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, 1997
Commission File Number: 0-16471
First Citizens BancShares, Inc
(Exact name of Registrant as specified in its charter)
Delaware 56-1528994
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
239 Fayetteville Street, Raleigh, North Carolina 27601
(Address of principal executive offices) (zip code)
(919) 716-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No _____
Class A Common Stock--$1 Par Value-- 9,634,333 shares
Class B Common Stock--$1 Par Value-- 1,756,229 shares
(Number of shares outstanding, by class, as of August 13, 1997)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1997,
December 31, 1996, and June 30, 1996
Consolidated Statements of Income for the three-month
and six-month periods ended June 30, 1997, and June 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
for the three-month and six-month periods ended June 30, 1997,
and June 30, 1996
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1997, 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, 1997, Registrant filed no Current Reports
on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FIRST CITIZENS BANCSHARES, INC.
(Registrant)
Dated: August 13, 1997 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1997
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
June 30* December 31# June 30*
(thousands, except share data) 1997 1996 1996
Assets
Cash and due from banks $463,079 $437,029 $400,694
Investment securities (fair values of $2,269,676, 2,271,282 2,138,831 1,888,476
$1,873,142, respectively)
Federal funds sold 199,200 156,000 50,010
Loans 4,996,770 4,930,508 4,921,774
Less reserve for loan losses 81,902 81,439 81,026
Net loans 4,914,868 4,849,069 4,840,748
Premises and equipment 248,956 229,496 217,556
Income earned not collected 63,833 60,175 58,601
Other assets 190,760 184,972 175,202
Total assets $8,351,978 $8,055,572 $7,631,287
Liabilities
Deposits:
Noninterest-bearing $1,125,673 $1,087,474 $986,801
Interest-bearing 6,001,609 5,866,554 5,645,470
Total deposits 7,127,282 6,954,028 6,632,271
Short-term borrowings 488,012 392,006 338,538
Long-term obligations 12,150 6,922 7,893
Other liabilities 80,324 87,109 68,302
Total liabilities 7,707,768 7,440,065 7,047,004
Shareholders' Equity
Common stock:
Class A - $1 par value (9,635,711; 9,651,900;
and 9,688,017 shares issued, respectively) 9,636 9,652 9,688
Class B - $1 par value (1,756,374; 1,758,980;
and 1,761,261 shares issued, respectively) 1,756 1,759 1,761
Surplus 143,760 143,760 143,567
Retained earnings 480,688 453,640 429,267
Unrealized gains on marketable equity securities, 8,370 6,696 _
Total shareholders' equity 644,210 615,507 584,283
Total liabilities and shareholders' equity $8,351,978 $8,055,572 $7,631,287
* Unaudited
# Derived from the Consolidated Balance Sheets included in the 1996 Annual Report on Form 10-K.
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc and Subsidiaries
Second Quarter 1997
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Six Months
Ended June 30 Ended June 30
(thousands, except per share data, unaudited) 1997 1996
Interest income
Loans $106,049 $102,654 $209,856 $202,766
Investment securities:
U. S. Government 31,655 28,542 61,729 56,282
State, county and municipal 73 84 150 174
Other 25 43 59 88
Total investment securities interest income 31,753 28,669 61,938 56,544
Federal funds sold 2,316 1,379 4,763 2,960
Total interest income 140,118 132,702 276,557 262,270
Interest expense
Deposits 59,338 57,451 116,715 115,622
Short-term borrowings 4,968 3,765 9,155 7,631
Long-term obligations 236 268 378 655
Total interest expense 64,542 61,484 126,248 123,908
Net interest income 75,576 71,218 150,309 138,362
Provision for loan losses 2,097 2,255 3,664 3,799
Net interest income after provision for loan 73,479 68,963 146,645 134,563
Noninterest income
Trust income 2,775 2,256 5,553 4,523
Service charges on deposit accounts 10,320 10,392 20,250 20,425
Credit card income 4,550 3,882 8,616 7,147
Other service charges and fees 6,340 5,818 12,787 11,608
Other 4,909 2,912 5,102 5,442
Total noninterest income 28,894 25,260 52,308 49,145
102,373 94,223 198,953 183,708
Noninterest expense
Salaries and wages 31,476 29,681 61,852 56,983
Employee benefits 5,978 5,046 11,916 9,942
Occupancy expense 5,768 5,385 11,505 10,811
Equipment expense 8,283 6,814 15,234 12,818
Other 23,312 21,337 44,894 40,994
Total noninterest expense 74,817 68,263 145,401 131,548
Income before income taxes 27,556 25,960 53,552 52,160
Income taxes 9,972 9,575 19,376 18,949
Net income $17,584 $16,385 $34,176 $33,211
Per Share
Net income $1.54 $1.43 $3.00 $2.95
Cash dividends 0.250 0.225 0.50 0.45
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Consolidated Statements of Changes in Shareholders' Equity
First Citizens BancShares, Inc. and Subsidiaries
Class A Class B Unrealized Gain
Common Common Retained on Marketable Total
(thousands, except share data, unaudited) Stock Stock Surplus Earnings Equity Securit Equity
Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 $520,837
Issuance of 668,654 shares of Class A
common stock for various acquisitions 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 87,992 shares of Class A
common stock pursuant to employee
stock purchase plans 87 3,765 3,852
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
Balance at December 31, 1996 $9,652 $1,759 $143,760 $453,640 $6,696 $615,507
Redemption of 16,189 shares of Class A
common stock and 2,606 shares of
Class B common stock (16) (3) (1,440) (1,459
Net income 34,176 34,176
Unrealized gain on marketable equity
securities, net of taxes 1,674 1,674
Cash dividends (5,688) (5,688
Balance at June 30, 1997 $9,636 $1,756 $143,760 $480,688 $8,370 $644,210
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Six Months Ended June 30
(thousands, unaudited) 1997 1996
Operating Activities
Net income $34,176 $33,211
Adjustments:
Amortization of intangibles 4,281 3,904
Provision for loan losses 3,664 3,799
Deferred tax benefit (246) (1,375)
Change in current taxes payable (437) (657)
Depreciation 9,151 8,455
Change in accrued interest payable (6,527) (8,226)
Change in income earned not collected (3,658) 712
Origination of loans held for sale (238,745) (52,881)
Proceeds from sale of loans 250,471 34,093
(Gain) loss on mortgage loans 1,307 168
Net amortization of premiums and discounts 3,306 7,211
Net change in other assets 3,137 (1,405)
Net change in other liabilities (454) (5,417)
Net cash provided by operating activities 59,426 21,592
Investing Activities
Net increase in loans outstanding (77,584) (119,955)
Purchases of investment securities (499,527) (396,748)
Proceeds from maturities of investment securities 363,770 502,453
Net change in federal funds sold (43,200) (9,565)
Dispositions of premises and equipment 1,036 3,563
Additions to premises and equipment (28,441) (19,347)
Purchase of institutions, net of cash acquired 114,667 7,584
Net cash used by investing activities (169,279) (32,015)
Financing Activities
Net change in time deposits 58,756 40,096
Net change in demand and other interest-bearing deposits (16,940) (4,301)
Net change in short-term borrowings 101,234 (70,140)
Repurchases of common stock (1,459) (2,006)
Proceeds from issuance of stock - 3,975
Cash dividends paid (5,688) (5,137)
Net cash provided by financing activities 135,903 (37,513)
Change in cash and due from banks 26,050 (47,936)
Cash and due from banks at beginning of period 437,029 448,630
Cash and due from banks at end of period $463,079 $400,694
Cash payments for:
Interest $132,976 $132,134
Income taxes 19,223 21,069
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions - $33,403
Long-term obligations issued for acquisitions - 1,468
Unrealized gain on marketable equity securities $2,754 -
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Financial Summary
1997 1996
Six Months Ended
Second First Fourth Third Second June 30
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996
S>
Summary of Operations
Interest Income $140,118 $136,439 $137,655 $134,270 $132,702 $276,557 $262,270
Interest income - taxable equivalent 140,634 136,961 138,222 134,837 133,283 277,595 263,442
Interest expense 64,542 61,706 62,964 61,378 61,484 126,248 123,908
Net interest income-taxable equivalent 76,092 75,255 75,258 73,459 71,799 151,347 139,534
Taxable equivalent adjustment 516 522 567 567 581 1,038 1,172
Net interest income 75,576 74,733 74,691 72,892 71,218 150,309 138,362
Provision for loan losses 2,097 1,567 3,321 1,787 2,255 3,664 3,799
Net interest income after provision for loan los 73,479 73,166 71,370 71,105 68,963 146,645 134,563
Noninterest income 28,894 23,414 28,082 26,077 25,260 52,308 49,145
Noninterest expense 74,817 70,584 69,023 78,097 68,263 145,401 131,548
Income before income taxes 27,556 25,996 30,429 19,085 25,960 53,552 52,160
Income taxes 9,972 9,404 10,611 6,647 9,575 19,376 18,949
Net income $17,584 $16,592 $19,818 $12,438 $16,385 $34,176 $33,211
Selected Average Balances
Total assets $8,099,236 $7,903,566 $7,935,197 $7,670,538 $7,658,682 $8,001,938 $7,557,959
Investment securities 2,166,362 2,094,376 2,097,690 1,919,935 1,990,346 2,130,568 1,987,187
Loans 5,023,409 4,921,346 4,895,815 4,907,435 4,884,818 4,972,659 4,782,255
Interest-earning assets 7,368,645 7,196,138 7,209,982 6,989,109 6,975,341 7,282,868 6,874,669
Deposits 6,952,848 6,823,697 6,831,926 6,641,427 6,660,204 6,888,629 6,569,012
Interest-bearing liabilities 6,341,125 6,203,598 6,185,161 6,017,476 6,043,119 6,272,742 5,987,291
Long-term obligations 11,545 6,809 6,866 7,762 15,676 9,190 19,720
Shareholders' equity $635,680 $619,956 $599,953 $589,618 $576,742 $627,611 $559,973
Shares outstanding 11,394,965 11,398,246 11,415,943 11,441,007 11,432,661 11,396,596 11,252,528
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.87% 0.85% 0.99% 0.65% 0.86% 0.86% 0.88%
Shareholders' equity 11.10 10.85 13.14 8.39 11.43 10.92 11.93
Dividend payout ratio 16.23 17.12 14.37 19.57 15.73 16.67 15.25
Liquidity and Capital Ratios (averages)
Loans to deposits 72.25% 72.12% 71.66% 73.89% 73.34% 72.19% 72.80%
Shareholders' equity to total assets 7.85 7.84 7.56 7.69 7.53 7.84 7.41
Time certificates of $100,000 or more to total
deposits 9.36 9.30 8.79 8.61 9.23 8.95 9.39
Per Share of Stock
Net income $1.54 $1.46 $1.74 $1.15 $1.43 $3.00 $2.95
Cash dividends 0.250 0.250 0.250 0.225 0.225 0.50 0.45
Book Value at period end 56.55 55.22 53.94 51.89 51.03 56.55 51.03
Tangible book value at period end 48.10 46.89 45.42 43.03 42.19 45.42 42.19
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Outstanding Loans by Type
Table 2
1997 1996
Second First Fourth Third Second First
(thousands) Quarter Quarter Quarter Quarter Quarter
Real estate:
Construction and land development $109,125 $103,361 $109,806 $107,651 $110,162
Mortgage:
1-4 family residential 1,383,250 1,529,972 1,542,836 1,587,352 1,615,712
Commercial 942,637 906,408 882,067 850,358 833,733
Equity Line 510,067 430,924 411,856 411,893 409,121
Other 134,793 134,852 132,954 135,241 137,463
Commercial and industrial 569,327 533,812 514,535 516,857 506,913
Consumer 1,258,330 1,230,501 1,251,704 1,218,605 1,223,871
Lease financing 73,861 69,496 68,694 69,984 67,647
Other 15,380 15,809 16,056 16,807 17,152
Total loans 4,996,770 4,955,135 4,930,508 4,914,748 4,921,774
Less reserve for loan losses 81,902 81,459 81,439 81,192 81,026
Net loans $4,914,868 $4,873,676 $4,849,069 $4,833,556 $4,840,748
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Investment Securities
Table 3
June 30, 1997 June 30, 1996
Average Taxable Average Taxable
Book Fair Maturity Equivalent Book Fair Maturity Equivalent
(thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield
U. S. Government:
Within one year $1,015,038 $1,014,279 0/7 5.94 % $787,440 $788,350 0/6 5.91 %
One to five years 1,240,895 1,239,630 1/9 5.71 1,081,130 1,064,690 1/11 5.71
Five to ten years 3,072 3,106 6/3 5.65 2,383 2,344 7/0 6.28
Over ten years 5,096 5,188 12/7 7.50 7,990 7,982 18/11 7.43
Total 2,264,101 2,262,203 1/3 8.86 1,878,943 1,863,366 1/5 5.80
State, county and municipal:
Within one year 961 1,166 0/4 6.39 537 539 0/6 6.49
One to five years 3,617 3,679 2/9 6.87 4,551 4,808 2/11 6.88
Five to ten years 934 965 8/3 7.93 1,272 1,281 6/1 7.21
Over ten years - 195 195 21/2 9.14
Total 5,512 5,810 3/3 6.92 6,555 6,823 3/11 6.98
Other:
Within one year 500 500 0/1 2.52 1,306 1,306 0/6 5.74
One to five years 1,159 1,153 1/4 11.99 1,627 1,602 1/11 10.84
Five to ten years 10 10 5/7 0.85 45 45 5/11 5.43
Total 1,669 1,663 0/6 4.92 2,978 2,953 1/5 8.52
Total investment securities $2,271,282 $2,269,676 1/5 5.87 % $1,888,476 $1,873,142 1/5 5.81 %
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Second Quarter
Table 4
1997 1996 Increase (decrease) due to:
Interest Interest
Average Income Yield Average Income Yield Yield
(thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total
Assets
Loans:
Secured by real estate $3,136,593 $64,085 8.22 % $3,080,093 $62,748 8.15 % $974 $363 $1,337
Commercial and industrial 554,599 12,387 8.49 499,499 11,344 8.70 1,250 (207) 1,043
Consumer 1,245,235 28,270 8.98 1,222,653 27,462 8.89 517 291 808
Lease financing 71,725 1,535 8.56 65,594 1,290 7.87 126 119 245
Other 15,257 247 6.49 16,979 347 8.18 (32) (68) (100)
Total loans 5,023,409 106,524 8.42 4,884,818 103,191 8.40 2,835 498 3,333
Investment securities:
U. S. Government 2,158,676 31,656 5.88 1,980,659 28,542 5.80 2,647 467 3,114
State, county and municipal 5,981 113 7.58 6,706 128 7.68 (14) (1) (15)
Other 1,705 25 5.88 2,981 43 5.80 (19) 1 (18)
Total investment securities 2,166,362 31,794 5.89 1,990,346 28,713 5.80 2,614 467 3,081
Federal funds sold 178,875 2,316 5.19 100,177 1,379 5.54 1,056 (119) 937
Total interest-earning assets $7,368,646 $140,634 7.60 % $6,975,341 $133,283 7.62 % $6,505 $846 $7,351
Liabilities
Deposits:
Checking With Interest $918,690 $2,430 1.06 % $874,917 $2,675 1.23 % $130 ($375) ($245)
Savings 711,094 3,666 2.07 729,667 3,757 2.07 (93) 2 (91)
Money market accounts 889,107 8,275 3.73 814,833 7,028 3.47 681 566 1,247
Time deposits 3,401,564 44,967 5.30 3,290,255 43,991 5.38 1,563 (587) 976
Total interest-bearing deposits 5,920,455 59,338 4.02 5,709,672 57,451 4.05 2,281 (394) 1,887
Federal funds purchased 18,100 101 2.24 21,090 333 6.35 (32) (200) (232)
Repurchase agreements 24,837 270 4.36 22,156 237 4.30 29 4 33
Master notes 287,786 3,400 4.74 251,730 2,801 4.48 419 180 599
U. S. Treasury tax and loan accounts 9,646 218 9.06 13,175 173 5.28 (63) 108 45
Other short-term borrowings 68,756 979 5.71 12,407 221 7.16 904 (146) 758
Long-term obligations 11,545 236 8.20 12,889 268 8.36 (27) (5) (32)
Total interest-bearing liabilities $6,341,125 $64,542 4.08% $6,043,119 $61,484 4.09 % $3,511 ($453) $3,058
Interest rate spread 3.52 % 3.53 %
Net interest income and net yield
on interest-earning assets $76,092 4.14 % $71,799 4.14 % $2,994 1,299 $4,293
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Six Months
Table 5
1997 1996 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 $3,106,942 $127,035 8.21%$3,001,645 $123,801 8.27% $4,223 ($989) $3,234
Commercial and industrial 538,578 23,688 8.40 487,950 22,090 8.69 2,253 (655) 1,598
Consumer 1,241,614 56,544 9.02 1,212,642 54,779 8.96 1,346 419 1,765
Lease financing 70,075 2,995 8.55 63,440 2,513 7.92 272 210 482
Other 15,449 551 7.19 16,578 662 8.05 (43) (68) (111)
Total loans 4,972,658 210,813 8.51 4,782,255 203,845 8.55 8,051 (1,083) 6,968
Investment securities:
U. S. Government 2,122,537 61,729 5.86 1,977,212 56,282 5.72 4,098 1,349 5,447
State, county and municipal 6,061 231 7.69 6,998 267 7.67 (36) 0 (36)
Other 1,971 59 6.04 2,977 88 5.94 (30) 1 (29)
Total investment securities 2,130,569 62,019 5.87 1,987,187 56,637 5.73 4,032 1,350 5,382
Federal funds sold 179,641 4,763 5.35 105,227 2,960 5.66 2,027 (224) 1,803
Total interest-earning assets $7,282,868 $277,595 7.66%$6,874,669 $263,442 7.69%$14,110 $43 $14,153
Liabilities
Deposits:
Checking With Interest $910,275 $4,845 1.07% $865,039 $5,658 1.32% $278 ($1,091) ($813)
Savings 710,803 7,287 2.07 716,621 7,540 2.12 (68) (185) (253)
Money market accounts 883,852 16,069 3.67 811,617 14,153 3.51 1,265 651 1,916
Time deposits 3,370,397 88,514 5.30 3,247,300 88,271 5.47 3,160 (2,917) 243
Total interest-bearing deposits 5,875,327 116,715 4.01 5,640,577 115,622 4.12 4,635 (3,542) 1,093
Federal funds purchased 27,219 671 4.97 34,829 1,084 6.26 (213) (200) (413)
Repurchase agreements 23,987 508 4.27 21,672 470 4.36 49 (11) 38
Master notes 286,570 6,414 4.51 246,026 5,405 4.42 894 115 1,009
U. S. Treasury tax and loan accounts 11,254 442 7.92 13,649 355 5.23 (79) 166 87
Other short-term borrowings 39,196 1,120 5.76 10,818 317 5.89 819 (16) 803
Long-term obligations 9,190 378 8.29 19,720 655 6.68 (392) 115 (277)
Total interest-bearing liabilities $6,272,743 $126,248 4.06%$5,987,291 $123,908 4.16% $5,713 ($3,373) $2,340
Interest rate spread 3.60% 3.53%
Net interest income and net yield
on interest-earning assets $151,347 4.19% $139,534 4.08% $8,397 $3,416 $11,813
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
Summary of Loan Loss Experience and Risk Elements
Table 6
1997 1996
Six Months Ended
Second First Fourth Third Second June 30
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996
Reserve balance at beginning of period $81,459 $81,439 $81,192 $81,026 $80,433 $81,439 $78,495
Reserve of acquired loans 123 - - - - 123 1,387
Provision for loan losses 2,107 1,557 3,321 1,787 2,255 3,664 3,799
Net charge-offs:
Charge-offs (3,774) (3,538) (3,860) (2,697) (2,663) (7,312) (5,096)
Recoveries 1,987 2,001 786 1,076 1,001 3,988 2,441
Net (charge-offs) recoveries (1,787) (1,537) (3,074) (1,621) (1,662) (3,324) (2,655)
Reserve balance at end of period $81,902 $81,459 $81,439 $81,192 $81,026 $81,902 $81,026
Historical Statistics
Balances
Average total loans $5,023,409 $4,921,346 $4,895,815 $4,907,435 $4,884,818 $4,972,658 $4,782,255
Total loans at period-end 4,996,770 4,955,135 4,930,508 4,914,748 4,921,774 4,996,770 4,921,774
Risk Elements
Nonaccrual loans $14,589 $14,628 $12,810 $14,213 $14,695 $14,589 $14,695
Other real estate acquired through foreclosure 1,152 1,337 1,160 1,634 1,436 1,152 1,436
Total nonperforming assets $15,741 $15,965 $13,970 $15,847 $16,131 $15,741 $16,131
Accruing loans 90 days or more past due $4,503 $5,748 $4,983 $5,601 $4,928 $4,503 $4,928
Ratios
Net charge-offs (annualized) to average total loans 0.14 % 0.13 % 0.25 % 0.13 % 0.14 % 0.13 % 0.11
Reserve for loan losses to total loans at period-end 1.64 1.64 1.65 1.65 1.65 1.64 1.65
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.31 0.32 0.28 0.32 0.33 0.32 0.33
First Citizens BancShares, Inc. and Subsidiaries
Second Quarter 1997
INTRODUCTION
Management's discussion and analysis of earnings and related
financial data are presented to assist in understanding the financial
condition and results of operations of First Citizens BancShares, Inc. and
Subsidiaries ("BancShares"). It should be read in conjunction with the
unaudited Consolidated Financial Statements and related note presented
within this report. The focus of this discussion concerns BancShares' four
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, Bank of
Marlinton ("Marlinton") and Bank of White Sulphur Springs ("WSS") operate in
West Virginia, and Atlantic States Bank operates in Georgia and North
Carolina. During the second quarter of 1997, First-Citizens Bank, A
Virginia Corporation ("FCB-VA") began operation. FCB-VA is a subsidiary of
FCB and is the lending bank for all retail credit cards for N rolina
customers. This company was established to allow BancShares to participate
more fully in the very competitive credit card market.
SUMMARY
BancShares realized an increase in earnings of 7.3 percent during
the second quarter of 1997 compared to the second quarter of 1996.
Consolidated net income during the second quarter of 1997 was $17.6
million, compared to $16.4 million earned during the corresponding
period of 1996. The higher earnings resulted from improved net interest
income and growth in noninterest income offset by higher levels of
noninterest expense. Net income per share during the second quarter of
1997 totaled $1.54, compared to $1.43 during the second quarter of 1996.
Return on average assets was 0.87 percent for the second quarter of
1997 compared to 0.86 percent during the same period of 1996.
For the first six months of 1997, BancShares recorded net income of $34.2
million , compared to $33.2 million earned during the first six months of 1996.
The 2.9 percent increase was the net result of beneficial increases in net
interest income and noninterest income that were largely offset by higher
noninterest expenses. Net income per share for the first six months of 1997 was
$3.00, compared to $2.95 during the same period of 1996. BancShares returned
0.86 percent on average assets during the first six months of 1997 compared to
0.88 percent during the corresponding period of 1996.
Other profitability, liquidity and capital ratios are presented in Table 1.
To understand the changes and trends in interest-earning assets and
interest-bearing liabilities, refer to the average balance sheets presented in
Table 4 for the second quarter and Table 5 for the first six months of 1997 and
1996.
INTEREST-EARNING ASSETS
Average interest-earning assets for the second quarter of 1997 totaled
$7.37 billion, an increase of $393.3 million or 5.6 percent from the second
quarter of 1996. For the first six months of 1997, earning assets averaged
$7.28 billion, an increase of $408.2 million over the same period of 1996.
These increases result from growth in the investment and loan portfolios.
Loans. At June 30, 1997 and 1996, gross loans totaled $5 billion and $4.92
billion, respectively. As of December 31, 1996, gross loans were $4.93 billion.
The $75 million growth in loans from June 30, 1996 to June 30, 1997 results from
growth within BancShares' commercial loan products and home equity products
during early 1997. Table 2 details outstanding loans by type for the past five
quarters.
During the second quarter of 1997, average loans totaled $5.02 billion, an
increase of $138.6 million or 2.8 percent from the comparable period of 1996.
Consumer loans averaged $1.25 billion during the second quarter of 1997,
compared to $1.22 billion during the same period of 1996, an increase of $22.6
million or 1.8 percent. Average loans secured by real estate increased $56.5
million between the two periods, a 1.8 percent increase. This increase is
primarily due to the growth in home equity loans, partially offset by the sale
of residential mortgage loans in 1997.
As of June 30, 1997, $110.2 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. Mortgage loan sale activity during the first six months of 1997
has resulted from two primary goals. First, as in the past, management
continues to lessen the exposure to changes in interest rates by selling
portions of its long-term fixed-rate loan portfolio. Second, management has
focused on strengthening BancShares' capacity to meet the loan demand that has
been growing among commercial borrowers during recent quarters. The sales of
residential mortgage loans has supported both objectives, and such sales are
likely to continue during the remainder of 1997.
Management's loan growth projections for 1997 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 June 30, 1997 and 1996, the investment portfolio
totaled $2.27 billion and $1.89 billion, respectively. At December 31, 1996,
the investment portfolio was $2.14 billion. The 20.3 percent increase in the
investment portfolio since June 30, 1996 resulted from the liquidity generated
by deposit growth. 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.
Included in other assets are marketable equity securities with a current
fair value of $25.7 million. These securities are reported at their fair
values, with the adjustment to historical cost recorded, net of deferred taxes,
as an adjustment to shareholders' equity.
Income on Interest-Earning Assets. Interest income amounted to $140.1
million during the second quarter of 1997, a 5.6 percent increase over the
second quarter of 1996. Balance sheet growth contributed to higher interest
income in the second quarter of 1997 when compared to the same period of 1996.
The average yield on total interest-earning assets for the second quarter
of 1997 was 7.60 percent, compared to 7.62 percent for the corresponding period
of 1996.
Loan interest income for the second quarter of 1997 was $106 million, an
increase of $3.4 million or 3.3 percent from the second quarter of 1996, due to
volume growth. The taxable-equivalent yield on the loan portfolio was 8.42
percent during the second quarter of 1997, compared to 8.40 percent during the
same period of 1996.
Income earned on the investment securities portfolio amounted to $31.8
million during the second quarter of 1997 and $28.7 million during the same
period of 1996, an increase of $3.1 million or 10.8 percent. This increase is
the combined result of a $176 million increase in the average securities
portfolio and a 9 basis point increase in the taxable-equivalent yield. The
securities portfolio taxable-equivalent yield increased from 5.80 percent for
the quarter ended June 30, 1996, to 5.89 percent for the quarter ended June 30,
1997.
INTEREST-BEARING LIABILITIES
At June 30, 1997 and 1996, interest-bearing liabilities totaled
$6.50 billion and $5.99 billion, respectively, compared to $6.27 billion
as of December 31, 1996. During the second quarter of 1997,
interest-bearing liabilities averaged $6.34 billion, an increase of 4.9
percent from the second quarter of 1996. Growth in interest-bearing
deposit accounts caused much of the increase, resulting from acquired
branches as well as new deposits from existing customers.
Deposits. At June 30, 1997, total deposits were $7.13 billion, an increase
of $495 million or 7.5 percent over June 30, 1996. Compared to the December 31,
1996 balance of $6.95 billion, total deposits have increased $173.3 million.
Average interest-bearing deposits were $5.92 billion during the second
quarter of 1997 compared to $5.71 billion during the second quarter of 1996, an
increase of 3.7 percent. Much of the increase is attributed to average time
deposits, which increased $111.3 million from the second quarter of 1996 to the
second quarter of 1997. Average money market accounts increased $74.3 million
from the second quarter of 1996 to the second quarter of 1997, while average
Checking With Interest accounts increased $43.8 million between the two periods.
Time deposits of $100,000 or more averaged 9.36 percent of total average
deposits during the second quarter of 1997, compared to 9.23 percent during the
same period of 1996. Management does not consider the current level of high
dollar deposits to be excessive.
Borrowed Funds. At June 30, 1997, short-term borrowings totaled $488
million compared to $392 million at December 31, 1996 and $338.6 million at June
30, 1996. For the quarters ended June 30, 1997 and 1996, short-term borrowings
averaged $409.1 million and $320.6 million, respectively. This increase
resulted from short-term borrowings relating to the formation of FCB-VA during
the second quarter of 1997. Long-term obligations averaged $11.5 million during
the second quarter of 1997, compared to $12.9 million during the second quarter
of 1996.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $64.5 million during the second quarter of 1997, a $3.1 million or 5
percent increase from the second quarter of 1996. The higher interest expense
was the result of the $294 million increase in average interest-bearing
liabilities. The rate on these liabilities was 4.08 percent during the second
quarter of 1997, compared to 4.09 percent during the second quarter of 1996.
NET INTEREST INCOME
Net interest income totaled $75.6 million during the second quarter
of 1997, an increase of 6.1 percent from the second quarter of 1996.
The taxable-equivalent net yield on interest-earning assets was 4.14
percent for the second quarter of 1997, unchanged from the second
quarter of 1996. The taxable equivalent interest rate spread for the
second quarter of 1997 was 3.52 percent compared to 3.53 percent for the
same period of 1996.
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, 1997, the reserve for loan losses amounted
to $81.9 million or 1.64 percent of loans outstanding. This compares to $81.4
million or 1.65 percent at December 31, 1996, and $81 million or 1.65 percent at
June 30, 1996.
Management considers the established reserve adequate to absorb losses that
relate to loans outstanding at June 30, 1997. While management uses available
information to establish provisions for loan losses, future additions to the
reserve may be necessary based on changes in economic conditions or other
factors. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the reserve for loan losses. Such
agencies may require the recognition of additions to the reserve based on their
judgments of information available to them at the time of their examination.
The provision for loan losses charged to operations during the second
quarter of 1997 was $2.1 million, compared to $2.3 million during the second
quarter of 1996. Net charge-offs for the six months ended June 30, 1997 totaled
$3.3 million, compared to net charge-offs of $2.7 million during the same period
of 1996. The higher level of net charge-offs during 1997 have resulted from
higher retail installment loan charge-offs as well as higher revolving loan
charge-offs, a trend that management attributes to the rapid growth in personal
bankruptcies. These higher levels of retail charge-offs have been partially
offset by an increase in commercial loan recoveries. While net charge-offs have
increased from 1996 to 1997, the annualized net charge-offs represent only 0.13
percent of loans outstanding for the six months ending June 30, 1997. Management
remains committed to maintaining high levels of credit quality. Table 6 provides
details concerning the reserve and provision for osses over the past five
quarters and for the year-to-date for 1997 and 1996.
Nonperforming assets. At June 30, 1997, BancShares' nonperforming assets
amounted to $15.7 million or 0.31 percent of gross loans plus foreclosed
properties, compared to $14 million at December 31, 1996, and $16.1 million at
June 30, 1996. Management continues to closely monitor nonperforming assets,
taking necessary actions to minimize potential exposure.
NONINTEREST INCOME
During the first six months of 1997, noninterest income was $52.3 million,
compared to $49.1 million during the same period of 1996. The 6.4 percent
increase was due to growth in the credit card operation, improved trust income,
and higher other service charge and fee income. As a result of continued growth
in merchant income and growth in the number of cardholders, credit card fee
income increased 20.6 percent from the first six months of 1996 to the same
period of 1997. Income earned by the trust department increased 22.8 percent
from the first six months of 1997, the result of growth in the assets under
management.
Other service charges and fees included fees earned by First Citizens
Investor Services, which, during the first six months of 1997, were $2.5 million
compared to $1.7 million during the same period of 1996. The 47.2 percent
increase in fees resulted from growth in the subsidiary's sales of mutual fund
and annuity products. Fee income also benefitted from a 12.1 percent increase
in income generated from processing services provided to affiliate banks. These
fees contributed $4.9 million during the first six months of 1997.
NONINTEREST EXPENSE
Noninterest expense was $145.4 million for the first six months of
1997, a 10.5 percent increase over the $131.5 million recorded during
the same period of 1996. Much of the increase in noninterest expense
resulted from higher personnel-related expenses. Salaries and wages were
$61.9 million during the first six months of 1997, an increase of 8.5
percent or $4.9 million over the same period of 1996. This increase is
due to merit increases, as well as growth in incentives paid to sales
associates. Employee benefits expense increased 19.9 percent from 1996
to 1997, the result of growth in health insurance expense. Equipment
expense increased 18.8 percent during the first six months of 1997,
compared to the corresponding period of 1996 due to increased
maintenance contracts and increased equipment rental costs. Occupancy
expense increased 6.4 percent during the first six months of 1997, the
result of higher rent and depreciation expense. The $3.9 million
increase in other e resulted from increases in advertising expense,
expenses related to travel awards provided to credit card customers
based on their card usage, and consultant expense, much of which relates
to addressing technological compliance with the year 2000.
INCOME TAXES
Income tax expense amounted to $19.4 million during the first six months of
1997, compared to $18.9 million during the same period of 1996, a 2.3 percent
increase resulting from higher pre-tax income. The effective tax rates for
these periods were 36.2 percent and 36.3 percent, respectively. The slight
decrease in the effective tax rate from 1996 to 1997 results from a decrease in
state income taxes.
LIQUIDITY
Management relies on the investment portfolio as a source of liquidity,
with maturities designed to provide needed cash flows. Further, retail deposits
generated throughout the branch network have enabled management to fund asset
growth and maintain liquidity.. In the event additional liquidity is needed,
BancShares maintains readily available sources to borrow funds through its
correspondent network.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all minimum
regulatory capital requirements. At June 30, 1997 and 1996, the leverage
capital ratio of BancShares was 6.6 percent and 6.4 percent, respectively,
surpassing the minimum level of 3 percent. As a percentage of risk-adjusted
assets, BancShares' core capital ratio was 10.3 percent at June 30, 1997, and
9.8 percent as of June 30, 1996. The minimum ratio allowed is 4 percent of
risk-adjusted assets. The total risk-adjusted capital ratio was 11.4 percent at
June 30, 1997 and 11 percent as of June 30, 1996. The minimum total capital
ratio is 8 percent. BancShares and its subsidiary banks exceed the capital
standards established by their respective regulatory agencies.
CURRENT ACCOUNTING AND REGULATORY ISSUES
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," SFAS No. 128
"Earnings Per Share" and SFAS No. 129 "Disclosure of Information about Capital
Structure," (collectively, the "Pronouncements"). The Pronouncements are
effective for 1997 and require disclosures regarding the matters included in the
respective titles. Adoption of each of the Pronouncements is not expected to
have a material impact on BancShares' consolidated financial statements. FASB
has also issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information."
Management is currently evaluating SFAS. No. 130 and SFAS No. 131 and has not
determined what impact, if any, those statements will have upon BancShares'
consolidated financial statements.
Management is not aware of any current recommendations by regulatory
authorities that, if implemented, would have or would be reasonably likely to
have a material effect on liquidity, capital ratios or results of operations.
NOTE A
ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
statements.
In the opinion of management, the consolidated statements contain all
material adjustments necessary to present fairly the financial position of First
Citizens BancShares, Inc. ("BancShares") as of and for each of the periods
presented, and all such adjustments are of a normal recurring nature. These
financial statements should be read in conjunction with the financial statements
and notes included in the 1996 First Citizens BancShares Annual Report, which is
incorporated by reference on Form 10-K.