-----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, VS7I2/5G25FZMVg8LTNFhvATsLfJ2HGccPPiUEuiw2nRlaQfEmnE8TufZ3IIcmc7 aNJNUUjQdXNVFGf2ks0TyQ== 0000798941-97-000004.txt : 19970520 0000798941-97-000004.hdr.sgml : 19970520 ACCESSION NUMBER: 0000798941-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 1934 Act SEC FILE NUMBER: 000-16471 FILM NUMBER: 97608628 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, 1997 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-- 9,637,882 shares Class B Common Stock--$1 Par Value-- 1,757,774 shares (Number of shares outstanding, by class, as of May 14, 1997) INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at March 31, 1997, December 31, 1996, and March 31, 1996 Consolidated Statements of Income for the three-month periods ended March 31, 1997, and March 31, 1996 Consolidated Statements of Changes in Shareholders' Equity for the three-month periods ended March 31, 1997, and March 31, 1996 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1997, and March 31, 1996 Note to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 1997, 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: May 14, 1997 By:/s/Kenneth A. Black Kenneth A. Black Vice President, Treasurer, and Chief Financial Officer First Citizens BancShares, Inc and Subsidiaries First Quarter 1997 Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries March 31* December 31# March 31* (thousands, except share data) 1997 1996 1996 Assets Cash and due from banks $351,892 $437,029 $428,612 Investment securities 2,063,526 2,138,831 2,005,645 Federal funds sold 207,000 156,000 90,160 Loans 4,955,135 4,930,508 4,837,073 Less reserve for loan losses 81,459 81,439 80,433 Net loans 4,873,676 4,849,069 4,756,640 Premises and equipment 236,459 229,496 213,832 Income earned not collected 56,782 60,175 59,127 Other assets 186,282 184,972 182,146 Total assets $7,975,617 $8,055,572 $7,736,162 Liabilities Deposits: Noninterest-bearing $1,044,176 $1,087,474 $956,846 Interest-bearing 5,867,630 5,866,554 5,787,067 Total deposits 6,911,806 6,954,028 6,743,913 Short-term borrowings 343,448 392,006 326,833 Long-term obligations 6,827 6,922 15,608 Other liabilities 84,271 87,109 79,550 Total liabilities 7,346,352 7,440,065 7,165,904 Shareholders' equity Common stock: Class A-$1 par value( 9,637,882; 9,651,900; and 9,661,517 shares issued, respectively) 9,638 9,652 9,662 Class B-$1 par value(1,757,774; 1,758,980; and 1,766,464 shares issued, respectively) 1,758 1,759 1,766 Surplus 143,760 143,760 141,402 Retained earnings 466,240 453,640 417,428 Unrealized gains on equity securities, net of tax 7,869 6,696 Total shareholders' equity 629,265 615,507 570,258 Total liabilities and shareholders' equity $7,975,617 $8,055,572 $7,736,162 * Unaudited # Derived from the Consolidated Balance Sheets included in the 1996 Annual Report on Form 10-K. See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries First Quarter 1997 Consolidated Statements of Income First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31 (thousands, except per share data, unaudited) 1997 1996 Interest income Loans $103,808 $100,112 Investment securities: U. S. Government 30,073 27,740 State, county and municipal 77 90 Other 34 45 Total investment securities interest income 30,184 27,875 Federal funds sold 2,447 1,581 Total interest income 136,439 129,568 Interest expense Deposits 57,377 58,171 Short-term borrowings 4,187 3,866 Long-term obligations 142 387 Total interest expense 61,706 62,424 Net interest income 74,733 67,144 Provision for loan losses 1,567 1,544 Net interest income after provision for loan losses 73,166 65,600 Noninterest income Trust income 2,778 2,267 Service charges on deposit accounts 9,930 10,033 Credit card income 4,066 3,265 Other service charges and fees 6,447 5,790 Other 193 2,530 Total noninterest income 23,414 23,885 96,580 89,485 Noninterest expense Salaries and wages 30,376 27,302 Employee benefits 5,938 4,896 Occupancy expense 5,737 5,426 Equipment expense 6,951 6,004 Other 21,582 19,657 Total noninterest expense 70,584 63,285 Income before income taxes 25,996 26,200 Income taxes 9,404 9,374 Net income $16,592 $16,826 Per Share Net income $1.46 $1.52 Cash dividends 0.25 0.225 See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Consolidated Statements of Changes in Shareholders' Equity First Citizens BancShares, Inc. and Subsidiaries
Unrealized Gain Class A Class B on Marketable Common Common Retained Equity Securities, Total (thousands, except share data, unaudited) Stock Stock Surplus Earnings Net of Taxes Equity Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 - $520,837 Issuance of 668,959 shares of Class A common stock for acquisition 669 32,734 33,403 Issuance of 8,746 shares of Class A common stock pursuant to the Dividend Reinvestment Plan 9 114 123 Issuance of 34,414 shares of Class A common stock pursuant to employee stock purchase plans 34 1,600 1,634 Net income 16,826 16,826 Cash dividends (2,565) (2,565) Balance at March 31, 1996 $9,662 $1,766 $141,402 $417,428 - $570,258 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 stock (14) (1) (1,139) (1,154) Net income 16,592 16,592 Unrealized gain on marketable equity securities, net of taxes 1,173 1,173 Cash dividends (2,853) (2,853) Balance at March 31, 1997 $9,638 $1,758 $143,760 $466,240 $7,869 $629,265 See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Consolidated Statements of Cash Flows First Citizens BancShares, Inc. and Subsidiaries
Three Month Ended March 31 (thousands, unaudited) 1997 1996 Operating Activities Net income $16,592 $16,826 Adjustments: Amortization of intangibles 2,117 1,787 Provision for loan losses 1,567 1,544 Deferred tax benefit (1,833) (726) Change in current taxes payable 9,565 9,484 Depreciation 4,461 4,187 Change in accrued interest payable (9,464) (7,244) Change in income earned not collected 3,393 186 Origination of loans held for sale (52,676) (26,893) Proceeds from sale of loans 31,279 21,244 Loss (gain) on mortgage loans 2,829 (222) Net amortization of premiums and discounts 1,657 4,378 Net change in other assets (1,506) (6,232) Net change in other liabilities (1,854) (5,941) Net cash provided by operating activities 6,127 12,378 Investing Activities Net increase in loans outstanding (7,606) (46,341) Purchases of investment securities (139,752) (269,164) Proceeds from maturities of investment securities 213,400 260,533 Net change in federal funds sold (51,000) (49,715) Dispositions of premises and equipment 305 1,680 Additions to premises and equipment (11,729) (9,472) Purchase of institutions, net of cash acquired - 7,584 Net cash used by investing activities 3,618 (104,895) Financing Activities Net change in time deposits 34,830 123,970 Net change in other deposits (77,052) 23,467 Net change in short-term borrowings (48,653) (74,130) Repurchases of common stock (1,154) - Proceeds from issuance of stock - 1,757 Cash dividends paid (2,853) (2,565) Net cash provided by financing activities (94,882) 72,499 Change in cash and due from banks (85,137) (20,018) Cash and due from banks at beginning of period 437029 448,630 Cash and due from banks at end of period $351,892 $428,612 Cash payments for: Interest $71,170 $69,668 Income taxes 26 960 Supplemental disclosure of noncash investing and financing activities: Common stock issued for acquisitions - $33,403 Long-term obligations issued for acquisitions - 1,468 See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 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. These financial statements should be read in conjunction with the financial statements and notes included in the 1996 First Citizens BancShares Annual Report, which is incorporated by reference on Form 10-K. Financial Summary
1997 1996 First Fourth Third Second First (thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter Summary of Operations Interest income $136,439 $137,655 $134,270 $132,702 $129,568 Interest income - taxable equivalent 136,961 138,222 134,837 133,283 130,159 Interest expense 61,706 62,964 61,378 61,484 62,424 Net interest income - taxable equivalent 75,255 75,258 73,459 71,799 67,735 Taxable equivalent adjustment 522 567 567 581 591 Net interest income 74,733 74,691 72,892 71,218 67,144 Provision for loan losses 1,567 3,321 1,787 2,255 1,544 Net interest income after provision for loan losses 73,166 71,370 71,105 68,963 65,600 Noninterest income 23,414 28,082 26,077 25,260 23,885 Noninterest expense 70,584 69,023 78,097 68,263 63,285 Income before income taxes 25,996 30,429 19,085 25,960 26,200 Income taxes 9,404 10,611 6,647 9,575 9,374 Net income $16,592 $19,818 $12,438 $16,385 $16,826 Selected Quarterly Averages Total assets $7,903,566 $7,935,197 $7,670,538 $7,658,682 $7,462,756 Investment securities 2,094,376 2,097,690 1,919,935 1,990,346 1,984,027 Loans 4,921,346 4,895,815 4,907,435 4,884,818 4,679,692 Interest-earning assets 7,196,138 7,209,982 6,989,109 6,975,341 6,779,461 Deposits 6,823,697 6,831,926 6,641,427 6,660,204 6,477,795 Interest-bearing liabilities 6,203,598 6,185,161 6,017,476 6,043,119 5,934,180 Long-term obligations 6,809 6,866 7,762 15,676 23,763 Shareholders' equity $619,956 $599,953 $589,618 $576,742 $546,603 Shares outstanding 11,398,246 11,415,943 11,441,007 11,432,661 11,072,395 Profitability Ratios (averages) Rate of return(annualized) on: Total average assets 0.85 % 0.99 % 0.65 0.86 0.91 % Average shareholders' equity 10.85 13.14 8.39 11.43 12.38 Dividend payout ratio 17.12 14.37 19.57 15.73 14.80 Liquidity and Capital Ratios (averages) Loans to deposits 72.12 % 71.66 % 8.56 % 73.34 % 72.24 % Shareholders' equity to total assets 7.84 7.56 7.69 7.53 7.32 Time certificates of $100,000 or more to total deposits 9.30 8.79 8.61 9.23 9.59 Per Share of Stock Net income $1.46 $1.74 $1.15 $1.43 $1.52 Cash dividends 0.25 0.250 0.225 0.225 0.225 Book value at period-end 55.22 53.94 51.89 51.03 50.19 Tangible book value at period-end 46.89 45.42 43.03 42.19 41.13
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Outstanding Loans by Type
Table 2 1997 1996 First Fourth Third Second First (thousands) Quarter Quarter Quarter Quarter Quarter Real estate: Construction and land development $103,361 $109,806 $107,651 $110,162 $110,520 Mortgage: 1-4 family residential 1,529,972 1,542,836 1,587,352 1,615,712 1,604,954 Commercial 906,408 882,067 850,358 833,733 799,800 Equity Line 430,924 411,856 411,893 409,121 401,501 Other 134,852 132,954 135,241 137,463 134,128 Commercial and industrial 533,812 514,535 516,857 506,913 483,245 Consumer 1,230,501 1,251,704 1,218,605 1,223,871 1,222,243 Lease financing 69,496 68,694 69,984 67,647 63,943 Other 15,809 16,056 16,807 17,152 16,739 Total loans 4,955,135 4,930,508 4,914,748 4,921,774 4,837,073 Less reserve for loan losses 81,459 81,439 81,192 81,026 80,433 Net loans $4,873,676 $4,849,069 $4,833,556 $4,840,748 $4,756,640
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Investment Securities
Table 3 March 31, 1997 March 31, 1996 Average Taxable Average Taxable Book Market Maturity Equivalent Book Market Maturity Equivalent (thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield U. S. Government: Within one year $859,427 $856,108 0/7 5.77 % $890,553 $893,026 0/6 5.72 % One to five years 1,185,615 1,177,229 1/10 5.84 1,093,492 1,088,506 2/0 5.68 Five to ten years 3,106 3,029 6/10 5.67 2,454 2,423 7/0 6.17 Over 10 years 7,256 7,287 18/10 7.45 9,289 9,380 18/8 7.51 Total 2,055,404 2,043,653 1/4 5.81 1,995,788 1,993,335 1/5 5.70 State, county and municipal: Within one year 1,227 1,433 0/6 6.31 666 668 0/4 6.84 One to five years 3,671 3,729 2/9 7.07 3,989 4,249 2/9 6.62 Five to ten years 1,119 1,136 5/5 6.17 2,025 2,091 5/11 7.56 Over 10 years 185 185 12/5 1.30 195 195 21/5 9.14 Total 6,202 6,483 3/4 7.00 6,875 7,203 3/11 6.99 Other Within one year 750 747 0/3 3.91 1,059 1,060 0/5 5.66 One to five years 1,135 1,123 1/6 12.58 1,878 1,865 2/0 10.25 Five to ten years 35 35 5/4 6.96 45 45 6/2 8.00 Total 1,920 1,905 11/4 10.45 2,982 2,970 1/8 8.58 Total investment securities $2,063,526 $2,052,041 1/4 5.83 % $2,005,645 $2,003,508 1/5 5.71 %
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
Table 4 1997 1996 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 $3,080,505 $62,950 8.21 % $2,921,551 $61,041 8.32 % $2,981 ($1,072) $1,909 Commercial and industrial 521,449 11,301 8.37 475,654 10,758 8.70 968 (425) 543 Consumer 1,235,238 28,274 9.13 1,204,973 27,317 9.03 667 290 957 Lease financing 68,406 1,460 8.54 61,286 1,222 7.98 147 91 238 Other 15,748 304 7.83 16,228 316 7.82 (11) (1) (12) Total loans 4,921,346 104,289 8.54 4,679,692 100,654 8.63 4,752 (1,117) 3,635 Investment securities: U. S. Government 2,085,995 30,073 5.85 1,973,763 27,740 5.65 1,462 871 2,333 State, county and municipal 6,142 118 7.79 7,290 139 7.67 (22) 1 (21) Other 2,239 34 6.16 2,974 45 6.09 (11) 0 (11) Total investment securities 2,094,376 30,225 5.85 1,984,027 27,924 5.66 1,429 872 2,301 Federal funds sold 180,416 2,447 5.50 115,742 1,581 5.49 869 (3) 866 Total interest-earning assets $7,196,138 $136,961 7.68 % $6,779,461 $130,159 7.71 % $7,050 ($248) $6,802 Liabilities Deposits: Checking with Interest $901,767 $2,415 1.09 % $855,162 $2,983 1.40 % $123 ($691) ($568) Savings 710,509 3,621 2.07 703,574 3,783 2.16 16 (178) (162) Money market accounts 878,538 7,794 3.60 808,401 7,125 3.54 581 88 669 Time deposits 3,338,882 43,547 5.29 3,204,344 44,280 5.56 1,622 (2,355) (733) Total interest-bearing deposits 5,829,696 57,377 3.99 5,571,481 58,171 4.20 2,342 (3,136) (794) Federal funds purchased 36,438 570 6.34 54,033 751 5.59 (262) 81 (181) Repurchase agreements 23,128 238 4.17 21,229 233 4.41 19 (14) 5 Master notes 285,340 3,014 4.28 240,322 2,604 4.36 471 (61) 410 U. S. Treasury tax and loan accounts 12,879 224 7.05 14,123 182 5.18 (20) 62 42 Other short-term borrowings 9,308 141 6.14 9,229 96 4.18 1 44 45 Long-term obligations 6,809 142 8.46 23,763 387 6.55 (315) 70 (245) Total interest-bearing liabilities $6,203,598 $61,706 4.03 % $5,934,180 $62,424 4.23 % $2,236 ($2,954) ($718) Interest rate spread 3.65 % 3.48 % Net interest income and net yield on interest-earning assets $75,255 4.24 % $67,735 4.02 % $4,814 $2,706 $7,520
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 Summary of Loan Loss Experience and Risk Elements
Table 5 1997 1996 First Fourth Third Second First (thousands, except ratios) Quarter Quarter Quarter Quarter Quarter Reserve balance at beginning of period $81,439 $81,192 $81,026 $80,433 $78,495 Reserve of acquired institution - - - - 1,387 Provision for loan losses 1,557 3,321 1,787 2,255 1,544 Net charge-offs: Charge-offs (3,538) (3,860) (2,697) (2,663) (2,433) Recoveries 2,001 786 1,076 1,001 1,440 Net charge-offs (1,537) (3,074) (1,621) (1,662) (993) Reserve balance at end of period $81,459 $81,439 $81,192 $81,026 $80,433 Historical Statistics Balances Average total loans $4,921,346 $4,895,815 $4,907,435 $4,884,818 $4,679,692 Total loans at period-end 4,955,135 4,930,508 4,914,748 4,921,774 4,837,073 Risk Elements Nonaccrual loans $14,628 $12,810 $14,213 $14,695 $13,489 Other real estate acquired through foreclosure 1,337 1,160 1,634 1,436 2,555 Total nonperforming assets $15,965 $13,970 $15,847 $16,131 $16,044 Accruing loans 90 days or more past due $5,748 $4,983 $5,601 $4,928 $5,300 Ratios Net charge-offs (annualized) to average total loans 0.13 % 0.25 % 0.13 % 0.14 % 0.09 % Reserve for loan losses to total loans at period-end 1.64 1.65 1.65 1.65 1.66 Nonperforming assets to total loans plus foreclosed real estate at period-end 0.32 0.28 0.32 0.33 0.33
First Citizens BancShares, Inc. and Subsidiaries First Quarter 1997 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 note 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. First-Citizens Bank & Trust Company ("FCB") operates branches in North Carolina and Virginia; Bank of Marlinton ("Marlinton") and Bank of White Sulphur Springs ("WSS") operate in West Virginia; and Atlantic States Bank ("ASB"), which began operations during April 1997, has offices in North Carolina and Georgia. SUMMARY BancShares realized a decrease in earnings of 1.4 percent during the first quarter of 1997 compared to the first quarter of 1996. Consolidated net income during the first quarter of 1997 was $16.6 million, compared to $16.8 million earned during the corresponding period of 1996. The decrease in earnings resulted from lower noninterest income. Net income per share during the first quarter of 1997 totaled $1.46, compared to $1.52 during the first quarter of 1996. Return on average assets was 0.85 percent for the first quarter of 1997 compared to 0.91 percent during the same period of 1996. 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 1997 totaled $7.20 billion, an increase of $416.7 million or 6.15 percent from the first quarter of 1996. Most of this increase results from growth in the investment and loan portfolios. Loans. At March 31, 1997, and 1996, gross loans totaled $4.96 billion and $4.84 billion, respectively. As of December 31, 1996, gross loans were $4.93 billion. The $118.1 million growth in loans from March 31, 1996 to March 31, 1997 results growth within BancShares' commercial loan products and home equity loans during 1996. Table 2 details outstanding loans by type for the past five quarters. During the first quarter of 1997, average total loans were $4.92 billion, an increase of $241.7 million or 5.2 percent from the comparable period of 1996. Consumer loans averaged $1.24 billion during the first quarter of 1997, compared to $1.20 billion during the same period of 1996, an increase of $30.3 million or 2.5 percent. Average loans secured by real estate increased $159 million between the two periods, a 5.4 percent increase. Retail loan demand within the branch network remains at modest levels, while demand for commercial-purpose lending has improved during the past six months. As of March 31, 1997, $142.7 million in fixed-rate residential mortgage loans are held for sale. Due to unrealized losses existing in this portfolio as of March 31, 1997, a valuation reserve of $3.3 million exists to adjust the loans to their fair value. Given the current upward pressure on interest rates, loan growth for the remainder of 1997 is likely to be constrained, as higher rates will likely deter retail borrowers and may also impair commercial customers. Investment securities. At March 31, 1997, and 1996, the investment portfolio totaled $2.06 billion and $2.01 billion, respectively. At December 31, 1996, the investment portfolio was $2.14 billion. The 2.9 percent increase in the investment portfolio in one year resulted from deposit growth that has resulted in excess liquidity being invested in the investment securities portfolio. All investment securities are classified as held-to-maturity, as BancShares has the ability and the positive intent to hold its investment portfolio until maturity. Table 3 presents detailed information relating to the investment securities portfolio. Income on Interest-Earning Assets. Taxable equivalent interest income amounted to $137 million during the first quarter of 1997, a 5.2 percent increase over the first quarter of 1996. Taxable equivalent interest income benefitted from favorable volume variances, as balance sheet growth contributed to higher interest income in the first quarter of 1997 when compared to the same period of 1996. The average yield on total interest-earning assets for the first quarter of 1997 was 7.68 percent, compared to 7.71 percent for the corresponding period of 1996, a 3 basis point decrease resulting from lower yields on the loan portfolio. Taxable equivalent loan interest income for the first quarter of 1997 was $104.3 million, an increase of $3.6 million or 3.6 percent from first quarter of 1996, primarily due to growth in the portfolio of loans secured by real estate. The taxable equivalent yield on the loan portfolio was 8.54 percent during the first quarter of 1997, compared to 8.63 percent during the same period of 1996. Taxable equivalent income earned on the investment securities portfolio amounted to $30.2 million during the first quarter of 1997 and $27.9 million during the same period of 1996, an increase of $2.3 million or 8.2 percent resulting from an average portfolio increase of $110.3 million. Additionally, the securities portfolio experienced a 19 basis point increase in the taxable equivalent yield, increasing from 5.66 percent for the quarter ended March 31, 1996, to 5.85 percent for the quarter ended March 31, 1997. INTEREST-BEARING LIABILITIES. At March 31, 1997 and 1996, interest-bearing liabilities totaled $6.22 billion and $6.13 billion, respectively, compared to $6.27 billion as of December 31, 1996. Average interest-bearing liabilities for the first quarter of 1997 totaled $6.20 billion, an increase of 4.5 percent from the first quarter of 1996. Interest-bearing deposits account for much of the growth. Deposits. At March 31, 1997, total deposits were $6.91 billion, an increase of $167.9 million or 2.5 percent over March 31, 1996. Compared to the December 31, 1996 balance of $6.95 billion, total deposits have decreased $42 million. Average interest-bearing deposits were $5.83 billion during the first quarter of 1997 compared to $5.57 billion during the first quarter of 1996, an increase of 4.6 percent. Much of the increase is attributed to average time deposits and average money market accounts, which increased $134.5 million and $70.1 million, respectively, from the first quarter of 1996 to the first quarter of 1997. Average Checking With Interest accounts increased $46.6 million from the first quarter of 1996 to the first quarter of 1997. Time deposits of $100,000 or more averaged 9.3 percent of total average deposits during the first quarter of 1997, compared to 9.6 percent during the same period of 1996. Management does not consider the level of these volatile deposits to be excessive at the current levels. Borrowed Funds. At March 31, 1997, short-term borrowings totaled $343.4 million compared to $392 million at December 31, 1996 and $326.8 million at March 31, 1996. For the quarters ended March 31, 1997 and 1996, short-term borrowings averaged $367.1 million and $338.9 million, respectively. The growth is due to a $45 million increase in average Master Note borrowings. Long-term obligations averaged $6.8 million during the first quarter of 1997, compared to $23.8 million during the first quarter of 1996, that reduction reflecting the reclassification of borrowings from long-term to short-term as the scheduled maturity date becomes less than one year hence. Expense on Interest-Bearing Liabilities. BancShares' interest expense amounted to $61.7 million during the first quarter of 1997, a $718,000 or 1.2 percent decrease from the first quarter of 1996. The lower interest expense resulted from the 20 basis point decrease in the aggregate rate on interest bearing liabilities, more than offsetting the impact of a $269.4 million increase in average interest-bearing liabilities. The rate on these liabilities was 4.03 percent during the first quarter of 1997, compared to 4.23 percent during the first quarter of 1996. NET INTEREST INCOME Taxable equivalent net interest income totaled $75.3 million during the first quarter of 1997, an increase of 11.1 percent from the first quarter of 1996. The average net yield on interest-earning assets was 4.24 percent for the first quarter of 1997, 22 basis points above the net yield recorded during the first quarter of 1996. The taxable equivalent interest rate spread for the first quarter of 1997 was 3.65 compared to 3.48 percent for the same period of 1996. The higher net yield and interest rate spreads resulted from lower interest rates paid on interest-bearing liabilities. Currently, upward pressure on interest rates may result in higher market rates on interest sensitive assets and liabilities. Such increases could result in a reduction in the net yield. Management is aware of the potential negative impact increases in interest rates may have on net interest income. A principal objective of BancShares' asset liability 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. 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, 1997, the reserve for loan losses amounted to $81.5 million or 1.64 percent of loans outstanding. This compares to $81.4 million or 1.65 percent at December 31, 1996, and $80.4 million or 1.66 percent at March 31, 1996. The provision for loan losses charged to operations during the first quarter of 1997 was $1.6 million, compared to $1.5 million during the first quarter of 1996. Net charge-offs for the quarter ended March 31, 1997 totalled $1.5 million, compared to net charge-offs of $1.0 million during the same period of 1996. The higher net charge-offs recorded during the first quarter of 1997 resulted from higher net charge-offs in the installment and credit card portfolios. Management anticipates losses within the retail loan portfolios will continue in the coming quarters at levels similar to those experienced during the first quarter. However, management remains confident that the established reserves are adequate to absorb losses that relate to loans outstanding at March 31, 1997. 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, 1997, BancShares' nonperforming assets amounted to $16 million or 0.32 percent of gross loans plus foreclosed properties, compared to $14 million at December 31, 1996, and $16 million at March 31, 1996. Management continues to closely monitor nonperforming assets, taking necessary actions to minimize potential exposure. NONINTEREST INCOME Noninterest income decreased 2.0 percent during the first quarter of 1997 to $23.4 million. This compares to $23.9 million for the first quarter of 1996. The decrease in noninterest income during the first quarter of 1997 is the result of writedowns of $3 million taken to reduce the carrying value of the mortgage loans available for sale to their fair value. These writedowns, which are classified as other noninterest income, became necessary due to higher balances classified as available for sale as well as adverse changes in market rates during the first quarter. Service charges remain the principal source of noninterest income, representing $10 million during the first quarter of 1997 and $10 million during the same period of 1996. Despite growth in deposit accounts, service charge income was flat due to a higher earnings credit on commercial deposit accounts. Other service charges and fees contributed $6.4 million during the first quarter of 1997, compared to $5.8 million during the same period of 1996. This 11.3 percent increase between the two periods resulted from earnings generated by services provided to affiliate banks as well as higher fee income generated by First Citizens Investor Services. Credit card income amounted to $4.1 million, an increase of 24.5 percent over 1996 due to higher merchant income and higher interchange income. NONINTEREST EXPENSE Noninterest expense for the first quarter of 1997 amounted to $70.6 million. This was a 11.5 percent increase over the first quarter of 1996. Salaries and wages increased 11.3 percent between the periods, primarily the result of merit raises which became effective in April 1996 and the growth in sales incentive payments to branch associates. Further increases resulted from the addition of personnel related to the FCDirect, the alternative delivery network that saw significant expansion during 1996. Occupancy expense increased 5.7 percent during the first quarter of 1997, compared to the corresponding period of 1996 due to increased depreciation expense resulting from new and renovated branch facilities. Other expenses increased by $1.9 million or 9.8 percent. This increase is largely the result of higher advertising expense, legal expense, and intangible amortization expense. INCOME TAXES Income tax expense amounted to $9.4 million during the first quarter of 1997, compared to $9.4 million during the first quarter of 1996. The effective tax rates for these periods were 36.2 percent and 35.8 percent, respectively. The increase in the effective tax rate from 1996 to 1997 results from an increase in nondeductible goodwill amortization and higher North Carolina 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 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, 1997, and 1996, the leverage capital ratio of BancShares was 6.8 percent and 6.2 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares' core capital ratio was 10.2 percent at March 31, 1997, and 9.7 percent at March 31, 1996. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.5 percent at March 31, 1997, compared to 11 percent at March 31, 1997, 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. CURRENT ACCOUNTING AND REGULATORY ISSUES The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information about Capital Structure," (collectively, the "Pronouncements"). The Pronouncements are effective for 1997 and require disclosures regarding the matters included in the respective titles. Adoption of each of the Pronouncements is not expected to have a material impact on BancShares' consolidated financial statements. Management is not aware of any current recommendations by the 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. EX-27 2 EXHIBIT 27
9 1,000 3-MOS DEC-31-1997 MAR-31-1997 351,892 0 207,000 0 25,239 2,063,526 2,052,041 4,955,135 81,459 7,975,617 6,911,806 343,448 84,271 6,827 0 0 11,396 617,869 7,975,617 103,808 30,184 2,447 136,439 57,377 4,329 74,733 1,567 0 70,584 25,996 25,996 0 0 16,592 1.46 1.46 7.68 14,628 5,748 0 0 0 3,538 2,001 81,459 81,459 0 0
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