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 June 30, 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-- 1,720,360 shares
(Number of shares outstanding, by class, as of August 13, 1998)
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1998,
December 31, 1997, and June 30, 1997
Consolidated Statements of Income for the three-month
and six-month periods ended June 30, 1998, and June 30, 1997
Consolidated Statements of Changes in Shareholders' Equity
for the three-month and six-month periods ended June 30, 1998,
and June 30, 1997
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1998, and June 30, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Market Risk Disclosure
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
June 30, 1998, 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: August 13, 1998 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
June 30* December 31# June 30*
(thousands, except share data) 1998 1997 1997
<S> <C> <C> <C>
Assets
Cash and due from banks $485,905 $506,771 $463,079
Investment securities held to maturity 2,322,673 2,456,722 2,271,282
Investment securities available for sale 26,098 26,572 26,092
Federal funds sold 81,775 199,200
Loans 5,886,315 5,445,772 4,996,770
Less reserve for loan losses 90,240 84,360 81,902
Net loans 5,796,075 5,361,412 4,914,868
Premises and equipment 315,070 278,473 248,956
Income earned not collected 66,471 66,631 63,833
Other assets 212,556 172,753 164,668
Total assets $9,224,848 $8,951,109 $8,351,978
Liabilities
Deposits:
Noninterest-bearing $1,213,630 $1,131,498 $1,125,673
Interest-bearing 6,585,288 6,448,069 6,001,609
Total deposits 7,798,918 7,579,567 7,127,282
Short-term borrowings 547,069 593,824 488,012
Long-term obligations 159,456 10,856 12,150
Other liabilities 90,703 165,222 80,324
Total liabilities 8,596,146 8,349,469 7,707,768
Shareholders' Equity
Common stock:
Class A - $1 par value (8,905,199; 8,905,199;
and 9,635,711 shares issued, respectively) 8,906 8,906 9,636
Class B - $1 par value (1,720,360; 1,722,254;
and 1,756,374 shares issued, respectively) 1,720 1,722 1,756
Surplus 143,760 143,760 143,760
Retained earnings 464,823 437,794 480,688
Unrealized securities gains, net of tax 9,493 9,458 8,370
Total shareholders' equity 628,702 601,640 644,210
Total liabilities and shareholders' equity $9,224,848 $8,951,109 $8,351,978
* Unaudited
# Derived from the Consolidated Balance Sheets included in the 1997 Annual Report on Form 10-K.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
(thousands, except per share data, unaudited) 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $117,485 $106,049 $229,651 $209,856
Investment securities:
U. S. Government 35,662 31,655 70,837 61,729
State, county and municipal 54 73 112 150
Other 18 25 36 59
Total investment securities interest income 35,734 31,753 70,985 61,938
Federal funds sold 1,316 2,316 3,369 4,763
Total interest income 154,535 140,118 304,005 276,557
Interest expense
Deposits 64,315 59,338 128,189 116,715
Short-term borrowings 6,103 4,968 12,571 9,155
Long-term obligations 3,225 236 4,330 378
Total interest expense 73,643 64,542 145,090 126,248
Net interest income 80,892 75,576 158,915 150,309
Provision for loan losses 5,267 2,097 9,662 3,664
Net interest income after provision for loan losses 75,625 73,479 149,253 146,645
Noninterest income
Trust income 3,023 2,775 6,054 5,553
Service charges on deposit accounts 11,902 10,320 22,662 20,250
Credit card income 6,212 4,550 11,535 8,616
Other service charges and fees 9,229 6,340 17,106 12,787
Net gain (loss) on available for sale loans 1,114 1,522 2,203 (1,307)
Other 3,910 3,387 7,725 6,409
Total noninterest income 35,390 28,894 67,285 52,308
Noninterest expense
Salaries and wages 34,385 31,476 68,043 61,852
Employee benefits 7,037 5,978 13,783 11,916
Occupancy expense 7,083 5,768 13,641 11,505
Equipment expense 9,416 8,283 18,196 15,234
Other 26,240 23,312 51,517 44,894
Total noninterest expense 84,161 74,817 165,180 145,401
Income before income taxes 26,854 27,556 51,358 53,552
Income taxes 9,309 9,972 18,153 19,376
Net income $17,545 $17,584 $33,205 $34,176
Per Share
Net income $1.68 $1.54 $3.07 $3.00
Cash dividends 0.25 0.25 0.50 0.50
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Class A Class B
Unrealized Gain
Common Common Retained on Marketable Total
(thousands, except share data, unaudited) Stock Stock Surplus Earnings Equity Securities 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 16,189 shares of Class A
common stock and 2,606 shares of
Class B common stock (16) (3) (1,440) (1,459)
Net income 34,176 34,176
Unrealized securities gains, net of taxes 1,674
Cash dividends (5,688) (5,688)
Balance at June 30, 1997 $9,636 $1,756 $143,760 $480,688 $8,370 $642,536
Balance at December 31, 1997 $8,906 $1,722 $143,760 $437,794 $9,458 $601,640
Redemption of 1,894 shares of Class B
common stock (2) (202) (204)
Obligation to repurchase common stock (624) (624)
Net income 33,205 33,205
Unrealized securities gains, net of taxes 35 35
Cash dividends (5,350) (5,350)
Balance at June 30, 1998 $8,906 $1,720 $143,760 $464,823 $9,493 $628,702
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended June 30
(thousands, unaudited) 1998 1997
<S> <C> <C>
Operating Activities
Net income $33,205 $34,176
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles 5,476 4,281
Provision for loan losses 9,662 3,787
Deferred tax expense (benefit) 3,988 (246)
Change in current taxes payable 1,068 (437)
Depreciation 13,091 9,151
Change in accrued interest payable (2,252) (6,527)
Change in income earned not collected 160 (3,658)
Origination of loans held for sale (210,298) (238,868)
Proceeds from sale of loans held for sale 210,581 250,471
Loss (gain) on loans held for sale (2,203) 1,307
Net amortization of premiums and discounts 4,995 3,306
Net change in other assets (12,011) 3,137
Net change in other liabilities (77,108) (454)
Net cash (used) provided by operating activities (21,646) 59,426
Investing Activities
Net increase in loans outstanding (433,702) (77,584)
Purchases of investment securities held to maturity (465,505) (499,527)
Proceeds from maturities of investment securities held to maturity 594,998 363,770
Net change in federal funds sold 81,775 (43,200)
Dispositions of premises and equipment 9 1,036
Additions to premises and equipment (46,082) (28,441)
Purchase of branches, net of cash paid 249,702 114,667
Net cash used by investing activities (18,805) (169,279)
Financing Activities
Net change in time deposits (309,924) 58,756
Net change in demand and other interest-bearing deposits 233,218 (16,940)
Net change in short-term borrowings (48,155) 101,234
Origination of long-term borrowings 150,000 0
Repurchases of common stock (204) (1,459)
Cash dividends paid (5,350) (5,688)
Net cash provided by financing activities 19,585 135,903
Change in cash and due from banks (20,866) 26,050
Cash and due from banks at beginning of period 506,771 437,029
Cash and due from banks at end of period $485,905 $463,079
Cash payments for:
Interest $148,137 $132,976
Income taxes 21,234 19,223
Supplemental disclosure of noncash investing and financing activities:
Unrealized gain on investment securities available for sale 35 -
Obligation to repurchase common stock 624 -
See accompanying Notes to Consolidated Financial Statements
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
1998 1997
Six Months Ended
Second First Fourth Third Second June 30
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $154,535 $149,470 $150,225 $145,494 $140,118 $304,005 $276,557
Interest expense 73,643 71,447 72,818 68,947 64,542 145,090 126,248
Net interest income 80,892 78,023 77,407 76,547 75,576 158,915 150,309
Provision for loan losses 5,267 4,395 3,753 1,309 2,097 9,662 3,664
Net interest income after provision for
loan losses 75,625 73,628 73,654 75,238 73,479 149,253 146,645
Noninterest income 35,390 31,895 31,912 31,087 28,894 67,285 52,308
Noninterest expense 84,161 81,019 78,832 76,561 74,817 165,180 145,401
Income before income taxes 26,854 24,504 26,734 29,764 27,556 51,358 53,552
Income taxes 9,309 8,844 9,370 10,746 9,972 18,153 19,376
Net income $17,545 $15,660 $17,364 $19,018 $17,584 $33,205 $34,176
Net interest income-taxable equivalent $81,397 $78,541 $78,327 $77,052 $76,092 $159,938 $151,347
Selected Averages
Total assets $9,142,981 $8,927,355 $8,794,596 $8,411,774 $8,099,236 $9,035,770 $8,001,938
Investment securities 2,461,590 2,442,962 2,503,443 2,359,115 2,166,362 2,452,339 2,130,568
Loans 5,711,599 5,474,570 5,324,286 5,073,404 5,023,409 5,593,736 4,972,659
Interest-earning assets 8,269,008 8,067,590 7,994,728 7,632,755 7,368,645 8,168,864 7,282,868
Deposits 7,755,945 7,619,330 7,427,881 7,144,502 6,952,848 7,688,015 6,888,629
Interest-bearing liabilities 7,241,686 7,096,124 6,924,776 6,608,892 6,341,125 7,169,308 6,272,742
Long-term obligations 159,984 55,814 11,450 12,017 11,545 108,187 9,190
Shareholders' equity $621,605 $607,608 $649,214 $651,923 $635,680 $614,545 $627,611
Shares outstanding 10,626,702 10,627,453 11,378,368 11,389,472 11,394,965 10,627,076 11,396,596
Selected Period-End Balances
Total assets $9,224,848 $9,252,029 $8,951,109 $8,595,591 $8,351,978 $9,224,848 $8,351,978
Investment securities 2,348,771 2,526,366 2,483,294 2,432,424 2,271,282 2,648,771 2,271,282
Loans 5,886,315 5,562,831 5,445,772 5,208,195 4,996,770 5,886,315 4,996,770
Interest-earning assets 8,235,086 8,324,197 8,010,841 7,710,619 7,467,252 8,535,086 7,467,252
Deposits 7,798,918 7,873,484 7,579,567 7,297,884 7,127,282 7,798,918 7,127,282
Interest-bearing liabilities 7,291,813 7,327,020 7,052,749 6,744,133 6,501,771 7,291,813 6,501,771
Long-term obligations 159,456 160,219 10,856 11,482 12,150 159,456 12,150
Shareholders' equity $628,702 $615,036 $601,640 $662,490 $644,210 $628,702 $644,210
Shares outstanding 10,625,559 10,627,453 10,627,453 11,389,928 11,392,085 10,625,559 11,392,085
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.77% 0.71% 0.78% 0.90% 0.87% 0.74% 0.86%
Shareholders' equity 11.32 10.45 10.61 11.57 11.10 10.90 10.92
Dividend payout ratio 14.88 17.99 16.13 14.97 16.23 16.29 16.67
Liquidity and Capital Ratios (averages)
Loans to deposits 73.64% 71.85% 71.68% 71.01% 72.25% 72.25% 72.19%
Shareholders' equity to total assets 6.80 6.81 7.38 7.75 7.85 7.85 7.84
Time certificates of $100,000 or more to
total deposits 9.15 9.77 10.05 9.68 9.36 9.36 8.95
Per Share of Stock
Net income $1.68 $1.39 $1.55 $1.67 $1.54 $3.07 $3.00
Cash dividends 0.25 0.25 0.25 0.25 0.25 0.50 0.50
Book value at period end 59.17 57.87 56.61 58.16 56.55 59.17 56.55
Tangible book value at period end 47.02 45.48 47.11 49.27 48.10 47.02 48.10
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Outstanding Loans by Type
<TABLE>
<CAPTION>
Table 2
1998 1997
Second First Fourth Third Second
(thousands) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development $140,651 $127,260 $113,735 $108,363 $109,125
Mortgage:
1-4 family residential 1,351,708 1,370,264 1,411,279 1,411,922 1,383,250
Commercial 1,257,465 1,147,844 1,055,529 970,553 942,637
Equity Line 647,117 626,931 603,714 548,959 510,067
Other 153,074 136,191 136,639 133,661 134,793
Commercial and industrial 756,371 675,136 633,580 588,158 569,327
Consumer 1,483,333 1,389,079 1,402,093 1,355,783 1,258,330
Lease financing 83,713 77,161 74,589 75,922 73,861
Other 12,883 12,965 14,614 14,874 15,380
Total loans 5,886,315 5,562,831 5,445,772 5,208,195 4,996,770
Less reserve for loan losses 90,240 85,985 84,360 83,385 81,902
Net loans $5,796,075 $5,476,846 $5,361,412 $5,124,810 $4,914,868
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Investment Securities
<TABLE>
<CAPTION>
Table 3
June 30, 1998 June 30, 1997
Average Taxable Average Taxable
Book Fair Maturity Equivalent Book Fair 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 $1,024,510 $1,025,911 0/7 5.84 % $1,015,038 $1,014,279 0/7 5.94 %
One to five years 1,286,493 1,289,838 1/6 5.90 1,240,895 1,239,630 1/9 5.71
Five to ten years 353 341 6/5 7.02 3,072 3,106 6/3 5.65
Over ten years 3,800 3,911 19/4 7.44 5,096 5,188 12/7 7.50
Total 2,315,156 2,320,001 1/1 5.87 2,264,101 2,262,203 1/3 8.86
State, county and municipal:
Within one year 1,611 1,616 0/5 6.30 961 1,166 0/4 6.39
One to five years 2,766 2,852 /3/3 7.32 3,617 3,679 2/9 6.87
Five to ten years 175 175 19/2 9.14 934 965 8/3 7.93
Over ten years - - - - - - - -
Total 4,552 4,643 2/10 7.02 5,512 5,810 3/3 6.92
Other:
Within one year 2,900 2,899 0/3 14.02 500 500 0/1 2.52
One to five years 65 65 3/3 4.63 1,159 1,153 1/4 11.99
Five to ten years - - - - 10 10 5/7 0.85
Total 2,965 2,964 0/6 4.92 1,669 1,663 0/6 4.92
Marketable equity securities 10,352 26,098 - - 12,172 26,092 - -
Total investment securities $2,333,025 $2,353,706 1/1 5.88 % $2,283,454 $2,295,768 1/5 5.87 %
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Second 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, 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% for 1998 and 7.5% for 1997.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Six Months
<TABLE>
<CAPTION> Table 5
1998 1997 Increase (decrease) due to
Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
(thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Secured by real estate $3,417,632 $136,271 7.98% $3,106,942 $127,035 8.21% $12,714 ($3,478) $9,236
Commercial and industrial 665,724 30,069 8.93 538,578 23,688 8.40 5,147 1,234 6,381
Consumer 1,419,534 60,438 8.43 1,241,614 56,544 9.02 7,742 (3,848) 3,894
Lease financing 77,421 3,387 8.75 70,075 2,995 8.55 318 74 392
Other 13,425 448 6.73 15,449 551 7.19 (70) (33) (103)
Total loans 5,593,736 230,613 8.24 4,972,658 210,813 8.51 25,851 (6,051) 19,800
Investment securities:
U. S. Government 2,418,883 70,837 5.91 2,122,537 61,729 5.86 8,597 511 9,108
State, county and municipal 4,744 173 7.35 6,061 231 7.69 (49) (9) (58)
Other 28,712 36 0.25 1,971 59 6.04 417 (440) (23)
Total investment securities 2,452,339 71,046 5.84 2,130,569 62,019 5.87 8,965 62 9,027
Federal funds sold 122,789 3,369 5.53 179,641 4,763 5.35 (1,531) 137 (1,394)
Total interest-earning assets $8,168,864 $305,028 7.48% $7,282,868 $277,595 7.66% $33,285 ($5,852) $27,433
Liabilities
Deposits:
Checking With Interest $1,023,200 $5,450 1.07% $910,275 $4,845 1.07% $602 $3 $605
Savings 700,223 6,551 1.89 710,803 7,287 2.07 (105) (631) (736)
Money market accounts 1,072,381 18,966 3.57 883,852 16,069 3.67 3,383 (486) 2,897
Time deposits 3,754,677 97,222 5.22 3,370,397 88,514 5.30 10,072 (1,364) 8,708
Total interest-bearing deposits 6,550,481 128,189 3.95 5,875,327 116,715 4.01 13,952 (2,478) 11,474
Federal funds purchased 53,238 1,449 5.49 27,219 671 4.97 675 103 778
Repurchase agreements 65,732 1,398 4.29 23,987 508 4.27 886 4 890
Master notes 304,026 7,129 4.73 286,570 6,564 4.62 404 161 565
U. S. Treasury tax and loan accounts 16,599 422 5.13 11,254 292 5.23 137 (7) 130
Other short-term borrowings 71,044 2,173 6.17 39,196 1,120 5.76 941 112 1,053
Long-term obligations 108,187 4,330 8.07 9,190 378 8.29 4,016 (64) 3,952
Total interest-bearing liabilities $7,169,307 $145,090 4.08% $6,272,743 $126,248 4.06% $21,011 ($2,169) $18,842
Interest rate spread 3.40% 3.60%
Net interest income and net yield
on interest-earning assets $159,938 3.95% $151,347 4.19% $12,274 ($3,683) $8,591
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% for 1998
and 7.5% for 1997.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1998
<PAGE>
Summary of Loan Loss Experience and Risk Elements
<TABLE>
<CAPTION> Table 6
1998 1997
Six Months Ended
Second First Fourth Third Second June 30
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Reserve balance at beginning of period $85,985 $84,360 $83,385 $81,902 $81,459 $84,360 $81,439
Reserve of acquired loans - - - 358 123 - 123
Provision for loan losses 5,267 4,395 3,753 1,309 2,107 9,662 3,664
Net charge-offs:
Charge-offs (3,930) (3,409) (3,857) (3,162) (3,774) (7,339) (7,312)
Recoveries 2,918 639 1,079 2,978 1,987 3,557 3,988
Net charge-offs (1,012 (2,770) (2,778) (184) (1,787) (3,782) (3,324)
Reserve balance at end of period $90,240 $85,985 $84,360 $83,385 $81,902 $90,240 $81,902
Historical Statistics
Balances
Average total loans $5,711,599 $5,474,570 $5,324,286 $5,073,404 $5,023,409 $5,593,736 $4,972,658
Total loans at period-end 5,886,315 5,562,831 5,445,772 5,208,195 4,996,770 5,886,315 4,996,770
Risk Elements
Nonaccrual loans $12,335 $14,797 $12,681 $11,983 $14,589 $12,335 $14,589
Other real estate acquired through foreclosure 1,170 1,502 1,462 1,450 1,152 1,170 1,152
Total nonperforming assets $13,505 $16,299 $14,143 $13,433 $15,741 $13,505 $15,741
Accruing loans 90 days or more past due $4,168 $4,837 $3,953 $4,157 $4,503 $4,168 $4,503
Ratios
Net charge-offs (annualized) to average total loans 0.07% 0.21% 0.21% 0.01% 0.14% 0.14% 0.13%
Reserve for loan losses to total loans at period-end 1.53 1.55 1.55 1.60 1.64 1.53 1.64
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.23 0.29 0.26 0.26 0.31 0.23 0.31
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Second 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"). This discussion and analysis should be read in conjunction with
the unaudited Consolidated Financial Statements and related notes presented
within this report. The focus of this discussion concerns BancShares' three
banking subsidiaries. First-Citizens Bank & Trust Company ("FCB") operates
branches in North Carolina and Virginia; First-Citizens Bank & Trust Company of
West Virginia ("FCBWV") operates in West Virginia; and Atlantic States Bank
operates offices in Georgia and North Carolina.
SUMMARY
BancShares realized a slight reduction in earnings during the second
quarter of 1998 compared to the second quarter of 1997. Consolidated net income
during the second quarter of 1998 was $17.5 million, compared to $17.6 million
earned during the corresponding period of 1997. Net income per share during
the second quarter of 1998 totaled $1.68, compared to $1.54 during the second
quarter of 1997. Despite the reduction in net income from the second quarter of
1997 to the second quarter of 1998, net income per share increased due to a
reduction in average shares outstanding. Return on average assets was 0.77
percent for the second quarter of 1998 compared to 0.87 percent during the same
period of 1997. For the first six months of 1998, BancShares recorded net income
of $33.2 million, compared to $34.2 million earned during the first six months
of 1997. The 2.8 percent reduction was the net result of higher noninterest
expenses and higher provision for loan losses, partially offset by beneficial
increases in net interest income and noninterest income. Net income per share
for the first six months of 1998 was $3.07, compared to $3.00 during the same
period of 1997. BancShares returned 0.74 percent on average assets during the
first six months of 1998 compared to 0.86 percent during the corresponding
period of 1997. During 1998, BancShares purchased 15 branch offices in Virginia.
These offices had combined deposit liabilities of $296.8 million. There were no
material loan balances acquired. Various 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
balance sheets presented in Table 4 for the second quarter and Table 5 for the
first six months of 1998 and 1997.
INTEREST-EARNING ASSETS
Interest-earning assets for the second quarter of 1998 averaged $8.27
billion, an increase of $900.4 million or 12.2 percent from the second quarter
of 1997. For the six months ended June 30, 1998, earning assets averaged $8.17
billion, an increase of $886.0 million or 12. 2 percent over the same period of
1997. These increases result from growth in the loan and investment
portfolios.
Loans. At June 30, 1998 and 1997, gross loans totaled $5.89 billion and
$5.00 billion, respectively. As of December 31, 1997, gross loans were $5.45
billion. The $889.5 million growth in loans from June 30, 1997 to June 30, 1998
results from growth within BancShares' commercial loan products and retail
growth within home equity and sales finance products. During the period from
June 30, 1997 to June 30, 1998, acquisitions contributed $ 41.6 million in loans
outstanding. Table 2 details outstanding loans by type for the past five
quarters. During the second quarter of 1998, loans averaged $5.71 billion, an
increase of $688.2 million or 13.7 percent from the comparable period of 1997.
Loan growth has resulted from higher customer demand as well as an expanded
focus on loan production during 1998. Sales efforts of lending personnel have
been strengthened by an ongoing branch refinement program that will continue
throughout 1998. Loans secured by real estate averaged $3.49 billion during the
second quarter of 1998, compared to $3.14 billion during the second quarter of
1997, an increase of $352.7 million or 11.2 percent. Growth among retail home
equity loans contributed to much of this increase. Consumer loans averaged
$1.44 billion during the second quarter of 1998, compared to $1.25 billion
during the same period of 1997, an increase of $192.3 million or 15.4 percent.
Much of that growth results from indirect automobile financing. Commercial and
industrial loans averaged $692.4 million during the second quarter of 1998,
compared to $554.6 million during the same period of 1997. This increase of
$137.8 million between the two periods is primarily due to growth among small
business loans. For the year-to-date, gross loans have averaged $5.59 billion
for 1998 compared to $4.97 billion for the same period of 1997. This $621.1
million or 12.5 percent increase is likewise due to growth among small business
and retail customers. As of June 30, 1998, $129.6 million in fixed-rate
residential mortgage loans are classified as held for sale. All loans held for
sale are carried at the lower of cost or fair value. Mortgage loan sale activity
during the first six months of 1998 has resulted from two primary goals. First,
as in the past, management seeks to lessen the exposure to changes in interest
rates by selling portions of its long-term fixed-rate loan portfolio. Second,
loan sales provide liquidity to meet ongoing loan demand. The sales of
residential mortgage loans has supported both objectives. Management anticipates
continued growth among commercial, small business and indirect installment loans
for the rest of 1998. All growth projections, however, remain dependent on
interest rates, as any upward pressure on interest rates will likely deter
retail borrowers and may also impair commercial loan growth. Investment
securities. At June 30, 1998 and 1997, the investment portfolio totaled $2.35
billion and $2.30 billion, respectively. At December 31, 1997, the investment
portfolio was $2.48 billion. The 5.4 percent reduction in the investment
portfolio since December 31, 1997 resulted from the use of proceeds from
maturing securities to fund current loan demand. All securities that are
classified as held-to-maturity reflect BancShares' ability and positive intent
to hold those investments until maturity. Marketable equity securities are
classified as available-for-sale and are reported at their aggregate fair value.
Table 3 presents detailed information relating to the investment securities
portfolio.
Income on Interest-Earning Assets. Interest income amounted to $154.5
million during the second quarter of 1998, a 10.3 percent increase over the
second quarter of 1997. Balance sheet growth contributed to higher interest
income in the second quarter of 1998 when compared to the same period of 1997.
The taxable-equivalent yield on interest-earning assets for the second quarter
of 1998 was 7.48 percent, compared to 7.60 percent for the corresponding period
of 1997. The lower yield on earning assets during 1998 results from a reduction
in the blended taxable-equivalent loan yield. During 1997, BancShares offered
lower introductory rates on its home equity lines of credit. These loans
reduced the blended yield on all loans. The introductory rates were for a
limited period of time, and will expire in the coming months, adjusting to
current market rates. Loan interest income for the second quarter of 1998 was
$117.5 million, an increase of $11.4 million or 10.8 percent from the second
quarter of 1997, due to volume growth. The taxable-equivalent yield on the loan
portfolio was 8.23 percent during the second quarter of 1998, compared to 8.42
percent during the same period of 1997, with the resulting increase primarily
the result of introductory rates offered on Equity Line loans. For the six
months ended June 30, 1998, loan interest income was $229.7 million, an increase
of $19.8 million or 9.4 percent over the same period of 1997. The increase in
interest income reflects the growth in the loan portfolio. Income earned on the
investment securities portfolio amounted to $35.7 million during the second
quarter of 1998 and $31.8 million during the same period of 1997, an increase of
$4.0 million or 12.5 percent. This increase is the result of a $295.2 million
increase in the average securities portfolio. The investment securities
portfolio taxable-equivalent yield decreased from 5.89 percent for the quarter
ended June 30, 1997, to 5.83 percent for the quarter ended June 30, 1998. For
the six months ended June 30, 1998, interest income from investment securities
was $71.0 million, compared to $61.9 million during the same period of 1997, an
increase of 14.6 percent. This increase is the result of a $321.7 million
increase in the average securities portfolio.
INTEREST-BEARING LIABILITIES.
At June 30, 1998 and 1997, interest-bearing liabilities totaled $7.29
billion and $6.50 billion, respectively, compared to $7.05 billion as of
December 31, 1997. During the second quarter of 1998, interest-bearing
liabilities averaged $7.24 billion, an increase of $900.6 million or 14.2
percent from the second quarter of 1997. This increase primarily resulted from
growth in interest-bearing deposits and long-term obligations.
Deposits. At June 30, 1998, total deposits were $7.80 billion, an
increase of $671.6 million or 9.4 percent over June 30, 1997. Compared to the
December 31, 1997 balance of $7.58 billion, total deposits have increased $219.4
million. Acquisitions during 1998 have contributed a total of $296.8 million in
deposits. As is typical during the first six months of the year, outstanding
deposits (net of acquisitions) have decreased. This is a seasonal trend that
typically reverses during the third and fourth quarters, when deposits rebound
as agricultural and retail customers generate increased cash flows. Average
interest-bearing deposits were $6.58 billion during the second quarter of 1998
compared to $5.92 billion during the second quarter of 1997, an increase of 11.2
percent. Much of the increase is due to average time deposits, which increased
$340.7 million from the second quarter of 1997 to the second quarter of 1998.
Much of the growth in time deposits has resulted from acquisitions and the
in-store network that has expanded significantly since mid-1997. Average money
market accounts increased $194.9 million from the second quarter of 1997 to the
second quarter of 1998, while average Checking With Interest accounts increased
$128.7 million between the two periods. Time deposits of $100,000 or more
averaged 9.15 percent of total average deposits during the second quarter of
1998, compared to 9.36 percent during the same period of 1997.
Borrowed Funds. At June 30, 1998, short-term borrowings totaled $547.1
million compared to $593.8 million at December 31, 1997 and $488.0 million at
June 30, 1997. For the quarters ended June 30, 1998 and 1997, short-term
borrowings averaged $499.6 million and $409.1 million, respectively. This
increase resulted from growth among federal funds purchased, repurchase
obligations and overnight borrowings from customers through the Master Note
program. Long-term obligations averaged $160.0 million during the second
quarter of 1998, compared to $11.5 million during the second quarter of 1997.
The increase in long-term obligations reflects the impact of the $150 million in
trust preferred securities that were issued during the first quarter of 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.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $73.6 million during the second quarter of 1998, a $9.1 million or
14.1 percent increase from the second quarter of 1997. The higher interest
expense was the result of the growth in average interest-bearing liabilities.
The rate on these liabilities was 4.08 percent during both quarters. For the
year-to-date, interest expense was $145.1 million, compared to $126.2 million
for the same period of 1997. The 14.9 percent increase is largely due to the
growth in interest-bearing deposits and long-term obligations.
NET INTEREST INCOME
Net interest income totaled $80.9 million during the second quarter of
1998, an increase of 7.0 percent from the second quarter of 1997. The
taxable-equivalent net yield on interest-earning assets was 3.95 percent for the
second quarter of 1998, down 19 basis points from the 4.14 percent achieved for
the second quarter of 1997. The taxable equivalent interest rate spread for the
second quarter of 1998 was 3.40 percent compared to 3.52 percent for the same
period of 1997. These reductions result from introductory rates offered on loans
originated during 1997. As these loans reprice to normal rates, the net yield
and interest rate spread should benefit. A principal objective of BancShares'
asset/liability management 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. Management is aware of the potential negative impact that
movements in market interest rates may have on net interest income. 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 June 30, 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 June 30, 1998, the reserve for loan losses amounted
to $90.2 million or 1.53 percent of loans outstanding. This compares to $84.4
million or 1.55 percent at December 31, 1997, and $81.9 million or 1.64 percent
at June 30, 1997. Management considers the established reserve adequate to
absorb losses that relate to loans outstanding at June 30, 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. The provision for loan losses charged to operations during
the second quarter of 1998 was $5.3 million, compared to $2.1 million during the
second quarter of 1997. Net charge-offs for the three months ended June 30,
1998 totaled $1.0 million, compared to net charge-offs of $1.8 million during
the same period of 1997. On an annualized basis, these net charge-offs
represent 0.07 percent and 0.14 percent of average loans outstanding during the
respective periods. For the six month periods ending June 30, total provision
for loan losses was $9.7 million for 1998 and $3.7 million for 1997. The $6.0
million increase primarily results from additional reserves being established
for new loans. Net charge-offs for the six month period ended June 30, 1998
totaled $3.8 million, compared to $3.3 million during the same period of 1997.
As a percentage of average loans outstanding, the losses represent 0.14 percent
and 0.13 percent, respectively, on an annualized basis. Gross charge-o aled
$7.3 million for the six month periods ended June 30, 1998 and 1997. Gross
recoveries were $3.6 million and $4.0 million for the respective periods.
Management remains committed to maintaining high levels of credit quality.
Table 6 provides details concerning the reserve and provision for loan losses
over the past five quarters and for the year-to-date for 1998 and 1997.
Nonperforming assets. At June 30, 1998, BancShares' nonperforming assets
amounted to $13.5 million or 0.23 percent of gross loans plus foreclosed
properties, compared to $14.1 million at December 31, 1997, and $15.7 million at
June 30, 1997. Management continues to closely monitor nonperforming assets,
taking necessary actions to minimize potential exposure.
NONINTEREST INCOME
During the first six months of 1998, noninterest income was $67.3
million, compared to $52.3 million during the same period of 1997. The $15.0
million or 28.6 percent increase was due to growth in other service charge and
fee income and improved mortgage loan sale income. During the first six months
of 1998, total other service charge and fee income was $17.1 million, compared
to $12.8 million earned during the same period of 1997. Significant to this
increase was growth in fees earned by First Citizens Investor Services, higher
income from computer processing services to other banks and mortgage servicing
income. Results from the sale of residential mortgage loans and adjustments of
loans held for sale to the lower of cost or fair value are included in other
income. BancShares recorded net gains of $2.2 million for the first six months
of 1998, compared to net losses of $1.3 million during the same period of 1997.
The large change in the results from mortgage sale activity reflects changes in
market rates between the two periods. Noninterest income from the credit card
operation contributed an additional $2.9 million during the first six months of
1998 compared to the same period of 1997, the result of higher merchant income
and interchange income earned from card usage. This increase represents a 33.9
percent increase over the same period of 1997, primarily due to relocation of
the credit card bank to Virginia, where laws governing fees are less
restrictive. BancShares also reported a $2.4 million increase in service
charges on deposit accounts during the first six months of 1998, an 11.9 percent
increase.
NONINTEREST EXPENSE
Noninterest expense was $165.2 million for the second six months of
1998, a 13.6 percent increase over the $145.4 million recorded during the same
period of 1997. Much of the $19.8 million increase in total noninterest expense
relates to franchise expansion and the investments required to support that
growth. Personnel-related expenses increased $8.1 million during 1998 when
compared to the same period of 1997. This 10.9 percent increase reflects the
growth in employee population required to staff the new branch offices and
in-store locations in Georgia and Virginia. Higher employee benefits expense
reflects increased pension and health plan costs. Equipment expense increased
$3.0 million or 19.4 percent during the first six months of 1998, compared to
the corresponding period of 1997 due to higher technology related expenses. In
addition to higher depreciation resulting from recent equipment purchases,
maintenance costs continue to grow, the result of continuing investments in
processing and delivery systems. Occupancy expense increased 18.6 percent during
the first six months of 1998, the result of higher rent and depreciation expense
for new and renovated branch facilities. The $2.1 million increase also
reflects the expansion of the central processing facility. The $6.6 million
increase in other expenses resulted from higher amortization of intangibles,
telecommunications expense, and consulting services. Higher intangible
amortization results from the impact of the Signet branch acquisition during
early 1998. Telecommunications expense reflects the continued growth of the
traditional branch network as well as the various alternative delivery channels,
which are heavily dependent on telecommunications. Much of the consulting
expense incurred during 1998 relates to the systems modifications being made in
preparation for the year 2000 ("Y2K"). BancShares continues its efforts to
address the various issues related to Y2K. During the first six months of 1998,
BancShares incurred $1.4 million in consulting services related to Y2K. Current
projections suggest BancShares will incur $3.3 million in consulting services
during 1998. Other expenses totaling $1.3 million are anticipated, resulting in
a total estimated cost of Y2K compliance during 1998 of $4.6 million.
Management continues to devote significant attention to the Y2K issues and
remains on schedule to achieve compliance.
INCOME TAXES
Income tax expense amounted to $18.2 million during the second six
months of 1998, compared to $19.4 million during the same period of 1997, a 6.3
percent reduction resulting from lower pre-tax income. The effective tax rates
for these periods were 35.3 percent and 36.2 percent, respectively. The
reduction in the effective tax rate during 1998 reflects a reduction in the
state tax obligation during the current year.
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 have enabled management to fund asset
growth and maintain liquidity. In the event additional liquidity is needed,
BancShares maintains readily available sources to borrow funds through its
correspondent network. Loan growth during the second quarter of 1998 led to
increases in short-term borrowings have resulted from the strong loan demand.
BancShares anticipates loan demand to remain strong through 1998, and this loan
demand will be funded by the seasonal increase in deposits that is projected for
the third and fourth quarters as well as continued reliance on short-term
borrowings.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all
minimum regulatory capital requirements. At June 30, 1998 and 1997, the
leverage capital ratio of BancShares was 7.1 percent and 6.6 percent,
respectively, surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' Tier 1 capital ratio was 10.0 percent at June
30, 1998, and 10.3 percent as of June 30, 1997. The minimum ratio allowed is 4
percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.2
percent at June 30, 1998 and 11.4 percent as of June 30, 1997. The minimum
total capital ratio is 8 percent. BancShares and its subsidiary banks exceed
the capital standards established by their respective regulatory agencies.
During the second quarter of 1998, BancShares purchased a total of 158,000
shares of its outstanding common stock from a related defined benefit pension
plan. As of December 31, 1997, these shares were classified on the Consolidated
Balance Sheet as other liabilities and were recorded at their fair value. Since
that time, the shares have been reported at their fair value, with the change in
the aggregate fair value reported as an adjustment to retained earnings. Net
income per share has been adjusted for the impact of the change in fair value.
The purchase price was based on an independent appraisal of the investment.
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 1997. 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 and was
adopted by BancShares 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
and in condensed financial statements of interim periods issued to shareholders,
as well as information about products, services, geographic areas in which they
operate and their major customers. Adoption of SFAS 131 during 1998 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. In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. As a result of BancShares' limited use of derivative instruments,
the adoption of SFAS No. 133 should not have a material impact on its
consolidated financial statements. SFAS No. 133 become effective during 2000.
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," "anticipate," 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 rate and general economic conditions.
<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. 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.
NOTE B
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in complete financial statements. BancShares adopted SFAS
No. 130 in 1998. Comprehensive net income was $16,939 and $17,765 for the three
month periods ended March 31, 1998 and 1997, respectively, and consisted of net
income of $15,660 and $16,592, and other comprehensive income of $1,279 and
$1,173, respectively.
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $17,545 $17,584 $33,205 $34,176
Other comprehensive income (1,244) 501 35 1,674
Comprehensive income $16,301 $18,085 $33,240 $35,850
</TABLE>
NOTE C
NET INCOME PER SHARE
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share."
SFAS No. 128 establishes standards for computing and reporting earnings per
share. BancShares adopted SFAS No. 128 in 1998. Earnings per share is
calculated by dividing income applicable to common shares by the weighted
average number of common shares outstanding during the period. For 1998, income
applicable to common shares represents net income adjusted for change in the
obligation to purchase common shares. Net income per share is calculated based
on the following amounts for the quarters and six months ended June 30:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $17,545 $17,584 $33,205 $34,176
Less change in obligation to
purchase common shares (224) 0 624 0
Net income applicable to
common shares $17,769 $17,584 $32,581 $34,176
Weighted average common shares
outstanding 10,626,702 11,394,965 10,627,076 11,396,596
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 485,905
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,098
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0
0
<COMMON> 10,626
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<INTEREST-DEPOSIT> 128,189
<INTEREST-EXPENSE> 16,901
<INTEREST-INCOME-NET> 158,915
<LOAN-LOSSES> 9,662
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 165,180
<INCOME-PRETAX> 51,358
<INCOME-PRE-EXTRAORDINARY> 33,205
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<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.07
<YIELD-ACTUAL> 3.95
<LOANS-NON> 12,335
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<ALLOWANCE-CLOSE> 90,240
<ALLOWANCE-DOMESTIC> 90,240
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
