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 September 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-- 9,651,900 shares
Class B Common Stock--$1 Par Value-- 1,759,329 shares
(Number of shares outstanding, by class, as of November 13, 1996)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1996, December 31, 1995, and September 30, 1995
Consolidated Statements of Income for the nine-month
periods ended September 30, 1996, and September 30, 1995,
Consolidated Statements of Changes in Shareholders' Equity
for the nine-month periods ended September 30, 1996,
and September 30, 1995
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1996, and September 30, 1995
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
September 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: November 13, 1996 By:
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 1996
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
September 30 December 31 September 30
(thousands,except share data) 1996 1995 1995
(unaudited) (unaudited)
Assets
Cash and due from banks $422,343 $448,630 $483,627
Investment securities 1,912,448 1,983,148 1,744,233
Federal funds sold 203,600 40,445 77,740
Loans 4,914,748 4,580,719 4,540,056
Less reserve for loan losses 81,192 78,495 77,986
Net loans 4,833,556 4,502,224 4,462,070
Premises and equipment 222,118 208,240 206,349
Income earned not collected 56,942 58,237 54,188
Other assets 175,111 143,026 140,565
Total assets $7,826,118 $7,383,950 $7,168,772
Liabilities
Deposits:
Noninterest-bearing $1,084,166 $943,445 $945,885
Interest-bearing 5,724,199 5,444,637 5,282,079
Total deposits 6,808,365 6,388,082 6,227,964
Short-term borrowings 332,448 376,531 343,101
Long-term obligations 6,715 22,957 23,593
Other liabilities 85,626 75,543 68,240
Total liabilities 7,233,154 6,863,113 6,662,898
Shareholders' Equity
Common stock:
Class A - $1 par value (9,668,576; 8,949,703;
and 8,923,855 shares issued, respectively) 9,669 8,950 8,924
Class B - $1 par value (1,759,404; 1,766,464;
and 1,766,464 shares issued, respectively) 1,759 1,766 1,767
Surplus 143,753 106,954 105,797
Retained earnings 437,783 403,167 389,386
Total shareholders'equity 592,964 520,837 505,874
Total liabilities and shareholders' equity $7,826,118 $7,383,950 $7,168,772
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 1996
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Ended Nine Months Ended
September 30 September 30
(thousands, except per share data, unaudited) 1996 1995 1996 1995
Interest income
Loans $104,013 $97,380 $306,779 $282,688
Investment securities:
U. S. Government 27,902 22,052 84,184 55,567
State, county and municipal 78 108 252 302
Other 43 48 131 141
Total investment securities income 28,023 22,208 84,567 56,010
Federal funds sold 2,234 2,646 5,194 6,039
Total interest income 134,270 122,234 396,540 344,737
Interest expense
Deposits 57,090 55,155 172,712 149,463
Short-term borrowings 4,130 4,287 11,761 10,956
Long-term obligations 158 416 813 1,277
Total interest expense 61,378 59,858 185,286 161,696
Net interest income 72,892 62,376 211,254 183,041
Provision for loan losses 1,787 1,716 5,586 3,710
Net interest income after provision for loan 71,105 60,660 205,668 179,331
Noninterest income
Trust income 2,269 2,178 6,792 6,656
Service charges on deposit accounts 10,072 10,249 30,497 29,648
Credit card income 4,505 3,773 11,652 9,840
Other service charges and fees 6,120 5,328 17,728 15,518
Other 3,111 2,032 8,553 6,610
Total other income 26,077 23,560 75,222 68,272
97,182 84,220 280,890 247,603
Noninterest expense
Salaries and wages 29,203 26,578 86,186 79,491
Pension and other employee benefits 5,239 4,040 15,181 13,124
Occupancy expense 5,600 5,224 16,411 15,235
Equipment expense 6,881 6,286 19,699 18,576
Other 31,174 17,588 72,168 58,529
Total other expense 78,097 59,716 209,645 184,955
Income before income taxes 19,085 24,504 71,245 62,648
Income taxes 6,647 8,686 25,596 22,028
Net income $12,438 $15,818 $45,649 $40,620
Per Share
Net income $1.08 $1.49 $4.03 $3.85
Cash dividends 0.225 0.20 0.675 0.60
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Third 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 39,412 shares of Class A
common stock pursuant to the Employee
Stock Purchase Plan 39 1,508 1,547
Issuance of 6,839 shares of Class A
common stock pursuant to the
Dividend Reinvestment Plan 7 298 305
Issuance of 484,821 shares of Class A
common stock in connection with various
acquisitions 485 21,360 21,845
Redemption of 26,606 shares of Class A
common stock and 2,987 shares of
Class B common stock (26) (3) (1,421) (1,450)
Net income 40,620 40,620
Cash dividends (6,404) (6,404)
Balance at September 30, 1995 $8,924 $1,767 $105,797 $389,386 $505,874
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 the Employee
Stock Purchase Plan 87 3,951 4,038
Issuance of 8,746 shares of Class A
common stock pursuant to the
Dividend Reinvestment Plan 9 114 123
Issuance of 668,654 shares of Class A
common stock in connection with various
acquisitions 669 32,734 33,403
Redemption of 46,520 shares of Class A
common stock and 7,060 shares of
Class B common stock (46) (7) (3,321) (3,374)
Net income 45,649 45,649
Cash dividends (7,712) (7,712)
Balance at September 30, 1996 $9,669 $1,759 $143,753 $437,783 $592,964
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1996
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Nine Months Ended September 30
(thousands, unaudited) 1996 1995
Operating Activities
Net income $45,649 $40,620
Adjustments:
Amortization of intangibles 6,032 4,235
Provision for loan losses 5,586 3,710
Deferred tax (benefit) expense (1,966) (21)
Change in current taxes payable 874 4,298
Depreciation 12,700 12,619
Change in accrued interest payable (3,815) 18,843
Change in income earned not collected 2,371 (7,697)
Origination of loans held for sale (124,649) (28,771)
Proceeds from sale of loans 77,465 24,095
Loss (gain) on sale of mortgage loans 69 (431)
Net amortization of premiums and discounts 9,705 14,873
Net change in other assets (3,442) (11,536)
Net change in other liabilities 6,556 3,271
Net cash provided by operating activities 33,135 78,108
Investing Activities
Net increase in loans outstanding (86,055) (217,425)
Purchases of investment securities (624,374) (883,303)
Proceeds from maturities of investment securities 703,613 624,929
Net change in federal funds sold (163,155) (62,318)
Dispositions of premises and equipment 4,263 2,940
Additions to premises and equipment (28,854) (24,488)
Purchase of institutions, net of cash acquired 7,584 106,092
Net cash used by investing activities (186,978) (453,573)
Financing Activities
Net change in time deposits 44,550 461,154
Net change in demand and other interest-bearing deposits 167,339 (88,832)
Net change in short-term borrowings (77,408) 37,198
Repurchases of common stock (3,374) (1,450)
Proceeds from issuance of stock 4,161 1,716
Cash dividends paid (7,712) (6,404)
Net cash provided by financing activities 127,556 403,382
Change in cash and due from banks (26,287) 27,917
Cash and due from banks at beginning of period 448,630 455,710
Cash and due from banks at end of period $422,343 $483,627
Cash payments for:
Interest $189,101 $142,853
Income taxes 27,569 20,115
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
Third 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
Nine Months Ended
Third Second First Fourth Third September 30
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1996 1995
Summary of Operations
Interest Income $134,270 $132,702 $129,568 $123,372 $122,234 $396,540 $344,737
Interest income - taxable equivalent 134,837 133,283 130,159 126,950 122,801 398,279 346,420
Interest expense 61,378 61,484 62,424 62,968 59,858 185,286 161,696
Net interest income-taxable equivalent 73,459 71,799 67,735 63,982 62,943 212,993 184,724
Taxable equivalent adjustment 567 581 591 578 567 1,739 1,683
Net interest income 72,892 71,218 67,144 63,404 62,376 211,254 183,041
Provision for loan losses 1,787 2,255 1,544 1,654 1,716 5,586 3,710
Net interest income after provision for loan losses 71,105 68,963 65,600 61,750 60,660 205,668 179,331
Other income 26,077 25,260 23,885 23,856 23,560 75,222 68,272
Other expense 78,097 68,263 63,285 60,925 59,716 209,645 184,955
Income before income taxes 19,085 25,960 26,200 24,681 24,504 71,245 62,648
Income taxes 6,647 9,575 9,374 8,395 8,686 25,596 22,028
Net income $12,438 $16,385 $16,826 $16,286 $15,818 $45,649 $40,620
Selected Average Balances
Total assets $7,670,538 $7,658,682 $7,462,756 $7,280,893 $7,053,579 $7,595,760 $6,700,778
Investment securities 1,919,935 1,990,346 1,984,027 1,871,272 1,694,776 1,964,606 1,524,023
Loans 4,907,435 4,884,818 4,679,692 4,552,018 4,500,192 4,824,286 4,393,583
Interest-earning assets 6,989,109 6,975,341 6,779,461 6,599,377 6,376,273 6,913,094 6,053,942
Deposits 6,641,427 6,660,204 6,477,795 6,282,111 6,124,360 6,593,327 5,840,928
Interest-bearing liabilities 6,017,476 6,043,119 5,934,180 5,753,538 5,569,496 5,997,428 5,294,890
Long-term obligations 7,762 15,676 23,763 23,365 24,595 15,705 27,298
Shareholders' equity $589,618 $576,742 $546,603 $512,768 $498,108 $569,400 $479,744
Shares outstanding 11,441,007 11,432,661 11,072,395 10,700,435 10,688,019 11,315,813 10,562,232
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.65% 0.86% 0.91% 0.89% 0.89% 0.80% 0.81%
Shareholders' equity 8.39 11.43 12.38 12.60 12.60 10.71 11.32
Dividend payout ratio 19.57 15.73 14.80 14.80 13.42 16.75 15.58
Liquidity and Capital Ratios (averages)
Loans to deposits 73.89% 73.34% 72.24% 72.46% 73.48% 73.17% 75.22%
Shareholders' equity to total assets 7.69 7.53 7.32 7.04 7.06 7.50 7.16
Time certificates of $100,000 or more to total
deposits 8.56 9.23 9.59 9.27 8.61 9.03 8.00
Per Share of Stock
Net income $1.15 $1.43 $1.52 $1.52 $1.49 $4.03 $3.85
Cash dividends 0.225 0.225 0.225 0.225 0.20 0.675 0.60
Book Value at period end 51.89 51.03 50.19 48.60 47.32 51.89 47.32
Tangible book value at period end 43.03 42.19 41.13 41.75 40.32 43.03 40.32
First Citizens BancShares, Inc. and Subsidiaries
Third 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
Third Quarter 1996
Outstanding Loans by Type
Table 3
1996 1995
Third Second First Fourth Third
(thousands) Quarter Quarter Quarter Quarter Quarter
Real estate:
Construction and land development $107,651 $110,162 $110,520 $104,540 $109,597
Mortgage:
1-4 family residential 1,587,352 1,615,712 1,604,954 1,438,655 1,456,076
Commercial 850,358 833,733 799,800 770,246 744,811
Equity Line 411,893 409,121 401,501 397,225 394,088
Other 135,241 137,463 134,128 129,292 130,952
Commercial and industrial 516,857 506,913 483,245 466,462 455,781
Consumer 1,218,605 1,223,871 1,222,243 1,199,400 1,173,740
Lease financing 69,984 67,647 63,943 59,899 58,013
Other 16,807 17,152 16,739 15,000 16,998
Total loans 4,914,748 4,921,774 4,837,073 4,580,719 4,540,056
Less reserve for loan losses 81,192 81,026 80,433 78,495 77,986
Net loans $4,833,556 $4,840,748 $4,756,640 $4,502,224 $4,462,070
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1996
Investment Securities
Table 4
September 30, 1996 September 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 $749,731 $750,814 0/6 5.97% $950,133 $947,448 0/6 4.86%
One to five years 1,142,458 1,133,318 1/9 5.78 773,616 774,519 1/8 6.01
Five to ten years 3,251 2,175 6/10 5.76 2,403 2,330 7/8 5.95
Over ten years 7,733 7,752 18/7 7.43 6,736 6,718 19/3 7.24
Total 1,903,173 1,894,059 1/4 5.85 1,732,888 1,731,015 1/2 5.39
State, county and municipal:
Within one year 777 781 0/9 6.32 1,326 1,333 0/6 7.27
One to five years 4,067 4,332 2/11 6.95 4,058 4,109 2/7 6.67
Five to ten years 1,271 1,293 5/1 6.29 2,776 2,868 5/8 7.35
Over ten years 185 185 20/11 9.14 195 195 12/11 9.00
Total 6,300 6,591 3/9 6.99 8,355 8,505 3/11 7.05
Other:
Within one year 1,553 1,552 0/6 6.48
One to five years 1,377 1,631 1/10 11.08 2,935 2,905 2/8 8.63
Five to ten years 45 45 5/8 5.43 55 55 6/5 8.00
Total 2,975 2,958 11/9 8.62 2,990 2,960 2/2 8.62
Total investment securities $1,912,448 $1,903,608 1/4 5.97% $1,744,233 $1,742,480 1/2 5.40%
First Citizens BancShares, Inc. and Subsidiaries
Third 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 $3,089,270 $63,442 8.17% $2,795,987 $59,992 8.47% $5,901 ($2,451) $3,450
Commercial and industrial 513,849 11,616 8.56 462,375 10,821 9.26 1,403 (608) 795
Consumer 1,218,164 27,734 9.00 1,166,488 25,494 8.73 1,290 950 2,240
Lease financing 69,089 1,393 8.07 57,906 1,117 7.58 208 68 276
Other 17,063 352 8.19 17,436 464 8.46 (54) (58) (112)
Total loans 4,907,435 104,537 8.43 4,500,192 97,888 8.64 8,748 (2,099) 6,649
Investment securities:
U. S. Government 1,910,705 27,902 5.81 1,683,096 22,052 5.20 3,122 2,728 5,850
State, county and municipal 6,253 121 7.70 8,688 168 7.67 (47) 0 (47)
Mortgage-backed 2,977 43 5.75 2,992 47 6.23 0 (4) (4)
Total investment securities 1,919,935 28,066 5.82 1,694,776 22,267 5.21 3,075 2,724 5,799
Federal funds sold 161,739 2,234 5.49 181,305 2,646 5.79 (280) (132) (412)
Total interest-earning assets $6,989,109 $134,837 7.64% $6,376,273 $122,801 7.65% $11,543 $493 $12,036
Liabilities
Deposits:
Checking With Interest $867,218 $2,549 1.17% $825,813 $3,324 1.60% $142 ($917) ($775)
Savings 724,255 3,769 2.07 705,058 4,045 2.28 103 (379) (276)
Money market accounts 821,078 7,371 3.57 737,178 6,058 3.26 713 600 1,313
Time deposits 3,246,938 43,401 5.32 2,937,613 41,728 5.64 4,211 (2,538) 1,673
Total interest-bearing deposits 5,659,489 57,090 4.01 5,205,662 55,155 4.20 5,169 (3,234) 1,935
Federal funds purchased 14,534 273 7.47 65,637 955 5.77 (852) 170 (682)
Repurchase agreements 20,933 227 4.31 22,021 264 4.76 (13) (24) (37)
Master notes 280,947 3,142 4.45 216,337 2,610 4.79 747 (215) 532
U. S. Treasury tax and loan account 17,117 219 5.09 18,831 262 5.52 (23) 0 (43)
Other short-term borrowings 16,694 269 6.41 16,413 197 4.76 4 68 72
Long-term obligations 7,762 158 8.10 24,595 415 6.69 (314) 57 (257)
Total interest-bearing liabilities $6,017,476 $61,378 4.06% $5,569,496 $59,858 4.26% $4,718 ($3,198) $1,520
Interest rate spread 3.58% 3.39%
Net interest income and net yield
on interest-earning assets $73,459 4.18% $62,943 3.92% $6,825 $3,691 $10,516
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1996
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Nine 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 $3,032,058 $187,243 8.17% $2,727,870 $172,573 8.44% $19,702 ($5,032) $14,670
Commercial and industrial 496,365 33,706 8.56 430,158 30,128 9.33 5,341 (1,763) 3,578
Consumer 1,213,816 82,514 9.00 1,159,949 77,099 8.87 3,934 1,481 5,415
Lease financing 65,337 3,906 8.07 58,424 3,322 7.58 381 203 584
Other 16,710 1,013 8.19 17,182 1,087 8.46 (35) (39) (74)
Total loans 4,824,286 308,382 8.53 4,393,583 284,209 8.62 29,323 (5,150) 24,173
Investment securities:
U. S. Government 1,954,881 84,184 5.75 1,513,309 55,567 4.91 17,666 10,951 28,617
State, county and municipal 6,748 388 7.68 7,951 465 7.82 (70) (7) (77)
Mortgage-backed 2,977 131 5.88 2,763 140 6.77 10 (19) (9)
Total investment securities 1,964,606 84,703 5.76 1,524,023 56,172 4.93 17,606 10,925 28,531
Federal funds sold 124,202 5,194 5.59 136,336 6,039 5.92 (523) (322) (845)
Total interest-earning assets $6,913,094 $398,279 7.69% $6,053,942 $346,420 7.63% $46,406 $5,453 $51,859
Liabilities
Deposits:
Checking With Interest $865,771 $8,207 1.27% $804,391 $10,213 1.70% $682 ($2,688) ($2,006)
Savings 719,184 11,309 2.10 690,376 11,698 2.27 490 (879) (389)
Money market accounts 814,794 21,524 3.53 734,353 18,081 3.29 2,052 1,391 3,443
Time deposits 3,247,178 131,672 5.42 2,752,719 109,471 5.32 19,917 2,284 22,201
Total interest-bearing deposits 5,646,927 172,712 4.09 4,981,839 149,463 4.01 23,141 108 23,249
Federal funds purchased 28,015 1,357 6.47 39,369 1,721 5.84 (523) 159 (364)
Repurchase agreements 21,424 697 4.35 22,928 846 4.93 (52) (97) (149)
Master notes 257,752 8,547 4.43 191,723 7,134 4.97 2,322 (909) 1,413
U. S. Treasury tax and loan account 14,814 574 5.18 17,468 752 5.76 (108) (70) (178)
Other short-term borrowings 12,791 586 6.12 14,265 504 4.72 (60) 142 82
Long-term obligations 15,705 813 6.91 27,298 1,276 6.25 (570) 107 (463)
Total interest-bearing liabilities $5,997,428 $185,286 4.13% $5,294,890 $161,696 4.08% $24,150 ($560) $23,590
Interest rate spread 3.56% 3.55%
Net interest income and net yield
on interest-earning assets $212,993 4.12% $184,724 4.08% $22,256 $6,013 $28,269
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1996
Summary of Loan Loss Experience and Risk Elements
Table 7
1996 1995 Nine Months Ended
Third Second First Fourth Third September 30
Quarter Quarter Quarter Quarter Quarter 1996 1995
(thousands, except ratios)
Reserve balance at beginning of period $81,026 $80,433 $78,495 $77,965 $76,887 $78,495 $72,017
Reserve of acquired institution - - 1,387 - (6) 1,387 3,252
Provision for loan losses 1,787 2,255 1,544 1,654 1,716 5,586 3,710
Net charge-offs:
Charge-offs (2,697) (2,663) (2,433) (2,575) (1,783) (7,793) (4,687)
Recoveries 1,076 1,001 1,440 1,451 1,172 3,517 3,694
Net (charge-offs) recoveries (1,621) (1,662) (993) (1,124) (611) (4,276) (993)
Reserve balance at end of period $81,192 $81,026 $80,433 $78,495 $77,986 $81,192 $77,986
Historical Statistics
Balances
Average total loans $4,907,435 $4,884,818 $4,679,692 $4,433,517 $4,500,192 $4,824,286 $4,393,583
Total loans at period-end 4,914,748 4,921,774 4,837,073 4,580,719 4,540,056 4,914,748 4,540,056
Risk Elements
Nonaccrual loans $14,213 $14,695 $13,489 $13,208 $14,296 $14,213 $14,296
Other real estate acquired through foreclosure 1,634 1,436 2,555 2,154 2,739 1,634 2,739
Total nonperforming assets $15,847 $16,131 $16,044 $15,362 $17,035 $15,847 $17,035
Accruing loans 90 days or more past due $5,601 $4,928 $5,300 $4,230 $4,874 $5,601 $4,874
Ratios
Net charge-offs (annualized) to average total loans 0.13% 0.14% 0.09% 0.10% 0.05% 0.12% 0.03%
Reserve for loan losses to total loans at period-end 1.65 1.65 1.66 1.71 1.72 1.65 1.72
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.32 0.33 0.33 0.34 0.37 0.32 0.37
First Citizens BancShares, Inc. ans Subsidiaries
Third 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 nine 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 $64.6 million and deposits of $59.2 million 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 a decrease in earnings of 21.4 percent during the third
quarter of 1996 compared to the third quarter of 1995. Consolidated net income
during the third quarter of 1996 was $12.4 million, compared to $15.8 million
earned during the corresponding period of 1995. The lower earnings were due to
a one-time deposit insurance assessment. Net income per share during the third
quarter of 1996 totaled $1.08, compared to $1.49 during the third quarter of
1995. Return on average assets was 0.65 percent for the third quarter of 1996
compared to 0.89 percent during the same period of 1995.
For the first nine months of 1996, BancShares recorded net income of $44.5
million , compared to $40.6 million earned during the first nine months of 1995.
The 12.4 percent increase was the net result of beneficial increases in net
interest income and noninterest income that more than offset the impact of the
special assessment. Net income per share for the first nine months of 1996 was
$4.03, compared to $3.85 during the same period of 1995. BancShares returned
0.80 percent on average assets during the first nine months of 1996 compared to
0.81 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 third quarter and Table 6 for the first nine months of 1996 and
1995.
INTEREST-EARNING ASSETS
Average interest-earning assets for the third quarter of 1996 totaled $6.99
billion, an increase of $612.8 million or 9.6 percent from the third quarter of
1995. For the first nine months of 1996, earning assets have averaged $6.91
billion, an increase of $859.2 million over the same period of 1995. These
increases result from growth in the investment and loan portfolios, growth
resulting in part from the various acquisitions.
Loans. At September 30, 1996 and 1995, gross loans totaled $4.91 billion
and $4.54 billion, respectively. As of December 31, 1995, gross loans were
$4.58 billion. The $334 million increase from December 31, 1995 to September
30, 1996, is partially due to $205.1 million in acquired loans. The $374.7
million growth in loans from September 30, 1995 to September 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 third quarter of 1996, average loans totaled $4.91 billion, an
increase of $407.2 million or 9 percent from the comparable period of 1995.
Consumer loans averaged $1.22 billion during the third quarter of 1996, compared
to $1.17 billion during the same period of 1995, an increase of $51.7 million or
4.4 percent. Average loans secured by real estate increased $293.3 million
between the two periods, a 10.5 percent increase. This growth has resulted from
both acquisitions and continuing loan demand within the existing branch network.
As of September 30, 1996, $62.5 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 remain dependent on interest
rates, as any upward pressure on interest rates will likely deter retail
borrowers and may also impair commercial loan growth. Stability of market rates
should allow continued modest expansion within the loan portfolio.
Investment securities. At September 30, 1996, and 1995, the investment
portfolio totaled $1.91 billion and $1.74 billion, respectively. At December
31, 1995, the investment portfolio was $1.98 billion. The 9.6 percent increase
in the investment portfolio since September 30, 1995 resulted from the liquidity
generated by FCB's continued emphasis on retail relationship banking. 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 $134.8 million during the third quarter of 1996, a 9.8 percent
increase over the third quarter of 1995. Balance sheet growth contributed to
higher taxable-equivalent interest income in the third quarter of 1996 when
compared to the same period of 1995.
The average yield on total interest-earning assets for the third quarter of
1996 was 7.64 percent, compared to 7.65 percent for the corresponding period of
1995. Taxable equivalent loan interest income for the third quarter of 1996 was
$104.5 million, an increase of $6.6 million or 6.8 percent from the third
quarter of 1995, due to growth in the loan portfolio. The taxable equivalent
yield on the loan portfolio was 8.43 percent during the third quarter of 1996,
compared to 8.64 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 $28.1 million during the third quarter of 1996 and $22.3 million
during the same period of 1995, an increase of $5.8 million or 26 percent. This
increase is the combined result of a $225.2 million increase in the average
securities portfolio and a 61 basis point increase in the taxable equivalent
yield. The securities portfolio taxable-equivalent yield increased from 5.21
percent for the quarter ended September 30, 1995, to 5.82 percent for the
quarter ended September 30, 1996.
INTEREST-BEARING LIABILITIES
At September 30, 1996 and 1995, interest-bearing liabilities totaled $6.06
billion and $5.65 billion, respectively, compared to $5.84 billion as of
December 31, 1995. During the third quarter of 1996, interest-bearing
liabilities averaged $6.02 billion, an increase of 8 percent from the third
quarter of 1995. Interest-bearing deposits account for much of the growth,
with balances increasing from acquisitions as well as new deposits from
existing customers.
Deposits. At September 30, 1996, total deposits were $6.81 billion, an
increase of $580.4 million or 9.3 percent over September 30, 1995. Compared to
the December 31, 1995 balance of $6.39 billion, total deposits have increased
$420.3 million. Acquisitions during 1996 have generated $208.4 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 $5.66 billion during the third
quarter of 1996 compared to $5.2 billion during the third quarter of 1995, an
increase of 8.7 percent. Much of the increase is attributed to average time
deposits, which increased $309.3 million from the third quarter of 1995 to the
third quarter of 1996. Average money market accounts increased $83.9 million
from the third quarter of 1995 to the third quarter of 1996, while average
Checking With Interest accounts increased $41.4 million between the two
periods. Time deposits of $100,000 or more averaged 8.56 percent of total
average deposits during the third quarter of 1996, compared to 8.61 percent
during the same period of 1995. Management does not consider the current level
of high dollar deposits to be excessive.
Borrowed Funds. At September 30, 1996, short-term borrowings totaled
$332.4 million compared to $376.5 million at December 31, 1995 and $343.1
million at September 30, 1995. For the quarters ended September 30, 1996 and
1995, short-term borrowings averaged $350.2 million and $339.2 million,
respectively. Long-term obligations averaged $7.8 million during the third
quarter of 1996, compared to $24.6 million during the third quarter of 1995.
The 68.4 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 $61.4 million during the third quarter of 1996, a $1.5 million or
2.5 percent increase from the third quarter of 1995. The higher interest
expense was the net result of the $448 million increase in average
interest-bearing liabilities and a 20 basis point reduction in the aggregate
rate on interest bearing liabilities. The rate on these liabilities was 4.06
percent during the third quarter ebb of 1996, compared to 4.26 percent during
the third quarter of 1995.
NET INTEREST INCOME
Taxable equivalent net interest income totaled $73.5 million during the
third quarter of 1996, an increase of 16.7 percent from the third quarter of
1995. The average net yield on interest-earning assets was 4.18 percent for the
third quarter of 1996, 26 basis points above the net yield recorded during the
third quarter of 1995. The taxable equivalent interest rate spread for the
third quarter of 1996 was 3.58 percent compared to 3.39 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 third quarter of 1996
over the third 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 September 30, 1996, the reserve for loan losses
amounted to $81.2 million or 1.65 percent of loans outstanding. This compares
to $78.5 million or 1.71 percent at December 31, 1995, and $78 million or 1.72
percent at September 30, 1995.
Management considers the established reserve adequate to absorb losses that
relate to loans outstanding at September 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 third
quarter of 1996 was $1.8 million, compared to $1.7 million during the third
quarter of 1995. Net charge-offs for the nine months ended September 30, 1996
totaled $4.3 million, compared to net charge-offs of $993,000 during the same
period of 1995. The higher level of net charge-offs during 1996 have resulted
from retail loans charge-offs, a trend that management attributes to the rapid
growth in the installment portfolio during 1994 and 1995. However, while net
charge-offs have increased from 1995 to 1996, the annualized net charge-offs
represent only 0.12 percent of loans outstanding for the nine months ending
September 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 September 30, 1996, BancShares' nonperforming
assets amounted to $15.8 million or 0.32 percent of gross loans plus foreclosed
properties, compared to $15.4 million at December 31, 1995, and $17 million at
September 30, 1995. Management continues to closely monitor nonperforming
assets, taking necessary actions to minimize potential exposure.
NONINTEREST INCOME
During the first nine months of 1996, noninterest income was $75.2 million,
compared to $68.3 million during the same period of 1995. The 10.2 percent
increase was due to growth in the credit card operation, higher fee income from
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 18.4
percent from the first nine months of 1995 to the same period of 1996.
Fees earned by First Citizens Investor Services during the first nine
months of 1996 were $3.2 million compared to $2.1 million during the same period
of 1995. The 57.7 percent increase in fees resulted from growth in the
subsidiary's sales of mutual fund and annuity products. Fee income also
benefitted from a 9.5 percent increase in income generated from processing
services provided to affiliate banks. These fees contributed $7.2 million
during the first nine months of 1996.
NONINTEREST EXPENSE
Noninterest expense was $209.6 million for the first nine months of 1996, a
13.3 percent increase over the $185 million recorded during the same period of
1995. The $24.7 million increase includes a $10.3 million assessment that was
recorded during the third quarter for the recapitalization of the FDIC's Savings
Association Insurance Fund ("SAIF"). All financial institutions with
SAIF-insured deposits were subject to the assessment during the third quarter
based on the volume of SAIF-insured deposits as of the measurement date.
Additional increases in noninterest expense resulted from higher
personnel-related expenses. Salaries and wages were $86.2 million during the
first nine months of 1996, an increase of 8.4 percent or $6.7 million over the
same period of 1995. This increase is due to merit increases, incentives paid
to sales associates and the centralization of various loan-related functions.
Employee benefits expense increased 15.7 percent from 1995 to 1996, the res
growth in health insurance expense. Occupancy expense increased 7.7 percent
during the first nine months of 1996, compared to the corresponding period of
1995 due to increased depreciation expense resulting from new and renovated
branch facilities. Equipment expense increased 6 percent during the first nine
months of 1996, the result of higher equipment rent and maintenance expenses.
The $13.6 million increase in other expenses includes the $10.3 million SAIF
assessment as well as increases in education and consultant expenses and
intangible amortization.
INCOME TAXES
Income tax expense amounted to $25.6 million during the first nine months
of 1996, compared to $22 million during the same period of 1995, a 16.2 percent
increase resulted from higher pre-tax income. The effective tax rates for these
periods were 35.9 percent and 35.2 percent, respectively. The increase in the
effective tax rate from 1995 to 1996 results from an increase in nondeductible
goodwill amortization expense.
LIQUIDITY
Management relies on the investment portfolio as a source of liquidity,
with aturities designed to provide needed cash flows. Further, retail eposits
generated throughout the branch network has enabled management o fund asset
growth and maintain liquidity. These sources have allowed imited dependence on
short-term borrowed funds for liquidity or for sset expansion. In the event
additional liquidity is needed, ancShares 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 September 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 9.9 percent at September 30, 1996,
and 9.6 percent as of September 30, 1995. The minimum ratio allowed is 4
percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.1
percent at September 30, 1996 and 10.9 percent as of September 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.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. These exposure drafts are subject to comment from the
public, and to revisions and final issuance by the FASB. Management considers
the effect of the proposed statements on the consolidated financial statements
and monitors the status of changes to issued exposure drafts and to proposed
effective dates.
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.