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, 1996
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) 755-7000
(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-- 9,667,082 shares
Class B Common Stock--$1 Par Value-- 1,766,414 shares
(Number of shares outstanding, by class, as of May 14, 1996)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition at
March 31, 1996, December 31, 1995, and March 31, 1995 3-4
Consolidated Statements of Income for the three-month
periods ended March 31, 1996, and March 31, 1995, 4-5
Consolidated Statements of Changes in Shareholders' Equity
for the three-month periods ended March 31, 1996,
and March 31, 1995 5
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1996, and March 31, 1995 6
Note to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-16
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, 1996, 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, 1996 By:
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1996
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
March 31 December 31 March 31
(thousands, except share data) 1996 1995 1995
(unaudited) (unaudited)
Assets
Cash and due from banks $428,612 $448,630 $370,436
Investment securities 2,005,645 1,983,148 1,323,683
Federal funds sold 90,160 40,445 196,430
Loans 4,837,073 4,580,719 4,362,969
Less reserve for loan losses 80,433 78,495 73,897
Net loans 4,756,640 4,502,224 4,289,072
Premises and equipment 213,832 208,240 196,165
Income earned not collected 59,127 58,237 39,286
Other assets 182,146 143,026 117,004
Total assets $7,736,162 $7,383,950 $6,532,076
Liabilities
Deposits:
Noninterest-bearing $956,846 $943,445 $859,819
Interest-bearing 5,787,067 5,444,637 4,863,821
Total deposits 6,743,913 6,388,082 5,723,640
Short-term borrowings 326,833 376,531 251,314
Long-term obligations 15,608 22,957 26,407
Other liabilities 79,550 75,543 53,748
Total liabilities 7,165,904 6,863,113 6,055,109
Shareholders' equity
Common stock:
Class A-$1 par value( 9,661,517; 8,949,703;
and 8,816,313 shares issued, respectively) 9,662 8,950 8,816
Class B-$1 par value(1,766,464; 1,766,464;
and 1,769,251 shares issued, respectively) 1,766 1,766 1,769
Surplus 141,402 106,954 100,124
Retained earnings 417,428 403,167 366,258
Total shareholders'equity 570,258 520,837 476,967
Total liabilities and shareholders' equity $7,736,162 $7,383,950 $6,532,076
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries
First Quarter 1996
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31
(thousands, except per share data, unaudited 1996 1995
Interest income
Loans $100,112 $89,585
Investment securities:
U. S. Government 27,740 15,297
State, county and municipal 90 88
Other 45 26
Total investment securities interest income 27,875 15,411
Federal funds sold 1,581 1,225
Total interest income 129,568 106,221
Interest expense
Deposits 58,171 42,762
Short-term borrowings 3,866 3,085
Long-term obligations 387 454
Total interest expense 62,424 46,301
Net interest income 67,144 59,920
Provision for loan losses 1,544 534
Net interest income after provision for losses 65,600 59,386
Noninterest income
Trust income 2,267 2,239
Service charges on deposit accounts 10,033 9,403
Credit card income 3,265 2,847
Other service charges and fees 5,790 4,899
Other 2,530 2,267
Total noninterest income 23,885 21,655
89,485 81,041
Noninterest expense
Salaries and wages 27,302 25,753
Employee benefits 4,896 4,574
Occupancy expense 5,426 5,031
Equipment expense 6,004 6,107
Other 19,657 20,898
Total noninterest expense 63,285 62,363
Income before income taxes 26,200 18,678
Income taxes 9,374 6,500
Net income $16,826 $12,178
Per Share
Net income $1.52 $1.17
Cash dividends 0.225 0.20
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
Class A Class B
Common Common Retained Total
(thousands, except share data, unaudited) Stock Stock Surplus Earnings Equity
Balance at December 31, 1994 $8,419 $1,770 $82,631 $356,591 $449,411
Issuance of 399,424 shares of Class A
common stock for acquisitions 399 17,260 17,659
Issuance of 2,068 shares of Class A
common stock pursuant to the
Dividend Reinvestment Plan 2 82 84
Issuance of 3,932 shares of Class A
common stock pursuant to employee
stock purchase plans 4 151 155
Redemption of 8,500 shares of Class A
common stock and 200 shares of
Class B common stock (8) (1) (383) (392)
Net income 12,178 12,178
Cash dividends (2,128) (2,128)
Balance at March 31, 1995 $8,816 $1,769 $100,124 $366,258 $476,967
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
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended March 31
(thousands) 1996 1995
Operating Activities
Net income $16,826 $12,178
Adjustments:
Amortization of intangibles 1,787 1,119
Provision for loan losses 2,931 534
Deferred tax benefit (726) (218)
Change in current taxes payable 9,484 6,615
Depreciation 4,187 4,104
Change in accrued interest payable (7,244) 4,582
Change in income earned not collected 186 6,779
Origination of loans held for sale (26,893) (3,589)
Proceeds from sale of loans 21,244 3,852
(Gain) loss on sale of mortgage loans (222) (39)
Net amortization of premiums and discounts 4,378 5,126
Net change in other assets (4,304) (1,360)
Net change in other liabilities (5,941) 815
Net cash provided by operating activities 15,693 40,498
Investing Activities
Dispositions of premises and equipment 1,680 1,671
Additions to premises and equipment (9,472) (8,325)
Net increase in loans outstanding (46,341) (103,145)
Purchases of investment securities (269,164) (77,118)
Proceeds from maturities of investment securiti 260,533 230,700
Net change in federal funds sold (49,715) (185,983)
Purchase of institutions, net of cash acquired 7,584 (280)
Net cash used by investing activities (104,895) (142,480)
Financing Activities
Repurchases of common stock - (392)
Proceeds from issuance of stock, net of related (1,558) 239
Cash dividends paid (2,565) (2,128)
Net change in time deposits 123,970 251,503
Net change in demand and other interest-bearing 23,467 (180,838)
Net change in short-term borrowings (74,130) (51,676)
Net cash provided by financing activities 69,184 16,708
Change in cash and due from banks (20,018) (85,274)
Cash and due from banks at beginning of period 448,630 455,710
Cash and due from banks at end of period $428,612 $370,436
Cash payments for:
Interest $69,668 $41,719
Income taxes 960 83
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions $36,718 $17,659
Long-term obligations issued for acquisitions 1,468 2,494
See accompanying Notes to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
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 1995 First Citizens BancShares Annual Report, which is
incorporated by reference on Form 10-K.
Financial Summary
Table 1
1996 1995
First Fourth Third Second First
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter
Summary of Operations
Interest income $129,568 $126,372 $122,234 $116,282 $106,221
Interest income - taxable equivalent 130,159 126,950 122,801 116,845 106,774
Interest expense 62,424 62,968 59,858 55,537 46,301
Net interest income - taxable equivalent 67,735 63,982 62,943 61,308 60,473
Taxable equivalent adjustment 591 578 567 563 553
Net interest income 67,144 63,404 62,376 60,745 59,920
Provision for loan losses 1,544 1,654 1,716 1,460 534
Net interest income after provision for loan losses 65,600 61,750 60,660 59,285 59,386
Noninterest income 23,885 23,856 23,560 23,057 21,655
Noninterest expense 63,285 60,925 59,716 62,876 62,363
Income before income taxes 26,200 24,681 24,504 19,466 18,678
Income taxes 9,374 8,395 8,686 6,842 6,500
Net income $16,826 $16,286 $15,818 $12,624 $12,178
Selected Quarterly Averages
Total assets $7,462,756 $7,280,893 $7,053,579 $6,702,692 $6,323,537
Investment securities 1,984,027 1,871,272 1,694,776 1,493,415 1,380,424
Loans 4,679,692 4,552,018 4,500,192 4,424,724 4,253,117
Interest-earning assets 6,779,461 6,599,377 6,376,273 6,061,732 5,716,572
Deposits 6,477,795 6,282,111 6,124,360 5,858,280 5,533,654
Interest-bearing liabilities 5,934,180 5,753,538 5,569,496 5,299,570 5,009,276
Long-term obligations 23,763 23,365 24,595 26,174 32,564
Shareholders' equity $545,774 $512,768 $498,108 $482,885 $460,695
Shares outstanding 11,072,395 10,700,435 10,688,019 10,618,902 10,376,351
Profitability Ratios (averages)
Rate of return(annualized) on:
Total average assets 0.91 % 0.89 % 0.89 % 0.76 % 0.78
Average shareholders' equity 12.40 12.60 12.60 10.49 10.72
Dividend payout ratio 14.80 14.80 13.42 16.81 17.09
Liquidity and Capital Ratios (averages)
Loans to deposits 72.24 % 72.46 % 73.48 % 75.53 % 76.86
Shareholders' equity to total assets 7.31 7.04 7.06 7.20 7.29
Time certificates of $100,000 or more to total 9.59 9.27 8.61 8.04 7.30
Per Share of Stock
Net income $1.52 $1.52 $1.49 $1.19 $1.17
Cash dividends 0.225 0.225 0.20 0.20 0.20
Book value at period-end 50.19 48.60 47.32 46.06 45.06
Tangible book value at period-end 41.13 41.75 40.32 39.10 39.50
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Significant Acquisitions Table 2
(thousands)
Total Total
Date Institution and Location Assets Deposits
February 1996 Allied Bank Capital, Inc. $248,998 $208,394
Sanford, North Carolina
June 1995 Bank of White Sulphur Springs 64,589 59,174
White Sulphur Springs, West Virginia
May 1995 9 NationsBank of Virginia bran 133,175 143,494
Southern Virginia
March 1995 State Bank 49,700 41,238
Fayetteville, North Carolina
February 1995 Pace American Bank 58,660 53,303
Lawrenceville, Virginia
February 1995 First Investors Savings Bank, Inc., SSB 44,426 40,846
Whiteville, North Carolina
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Outstanding Loans by Type
Table 3
1996 1995
First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
Real estate:
Construction and land development: $110,520 $104,540 $109,597 $111,285 $107,197
Mortgage:
1-4 family residential 1,604,954 1,438,655 1,456,076 1,399,023 1,357,256
Commercial 799,800 770,246 744,811 743,367 741,948
Equity Line 401,501 397,225 394,088 395,412 385,581
Other 134,128 129,292 130,952 124,682 116,444
Commercial and industrial 483,245 466,462 455,781 459,446 415,968
Consumer 1,222,243 1,199,400 1,173,740 1,171,441 1,163,348
Lease financing 63,943 59,899 58,013 58,464 58,364
Other 16,739 15,000 16,998 17,115 16,863
Total loans 4,837,073 4,580,719 4,540,056 4,480,235 4,362,969
Less reserve for loan losses 80,433 78,495 77,986 76,887 73,897
Net loans $4,756,640 $4,502,224 $4,462,070 $4,403,348 $4,289,072
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Investment Securities
Table 4
March 31, 1996 March 31, 1995
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 $890,553 $893,026 0/6 5.72 % $870,684 $861,189 0/7 4.26 %
One to five years 1,093,492 1,088,506 2/0 5.68 437,239 430,312 1/4 5.29
Five to ten years 2,454 2,423 7/0 6.17 1,621 1,536 6/2 6.13
Over 10 years 9,289 9,380 18/8 7.51 2,185 2,144 13/4 6.33
Total 1,995,788 1,993,335 1/5 5.70 1,311,729 1,295,181 0/10 4.61
State, county and municipal:
Within one year 666 668 0/4 6.84 1,711 1,720 0/5 7.99
One to five years 3,989 4,249 2/9 6.62 3,812 3,807 2/11 6.59
Five to ten years 2,025 2,091 5/11 7.56 2,979 2,990 6/6 7.31
Over 10 years 195 195 21/5 9.14 205 205 22/5 9.00
Total 6,875 7,203 3/11 6.99 8,707 8,722 4/1 7.17
Other
Within one year 1,059 1,060 0/5 5.66 250 251 0/2 9.32
One to five years 1,878 1,865 2/0 10.25 2,942 2,853 2/7 8.67
Five to ten years 45 45 6/2 8.00 55 55 6/11 8.00
Total 2,982 2,970 1/8 8.58 3,247 3,159 2/5 8.71
Total investment securities $2,005,645 $2,003,508 1/5 5.71 % $1,323,683 $1,307,062 0/10 4.63 %
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter
Table 5
1996 1995 Increase (decrease)
Interest Interest
Average Income Yield Average Income Yield Yield
(thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total
Interest Income
Loans:
Secured by real estate $2,921,551 $61,041 8.32 % $2,631,235 $54,149 8.28 % $6,304 $588 $6,892
Commercial and industrial 475,654 10,758 8.70 397,959 8,982 9.14 1,995 (219) 1,776
Consumer 1,204,973 27,317 9.03 1,147,139 25,507 8.92 1,389 421 1,810
Lease financing 61,286 1,222 7.98 59,714 1,099 7.36 30 93 123
Other 16,228 316 7.82 17,070 354 8.42 (15) (23) (38)
Total loans 4,679,692 100,654 8.63 4,253,117 90,091 8.53 9,703 860 10,563
Investment securities:
U. S. Government 1,973,763 27,740 5.65 1,371,490 15,296 4.52 7,680 4,764 12,444
State, county and municipal 7,290 139 7.67 6,761 136 8.16 11 (8) 3
Other 2,974 45 6.09 2,173 26 4.85 11 8 19
Total investment securities 1,984,027 27,924 5.66 1,380,424 15,458 4.54 7,702 4,756 12,466
Federal funds sold 115,742 1,581 5.49 83,031 1,225 5.98 472 (116) 356
Total interest-earning assets $6,779,461 $130,159 7.71 % $5,716,572 $106,774 7.53 % $17,877 $5,500 $23,385
Interest Expense
Deposits:
Checking with Interest $855,162 $2,983 1.40 % $786,940 $3,365 1.73 % $279 ($661) ($382)
Savings 703,574 3,783 2.16 677,737 3,765 2.25 157 (139) 18
Money market accounts 808,401 7,125 3.54 748,517 5,925 3.21 532 668 1,200
Other time deposits 3,204,344 44,280 5.56 2,521,864 29,707 4.78 8,897 5,676 14,573
Total interest-bearing deposits 5,571,481 58,171 4.20 4,735,058 42,762 3.66 9,865 5,544 15,409
Federal funds purchased 54,033 751 5.59 21,898 314 5.82 457 (20) 437
Repurchase agreements 21,229 233 4.41 21,610 264 4.95 (3) (28) (31)
Master notes 240,322 2,604 4.36 171,348 2,128 5.04 815 (339) 476
U. S. Treasury tax and loan accounts 14,123 182 5.18 18,020 260 5.85 (52) (26) (78)
Other short-term borrowings 9,229 96 4.18 8,778 119 5.50 6 (29) (23)
Long-term obligations 23,763 387 6.55 32,564 454 5.65 (132) 65 (67)
Total interest-bearing liabilities $5,934,180 $62,424 4.23 % $5,009,276 $46,301 3.75 % $10,956 $5,167 $7,262
Interest rate spread 3.48 % 3.78 %
Net interest income and net yield on
interest-earning assets $67,735 4.02 % $60,473 4.29 % $6,921 $333 $7,262
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
Summary of Loan Loss Experience and Risk Elements
Table 6
1996 1995
First Fourth Third Second First
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter
Reserve balance at beginning of period $78,495 $77,965 $76,860 $73,897 $72,017
Reserve of acquired institution 1,387 - - 1,959 1,272
Provision for loan losses 1,544 1,654 1,716 1,460 534
Net charge-offs:
Charge-offs (2,433) (2,575) (1,783) (1,670) (1,234)
Recoveries 1,440 1,451 1,172 1,214 1,308
Net charge-offs (993) (1,124) (611) (456) 74
Reserve balance at end of period $80,433 $78,495 $77,965 $76,860 $73,897
Historical Statistics
Balances
Average total loans $4,679,692 $4,433,517 $4,500,192 $4,424,724 $4,253,117
Total loans at period-end 4,837,073 4,580,719 4,540,056 4,480,235 4,362,969
Risk Elements
Nonaccrual loans $13,489 $13,208 $14,296 $16,406 $19,953
Restructured loans
Other real estate acquired through
forclosure 2,555 2,154 2,739 3,590 4,296
Total nonperforming assets $16,044 $15,362 $17,035 $19,996 $24,249
Accruing loans 90 days or more past due $5,300 $4,230 $4,874 $3,524 $5,020
Ratios
Net charge-offs (annualized) to average 0.09% 0.10% 0.05% 0.04% -0.01%
Reserve for loan losses to total loans a 1.66 1.71 1.72 1.72 1.69
Nonperforming assets to total loans plus foreclosed real
estate at period-end 0.33 0.34 0.37 0.45 0.56
First Citizens BancShares, Inc. and Subsidiaries
First Quarter 1996
INTRODUCTION
Management's discussion and analysis of earnings and related financial
data are presented to assist in understanding the financial condition
and results of operations of First Citizens BancShares, Inc. and
Subsidiaries ("BancShares"). It should be read in conjunction with the
unaudited Consolidated Financial Statements and related notes presented
on pages 3 through 7 of this report. The focus of this discussion
concerns BancShares' three banking 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, while Bank of Marlinton ("Marlinton") and Bank of
White Sulphur Springs ("WSS") operate in West Virginia. Certain changes
discussed herein result from various acquisitions. During the first
quarter of 1996, BancShares acquired Allied Bank Capital, Inc.
("Allied") and its two banking subsidiaries, Summit Savings Bank of
Sanford, North Carolina and Peoples Savings Bank of Wilmington, North
Carolina. Allied had total assets of $249 million and total deposits of
$208.4 million. The acquisition was accounted for as a purchase, with
BancShares acquiring all of Allied's outstanding capital stock for a
combination of its Class A common stock, cash and debentures. During the
first quarter of 1995, BancShares completed three acquisitions. Pace
American Bank, subsequently merged into FCB, was a $59 million
state-chartered bank located in Lawrenceville, Virginia. BancShares
later acquired Fayetteville, North Carolina-based State Bank, a $50
million bank, and Whiteville, North Carolina-based First Investors
Savings Bank, which had $44 million in assets at the time of its
acquisition. Both of these institutions were immediately merged with
and into FCB. All of these acquisitions were recorded using the
purchase method of accounting. Accordingly, results of operations from
these merged entities have only been included after the date of
purchase.
SUMMARY
BancShares realized an increase in earnings of 38.2 percent during the first
quarter of 1996 compared to the first quarter of 1995. Consolidated net income
during the first quarter of 1996 was $16.8 million, compared to $12.2 million
earned during the corresponding period of 1995. The improved earnings resulted
from higher net interest and noninterest income. Net income per share during
the first quarter of 1996 totaled $1.52, compared to $1.17 during the first
quarter of 1995. Return on average assets was 0.91 percent for the first
quarter of 1996 compared to 0.78 percent during the same period of 1995. 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 5.
INTEREST-EARNING ASSETS
Average interest-earning assets for the first quarter of 1996 totaled $6.78
billion, an increase of $1.06 billion or 18.6 percent from the first quarter of
1995. Most of this increase results from growth in the investment and loan
portfolios. Loans. At March 31, 1996, and 1995, gross loans totaled $4.84
billion and $4.36 billion, respectively. As of December 31, 1995, gross loans
were $4.58 billion. The $256.4 million increase from December 31, 1995 to March
31, 1996, is largely due to $205.1 million in acquired loans. The $474.1
million growth in loans from March 31, 1995 to March 31, 1996 results from
acquisitions and growth within BancShares' commercial loan products during late
1995. Table 2 details outstanding loans by type for the past five quarters.
During the first quarter of 1996, average total loans were $4.68 billion, an
increase of $426.6 million or 10 percent from the comparable period of 1995.
Consumer loans averaged $1.20 billion during the first quarter of 1996, compared
to $1.15 billion during the same period of 1995, an increase of $57.8 million or
5 percent. Average loans secured by real estate increased $290.3 million
between the two periods, an 11 percent increase. While some of this growth has
resulted from acquisitions, loan demand within the branch network remains at
modest levels. As of March 31, 1996, $21.3 million in fixed-rate residential
mortgage loans are held for sale. All loans held for sale are carried at the
lower of cost or market, and it is anticipated that these loans will be sold
during the next quarter. Management's loan growth projections for 1996 are all
dependent on interest rates, as any upward pressure on interest rates will
likely deter retail borrowers and may also impair commercial loan growth.
Investment securities. At March 31, 1996, and 1995, the investment portfolio
totaled $2.01 billion and $1.32 billion, respectively. At December 31, 1995,
the investment portfolio was $1.98 billion. The 51.5 percent increase in the
investment portfolio in one year resulted from the liquidity generated by FCB's
strong emphasis on retail relationship banking during 1995. This focus
generated deposit growth that has in turn resulted in excess liquidity being
invested in the investment securities portfolio. All securities are classified
as held-to-maturity, as BancShares has the ability and the positive intent to
hold its investment portfolio until maturity. Table 4 presents detailed
information relating to the investment portfolio. Income on Interest-Earning
Assets. Taxable equivalent interest income amounted to $130.2 million during
the first quarter of 1996, a 21.9 percent increase over the first quarter of
1995. Taxable equivalent interest income benefitted from favorable volume and
yield variances, as balance sheet growth and higher interest rates both
contributed to higher interest income in the first quarter of 1996 when compared
to the same period of 1995. The average yield on total interest-earning assets
for the first quarter of 1996 was 7.71 percent, compared to 7.53 percent for the
corresponding period of 1995, an 18 basis point improvement resulting from
higher yields on interest-earning assets. Taxable equivalent loan interest
income for the first quarter of 1996 was $100.7 million, an increase of $10.6
million or 11.7 percent from first quarter of 1995, primarily due to growth in
the loan portfolio. The taxable equivalent yield on the loan portfolio was 8.63
percent during the first quarter of 1996, compared to 8.53 percent during the
same period of 1995. Taxable equivalent income earned on the investment
securities portfolio amounted to $27.9 million during the first quarter of 1996
and $15.5 million during the same period of 1995, an increase of $12.4 million
or 80.6 percent resulting from an average portfolio increase of $603.6 million.
Additionally, the securities portfolio experienced a 112 basis point increase in
the taxable equivalent yield, increasing from 4.54 percent for the quarter ended
March 31, 1995, to 5.66 percent for the quarter ended March 31, 1996.
INTEREST-BEARING LIABILITIES.
At March 31, 1996 and 1995, interest-bearing liabilities totaled $6.13 billion
and $5.14 billion, respectively, compared to $5.84 billion as of December 31,
1995. Average interest-bearing liabilities for the first quarter of 1996
totaled $5.93 billion, an increase of 18.5 percent from the first quarter of
1995. Interest-bearing deposits account for much of the growth, with balances
increasing from acquisitions as well as an expanding deposit base among existing
customers. Deposits. At March 31, 1996, total deposits were $6.74 billion, an
increase of $1.02 billion or 17.8 percent over March 31, 1995. Compared to the
December 31, 1995 balance of $6.39 billion, total deposits have increased $355.8
million. Acquisitions during 1996 have generated $209 million in deposit
liabilities. The remaining increase in deposits since December 31, 1995 has
resulted from growth generated within the existing branch network. Average
interest-bearing deposits were $5.57 billion during the first quarter of 1996
compared to $4.74 billion during the first quarter of 1995, an increase of 17.7
percent. Much of the increase is attributed to average time deposits, which
increased $682.5 million from the first quarter of 1995 to the first quarter of
1996. Average Checking With Interest accounts increased $68.2 million from the
first quarter of 1995 to the first quarter of 1996, while average money market
accounts increased $59.9 million between the two periods. Time deposits of
$100,000 or more averaged 9.6 percent of total average deposits during the first
quarter of 1996, compared to 7.3 percent during the same period of 1995.
Although this represents a greater reliance of funds typically viewed as
volatile, management does not consider the current level as excessive. Borrowed
Funds. At March 31, 1996, short-term borrowings totaled $326.8 million compared
to $376.5 million at December 31, 1995 and $251.3 million at March 31, 1995.
For the quarters ended March 31, 1996 and 1995, short-term borrowings averaged
$338.9 million and $241.7 million, respectively. The increase is largely due to
a $69 million increase in average Master Note borrowings and a $32.1 million
increase in average federal funds purchased, all of which are overnight
borrowings. Long-term obligations averaged $23.8 million during the first
quarter of 1996, compared to $32.6 million during the first quarter of 1995.
The 27 percent reduction results from the Bank's repayment of Federal Home Loan
Bank borrowings. Expense on Interest-Bearing Liabilities. BancShares' interest
expense amounted to $62.4 million during the first quarter of 1996, an $16.1
million or 34.8 percent increase from the first quarter of 1995. The higher
interest expense resulted from the $924.9 million increase in average
interest-bearing liabilities and a 48 basis point increase in the aggregate rate
on interest bearing liabilities. The rate on these liabilities was 4.23 percent
during the first quarter of 1996, compared to 3.75 percent during the first
quarter of 1995.
NET INTEREST INCOME
Taxable equivalent net interest income totaled $67.7 million during the first
quarter of 1996, an increase of 12 percent from the first quarter of 1995. The
average net yield on interest-earning assets was 4.02 percent for the first
quarter of 1996, 27 basis points below the net yield recorded during the first
quarter of 1995. The taxable equivalent interest rate spread for the first
quarter of 1996 was 3.48 compared to 3.78 percent for the same period of 1995.
The lower net yield and interest rate spreads resulted from a quicker increase
in interest rates paid on interest-bearing liabilities than was earned from
higher yields on interest-earning assets. Continued upward pressure on deposit
interest rates may result in further reduction in the net yield. Management is
aware of the potential negative impact changes 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, 1996, the reserve for loan losses amounted to $80.4
million or 1.66 percent of loans outstanding. This compares to $78.5 million or
1.71 percent at December 31, 1995, and $73.9 million or 1.69 percent at March
31, 1995. Management considers the established reserve adequate to absorb losses
that relate to loans outstanding at March 31, 1996. 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. The
provision for loan losses charged to operations during the first quarter of 1996
was $1.5 million, compared to $534,000 during the first quarter of 1995. Net
charge-offs for the quarter ended March 31, 1996 totalled $993,000, compared to
net recoveries of $74,000 during the same period of 1995. The net recoveries
recorded during the first quarter of 1995 resulted from non-recurring commercial
recoveries. Table 5 provides details concerning the reserve and provision for
loan losses over the past five quarters. Nonperforming assets. At March 31,
1996, BancShares' nonperforming assets amounted to $16 million or 0.33 percent
of gross loans plus foreclosed properties, compared to $15.4 million at December
31, 1995, and $24.2 million at March 31, 1995. Management continues to closely
monitor nonperforming assets, taking necessary actions to minimize potential
exposure.
NONINTEREST INCOME
Noninterest income increased 10.3 percent during the first quarter of
1996 to $23.9 million. This compares to $21.7 million for the first quarter of
1995. Service charges remain the principal source of noninterest income,
representing $10 million during the first quarter of 1996 and $9.4 million
during the same period of 1995. The 6.7 percent increase results from growth in
the number of accounts. Other service charges and fees contributed $5.8 million
during the first quarter of 1996, compared to $4.9 million during the same
period of 1995. This 18.2 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 $3.3 million, an increase of 14.7 percent over 1995 due to
higher merchant income. Other income increased 11.6 percent, primarily due
gains recognized on the sale of mortgage loans during the first quarter .
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 1996 amounted to $63.3
million. This was a 1.5 percent increase over the first quarter of 1995.
Salaries and wages increased 6 percent between the periods, primarily the result
of merit raises. Occupancy expense increased 7.9 percent during the first
quarter of 1996, compared to the corresponding period of 1995 due to increased
depreciation expense resulting from new and renovated branch facilities. Other
expenses decreased by $1.2 million or 5.9 percent. Contributing to this
decrease were a $2 million reduction in deposit insurance, the result of lower
rates. This reduction was partially offset by higher intangible amortization
expense, the result of the Allied acquisition.
INCOME TAXES
Income tax expense amounted to $9.4 million during the first quarter of 1996,
compared to $6.5 million during the first quarter of 1995, a 44.2 percent
increase due to higher pre-tax income. The effective tax rates for these
periods were 35.8 percent and 34.8 percent, respectively. The increase in the
effective tax rate from 1995 to 1996 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, 1996, and 1995, the leverage
capital ratio of BancShares was 6.2 percent and 6.5 percent, respectively,
surpassing the minimum level of 3 percent. As a percentage of risk-adjusted
assets, BancShares' core capital ratio was 9.7 percent at March 31, 1996, and
1995. The minimum ratio allowed is 4 percent of risk-adjusted assets. The
total risk-adjusted capital ratio was 11 percent for both periods, above the
minimum 8 percent level.
CURRENT ACCOUNTING AND REGULATORY ISSUES
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-Lived
Assets to be Disposed Of ("Statement 121"), which BancShares was required to
adopt for 1996. Statement 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for those to be disposed of.
Adoption of Statement 121 should not have a material effect on BancShares'
consolidated financial statements currently, although events or changes in
circumstances in future periods could require a review by management for
impairment. Such a review could result in an adjustment to recorded asset
values. SFAS No. 122, Accounting for Mortgage Servicing Rights, an amendment of
SFAS No. 65 ("Statement 122"), became effective for BancShares during 1996.
Statement 122 requires an entity engaging in mortgage banking activities to
record assets to reflect the value of rights to service mortgage loans for
others. Statement 122 also requires the periodic assessment of capitalized
mortgage servicing rights for impairment based on the fair values of those
rights. The adoption of Statement 122 should not have a material effect on
BancShares' consolidated financial statements currently, although changes in
market conditions could result in an increase in mortgage banking activities or
the recognition of impaired asset values. SFAS No. 123, Accounting for
Stock-Based Compensation ("Statement 123") became effective during 1996.
Statement 123 provides an alternative treatment for the previously-recognized
treatment for stock compensation set forth in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). The
adoption of Statement 123 will not effect BancShares' consolidated financial
statements currently, as no stock-based compensation plans are envisioned during
1996. Should any such plans be adopted in the future, BancShares has elected to
continue to measure compensation cost using APB 25. Therefore, as required by
Statement 123, BancShares would make supplemental disclosures showing the
financial impact that would result if the accounting treatment outlined in
Statement 123 had been applied. Various proposals have been considered by the
United States Congress concerning a possible merger of the FDIC's Bank Insurance
Fund ("BIF") and Savings Association Insurance Fund ("SAIF"). Central to that
discussion is the recapitalization of the SAIF prior to such a merger, and most
of the proposals that have been offered contemplate a special one-time
assessment of SAIF-insured deposits. At this time, it is unclear if there will
be a special assessment, at what rate an assessment will be made, and upon what
date the assessment will be effective. However, the earlier proposals suggested
an assessment rate of 85 basis points be applied to total SAIF-insured deposits.
As of March 31, 1996, BancShares had total SAIF-insured deposits of $2.07
billion. Other than the SAIF assessment under consideration, 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.