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 September 30, 2000
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-- 8,813,454 shares
Class B Common Stock--$1 Par Value-- 1,716,372 shares
(Number of shares outstanding, by class, as of November 13, 2000)
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2000,
December 31, 1999,and September 30, 1999
Consolidated Statements of Income for the three and nine-month
periods ended September 30, 2000, and September 30, 1999
Consolidated Statements of Changes in Shareholders' Equity
for thenine-month periods ended September 30, 2000, and
September 30, 1999
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 2000, and September 30, 1999
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 September 30, 2000,
Registrant filed a Current Report on Form 8-K to report the sale
of it's mortgage servicing rights.
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: November 13, 2000 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
September 30* December 31# September 30*
(thousands,except share data) 2000 1999 1999
<S> <C> <C> <C>
Assets
Cash and due from banks $529,897 $591,605 $461,792
Investment securities held to maturity 1,693,741 1,353,321 1,676,825
Investment securities available for sale 36,698 18,573 22,695
Overnight investments 450,446 473,393 316,158
Loans 7,097,773 6,751,039 6,574,807
Less reserve for loan losses 101,565 98,690 97,965
-------------------------------------------------------------------------------------------------------------
Net loans 6,996,208 6,652,349 6,476,842
Premises and equipment 427,245 397,397 386,990
Income earned not collected 59,708 52,621 57,980
Other assets 167,353 177,840 178,433
-------------------------------------------------------------------------------------------------------------
Total assets $10,361,296 $9,717,099 $9,577,715
=============================================================================================================
Liabilities
Deposits:
Noninterest-bearing $1,387,406 $1,343,353 $1,319,625
Interest-bearing 7,281,236 6,830,245 6,742,466
-------------------------------------------------------------------------------------------------------------
Total deposits 8,668,642 8,173,598 8,062,091
Short-term borrowings 632,318 568,301 554,866
Long-term obligations 154,687 155,683 156,840
Other liabilities 116,308 90,760 90,849
-------------------------------------------------------------------------------------------------------------
Total liabilities 9,571,955 8,988,342 8,864,646
Shareholders' Equity
Common stock:
Class A - $1 par value (8,813,454; 8,890,039 and
8,905,199 shares issued, respectively) 8,813 8,890 8,906
Class B - $1 par value (1,720,360 shares
issued for all periods) 1,720 1,720 1,720
Surplus 143,766 143,766 143,760
Retained earnings 629,543 567,801 551,834
Accumulated other comprehensive income 5,499 6,580 6,849
-------------------------------------------------------------------------------------------------------------
Total shareholders' equity 789,341 728,757 713,069
-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,361,296 $9,717,099 $9,577,715
=============================================================================================================
# Unaudited
* Derived from the 1999 Annual Report on Form 10-K.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended Nine Months Ended
September 30 September 30
(thousands, except share data, unaudited) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Loans $150,083 $129,434 $431,376 $376,135
Investment securities:
U. S. Government 24,953 26,497 69,192 84,663
State, county and municipal 60 37 163 112
Other 118 165 373 404
-------------------------------------------------------------------------------------------------------------------------
Total investment securities interest income 25,131 26,699 69,728 85,179
Overnight investments 7,752 4,091 17,738 11,326
-------------------------------------------------------------------------------------------------------------------------
Total interest income 182,966 160,224 518,842 472,640
Interest expense
Deposits 79,944 61,175 214,414 182,528
Short-term borrowings 8,397 6,125 22,184 16,964
Long-term obligations 3,168 3,197 9,476 9,539
-------------------------------------------------------------------------------------------------------------------------
Total interest expense 91,509 70,497 246,074 209,031
-------------------------------------------------------------------------------------------------------------------------
Net interest income 91,457 89,727 272,768 263,609
Provision for loan losses 4,197 3,329 10,631 8,169
-------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 87,260 86,398 262,137 255,440
Noninterest income
Service charges on deposit accounts 14,898 14,677 43,674 40,486
Credit card income 9,990 8,367 26,915 22,258
Trust income 3,660 3,508 11,062 10,515
Fees from processing services 3,683 3,270 10,635 9,643
Commission income 4,146 2,797 10,253 8,082
ATM income 2,824 2,828 8,143 7,989
Gain on sale of mortgage servicing rights 20,187 - 20,187 -
Mortgage income 704 1,134 3,704 5,144
Gain on sale of branches - 4,432 - 5,063
Other service charges and fees 3,074 2,692 9,405 7,373
Securities gains 1,776 - 2,268 777
Other 2,416 2,193 6,560 6,034
-------------------------------------------------------------------------------------------------------------------------
Total noninterest income 67,358 45,898 152,806 123,364
Noninterest expense
Salaries and wages 43,485 41,207 126,106 120,102
Employee benefits 7,880 7,733 24,957 23,056
Occupancy expense 9,246 7,597 25,628 22,083
Equipment expense 9,730 9,334 28,189 27,866
Other 30,916 29,233 90,617 86,602
-------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 101,257 95,104 295,497 279,709
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 53,361 37,192 119,446 99,095
Income taxes 20,006 14,060 45,123 36,612
=========================================================================================================================
Net income $33,355 $23,132 $74,323 $62,483
=========================================================================================================================
Average shares outstanding 10,534,049 10,625,559 10,559,305 10,625,559
-------------------------------------------------------------------------------------------------------------------------
Per Share
Net income $3.17 $2.18 $7.04 $5.88
Cash dividends 0.25 0.25 0.75 0.75
-------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
Accumulated
Class A Class B Other Total
Common Common Retained Comprehensive Shareholders'
(thousands,except share data, unaudited) Stock Stock Surplus Earnings Income Equity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $8,906 $1,720 $143,760 $497,316 $9,047 $660,749
Net income 62,483 62,483
Unrealized securities losses, net of $1,251 tax benefit (2,198) (2,198)
Cash dividends (7,965) (7,965)
=============================================================================================================================
Balance at September 30, 1999 $8,906 $1,720 $143,760 $551,834 $6,849 $713,069
=============================================================================================================================
Balance at December 31, 1999 $8,890 $1,720 $143,766 $567,801 $6,580 $728,757
Redemption of 76,585 shares of Class A
common stock (77) (4,652) (4,729)
Net income 74,323 74,323
Unrealized securities losses, net of $654 tax benefit (1,081) (1,081)
Cash dividends (7,929) (7,929)
=============================================================================================================================
Balance at September 30, 2000 $8,813 $1,720 $143,766 $629,543 $5,499 $789,341
=============================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Nine months ended September 30
-----------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
(thousands, unaudited)
<S> <C> <C>
Operating Activities
Net income $74,323 $62,483
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles 8,706 8,817
Provision for loan losses 10,631 8,169
Deferred tax benefit (1,296) (4,143)
Change in current taxes payable 9,006 (2,944)
Depreciation 22,566 22,823
Change in accrued interest payable 14,011 (7,526)
Change in income earned not collected (7,087) 3,672
Securities gains (2,268) (777)
Gain on sales of branches - (5,063)
Gain on sale of mortgage servicing rights (20,187) -
Provision for branches to be closed 2,681 -
Origination of loans held for sale (109,578) (345,347)
Proceeds from sale of loans held for sale 103,631 392,106
Loss (gain) on loans held for sale 225 (2,047)
Net amortization of premiums and discounts 72 9,720
Net change in other assets (2,172) (277)
Net change in other liabilities (150) (4,830)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 103,114 134,836
-------------------------------------------------------------------------------------------------------------------
Investing Activities
Net increase in loans outstanding (348,768) (467,494)
Purchases of investment securities held to maturity (1,088,398) (559,826)
Purchases of investment securities available for sale (20,352) (2,315)
Proceeds from maturities of investment securities held to maturity 747,906 1,008,653
Proceeds from sales of investment securities available for sale 2,337 1,710
Proceeds from sale of mortgage servicing rights 26,513 -
Net change in overnight investments 22,947 (83,433)
Dispositions of premises and equipment 2,971 6,003
Additions to premises and equipment (55,385) (50,122)
Purchase and sale of branches, net of cash transferred - (70,067)
-------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (710,229) (216,891)
-------------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in time deposits 504,242 (67,456)
Net change in demand and other interest-bearing deposits (9,198) 131,548
Net change in short-term borrowings 63,021 (15,235)
Repurchases of common stock (4,729) -
Cash dividends paid (7,929) (7,965)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 545,407 40,892
-------------------------------------------------------------------------------------------------------------------
Change in cash and due from banks (61,708) (41,163)
Cash and due from banks at beginning of period 591,605 502,955
===================================================================================================================
Cash and due from banks at end of period $529,897 $461,792
===================================================================================================================
Cash payments for:
Interest $140,554 216,096
Income taxes 36,597 42,027
Supplemental disclosure of noncash investing and financing activities:
Unrealized securities losses (1,735) (3,449)
-------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
Notes to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
Note A - Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
statements.
In the opinion of management, the consolidated statements contain all
material adjustments necessary to present fairly the financial position of First
Citizens BancShares, Inc. ("BancShares") as of and for each of the periods
presented, and all such adjustments are of a normal recurring nature. 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 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 1999 First Citizens BancShares,
Inc. Annual Report. Certain amounts for prior periods have been reclassified to
conform with statement presentations for 2000. However, the reclassifications
have no effect on shareholders' equity or net income as previously reported.
Note B - Comprehensive Income
The following table displays comprehensive income for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
(thousands) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $33,355 $23,132 $74,323 $62,483
Other comprehensive income (loss) (315) 21 (1,081) (2,198)
=======================================================================================================================
Comprehensive income $33,040 $23,153 $73,242 $60,285
=======================================================================================================================
</TABLE>
Note C - Mortgage Servicing
------------------------------------------------------------------------------
During the three months ended September 30, 2000, BancShares sold the
mortgage servicing rights relating to approximately $1.6 billion in loans
serviced for others to an independent third party. As a result of this
transaction, which resulted in a nonrecurring gain of $20.2 million,
BancShares' carrying value of mortgage servicing rights was reduced from $6.8
million as of December 31, 1999 to zero. Also, BancShares has outsourced
servicing for mortgage loans held in its own portfolio. As a result of these
transactions, BancShares no longer services mortgage loans.
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Financial Summary
Table 1
2000 1999 Nine Months Ended
Third Second First Fourth Third September 30
(thousands, except per share data and ratios Quarter Quarter Quarter Quarter Quarter 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $182,966 $171,890 $163,986 $161,251 $160,224 $518,842 $472,640
Interest expense 91,509 80,184 74,381 72,511 70,497 246,074 209,031
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income 91,457 91,706 89,605 88,740 89,727 272,768 263,609
Provision for loan losses 4,197 2,975 3,459 3,503 3,329 10,631 8,169
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 87,260 88,731 86,146 85,237 86,398 262,137 255,440
Noninterest income 67,358 44,097 41,351 41,975 45,898 152,806 123,364
Noninterest expense 101,257 97,953 96,287 95,911 95,104 295,497 279,709
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 53,361 34,875 31,210 31,301 37,192 119,446 99,095
Income taxes 20,006 13,421 11,696 11,984 14,060 45,123 36,612
Net income $33,355 $21,454 $19,514 $19,317 $23,132 $74,323 $62,483
===================================================================================================================================
Net interest income-taxable equivalent $92,162 $92,414 $90,374 $89,267 $90,258 $274,950 $265,299
-----------------------------------------------------------------------------------------------------------------------------------
Selected Averages
Total assets $10,167,665 $9,772,765 $9,658,251 $9,721,360 $9,644,135 $9,866,386 $9,589,565
Investment securities 1,633,653 1,594,291 1,497,278 1,583,216 1,897,593 1,575,286 2,017,852
Loans 7,036,622 6,917,041 6,789,203 6,646,312 6,474,200 6,914,735 6,315,810
Interest-earning assets 9,142,585 8,788,776 8,667,039 8,627,990 8,689,146 8,867,141 8,642,421
Deposits 8,524,930 8,211,252 8,128,968 8,140,962 8,121,209 8,289,283 8,093,473
Interest-bearing liabilities 7,886,410 7,560,267 7,512,781 7,533,726 7,518,874 7,654,004 7,512,009
Long-term obligations 154,979 153,773 155,171 158,975 156,856 154,642 157,533
Shareholders' equity $770,418 $748,648 $734,777 $720,617 $702,065 $751,643 $684,687
Shares outstanding 10,534,049 10,551,766 10,592,378 10,625,208 10,625,559 10,559,305 10,625,559
-----------------------------------------------------------------------------------------------------------------------------------
Selected Period-End Balances
Total assets $10,361,296 $9,943,877 $9,880,732 $9,717,099 $9,577,715 $10,361,296 $9,577,715
Investment securities 1,730,439 1,543,033 1,547,214 1,371,894 1,699,520 1,730,439 1,699,520
Loans 7,097,773 7,006,824 6,828,095 6,751,039 6,574,807 7,097,773 6,574,807
Interest-earning assets 9,278,658 8,871,522 8,896,750 8,596,326 8,590,485 9,278,658 8,590,485
Deposits 8,668,642 8,366,364 8,295,850 8,173,598 8,062,091 8,668,642 8,062,091
Interest-bearing liabilities 8,068,241 7,626,805 7,655,102 7,554,229 7,454,172 8,068,241 7,454,172
Long-term obligations 154,687 153,761 154,915 155,683 156,840 154,687 156,840
Shareholders' equity $789,341 $758,985 $741,136 $728,757 $713,069 $789,341 $713,069
Shares outstanding 10,533,814 10,534,614 10,566,849 10,610,399 10,625,559 10,533,814 10,625,559
-----------------------------------------------------------------------------------------------------------------------------------
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 1.31 % 0.88 % 0.81 % 0.79 % 0.95 % 1.01 % 0.87
Shareholders' equity 17.22 11.53 10.68 10.64 13.07 13.21 12.20
Dividend payout ratio 7.88 12.32 13.59 13.74 11.47 10.65 12.76
-----------------------------------------------------------------------------------------------------------------------------------
Liquidity and Capital Ratios (averages)
Loans to deposits 82.54 % 84.24 % 83.52 % 81.64 % 79.72 % 83.42 % 78.04
Shareholders' equity to total assets 7.58 7.66 7.61 7.41 7.28 7.62 7.14
Time certificates of $100,000 or more
to total deposits 9.54 9.27 9.01 8.96 8.93 9.29 8.94
-----------------------------------------------------------------------------------------------------------------------------------
Per Share of Stock
Net income $3.17 $2.03 $1.84 $1.82 $2.18 $7.04 $5.88
Cash dividends 0.25 0.25 0.25 0.25 0.25 0.75 0.75
Book value at period end 74.93 72.05 70.14 68.68 67.11 74.93 67.11
Tangible book value at period end 64.77 61.92 59.79 58.13 56.31 64.77 56.31
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Outstanding Loans by Type
Table 2
2000 1999
-------------------------------------------------------------------------------------------------------------------------
Third Second First Fourth Third
(thousands) Quarter Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development $209,592 $200,483 $208,518 $186,119 $170,467
Mortgage:
1-4 family residential 1,515,694 1,460,512 1,368,732 1,326,642 1,311,314
Commercial 1,980,802 1,934,302 1,866,544 1,810,904 1,732,853
Equity Line 838,198 813,908 776,164 755,342 706,271
Other 201,107 204,962 184,397 161,652 162,098
Commercial and industrial 942,507 946,067 950,445 985,738 971,199
Consumer 1,248,793 1,297,982 1,340,671 1,393,227 1,400,144
Lease financing 134,655 131,579 127,822 123,908 111,338
Other 26,425 17,029 4,802 7,507 9,123
-------------------------------------------------------------------------------------------------------------------------
Total loans 7,097,773 7,006,824 6,828,095 6,751,039 6,574,807
Less reserve for loan losses 101,565 100,515 99,590 98,690 97,965
-------------------------------------------------------------------------------------------------------------------------
Net loans $6,996,208 $6,906,309 $6,728,505 $6,652,349 $6,476,842
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Table 3
September 30, 2000 September 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
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 $1,363,229 $1,353,193 0/6 6.22 % $1,269,604 $1,267,703 0/6 5.55 %
One to five years 317,202 317,700 1/6 6.91 393,652 385,725 1/5 5.71
Five to ten years 222 224 8/8 8.04 188 191 7/11 8.21
Over ten years 8,336 8,279 26/3 7.37 10,264 10,268 26/10 7.37
------------------------------------------------------------------------------------------------------------------------------------
Total 1,688,989 1,679,396 0/8 6.35 1,673,708 1,663,887 0/8 5.59
State, county and municipal:
Within one year 1,150 1,154 0/4 7.20 250 252 0/7 7.91
One to five years 1,759 1,774 2/8 7.42 2,412 2,459 2/2 7.21
Over ten years 1,538 1,588 17/6 8.58 150 152 17/11 9.14
------------------------------------------------------------------------------------------------------------------------------------
Total 4,447 4,516 7/3 7.76 2,812 2,863 2/10 7.37
Other
Within one year 10 10 0/4 5.88 - - - -
One to five years 45 45 1/7 6.64 55 55 2/5 5.47
Five to ten years 250 250 8/1 4.50 250 250 8/10 2.25
------------------------------------------------------------------------------------------------------------------------------------
Total 305 305 5/1 5.11 305 305 7/8 2.47
------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,693,741 1,684,217 0/10 6.36 % $1,676,825 $1,667,055 0/10 5.60 %
Marketable equity securities 24,500 36,698 - - 11,333 22,695 - -
------------------------------------------------------------------------------------------------------------------------------------
Total investment securities $1,718,241 $1,720,915 - - $1,688,158 $1,689,750 - -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Table 4
2000 1999 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
Total loans $7,036,622 $150,752 8.52 % $6,474,200 $129,948 7.96 % $11,472 $9,332 $20,804
Investment securities:
U. S. Government 1,600,409 24,953 6.20 1,871,805 26,497 5.62 (4,053) 2,509 (1,544)
State, county and municipal 4,461 96 8.56 2,820 54 7.60 33 9 42
Other 28,783 118 1.63 22,968 165 2.85 33 (80) (47)
-------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,633,653 25,167 6.13 1,897,593 26,716 5.59 (3,987) 2,438 (1,549)
Overnight investments 472,310 7,752 6.53 317,353 4,091 5.11 2,259 1,402 3,661
===============================================================================================================================
Total interest-earning assets $9,142,585 $183,671 7.99 % $8,689,146 $160,755 7.34 % $9,744 $13,172 $22,916
===============================================================================================================================
Liabilities
Deposits:
Checking With Interest $1,051,003 $1,555 0.59 % $1,061,601 $1,559 0.58 % ($23) $19 ($4)
Savings 628,857 2,363 1.49 690,637 2,711 1.56 (234) (114) (348)
Money market accounts 1,455,076 16,487 4.51 1,385,314 12,551 3.59 681 3,255 3,936
Time deposits 4,012,339 59,539 5.90 3,668,409 44,354 4.80 4,596 10,589 15,185
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,147,275 79,944 4.45 6,805,961 61,175 3.57 5,020 13,749 18,769
Federal funds purchased 38,365 645 6.69 46,000 588 5.07 (114) 171 57
Repurchase agreements 181,891 2,360 5.16 120,580 1,164 3.83 692 504 1,196
Master notes 308,841 4,448 5.73 332,574 3,609 4.31 (303) 1,142 839
Other short-term borrowings 55,059 944 6.82 56,903 764 5.33 (29) 209 180
Long-term obligations 154,979 3,168 8.13 156,856 3,197 8.09 (41) 12 (29)
===============================================================================================================================
Total interest-bearing liabilities $7,886,410 $91,509 4.62 % $7,518,874 $70,497 3.72 % $5,225 $15,787 $21,012
===============================================================================================================================
Interest rate spread 3.37 % 3.62 %
-------------------------------------------------------------------------------------------------------------------------------
Net interest income and net yield
on interest-earning assets $92,162 4.01 % $90,258 4.12 % $4,519 ($2,615) $1,904
-------------------------------------------------------------------------------------------------------------------------------
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 7.00% for 2000 and 1999. The taxiable-equivalent adjustment
was $705 for 2000 and $531 for 1999.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Table 5
2000 1999 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
Total loans $6,914,735 $433,463 8.37 % $6,315,810 $377,772 7.99 % $36,742 $18,949 $55,691
Investment securities:
U. S. Government 1,549,675 69,192 5.96 1,990,566 84,663 5.69 (19,096) 3,625 (15,471)
State, county and municipal 4,057 258 8.49 2,921 165 7.55 68 25 93
Other 21,554 373 2.31 24,365 404 2.22 (47) 16 (31)
-----------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,575,286 69,823 5.92 2,017,852 85,232 5.65 (19,075) 3,666 (15,409)
Overnight investments 377,120 17,738 6.28 308,759 11,326 4.90 2,866 3,546 6,412
-----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $8,867,141 $521,024 7.85 % $8,642,421 $474,330 7.33 % $20,533 $26,161 $46,694
=============================================================================================================================
Liabilities
Deposits:
Checking with Interest $1,063,527 $4,669 0.59 % $1,073,106 $5,265 0.66 % ($41) ($555) ($596)
Savings 642,781 7,392 1.54 693,574 8,107 1.56 (601) (114) (715)
Money market accounts 1,463,926 46,039 4.20 1,330,206 34,052 3.42 3,829 8,158 11,987
Time deposits 3,770,027 156,314 5.54 3,711,848 135,104 4.87 2,387 18,823 21,210
-----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,940,261 214,414 4.13 6,808,734 182,528 3.58 5,574 26,312 31,886
Federal funds purchased 36,113 1,674 6.19 55,147 1,970 4.78 (777) 481 (296)
Repurchase agreements 163,181 5,923 4.85 112,865 3,065 3.63 1,597 1,261 2,858
Master notes 303,394 11,859 5.22 320,233 9,649 4.03 (569) 2,779 2,210
Other short-term borrowings 56,413 2,728 6.46 57,497 2,280 5.30 (46) 494 448
Long-term obligations 154,642 9,476 8.19 157,533 9,539 8.10 (172) 109 (63)
-----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $7,654,004 $246,074 4.29 % $7,512,009 $209,031 3.72 % $5,607 $31,436 $37,043
=============================================================================================================================
Interest rate spread 3.56 % 3.61 %
-----------------------------------------------------------------------------------------------------------------------------
Net interest income and net yield
on interest-earning assets $274,950 4.14 % $265,299 4.10 % $14,926 ($5,275) $9,651
-----------------------------------------------------------------------------------------------------------------------------
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 7.00% for 2000 and 1999. The taxable equivalent adjustment
was $2,187 and $1,690 for 2000 and 1999, respectively.
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
<TABLE>
<CAPTION>
Table 6
2000 1999
Nine Months Ended
Third Second First Fourth Third September 30
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserve balance at beginning of period $100,515 $99,590 $98,690 $97,965 $96,765 $98,690 $96,115
Provision for loan losses 4,197 2,975 3,459 3,503 3,329 10,631 8,169
Net charge-offs:
Charge-offs (3,989) (3,395) (3,290) (3,841) (3,150) (10,674) (9,846)
Recoveries 842 1,345 731 1,063 1,021 2,918 3,527
-----------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (3,147) (2,050) (2,559) (2,778) (2,129) (7,756) (6,319)
===================================================================================================================================
Reserve balance at end of period $101,565 $100,515 $99,590 $98,690 $97,965 $101,565 $97,965
===================================================================================================================================
Historical Statistics
Balances
Average total loans $7,036,622 $6,917,041 $6,789,203 $6,646,312 $6,474,200 $6,914,735 $6,315,810
Total loans at period-end 7,097,773 7,006,824 6,828,095 6,751,039 6,574,807 7,097,773 6,574,807
-----------------------------------------------------------------------------------------------------------------------------------
Risk Elements
Nonaccrual loans $13,918 $9,910 $10,546 $10,720 $10,580 $13,918 $10,580
Other real estate acquired through
foreclosure 2,079 1,249 2,071 1,600 1,614 2,079 1,614
-----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $15,997 $11,159 $12,617 $12,320 $12,194 $15,997 $12,194
-----------------------------------------------------------------------------------------------------------------------------------
Accruing loans 90 days or more past due $6,866 $6,051 $5,294 $3,576 $7,350 $6,866 $7,350
-----------------------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs (annualized) to average
total loans 0.18 % 0.12 % 0.15 % 0.17 % 0.13 % 0.15 % 0.13 %
Reserve for loan losses to total loans
at period-end 1.43 1.43 1.46 1.46 1.49 1.43 1.49
Nonperforming assets to total loans plus
foreclosed real estate at period-end 0.23 0.16 0.18 0.18 0.19 0.23 0.19
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 2000
<PAGE>
8
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' two banking subsidiaries. First-Citizens Bank & Trust Company
("FCB") operates branches in North Carolina, West Virginia, and Virginia.
Atlantic States Bank ("ASB") operates offices in Georgia and Florida.
SUMMARY
BancShares realized an increase in earnings during the third quarter
of 2000 compared to the third quarter of 1999. Consolidated net income
during the third quarter of 2000 was $33.4 million, compared to $23.1
million earned during the corresponding period of 1999. Net income per
share during the third quarter of 2000 totaled $3.17, compared to $2.18
during the third quarter of 1999. Return on average assets was 1.31 percent
for the third quarter of 2000 compared to 0.95 percent during the same
period of 1999. Return on average equity was 17.22 for the third quarter of
2000 compared to 13.07 for the same quarter of 1999.
Much of the increase in earnings can be attributed to nonrecurring
gains resulting from securities gains and the sale of mortgage servicing
rights during the third quarter of 2000. Partially offsetting these gains
were nonrecurring losses recorded in conjunction with planned branch
closings. During the third quarter of 1999, BancShares recorded a
nonrecurring gain resulting from the sale of branch offices. Ignoring the
impact of the nonrecurring items during both periods, net income for the
third quarter of 2000 would have been $20.9 million, compared to $20.3
million during 1999, an increase of 2.5 percent. Adjusting for the impact
of the nonrecurring items, net income per share was $1.98 during the third
quarter of 2000, compared to net income of $1.92 per share during the same
period of 1999.
For the first nine months of 2000, BancShares recorded net income of
$74.3 million, compared to $62.5 million earned during the first nine months
of 1999. Net income per share for the first nine months of 2000 was $7.04,
compared to $5.88 during the same period of 1999. BancShares returned 1.01
percent on average assets during the first nine months of 2000 compared to
0.87 percent during the corresponding period of 1999. The return on average
equity for 2000 was 13.21 percent, compared to 12.20 percent for the same
period. The 18.9 percent increase in year-to-date net income resulted
primarily from higher noninterest income due to the sale of mortgage
servicing rights and securities gains, partially offset by the provision for
the closing of branches. In addition to the nonrecurring items during the
third quarter of 2000, BancShares had recorded nonrecurring securities gains
of $458,000 and write-downs of impaired assets of $661,000 during the first
six months of 2000.
Adjusting for the impact of the nonrecurring items, year-to-date net
income would have been $62.0 million during 2000 and $59.3 million during
1999, a 4.5 percent increase in 2000. Adjusted net income per share would
have been $5.87 for 2000 and $5.62 for 1999.
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 third quarter and Table 5 for the first nine
months of 2000 and 1999.
INTEREST-EARNING ASSETS
Interest-earning assets for the third quarter of 2000 averaged $9.14
billion, an increase of $453.4 million or 5.2 percent from the third quarter
of 1999. For the nine months ended September 30, 2000, earning assets
averaged $8.87 billion, an increase of $224.7 million or 2.6 percent over
the same period of 1999. These increases result from growth in the loan
portfolio.
Loans. At September 30, 2000 and 1999, gross loans totaled $7.10
billion and $6.57 billion, respectively. As of December 31, 1999, gross
loans were $6.75 billion. The $523.0 million increase in loans from
September 30, 1999 to September 30, 2000 primarily results from growth
within BancShares' commercial and retail real estate-based lending. Table 2
details outstanding loans by type for the past five quarters.
During the third quarter of 2000, loans averaged $7.04 billion, an
increase of $562.4 million or 8.7 percent from the comparable period of
1999. Loan growth resulted from strong demand for commercial and business
loans as well as continued growth among retail loans secured by real
estate. Loans secured by real estate averaged $4.65 billion during the
third quarter of 2000, an increase of $650.5 million, or 16.3 percent from
the same period of 1999. The increase in real estate loans results from
continued demand from commercial and business customers and continued growth
in the EquityLine product. Consumer loans averaged $1.30 billion during the
third quarter of 2000, a decrease of $120.2 million or 8.5 percent from the
same period of 1999. The reduction in consumer loans during 2000 has
resulted from a reduced emphasis on sales finance activity and a continued
migration of traditional closed-end installment lending to real
estate-secured home equity lines of credit. Loans originated for commercial
purposes averaged $869.3 million during the third quarter of 2000, compared
to $853.7 million during the third quarter of 1999, an increase of $15.6
million or 1.8 percent. Lease financing continues to grow, expanding $15.4
million or 20.7 percent from the third quarter of 1999 to the third quarter
of 2000, when leases averaged $131.4 million.
For the year-to-date, gross loans have averaged $6.91 billion for
2000 compared to $6.32 billion for the same period of 1999. This $598.9
million or 9.5 percent increase is likewise due to growth among commercial,
business and retail real estate lending.
As of September 30, 2000, $39.0 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 nine months of 2000 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
production. Second, loan sales provide liquidity to meet ongoing loan
demand. Sales of residential mortgage loans have supported both
objectives.
Despite the recent upward pressure on interest rates, management
anticipates continued growth among commercial and business lending.
Management projects continued reductions in retail installment loans,
primarily resulting from a diminished emphasis on sales finance activity.
All growth projections, however, remain dependent on interest rates, as
continued upward pressure on interest rates will likely slow loan growth.
Investment securities. At September 30, 2000 and 1999, the
investment portfolio totaled $1.73 billion and $1.70 billion, respectively.
At December 31, 1999, the investment portfolio was $1.37 billion. Average
investment securities decreased by $263.9 million or 13.9 percent from the
third quarter of 1999 to the third quarter of 2000, the result of loan
growth that absorbed liquidity resulting from maturing securities. 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
$183.0 million during the third quarter of 2000, a 14.2 percent increase
over the third quarter of 1999. Improved yields and loan growth contributed
to higher interest income in the third quarter of 2000 when compared to the
same period of 1999.
The taxable-equivalent yield on interest-earning assets for the
third quarter of 2000 was 7.99 percent, compared to 7.34 percent for the
corresponding period of 1999. The higher yield on earning assets during 2000
results primarily from an increase in the blended taxable-equivalent loan
yield, the result of increased market rates and a more favorable loan mix.
Loan interest income for the third quarter of 2000 was $150.1
million, an increase of $20.6 million or 16.0 percent from the third quarter
of 1999, due to volume growth and improved yields. The taxable-equivalent
yield on the loan portfolio was 8.52 percent during the third quarter of
2000, compared to 7.96 percent during the same period of 1999, the increase
resulting from higher market rates. In addition to higher market rates
during 2000, the composition of the loan portfolio has shifted toward
higher-yielding commercial and business loans and away from more
thinly-priced installment or residential mortgage loans.
For the nine months ended September 30, 2000, loan interest income
was $431.4 million, an increase of $55.2 million or 14.7 percent over the
same period of 1999. The increase in interest income during the nine-month
period reflects the growth in the loan portfolio and higher loan yields.
Income earned on the investment securities portfolio amounted to
$25.1 million during the third quarter of 2000 and $26.7 million during the
same period of 1999, a decrease of $1.6 million or 5.9 percent. This
decrease is the result of a $263.9 million or 13.9 percent decrease in the
average securities portfolio. The investment securities portfolio
taxable-equivalent yield rose to 6.13 percent for the quarter ended
September 30, 2000, compared to 5.59 percent for the quarter ended
September 30, 1999.
For the nine months ended September 30, 2000, interest income from
investment securities was $69.7 million, compared to $85.2 million during
the same period of 1999, a decrease of 18.1 percent. This decrease is the
result of a 21.9 percent reduction in the average securities portfolio. The
yield on average investment securities rose from 5.65 percent for the nine
month period ended September 30, 1999 to 5.92 percent for the same period of
2000.
INTEREST-BEARING LIABILITIES
At September 30, 2000 and 1999, interest-bearing liabilities totaled
$8.07 billion and $7.45 billion, respectively, compared to $7.55 billion as
of December 31, 1999. During the third quarter of 2000, interest-bearing
liabilities averaged $7.89 billion, an increase of $367.5 million or 4.9
percent from the third quarter of 1999. Total interest-bearing liabilities
increased 1.9 percent during the first nine months of 2000 when compared to
the same period of 1999.
Deposits. At September 30, 2000, total deposits were $8.67 billion,
an increase of $606.6 million or 7.5 percent over September 30, 1999.
Compared to the December 31, 1999 balance of $8.17 billion, total deposits
have increased $495.0 million or 6.1 percent.
Average interest-bearing deposits were $7.15 billion during the
third quarter of 2000 compared to $6.81 billion during the third quarter of
1999, an increase of 5.0 percent. Average time deposits increased $343.9
million, an increase of 9.4 percent, the result of marketing promotions
during the year and customers electing to return to traditional bank time
deposits as a result of higher rates and equity market volatility.
Borrowed Funds. At September 30, 2000, short-term borrowings
totaled $632.3 million compared to $568.3 million at December 31, 1999 and
$554.9 million at September 30, 1999. For the quarters ended September 30,
2000 and 1999, short-term borrowings averaged $584.2 million and $556.1
million, respectively. This increase resulted from growth among overnight
repurchase agreements, partially offset by lower average master note
borrowings.
Expense on Interest-Bearing Liabilities. BancShares' interest
expense amounted to $91.5 million during the third quarter of 2000, a $21.0
million or 29.8 percent increase from the third quarter of 1999. The higher
interest expense was the result of higher market rates and higher average
volume. The average rate on these liabilities increased 90 basis points
from the 3.72 percent during the third quarter of 1999 compared to 4.62
percent during the same period of 2000. Average interest-bearing
liabilities increased $367.5 million from the third quarter of 1999 to the
third quarter of 2000.
For the third quarter, the rate on average time deposits grew 110
basis points from 4.80 percent in 1999 to 5.90 percent in 2000, while the
rate on average money market accounts increased from 3.59 percent to 4.51
percent. The upward pressure on interest rates continues, as time deposits
reprice to current market rates. Money market rate increases reflect
continued competitive pricing for funding sources. The rate on average
master notes for the third quarter of 2000 was 5.73 percent compared to 4.31
percent during the same period in 1999. Higher borrowing rates result from
market conditions.
For the year-to-date, interest expense was $246.1 million, compared
to $209.0 million for the same period of 1999. The 17.7 percent increase
results from higher interest rates for interest-bearing deposits and
borrowings. The rate on average interest-bearing liabilities increased 57
basis points from 3.72 percent in 1999 to 4.29 percent for the first nine
months in 2000. The rate on average time deposits increased 67 basis
points from 4.87 percent to 5.54 percent during the nine month period ended
September 30, 2000.
NET INTEREST INCOME
Net interest income totaled $91.5 million during the third quarter
of 2000, an increase of $1.7 million or 1.9 percent from the third quarter
of 1999. Interest income generated by the growth in the loan portfolio
continues to allow net interest income to expand. However, the cost of
funding that loan growth has continued to increase. As a result, the
taxable-equivalent net yield on interest-earning assets was 4.01 percent for
the third quarter of 2000, a decrease of 11 basis points from the 4.12
percent reported for the third quarter of 1999. The net yield reported
during the first and second quarters of 2000 was 4.19 percent and 4.23
percent, respectively. The 22 basis point reduction from the second quarter
of 2000 to the third quarter of 2000 highlights the reduction in net
interest income during the third quarter of 2000, when compared to the
preceding quarter. The decline in the interest rate spread resulted from
larger growth in the rate on interest-bearing liabilities than growth in the
yield on interest-earning assets.
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
September 30, 2000, BancShares' market risk profile has not changed
significantly from December 31, 1999. BancShares continues to experience a
liability-sensitive position which results in lower net interest income
during periods of rising interest rates. However, as a result of asset
growth rates at levels that exceed deposit growth rates, the liability
sensitive position as a percentage of interest-earning assets has narrowed
since December 31, 1999.
ASSET QUALITY
Reserve for loan losses. Management continuously analyzes the
growth and risk characteristics of the total loan portfolio under current
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 probable credit losses. At September 30, 2000, the reserve for
loan losses amounted to $101.6 million or 1.43 percent of loans
outstanding. This compares to $98.7 million or 1.46 percent at December 31,
1999, and $98.0 million or 1.49 percent at September 30, 1999.
Management considers the established reserve adequate to absorb
losses that relate to loans outstanding at September 30, 2000. 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. Those agencies may require the
recognition of adjustments 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 third
quarter of 2000 was $4.2 million, compared to $3.3 million during the third
quarter of 1999. For the nine month periods ended September 30, total
provision for loan losses was $10.6 million for 2000 and $8.2 million for
1999. The $2.5 million increase reflects the higher rate of net charge-offs
and growth in the loan portfolio during 2000.
Net charge-offs for the nine month period ended September 30, 2000
totaled $7.8 million, compared to $6.3 million during the same period of
1999. As a percentage of average loans outstanding, these losses represent
0.15 percent for the nine months ended September 30, 2000, compared to 0.13
percent for the same period of 1999. Gross charge-offs totaled $10.7
million for the nine month period ended September 30, 2000 and $9.8 million
for the nine month period ended September 30, 1999. Recoveries were $2.9
million and $3.5 million for the respective periods. The increase in net
charge-offs during 2000 results primarily from higher gross charge-offs and
lower recoveries among commercial purpose loans.
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 2000
and 1999.
Nonperforming assets. At September 30, 2000, BancShares'
nonperforming assets amounted to $16.0 million or 0.23 percent of gross
loans plus foreclosed properties, compared to $12.3 million at December 31,
1999, and $12.2 million at September 30, 1999. The growth in nonperforming
assets during the third quarter of 2000 resulted from credit deterioration
among small business loans. While the ratio of non-performing assets to
loans plus other real estate increased from 0.19 percent at September 30,
1999 to 0.23 percent at September 30, 2000, these remain low by industry
standards. Regardless, management continues to closely monitor
nonperforming assets, taking necessary actions to minimize potential
exposure.
NONINTEREST INCOME
During the first nine months of 2000, noninterest income was $152.8
million, compared to $123.4 million during the same period of 1999. The
$29.4 million or 23.9 percent increase was primarily due to nonrecurring
gains. During the third quarter of 2000, FCB completed the sale of mortgage
servicing rights for approximately $1.6 billion in residential mortgage
loans. Although the mortgage servicing operation contributed $5.2 million
in noninterest income during 1999, management determined that BancShares
lacked the scale necessary to successfully compete with the market leaders
in this industry. Consequently, management elected to sell the existing
servicing and to sell new loan production with servicing released. The sale
of mortgage servicing rights generated a $20.2 million nonrecurring gain.
Other nonrecurring items during 2000 include a $2.3 million gain resulting
from securities transactions. During the third quarter of 1999, BancShares
recorded gains of $4.4 million on the sale of branch offices.
In addition to the benefit generated by the nonrecurring gains,
noninterest income from the credit card operation contributed an additional
$4.7 million during the first nine months of 2000 compared to the same
period of 1999. This represents a 20.9 percent increase over the first nine
months of 1999, the result of higher merchant income and interchange income
generated by card usage. BancShares also reported a $3.2 million increase
in service charge income during the first nine months of 2000, a 7.9 percent
increase due to growth in deposit accounts. Commission income resulting
from First Citizens Investor Services increased $2.2 million during the
first nine months of 2000, an increase of 26.9 percent. This subsidiary of
FCB continues to reach new customers and expand services provided to
existing customers. Fees generated from processing services provided to
other banks increased $992,000 during 2000, an increase of 10.3 percent.
NONINTEREST EXPENSE
Noninterest expense was $295.5 million for the first nine months of
2000, a 5.6 percent increase over the $279.7 million recorded during the
same period of 1999. Much of the $15.8 million increase in noninterest
expense relates to continued franchise expansion in Georgia and Florida by
ASB.
During the first nine months of 2000, BancShares recorded $2.7
million in expenses related to closings of various traditional and in-store
locations that will occur by the second quarter of 2001. The facilities
being closed have not achieved the anticipated levels of growth, and
management has elected to discontinue operations at these ten locations.
This charge recognizes $1.8 million in impairments of leasehold improvements
that will be abandoned when the branches close. This portion of the charge
is included in other expense. The remaining $910,000, which is included in
occupancy expense, represents obligations under lease agreements for the
leased facilities being closed.
Expenses of salary and wages increased $6.0 million during 2000 when
compared to the same period of 1999. This 5.0 percent increase reflects
the growth in employee population required to staff new branch offices
throughout the franchise. Employee benefits expense increased $1.9 million
or 8.2 percent during the first nine months of 2000, compared to the
corresponding period of 1999 due to the larger employee population and
increased health insurance costs.
Occupancy expense increased $3.5 million or 16.1 percent during the
first nine months of 2000. During the third quarter of 2000, FCB accrued
$910,000 in rent expense for branches to be closed. Additional increases in
rent and depreciation expense related to new and renovated branch facilities
resulted in the remaining increase in occupancy costs during 2000.
The $4.0 million, or 4.6 percent, increase in other expenses
resulted from higher credit card processing costs and impairment losses
recorded on the leasehold improvements in branches to be closed.
INCOME TAXES
Income tax expense amounted to $45.1 million during the first nine
months of 2000, compared to $36.6 million during the same period of 1999, a
23.2 percent increase resulting from higher pre-tax income. The effective
tax rates for these periods were 37.8 percent and 36.9 percent,
respectively. Higher effective tax rates during 2000 result from higher
state income tax expense.
LIQUIDITY
Management relies on the investment portfolio as a source of
liquidity, with maturities designed to provide needed cash flows. Further,
retail deposits generated throughout the branch network 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.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all
minimum regulatory capital requirements. At September 30, 2000 and 1999,
the leverage capital ratio of BancShares was 8.22 percent and 7.80 percent,
respectively, surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' Tier 1 capital ratio was 10.35 percent at
September 30, 2000, and 10.02 percent as of September 30, 1999. The minimum
ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted
capital ratio was 11.64 percent at September 30, 2000 and 11.33 percent as
of September 30, 1999. The minimum total capital ratio is 8 percent.
BancShares and its subsidiary banks exceed the capital standards established
by their respective regulatory agencies.
CURRENT ACCOUNTING AND REGULATORY ISSUES
In September 1998, the Financial Accounting Standards Board ("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. BancShares will adopt
SFAS No. 133, as amended, on January 1, 2001. BancShares has historically
made limited use of derivative instruments, and that practice is not
expected to change following the adoption of SFAS No. 133. Currently, FCB
regularly enters into forward commitments to sell residential mortgage
loans, all of which all of which FCB believes should qualify as cash flow
hedges under SFAS No. 133. As of September 30, 2000, FCB had committed to
deliver $46 million in residential mortgage loans over a three-month
period. These commitments are all believed to be highly effective in
achieving the goal of limiting interest rate risk. Accordingly, these
commitments would be recorded as assets or liabilities upon adoption of SFAS
No. 133 with an offsetting gain or loss net of tax recognized as a component
of other comprehensive income. As of September 30, 2000, the unrealized
loss on these forward commitments was approximately $127,000.
During September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS No. 140). SFAS No. 140 replaces FASB Statement No. 125.
SFAS No. 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March
31, 2001. BancShares has not yet determined the impact SFAS No. 140 will have
on its 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," "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 rates, and general
economic conditions.
