respectively. The increase in the effective tax rate from
1996 to 1997 results from an increase in nondeductible goodwill
amortization and higher North Carolina state income tax expense.
LIQUIDITY
Management relies on the investment portfolio as a source of
liquidity, with maturities designed to provide needed cash flows.
Further, retail deposits generated throughout the branch network has
enabled management to fund asset growth and maintain liquidity. These
sources have allowed limited dependence on short-term borrowed funds for
liquidity or for asset expansion. In the event additional liquidity is
needed, BancShares does maintain readily available sources to borrow
funds as needed through its correspondent network.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all
minimum regulatory capital requirements. At March 31, 1997, and 1996, the
leverage capital ratio of BancShares was 6.8 percent and 6.2 percent,
respectively, surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' core capital ratio was 10.2 percent at March
31, 1997, and 9.7 percent at March 31, 1996. The minimum ratio allowed is 4
percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.5
percent at March 31, 1997, compared to 11 percent at March 31, 1997, both above
the minimum 8 percent level. On a consolidated basis, BancShares satisfies the
'well-capitalized' definition that is used by the FDIC in its evaluation of
member banks.
CURRENT ACCOUNTING AND REGULATORY ISSUES
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," SFAS No. 128
"Earnings Per Share" and SFAS No. 129 "Disclosure of Information about Capital
Structure," (collectively, the "Pronouncements"). The Pronouncements are
effective for 1997 and require disclosures regarding the matters included in the
respective titles. Adoption of each of the Pronouncements is not expected to
have a material impact on BancShares' consolidated financial statements.
Management is not aware of any current recommendations by the regulatory
authorities that, if implemented, would have or would be reasonably likely to
have a material effect on liquidity, capital ratios or results of operations.
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