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, 2001
Commission File Number: 0-16471
First Citizens BancShares, Inc
(Exact name of Registrant as specified in its charter)
Delaware 56-1528994
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
239 Fayetteville Street, Raleigh, North Carolina 27601
(Address of principal executive offices) (zip code)
(919) 716-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No _____
Class A Common Stock--$1 Par Value-- 8,813,454 shares
Class B Common Stock--$1 Par Value-- 1,697,787 shares
(Number of shares outstanding, by class, as of May 11, 2001)
INDEX
PART I. FINANCIAL INFORMATION PAGES
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2001,
December 31, 2000,and March 31, 2000 5
Consolidated Statements of Income for the three
periods ended March 31, 2001, and March 31, 2000 6
Consolidated Statements of Changes in Shareholders' Equity
for the three-month periods ended March 31, 2001, and
March 31, 2000 7
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2001, and March 31, 2000 8
Note to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-21
Item 3. Market Risk Disclosure 10
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, 2001,
Registrant filed one Current Report on Form 8-K filing a press
release that was issued addressing merger speculation. The
Form 8-K was filed on March 1, 2001.
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 11, 2001 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 2001
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
March 31* December 31# March 31*
(thousands, except share data) 2001 2000 2000
- ----------------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 690,080 $ 755,930 $ 446,995
Overnight investments 876,925 431,382 521,441
Investment securities held to maturity 1,821,648 1,778,166 1,530,632
Investment securities available for sale 47,238 38,554 16,582
Loans 7,124,535 7,109,692 6,828,095
Less reserve for loan losses 103,825 102,655 99,590
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 7,020,710 7,007,037 6,728,505
Premises and equipment 453,793 444,731 406,731
Income earned not collected 60,134 62,580 51,548
Other assets 175,389 173,237 178,298
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,145,917 $ 10,691,617 $9,880,732
==============================================================================================================================
Liabilities
Deposits:
Noninterest-bearing $1,457,456 $1,373,880 $1,382,750
Interest-bearing 7,907,900 7,597,988 6,913,100
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 9,365,356 8,971,868 8,295,850
Short-term borrowings 668,209 632,372 587,087
Long-term obligations 154,837 154,332 154,915
Other liabilities 127,380 122,317 101,744
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,315,782 9,880,889 9,139,596
Shareholders' equity
Common stock:
Class A-$1 par value (8,813,454; 8,813,454 and
8,846,489 shares issued, respectively) 8,813 8,813 8,847
Class B-$1 par value (1,700,021; 1,709,382 and
1,720,360 shares issued, respectively) 1,700 1,709 1,720
Surplus 143,766 143,766 143,766
Retained earnings 669,571 650,148 581,953
Accumulated other comprehensive income 6,285 6,292 4,850
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 830,135 810,728 741,136
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,145,917 $ 10,691,617 $9,880,732
==============================================================================================================================
* Unaudited
# Derived from the Consolidated Balance Sheets included in the 2000 Annual Report on Form 10-K.
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries
First Quarter 2001
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31
(thousands, except per share data, unaudited) 2001 2000
- -----------------------------------------------------------------------------------------------------
Interest income
Loans $ 151,022 $ 137,911
Investment securities:
U. S. Government 28,398 20,915
State, county and municipal 71 48
Other 512 122
- -----------------------------------------------------------------------------------------------------
Total investment securities interest income 28,981 21,085
Overnight investments 9,023 4,990
- -----------------------------------------------------------------------------------------------------
Total interest income 189,026 163,986
Interest expense
Deposits 85,496 64,800
Short-term borrowings 7,776 6,431
Long-term obligations 3,171 3,150
- -----------------------------------------------------------------------------------------------------
Total interest expense 96,443 74,381
- -----------------------------------------------------------------------------------------------------
Net interest income 92,583 89,605
Provision for loan losses 5,676 3,459
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 86,907 86,146
Noninterest income
Service charges on deposit accounts 15,931 14,060
Credit card income 9,400 7,841
Trust income 3,893 3,742
Fees from processing services 3,929 3,277
Commission-based income 3,229 2,782
ATM income 2,637 2,487
Mortgage income 1,278 1,405
Other service charges and fees 3,834 3,151
Securities gains 5,451 -
Other 3,229 2,606
- -----------------------------------------------------------------------------------------------------
Total noninterest income 52,811 41,351
Noninterest expense
Salaries and wages 43,834 41,025
Employee benefits 8,940 8,868
Occupancy expense 9,010 8,247
Equipment expense 9,686 9,169
Other 31,330 28,978
- -----------------------------------------------------------------------------------------------------
Total noninterest expense 102,800 96,287
- -----------------------------------------------------------------------------------------------------
Income before income taxes 36,918 31,210
Income taxes 14,059 11,696
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net income 22,859 19,514
- -----------------------------------------------------------------------------------------------------
Other comprehensive loss, net of taxes
Unrealized securities losses arising during period (553) (2,858)
Less: reclassification adjustment for gains included in net income (546) (1,128)
- -----------------------------------------------------------------------------------------------------
Other comprehensive loss (7) (1,730)
- -----------------------------------------------------------------------------------------------------
=====================================================================================================
Comprehensive income $ 22,852 $ 17,784
=====================================================================================================
Average shares outstanding 10,521,253 10,592,378
Per Share
Net income $ 2.17 $ 1.84
Cash dividends 0.25 0.25
- -----------------------------------------------------------------------------------------------------
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
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, 1999 $8,890 $1,720 $143,766 $567,801 $ 6,580 $728,757
Net income 19,514 19,514
Unrealized securities losses, net of
deferred tax benefit (1,730) (1,730)
Cash dividends (2,653) (2,653)
Redemption of 43,550 shares of Class A
common stock (43) (2,709) (2,752)
====================================================================================================================================
Balance at March 31, 2000 $8,847 $1,720 $143,766 $581,953 $ 4,850 $741,136
====================================================================================================================================
Balance at December 31, 2000 $8,813 $1,709 $143,766 $650,148 $ 6,292 $810,728
Net income 22,859 22,859
Unrealized securities losses, net of
deferred tax benefit (7) (7)
Cash dividends (2,628) (2,628)
Redemption of 9,361 shares of Class B
common stock (9) (808) (817)
====================================================================================================================================
Balance at March 31, 2001 $8,813 $1,700 $143,766 $669,571 $ 6,285 $830,135
====================================================================================================================================
See accompanying Note to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Three months ended March 31
------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
(thousands, unaudited)
OPERATING ACTIVITIES
Net income $22,859 $19,514
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles 2,865 2,951
Provision for loan losses 5,676 3,459
Deferred tax expense (benefit) 2,235 (1,505)
Change in current taxes payable 15,787 11,944
Depreciation 7,941 7,377
Change in accrued interest payable (12,680) (4,368)
Change in income earned not collected 2,446 1,073
Securities gains (5,451) -
Origination of loans held for sale (102,161) (41,216)
Proceeds from sale of loans held for sale 77,368 47,072
Loss on loans held for sale 2 10
Net amortization (accretion) of premiums and discounts (151) 1,113
Net change in other assets (3,907) (776)
Net change in other liabilities 1,956 3,408
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,785 50,056
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in loans outstanding 16,623 (85,481)
Purchases of investment securities held to maturity (409,041) (493,060)
Purchases of investment securities available for sale (2,680) (867)
Proceeds from maturities of investment securities held to maturity 365,710 314,636
Net change in overnight investments (445,543) (48,048)
Dispositions of premises and equipment 2,007 990
Additions to premises and equipment (18,183) (17,701)
Purchase and sale of branches, net of cash transferred 28,552 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (462,555) (329,531)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in time deposits 156,458 64,806
Net change in demand and other interest-bearing deposits 192,565 57,446
Net change in short-term borrowings 35,820 18,018
Originations of long-term obligations 522 -
Repurchases of common stock (817) (2,752)
Cash dividends paid (2,628) (2,653)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 381,920 134,865
- --------------------------------------------------------------------------------------------------------------------------------
Change in cash and due from banks (65,850) (144,610)
Cash and due from banks at beginning of period 755,930 591,605
================================================================================================================================
Cash and due from banks at end of period $690,080 $446,995
================================================================================================================================
CASH PAYMENTS FOR:
Interest $109,123 $78,749
Income taxes 74 7,587
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities losses (553) (2,858)
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Note to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Note A
Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America 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 accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could differ
from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes included in the 2000 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
2001. However, the reclassifications have no effect on shareholders' equity or
net income as previously reported.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"), which establishes accounting and
reporting standards for derivative instruments and for hedging activities.
BancShares adopted the provisions of Statement 133 on January 1, 2001, but, as a
result of BancShares' limited use of derivative instruments, the adoption of
Statement 133 did not have a material impact on its consolidated financial
statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Financial Summary
Table 1
2001 2000
First Fourth Third Second First
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------
Summary of Operations
Interest income $189,026 $189,328 $182,966 $171,890 $163,986
Interest expense 96,443 96,754 91,509 80,184 74,381
- ----------------------------------------------------------------------------------------------------------------
Net interest income 92,583 92,574 91,457 91,706 89,605
Provision for loan losses 5,676 4,857 4,197 2,975 3,459
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 86,907 87,717 87,260 88,731 86,146
Noninterest income 52,811 49,384 67,358 44,097 41,351
Noninterest expense 102,800 99,287 101,257 97,953 96,287
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 36,918 37,814 53,361 34,875 31,210
Income taxes 14,059 13,826 20,006 13,421 11,696
- ----------------------------------------------------------------------------------------------------------------
Net income $22,859 $23,988 $33,355 $21,454 $19,514
================================================================================================================
Net interest income-taxable equivalent $93,091 $93,240 $92,162 $92,414 $90,374
- ----------------------------------------------------------------------------------------------------------------
Selected Quarterly Averages
Total assets $10,785,178 $10,420,204 $10,167,665 $9,772,765 $9,658,251
Investment securities 1,854,401 1,747,536 1,633,653 1,594,291 1,497,278
Loans 7,101,238 7,077,991 7,036,622 6,917,041 6,789,203
Interest-earning assets 9,616,497 9,335,530 9,142,585 8,788,776 8,667,039
Deposits 9,037,155 8,693,634 8,524,930 8,211,252 8,128,968
Interest-bearing liabilities 8,470,303 8,126,969 7,886,410 7,560,267 7,512,781
Long-term obligations 154,639 154,609 154,979 153,773 155,171
Shareholders' equity $819,289 $799,234 $770,418 $748,648 $734,777
Shares outstanding 10,521,253 10,528,680 10,534,049 10,551,766 10,592,378
- ----------------------------------------------------------------------------------------------------------------
Selected Quarter-End Balances
Total assets $11,145,917 $10,691,617 $10,361,296 $9,943,877 $9,880,732
Investment securities 1,868,886 1,816,720 1,730,439 1,543,033 1,547,214
Loans 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095
Interest-earning assets 9,870,346 9,357,794 9,278,658 8,871,522 8,896,750
Deposits 9,365,356 8,971,868 8,668,642 8,366,364 8,295,850
Interest-bearing liabilities 8,730,946 8,384,692 8,068,241 7,626,805 7,655,102
Long-term obligations 154,836 154,332 154,687 153,761 154,915
Shareholders' equity $830,135 $810,728 $789,341 $758,985 $741,136
Shares outstanding 10,513,475 10,522,836 10,533,814 10,534,614 10,566,849
- ----------------------------------------------------------------------------------------------------------------
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.86 % 0.92 % 1.31 % 0.88 % 0.81 %
Shareholders' equity 11.32 11.94 17.22 11.53 10.68
Dividend payout ratio 11.52 10.96 7.89 12.32 13.59
- ----------------------------------------------------------------------------------------------------------------
Liquidity and Capital Ratios (averages)
Loans to deposits 78.58 % 81.42 % 82.54 % 84.24 % 83.52 %
Shareholders' equity to total assets 7.60 7.67 7.58 7.66 7.61
Time certificates of $100,000 or more to
total deposits 10.36 9.92 9.54 9.27 9.01
- -------------------------------------------------------------------------------------------------------------------
Per Share of Stock
Net income $2.17 $2.28 $3.17 $2.03 $1.84
Cash dividends 0.25 0.25 0.25 0.25 0.25
Book value at period end 78.96 77.04 74.93 72.05 70.14
Tangible book value at period end 67.52 65.76 64.77 61.92 59.79
- -------------------------------------------------------------------------------------------------------------------
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Outstanding Loans by Type
Table 2
2001 2000
First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
Real estate:
Construction and land development $237,354 $216,439 $209,592 $200,483 $208,518
Mortgage:
1-4 family residential 1,596,920 1,550,329 1,515,694 1,460,512 1,368,732
Commercial 1,997,798 1,993,067 1,980,802 1,934,302 1,866,544
Equity Line 862,231 851,810 838,198 813,908 776,164
Other 186,740 186,247 201,107 204,962 184,397
Commercial and industrial 943,722 933,515 942,507 946,067 950,445
Consumer 1,140,407 1,218,134 1,248,793 1,297,982 1,340,671
Lease financing 134,352 134,483 134,655 131,579 127,822
Other 25,011 25,668 26,425 17,029 4,802
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095
Less reserve for loan losses 103,825 102,655 101,565 100,515 99,590
- -------------------------------------------------------------------------------------------------------------------------------
Net loans $7,020,710 $7,007,037 $6,996,208 $6,906,309 $6,728,505
- -------------------------------------------------------------------------------------------------------------------------------
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Investment Securities
Table 3
March 31, 2001 March 31, 2000
Average Taxable Average Taxable
Book Fair Maturity Equivalent Book Fair Maturity Equivalent
(thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield
- ---------------------------------------------------------------------------------------------------------------------------------
U. S. Government:
Within one year $1,506,877 $1,518,839 0/6 6.18% $1,200,835 $1,184,701 0/7 5.63%
One to five years 303,006 307,373 1/4 5.76 315,939 310,768 1/11 6.60
Five to ten years 199 207 8/3 8.04 309 310 8/7 8.11
Over 10 years 7,331 7,448 25/8 7.30 9,026 8,831 26/7 7.33
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,817,413 1,833,867 0/8 6.11 1,526,109 1,504,610 0/10 5.84
State, county and municipal:
Within one year 650 653 0/3 7.41 900 904 0/6 7.28
One to five years 1,607 1,664 2/4 6.68 1,761 1,777 1/2 7.27
Five to ten years 142 151 8/1 5.88 - - - -
Over ten years 1,541 1,712 15/3 5.85 1,557 1,586 18/0 8.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total 3,940 4,029 9/11 6.30 4,218 4,267 7/7 7.76
Other:
Within one year 10 10 0/9 5.36 10 10 0/4 5.24
One to five years 35 35 1/4 6.96 45 45 2/2 5.47
Five to ten years 250 250 7/4 4.50 250 250 8/4 2.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total 295 295 5/0 4.96 305 305 5/6 4.95
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,821,648 1,838,191 0/10 6.11% 1,530,632 1,509,182 1/0 5.85%
Marketable equity securities 36,855 47,238 8,619 16,582
====================================================================================================================================
Total investment securities $1,858,503 $1,885,429 $1,539,251 $1,525,764
====================================================================================================================================
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
Table 4
2001 2000 Increase (decrease) due to:
Interest Interest
Average Income Yield Average Income Yield Yield
(thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total
- --------------------------------------------------------------------------------------------------------------------------
Assets:
Total loans $7,101,238 $151,489 8.64 % $6,789,203 $138,653 8.20 % $13,161 $2,260 $15,421
Investment securities:
U. S. Government 1,811,204 28,398 6.36 1,474,744 20,915 5.70 4,916 2,567 7,483
State, county and municipal 5,210 112 8.72 3,615 75 8.34 33 4 37
Other 37,987 512 5.47 18,919 122 2.59 189 201 390
- --------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,854,401 29,022 6.35 1,497,278 21,112 5.67 5,138 2,772 7,910
Overnight investments 660,859 9,023 5.54 380,558 4,990 5.27 3,725 308 4,033
==========================================================================================================================
Total interest-earning assets $9,616,498 $189,534 7.99 % $8,667,039 $164,755 7.63 % $22,024 $5,340 $27,364
==========================================================================================================================
Liabilities:
Deposits:
Checking with Interest $1,096,526 $ 1,920 0.71 % $1,065,212 $ 1,552 0.59 % $ 48 $ 320 $ 368
Savings 601,946 1,985 1.34 654,292 2,529 1.55 (202) (342) (544)
Money market accounts 1,643,742 16,958 4.18 1,495,715 14,436 3.88 1,417 1,105 2,522
Time deposits 4,329,409 64,633 6.05 3,602,133 46,283 5.17 9,909 8,441 18,350
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 7,671,623 85,496 4.52 6,817,352 64,800 3.82 11,172 9,524 20,696
Federal funds purchased 74,151 1,003 5.49 33,672 471 5.63 555 (23) 532
Repurchase agreements 189,556 1,997 4.27 139,543 1,495 4.31 526 (24) 502
Master notes 325,452 3,961 4.94 306,817 3,518 4.61 202 241 443
Other short-term borrowings 54,885 815 6.02 60,226 947 6.32 (86) (46) (132)
Long-term obligations 154,639 3,171 8.32 155,171 3,150 8.16 (26) 47 21
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $8,470,306 $ 96,443 4.62 % $7,512,781 $ 74,381 3.98 % $12,343 $9,719 $22,062
- --------------------------------------------------------------------------------------------------------------------------
Interest rate spread 3.37 % 3.65 %
- --------------------------------------------------------------------------------------------------------------------------
Net interest income and net yield on
interest-earning assets $ 93,091 3.93 % $ 90,374 4.19 % $9,681 ($4,379) $5,302
- --------------------------------------------------------------------------------------------------------------------------
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 a state
income tax rate of 6.9% for 2001 and 7% for 2000.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Table 5
2000 1999 Increase (decrease) due to:
- -----------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
(thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change
- -----------------------------------------------------------------------------------------------------------------------------
Assets
Total loans $6,914,735 $433,463 8.37 % $6,315,810 $377,772 7.99 % $36,742 $18,949 $55,691
Investment securities:
U. S. Government 1,549,675 69,192 5.96 1,990,566 84,663 5.69 (19,096) 3,625 (15,471)
State, county and municipal 4,057 258 8.49 2,921 165 7.55 68 25 93
Other 21,554 373 2.31 24,365 404 2.22 (47) 16 (31)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,575,286 69,823 5.92 2,017,852 85,232 5.65 (19,075) 3,666 (15,409)
Overnight investments 377,120 17,738 6.28 308,759 11,326 4.90 2,866 3,546 6,412
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $8,867,141 $521,024 7.85 % $8,642,421 $474,330 7.33 % $20,533 $26,161 $46,694
=============================================================================================================================
Liabilities
Deposits:
Checking with Interest $1,063,527 $4,669 0.59 % $1,073,106 $5,265 0.66 % ($41) ($555) ($596)
Savings 642,781 7,392 1.54 693,574 8,107 1.56 (601) (114) (715)
Money market accounts 1,463,926 46,039 4.20 1,330,206 34,052 3.42 3,829 8,158 11,987
Time deposits 3,770,027 156,314 5.54 3,711,848 135,104 4.87 2,387 18,823 21,210
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,940,261 214,414 4.13 6,808,734 182,528 3.58 5,574 26,312 31,886
Federal funds purchased 36,113 1,674 6.19 55,147 1,970 4.78 (777) 481 (296)
Repurchase agreements 163,181 5,923 4.85 112,865 3,065 3.63 1,597 1,261 2,858
Master notes 303,394 11,859 5.22 320,233 9,649 4.03 (569) 2,779 2,210
Other short-term borrowings 56,413 2,728 6.46 57,497 2,280 5.30 (46) 494 448
Long-term obligations 154,642 9,476 8.19 157,533 9,539 8.10 (172) 109 (63)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $7,654,004 $246,074 4.29 % $7,512,009 $209,031 3.72 % $5,607 $31,436 $37,043
=============================================================================================================================
Interest rate spread 3.56 % 3.61 %
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income and net yield
on interest-earning assets $274,950 4.14 % $265,299 4.10 % $14,926 ($5,275) $9,651
- -----------------------------------------------------------------------------------------------------------------------------
Average loan balances include nonaccrual loans. Yields related to loans and
securities exempt from both federal and state income taxes, federal income taxes
only, or state income taxes only are stated on a taxable-equivalent basis
assuming a statutory federal income tax rate of 35% for each period, and state
income tax rates of 7.00% for 2000 and 1999. The taxable equivalent adjustment
was $2,187 and $1,690 for 2000 and 1999, respectively.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
Summary of Loan Loss Experience and Risk Elements
Table 5
2001 2000
First Fourth Third Second First
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
Reserve balance at beginning of period $102,655 $101,565 $100,515 $99,590 $98,690
Provision for loan losses 5,676 4,857 4,197 2,975 3,459
Net charge-offs:
Charge-offs (5,273) (5,232) (3,989) (3,395) (3,290)
Recoveries 767 1,465 842 1,345 731
- ---------------------------------------------------------------------------------------------------------------------
Net charge-offs (4,506) (3,767) (3,147) (2,050) (2,559)
=====================================================================================================================
Reserve balance at end of period $103,825 $102,655 $101,565 $100,515 $99,590
=====================================================================================================================
Historical Statistics
Balances
Average total loans $7,101,238 $7,077,991 $7,036,622 $6,917,041 $6,789,203
Total loans at period-end 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095
- ---------------------------------------------------------------------------------------------------------------------
Risk Elements
Nonaccrual loans $12,830 $15,933 $13,918 $9,910 $10,546
Other real estate acquired through foreclosure 3,082 1,880 2,079 1,249 2,071
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $15,912 $17,813 $15,997 $11,159 $12,617
- ---------------------------------------------------------------------------------------------------------------------
Accruing loans 90 days or more past due $6,413 $6,731 $6,866 $6,051 $5,294
- ---------------------------------------------------------------------------------------------------------------------
Ratios
Net charge-offs (annualized) to average total loans 0.26 % 0.21 % 0.18 % 0.12 % 0.15 %
Reserve for loan losses to total loans at period-end 1.46 1.44 1.43 1.43 1.46
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.22 0.25 0.23 0.16 0.18
- ---------------------------------------------------------------------------------------------------------------------
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 2001
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 ("ASB")
operates offices in Georgia and Florida.
SUMMARY
BancShares realized increased earnings during the first quarter of
2001 compared to the first quarter of 2000. Consolidated net income during
the first quarter of 2001 was $22.9 million, compared to $19.5 million
earned during the corresponding period of 2000. Net income per share during
the first quarter of 2001 totaled $2.17, compared to $1.84 during the first
quarter of 2000. Annualized return on average assets was 0.86 percent for
the first quarter of 2001 and 0.81 percent for the first quarter of 2000.
The higher net income and net income per share resulted from improved net
interest income and noninterest income. These improvements were partially
offset by higher noninterest expense and provision for loan losses during
the first quarter of 2001.
During the first quarter of 2001, BancShares recognized nonrecurring
after-tax securities gains of $3.3 million. These gains were recognized as
a result of business combinations involving companies in which BancShares
had an equity investment. The securities received in exchange for the
acquired entities are valued at their fair values, resulting in gain
recognition. The securities gains recognized during the first quarter of
2001 represented $0.31 per share. Adjusting for the nonrecurring gains, net
income per share for the first quarter of 2001 was $1.86. Adjusted return
on average assets was 0.74 percent, and the adjusted return on average
equity was 9.68 percent. There were no nonrecurring items during the first
quarter of 2000.
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 2001 and 2000.
INTEREST-EARNING ASSETS
At March 31, 2001, interest-earning assets totaled $9.87 billion, an
increase of $973.6 million or 10.9 percent from March 31, 2000. This
increase results from growth in overnight investments, investment
securities and the loan portfolio.
Loans. At March 31, 2001 and 2000, gross loans totaled $7.12 billion
and $6.83 billion, respectively. As of December 31, 2000, gross loans were
$7.11 billion. The $296.4 million growth in loans from March 31, 2000 to
March 31, 2001 results from growth within BancShares' commercial and small
business loans. This growth has resulted from customer demand and
BancShares' continued focus on these products during this period.
During the first quarter of 2001, loan demand among residential
mortgage loans has surged due to interest rate reductions. As much of
BancShares' residential mortgage loan production is immediately sold into
the secondary market, this loan demand does not generate growth in loans
outstanding. When combined with more modest demand for other loan products,
loans outstanding have been essentially unchanged from December 31, 2000 to
March 31, 2001.
During the first quarter of 2001, loans averaged $7.10 billion, an
increase of $312.0 million or 4.6 percent from the comparable period of
2000. Demand among commercial, business, and EquityLine customers and
BancShare'ability to offer desirable products through accessible delivery
networks fueled the strong growth in loans. Commercial loans, which
averaged $2.62 billion during the first quarter of 2001, increased $118.6
million or 4.7 percent over the first quarter of 2000. Business loans,
which averaged $830.2 million during the first quarter of 2001, increased
$153.4 million over the first quarter of 2000. EquityLine loans averaged
$860.5 million during the first three months of 2001, compared to $765.1
million during the same period in 2000. This represents an increase of
$95.3 million, or 12.5 percent, over the first three months of 2000 as
consumers continue to demand the flexibility offered by lines of credit
secured by home equity.
Management anticipates modest growth among commercial-purpose loans
during 2001. Management projects retail loans will experience further
run-off during 2001 due to reductions in automobile loans originated
through FCB's sales finance network. Growth projections are largely
dependent on interest rate movements, as further easing of interest rates
will stimulate retail and commercial loan growth.
Investment securities. At March 31, 2001 and 2000, the investment
portfolio totaled $1.87 billion and $1.55 billion, respectively. At
December 31, 2000, the investment portfolio was $1.82 billion. The $321.7
million, or 20.8 percent increase in investment securities results from
securities purchases made as a result of renewed deposit growth during late
2000 and the first quarter of 2001. 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.
Overnight investments. Overnight investments averaged $660.9 million
during the first quarter of 2001, an increase of $280.3 million or 73.7
percent from the first quarter of 2000. This growth resulted from strong
deposit growth. Income on Interest-Earning Assets. Interest income amounted
to $189.0 million during the first quarter of 2001, a 15.3 percent increase
over the first quarter of 2000. Growth among interest-earning assets and
improved yields contributed to higher interest income in the first quarter
of 2001 when compared to the same period of 2000.
The taxable-equivalent yield on interest-earning assets for the first
quarter of 2001 was 7.99 percent, compared to 7.63 percent for the
corresponding period of 2000.
Loan interest income for the first quarter of 2001 was $151.0 million,
an increase of $13.1 million or 9.5 percent from the first quarter of 2000,
the combined result of volume growth and improved yields. The
taxable-equivalent yield on the loan portfolio was 8.64 percent during the
first quarter of 2001, compared to 8.20 percent during the same period of
2000. The higher loan yields resulted from market-driven rate movements and
a lower percentage of the loan portfolio in lower-yielding loans.
Income earned on the investment securities portfolio amounted to $29.0
million during the first quarter of 2001 and $21.1 million during the same
period of 2000, an increase of $7.9 million or 37.5 percent. This increase
is the result of a $357.1 million increase in the average securities
portfolio and a 68 basis point yield increase. The increase in the average
securities portfolio reflects slower growth in the loan portfolio and
stronger growth among deposit liabilities. The investment securities
portfolio taxable-equivalent yield increased from 5.67 percent for the
quarter ended March 31, 2000, to 6.35 percent for the quarter ended March
31, 2001, the result of increased market rates.
Interest income from overnight investments increased $4.0 million from
the first quarter of 2000 to the same period of 2001, an 80.1 percent
increase. This large increase results from higher average invested balances
and a 27 basis point yield improvement.
As a result of reductions in interest rates by the Federal Reserve
during 2001, management anticipates the rate of growth in interest income
to soften somewhat during the second and third quarters of 2001. However,
continued asset growth should allow net interest income to see modest
growth in coming quarters.
INTEREST-BEARING LIABILITIES.
At March 31, 2001 and 2000, interest-bearing liabilities totaled $8.73
billion and $7.66 billion, respectively, compared to $8.38 billion as of
December 31, 2000. During the first quarter of 2001, interest-bearing
liabilities averaged $8.47 billion, an increase of $957.5 million or 12.7
percent from the first quarter of 2000. This increase primarily resulted
from an increase in interest-bearing deposits. Since March 31, 2000, the
net impact of all deposit assumptions and divestitures was a net increase
of $101.8 million. Deposit liabilities assumed since December 31, 2000
total $50,493. No deposits have been divested during 2001.
Deposits. At March 31, 2001, total deposits were $9.37 billion, an
increase of $1.07 billion or 12.9 percent over March 31, 2000. Compared to
the December 31, 2000 balance of $8.97 billion, total deposits have
increased $393.5 million.
Average interest-bearing deposits were $7.67 billion during the first
quarter of 2001 compared to $6.82 billion during the first quarter of 2000,
an increase of $854.3 million, due primarily to growth among time deposits.
Average time deposits increased $727.3 million from the first quarter of
2000 to the first quarter of 2001. Average money market account deposits
increased $148.0 million or 9.9 percent for the first quarter of 2000 to
the same period of 2001. Management attributes the growth in
interest-bearing deposits from the first quarter of 2000 to the first
quarter of 2001 to several factors. FCB and ASB have been focusing on
deposit gathering and retention to fund the strong loan demand in their
fast growing market areas. While these efforts have been successful, some
of the deposit growth has resulted from investors seeking the safety of
traditional bank deposits in recent quarters as equity markets have been
extraordinarily volatile. Although it is unclear how long the economic
uncertainty will continue to adversely affect the equity markets,
BancShares continues to provide attractive products at reasonable rates to
attract and retain core deposit relationships. Time deposits of $100,000 or
more averaged 10.04 percent of total deposits during the first quarter of
2001, compared to 9.01 percent during the same period of 2000.
Borrowed Funds. At March 31, 2001, short-term borrowings totaled
$668.2 million compared to $632.4 million at December 31, 2000 and $587.1
million at March 31, 2000. For the quarters ended March 31, 2001 and 2000,
short-term borrowings averaged $644.0 million and $540.3 million,
respectively. The higher average short-term borrowings is primarily the
result of growth among repurchase obligations, which resulted from
increased customer demand. Additionally, federal funds purchased were
higher due to increased purchases of correspondent banks' excess liquidity.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $96.4 million during the first quarter of 2001, a $22.1 million
or 29.7 percent increase from the first quarter of 2000. The higher
interest expense was the result of higher average volume and a 64 basis
point increase in the aggregate blended rate on interest-bearing
liabilities. The rate on these liabilities was 4.62 percent during the
first quarter of 2001, compared to 3.98 percent during the first quarter of
2000.
NET INTEREST INCOME
Net interest income totaled $92.6 million during the first quarter of
2001, an increase of 3.3 percent from the first quarter of 2000. The
improvement in net interest income results from balance sheet growth.
The impact of the growth among interest-earning assets was greater
than the cost resulting from the growth of interest-bearing liabilities.
However, the unfavorable impact of changing interest rates partially offset
the benefit of volume growth. The taxable-equivalent net yield on
interest-earning assets was 3.93 percent for the first quarter of 2001,
compared to the 4.19 percent achieved for the first quarter of 2000. The
taxable equivalent interest rate spread for the first quarter of 2001 was
3.37 percent compared to 3.65 percent for the same period of 2000.
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, 2001, BancShares' market risk profile has not changed
significantly from December 31, 2000. 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, 2001, the reserve for loan
losses amounted to $103.8 million or 1.46 percent of loans outstanding.
This compares to $102.7 million or 1.44 percent at December 31, 2000, and
$99.6 million or 1.46 percent at March 31, 2000.
The provision for loan losses charged to operations during the first
quarter of 2001 was $5.7 million, compared to $3.5 million during the first
quarter of 2000. The increase in the provision was largely attributable to
an increase in net charge-offs during 2001 compared to 2000. Net
charge-offs for the three months ended March 31, 2001 totaled $4.5 million,
compared to net charge-offs of $2.6 million during the same period of 2000.
On an annualized basis, these net charge-offs represent 0.26 percent and
0.15 percent of average loans outstanding during the respective periods.
The $1.9 million increase in net charge-offs during 2001 primarily resulted
from credit losses recorded on three commercial customers. 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, 2001, BancShares' nonperforming
assets amounted to $15.9 million or 0.22 percent of gross loans plus
foreclosed properties, compared to $17.8 million at December 31, 2000, and
$12.6 million at March 31, 2000. Despite the volatility in recent quarters,
management 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.
Management considers the established reserve adequate to absorb
estimated probable losses that relate to loans outstanding at March 31,
2001. 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.
NONINTEREST INCOME
During the first three months of 2001, noninterest income was $52.8
million, compared to $41.4 million during the same period of 2000. The
$11.5 million or 27.7 percent increase was due to nonrecurring securities
transactions and growth in service charges on deposit accounts and credit
card income.
During the first quarter of 2001, BancShares recognized nonrecurring
securities gains of $5.5 million. These gains were recognized as a result
of business combinations involving companies in which BancShares had an
equity investment.
During the first three months of 2001, total service charges on
deposit accounts were $15.9 million, compared to $14.1 million earned
during the same period of 2000, an increase of $1.9 million or 13.3
percent. This increase resulted from volume growth and higher bad check
charges adopted in late 2000. BancShares recorded credit card income of
$9.4 million during the first quarter of 2001, compared to $7.8 million
earned during the same period of 2000. The $1.6 million or 19.9 percent
increase resulted from higher interchange income and merchant fee income.
NONINTEREST EXPENSE
Noninterest expense was $102.8 million for the first three months of
2001, a 6.8 percent increase over the $96.3 million recorded during the
same period of 2000. Much of the $6.5 million increase in total noninterest
expense relates to continued franchise expansion and the investments
required to support that growth. Salaries and wages increased $2.8 million
during 2001 when compared to the same period of 2000. This 6.8 percent
increase reflects the growth in employee population required to staff the
new branch offices in Virginia, Florida, and Georgia.
Occupancy expense was $9.0 million during the first quarter of 2001
and $8.2 million during the first quarter of 2000. Higher costs were
recorded in depreciation on bank buildings and utilities. Equipment expense
was $9.7 million for the first three months of 2001, a 5.6 percent increase
over the $9.2 million recorded during the same period of 2000. Much of the
increase was the result of higher depreciation on software and maintenance
contracts. Other expenses increased $623,000 or 23.9 percent from the first
quarter of 2000 to the first quarter of 2001, due to higher credit card
processing expenses and non-credit charge-offs.
INCOME TAXES
Income tax expense amounted to $14.1 million during the three months
ended March 31, 2001, compared to $11.7 million during the same period of
2000, a 20.2 percent increase resulting from higher pre-tax income. The
effective tax rates for these periods were 38.1 percent and 37.5 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 2001, 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, 2001 and 2000, the
leverage capital ratios of BancShares were 7.97 percent and 8.14 percent,
respectively, surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' Tier 1 capital ratios were 10.43 percent
at March 31, 2001 and 10.08 percent at March 31, 2000. The minimum ratio
allowed is 4 percent of risk-adjusted assets. The total risk-adjusted
capital ratios were 11.77 percent at March 31, 2001 and 11.37 percent as of
March 31, 2000. The minimum total capital ratio is 8 percent. BancShares
and its subsidiary banks exceed the capital standards established by their
respective regulatory agencies.
ACCOUNTING MATTERS
During September 2000, the FASB issues SFAS No. 140 'Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities' ('SFAS No. 140'), which replaced SFAS No. 125. SFAS No. 140
revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain
disclosures. SFAS No. 140 is effective for transfers and servicing of
financial assets and Extinguishments of liabilities occurring after March
31, 2001. SFAS 140 is effective for recognition and classification of
collateral and disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. SFAS No. 140 is
not expected to 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,"
"anticipate," or other statements concerning opinions or judgments 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.