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, 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-- 9,631,599 shares
Class B Common Stock--$1 Par Value-- 1,753,854 shares
(Number of shares outstanding, by class, as of November 13, 1997)
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997,
December 31, 1996, and September 30, 1996
Consolidated Statements of Income for the three-month
and nine-month periods ended September 30, 1997, and September 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
for the three-month and nine-month periods ended September 30, 1997,
and September 30, 1996
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1997, and September 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.
27 Financial Data Schedule
3.(ii) Amended Bylaws of Registrant
(b) Reports on Form 8-K. During the quarter ended
September 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: November 13, 1997 By:/s/Kenneth A. Black
Kenneth A. Black
Vice President, Treasurer,
and Chief Financial Officer
First Citizens BancShares, Inc and Subsidiaries
Third Quarter 1997
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
September 30* December 31# September 30*
(thousands, except share data) 1997 1996 1996
Assets
Cash and due from banks $451,772 $437,029 $422,343
Investment securities 2,432,424 2,138,831 1,912,448
Federal funds sold 70,000 156,000 203,600
Loans 5,208,195 4,930,508 4,914,748
Less reserve for loan losses 83,385 81,439 81,192
Net loans 5,124,810 4,849,069 4,833,556
Premises and equipment 264,066 229,496 222,118
Income earned not collected 63,268 60,175 56,942
Other assets 189,251 184,972 175,111
Total assets $8,595,591 $8,055,572 $7,826,118
Liabilities
Deposits:
Noninterest-bearing $1,104,615 $1,087,474 $1,084,166
Interest-bearing 6,193,269 5,866,554 5,724,199
Total deposits 7,297,884 6,954,028 6,808,365
Short-term borrowings 539,382 392,006 332,448
Long-term obligations 11,482 6,922 6,715
Other liabilities 84,353 87,109 85,626
Total liabilities 7,933,101 7,440,065 7,233,154
Shareholders' Equity
Common stock:
Class A - $1 par value (9,633,699; 9,651,900;
and 9,668,576 shares issued, respectively) 9,634 9,652 9,669
Class B - $1 par value (1,756,229; 1,758,980;
and 1,759,404 shares issued, respectively) 1,756 1,759 1,759
Surplus 143,760 143,760 143,753
Retained earnings 496,673 453,640 437,783
Unrealized gains on marketable equity securities, net of taxes 10,667 6,696 -
Total shareholders' equity 662,490 615,507 592,964
Total liabilities and shareholders' equity $8,595,591 $8,055,572 $7,826,118
* 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
Third Quarter 1997
Consolidated Statements of Income
First Citizens BancShares, Inc. and Subsidiaries
Three Months Nine Months
Ended September 30 Ended September 30
(thousands, except per share data, unaudited) 1997 1996 1997 1996
Interest income
Loans $107,892 $104,013 $317,748 $306,779
Investment securities:
U. S. Government 34,732 27,902 96,461 84,184
State, county and municipal 53 78 203 252
Other 25 43 84 131
Total investment securities interest income 34,810 28,023 96,748 84,567
Federal funds sold 2,792 2,234 7,555 5,194
Total interest income 145,494 134,270 422,051 396,540
Interest expense
Deposits 62,063 57,090 178,778 172,712
Short-term borrowings 6,651 4,130 15,806 11,761
Long-term obligations 233 158 611 813
Total interest expense 68,947 61,378 195,195 185,286
Net interest income 76,547 72,892 226,856 211,254
Provision for loan losses 1,309 1,787 4,973 5,586
Net interest income after provision for loan losses 75,238 71,105 221,883 205,668
Noninterest income
Trust income 2,808 2,269 8,361 6,792
Service charges on deposit accounts 10,615 10,072 30,865 30,497
Credit card income 5,574 4,505 14,190 11,652
Other service charges and fees 7,306 6,120 20,093 17,728
Other 4,784 3,111 9,886 8,553
Total noninterest income 31,087 26,077 83,395 75,222
106,325 97,182 305,278 280,890
Noninterest expense
Salaries and wages 31,944 29,203 93,796 86,186
Employee benefits 5,967 5,239 17,883 15,181
Occupancy expense 6,066 5,600 17,571 16,411
Equipment expense 8,337 6,881 23,571 19,699
Other 24,247 31,174 69,141 72,168
Total noninterest expense 76,561 78,097 221,962 209,645
Income before income taxes 29,764 19,085 83,316 71,245
Income taxes 10,746 6,647 30,122 25,596
Net income $19,018 $12,438 $53,194 $45,649
Per Share
Net income $1.67 $1.08 $4.67 $4.03
Cash dividends 0.250 0.225 0.750 0.675
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Third 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 87,992 shares of Class A
common stock pursuant to the Employee
Stock Purchase Plan 87 3,951 4,038
Issuance of 8,736 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
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
Balance at December 31, 1996 $9,652 $1,759 $143,760 $453,640 $6,696 $615,507
Redemption of 18,201 shares of Class A
common stock and 2,751 shares of
Class B common stock (18) (3) (1,627) (1,648)
Net income 53,194 53,194
Unrealized gain on marketable equity
securities, net of taxes 3,971 3,971
Cash dividends (8,534) (8,534)
Balance at September 30, 1997 $9,634 $1,756 $143,760 $496,673 $10,667 $662,490
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Consolidated Statements of Cash Flows
First Citizens BancShares, Inc. and Subsidiaries
Nine Months Ended September 30
(thousands, unaudited) 1997 1996
Operating Activities
Net income $53,194 $45,649
Adjustments:
Amortization of intangibles 6,665 6,032
Provision for loan losses 4,973 5,586
Deferred tax benefit (760) (1,966)
Change in current taxes payable (1,326) 874
Depreciation 14,009 12,700
Change in accrued interest payable (1,849) (3,815)
Change in income earned not collected (3,210) 2,371
Origination of loans held for sale (312,429) (124,649)
Proceeds from sale of loans 321,909 77,465
(Gain) loss on mortgage loans 300 69
Net amortization of premiums and discounts 5,491 9,705
Net change in other assets 10,093 (3,442)
Net change in other liabilities (3,563) 6,556
Net cash provided by operating activities 93,497 33,135
Investing Activities
Net increase in loans outstanding (253,192) (86,055)
Purchases of investment securities (651,725) (624,374)
Proceeds from maturities of investment securities 363,770 703,613
Net change in federal funds sold 86,000 (163,155)
Dispositions of premises and equipment 1,305 4,263
Additions to premises and equipment (48,594) (28,854)
Purchase of institutions, net of cash acquired 105,535 7,584
Net cash used by investing activities (396,901) (186,978)
Financing Activities
Net change in time deposits 185,438 44,550
Net change in demand and other interest-bearing dep (9,045) 167,339
Net change in short-term borrowings 151,936 (77,408)
Repurchases of common stock (1,648) (3,374)
Proceeds from issuance of stock - 4,161
Cash dividends paid (8,534) (7,712)
Net cash provided by financing activities 318,147 127,556
Change in cash and due from banks 14,743 (26,287)
Cash and due from banks at beginning of period 437,029 448,630
Cash and due from banks at end of period $451,772 $422,343
Cash payments for:
Interest $197,558 $189,101
Income taxes 27,476 27,569
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 $6,575 -
See accompanying Note to Consolidated Financial Statements.
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Financial Summary
1997 1996
Nine Months Ended
Third Second First Fourth Third September 30
(thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996
S>
Summary of Operations
Interest Income $145,494 $140,118 $136,439 $137,655 $134,270 $422,051 $396,540
Interest income - taxable equivalent 145,999 140,634 136,961 138,222 134,837 423,594 398,279
Interest expense 68,947 64,542 61,706 62,964 61,378 195,195 185,286
Net interest income-taxable equivalent 77,052 76,092 75,255 75,258 73,459 228,399 212,993
Taxable equivalent adjustment 505 516 522 567 567 1,543 1,739
Net interest income 76,547 75,576 74,733 74,691 72,892 226,856 211,254
Provision for loan losses 1,309 2,097 1,567 3,321 1,787 4,973 5,586
Net interest income after provision for loan los 75,238 73,479 73,166 71,370 71,105 221,883 205,668
Noninterest income 31,087 28,894 23,414 28,082 26,077 83,395 75,222
Noninterest expense 76,561 74,817 70,584 69,023 78,097 221,962 209,645
Income before income taxes 29,764 27,556 25,996 30,429 19,085 83,316 71,245
Income taxes 10,746 9,972 9,404 10,611 6,647 30,122 25,596
Net income 19,018 $17,584 $16,592 $19,818 $12,438 $53,194 $45,649
Selected Average Balances
Total assets 8,411,774 $8,099,236 $7,903,566 $7,935,197 $7,670,538 $8,140,047 $7,595,760
Investment securities 2,359,115 2,166,362 2,094,376 2,097,690 1,919,935 2,207,587 1,964,606
Loans 5,073,404 5,023,409 4,921,346 4,895,815 4,907,435 5,006,665 4,824,286
Interest-earning assets 7,632,755 7,368,645 7,196,138 7,209,982 6,989,109 7,400,834 6,913,094
Deposits 7,144,502 6,952,848 6,823,697 6,831,926 6,641,427 6,974,860 6,593,327
Interest-bearing liabilities 6,608,892 6,341,125 6,203,598 6,185,161 6,017,476 6,386,022 5,997,428
Long-term obligations 12,017 11,545 6,809 6,866 7,762 10,142 15,705
Shareholders' equity 651,923 $635,680 $619,956 $599,953 $589,618 $635,667 $569,400
Shares outstanding 11,389,472 11,394,965 11,398,246 11,415,943 11,441,007 11,394,195 11,315,813
Profitability Ratios (averages)
Rate of return (annualized) on:
Total assets 0.90% 0.87% 0.85% 0.99% 0.65% 0.87% 0.80%
Shareholders' equity 11.57 11.10 10.85 13.14 8.39 11.19 10.71
Dividend payout ratio 14.97 16.23 17.12 14.37 19.57 16.06 16.75
Liquidity and Capital Ratios (averages)
Loans to deposits 71.01% 72.25% 72.12% 71.66% 73.89% 71.78% 73.17%
Shareholders' equity to total assets 7.75 7.85 7.84 7.56 7.69 7.81 7.50
Time certificates of $100,000 or more to total
deposits 9.68 9.36 9.30 8.79 8.61 9.47 9.03
Per Share of Stock
Net income $1.67 $1.54 $1.46 $1.74 $1.08 $4.67 $4.03
Cash dividends 0.250 0.250 0.250 0.250 0.225 0.75 0.675
Book Value at period end 58.16 56.55 55.22 53.94 51.89 58.16 51.89
Tangible book value at period end 49.27 48.10 46.89 45.42 43.03 49.27 43.03
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Outstanding Loans by Type
Table 2
1997 1996
Third Second First Fourth Third
(thousands) Quarter Quarter Quarter Quarter Quarter
Real estate:
Construction and land development $108,363 $109,125 $103,361 $109,806 $107,651
Mortgage:
1-4 family residential 1,411,922 1,383,250 1,529,972 1,542,836 1,587,352
Commercial 970,553 942,637 906,408 882,067 850,358
Equity Line 548,959 510,067 430,924 411,856 411,893
Other 133,661 134,793 134,852 132,954 135,241
Commercial and industrial 588,158 569,327 533,812 514,535 516,857
Consumer 1,355,783 1,258,330 1,230,501 1,251,704 1,218,605
Lease financing 75,922 73,861 69,496 68,694 69,984
Other 14,874 15,380 15,809 16,056 16,807
Total loans 5,208,195 4,996,770 4,955,135 4,930,508 4,914,748
Less reserve for loan losses 83,385 81,902 81,459 81,439 81,192
Net loans $5,124,810 $4,914,868 $4,873,676 $4,849,069 $4,833,556
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Investment Securities
Table 3
September 30, 1997 September 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 $1,054,982 $1,055,159 0/6 5.77% $749,731 $750,814 0/6 5.97
One to five years 1,363,244 1,365,991 1/10 5.97 1,142,458 1,133,318 1/9 5.78
Five to ten years 2,906 2,961 6/0 5.52 3,251 2,175 6/10 5.76
Over ten years 4,855 4,976 19/10 7.50 7,733 7,752 18/7 7.43
Total 2,425,987 2,429,087 1/3 5.88 1,903,173 1,894,059 1/4 5.85
State, county and municipal:
Within one year 910 1,119 0/7 6.23 777 781 0/9 6.32
One to five years 3,425 3,491 2/11 6.89 4,067 4,332 2/11 6.95
Five to ten years 509 544 5/2 8.16 1,271 1,293 5/1 6.29
Over ten years 175 175 19/11 9.14 185 185 20/11 9.14
Total 5,019 5,329 3/3 6.98 6,300 6,591 3/9 6.99
Other
Within one year 853 852 0/4 14.20 1,553 1,552 0/6 6.48
One to five years 555 552 1/5 5.42 1,377 1,631 1/10 11.08
Five to ten years 10 10 5/4 5.63 45 45 5/8 5.43
Total 1,418 1,414 0/9 12.37 2,975 2,958 11/9 8.62
Total investment securities $2,432,424 $2,435,830 1/3 5.89% $1,912,448 $1,903,608 1/4 5.87%
/Table>
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Third 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 $3,092,757 $64,611 8.33 % $3,089,270 $63,442 8.17 % ($3) $1,172 $1,169
Commercial and industrial 583,231 13,079 8.68 513,849 11,616 8.56 1,402 61 1,463
Consumer 1,305,113 28,731 8.80 1,218,164 27,734 9.00 1,781 (784) 997
Lease financing 77,472 1,621 8.85 69,089 1,393 8.07 131 97 228
Other 14,831 327 7.71 17,063 352 8.19 (25 0 (25)
Total loans 5,073,404 108,369 8.52 4,907,435 104,537 8.43 3,286 546 3,832
Investment securities:
U. S. Government 2,352,277 34,732 5.86 1,910,705 27,902 5.81 6,528 302 6,830
State, county and municipal 5,213 81 6.16 6,253 121 7.70 (18 (22) (40)
Other 1,625 25 6.10 2,977 43 5.75 (20 2 (18)
Total investment securities 2,359,115 34,838 5.86 1,919,935 28,066 5.82 6,490 282 6,772
Federal funds sold 200,237 2,792 5.53 161,739 2,234 5.49 537 21 558
Total interest-earning assets $7,632,756 $145,999 7.62 % $6,989,109 $134,837 7.64 % $10,313 $849 $11,162
Liabilities
Deposits:
Checking With Interest $923,049 $2,478 1.07 % $867,218 $2,549 1.17 % $156 ($227) ($71)
Savings 707,477 3,588 2.01 724,255 3,769 2.07 (80 (101) (181)
Money market accounts 933,002 8,806 3.74 821,078 7,371 3.57 1,045 390 1,435
Time deposits 3,516,673 47,191 5.32 3,246,938 43,401 5.32 3,703 87 3,790
Total interest-bearing deposits 6,080,201 62,063 4.05 5,659,489 57,090 4.01 4,824 149 4,973
Federal funds purchased 20,386 284 5.53 14,534 273 7.47 96 (85) 11
Repurchase agreements 36,894 407 4.38 20,933 227 4.31 175 5 180
Master notes 313,366 3,689 4.67 280,947 3,142 4.45 377 170 547
U. S. Treasury tax and loan accounts 13,365 260 7.72 17,117 219 5.09 (60 101 41
Other short-term borrowings 132,663 2,011 6.01 16,694 269 6.41 1,816 (74) 1,742
Long-term obligations 12,017 233 7.69 7,762 158 8.10 85 (10) 75
Total interest-bearing liabilities $6,608,892 $68,947 4.14 % $6,017,476 $61,378 4.06 % $7,313 $256 $7,569
Interest rate spread 3.48 % 3.58 %
Net interest income and net yield
on interest-earning assets $77,052 4.01 % $73,459 4.18 % $3,000 $593 $3,593
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Nine 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 $3,100,969 $191,645 8.23% $3,032,058 $187,243 8.17 $3,626 $776 $4,402
Commercial and industrial 553,339 36,767 8.48 496,365 33,706 8.56 3,503 (442) 3,061
Consumer 1,265,298 85,276 8.92 1,213,816 82,514 9.00 3,483 (721) 2,762
Lease financing 71,834 4,616 8.57 65,337 3,906 8.07 429 281 710
Other 15,225 878 7.71 16,710 1,013 8.19 (83) (52) (135)
Total loans 5,006,665 319,182 8.51 4,824,286 308,382 8.53 10,958 (158) 10,800
Investment securities:
U. S. Government 2,199,958 96,461 5.86 1,954,881 84,184 5.75 10,604 1,673 12,277
State, county and municipal 5,775 312 7.22 6,748 388 7.68 (54) (22) (76)
Other 1,854 84 6.06 2,977 131 5.88 (50) 3 (47)
Total investment securities 2,207,587 96,857 5.87 1,964,606 84,703 5.76 10,500 1,654 12,154
Federal funds sold 186,582 7,555 5.41 124,202 5,194 5.59 2,568 (207) 2,361
Total interest-earning assets $7,400,834 $423,594 7.65 $6,913,094 $398,279 7.69 $24,026 $1,289 $25,315
Liabilities
Deposits:
Checking With Interest $914,580 $7,323 1.07 $865,771 $8,207 1.27 $437 ($1,321) ($884)
Savings 709,681 10,875 2.05 719,184 11,309 2.10 (157) (277) (434)
Money market accounts 900,416 24,875 3.69 814,794 21,524 3.53 2,318 1,033 3,351
Time deposits 3,419,691 135,705 5.31 3,247,178 131,672 5.42 6,849 (2,816) 4,033
Total interest-bearing deposits 5,944,368 178,778 4.02 5,646,927 172,712 4.09 9,447 (3,381) 6,066
Federal funds purchased 24,916 955 5.12 28,015 1,357 6.47 (135) (267) (402)
Repurchase agreements 28,337 915 4.32 21,424 697 4.35 224 (6) 218
Master notes 295,600 10,103 4.57 257,752 8,547 4.43 1,270 286 1,556
U. S. Treasury tax and loan accou 11,965 702 7.84 14,814 574 5.18 (139) 267 128
Other short-term borrowings 70,694 3,131 5.92 12,791 586 6.12 2,607 (62) 2,545
Long-term obligations 10,142 611 8.05 15,705 813 6.91 (312) 110 (202)
Total interest-bearing liabilitie $6,386,022 $195,195 4.09 $5,997,428 $185,286 4.13 $12,962 ($3,053) $9,909
Interest rate spread 3.56 3.56
Net interest income and net yield
on interest-earning assets $228,399 4.13% $212,993 4.12% $11,064 $4,342 $15,406
First Citizens BancShares, Inc. and Subsidiaries
Third Quarter 1997
Summary of Loan Loss Experience and Risk Elements
Table 6
1997 1996
Nine Months Ended
Third Second First Fourth Third September 30
(thousands, except ratios) Quarter Quarter Quarter Quarter Quarter 1997 1996
Reserve balance at beginning of period $81,902 $81,459 $81,439 $81,192 $81,026 $81,439 $78,495
Reserve of acquired loans 358 123 481 1,387
Provision for loan losses 1,309 2,107 1,557 3,321 1,787 4,973 5,586
Net charge-offs:
Charge-offs (3,162) (3,774) (3,538) (3,860) (2,697) (10,474) (7,793)
Recoveries 2,978 1,987 2,001 786 1,076 6,966 3,517
Net (charge-offs) recoveries (184) (1,787) (1,537) (3,074) (1,621) (3,508) (4,276)
Reserve balance at end of period $83,385 $81,902 $81,459 $81,439 $81,192 $83,385 $81,192
Historical Statistics
Balances
Average total loans $5,073,404 $5,023,409 $4,921,346 $4,895,815 $4,907,435 $5,006,665 $,824,286
Total loans at period-end 5,208,195 4,996,770 4,955,135 4,930,508 4,914,748 5,208,195 ,914,748
Risk Elements
Nonaccrual loans $11,983 $14,589 $14,628 $12,810 $14,213 11,983 14,213
Other real estate acquired through foreclosure 1,450 1,152 1,337 1,160 1,634 1,450 1,634
Total nonperforming assets $13,433 $15,741 $15,965 $13,970 $15,847 $13,433 $15,847
Accruing loans 90 days or more past due $4,157 $4,503 $5,748 $4,983 $5,601 $4,157 $5,601
Ratios
Net charge-offs (annualized) to average tota 0.01 % 0.14 % 0.13 % 0.25 % 0.13 % 0.09 % 0.12
Reserve for loan losses to total loans at pe 1.60 1.64 1.64 1.65 1.65 1.60 1.65
Nonperforming assets to total loans plus foreclosed
real estate at period-end 0.26 0.31 0.32 0.28 0.32 0.26 0.32
First Citizens BancShares, Inc. and Subsidiaries
Third 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 notes presented within this
report. The focus of this discussion concerns BancShares' three banking
subsidiaries. First-Citizens Bank & Trust Company ("FCB") operates branches in
North Carolina and Virginia; First-Citizens Bank & Trust Company of West
Virginia ("FCBWV") operates in West Virginia; and Atlantic States Bank operates
offices in Georgia and North Carolina.
SUMMARY
BancShares realized an increase in earnings of 52.9 percent during the third
quarter of 1997 compared to the third quarter of 1996. Consolidated net income
during the third quarter of 1997 was $19 million, compared to $12.4 million
earned during the corresponding period of 1996. The increase was primarily due
to the negative impact of the 1996 third quarter FDIC SAIF deposit assessment.
Net income during 1997 also benefitted from improved net interest income and
growth in noninterest income. Net income per share during the third quarter of
1997 totaled $1.67, compared to $1.08 during the third quarter of 1996. Return
on average assets was 0.90 percent for the third quarter of 1997 compared to
0.65 percent during the same period of 1996.
For the first nine months of 1997, BancShares recorded net income of $53.2
million, compared to $45.6 million earned during the first nine months of 1996.
The 16.5 percent increase was the net result of beneficial increases in net
interest income and noninterest income that were partially offset by higher
noninterest expenses. Net income per share for the first nine months of 1997
was $4.67, compared to $4.03 during the same period of 1996. BancShares returned
0.87 percent on average assets during the first nine months of 1997 compared to
0.80 percent during the corresponding period of 1996. During 1997, BancShares
has purchased a total of seven branch offices from other banks. BancShares also
purchased First Savings Financial Corp., the parent of First Savings Bank in
Reidsville, North Carolina. These acquisitions contributed a total of $167.5
million in deposits and $37.8 million in loans. All other increases result from
the existing banking network.
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 third quarter and Table 5 for the first nine months of 1997 and
1996.
INTEREST-EARNING ASSETS
Average interest-earning assets for the third quarter of
1997 totaled $7.63 billion, an increase of $643.6 million or 9.2 percent
from the third quarter of 1996. For the first nine months of 1997, earning
assets averaged $7.40 billion, an increase of $487.7 million over the same
period of 1996. These increases result from growth in the investment and
loan portfolios.
Loans. At September 30, 1997 and 1996, gross loans totaled $5.21 billion
and $4.91 billion, respectively. As of December 31, 1996, gross loans were
$4.93 billion. The $293.4 million growth in loans from September 30, 1996 to
September 30, 1997 results from growth within BancShares' commercial loan
products and retail growth within home equity and sales finance products during
1997. Acquisitions during 1997 contributed $37.8 million in loans outstanding at
September 30, 1997. Table 2 details outstanding loans by type for the past five
quarters.
During the third quarter of 1997, average loans totaled $5.07 billion,
an increase of $166 million or 3.4 percent from the comparable period of 1996.
Consumer loans averaged $1.31 billion during the third quarter of 1997, compared
to $1.22 billion during the same period of 1996, an increase of $87 million or
7.1 percent. Much of that growth results from indirect automobile financing.
Average commercial and industrial loans increased $69.4 million between the two
periods, a 13.5 percent increase. Loans secured by real estate averaged $3.09
billion during the third quarter of both years. This component of the loan
portfolio remained essentially unchanged as sales of residential mortgage loans
offset the increases in retail home equity loans.
For the year-to-date, loans have averaged $5.01 billion for 1997 compared to
$4.82 billion for the same period of 1996. This $182.4 million or 3.8 percent
increase is likewise due to growth among small business and retail customers.
The 2.3 percent increase in loans secured by real estate includes the impact of
the sale of the residential mortgage loans, partially offsetting the robust
growth in home equity loans during 1997.
As of September 30, 1997, $17.9 million in fixed-rate residential mortgage
loans are classified as held for sale. All loans held for sale are carried at
the lower of cost or market. During the first nine months of 1997, BancShares
sold $250.7 million in residential mortgage loans, compared to sales of $77.5
million during the same period of 1996. The sales during 1997 have resulted in a
net loss of $300,000, compared to a net loss of $67,000 from loan sales during
1996. Mortgage loan sale activity during the first nine months of 1997 has
resulted from two primary goals. First, as in the past, management seeks 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.
Management anticipates modest growth among commercial and indirect
installment loans for the rest of 1997. Direct installment loans and real-estate
loans will likely see sluggish loan growth. All growth projections, however,
remain 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 September 30, 1997 and 1996, the investment
portfolio totaled $2.43 billion and $1.91 billion, respectively. At December
31, 1996, the investment portfolio was $2.14 billion. The 27.2 percent increase
in the investment portfolio since September 30, 1996 resulted from deposit
growth that has exceeded loan demand. 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 3 presents detailed information
relating to the investment portfolio.
Included in other assets are marketable equity securities with a current
fair value of $29.2 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 $145.5
million during the third quarter of 1997, an 8.4 percent increase over the third
quarter of 1996. Balance sheet growth contributed to higher interest income in
the third quarter of 1997 when compared to the same period of 1996. The average
yield on total interest-earning assets for the third quarter of 1997 was 7.62
percent, compared to 7.64 percent for the corresponding period of 1996.
Loan interest income for the third quarter of 1997 was $107.9 million, an
increase of $3.9 million or 3.7 percent from the third quarter of 1996, due to
volume growth. The taxable-equivalent yield on the loan portfolio was 8.52
percent during the third quarter of 1997, compared to 8.43 percent during the
same period of 1996. The improved loan yield reflects the sale of lower-yielding
residential mortgage loans during 1997.
For the nine months ending September 30, 1997, loan interest income was
$317.7 million, an increase of $11 million or 3.6 percent over the same period
of 1996. The increase in interest income reflects the growth in the loan
portfolio.
Income earned on the investment securities portfolio amounted to $34.8
million during the third quarter of 1997 and $28 million during the same period
of 1996, an increase of $6.8 million or 24.2 percent. This increase is the
result of a $439.2 million increase in the average securities portfolio. The
securities portfolio taxable-equivalent yield increased from 5.82 percent for
the quarter ended September 30, 1996, to 5.86 percent for the quarter ended
September 30, 1997.
For the nine months ending September 30, 1997, interest income from
investment securities was $96.7 million, compared to $84.6 million during the
same period of 1996, an increase of 14.4 percent. This increase is the direct
result of growth in the securities portfolio.
INTEREST-BEARING LIABILITIES
At September 30, 1997 and 1996, interest-bearing liabilities totaled $6.74
billion and $6.06 billion, respectively, compared to $6.27 billion as of
December 31, 1996. During the third quarter of 1997, interest-bearing
liabilities averaged $6.61 billion, an increase of 9.8 percent from the third
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 September 30, 1997, total deposits were $7.30 billion, an
increase of $489.5 million or 7.2 percent over September 30, 1996. Compared to
the December 31, 1996 balance of $6.95 billion, total deposits have increased
$343.9 million. Acquisitions during 1997 have contributed a total of $167.5
million in deposits.
Average interest-bearing deposits were $6.08 billion during the third
quarter of 1997 compared to $5.66 billion during the third quarter of 1996, an
increase of 7.4 percent. Much of the increase is attributed to average time
deposits, which increased $269.7 million from the third quarter of 1996 to the
third quarter of 1997. Much of the growth in time deposits has resulted from
the in-store network that has expanded significantly during 1997. Average money
market accounts increased $111.9 million from the third quarter of 1996 to the
third quarter of 1997, while average Checking With Interest accounts increased
$55.8 million between the two periods. Time deposits of $100,000 or more
averaged 9.68 percent of total average deposits during the third quarter of
1997, compared to 8.61 percent during the same period of 1996. Management does
not consider the current level of high dollar deposits to be excessive.
Borrowed Funds. At September 30, 1997, short-term borrowings totaled $539.4
million compared to $392 million at December 31, 1996 and $332.4 million at
September 30, 1996. For the quarters ended September 30, 1997 and 1996,
short-term borrowings averaged $516.7 million and $350.2 million, respectively.
This increase resulted from short-term borrowings relating to the formation of
First Citizens Bank, A Virginia Corporation during the second quarter of 1997.
This company, a wholly-owned subsidiary of FCB, was created to own the retail
credit cards originated through FCB. The debt associated with the new
subsidiary is expected to remain outstanding until early 1998. Long-term
obligations averaged $12 million during the third quarter of 1997, compared to
$7.8 million during the third quarter of 1996. The increase in long-term
obligations results from the modification of outstanding debt during the second
quarter that extended the repayment of a note payable by another subsidiary of
FCB.
Expense on Interest-Bearing Liabilities. BancShares' interest expense
amounted to $68.9 million during the third quarter of 1997, a $7.6 million or
12.3 percent increase from the third quarter of 1996. The higher interest
expense was the result of the $591.4 million increase in average
interest-bearing liabilities. The rate on these liabilities was 4.14 percent
during the third quarter of 1997, compared to 4.06 percent during the third
quarter of 1996.
For the year-to-date, interest expense was $195.2 million, compared to
$185.3 million for the same period of 1996. The 5.3 percent increase is largely
due to the growth in time deposits.
NET INTEREST INCOME
Net interest income totaled $76.5 million during the third quarter of 1997,
an increase of 5 percent from the third quarter of 1996. The taxable-equivalent
net yield on interest-earning assets was 4.01 percent for the third quarter of
1997, down 17 basis points from the 4.18 percent achieved for the third quarter
of 1996. The taxable equivalent interest rate spread for the third quarter of
1997 was 3.48 percent compared to 3.58 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 September 30, 1997, the reserve for loan losses
amounted to $83.4 million or 1.60 percent of loans outstanding. This compares to
$81.4 million or 1.65 percent at December 31, 1996, and $81.2 million or 1.65
percent at September 30, 1996.
Management considers the established reserve adequate to absorb losses that
relate to loans outstanding at September 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 third quarter
of 1997 was $1.3 million, compared to $1.8 million during the third quarter of
1996. Net charge-offs for the nine months ended September 30, 1997 totaled $3.5
million, compared to net charge-offs of $4.3 million during the same period of
1996. The lower level of net charge-offs during 1997 have resulted from an
increase in commercial loan recoveries, which have more than offset the increase
in revolving credit charge-offs as well as higher retail installment loan
charge-offs. Management attributes the increase in revolving loan charge-offs
and retail installment loan charge-offs to an increase in personal bankruptcies.
The annualized net charge-offs represent only 0.09 percent of loans outstanding
for the nine months ending September 30, 1997. Management remains committed to
maintaining high levels of credit quality. Table 6 provides details concerning
the reserve and provision for loan losses ov past five quarters and for the
year-to-date for 1997 and 1996.
Nonperforming assets. At September 30, 1997, BancShares' nonperforming
assets amounted to $13.4 million or 0.26 percent of gross loans plus foreclosed
properties, compared to $14 million at December 31, 1996, and $15.8 million at
September 30, 1996. Management continues to closely monitor nonperforming
assets, taking necessary actions to minimize potential exposure.
NONINTEREST INCOME
During the first nine months of 1997, noninterest income was $83.4 million,
compared to $75.2 million during the same period of 1996. The 10.9 percent
increase was due to growth in the credit card operation, higher other service
charge and fee income, and improved trust income. Fee income from the credit
card operation has improved as a result of the relocation of the credit card
accounts to the Virginia bank. Continued growth in merchant income and the
number of cardholders has also contributed to a 21.8 percent increase in credit
card fee income from the first nine months of 1996 to the same period of 1997.
Income earned by the trust department increased 23.1 percent from the first nine
months of 1997, the result of growth in assets under management.
Other service charges and fees includes fees earned by First Citizens
Investor Services, which, during the first nine months of 1997, were $3.9
million compared to $2.5 million during the same period of 1996. The 53.7
percent increase in fees resulted from growth in the subsidiary's sales of
mutual fund and annuity products. Fee income also benefitted from a 12.1
percent increase in income generated from processing services provided to
affiliate banks. These fees contributed $7.7 million during the first nine
months of 1997, compared to $7.2 million during the same period of 1996.
Results from the sale of residential mortgage loans is included in other income;
these sale resulted in net losses of $300,000 for the first nine months of 1997,
compared to net losses of $67,000 during the same period of 1996.
NONINTEREST EXPENSE
Noninterest expense was $222 million for the first nine months of 1997, a
5.9 percent increase over the $209.6 million recorded during the same period of
1996. The comparison of operating expenses between 1996 and 1997 is
significantly affected by the 1996 SAIF assessment. Ignoring the impact of the
1996 SAIF assessment, the increase in noninterest expense would have been $22.6
million or 11.4 percent.
Much of the increase in noninterest expense resulted from higher
personnel-related expenses. Salaries and wages were $93.8 million during the
first nine months of 1997, an increase of 8.8 percent or $7.6 million over the
same period of 1996. This increase is the result of new associates hired for
Atlantic States Bank, First Citizens Direct, and the bank's "in-store" Financial
Service Centers. Employee benefits expense increased 17.8 percent from 1996 to
1997, the result of growth in health insurance expense.
Equipment expense increased 19.7 percent during the first nine months of
1997, compared to the corresponding period of 1996 due to higher technology
related expenditures. Equipment expenses increased $3.9 million during 1997. In
addition to equipment purchases and leases, maintenance costs continue to grow,
the result of investments in processing and delivery systems.
Occupancy expense increased 7.1 percent during the first nine months of
1997, the result of higher rent and depreciation expense. The $1.2 million
increase reflects the expanding branch franchise and the renovations of existing
facilities and construction of new offices.
The $3.0 million decrease in other expenses resulted from the absence of the
FDIC insurance assessment which adversely affected other expenses during 1996.
Without that single expense during the third quarter of 1996, other expenses
would have increased $7.3 million or 11.8 percent. The significant increases in
other expense include costs relating to technological issues related to the year
2000. During 1997, BancShares anticipates incurring $2 million in expense
related to Year 2000 remediation, with an additional $2 million to $3 million
incurred during 1998. Additional expense variances in other expenses during the
first nine months of 1997 when compared to the same period of 1996 include a
$1.4 million increase in advertising expense and a $1.2 million increase in
costs associated with a cardholder award program.
INCOME TAXES
Income tax expense amounted to $30.1 million during the first nine months of
1997, compared to $25.6 million during the same period of 1996, a 17.7 percent
increase resulting from higher pre-tax income. The effective tax rates for
these periods were 36.2 percent and 36 percent, respectively. The slight
increase in the effective tax rate from 1996 to 1997 results from an increase 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 September 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 10.1 percent at September 30, 1997,
and 9.9 percent as of September 30, 1996. The minimum ratio allowed is 4
percent of risk-adjusted assets. The total risk-adjusted capital ratio was 11.4
percent at September 30, 1997 and 11.1 percent as of September 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."
SFAS. No. 130 and SFAS No. 131 will alter the disclosure requirements, but will
have no impact on BancShares' consolidated financial statements.
Management is not aware of any current recommendations by regulatory
authorities that, if implemented, would have or would be reasonably likely to
have a material effect on liquidity, capital ratios or results of operations.
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. as of and for each of the periods presented, and all
such adjustments are of a normal recurring nature. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes included in the 1996 First Citizens BancShares Annual
Report, which is incorporated by reference on Form 10-K. Certain amounts for
prior years have been reclassified to conform with statement presentations for
1997. However, the reclassifications have no effect on shareholders' equity or
net income as previously reported.