-----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, MEZnlic0Ci1jacPniN1wDy++2chRHl4DmFF4VrtyRmvNJp/ny6YJIHQN+8icxMlV bvXxpasrBbTIWQf5Mywaow== 0000798941-99-000005.txt : 19990514 0000798941-99-000005.hdr.sgml : 19990514 ACCESSION NUMBER: 0000798941-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99619472 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. 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, 1999 Commission File Number: 0-16471 First Citizens BancShares, Inc (Exact name of Registrant as specified in its charter) Delaware 56-1528994 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 239 Fayetteville Street, Raleigh, North Carolina 27601 (Address of principal executive offices) (zip code) (919) 716-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No _____ Class A Common Stock--$1 Par Value-- 8,905,199 shares Class B Common Stock--$1 Par Value-- 1,720,360 shares (Number of shares outstanding, by class, as of April 12, 1999) INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at March 31, 1999, December 31, 1998, and March 31, 1998 Consolidated Statements of Income for the three-month periods ended March 31, 1999, and March 31, 1998 Consolidated Statements of Changes in Shareholders' Equity for the three-month periods ended March 31, 1999, and March 31, 1998 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1999, and March 31, 1998 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 March 31, 1999, Registrant filed no Current Reports on Form 8-K. 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: April 12, 1999 By:/s/Kenneth A. Black Kenneth A. Black Vice President, Treasurer, and Chief Financial Officer First Citizens BancShares, Inc and Subsidiaries First Quarter 1999
Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries March 31* December 31# March 31* (thousands,except share data) 1999 1998 1998 Assets Cash and due from banks $483,590 $502,955 $442,482 Investment securities held to maturity 2,075,213 2,135,372 2,498,079 Investment securities available for sale 24,669 24,957 28,287 Federal funds sold 350,000 232,725 235,000 Loans 6,244,828 6,195,591 5,562,831 Less reserve for loan losses 96,340 96,115 85,985 Net loans 6,148,488 6,099,476 5,476,846 Premises and equipment 374,110 367,076 330,070 Income earned not collected 59,824 61,652 62,347 Other assets 186,269 181,574 178,918 Total assets $9,702,163 $9,605,787 $9,252,029 Liabilities Deposits: Noninterest-bearing $1,301,195 $1,296,713 $1,193,282 Interest-bearing 6,877,903 6,815,695 6,680,202 Total deposits 8,179,098 8,112,408 7,873,484 Short-term borrowings 584,830 568,140 486,599 Long-term obligations 157,529 158,801 160,219 Other liabilities 104,453 105,689 116,691 Total liabilities 9,025,910 8,945,038 8,636,993 Shareholders' equity Common stock: Class A-$1 par value (8,905,199 shares issued for all periods) 8,906 8,906 8,906 Class B-$1 par value (1,720,360; 1,720,360; and 1,722,254 shares issued, respectively) 1,720 1,720 1,722 Surplus 143,760 143,760 143,760 Retained earnings 513,709 497,316 449,911 Accumulated other comprehensive income 8,158 9,047 10,737 Total shareholders' equity 676,253 660,749 615,036 Total liabilities and shareholders' equity $9,702,163 $9,605,787 $9,252,029 * Unaudited # Derived from the Consolidated Balance Sheet included in the 1998 Annual Report on Form 10-K. See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries First Quarter 1999
Consolidated Statements of Income First Citizens BancShares, Inc. and Subsidiaries Three Months Ended March 31 (thousands, except per share data, unaudited) 1999 1998 Interest income Loans $122,655 $112,166 Investment securities: U. S. Government 29,283 35,175 State, county and municipal 38 58 Other 120 18 Total investment securities interest income 29,441 35,251 Federal funds sold 3,360 2,053 Total interest income 155,456 149,470 Interest expense Deposits 60,869 63,874 Short-term borrowings 5,659 6,468 Long-term obligations 3,185 1,105 Total interest expense 69,713 71,447 Net interest income 85,743 78,023 Provision for loan losses 2,662 4,395 Net interest income after provision for loan losses 83,081 73,628 Noninterest income Trust income 3,507 3,031 Service charges on deposit accounts 11,600 10,760 Credit card income 6,322 5,323 Other service charges and fees 11,250 9,714 Net gain on loans held for sale 1,593 1,089 Securities gains 777 - Other 3,146 1,841 Total noninterest income 38,195 31,758 Noninterest expense Salaries and wages 39,097 33,658 Employee benefits 7,558 6,746 Occupancy expense 7,131 6,558 Equipment expense 9,231 8,780 Other 28,201 25,140 Total noninterest expense 91,218 80,882 Income before income taxes 30,058 24,504 Income taxes 11,010 8,844 Net income $19,048 $15,660 Per Share Net income $1.79 $1.39 Cash dividends 0.25 0.25 See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Consolidated Statements of Changes in Shareholders' Equity First Citizens BancShares, Inc. and Subsidiaries Accumulated Class A Class B Other Common Common Retained Comprehensive Total (thousands,except share data, unaudited) Stock Stock Surplus Earnings Income Equity 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 securities gains, net of $775 deferred 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 Balance at December 31, 1998 $8,906 $1,720 $143,760 $497,316 $9,047 $660,749 Net income 19,048 19,048 Unrealized securities losses, net of $585 deferred tax benefit (889) (889) Cash dividends (2,655) (2,655) Balance at March 31, 1999 $8,906 $1,720 $143,760 $513,709 $8,158 $676,253 See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Consolidated Statements of Cash Flows First Citizens BancShares, Inc. and Subsidiaries Three months ended March 31, (thousands, unaudited) 1999 1998 Operating Activities Net income $19,048 $15,660 Adjustments to reconcile net income to cash provided by operating activities: Amortization of intangibles 2,916 2,537 Provision for loan losses 2,662 4,395 Deferred tax expense (benefit) (2,227) 1,713 Change in current taxes payable 9,877 10,395 Depreciation 7,460 6,371 Change in accrued interest payable (7,813) (7,081) Change in income earned not collected 1,828 4,284 Securities gains (777) - Origination of loans held for sale (163,785) (136,288) Proceeds from sale of loans held for sale 194,703 178,441 Gain on loans held for sale (1,593) (1,089) Net amortization of premiums and discounts 3,275 2,434 Net change in other assets (4,799) 715 Net change in other liabilities (3,300) (53,611) Net cash provided by operating activities 57,475 28,876 Investing Activities Net increase in loans outstanding (80,999) (152,190) Purchases of investment securities held to maturity (357,283) (449,156) Proceeds from maturities of investment securities held to maturity 413,758 403,650 Net change in federal funds sold (117,275) (153,225) Dispositions of premises and equipment 6,311 9 Additions to premises and equipment (20,805) (29,258) Purchase of branches, net of cash received - 249,702 Net cash used by investing activities (156,293) (130,468) Financing Activities Net change in time deposits 6,280 (240,437) Net change in demand and other interest-bearing deposits 60,410 238,297 Net change in short-term borrowings 15,418 (107,862) Origination of long-term obligations - 150,000 Cash dividends paid (2,655) (2,695) Net cash provided by financing activities 79,453 37,303 Change in cash and due from banks (19,365) (64,289) Cash and due from banks at beginning of period 502,955 506,771 Cash and due from banks at end of period $483,590 $442,482 Cash payments for: Interest $77,526 $79,323 Income taxes 3,423 115 Supplemental disclosure of noncash investing and financing activities: Unrealized securities gains (losses) (1,474) 2,054 Change in obligation to repurchase common stock - 848 See accompanying Notes to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999 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 for the reported amounts of revenues and expenses during the reported 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 1998 First Citizens BancShares, Inc. Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 1999. 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:
Three months ended March 31 1999 1998 (thousands) Net income $19,048 $15,660 Other comprehensive income (loss) (889) 1,279 Comprehensive income $18,159 $16,939
Note C Net Income per Share Earnings per share is calculated by dividing income applicable to common shares by the weighted average number of common shares outstanding during the period. For 1998, income applicable to common shares represents net income adjusted for change in the obligation to purchase common shares. BancShares had no potential common stock for all periods presented. Net income per share is calculated based on the following amounts for the three months ended March 31:
Three months ended March 31 1999 1998 Net income $19,048 $15,660 Less change in obligation to purchase common shares - 848 Net income applicable to common shares $19,048 $14,812 Weighted average common shares outstanding 10,625,559 10,627,453
Financial Summary Table 1 1999 1998 First Fourth Third Second First (thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter Summary of Operations Interest income $155,456 $158,101 $157,381 $154,535 $149,470 Interest expense 69,713 73,057 73,924 73,643 71,447 Net interest income 85,743 85,044 83,457 80,892 78,023 Provision for loan losses 2,662 4,893 5,324 5,267 4,395 Net interest income after provision for loan losses 83,081 80,151 78,133 75,625 73,628 Noninterest income 38,195 42,439 36,000 35,220 31,758 Noninterest expense 91,218 91,226 86,114 83,991 80,882 Income before income taxes 30,058 31,364 28,019 26,854 24,504 Income taxes 11,010 11,648 9,931 9,309 8,844 Net income $19,048 $19,716 $18,088 $17,545 $15,660 Net interest income-taxable equivalent $86,338 $85,838 $83,988 $81,397 $78,541 Selected Quarterly Averages Total assets $9,517,513 $9,315,347 $9,183,571 $9,142,981 $8,927,355 Investment securities 2,091,575 2,087,308 2,244,014 2,461,590 2,442,962 Loans 6,180,106 6,169,556 6,024,822 5,711,599 5,474,570 Interest-earning assets 8,558,123 8,413,435 8,305,482 8,269,008 8,067,590 Deposits 8,018,971 7,914,649 7,744,217 7,755,945 7,619,330 Interest-bearing liabilities 7,495,944 7,410,007 7,244,949 7,241,686 7,096,127 Long-term obligations 158,307 159,196 158,353 159,984 55,814 Shareholders' equity $668,087 $651,656 $635,521 $621,605 $607,608 Shares outstanding 10,625,559 10,625,559 10,625,559 10,626,702 10,627,453 Selected Quarter-End Balances Total assets $9,702,163 $9,605,787 $9,194,842 $9,224,848 $9,252,029 Investment securities 2,099,882 2,160,329 2,115,343 2,348,771 2,526,366 Loans 6,244,828 6,195,591 6,132,422 5,886,315 5,562,831 Interest-earning assets 8,694,710 8,588,645 8,257,765 8,235,086 8,324,197 Deposits 8,179,098 8,112,408 7,771,093 7,798,918 7,873,484 Interest-bearing liabilities 7,620,262 7,542,636 7,260,204 7,291,813 7,327,020 Long-term obligations 157,529 158,801 158,801 159,456 160,219 Shareholders' equity $676,253 $660,749 $643,673 $628,702 $615,036 Shares outstanding 10,625,559 10,625,559 10,625,559 10,625,559 10,627,453 Profitability Ratios (averages) Rate of return (annualized) on: Total assets 0.81% 0.84% 0.78% 0.77% 0.71% Shareholders' equity 11.56 12.00 11.29 11.32 10.45 Dividend payout ratio 13.97 13.51 14.71 15.15 17.01 Liquidity and Capital Ratios (averages) Loans to deposits 77.07% 77.95% 77.80% 73.64% 71.85% Shareholders' equity to total assets 7.02 7.00 6.92 6.80 6.81 Time certificates of $100,000 or more to total deposits 9.04 8.88 8.85 9.15 9.77 Per Share of Stock Net income $1.79 $1.85 $1.70 $1.68 $1.39 Cash dividends 0.25 0.25 0.25 0.25 0.25 Book value at period end 63.64 62.18 60.58 59.17 57.87 Tangible book value at period end 52.27 50.73 49.17 47.02 45.48
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Outstanding Loans by Type Table 2 1999 1998 First Fourth Third Second First (thousands) Quarter Quarter Quarter Quarter Quarter Real estate: Construction and land development $166,123 $157,603 $156,892 $140,651 $127,260 Mortgage: 1-4 family residential 1,276,945 1,299,508 1,327,411 1,351,708 1,370,264 Commercial 1,594,076 1,495,214 1,378,086 1,257,465 1,147,844 Equity Line 613,510 617,062 641,746 647,117 626,931 Other 160,690 160,289 157,830 153,074 136,191 Commercial and industrial 889,962 845,068 802,653 756,371 675,136 Consumer 1,437,897 1,516,712 1,564,041 1,483,333 1,389,079 Lease financing 95,557 93,680 91,655 83,713 77,161 Other 10,068 10,455 12,108 12,883 12,965 Total loans 6,244,828 6,195,591 6,132,422 5,886,315 5,562,831 Less reserve for loan losses 96,340 96,115 94,135 90,240 85,985 Net loans $6,148,488 $6,099,476 $6,038,287 $5,796,075 $5,476,846
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Investment Securities Table 3 March 31, 1999 March 31, 1998 Average Taxable Average Taxable Book Fair Maturity Equivalent Book Fair Maturity Equivalent (thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield Within one year $1,345,055 $1,351,757 0/7 5.90 % $967,621 $968,826 0/7 5.83 % One to five years 721,630 719,754 1/6 5.23 1,519,594 1,524,174 1/8 5.90 Five to ten years 116 121 7/0 8.38 726 713 5/10 6.84 Over 10 years 4,948 5,059 22/10 7.11 4,248 4,366 19/7 7.49 Total 2,071,749 2,076,691 0/11 5.66 2,492,189 2,498,079 1/4 5.87 State, county and municipal: Within one year 125 125 0/2 7.70 1,656 1,665 0/8 6.40 One to five years 2,664 2,754 2/6 7.27 2,893 2,988 3/4 7.32 Over ten years 160 165 18/5 9.14 175 175 19/5 9.14 Total 2,949 3,044 3/3 7.39 4,724 4,828 3/0 7.03 Other: Within one year 210 210 0/2 5.24 901 899 0/6 14.10 One to five years 55 55 2/11 5.47 265 265 1/9 5.29 Five to ten years 250 250 9/4 2.25 - - - - Total 515 515 0/8 3.81 1,166 1,164 0/8 13.23 % Total securities held to maturity 2,075,213 2,080,250 0/11 5.67 % 2,498,079 2,504,071 Marketable equity securities 11,136 24,669 - 10,478 28,287 - - Total investment securities $2,086,349 $2,104,919 - - $2,508,557 $2,532,358 - -
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter Table 4 1999 1998 Increase (decrease) due to: Interest Interest Average Income/ Yield/ Average Income/ Yield/ Yield/ Total (thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change Assets: Total loans $6,180,106 $123,232 8.04% $5,474,570 $112,652 8.29% $14,676 ($4,096) $10,580 Investment securities: U. S. Government 2,063,406 29,283 5.76 2,410,395 35,175 5.92 (5,003) (889) (5,892) State, county and municipal 3,053 56 7.44 4,856 90 7.52 (33) (1) (34) Other 25,116 120 1.94 27,711 18 0.26 (7) 109 102 Total investment securities 2,091,575 29,459 5.71 2,442,962 35,283 5.86 (5,043) (781) (5,824) Federal funds sold 286,442 3,360 4.76 150,058 2,053 5.55 1,733 (426) 1,307 Total interest-earning assets $8,558,123 $156,051 7.36% $8,067,590 $149,988 7.51% $11,366 ($5,303) $6,063 Liabilities: Deposits: Checking with Interest $1,071,693 $1,924 0.73% $998,771 $2,638 1.07% $158 ($872) ($714) Savings 690,834 2,679 1.57 691,931 3,208 1.88 (3) (526) (529) Money market accounts 1,275,292 10,344 3.29 1,060,634 9,444 3.61 1,824 (924) 900 Time deposits 3,741,259 45,922 4.98 3,767,206 48,584 5.23 (337) (2,325) (2,662) Total interest-bearing deposits 6,779,078 60,869 3.64 6,518,542 63,874 3.97 1,642 (4,647) (3,005) Federal funds purchased 79,434 910 4.65 51,794 696 5.45 344 (130) 214 Repurchase agreements 106,935 923 3.50 59,884 638 4.32 454 (169) 285 Master notes 312,184 2,968 3.86 295,469 3,446 4.73 175 (653) (478) Other short-term borrowings 60,006 858 5.80 114,621 1,688 5.97 (793) (37) (830) Long-term obligations 158,307 3,185 8.16 55,817 1,105 8.03 2,046 34 2,080 Total interest-bearing liabilities $7,495,944 $69,713 3.77% $7,096,127 $71,447 4.08% $3,868 ($5,602) ($1,734) Interest rate spread 3.59% 3.43% Net interest income and net yield on interest-earning assets $86,338 4.09% $78,541 3.95% $7,498 $299 $7,797 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% and 7.25% for 1999 and 1998, respectively.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999
Summary of Loan Loss Expenience and Risk Elements Table 5 1999 1998 First Fourth Third Second First (thousands, except ratios) Quarter Quarter Quarter Quarter Quarter Reserve balance at beginning of period $96,115 $94,135 $90,240 $85,985 $84,360 Provision for loan losses 2,662 4,893 5,324 5,267 4,395 Net charge-offs: Charge-offs (3,465) (3,913) (2,815) (3,930) (3,409) Recoveries 1,028 1,000 1,386 2,918 639 Net charge-offs (2,437) (2,913) (1,429) (1,012) (2,770) Reserve balance at end of period $96,340 $96,115 $94,135 $90,240 $85,985 Historical Statistics Balances Average total loans $6,180,106 $6,169,556 $6,024,822 $5,711,599 $5,474,570 Total loans at period-end 6,244,828 6,195,591 6,132,422 5,886,315 5,562,831 Risk Elements Nonaccrual loans $12,322 $12,489 $11,492 $12,335 $14,797 Other real estate acquired through foreclosure 3,062 1,529 1,202 1,170 1,502 Total nonperforming assets $15,384 $14,018 $12,694 $13,505 $16,299 Accruing loans 90 days or more past due $5,541 $5,721 $4,761 $4,168 $4,837 Ratios Net charge-offs (annualized) to average total loans 0.16% 0.19% 0.09% 0.07% 0.21% Reserve for loan losses to total loans at period-end 1.54 1.55 1.54 1.53 1.55 Nonperforming assets to total loans plus foreclosed real estate at period-end 0.25 0.23 0.21 0.23 0.29
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1999 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, Virginia and West Virginia. Atlantic States Bank operates offices in Georgia and Florida. SUMMARY BancShares realized improved earnings during the first quarter of 1999 compared to the first quarter of 1998. Consolidated net income during the first quarter of 1999 was $19.0 million, compared to $15.7 million earned during the corresponding period of 1998. Net income per share during the first quarter of 1999 totaled $1.79, compared to $1.39 during the first quarter of 1998. Annualized return on average assets was 0.81 percent for the first quarter of 1999 compared to 0.71 percent during the same period of 1998. The higher net income, net income per share, and return on average assets resulted from improved net interest income and noninterest income. These improvements were partially offset, however, by higher noninterest expense during the first quarter of 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 first three months of 1999 and 1998. INTEREST-EARNING ASSETS Interest-earning assets for the first quarter of 1999 averaged $8.56 billion, an increase of $490.5 million or 6.1 percent from the first quarter of 1998. This increase results from growth in the loan portfolio. Loans. At March 31, 1999 and 1998, gross loans totaled $6.24 billion and $5.56 billion, respectively. As of December 31, 1998, gross loans were $6.20 billion. The $682.0 million growth in loans from March 31, 1998 to March 31, 1999 results from growth within BancShares' commercial loans and small business loans. This growth has resulted from customer demand and BancShares'strong focus on these products during 1998. During the first quarter of 1999, loans averaged $6.18 billion, an increase of $705.5 million or 12.9 percent from the comparable period of 1998. Commercial loans, which averaged $2.29 billion during the first quarter of 1999, increased $473.4 million or 26.1 percent over the first quarter of 1998. Business loans, which averaged $446.2 million during the first quarter of 1999, increased $190.4 million over the first quarter of 1998. Strong demand among commercial and small business customers and BancShares'ability to deliver desirable products through accessible delivery networks allowed the strong growth in commercial purpose loans. Retail loan growth was less robust during the first quarter of 1999, although installment lending increased $231.5 million over the first quarter of 1998. Average EquityLine and other revolving products decreased from the first quarter of 1998 to 1999. Average residential mortgage loan balances decreased $202.1 million from the same period of 1998, the result of mortgage loan sales that generated liquidity to fund commercial loan demand. As of March 31, 1999, $55.0 million in residential mortgage loans are classified as held for sale. All loans held for sale are carried at the lower of cost or fair value. Management anticipates continued growth among commercial and small business loans during 1999, although the rate of growth will likely be less than that in 1998. Retail loan growth is projected to remain modest. Growth projections are dependent on interest rate movements, as interest rate changes will affect retail and commercial loan growth. Investment securities. At March 31, 1999 and 1998, the investment portfolio totaled $2.10 billion and $2.53 billion, respectively. At December 31, 1998, the investment portfolio was $2.16 billion. The 16.9 percent reduction in the investment portfolio since March 31, 1998 resulted from proceeds from maturing securities being used to fund loan demand. All securities that are classified as held-to-maturity reflect BancShares'ability and positive intent to hold those investments until maturity. Available-for-sale securities 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 $155.5 million during the first quarter of 1999, a 4.0 percent increase over the first quarter of 1998. Growth in the loan portfolio contributed to higher interest income in the first quarter of 1999 when compared to the same period of 1998. The taxable-equivalent yield on interest-earning assets for the first quarter of 1999 was 7.36 percent, compared to 7.51 percent for the corresponding period of 1998. The lower yield on earning assets during 1999 results from lower market pricing for loans originated during 1998. Loan interest income for the first quarter of 1999 was $122.7 million, an increase of $10.5 million or 9.4 percent from the first quarter of 1998, the result of volume growth. The taxable-equivalent yield on the loan portfolio was 8.04 percent during the first quarter of 1999, compared to 8.29 percent during the same period of 1998, the decrease resulting from lower market rates and competitive loan pricing. Income earned on the investment securities portfolio amounted to $29.4 million during the first quarter of 1999 and $35.3 million during the same period of 1998, a decrease of $5.8 million or 16.5 percent. This decrease is the result of a $351.4 million reduction in the average securities portfolio and a 15 basis point yield reduction. The investment securities portfolio taxable-equivalent yield decreased from 5.86 percent for the quarter ended March 31, 1998, to 5.71 percent for the quarter ended March 31, 1999, the result of market conditions. INTEREST-BEARING LIABILITIES. At March 31, 1999 and 1998, interest-bearing liabilities totaled $7.62 billion and $7.33 billion, respectively, compared to $7.54 billion as of December 31, 1998. During the first quarter of 1999, interest-bearing liabilities averaged $7.50 billion, an increase of $399.8 million or 5.63 percent from the first quarter of 1998. This increase primarily resulted from growth in interest-bearing deposits and long-term obligations. Deposits. At March 31, 1999, total deposits were $8.18 billion, an increase of $305.6 million or 3.9 percent over March 31, 1998. Compared to the December 31, 1998 balance of $8.11 billion, total deposits have increased $66.7 million. Average interest-bearing deposits were $6.78 billion during the first quarter of 1999 compared to $6.52 billion during the first quarter of 1998, an increase of 4.0 percent. The increase is due to growth among money market and Checking With Interest deposits. Average money market deposits increased $214.7 million from the first quarter of 1998 to the first quarter of 1999. Average Checking With Interest accounts increased $72.9 million between the two periods. Time deposits of $100,000 or more averaged 9.04 percent of total average deposits during the first quarter of 1999, compared to 9.77 percent during the same period of 1998. Deposit growth reflects the impact of the expanding branch network, specifically in-store locations. Borrowed Funds. At March 31, 1999, short-term borrowings totaled $584.8 million compared to $568.1 million at December 31, 1998 and $486.6 million at March 31, 1998. For the quarters ended March 31, 1999 and 1998, short-term borrowings averaged $558.6 million and $521.8 million, respectively. This increase is the net result of growth among federal funds purchased and overnight repurchase obligations. Long-term obligations averaged $158.3 million during the first quarter of 1999, compared to $55.8 million during the first quarter of 1998. The increase in long-term obligations reflects the impact of the $150 million in trust preferred securities that were issued during the first quarter of 1998. The trust preferred securities are thirty year obligations with interest paid semi-annually at a rate of 8.05 percent. The trust preferred securities qualify as Tier 1 capital for the holding company. Expense on Interest-Bearing Liabilities. BancShares' interest expense amounted to $69.7 million during the first quarter of 1999, a $1.7 million or 2.4 percent reduction from the first quarter of 1998. The lower interest expense was the result of a 31 basis point reduction in the aggregate blended rate on interest-bearing liabilities. The rate on these liabilities was 3.77 percent during the first quarter of 1999, compared to 4.08 percent during the first quarter of 1998. The rate reduction more than offset the impact of a $399.8 million increase in average interest-bearing liabilities. NET INTEREST INCOME Net interest income totaled $85.7 million during the first quarter of 1999, an increase of 9.9 percent from the first quarter of 1998. The taxable-equivalent net yield on interest-earning assets was 4.09 percent for the first quarter of 1999, compared to the 3.95 percent achieved for the first quarter of 1998. The taxable equivalent interest rate spread for the first quarter of 1999 was 3.59 percent compared to 3.43 percent for the same period of 1998. 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 March 31, 1999, BancShares' market risk profile has not changed significantly from December 31, 1998. Changes in fair value that result from movement in market rates can not be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain. 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 March 31, 1999, the reserve for loan losses amounted to $96.3 million or 1.54 percent of loans outstanding. This compares to $96.1 million or 1.55 percent at December 31, 1998, and $86.0 million or 1.55 percent at March 31, 1998. Management considers the established reserve adequate to absorb estimated probable losses that relate to loans outstanding at March 31, 1999. 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 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 first quarter of 1999 was $2.7 million, compared to $4.4 million during the first quarter of 1998. Net charge-offs for the three months ended March 31, 1999 totaled $2.4 million, compared to net charge-offs of $2.8 million during the same period of 1998. On an annualized basis, these net charge-offs represent 0.16 percent and 0.21 percent of average loans outstanding during the respective periods. The reduction in total provision for loan losses during the first quarter of 1999 results from a smaller rate of loan growth during 1999, when compared to loan growth during the same period of 1998. Management remains committed to maintaining high levels of credit quality. Table 5 provides details concerning the reserve and provision for loan losses over the past five quarters. Nonperforming assets. At March 31, 1999, BancShares' nonperforming assets amounted to $15.4 million or 0.25 percent of gross loans plus foreclosed properties, compared to $14.0 million at December 31, 1998, and $16.3 million at March 31, 1998. While BancShares views these levels of nonperforming assets as further evidence of strong asset quality, management continues to closely monitor nonperforming assets, taking necessary actions to minimize potential exposure. There has been no significant change in the carrying value of impaired loans. NONINTEREST INCOME During the first three months of 1999, noninterest income was $38.2 million, compared to $31.8 million during the same period of 1998. The $6.4 million or 20.3 percent increase was primarily due to growth in other service charge and fee income and credit card income. During the first three months of 1999, total other service charges and fees was $11.3 million, compared to $9.7 million earned during the same period of 1998. Significant to this increase was growth in fees earned by First Citizens Investor Services and mortgage servicing income. Credit card income during the first quarter of 1999 was $6.3 million, compared to $5.3 million earned during the same period of 1998. The $1.0 million or 18.8 percent increase resulted from higher interchange income and merchant fee income. Securities gains recognized during the first quarter of 1999 totaled $777,000. These gains resulted from the repurchase of various available for sale securities by acquiring companies. No such gains were recorded during 1998. Results from the sale of residential mortgage loans and adjustments of loans held for sale to the lower of cost or fair value are included in other noninterest income. BancShares recorded net gains of $1.6 million for the first three months of 1999, compared to net gains of $1.1 million during the same period of 1998. During the first quarter of 1999, BancShares recognized gains of $630,000 on the sale of deposit liabilities. No such gains were recognized during the first quarter of 1998. NONINTEREST EXPENSE Noninterest expense was $91.2 million for the first three months of 1999, a 12.8 percent increase over the $80.9 million recorded during the same period of 1998. Much of the $10.3 million increase in total noninterest expense relates to franchise expansion and the investments required to support that growth. Salaries and wages increased $5.4 million during 1999 when compared to the same period of 1998. This 16.2 percent increase reflects the growth in employee population required to staff the new branch offices and in-store locations in North Carolina, Virginia and Georgia. Employee benefits expense increased 12.0 percent during 1999, the result of increased pension expense and employment taxes. Equipment expense was $9.2 million during the first three months of 1999, compared to $8.8 million during the same period of 1998. Much of the 5.1 percent increase was a result of higher depreciation resulting from recent hardware and software purchases, and the expansion of the ATM network. Occupancy expense was $7.1 million for the first three months of 1999, an 8.7 percent increase over the $6.6 million recorded during the same period of 1998. Much of the increase was the result of higher rent and depreciation expense for new and renovated branch facilities. The $3.1 million increase in other expenses resulted from higher consulting expense and expenses related to credit card processing. During the first three months of 1999, BancShares incurred $1.4 million in consulting expenses, which includes costs related to preparation for the year 2000 ("2K"). The increase in credit card processing costs relates to the growth in the number of accounts outstanding. INCOME TAXES Income tax expense amounted to $11.0 million during the three months ended March 31, 1999, compared to $8.8 million during the same period of 1998, a 24.5 percent increase resulting from higher pre-tax income. The effective tax rates for these periods were 36.6 percent and 36.1 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 have enabled management to fund asset growth and maintain liquidity. In the event additional liquidity is needed, BancShares maintains readily available sources to borrow funds through its correspondent network. Loan growth during the first quarter was funded by growth in deposits and by liquidity granted from maturity of investment securities. Deposits are expected to display seasonal patterns through the remainder of 1999, providing funds for projected loan growth. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. At March 31, 1999 and 1998, the leverage capital ratio of BancShares was 7.42 percent and 6.95 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares' Tier 1 capital ratio was 10.08 percent at March 31, 1999, and 10.20 percent as of March 31, 1998. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.41 percent at March 31, 1999 and 11.44 percent as of March 31, 1998. The minimum total capital ratio is 8 percent. BancShares and its subsidiary banks exceed the capital standards established by their respective regulatory agencies. YEAR 2000 PREPARATIONS BancShares continues to devote significant resources to the efforts related to preparation for the arrival of year 2000. As is the case with most financial institutions, BancShares is heavily dependent on technologies which, in turn, are highly date sensitive. During 1996, recognizing the significance of the Y2K problem, BancShares retained a qualified consultant to plan and direct the process by which the Y2K project would proceed. The consultant works under the supervision of a Y2K Executive Steering Committee, which includes BancShares' Chief Financial Officer and Chief Information Officer. This committee provides ongoing updates to the Board of Directors. BancShares has divided its Y2K efforts into five areas - mainframe computing, non-mainframe computing, non-information technology, integration testing and business continuity planning. The progress made to date in each of these areas is, in management's opinion, appropriate. State of Readiness - With respect to mainframe computing, remediation and testing has been completed on all mission critical applications. With respect to non-mainframe computing, remediation and testing has been completed for substantially all of the mission-critical and non-mission-critical applications. A small number of applications will not complete remediation and testing until second quarter 1999. With respect to non-information technology assets and services, management has identified those that may be impacted by Y2K. Those assets and services are currently proceeding through a validation process, with substantially all mission-critical assets and services having been validated. The validation process is expected to be completed by the end of the second quarter of 1999. Business continuity planning efforts have been initiated. The two initial phases, project initiation and risk assessment, have been completed. The third phase, continuity plan development, will be completed by the end of the second quarter of 1999. Business continuity testing will be completed by September 30, 1999. Costs - BancShares estimates that the total cost of the Y2K project will be approximately $8.5 million. Currently, BancShares projects the cost of Y2K efforts will be $1.5 million during 1999. For the first three months of 1999, BancShares has recognized expenses totaling $525,000 for Y2K compliance. All costs related to the Y2K project are expensed as incurred. Risks - The implications of the Y2K problem, whether the result of BancShares' own failure to achieve readiness or the failure of a material customer or vendor to achieve readiness, could have a material adverse impact on BancShares' operations and its results of operations. However, management believes the efforts underway will minimize the likelihood of such a crisis. BancShares believes its most reasonably likely worst case scenario will be a failure by certain customers and vendors to achieve Y2K readiness. With respect to its customers, BancShares has identified its material borrowers and has requested disclosures from those borrowers as to their readiness and their risks. Based on these findings, management has identified customers who, in management's opinion, may experience some distress as a result of Y2K. The assessments have been completed on 88 percent of the customers who exceeded the established parameters. For key vendors who provide goods and services, BancShares has requested status reports that describe their efforts to achieve Y2K readiness. Most of the requests have been honored, and, based on these responses, except for exposures related to public utilities, there are no known risks among the identified vendors. Regulatory agencies that have authority over BancShares and its subsidiaries have determined that Y2K testing and certification are key safety and soundness issues in conjunction with regulatory exams. Therefore, failure to address the Y2K issue in an appropriate manner could result in supervisory action, including the reduction of the supervisory rating, the denial of applications for approval of mergers or acquisitions or the imposition of penalties. Contingency Plans - Throughout the project, BancShares has developed contingency plans whenever it is apparent that specific applications will not achieve Y2K compliance. Based on the respective situation, the inclination to replace the application or to assess the impact of the non-compliant asset or service will determine how the matter will be resolved. For BancShares' most reasonably likely worst case scenario, contingency plans are already active. As previously described, BancShares has actively evaluated the status of readiness efforts of key customers and vendors and made necessary modifications, including downgrading of exposure to customers who are believed to be at risk of Y2K non-compliance. Management will continue to evaluate deficiencies that become apparent and to establish contingency plans to protect BancShares and to minimize its exposure to Y2K uncertainties. CURRENT ACCOUNTING AND REGULATORY ISSUES In June 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. As a result of BancShares' limited use of derivative instruments, the adoption of SFAS No. 133 should not have a material impact on its consolidated financial statements. SFAS No. 133 becomes effective during 2000. Management is not aware of any current recommendations by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations. FORWARD-LOOKING STATEMENTS This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," or other statements concerning opinions or judgment of BancShares and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of BancShares' customers, actions of government regulators, the level of market interest rates, and general economic conditions. EX-27 2 EXHIBIT 27
9 1,000 3-MOS DEC-31-1999 MAR-31-1999 483,590 0 350,000 0 24,669 2,075,213 2,104,919 6,244,828 96,340 9,702,163 8,179,098 584,830 104,453 157,529 0 0 10,626 665,627 9,702,163 122,655 29,441 3,360 155,456 60,869 69,713 85,743 2,662 777 91,218 30,058 30,058 0 0 19,048 1.79 1.79 4.09 12,322 5,541 0 0 96,115 3,465 1,028 96,340 96,340 0 0
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