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, 1998
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-- 8,905,199 shares
Class B Common Stock--$1 Par Value-- 1,721,208 shares
(Number of shares outstanding, by class, as of May 13, 1998)
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1998,
December 31, 1997, and March 31, 1997
Consolidated Statements of Income for the three-month
periods ended March 31, 1998, and March 31, 1997
Consolidated Statements of Changes in Shareholders' Equity
for the three-month periods ended March 31, 1998,
and March 31, 1997
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1998, and March 31, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Market Risk Disclosures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
3.(ii) Amended Bylaws of Registrant
<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 13, 1998 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1998
<PAGE>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
March 31* December 31# March 31*
(thousands, except share data) 1998 1997 1997
<S> <C> <C> <C>
Assets
Cash and due from banks $442,482 $506,771 $351,892
Investment securities held to maturity 2,498,079 2,456,722 2,063,526
Investment securities available for sale 28,287 26,572 25,239
Federal funds sold 235,000 81,775 207,000
Loans 5,562,831 5,445,772 4,955,135
Less reserve for loan losses 85,985 84,360 81,459
Net loans 5,476,846 5,361,412 4,873,676
Premises and equipment 304,966 278,473 236,459
Income earned not collected 62,347 66,631 56,782
Other assets 204,022 172,753 161,043
Total assets $9,252,029 $8,951,109 $7,975,617
Liabilities
Deposits:
Noninterest-bearing $1,193,282 $1,131,498 $1,044,176
Interest-bearing 6,680,202 6,448,069 5,867,630
Total deposits 7,873,484 7,579,567 6,911,806
Short-term borrowings 486,599 593,824 343,448
Long-term obligations 160,219 10,856 6,827
Other liabilities 116,691 165,222 84,271
Total liabilities 8,636,993 8,349,469 7,346,352
Shareholders' equity
Common stock:
Class A-$1 par value( 8,905,199; 8,905,199;
and 9,637,882 shares issued, respectively) 8,906 8,906 9,638
Class B-$1 par value(1,722,254; 1,722,254;
and 1,757,774 shares issued, respectively) 1,722 1,722 1,758
Surplus 143,760 143,760 143,760
Retained earnings 449,911 437,794 466,240
Unrealized gains on investment securities available 10,737 9,458 7,869
Total shareholders' equity 615,036 601,640 629,265
Total liabilities and shareholders' equity $9,252,029 $8,951,109 $7,975,617
* Unaudited
# Derived from the Consolidated Balance Sheets included in the 1997 Annual Report on Form 10-K
See accompanying Notes to Consolidated Financial Statements.
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1998
<PAGE>
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended March 31
(thousands, except per share data, unaudited) 1998 1997
<S> <C> <C>
Interest income
Loans $112,166 $103,808
Investment securities:
U. S. Government 35,175 30,073
State, county and municipal 58 77
Other 18 34
Total investment securities interest income 35,251 30,184
Federal funds sold 2,053 2,447
Total interest income 149,470 136,439
Interest expense
Deposits 63,874 57,377
Short-term borrowings 6,468 4,187
Long-term obligations 1,105 142
Total interest expense 71,447 61,706
Net interest income 78,023 74,733
Provision for loan losses 4,395 1,567
Net interest income after provision for loan losses 73,628 73,166
Noninterest income
Trust income 3,031 2,778
Service charges on deposit accounts 10,760 9,930
Credit card income 5,323 4,066
Other service charges and fees 7,877 6,447
Net gain (loss) on available for sale loans 1,089 (2,829)
Other 3,815 3,022
Total noninterest income 31,895 23,414
Noninterest expense
Salaries and wages 33,658 30,376
Employee benefits 6,746 5,938
Occupancy expense 6,558 5,737
Equipment expense 8,780 6,951
Other 25,277 21,582
Total noninterest expense 81,019 70,584
Income before income taxes 24,504 25,996
Income taxes 8,844 9,404
Net income $15,660 $16,592
Per Share
Net income $1.39 $1.46
Cash dividends 0.25 0.25
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Class A Class B Unrealized Total
Common Common Retained Securities Gains Shareholders'
(thousands, except share data, unaudited) Stock Stock Surplus Earnings Net of Taxes Equity
<S> <C> <C> <C> <C> <C> <C>
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 sto (14) (1) (1,139) (1,154)
Net income 16,592 16,592
Unrealized gains on investment securities 1,173 1,173
available for sale, net of taxes (2,853) (2,853)
Cash dividends
Balance at March 31, 1997 $9,638 $1,758 $143,760 $466,240 $7,869 $629,265
Balance at December 31, 1997 $8,906 $1,722 $143,760 $437,794 $9,458 $601,640
Obligations to repurchase common stock (848) (848)
Net income 15,660 15,660
Unrealized gains on investment securities
available for sale, net of taxes 1,279 1,279
Cash dividends (2,695) (2,695)
Balance at March 31, 1998 $8,906 $1,722 $143,760 $449,911 $10,737 $615,036
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended March 31
(thousands, unaudited) 1998 1997
<S> <C> <C>
Operating Activities
Net income $15,660 $16,592
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles 2,537 2,117
Provision for loan losses 4,395 1,567
Deferred tax expense (benefit) 1,713 (1,833)
Change in current taxes payable 10,395 9,565
Depreciation 6,371 4,461
Change in accrued interest payable (7,081) (9,464)
Change in income earned not collected 4,284 3,393
Origination of loans held for sale (136,308) (52,676)
Proceeds from sale of loans 178,441 31,279
Loss (gain) on mortgage loans (1,069) 2,829
Net amortization of premiums and discounts 2,434 1,657
Net change in other assets 1,490 (1,506)
Net change in other liabilities (54,386) (1,854)
Net cash provided by operating activities 28,876 6,127
Investing Activities
Net increase in loans outstanding (152,190) (7,606)
Purchases of investment securities held to maturity (449,156) (139,752)
Proceeds from maturities and calls of investment securities held to maturity 403,650 213,400
Net change in federal funds sold (153,225) (51,000)
Dispositions of premises and equipment 9 305
Additions to premises and equipment (29,258) (11,729)
Purchase of branches, net of cash paid 249,702 -
Net cash (used) provided by investing activities (130,468) 3,618
Financing Activities
Net change in time deposits (240,437) 34,830
Net change in demand and other interest-bearing deposits 238,297 (77,052)
Net change in short-term borrowings (107,862) (48,653)
Origination of long-term borrowings 150,000 -
Repurchases of common stock - (1,154)
Cash dividends paid (2,695) (2,853)
Net cash provided (used) by financing activities 37,303 (94,882)
Change in cash and due from banks (64,289) (85,137)
Cash and due from banks at beginning of period 506,771 437,029
Cash and due from banks at end of period $442,482 $351,892
Cash payments for:
Interest $79,323 $71,170
Income taxes 115 26
Supplemental disclosure of noncash investing and financing activities:
Unrealized gain on investment securities available for sale 2,054 -
Obligations to repurchase common stock 848 -
See accompanying Note to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
Table 1
1998 1997
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 $149,470 $150,225 $145,494 $140,118 $136,439
Interest expense 71,447 72,818 68,947 64,542 61,706
Net interest income 78,023 77,407 76,547 75,576 74,733
Provision for loan losses 4,395 3,753 1,309 2,097 1,567
Net interest income after provision for loan losses 73,628 73,654 75,238 73,479 73,166
Noninterest income 31,895 31,912 31,087 28,894 23,414
Noninterest expense 81,019 78,832 76,561 74,817 70,584
Income before income taxes 24,504 26,734 29,764 27,556 25,996
Income taxes 8,844 9,370 10,746 9,972 9,404
Net income $15,660 $17,364 $19,018 $17,584 $16,592
Net interest income-taxable equivalent $78,541 $78,327 $77,052 $76,092 $75,255
Selected Quarterly Averages
Total assets $8,927,355 $8,794,596 $8,411,774 $8,099,236 $7,903,566
Investment securities 2,442,962 2,503,443 2,359,115 2,166,362 2,094,376
Loans 5,474,570 5,324,286 5,073,404 5,023,409 4,921,346
Interest-earning assets 8,067,590 7,994,728 7,632,755 7,368,645 7,196,138
Deposits 7,619,330 7,427,881 7,144,502 6,952,848 6,823,697
Interest-bearing liabilities 7,096,124 6,924,776 6,608,892 6,341,125 6,203,598
Long-term obligations 55,814 11,450 12,017 11,545 6,809
Shareholders' equity $607,608 $649,214 $651,923 $635,680 $619,956
Shares outstanding 10,627,453 11,378,368 11,389,472 11,394,965 11,398,246
Selected Quarter-End Balances
Total assets $9,252,029 $8,951,109 $8,595,591 $8,351,978 $7,975,617
Investment securities 2,526,366 2,483,294 2,432,424 2,271,282 2,063,526
Loans 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135
Interest-earning assets 8,324,197 8,010,841 7,710,619 7,467,252 7,225,661
Deposits 7,873,484 7,579,567 7,297,884 7,127,282 6,911,806
Interest-bearing liabilities 7,327,020 7,052,749 6,744,133 6,501,771 6,217,905
Long-term obligations 160,219 10,856 11,482 12,150 6,827
Shareholders' equity $615,036 $601,640 $662,490 $644,210 $629,265
Shares outstanding 10,627,453 10,627,453 11,389,928 11,392,085 11,395,656
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.71% 0.78% 0.90% 0.87% 0.85%
Shareholders' equity 10.45 10.61 11.57 11.10 10.85
Dividend payout ratio 17.99 16.13 14.97 16.23 17.12
Liquidity and Capital Ratios (averages)
Loans to deposits 71.85% 71.68% 71.01% 72.25% 72.12%
Shareholders' equity to total assets 6.81 7.38 7.75 7.85 7.84
Time certificates of $100,000 or more to total
deposits 9.77 10.05 9.68 9.36 9.30
Per Share of Stock
Net income $1.39 $1.55 $1.67 $1.54 $1.46
Cash dividends 0.25 0.25 0.25 0.25 0.25
Book Value at period end 57.87 56.61 58.16 56.55 55.22
Tangible book value at period end 45.48 47.11 49.27 48.10 46.89
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Outstanding Loans by Type
<TABLE>
<CAPTION>
Table 2
1998 1997
First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development $127,260 $113,735 $108,363 $109,125 $103,361
Mortgage:
1-4 family residential 1,370,264 1,411,279 1,411,922 1,383,250 1,529,972
Commercial 1,147,844 1,055,529 970,553 942,637 906,408
Equity Line 626,931 603,714 548,959 510,067 430,924
Other 136,191 136,639 133,661 134,793 134,852
Commercial and industrial 675,136 633,580 588,158 569,327 533,812
Consumer 1,389,079 1,402,093 1,355,783 1,258,330 1,230,501
Lease financing 77,161 74,589 75,922 73,861 69,496
Other 12,965 14,614 14,874 15,380 15,809
Total loans 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135
Less reserve for loan losses 85,985 84,360 83,385 81,902 81,459
Net loans $5,476,846 $5,361,412 $5,124,810 $4,914,868 $4,873,676
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Investment Securities
<TABLE>
<CAPTION>
Table 3
March 31, 1998 March 31, 1997
Average Taxable Average Taxable
Book Fair Maturity Equivalent Book Fair Maturity Equivale
(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 $967,621 $968,826 0/7 5.83 % $859,427 $856,108 0/7 5.77 %
One to five years 1,519,594 1,524,174 1/8 5.90 1,185,615 1,177,229 1/10 5.84
Five to ten years 726 713 5/10 6.84 3,106 3,029 6/10 5.67
Over 10 years 4,248 4,366 19/7 7.49 7,256 7,287 18/10 7.45
Total 2,492,189 2,498,079 1/4 5.87 2,055,404 2,043,653 1/4 5.81
State, county and municipal:
Within one year 1,656 1,665 0/8 6.40 1,227 1,433 0/6 6.31
One to five years 2,893 2,988 3/4 7.32 3,671 3,729 2/9 7.07
Five to ten years 175 175 19/5 9.14 1,119 1,136 5/5 6.17
Over 10 years 185 185 12/5 1.30
Total 4,724 4,828 3/0 7.03 6,202 6,483 3/4 7.00
Other
Within one year 901 899 0/6 14.10 750 747 0/3 3.91
One to five years 265 265 1/9 5.29 1,135 1,123 1/6 12.58
Five to ten years 35 35 5/4 6.96
Total 1,166 1,164 0/8 13.23 1,920 1,905 0/11 10.45
Marketable equity securities 10,478 28,287 12,150 25,239
Total investment securities $2,508,557 $2,532,358 1/4 5.88 % $2,075,676 $2,077,280 1/4 5.83 %
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
<TABLE>
<CAPTION>
Table 4
1998 1997 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 $3,353,851 $66,929 8.01 % $3,080,505 $62,950 8.21 % $5,516 ($1,537) $3,979
Commercial and industrial 635,308 13,889 8.65 521,449 11,301 8.37 2,300 288 2,588
Consumer 1,396,165 29,947 8.50 1,235,238 28,274 9.13 3,607 (1,934) 1,673
Lease financing 75,444 1,654 8.77 68,406 1,460 8.54 152 42 194
Other 13,802 233 6.82 15,748 304 7.83 (35) (36) (71)
Total loans 5,474,570 112,652 8.29 4,921,346 104,289 8.54 11,540 (3,177) 8,363
Investment securities:
U. S. Government 2,410,395 35,175 5.92 2,085,995 30,073 5.85 4,711 391 5,102
State, county and municipal 4,856 90 7.52 6,142 118 7.79 (24) (4) (28)
Other 27,711 18 0.26 2,239 34 6.16 202 (218) (16)
Total investment securities 2,442,962 35,283 5.86 2,094,376 30,225 5.85 4,889 387 5,058
Federal funds sold 150,058 2,053 5.55 180,416 2,447 5.50 (414) 20 (394)
Total interest-earning assets $8,067,590 $149,988 7.51 % $7,196,138 $136,961 7.68 % $16,015 ($2,770) $13,027
Liabilities:
Deposits:
Checking with Interest $998,771 $2,638 1.07 % $901,767 $2,415 1.09 % $264 ($41) $223
Savings 691,931 3,208 1.88 710,509 3,621 2.07 (87) (326) (413)
Money market accounts 1,060,634 9,444 3.61 878,538 7,794 3.60 1,622 28 1,650
Time deposits 3,767,206 48,584 5.23 3,338,882 43,547 5.29 5,559 (522) 5,037
Total interest-bearing deposits 6,518,542 63,874 3.97 5,829,696 57,377 3.99 7,358 (861) 6,497
Federal funds purchased 51,794 696 5.45 36,438 570 6.34 223 (97) 126
Repurchase agreements 59,884 638 4.32 23,128 238 4.17 385 15 400
Master notes 295,469 3,446 4.73 285,340 3,014 4.28 111 321 432
U. S. Treasury tax and loan accoun 16,214 197 4.93 12,879 224 7.05 49 (76) (27)
Other short-term borrowings 98,407 1,491 6.14 9,308 141 6.14 1,349 1 1,350
Long-term obligations 55,817 1,105 8.03 6,809 142 8.46 996 (33) 963
Total interest-bearing liabilities $7,096,127 $71,447 4.08 % $6,203,598 $61,706 4.03 % $10,471 ($730) $9,741
Interest rate spread 3.43 % 3.65 %
Net interest income and net yield on
interest-earning assets $78,541 3.95 % $75,255 4.24 % $5,544 ($2,040) $3,286
Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both
federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a
taxable-equivalent basis assuming a statutory federal income tax rate of 35% for each period, and state
income tax rates of 7.25% and 7.5% for 1998 and 1997,respectively.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
<PAGE>
Summary of Loan Loss Experience and Risk Elements
<TABLE>
<CAPTION>
Table 5
1998 1997
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 $84,360 $83,385 $81,902 $81,459 $81,439
Reserve of acquired loans - - 358 123 -
Provision for loan losses 4,395 3,753 1,309 2,107 1,557
Net charge-offs:
Charge-offs (3,409) (3,857) (3,162) (3,774) (3,538)
Recoveries 639 1,079 2,978 1,987 2,001
Net charge-offs (2,770) (2,778) (184) (1,787) (1,537)
Reserve balance at end of period $85,985 $84,360 $83,385 $81,902 $81,459
Historical Statistics
Balances
Average total loans $5,474,570 $5,324,286 $5,073,404 $5,023,409 $4,921,346
Total loans at period-end 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135
Risk Elements
Nonaccrual loans $14,797 $12,681 $11,983 $14,589 $14,628
Other real estate acquired through foreclosure 1,502 1,462 1,450 1,152 1,337
Total nonperforming assets $16,299 $14,143 $13,433 $15,741 $15,965
Accruing loans 90 days or more past due $4,837 $3,953 $4,157 $4,503 $5,748
Ratios
Net charge-offs (annualized) to average total loans 0.21 % 0.21 % 0.01 % 0.14 % 0.13
Reserve for loan losses to total loans at period-end 1.55 1.55 1.60 1.64 1.64
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.29 0.26 0.26 0.31 0.32
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1998
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 notes 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. BancShares operates three wholly-owned subsidiaries:
First-Citizens Bank & Trust Company , which operates branches in North Carolina
and Virginia; First-Citizens Bank & Trust Company which operates branches in
West Virginia; and Atlantic States Bank, which began operations during April
1997, and has offices in North Carolina and Georgia.
SUMMARY
BancShares realized a decrease in earnings of 5.4 percent during the
first quarter of 1998 compared to the first quarter of 1997. Consolidated net
income during the first quarter of 1998 was $15.7 million, compared to $16.6
million earned during the corresponding period of 1997. The decrease in
earnings resulted from higher interest expense and noninterest expense, although
these increases were partially offset by higher interest income and noninterest
income. Net income per share during the first quarter of 1998 totaled $1.39,
compared to $1.46 during the first quarter of 1997. Return on average assets
was 0.71 percent for the first quarter of 1998 compared to 0.85 percent during
the same period of 1997. 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 1998 totaled $8.07
billion, an increase of $871.5 million or 12.1 percent from the first quarter of
1997. This increase results from growth in the loan and investment portfolios.
Loans. At March 31, 1998, and 1997, gross loans totaled $5.56 billion
and $4.96 billion, respectively. As of December 31, 1997, gross loans were
$5.45 billion. The $607.7 million growth in loans from March 31, 1997 to March
31, 1998 results from growth among BancShares' home equity loans, commercial and
small business loan products and consumer loan products. Table 2 details
outstanding loans by type for the past five quarters. During the first quarter
of 1998, average total loans were $5.47 billion, an increase of $553.2 million
or 11.2 percent from the comparable period of 1997. Average loans secured by
real estate increased $273.3 million between the two periods, an 8.9 percent
increase. Consumer loans averaged $1.40 billion during the first quarter of
1998, compared to $1.24 billion during the same period of 1997, an increase of
$160.9 million or 13.0 percent. Despite a reduction in direct installment
lending, consumer loans benefited from an increase in indirect automobile
lending. Average commercial and industrial loans increased $113.9 million
between the two periods, a 21.8 percent increase, the result of continued growth
in small business lending. Current trends in loan demand suggest loan balances
will continue to grow through 1998.
Investment securities. At March 31, 1998, and 1997, the investment
portfolio totaled $2.53 billion and $2.09 billion, respectively. At December
31, 1997, the investment portfolio was $2.48 billion. The 21.0 percent increase
in the investment portfolio in one year resulted from excess liquidity being
invested in the investment securities portfolio. Much of this liquidity
resulted from the Signet branch acquisition in the first quarter of 1998. The
minimal increase in the portfolio from December 31, 1997 to March 31, 1998
results from maturing investments being used to fund loan growth and to fund
debt repayments. Except for marketable equity securities which are classified as
available for sale, all investment securities are classified as held to
maturity, as BancShares has the ability and the positive intent to hold these
investment securities until maturity. Table 3 presents detailed information
relating to the investment securities portfolio.
Income on Interest-Earning Assets. Interest income amounted to $149.5
million during the first quarter of 1998, a 9.6 percent increase over the first
quarter of 1997. Interest income benefited from favorable volume variances, as
balance sheet growth contributed to higher interest income in the first quarter
of 1998 when compared to the same period of 1997. The average yield on total
interest-earning assets for the first quarter of 1998 was 7.51 percent, compared
to 7.68 percent for the corresponding period of 1997, a 17 basis point decrease
resulting from lower yields on the loan portfolio. Loan interest income for the
first quarter of 1998 was $112.2 million, an increase of $8.4 million or 8.1
percent from first quarter of 1997, primarily due to growth in the portfolio of
loans secured by real estate, commercial and small business loans and the
consumer portfolio. The taxable equivalent yield on the loan portfolio was 8.29
percent during the first quarter of 1998, compared to 8.54 percent during the
same period of 1997. Income earned on the investment securities portfolio
amounted to $35.3 million during the first quarter of 1998 and $30.2 million
during the same period of 1997, an increase of $5.1 million or 16.7 percent
resulting from an average portfolio increase of $117.1 million. Additionally,
the securities portfolio experienced a slight increase in the taxable-equivalent
yield, increasing from 5.85 percent for the quarter ended March 31, 1997, to
5.86 percent for the quarter ended March 31, 1998.
INTEREST-BEARING LIABILITIES.
At March 31, 1998 and 1997, interest-bearing liabilities totaled $7.33
billion and $6.22 billion, respectively, compared to $7.05 billion as of
December 31, 1997. Average interest-bearing liabilities for the first quarter
of 1998 totaled $7.10 billion, an increase of 14.4 percent from the first
quarter of 1997. Interest-bearing deposits account for much of the growth.
During first quarter 1998, BancShares assumed $296.8 million in deposit
liabilities from fifteen branches of Signet Bank in southern and western
Virginia.
Deposits. At March 31, 1998, total deposits were $7.87 billion, an
increase of $961.7 million or 13.9 percent over March 31, 1997. Compared to the
December 31, 1997 balance of $7.58 billion, total deposits have increased $293.9
million, primarily the result of the Signet Bank transaction. Average
interest-bearing deposits were $6.52 billion during the first quarter of 1998
compared to $5.83 billion during the first quarter of 1997, an increase of
$688.8 million or 11.8 percent. Most of the increase is attributed to average
time deposits and average money market balances, which increased $428.3 million
and $182.1 million, respectively, from the first quarter of 1997 to the first
quarter of 1998. Average Checking With Interest deposits increased $97.0
million from the first quarter of 1997 to the first quarter of 1998. Time
deposits of $100,000 or more averaged 9.8 percent of total average deposits
during the first quarter of 1998, compared to 9.3 percent during the same period
of 1997. Management does not consider the volume of these volatile deposits to
be excessive at the current levels.
Borrowed Funds. At March 31, 1998, short-term borrowings totaled $486.6
million compared to $593.8 million at December 31, 1997 and $343.4 million at
March 31, 1997. The increase between March 31, 1997 and March 31, 1998 is due
to increases in master notes and overnight repurchase agreements. The reduction
from December 31, 1997 to March 31, 1998 is due to a repayment of a $125 million
note payable. For the quarters ended March 31, 1998 and 1997, short-term
borrowings averaged $521.8 million and $367.1 million, respectively. At March
31, 1998, long-term obligations totaled $160.2 million compared to $10.9 million
at December 31, 1997 and $6.8 million at March 31, 1997. The increase in
long-term obligations is due to the issuance of $150 million in trust preferred
securities in March 1998. The trust preferred securities are thirty year
obligations with interest paid semi-annually at a rate of 8.05 percent. The
trust preferred securities qualify as Tier 1 capital for the holding company.
Long-term obligations also increased from March 31, 1997 due to $30 million in
short-term borrowings by the holding company. Long-term obligations averaged
$55.8 million during the first quarter of 1998, compared to $6.8 million during
the first quarter of 1997.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $71.4 million during the first quarter of 1998, a $9.7 million or
15.8 percent increase from the first quarter of 1997. The higher interest
expense resulted from the impact of a $892.5 million increase in average
interest-bearing liabilities, primarily due to growth of interest- bearing
deposits. The rate on total interest-bearing liabilities was 4.08 percent
during the first quarter of 1998, compared to 4.03 percent during the first
quarter of 1997.
NET INTEREST INCOME
Net interest income totaled $78.0 million during the first quarter of
1998, an increase of 4.4 percent from the first quarter of 1997. The average
net yield on interest-earning assets was 3.95 percent for the first quarter of
1998, 29 basis points below the net yield recorded during the first quarter of
1997. The taxable-equivalent interest rate spread for the first quarter of 1998
was 3.43 percent compared to 3.65 percent for the same period of 1997. The
lower net yield and interest rate spreads resulted from lower interest rates
received on interest-earning assets and higher interest rates paid on
interest-bearing liabilities. The lower yield on earning assets resulted from a
25 basis point reduction in total loan yields and growth in the ratio of
investment securities to total earning assets. A principal objective of
BancShares' asset liability function is to manage interest rate risk or the
exposure to changes in interest rates. BancShares 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. Market risk is the potential economic loss resulting from changes
in market prices and interest rates. This risk can either result in diminished
current fair values or reduced net interest income in future periods. As of
March 31, 1998, BancShares' market risk profile has not changed significantly
from December 31, 1997.
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, 1998, the reserve for loan losses amounted
to $86.0 million or 1.55 percent of loans outstanding. This compares to $84.4
million or 1.55 percent at December 31, 1997, and $81.5 million or 1.64 percent
at March 31, 1997. The provision for loan losses charged to operations during
the first quarter of 1998 was $4.4 million, compared to $1.6 million during the
first quarter of 1997. Net charge-offs for the quarter ended March 31, 1998
totaled $2.8 million, compared to net charge-offs of $1.5 million during the
same period of 1997. While net charge-offs recorded during the first quarter of
1998 exceeded the same period of 1997, gross charge-offs actually declined from
$3.5 million during the first quarter of 1997 to $3.4 million during the first
quarter of 1998. However, gross recoveries, which were $2.0 million during the
first quarter of 1997, fell to $639,000 during the same period of 1998. 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, 1998, BancShares' nonperforming
assets amounted to $16.3 million or 0.29 percent of gross loans plus foreclosed
properties, compared to $14.1 million at December 31, 1997, and $16 million at
March 31, 1997. The increase in nonperforming assets at March 31, 1998, results
from an increase in non-accrual loans at that date, an increase that management
believes is unusual in nature and not indicative of unfavorable trends.
However, management continues to closely monitor nonperforming assets, taking
necessary actions to minimize potential exposure.
NONINTEREST INCOME
Noninterest income increased $8.5 million during the first quarter of
1998 to $31.9 million, compared to $23.4 million for the first quarter of 1997.
The increase in noninterest income during the first quarter of 1998 is partially
due to a $3.9 million increase in gains on sale of residential mortgage loans.
The improvement results from more favorable market interest rates. A surge in
market rates during the first quarter of 1997 resulted in a large unrealized
loss being recorded on available-for-sale loans. Subsequent movement in market
rates during 1997 allowed those loans to be sold at smaller losses, and much of
the unrealized losses recorded during the first quarter of 1997 were later
offset. During 1998, the fair value of available-for-sale loans exceeded their
carrying value, and sale activity resulted in net gains being recorded. Other
service charges and fees contributed $7.9 million during the first quarter of
1998, compared to $6.4 million during the same period of 1997. This 22.2
percent increase between the two periods partially resulted from a $581,000
increase in annuity and mutual fund sales generated through First Citizens
Investor Services. Credit card income amounted to $5.3 million, an increase of
$1.3 million or 30.9 percent over 1997 due to higher merchant income and higher
interchange income. Service charge income represented $10.8 million during the
first quarter of 1998 and $9.9 million during the same period of 1997.
Contributing to the $830,000 increase in service charge income was a $700,000
increase in bad check charges due to an increase in the per item handling fee.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1998 amounted to $81
million. This was a $10.4 million increase over the first quarter of 1997.
Salaries and wages expense increased $3.3 million between the periods, primarily
a result of a $1.6 million increase in sales incentive payments to branch
associates. In addition, a 6.2 percent increase in full time equivalents since
March 31, 1997 contributed to the increase in salary and wage expense. The
increase in employees is attributed to expansion in Georgia and growth of the
Virginia franchise. Further increases resulted from merit raises which became
effective in April 1997. Occupancy expense increased $821,000, during the first
quarter of 1998 compared to the corresponding period of 1997 due to a $290,000
increase in rent expense associated with the growth of in-store branch network.
Depreciation expense also increased $279,000 resulting from new and renovated
branch facilities. Equipment cost increased $1.8 million, the result of
contributed technology investments and equipment maintenance costs. In
addition, depreciation of equipment such as software, hardware and ATMs
increased during the first quarter of 1998. Other expenses increased by $3.7
million or 26.3 percent during the first quarter of 1998. This increase is
partially due to moving expense related to relocation to the newly expanded data
center and expenses related to a travel premium program for credit card
customers. Also contribution to the increase is a higher level of consulting
fees, largely related to the year 2000 project. Management believes that a
total of $2 million to $3 million in expenses will be incurred during 1998 and
1999 as BancShares continues to bring various systems into compliance.
BancShares continues its efforts to address the issues related to the year 2000
issue. The responsibility for ensuring year 2000 compliance extends to
governmental agencies, businesses and customers who exchange information or
services with BancShares or are dependent on computer-generated information to
meet their contractual obligations with others. To the extent that these
unaffiliated organizations and customers are not successful in their compliance
efforts and BancShares is dependent on those organizations for information,
services, satisfaction of loan repayments or other contractual obligations,
there are uncertainties as to the ultimate impact that the year 2000 will have
on BancShares' consolidated financial statements.
INCOME TAXES
Income tax expense amounted to $8.8 million during the first quarter of
1998, compared to $9.4 million during the first quarter of 1997. The effective
tax rates for these periods were 36.1 percent and 36.2 percent, respectively.
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, 1998, and 1997, the
leverage capital ratio of BancShares was 7.0 percent and 6.8 percent,
respectively, surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' Tier 1 capital ratio was 10.2 percent at March
31, 1998, and 10.2 percent at March 31, 1997. The minimum ratio allowed is 4
percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.4
percent at March 31, 1998, compared to 11.5 percent at March 31, 1998, 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. The issuance of the trust preferred securities
during the first quarter of 1998 resulted in an additional $150 million in Tier
1 capital for BancShares. The proceeds from this debt issue were infused into
First-Citizens Bank & Trust Company (the North Carolina bank), thereby
augmenting its capital adequacy as well.
CURRENT ACCOUNTING AND REGULATORY ISSUES
BancShares has adopted several provisions issued by the Financial
Accounting Standards Board ("FASB") during 1998. Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings per Share" became effective
during 1998. SFAS No. 128 adjusts the calculation of earnings per share for
companies with dilutive or potentially dilutive securities. As BancShares has
no dilutive or potentially dilutive securities, the adoption of SFAS No 128 had
no impact on BancShares' consolidated financial statements.
SFAS No. 130 "Reporting Comprehensive Income" became effective during
1998 and modifies the disclosure of earnings to include net income, other
comprehensive income and total comprehensive income. The impact of the adoption
of SFAS 130 is included in the accompanying unaudited interim consolidated
financial statements.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that public business enterprises report certain
information about operating segments in complete sets of financial statements,
as well as information about products, services, geographic areas in which they
operate and their major customers. Adoption of SFAS 131 is not expected to have
a material impact on BancShares' consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132 "Employers Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
the disclosure requirements of pensions and other postretirement benefits and
does not change any measurement or recognition provisions. The adoption of SFAS
No. 132 during 1998 will not have a material impact on BancShares consolidated
financial statements. Management is not aware of any current recommendations by
regulatory authorities that, if implemented, would have or would be reasonably
likely to have a material effect on liquidity, capital ratios or results of
operations.
FORWARD LOOKING STATEMENTS
This discussion may contain statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations or
beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," or other statements concerning opinions or
judgment of BancShares and its management about future events. Factors that
could influence the accuracy of such forward-looking statements include, but are
not limited to, the financial success or changing strategies of BancShares'
customers, actions of government regulators, the level of market interest rates,
and general economic conditions.
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. as of and for each of the periods presented, and all
such adjustments are of a normal recurring nature. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes included in the 1997 First Citizens BancShares Annual
Report, which is incorporated by reference on Form 10-K. Certain amounts for
prior years have been reclassified to conform with statement presentations for
1998. However, the reclassifications have no effect on shareholders' equity or
net income as previously reported.
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