-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SpWQUf5Xm1XWE/XlRIMzKfHPeLDJW+v9YstTfYAtGrrFoTOxp/Kotzj5OGNEj9Ch qTwIJPkV16E/3u1/6avw/w== 0000798941-98-000001.txt : 19980515 0000798941-98-000001.hdr.sgml : 19980515 ACCESSION NUMBER: 0000798941-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CITIZENS BANCSHARES INC /DE/ CENTRAL INDEX KEY: 0000798941 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 561528994 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16471 FILM NUMBER: 98620302 BUSINESS ADDRESS: STREET 1: 239 FAYETTEVILLE STREET MALL CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9197557000 MAIL ADDRESS: STREET 1: PO BOX 27131 STREET 2: CTWO7 CITY: RALEIGH STATE: NC ZIP: 27611-7131 10-Q 1 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the period ended March 31, 1998 Commission File Number: 0-16471 First Citizens BancShares, Inc (Exact name of Registrant as specified in its charter) Delaware 56-1528994 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 239 Fayetteville Street, Raleigh, North Carolina 27601 (Address of principal executive offices) (zip code) (919) 716-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No _____ Class A Common Stock--$1 Par Value-- 8,905,199 shares Class B Common Stock--$1 Par Value-- 1,721,208 shares (Number of shares outstanding, by class, as of May 13, 1998) INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at March 31, 1998, December 31, 1997, and March 31, 1997 Consolidated Statements of Income for the three-month periods ended March 31, 1998, and March 31, 1997 Consolidated Statements of Changes in Shareholders' Equity for the three-month periods ended March 31, 1998, and March 31, 1997 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1998, and March 31, 1997 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Market Risk Disclosures PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule 3.(ii) Amended Bylaws of Registrant SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST CITIZENS BANCSHARES, INC. (Registrant) Dated: May 13, 1998 By:/s/Kenneth A. Black Kenneth A. Black Vice President, Treasurer, and Chief Financial Officer First Citizens BancShares, Inc and Subsidiaries First Quarter 1998 Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries
March 31* December 31# March 31* (thousands, except share data) 1998 1997 1997 Assets Cash and due from banks $442,482 $506,771 $351,892 Investment securities held to maturity 2,498,079 2,456,722 2,063,526 Investment securities available for sale 28,287 26,572 25,239 Federal funds sold 235,000 81,775 207,000 Loans 5,562,831 5,445,772 4,955,135 Less reserve for loan losses 85,985 84,360 81,459 Net loans 5,476,846 5,361,412 4,873,676 Premises and equipment 304,966 278,473 236,459 Income earned not collected 62,347 66,631 56,782 Other assets 204,022 172,753 161,043 Total assets $9,252,029 $8,951,109 $7,975,617 Liabilities Deposits: Noninterest-bearing $1,193,282 $1,131,498 $1,044,176 Interest-bearing 6,680,202 6,448,069 5,867,630 Total deposits 7,873,484 7,579,567 6,911,806 Short-term borrowings 486,599 593,824 343,448 Long-term obligations 160,219 10,856 6,827 Other liabilities 116,691 165,222 84,271 Total liabilities 8,636,993 8,349,469 7,346,352 Shareholders' equity Common stock: Class A-$1 par value( 8,905,199; 8,905,199; and 9,637,882 shares issued, respectively) 8,906 8,906 9,638 Class B-$1 par value(1,722,254; 1,722,254; and 1,757,774 shares issued, respectively) 1,722 1,722 1,758 Surplus 143,760 143,760 143,760 Retained earnings 449,911 437,794 466,240 Unrealized gains on investment securities available 10,737 9,458 7,869 Total shareholders' equity 615,036 601,640 629,265 Total liabilities and shareholders' equity $9,252,029 $8,951,109 $7,975,617 * Unaudited # Derived from the Consolidated Balance Sheets included in the 1997 Annual Report on Form 10-K See accompanying Notes to Consolidated Financial Statements. See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries First Quarter 1998 Consolidated Statements of Income First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31 (thousands, except per share data, unaudited) 1998 1997 Interest income Loans $112,166 $103,808 Investment securities: U. S. Government 35,175 30,073 State, county and municipal 58 77 Other 18 34 Total investment securities interest income 35,251 30,184 Federal funds sold 2,053 2,447 Total interest income 149,470 136,439 Interest expense Deposits 63,874 57,377 Short-term borrowings 6,468 4,187 Long-term obligations 1,105 142 Total interest expense 71,447 61,706 Net interest income 78,023 74,733 Provision for loan losses 4,395 1,567 Net interest income after provision for loan losses 73,628 73,166 Noninterest income Trust income 3,031 2,778 Service charges on deposit accounts 10,760 9,930 Credit card income 5,323 4,066 Other service charges and fees 7,877 6,447 Net gain (loss) on available for sale loans 1,089 (2,829) Other 3,815 3,022 Total noninterest income 31,895 23,414 Noninterest expense Salaries and wages 33,658 30,376 Employee benefits 6,746 5,938 Occupancy expense 6,558 5,737 Equipment expense 8,780 6,951 Other 25,277 21,582 Total noninterest expense 81,019 70,584 Income before income taxes 24,504 25,996 Income taxes 8,844 9,404 Net income $15,660 $16,592 Per Share Net income $1.39 $1.46 Cash dividends 0.25 0.25 See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Consolidated Statements of Changes in Shareholders' Equity First Citizens BancShares, Inc. and Subsidiaries
Class A Class B Unrealized Total Common Common Retained Securities Gains Shareholders' (thousands, except share data, unaudited) Stock Stock Surplus Earnings Net of Taxes Equity Balance at December 31, 1996 $9,652 $1,759 $143,760 $453,640 $6,696 $615,507 Redemption of 14,018 shares of Class A common stock and 1,206 shares of Class B common sto (14) (1) (1,139) (1,154) Net income 16,592 16,592 Unrealized gains on investment securities 1,173 1,173 available for sale, net of taxes (2,853) (2,853) Cash dividends Balance at March 31, 1997 $9,638 $1,758 $143,760 $466,240 $7,869 $629,265 Balance at December 31, 1997 $8,906 $1,722 $143,760 $437,794 $9,458 $601,640 Obligations to repurchase common stock (848) (848) Net income 15,660 15,660 Unrealized gains on investment securities available for sale, net of taxes 1,279 1,279 Cash dividends (2,695) (2,695) Balance at March 31, 1998 $8,906 $1,722 $143,760 $449,911 $10,737 $615,036 See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Consolidated Statements of Cash Flows First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31 (thousands, unaudited) 1998 1997 Operating Activities Net income $15,660 $16,592 Adjustments to reconcile net income to cash provided by operating activities: Amortization of intangibles 2,537 2,117 Provision for loan losses 4,395 1,567 Deferred tax expense (benefit) 1,713 (1,833) Change in current taxes payable 10,395 9,565 Depreciation 6,371 4,461 Change in accrued interest payable (7,081) (9,464) Change in income earned not collected 4,284 3,393 Origination of loans held for sale (136,308) (52,676) Proceeds from sale of loans 178,441 31,279 Loss (gain) on mortgage loans (1,069) 2,829 Net amortization of premiums and discounts 2,434 1,657 Net change in other assets 1,490 (1,506) Net change in other liabilities (54,386) (1,854) Net cash provided by operating activities 28,876 6,127 Investing Activities Net increase in loans outstanding (152,190) (7,606) Purchases of investment securities held to maturity (449,156) (139,752) Proceeds from maturities and calls of investment securities held to maturity 403,650 213,400 Net change in federal funds sold (153,225) (51,000) Dispositions of premises and equipment 9 305 Additions to premises and equipment (29,258) (11,729) Purchase of branches, net of cash paid 249,702 - Net cash (used) provided by investing activities (130,468) 3,618 Financing Activities Net change in time deposits (240,437) 34,830 Net change in demand and other interest-bearing deposits 238,297 (77,052) Net change in short-term borrowings (107,862) (48,653) Origination of long-term borrowings 150,000 - Repurchases of common stock - (1,154) Cash dividends paid (2,695) (2,853) Net cash provided (used) by financing activities 37,303 (94,882) Change in cash and due from banks (64,289) (85,137) Cash and due from banks at beginning of period 506,771 437,029 Cash and due from banks at end of period $442,482 $351,892 Cash payments for: Interest $79,323 $71,170 Income taxes 115 26 Supplemental disclosure of noncash investing and financing activities: Unrealized gain on investment securities available for sale 2,054 - Obligations to repurchase common stock 848 - See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Financial Summary
Table 1 1998 1997 First Fourth Third Second First (thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter S> Summary of Operations Interest income $149,470 $150,225 $145,494 $140,118 $136,439 Interest expense 71,447 72,818 68,947 64,542 61,706 Net interest income 78,023 77,407 76,547 75,576 74,733 Provision for loan losses 4,395 3,753 1,309 2,097 1,567 Net interest income after provision for loan losses 73,628 73,654 75,238 73,479 73,166 Noninterest income 31,895 31,912 31,087 28,894 23,414 Noninterest expense 81,019 78,832 76,561 74,817 70,584 Income before income taxes 24,504 26,734 29,764 27,556 25,996 Income taxes 8,844 9,370 10,746 9,972 9,404 Net income $15,660 $17,364 $19,018 $17,584 $16,592 Net interest income-taxable equivalent $78,541 $78,327 $77,052 $76,092 $75,255 Selected Quarterly Averages Total assets $8,927,355 $8,794,596 $8,411,774 $8,099,236 $7,903,566 Investment securities 2,442,962 2,503,443 2,359,115 2,166,362 2,094,376 Loans 5,474,570 5,324,286 5,073,404 5,023,409 4,921,346 Interest-earning assets 8,067,590 7,994,728 7,632,755 7,368,645 7,196,138 Deposits 7,619,330 7,427,881 7,144,502 6,952,848 6,823,697 Interest-bearing liabilities 7,096,124 6,924,776 6,608,892 6,341,125 6,203,598 Long-term obligations 55,814 11,450 12,017 11,545 6,809 Shareholders' equity $607,608 $649,214 $651,923 $635,680 $619,956 Shares outstanding 10,627,453 11,378,368 11,389,472 11,394,965 11,398,246 Selected Quarter-End Balances Total assets $9,252,029 $8,951,109 $8,595,591 $8,351,978 $7,975,617 Investment securities 2,526,366 2,483,294 2,432,424 2,271,282 2,063,526 Loans 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135 Interest-earning assets 8,324,197 8,010,841 7,710,619 7,467,252 7,225,661 Deposits 7,873,484 7,579,567 7,297,884 7,127,282 6,911,806 Interest-bearing liabilities 7,327,020 7,052,749 6,744,133 6,501,771 6,217,905 Long-term obligations 160,219 10,856 11,482 12,150 6,827 Shareholders' equity $615,036 $601,640 $662,490 $644,210 $629,265 Shares outstanding 10,627,453 10,627,453 11,389,928 11,392,085 11,395,656 Profitability Ratios (averages) Rate of return (annualized) on: Total assets 0.71% 0.78% 0.90% 0.87% 0.85% Shareholders' equity 10.45 10.61 11.57 11.10 10.85 Dividend payout ratio 17.99 16.13 14.97 16.23 17.12 Liquidity and Capital Ratios (averages) Loans to deposits 71.85% 71.68% 71.01% 72.25% 72.12% Shareholders' equity to total assets 6.81 7.38 7.75 7.85 7.84 Time certificates of $100,000 or more to total deposits 9.77 10.05 9.68 9.36 9.30 Per Share of Stock Net income $1.39 $1.55 $1.67 $1.54 $1.46 Cash dividends 0.25 0.25 0.25 0.25 0.25 Book Value at period end 57.87 56.61 58.16 56.55 55.22 Tangible book value at period end 45.48 47.11 49.27 48.10 46.89
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Outstanding Loans by Type
Table 2 1998 1997 First Fourth Third Second First (thousands) Quarter Quarter Quarter Quarter Quarter Real estate: Construction and land development $127,260 $113,735 $108,363 $109,125 $103,361 Mortgage: 1-4 family residential 1,370,264 1,411,279 1,411,922 1,383,250 1,529,972 Commercial 1,147,844 1,055,529 970,553 942,637 906,408 Equity Line 626,931 603,714 548,959 510,067 430,924 Other 136,191 136,639 133,661 134,793 134,852 Commercial and industrial 675,136 633,580 588,158 569,327 533,812 Consumer 1,389,079 1,402,093 1,355,783 1,258,330 1,230,501 Lease financing 77,161 74,589 75,922 73,861 69,496 Other 12,965 14,614 14,874 15,380 15,809 Total loans 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135 Less reserve for loan losses 85,985 84,360 83,385 81,902 81,459 Net loans $5,476,846 $5,361,412 $5,124,810 $4,914,868 $4,873,676
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Investment Securities
Table 3 March 31, 1998 March 31, 1997 Average Taxable Average Taxable Book Fair Maturity Equivalent Book Fair Maturity Equivale (thousands) Value Value (Yrs./Mos Yield Value Value (Yrs./Mos Yield C> U. S. Government: Within one year $967,621 $968,826 0/7 5.83 % $859,427 $856,108 0/7 5.77 % One to five years 1,519,594 1,524,174 1/8 5.90 1,185,615 1,177,229 1/10 5.84 Five to ten years 726 713 5/10 6.84 3,106 3,029 6/10 5.67 Over 10 years 4,248 4,366 19/7 7.49 7,256 7,287 18/10 7.45 Total 2,492,189 2,498,079 1/4 5.87 2,055,404 2,043,653 1/4 5.81 State, county and municipal: Within one year 1,656 1,665 0/8 6.40 1,227 1,433 0/6 6.31 One to five years 2,893 2,988 3/4 7.32 3,671 3,729 2/9 7.07 Five to ten years 175 175 19/5 9.14 1,119 1,136 5/5 6.17 Over 10 years 185 185 12/5 1.30 Total 4,724 4,828 3/0 7.03 6,202 6,483 3/4 7.00 Other Within one year 901 899 0/6 14.10 750 747 0/3 3.91 One to five years 265 265 1/9 5.29 1,135 1,123 1/6 12.58 Five to ten years 35 35 5/4 6.96 Total 1,166 1,164 0/8 13.23 1,920 1,905 0/11 10.45 Marketable equity securities 10,478 28,287 12,150 25,239 Total investment securities $2,508,557 $2,532,358 1/4 5.88 % $2,075,676 $2,077,280 1/4 5.83 %
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
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 Assets: Loans: Secured by real estate $3,353,851 $66,929 8.01 % $3,080,505 $62,950 8.21 % $5,516 ($1,537) $3,979 Commercial and industrial 635,308 13,889 8.65 521,449 11,301 8.37 2,300 288 2,588 Consumer 1,396,165 29,947 8.50 1,235,238 28,274 9.13 3,607 (1,934) 1,673 Lease financing 75,444 1,654 8.77 68,406 1,460 8.54 152 42 194 Other 13,802 233 6.82 15,748 304 7.83 (35) (36) (71) Total loans 5,474,570 112,652 8.29 4,921,346 104,289 8.54 11,540 (3,177) 8,363 Investment securities: U. S. Government 2,410,395 35,175 5.92 2,085,995 30,073 5.85 4,711 391 5,102 State, county and municipal 4,856 90 7.52 6,142 118 7.79 (24) (4) (28) Other 27,711 18 0.26 2,239 34 6.16 202 (218) (16) Total investment securities 2,442,962 35,283 5.86 2,094,376 30,225 5.85 4,889 387 5,058 Federal funds sold 150,058 2,053 5.55 180,416 2,447 5.50 (414) 20 (394) Total interest-earning assets $8,067,590 $149,988 7.51 % $7,196,138 $136,961 7.68 % $16,015 ($2,770) $13,027 Liabilities: Deposits: Checking with Interest $998,771 $2,638 1.07 % $901,767 $2,415 1.09 % $264 ($41) $223 Savings 691,931 3,208 1.88 710,509 3,621 2.07 (87) (326) (413) Money market accounts 1,060,634 9,444 3.61 878,538 7,794 3.60 1,622 28 1,650 Time deposits 3,767,206 48,584 5.23 3,338,882 43,547 5.29 5,559 (522) 5,037 Total interest-bearing deposits 6,518,542 63,874 3.97 5,829,696 57,377 3.99 7,358 (861) 6,497 Federal funds purchased 51,794 696 5.45 36,438 570 6.34 223 (97) 126 Repurchase agreements 59,884 638 4.32 23,128 238 4.17 385 15 400 Master notes 295,469 3,446 4.73 285,340 3,014 4.28 111 321 432 U. S. Treasury tax and loan accoun 16,214 197 4.93 12,879 224 7.05 49 (76) (27) Other short-term borrowings 98,407 1,491 6.14 9,308 141 6.14 1,349 1 1,350 Long-term obligations 55,817 1,105 8.03 6,809 142 8.46 996 (33) 963 Total interest-bearing liabilities $7,096,127 $71,447 4.08 % $6,203,598 $61,706 4.03 % $10,471 ($730) $9,741 Interest rate spread 3.43 % 3.65 % Net interest income and net yield on interest-earning assets $78,541 3.95 % $75,255 4.24 % $5,544 ($2,040) $3,286 Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% for each period, and state income tax rates of 7.25% and 7.5% for 1998 and 1997,respectively.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 Summary of Loan Loss Experience and Risk Elements
Table 5 1998 1997 First Fourth Third Second First (thousands, except ratios) Quarter Quarter Quarter Quarter Quarter Reserve balance at beginning of period $84,360 $83,385 $81,902 $81,459 $81,439 Reserve of acquired loans - - 358 123 - Provision for loan losses 4,395 3,753 1,309 2,107 1,557 Net charge-offs: Charge-offs (3,409) (3,857) (3,162) (3,774) (3,538) Recoveries 639 1,079 2,978 1,987 2,001 Net charge-offs (2,770) (2,778) (184) (1,787) (1,537) Reserve balance at end of period $85,985 $84,360 $83,385 $81,902 $81,459 Historical Statistics Balances Average total loans $5,474,570 $5,324,286 $5,073,404 $5,023,409 $4,921,346 Total loans at period-end 5,562,831 5,445,772 5,208,195 4,996,770 4,955,135 Risk Elements Nonaccrual loans $14,797 $12,681 $11,983 $14,589 $14,628 Other real estate acquired through foreclosure 1,502 1,462 1,450 1,152 1,337 Total nonperforming assets $16,299 $14,143 $13,433 $15,741 $15,965 Accruing loans 90 days or more past due $4,837 $3,953 $4,157 $4,503 $5,748 Ratios Net charge-offs (annualized) to average total loans 0.21 % 0.21 % 0.01 % 0.14 % 0.13 Reserve for loan losses to total loans at period-end 1.55 1.55 1.60 1.64 1.64 Nonperforming assets to total loans plus foreclosed real estate at period-end 0.29 0.26 0.26 0.31 0.32
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1998 INTRODUCTION Management's discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. and Subsidiaries ("BancShares"). It should be read in conjunction with the unaudited Consolidated Financial Statements and related notes presented elsewhere in this report. The focus of this discussion concerns BancShares' financial institution subsidiaries, because BancShares itself made an insignificant contribution to the consolidated totals. BancShares operates three wholly-owned subsidiaries: First-Citizens Bank & Trust Company , which operates branches in North Carolina and Virginia; First-Citizens Bank & Trust Company which operates branches in West Virginia; and Atlantic States Bank, which began operations during April 1997, and has offices in North Carolina and Georgia. SUMMARY BancShares realized a decrease in earnings of 5.4 percent during the first quarter of 1998 compared to the first quarter of 1997. Consolidated net income during the first quarter of 1998 was $15.7 million, compared to $16.6 million earned during the corresponding period of 1997. The decrease in earnings resulted from higher interest expense and noninterest expense, although these increases were partially offset by higher interest income and noninterest income. Net income per share during the first quarter of 1998 totaled $1.39, compared to $1.46 during the first quarter of 1997. Return on average assets was 0.71 percent for the first quarter of 1998 compared to 0.85 percent during the same period of 1997. Other profitability, liquidity and capital ratios are presented in Table 1. To understand the changes and trends in interest-earning assets and interest-bearing liabilities, refer to the average balances, interest income and expense, and yields and rates presented in Table 4. INTEREST-EARNING ASSETS Average interest-earning assets for the first quarter of 1998 totaled $8.07 billion, an increase of $871.5 million or 12.1 percent from the first quarter of 1997. This increase results from growth in the loan and investment portfolios. Loans. At March 31, 1998, and 1997, gross loans totaled $5.56 billion and $4.96 billion, respectively. As of December 31, 1997, gross loans were $5.45 billion. The $607.7 million growth in loans from March 31, 1997 to March 31, 1998 results from growth among BancShares' home equity loans, commercial and small business loan products and consumer loan products. Table 2 details outstanding loans by type for the past five quarters. During the first quarter of 1998, average total loans were $5.47 billion, an increase of $553.2 million or 11.2 percent from the comparable period of 1997. Average loans secured by real estate increased $273.3 million between the two periods, an 8.9 percent increase. Consumer loans averaged $1.40 billion during the first quarter of 1998, compared to $1.24 billion during the same period of 1997, an increase of $160.9 million or 13.0 percent. Despite a reduction in direct installment lending, consumer loans benefited from an increase in indirect automobile lending. Average commercial and industrial loans increased $113.9 million between the two periods, a 21.8 percent increase, the result of continued growth in small business lending. Current trends in loan demand suggest loan balances will continue to grow through 1998. Investment securities. At March 31, 1998, and 1997, the investment portfolio totaled $2.53 billion and $2.09 billion, respectively. At December 31, 1997, the investment portfolio was $2.48 billion. The 21.0 percent increase in the investment portfolio in one year resulted from excess liquidity being invested in the investment securities portfolio. Much of this liquidity resulted from the Signet branch acquisition in the first quarter of 1998. The minimal increase in the portfolio from December 31, 1997 to March 31, 1998 results from maturing investments being used to fund loan growth and to fund debt repayments. Except for marketable equity securities which are classified as available for sale, all investment securities are classified as held to maturity, as BancShares has the ability and the positive intent to hold these investment securities until maturity. Table 3 presents detailed information relating to the investment securities portfolio. Income on Interest-Earning Assets. Interest income amounted to $149.5 million during the first quarter of 1998, a 9.6 percent increase over the first quarter of 1997. Interest income benefited from favorable volume variances, as balance sheet growth contributed to higher interest income in the first quarter of 1998 when compared to the same period of 1997. The average yield on total interest-earning assets for the first quarter of 1998 was 7.51 percent, compared to 7.68 percent for the corresponding period of 1997, a 17 basis point decrease resulting from lower yields on the loan portfolio. Loan interest income for the first quarter of 1998 was $112.2 million, an increase of $8.4 million or 8.1 percent from first quarter of 1997, primarily due to growth in the portfolio of loans secured by real estate, commercial and small business loans and the consumer portfolio. The taxable equivalent yield on the loan portfolio was 8.29 percent during the first quarter of 1998, compared to 8.54 percent during the same period of 1997. Income earned on the investment securities portfolio amounted to $35.3 million during the first quarter of 1998 and $30.2 million during the same period of 1997, an increase of $5.1 million or 16.7 percent resulting from an average portfolio increase of $117.1 million. Additionally, the securities portfolio experienced a slight increase in the taxable-equivalent yield, increasing from 5.85 percent for the quarter ended March 31, 1997, to 5.86 percent for the quarter ended March 31, 1998. INTEREST-BEARING LIABILITIES. At March 31, 1998 and 1997, interest-bearing liabilities totaled $7.33 billion and $6.22 billion, respectively, compared to $7.05 billion as of December 31, 1997. Average interest-bearing liabilities for the first quarter of 1998 totaled $7.10 billion, an increase of 14.4 percent from the first quarter of 1997. Interest-bearing deposits account for much of the growth. During first quarter 1998, BancShares assumed $296.8 million in deposit liabilities from fifteen branches of Signet Bank in southern and western Virginia. Deposits. At March 31, 1998, total deposits were $7.87 billion, an increase of $961.7 million or 13.9 percent over March 31, 1997. Compared to the December 31, 1997 balance of $7.58 billion, total deposits have increased $293.9 million, primarily the result of the Signet Bank transaction. Average interest-bearing deposits were $6.52 billion during the first quarter of 1998 compared to $5.83 billion during the first quarter of 1997, an increase of $688.8 million or 11.8 percent. Most of the increase is attributed to average time deposits and average money market balances, which increased $428.3 million and $182.1 million, respectively, from the first quarter of 1997 to the first quarter of 1998. Average Checking With Interest deposits increased $97.0 million from the first quarter of 1997 to the first quarter of 1998. Time deposits of $100,000 or more averaged 9.8 percent of total average deposits during the first quarter of 1998, compared to 9.3 percent during the same period of 1997. Management does not consider the volume of these volatile deposits to be excessive at the current levels. Borrowed Funds. At March 31, 1998, short-term borrowings totaled $486.6 million compared to $593.8 million at December 31, 1997 and $343.4 million at March 31, 1997. The increase between March 31, 1997 and March 31, 1998 is due to increases in master notes and overnight repurchase agreements. The reduction from December 31, 1997 to March 31, 1998 is due to a repayment of a $125 million note payable. For the quarters ended March 31, 1998 and 1997, short-term borrowings averaged $521.8 million and $367.1 million, respectively. At March 31, 1998, long-term obligations totaled $160.2 million compared to $10.9 million at December 31, 1997 and $6.8 million at March 31, 1997. The increase in long-term obligations is due to the issuance of $150 million in trust preferred securities in March 1998. The trust preferred securities are thirty year obligations with interest paid semi-annually at a rate of 8.05 percent. The trust preferred securities qualify as Tier 1 capital for the holding company. Long-term obligations also increased from March 31, 1997 due to $30 million in short-term borrowings by the holding company. Long-term obligations averaged $55.8 million during the first quarter of 1998, compared to $6.8 million during the first quarter of 1997. Expense on Interest-Bearing Liabilities. BancShares' interest expense amounted to $71.4 million during the first quarter of 1998, a $9.7 million or 15.8 percent increase from the first quarter of 1997. The higher interest expense resulted from the impact of a $892.5 million increase in average interest-bearing liabilities, primarily due to growth of interest- bearing deposits. The rate on total interest-bearing liabilities was 4.08 percent during the first quarter of 1998, compared to 4.03 percent during the first quarter of 1997. NET INTEREST INCOME Net interest income totaled $78.0 million during the first quarter of 1998, an increase of 4.4 percent from the first quarter of 1997. The average net yield on interest-earning assets was 3.95 percent for the first quarter of 1998, 29 basis points below the net yield recorded during the first quarter of 1997. The taxable-equivalent interest rate spread for the first quarter of 1998 was 3.43 percent compared to 3.65 percent for the same period of 1997. The lower net yield and interest rate spreads resulted from lower interest rates received on interest-earning assets and higher interest rates paid on interest-bearing liabilities. The lower yield on earning assets resulted from a 25 basis point reduction in total loan yields and growth in the ratio of investment securities to total earning assets. A principal objective of BancShares' asset liability function is to manage interest rate risk or the exposure to changes in interest rates. BancShares maintains portfolios of interest-earning assets and interest-bearing liabilities with maturities or repricing opportunities that will protect against wide interest rate fluctuations, thereby limiting, to the extent possible, the ultimate interest rate exposure. Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values or reduced net interest income in future periods. As of March 31, 1998, BancShares' market risk profile has not changed significantly from December 31, 1997. ASSET QUALITY Reserve for loan losses. Management continuously analyzes the growth and risk characteristics of the total loan portfolio under current and projected economic conditions in order to evaluate the adequacy of the reserve for loan losses. Such factors as the financial condition of the borrower, fair market value of collateral and other considerations are recognized in estimating possible credit losses. At March 31, 1998, the reserve for loan losses amounted to $86.0 million or 1.55 percent of loans outstanding. This compares to $84.4 million or 1.55 percent at December 31, 1997, and $81.5 million or 1.64 percent at March 31, 1997. The provision for loan losses charged to operations during the first quarter of 1998 was $4.4 million, compared to $1.6 million during the first quarter of 1997. Net charge-offs for the quarter ended March 31, 1998 totaled $2.8 million, compared to net charge-offs of $1.5 million during the same period of 1997. While net charge-offs recorded during the first quarter of 1998 exceeded the same period of 1997, gross charge-offs actually declined from $3.5 million during the first quarter of 1997 to $3.4 million during the first quarter of 1998. However, gross recoveries, which were $2.0 million during the first quarter of 1997, fell to $639,000 during the same period of 1998. While management uses available information to establish provisions for loan losses, future additions to the reserve may be necessary based on changes in economic conditions or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the reserve for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. Table 5 provides details concerning the reserve and provision for loan losses over the past five quarters. Nonperforming assets. At March 31, 1998, BancShares' nonperforming assets amounted to $16.3 million or 0.29 percent of gross loans plus foreclosed properties, compared to $14.1 million at December 31, 1997, and $16 million at March 31, 1997. The increase in nonperforming assets at March 31, 1998, results from an increase in non-accrual loans at that date, an increase that management believes is unusual in nature and not indicative of unfavorable trends. However, management continues to closely monitor nonperforming assets, taking necessary actions to minimize potential exposure. NONINTEREST INCOME Noninterest income increased $8.5 million during the first quarter of 1998 to $31.9 million, compared to $23.4 million for the first quarter of 1997. The increase in noninterest income during the first quarter of 1998 is partially due to a $3.9 million increase in gains on sale of residential mortgage loans. The improvement results from more favorable market interest rates. A surge in market rates during the first quarter of 1997 resulted in a large unrealized loss being recorded on available-for-sale loans. Subsequent movement in market rates during 1997 allowed those loans to be sold at smaller losses, and much of the unrealized losses recorded during the first quarter of 1997 were later offset. During 1998, the fair value of available-for-sale loans exceeded their carrying value, and sale activity resulted in net gains being recorded. Other service charges and fees contributed $7.9 million during the first quarter of 1998, compared to $6.4 million during the same period of 1997. This 22.2 percent increase between the two periods partially resulted from a $581,000 increase in annuity and mutual fund sales generated through First Citizens Investor Services. Credit card income amounted to $5.3 million, an increase of $1.3 million or 30.9 percent over 1997 due to higher merchant income and higher interchange income. Service charge income represented $10.8 million during the first quarter of 1998 and $9.9 million during the same period of 1997. Contributing to the $830,000 increase in service charge income was a $700,000 increase in bad check charges due to an increase in the per item handling fee. NONINTEREST EXPENSE Noninterest expense for the first quarter of 1998 amounted to $81 million. This was a $10.4 million increase over the first quarter of 1997. Salaries and wages expense increased $3.3 million between the periods, primarily a result of a $1.6 million increase in sales incentive payments to branch associates. In addition, a 6.2 percent increase in full time equivalents since March 31, 1997 contributed to the increase in salary and wage expense. The increase in employees is attributed to expansion in Georgia and growth of the Virginia franchise. Further increases resulted from merit raises which became effective in April 1997. Occupancy expense increased $821,000, during the first quarter of 1998 compared to the corresponding period of 1997 due to a $290,000 increase in rent expense associated with the growth of in-store branch network. Depreciation expense also increased $279,000 resulting from new and renovated branch facilities. Equipment cost increased $1.8 million, the result of contributed technology investments and equipment maintenance costs. In addition, depreciation of equipment such as software, hardware and ATMs increased during the first quarter of 1998. Other expenses increased by $3.7 million or 26.3 percent during the first quarter of 1998. This increase is partially due to moving expense related to relocation to the newly expanded data center and expenses related to a travel premium program for credit card customers. Also contribution to the increase is a higher level of consulting fees, largely related to the year 2000 project. Management believes that a total of $2 million to $3 million in expenses will be incurred during 1998 and 1999 as BancShares continues to bring various systems into compliance. BancShares continues its efforts to address the issues related to the year 2000 issue. The responsibility for ensuring year 2000 compliance extends to governmental agencies, businesses and customers who exchange information or services with BancShares or are dependent on computer-generated information to meet their contractual obligations with others. To the extent that these unaffiliated organizations and customers are not successful in their compliance efforts and BancShares is dependent on those organizations for information, services, satisfaction of loan repayments or other contractual obligations, there are uncertainties as to the ultimate impact that the year 2000 will have on BancShares' consolidated financial statements. INCOME TAXES Income tax expense amounted to $8.8 million during the first quarter of 1998, compared to $9.4 million during the first quarter of 1997. The effective tax rates for these periods were 36.1 percent and 36.2 percent, respectively. LIQUIDITY Management relies on the investment portfolio as a source of liquidity, with maturities designed to provide needed cash flows. Further, retail deposits generated throughout the branch network has enabled management to fund asset growth and maintain liquidity. These sources have allowed limited dependence on short-term borrowed funds for liquidity or for asset expansion. In the event additional liquidity is needed, BancShares does maintain readily available sources to borrow funds as needed through its correspondent network. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. At March 31, 1998, and 1997, the leverage capital ratio of BancShares was 7.0 percent and 6.8 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares' Tier 1 capital ratio was 10.2 percent at March 31, 1998, and 10.2 percent at March 31, 1997. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.4 percent at March 31, 1998, compared to 11.5 percent at March 31, 1998, both above the minimum 8 percent level. On a consolidated basis, BancShares satisfies the 'well-capitalized' definition that is used by the FDIC in its evaluation of member banks. The issuance of the trust preferred securities during the first quarter of 1998 resulted in an additional $150 million in Tier 1 capital for BancShares. The proceeds from this debt issue were infused into First-Citizens Bank & Trust Company (the North Carolina bank), thereby augmenting its capital adequacy as well. CURRENT ACCOUNTING AND REGULATORY ISSUES BancShares has adopted several provisions issued by the Financial Accounting Standards Board ("FASB") during 1998. Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" became effective during 1998. SFAS No. 128 adjusts the calculation of earnings per share for companies with dilutive or potentially dilutive securities. As BancShares has no dilutive or potentially dilutive securities, the adoption of SFAS No 128 had no impact on BancShares' consolidated financial statements. SFAS No. 130 "Reporting Comprehensive Income" became effective during 1998 and modifies the disclosure of earnings to include net income, other comprehensive income and total comprehensive income. The impact of the adoption of SFAS 130 is included in the accompanying unaudited interim consolidated financial statements. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that public business enterprises report certain information about operating segments in complete sets of financial statements, as well as information about products, services, geographic areas in which they operate and their major customers. Adoption of SFAS 131 is not expected to have a material impact on BancShares' consolidated financial statements. In February 1998, the FASB issued SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes the disclosure requirements of pensions and other postretirement benefits and does not change any measurement or recognition provisions. The adoption of SFAS No. 132 during 1998 will not have a material impact on BancShares consolidated financial statements. Management is not aware of any current recommendations by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations. FORWARD LOOKING STATEMENTS This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," or other statements concerning opinions or judgment of BancShares and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of BancShares' customers, actions of government regulators, the level of market interest rates, and general economic conditions. NOTE A ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, the consolidated statements contain all material adjustments necessary to present fairly the financial position of First Citizens BancShares, Inc. as of and for each of the periods presented, and all such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements should be read in conjunction with the financial statements and notes included in the 1997 First Citizens BancShares Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior years have been reclassified to conform with statement presentations for 1998. However, the reclassifications have no effect on shareholders' equity or net income as previously reported. EX-27 2 EXHIBIT 27
9 1,000 3-MOS DEC-31-1998 MAR-31-1998 442,482 0 235,000 0 28,287 2,498,079 2,532,358 5,562,831 85,985 9,252,029 7,873,484 486,599 116,691 160,219 0 0 10,628 604,408 9,252,029 112,166 35,251 2,053 149,470 63,874 7,573 78,023 4,395 0 81,019 24,504 24,504 0 0 15,660 1.39 1.39 3.95 14,797 4,837 0 0 84,360 3,409 639 85,985 85,985 0 0 -----END PRIVACY-ENHANCED MESSAGE-----