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 June 30, 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-- 9,679,727 shares
Class B Common Stock--$1 Par Value-- 1,760,330 shares
(Number of shares outstanding, by class, as of August 13, 1996)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1996, December 31, 1995, and June 30, 1995
Consolidated Statements of Income for the six-month
periods ended June 30, 1996, and June 30, 1995,
Consolidated Statements of Changes in Shareholders' Equity
for the six-month periods ended June 30, 1996,
and June 30, 1995
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1996, and June 30, 1996
Note to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. During the quarter ended
June 30, 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: August 13, 1996 By:
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1996
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
June 30 December 31 June 30
(thousands,except share data) 1996 1995 1995
(unaudited) (unaudited)
Assets
Cash and due from banks $400,694 $448,630 $402,949
Investment securities 1,888,476 1,983,148 1,554,180
Federal funds sold 50,010 40,445 166,425
Loans 4,921,774 4,580,719 4,480,235
Less reserve for loan losses 81,026 78,495 76,887
Net loans 4,840,748 4,502,224 4,403,348
Premises and equipment 217,556 208,240 203,654
Income earned not collected 58,601 58,237 49,909
Other assets 175,202 143,026 132,999
Total assets $7,631,287 $7,383,950 $6,913,464
Liabilities
Deposits:
Noninterest-bearing $986,801 $943,445 $921,945
Interest-bearing 5,645,470 5,444,637 5,108,940
Total deposits 6,632,271 6,388,082 6,030,885
Short-term borrowings 338,538 376,531 311,239
Long-term obligations 7,893 22,957 25,756
Other liabilities 68,302 75,543 53,236
Total liabilities 7,047,004 6,863,113 6,421,116
Shareholders' Equity
Common stock:
Class A - $1 par value (9,688,017;8,949,703;
and 8,921,136 shares issued, respectively) 9,688 8,950 8,921
Class B - $1 par value (1,761,261;1,766,464;
and 1,769,251 shares issued, respectively) 1,761 1,766 1,769
Surplus 143,567 106,954 104,912
Retained earnings 429,267 403,167 376,746
Total shareholders'equity 584,283 520,837 492,348
Total liabilities and shareholders' equity $7,631,287 $7,383,950 $6,913,464
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1996
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended June 30 Six Months Ended June 30
(thousands, except per share data, unaudited) 1996 1995 1996 1995
Interest income
Loans $102,654 $95,723 $202,766 $185,308
Investment securities:
U. S. Government 28,542 18,234 56,282 33,515
State, county and municipal 84 106 174 194
Other 43 51 88 93
Total investment securities income 28,669 18,391 56,544 33,802
Federal funds sold 1,379 2,168 2,960 3,393
Total interest income 132,702 116,282 262,270 222,503
Interest expense
Deposits 57,451 51,546 115,622 94,308
Short-term borrowings 3,765 3,584 7,631 6,669
Long-term obligations 268 407 655 861
Total interest expense 61,484 55,537 123,908 101,838
Net interest income 71,218 60,745 138,362 120,665
Provision for loan losses 2,255 1,460 3,799 1,994
Net interest income after provision for loan
losses 68,963 59,285 134,563 118,671
Noninterest income
Trust income 2,256 2,239 4,523 4,478
Service charges on deposit accounts 10,392 9,996 20,425 19,399
Credit card income 3,882 3,220 7,147 6,067
Other service charges and fees 5,818 5,291 11,608 10,190
Other 2,912 2,311 5,442 4,578
Total other income 25,260 23,057 49,145 44,712
94,223 82,342 183,708 163,383
Noninterest expense
Salaries and wages 29,681 27,160 56,983 52,913
Pension and other employee benefits 5,046 4,510 9,942 9,084
Occupancy expense 5,385 4,980 10,811 10,011
Equipment expense 6,814 6,183 12,818 12,290
Other 21,337 20,043 40,994 40,941
Total other expense 68,263 62,876 131,548 125,239
Income before income taxes 25,960 19,466 52,160 38,144
Income taxes 9,575 6,842 18,949 13,342
Net income $16,385 $12,624 $33,211 $24,802
Per Share
Net income $1.43 $1.19 $2.95 $2.36
Cash dividends 0.225 0.20 0.45 0.40
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Second 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) Stock Stock Surplus Earnings Equity
Balance at December 31, 1994 $8,419 $1,770 $82,631 $356,591 $449,411
Issuance of 489,742 shares of Class A
common stock in connection with 490 21,491 21,981
acquisitions
Issuance of 4,174 shares of Class A
common stock pursuant to the Dividend
Reinvestment Plan 4 173 177
Issuance of 16,331 shares of Class A
common stock pursuant to the 1992 Employee
Stock Purchase Plan 16 617 633
Redemption of 8,500 shares of Class A
common stock and 200 shares of Class B
common stock (8) (1) (383) (392)
Net income 24,802 24,802
Cash dividends (4,264) (4,264)
Balance at June 30, 1995 $8,921 $1,769 $104,912 $376,746 $492,348
Balance at December 31, 1995 8,950 1,766 106,954 403,167 520,837
Issuance of 87,992 shares of Class A common
stock pursuant to employee stock purchase
plans 87 3,765 3,852
Issuance of 8,746 shares of Class A common
stock pursuant to the Dividend Re 9 114 123
Issuance of 668,654 shares of Class A common
stock in connection with various 669 32,734 33,403
Redemption of 27,079 shares of Class A common
stock and 5,203 shares of Class B common
stock (27) (5) (1,974) (2,006)
Net income 33,211 33,211
Cash dividends (5,137) (5,137)
Balance at June 30, 1996 $9,688 $1,761 $143,567 $429,267 $584,283
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1996
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Six Months Ended June 30
(thousands, unaudited) 1996 1995
Operating Activities
Net income $33,211 $24,802
Adjustments:
Amortization of intangibles 3,904 2,604
Provision for loan losses 3,799 1,994
Deferred tax (benefit) expense (1,375) 208
Change in current taxes payable (657) 401
Depreciation 8,455 8,312
Change in accrued interest payable (8,226) 10,303
Change in income earned not collected 712 (3,418)
Origination of loans held for sale (52,881) (8,397)
Proceeds from sale of loans 34,093 7,598
Loss (gain) on sale of mortgage loans 168 (125)
Net amortization of premiums and discounts 7,211 9,998
Net change in other assets (1,405) (2,339)
Net change in other liabilities (5,417) 475
Net cash provided by operating activities 21,592 52,416
Investing Activities
Net increase in loans outstanding (119,955) (161,170)
Purchases of investment securities (396,748) (473,075)
Proceeds from maturities of investment securities 502,453 409,629
Net change in federal funds sold (9,565) (151,003)
Dispositions of premises and equipment 3,563 2,006
Additions to premises and equipment (19,347) (16,552)
Purchase of institutions, net of cash acquired 7,584 106,092
Net cash used by investing activities (32,015) (284,073)
Financing Activities
Net change in time deposits 40,096 349,416
Net change in demand and other interest-bearing (4,301) (174,173)
Net change in short-term borrowings (70,140) 7,499
Repurchases of common stock (2,006) (392)
Proceeds from issuance of stock 3,975 810
Cash dividends paid (5,137) (4,264)
Net cash (used) provided by financing activities (37,513) 178,896
Change in cash and due from banks (47,936) (52,761)
Cash and due from banks at beginning of period 448,630 455,710
Cash and due from banks at end of period $400,694 $402,949
Cash payments for:
Interest $132,134 $91,535
Income taxes 21,069 13,098
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions $33,403 $21,981
Long-term obligations issued for acquisitions 1,468 2,494
See accompanying Note to Consolidated Financial Statements
First Citizens BancShares, Inc. and Subsidiaries
Second 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
Six Months Ended
Second First Fourth Third Second June 30
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1996 1995
Summary of Operations
Interest Income $132,702 $129,568 $123,372 $122,234 $116,282 $262,270 $222,503
Interest income - taxable equivalent 133,283 130,159 126,950 122,801 116,845 263,442 223,619
Interest expense 61,484 62,424 62,968 59,858 55,537 123,908 101,838
Net interest income-taxable equivalent 71,799 67,735 63,982 62,943 61,308 139,534 121,781
Taxable equivalent adjustment 581 591 578 567 563 1,172 1,116
Net interest income 71,218 67,144 63,404 62,376 60,745 138,362 120,665
Provision for loan losses 2,255 1,544 1,654 1,716 1,460 3,799 1,994
Net interest income after provision for loan losses 68,963 65,600 61,750 60,660 59,285 134,563 118,671
Other income 25,260 23,885 23,856 23,560 23,057 49,145 44,712
Other expense 68,263 63,285 60,925 59,716 62,876 131,548 125,239
Income before income taxes 25,960 26,200 24,681 24,504 19,466 52,160 38,144
Income taxes 9,575 9,374 8,395 8,686 6,842 18,949 13,342
Net income $16,385 $16,826 $16,286 $15,818 $12,624 $33,211 $24,802
Selected Average Balances
Total assets $7,658,682 $7,462,756 $7,280,893 $7,053,579 $6,702,692 $7,557,959 $6,515,649
Investment securities 1,990,346 1,984,027 1,871,272 1,694,776 1,493,415 1,987,187 1,437,231
Loans 4,884,818 4,679,692 4,552,018 4,500,192 4,424,724 4,782,255 4,339,395
Interest-earning assets 6,975,341 6,779,461 6,599,377 6,376,273 6,061,732 6,874,669 5,890,106
Deposits 6,660,204 6,477,795 6,282,111 6,124,360 5,858,280 6,569,012 5,696,864
Interest-bearing liabilities 6,043,119 5,934,180 5,753,538 5,569,496 5,299,570 5,987,291 5,155,267
Long-term obligations 12,889 23,763 23,365 24,595 26,174 19,720 28,672
Shareholders' equity $576,742 $546,603 $512,768 $498,108 $482,885 $559,973 $471,050
Shares outstanding 11,432,661 11,072,395 10,700,435 10,688,019 10,618,902 11,252,528 10,498,296
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.86% 0.91% 0.89% 0.89% 0.76% 0.88% 0.77%
Shareholders' equity 11.43 12.38 12.60 12.60 10.49 11.93 10.62
Dividend payout ratio 15.73 14.80 14.80 13.42 16.81 15.25 16.95
Liquidity and Capital Ratios (averages)
Loans to deposits 73.34% 72.24% 72.46% 73.48% 75.53% 72.80% 89.14%
Shareholders' equity to total assets 7.53 7.32 7.04 7.06 7.20 7.41 7.23
Time certificates of $100,000 or more to total
deposits 9.23 9.59 9.27 8.61 8.04 9.39 7.42
Per Share of Stock
Net income $1.43 $1.52 $1.52 $1.49 $1.19 $2.95 $2.36
Cash dividends 0.225 0.225 0.225 0.20 0.20 0.45 0.40
Book Value at period end 51.03 50.19 48.60 47.32 46.06 51.03 46.06
Tangible book value at period-end 42.19 41.13 41.75 40.32 39.10 42.19 39.10
First Citizens BancShares, Inc. and Subsidiaries
Second 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
Second Quarter 1996
Outstanding Loans by Type
Table 3
1996 1995
Second First Fourth Third Second
(thousands) Quarter Quarter Quarter Quarter Quarter
Real estate:
Construction and land development $110,162 $110,520 $104,540 $109,597 $111,285
Mortgage:
1-4 family residential 1,615,712 1,604,954 1,438,655 1,456,076 1,399,023
Commercial 833,733 799,800 770,246 744,811 743,367
Equity Line 409,121 401,501 397,225 394,088 395,412
Other 137,463 134,128 129,292 130,952 124,682
Commercial and industrial 506,913 483,245 466,462 455,781 459,446
Consumer 1,223,871 1,222,243 1,199,400 1,173,740 1,171,441
Lease financing 67,647 63,943 59,899 58,013 58,464
Other 17,152 16,739 15,000 16,998 17,115
Total loans 4,921,774 4,837,073 4,580,719 4,540,056 4,480,235
Less reserve for loan losses 81,026 80,433 78,495 77,986 76,887
Net loans $4,840,748 $4,756,640 $4,502,224 $4,462,070 $4,403,348
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1996
Investment Securities
Table 4
June 30, 1996 June 30, 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 $787,440 $788,350 0/6 5.91% $977,274 $972,324 0/6 4.52%
One to five years 1,081,130 1,064,690 1/11 5.71 555,295 555,060 1/5 5.97
Five to ten years 2,383 2,344 7/0 6.28 3,159 3,108 7/3 5.78
Over ten years 7,990 7,982 18/11 7.43 6,968 6,944 19/6 7.25
Total 1,878,943 1,863,366 1/5 5.80 1,542,696 1,537,436 0/11 5.06
State, county and municipal
Within one year 537 539 0/6 6.49 1,208 1,218 0/7 7.52
One to five years 4,551 4,808 2/11 6.88 4,301 4,338 2/9 6.66
Five to ten years 1,272 1,281 6/1 7.21 2,777 2,845 6/4 6.84
Over ten years 195 195 21/2 9.14 205 205 22/2 6.19
Total 6,555 6,823 3/11 6.98 8,491 8,606 5/0 7.06
Other
Within one year 1,306 1,306 0/6 5.74 -
One to five years 1,627 1,602 1/11 10.84 2,938 2,911 2/3 8.65
Five to ten years 45 45 5/11 5.43 55 55 6/8 8.00
Total 2,978 2,953 1/5 8.52 2,993 2,966 2/5 8.64
Total investment securities $1,888,476 $1,873,142 1/5 5.81% $1,554,180 $1,549,008 1/0 5.08%
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1996
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Second Quarter
Table 5
1996 1995 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
Loans:
Secured by real estate $3,080,093 $62,748 8.15% $2,738,350 $58,435 8.42% $6,653 ($2,340) $4,313
Commercial and industrial 499,499 11,344 8.70 436,627 10,318 9.41 1,635 (609) 1,026
Consumer 1,222,653 27,462 8.89 1,174,422 26,102 8.86 1,170 190 1,360
Lease financing 65,594 1,290 7.87 58,362 1,106 7.58 139 45 184
Other 16,979 347 8.18 16,963 269 6.36 1 77 78
Total loans 4,884,818 103,191 8.40 4,424,724 96,230 8.69 9,598 (2,637) 6,961
Investment securities:
U. S. Government 1,980,659 28,542 5.80 1,481,917 18,219 4.93 6,611 3,712 10,323
State, county and municipal 6,706 128 7.68 8,382 161 7.70 (32) (1) (33)
Other 2,981 43 5.80 3,116 67 8.62 (2) (22) (24)
Total investment securities 1,990,346 28,713 5.80 1,493,415 18,447 4.95 6,577 3,689 10,266
Federal funds sold 100,177 1,379 5.54 143,593 2,168 6.06 (628) (161) (789)
Total interest-earning assets $6,975,341 $133,283 7.62% $6,061,732 $116,845 7.71% $15,547 $891 $16,438
Liabilities
Deposits:
Checking With Interest $874,917 $2,675 1.23% $799,992 $3,524 1.77% $277 ($1,126) ($849)
Savings 729,667 3,757 2.07 688,033 3,888 2.27 224 (355) (131)
Money market accounts 814,833 7,028 3.47 717,488 6,098 3.41 824 106 930
Time deposits 3,290,255 43,991 5.38 2,794,111 38,036 5.46 6,624 (669) 5,955
Total interest-bearing deposits 5,709,672 57,451 4.05 4,999,624 51,546 4.14 7,949 (2,044) 5,905
Federal funds purchased 21,090 333 6.35 30,091 452 6.02 (139) 20 (119)
Repurchase agreements 22,156 237 4.30 25,148 318 5.07 (35) (46) (81)
Master notes 251,730 2,801 4.48 186,819 2,396 5.14 771 (366) 405
U. S. Treasury tax and loan account 13,175 173 5.28 15,545 230 5.93 (33) (24) (57)
Other short-term borrowings 12,407 221 7.16 16,169 188 4.66 (56) 89 33
Long-term obligations 12,889 268 8.36 26,174 407 6.24 (242) 103 (139)
Total interest-bearing liabilities $6,043,119 $61,484 4.09% $5,299,570 $55,537 4.20% $8,215 ($2,268) $5,947
Interest rate spread 3.53% 3.51%
Net interest income and net yield
on interest-earning assets $71,799 4.14% $61,308 4.06% $7,332 $3,159 $10,491
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1996
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Six Months
Table 6
1996 1995 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
Loans:
Secured by real estate $3,001,645 $123,801 8.27% $2,689,550 $112,584 8.42% $13,145 ($1,928) $11,217
Commercial and industrial 487,950 22,090 8.69 416,144 19,300 9.27 3,663 (873) 2,790
Consumer 1,212,642 54,779 8.96 1,157,978 51,609 8.89 2,592 578 3,170
Lease financing 63,440 2,513 7.92 58,687 2,205 7.51 183 125 308
Other 16,578 662 8.05 17,036 623 7.38 (17) 56 39
Total loans 4,782,255 203,845 8.55 4,339,395 186,321 8.62 19,566 (2,042) 17,524
Investment securities:
U. S. Government 1,977,212 56,282 5.72 1,427,008 33,515 4.74 14,391 8,376 22,767
State, county and municipal 6,998 267 7.67 7,576 297 7.91 (22) (8) (30)
Other 2,977 88 5.94 2,647 93 7.09 11 (16) (5)
Total investment securities 1,987,187 56,637 5.73 1,437,231 33,905 4.76 14,380 8,352 22,732
Federal funds sold 105,227 2,960 5.66 113,480 3,393 6.03 (236) (197) (433)
Total interest-earning assets $6,874,669 $263,442 7.69% $5,890,106 $223,619 7.63% $33,710 $6,113 $39,823
Liabilities
Deposits:
Checking With Interest $865,039 $5,658 1.32% $793,502 $6,889 1.75% $544 ($1,775) ($1,231)
Savings 716,621 7,540 2.12 682,914 7,653 2.26 371 (484) (113)
Money market accounts 811,617 14,153 3.51 732,916 12,023 3.31 1,348 782 2,130
Time deposits 3,247,300 88,271 5.47 2,658,740 67,743 5.14 15,604 4,924 20,528
Total interest-bearing deposits 5,640,577 115,622 4.12 4,868,072 94,308 3.91 17,867 3,447 21,314
Federal funds purchased 34,829 1,084 6.26 26,017 766 5.94 268 50 318
Repurchase agreements 21,672 470 4.36 23,389 582 5.02 (39) (73) (112)
Master notes 246,026 5,405 4.42 179,168 4,524 5.09 1,585 (704) 881
U. S. Treasury tax and loan accounts 13,649 355 5.23 16,776 490 5.89 (86) (49) (135)
Other short-term borrowings 10,818 317 5.89 13,173 307 4.70 (61) 71 10
Long-term obligations 19,720 655 6.68 28,672 861 6.06 (282) 76 (206)
Total interest-bearing liabilities $5,987,291 $123,908 4.16% $5,155,267 $101,838 3.98% $19,252 $2,818 $22,070
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1996
Summary of Loan Loss Experience and Risk Elements
Table 7
1996 1995
Six Month Ended
Second First Fourth Third Second June 30
Quarter Quarter Quarter Quarter Quarter 1996 1995
(thousands, except ratios)
Reserve balance at beginning of period $80,433 $78,495 $77,965 $76,860 $73,897 $78,495 $72,017
Reserve of acquired institution 1,387 1,959 1,387 3,258
Provision for loan losses 2,255 1,544 1,654 1,716 1,460 3,799 1,994
Net charge-offs:
Charge-offs (2,663) (2,433) (2,575) (1,783) (1,670) (5,096) (2,904)
Recoveries 1,001 1,440 1,451 1,172 1,214 2,441 2,522
Net (charge-offs) recoveries (1,662) (993) (1,124) (611) (456) (2,655) (382)
Reserve balance at end of period $81,026 $80,433 $78,495 $77,965 $76,860 $81,026 $76,887
Historical Statistics
Balances
Average total loans $4,884,818 $4,679,692 $4,433,517 $4,500,192 $4,424,724 $4,782,255 $4,339,395
Total loans at period-end 4,921,774 4,837,073 4,580,719 4,540,056 4,480,235 4,921,774 4,480,235
Risk Elements
Nonaccrual loans $14,695 $13,489 $13,208 $14,296 $16,406 $14,695 $16,406
Restructured debt
Other real estate acquired through for
foreclosure 1,436 2,555 2,154 2,739 3,590 1,436 3,590
Total nonperforming assets $16,131 $16,044 $15,362 $17,035 $19,996 $16,131 $19,996
Accruing loans 90 days or more past due $4,928 $5,300 $4,230 $4,874 $3,524 $4,928 $3,524
Ratios
Net charge-offs (annualized) to averag 0.14% 0.09% 0.10% 0.05% 0.04% 0.11% 0.02%
Reserve for loan losses to total loans 1.65 1.66 1.71 1.72 1.72 1.65 1.72
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.33 0.33 0.34 0.37 0.45 0.33 0.45
First Citizens BancShares, Inc. ans Subsidiaries
Second 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 note presented
within 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 in
exchange for a combination of its Class A common stock, cash and
debentures. During the first six months of 1995, BancShares completed
four 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. BancShares also acquired WSS, which had
assets of $64,589 and deposits of $59,174 at the time of its
acquisition. 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 29.8 percent during the second
quarter of 1996 compared to the second quarter of 1995. Consolidated net
income during the second quarter of 1996 was $16.4 million, compared to $12.6
million earned during the corresponding period of 1995. The improved earnings
resulted from higher levels of net interest income and noninterest income. Net
income per share during the second quarter of 1996 totaled $1.43, compared to
$1.19 during the second quarter of 1995. Return on average assets was 0.86
percent for the second quarter of 1996 compared to 0.76 percent during the same
period of 1995. For the first six months of 1996, BancShares recorded net
income of $33.2 million , compared to $24.8 million earned during the first six
months of 1995. The 33.9 percent increase resulted primarily from higher net
interest income and noninterest income. Net income per share for the first six
months of 1996 was $2.95, compared to $2.36 during the same period of 1995.
BancShares returned 0.88 percent on average assets during the first six months
of 1996 compared to 0.77 percent during the corresponding 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 balance sheets presented in
Table 5 for the second quarter and Table 6 for the first six months of 1996 and
1995.
INTEREST-EARNING ASSETS
Average interest-earning assets for the second quarter of 1996 totaled $6.98
billion, an increase of $913.6 million or 15.1 percent from the second
quarter of 1995. For the first six months of 1996, earning assets have
averaged $6.87 billion, an increase of $984.6 million over the same
period of 1995. These increases result from growth in the investment
and loan portfolios. Loans. At June 30, 1996, and 1995, gross loans
totaled $4.92 billion and $4.48 billion, respectively. As of December
31, 1995, gross loans were $4.58 billion. The $341.1 million increase
from December 31, 1995 to June 30, 1996, is partially due to $205.1
million in acquired loans. The $441.5 million growth in loans from June
30, 1995 to June 30, 1996 results from acquisitions and growth within
BancShares' commercial loan products during late 1995. Table 3 details
outstanding loans by type for the past five quarters. During the second
quarter of 1996, average loans totaled $4.88 billion, an increase of
$460.1 million or 10.4 percent from the comparable period of 1995.
Consumer loans averaged $1.20 billion during the second quarter of 1996,
compared to $1.17 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
June 30, 1996, $34 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. 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 June 30, 1996, and 1995, the
investment portfolio totaled $1.89 billion and $1.55 billion,
respectively. At December 31, 1995, the investment portfolio was $1.98
billion. The 21.5 percent increase in the investment portfolio since
June 30, 1995 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 $133.3 million during the second quarter of
1996, a 14.1 percent increase over the second quarter of 1995. Balance
sheet growth contributed to higher taxable-equivalent interest income in
the second quarter of 1996 when compared to the same period of 1995. The
average yield on total interest-earning assets for the second quarter of
1996 was 7.62 percent, compared to 7.71 percent for the corresponding
period of 1995, a 9 basis point reduction resulting from lower loan
yields. Taxable equivalent loan interest income for the second quarter
of 1996 was $103.2 million, an increase of $7 million or 7.2 percent
from the second quarter of 1995, due to growth in the loan portfolio.
The taxable equivalent yield on the loan portfolio was 8.4 percent
during the second quarter of 1996, compared to 8.69 percent during the
same period of 1995. Lower market rates during 1996 have resulted in
lower loan yields. Taxable equivalent income earned on the investment
securities portfolio amounted to $28.7 million during the second quarter
of 1996 and $18.4 million during the same period of 1995, an increase of
$10.3 million or 55.7 percent. This increase is the combined result of
a $496.9 million increase in the average securities portfolio and an 85
basis point increase in the taxable equivalent yield. The securities
portfolio taxable-equivalent yield increased from 4.95 percent for the
quarter ended June 30, 1995, to 5.8 percent for the quarter ended June
30, 1996.
INTEREST-BEARING LIABILITIES.
At June 30, 1996 and 1995, interest-bearing liabilities totaled $5.99
billion and $5.45 billion, respectively, compared to $5.84 billion as of
December 31, 1995. During the second quarter of 1996, interest-bearing
liabilities averaged $6.04 billion, an increase of 14 percent from the
second 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 June 30,
1996, total deposits were $6.63 billion, an increase of $601 million or
10 percent over June 30, 1995. Compared to the December 31, 1995 balance
of $6.39 billion, total deposits have increased $244.2 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 $5.71 billion during the second
quarter of 1996 compared to $5 billion during the second quarter of
1995, an increase of 14.2 percent. Much of the increase is attributed to
average time deposits, which increased $496.1 million from the second
quarter of 1995 to the second quarter of 1996. Average money market
accounts increased $97.3 million from the second quarter of 1995 to the
second quarter of 1996, while average Checking With Interest accounts
increased $74.9 million between the two periods. Time deposits of
$100,000 or more averaged 9.23 percent of total average deposits during
the second quarter of 1996, compared to 8.04 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 June 30, 1996, short-term
borrowings totaled $338.5 million compared to $376.5 million at December
31, 1995 and $311.2 million at June 30, 1995. For the quarters ended
June 30, 1996 and 1995, short-term borrowings averaged $320.6 million
and $273.8 million, respectively. The increase is largely due to a
$64.9 million increase in average Master Note borrowings, partially
offset by lower levels of overnight fed funds borrowings. Long-term
obligations averaged $12.9 million during the second quarter of 1996,
compared to $26.2 million during the second quarter of 1995. The 50.8
percent reduction results from the Bank's reclassification of borrowings
with scheduled maturities within the next twelve months to short-term
borrowings. Expense on Interest-Bearing Liabilities. BancShares'
interest expense amounted to $61.5 million during the second quarter of
1996, a $5.9 million or 10.7 percent increase from the second quarter of
1995. The higher interest expense was the result of the $743.5 million
increase in average interest-bearing liabilities and an 11 basis point
reduction in the aggregate rate on interest bearing liabilities. The
rate on these liabilities was 4.09 percent during the second quarter of
1996, compared to 4.2 percent during the second quarter of 1995.
NET INTEREST INCOME
Taxable equivalent net interest income totaled $71.8 million during the second
quarter of 1996, an increase of 17.1 percent from the second quarter of 1995.
The average net yield on interest-earning assets was 4.14 percent for the second
quarter of 1996, 8 basis points above the net yield recorded during the second
quarter of 1995. The taxable equivalent interest rate spread for the second
quarter of 1996 was 3.53 compared to 3.51 percent for the same period of 1995.
The higher net yield and interest rate spreads reflect the positive rate and
volume variances recorded during the second quarter of 1996 over the second
quarter of 1995. 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.
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 June 30, 1996, the reserve for loan losses amounted to $81 million
or 1.65 percent of loans outstanding. This compares to $78.5 million or 1.71
percent at December 31, 1995, and $76.9 million or 1.72 percent at June 30,
1995. Management considers the established reserve adequate to absorb losses
that relate to loans outstanding at June 30, 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 second quarter of
1996 was $2.3 million, compared to $1.5 million during the second quarter of
1995. Net charge-offs for the six months ended June 30, 1996 totaled $2.7
million, compared to net charge-offs of $382,000 during the same period of 1995.
During both six-month periods, BancShares has recorded a net recovery among
commercial purpose loans. The higher level of charge-offs during 1996 have
resulted from retail loans. While net charge-offs have increased from 1995 to
1996, the annualized net charge-offs represent only 0.11 percent of loans
outstanding for the six months ending June 30, 1996. Management remains
committed to maintaining high levels of credit quality. Table 7 provides
details concerning the reserve and provision for loan losses over the past five
quarters. Nonperforming assets. At June 30, 1996, BancShares' nonperforming
assets amounted to $16.1 million or 0.33 percent of gross loans plus foreclosed
properties, compared to $15.4 million at December 31, 1995, and $20 million at
June 30, 1995. Management continues to closely monitor nonperforming assets,
taking necessary actions to minimize potential exposure.
NONINTEREST INCOME
During the first six months of 1996, noninterest income was $49.1 million,
compared to $44.7 million during the same period of 1995. The 9.9 percent
increase was due to growth in the credit card operation and First Citizens
Investor Services, and higher fee income from affiliate banks for processing
services. As a result of continued growth in merchant income and a surge in the
number of cardholders, credit card fee income increased 17.8 percent from the
first six months of 1995 to the same period of 1996. Enhancements to the credit
card product and a successful marketing campaign have resulted in a 17.2 percent
increase in the number of active credit card accounts from the end of 1995 to
June 30, 1996. Fees earned by First Citizens Investor Services during the first
six months of 1996 were $2.1 million compared to $1.4 million during the same
period of 1995. The 53.6 percent increase in fees resulted from growth in the
subsidiary's sales volume. Fee income also benefitted from a 8.6 percent
increase in income generated from processing services provided to affiliate
banks. These fees contributed $4.73 million during the first six months of
1996.
NONINTEREST EXPENSE
Noninterest expense was $131.5 million for the first six months of 1996, a 5
percent increase over the $125.2 million recorded during the same period of
1995. Much of the $6.3 million increase resulted from higher personnel related
expenses. Salaries and wages were $57 million during the first six months of
1996, an increase of 7.7 percent over the same period of 1995. This increase is
due to merit increases, incentives paid to sales associates and the
centralization of several loan-related functions. Employee benefits expense
increased 9.5 percent from 1995 to 1996, the result of growth in health
insurance expense. Occupancy expense increased 8 percent during the first six
months of 1996, compared to the corresponding period of 1995 due to increased
depreciation expense resulting from new and renovated branch facilities. Other
expenses were essentially unchanged, the net result of a reduction in deposit
insurance and increases in intangible amortization expense, the resu he Allied
acquisition, and costs associated with sales efforts.
INCOME TAXES
Income tax expense amounted to $18.9 million during the first six months of
1996, compared to $13.3 million during the same period of 1995, a 42 percent
increase primarily due to higher pre-tax income. The effective tax rates for
these periods were 36.3 percent and 35 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 June 30, 1996, and 1995, the leverage
capital ratio of BancShares was 6.4 percent and 6.1 percent, respectively,
surpassing the minimum level of 3 percent. As a percentage of risk-adjusted
assets, BancShares' core capital ratio was 9.8 percent at June 30, 1996, and 9.3
percent as of June 30, 1995. The minimum ratio allowed is 4 percent of
risk-adjusted assets. The total risk-adjusted capital ratio was 11 percent at
June 30, 1996 and 10.6 percent as of June 30, 1995. The minimum total capital
ratio is 8 percent.
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 on January 1, 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 did 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. SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("Statement
125") was issued in June 1996. Statement 125 provides accounting and reporting
guidance for these activities based on the consistent application of a
financial-components approach that focuses on control. Statement 125 is
effective for those activities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive adoption of Statement 125 is not
permitted. BancShares has not determined what effect, if any, this statement
will have on its consolidated financial statements. 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. 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.