UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the period ended March 31, 2001 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-- 8,813,454 shares Class B Common Stock--$1 Par Value-- 1,697,787 shares (Number of shares outstanding, by class, as of May 11, 2001)
INDEX PART I. FINANCIAL INFORMATION PAGES Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at March 31, 2001, December 31, 2000,and March 31, 2000 5 Consolidated Statements of Income for the three periods ended March 31, 2001, and March 31, 2000 6 Consolidated Statements of Changes in Shareholders' Equity for the three-month periods ended March 31, 2001, and March 31, 2000 7 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2001, and March 31, 2000 8 Note to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-21 Item 3. Market Risk Disclosure 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. During the quarter ended March 31, 2001, Registrant filed one Current Report on Form 8-K filing a press release that was issued addressing merger speculation. The Form 8-K was filed on March 1, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST CITIZENS BANCSHARES, INC. (Registrant) Dated: May 11, 2001 By:/s/Kenneth A. Black Kenneth A. Black Vice President, Treasurer, and Chief Financial Officer First Citizens BancShares, Inc and Subsidiaries Third Quarter 2001
<TABLE> <CAPTION> Consolidated Balance Sheets First Citizens BancShares, Inc. and Subsidiaries March 31* December 31# March 31* (thousands, except share data) 2001 2000 2000 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Assets Cash and due from banks $ 690,080 $ 755,930 $ 446,995 Overnight investments 876,925 431,382 521,441 Investment securities held to maturity 1,821,648 1,778,166 1,530,632 Investment securities available for sale 47,238 38,554 16,582 Loans 7,124,535 7,109,692 6,828,095 Less reserve for loan losses 103,825 102,655 99,590 - ------------------------------------------------------------------------------------------------------------------------------ Net loans 7,020,710 7,007,037 6,728,505 Premises and equipment 453,793 444,731 406,731 Income earned not collected 60,134 62,580 51,548 Other assets 175,389 173,237 178,298 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 11,145,917 $ 10,691,617 $9,880,732 ============================================================================================================================== Liabilities Deposits: Noninterest-bearing $1,457,456 $1,373,880 $1,382,750 Interest-bearing 7,907,900 7,597,988 6,913,100 - ------------------------------------------------------------------------------------------------------------------------------ Total deposits 9,365,356 8,971,868 8,295,850 Short-term borrowings 668,209 632,372 587,087 Long-term obligations 154,837 154,332 154,915 Other liabilities 127,380 122,317 101,744 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 10,315,782 9,880,889 9,139,596 Shareholders' equity Common stock: Class A-$1 par value (8,813,454; 8,813,454 and 8,846,489 shares issued, respectively) 8,813 8,813 8,847 Class B-$1 par value (1,700,021; 1,709,382 and 1,720,360 shares issued, respectively) 1,700 1,709 1,720 Surplus 143,766 143,766 143,766 Retained earnings 669,571 650,148 581,953 Accumulated other comprehensive income 6,285 6,292 4,850 - ------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 830,135 810,728 741,136 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 11,145,917 $ 10,691,617 $9,880,732 ============================================================================================================================== * Unaudited # Derived from the Consolidated Balance Sheets included in the 2000 Annual Report on Form 10-K. See accompanying Note to Consolidated Financial Statements. </TABLE> First Citizens BancShares, Inc and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Consolidated Statements of Income First Citizens BancShares, Inc. and Subsidiaries Three Months Ended March 31 (thousands, except per share data, unaudited) 2001 2000 - ----------------------------------------------------------------------------------------------------- <S> <C> <C> Interest income Loans $ 151,022 $ 137,911 Investment securities: U. S. Government 28,398 20,915 State, county and municipal 71 48 Other 512 122 - ----------------------------------------------------------------------------------------------------- Total investment securities interest income 28,981 21,085 Overnight investments 9,023 4,990 - ----------------------------------------------------------------------------------------------------- Total interest income 189,026 163,986 Interest expense Deposits 85,496 64,800 Short-term borrowings 7,776 6,431 Long-term obligations 3,171 3,150 - ----------------------------------------------------------------------------------------------------- Total interest expense 96,443 74,381 - ----------------------------------------------------------------------------------------------------- Net interest income 92,583 89,605 Provision for loan losses 5,676 3,459 - ----------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 86,907 86,146 Noninterest income Service charges on deposit accounts 15,931 14,060 Credit card income 9,400 7,841 Trust income 3,893 3,742 Fees from processing services 3,929 3,277 Commission-based income 3,229 2,782 ATM income 2,637 2,487 Mortgage income 1,278 1,405 Other service charges and fees 3,834 3,151 Securities gains 5,451 - Other 3,229 2,606 - ----------------------------------------------------------------------------------------------------- Total noninterest income 52,811 41,351 Noninterest expense Salaries and wages 43,834 41,025 Employee benefits 8,940 8,868 Occupancy expense 9,010 8,247 Equipment expense 9,686 9,169 Other 31,330 28,978 - ----------------------------------------------------------------------------------------------------- Total noninterest expense 102,800 96,287 - ----------------------------------------------------------------------------------------------------- Income before income taxes 36,918 31,210 Income taxes 14,059 11,696 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- Net income 22,859 19,514 - ----------------------------------------------------------------------------------------------------- Other comprehensive loss, net of taxes Unrealized securities losses arising during period (553) (2,858) Less: reclassification adjustment for gains included in net income (546) (1,128) - ----------------------------------------------------------------------------------------------------- Other comprehensive loss (7) (1,730) - ----------------------------------------------------------------------------------------------------- ===================================================================================================== Comprehensive income $ 22,852 $ 17,784 ===================================================================================================== Average shares outstanding 10,521,253 10,592,378 Per Share Net income $ 2.17 $ 1.84 Cash dividends 0.25 0.25 - ----------------------------------------------------------------------------------------------------- See accompanying Note to Consolidated Financial Statements. </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Consolidated Statements of Changes in Shareholders' Equity First Citizens BancShares, Inc. and Subsidiaries Accumulated Class A Class B Other Common Common Retained Comprehensive Total (thousands, except share data, unaudited) Stock Stock Surplus Earnings Income Equity - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Balance at December 31, 1999 $8,890 $1,720 $143,766 $567,801 $ 6,580 $728,757 Net income 19,514 19,514 Unrealized securities losses, net of deferred tax benefit (1,730) (1,730) Cash dividends (2,653) (2,653) Redemption of 43,550 shares of Class A common stock (43) (2,709) (2,752) ==================================================================================================================================== Balance at March 31, 2000 $8,847 $1,720 $143,766 $581,953 $ 4,850 $741,136 ==================================================================================================================================== Balance at December 31, 2000 $8,813 $1,709 $143,766 $650,148 $ 6,292 $810,728 Net income 22,859 22,859 Unrealized securities losses, net of deferred tax benefit (7) (7) Cash dividends (2,628) (2,628) Redemption of 9,361 shares of Class B common stock (9) (808) (817) ==================================================================================================================================== Balance at March 31, 2001 $8,813 $1,700 $143,766 $669,571 $ 6,285 $830,135 ==================================================================================================================================== See accompanying Note to Consolidated Financial Statements </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Consolidated Statements of Cash Flows First Citizens BancShares, Inc. and Subsidiaries Three months ended March 31 ------------------------------------ 2001 2000 - -------------------------------------------------------------------------------------------------------------------------------- (thousands, unaudited) <S> <C> <C> OPERATING ACTIVITIES Net income $22,859 $19,514 Adjustments to reconcile net income to cash provided by operating activities: Amortization of intangibles 2,865 2,951 Provision for loan losses 5,676 3,459 Deferred tax expense (benefit) 2,235 (1,505) Change in current taxes payable 15,787 11,944 Depreciation 7,941 7,377 Change in accrued interest payable (12,680) (4,368) Change in income earned not collected 2,446 1,073 Securities gains (5,451) - Origination of loans held for sale (102,161) (41,216) Proceeds from sale of loans held for sale 77,368 47,072 Loss on loans held for sale 2 10 Net amortization (accretion) of premiums and discounts (151) 1,113 Net change in other assets (3,907) (776) Net change in other liabilities 1,956 3,408 ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 14,785 50,056 - -------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net change in loans outstanding 16,623 (85,481) Purchases of investment securities held to maturity (409,041) (493,060) Purchases of investment securities available for sale (2,680) (867) Proceeds from maturities of investment securities held to maturity 365,710 314,636 Net change in overnight investments (445,543) (48,048) Dispositions of premises and equipment 2,007 990 Additions to premises and equipment (18,183) (17,701) Purchase and sale of branches, net of cash transferred 28,552 - - --------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (462,555) (329,531) - --------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net change in time deposits 156,458 64,806 Net change in demand and other interest-bearing deposits 192,565 57,446 Net change in short-term borrowings 35,820 18,018 Originations of long-term obligations 522 - Repurchases of common stock (817) (2,752) Cash dividends paid (2,628) (2,653) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 381,920 134,865 - -------------------------------------------------------------------------------------------------------------------------------- Change in cash and due from banks (65,850) (144,610) Cash and due from banks at beginning of period 755,930 591,605 ================================================================================================================================ Cash and due from banks at end of period $690,080 $446,995 ================================================================================================================================ CASH PAYMENTS FOR: Interest $109,123 $78,749 Income taxes 74 7,587 - -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Unrealized securities losses (553) (2,858) - -------------------------------------------------------------------------------------------------------------------------------- See accompanying Note to Consolidated Financial Statements. </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
Note to Consolidated Financial Statements First Citizens BancShares, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Note A Accounting Policies The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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 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 2000 First Citizens BancShares, Inc. Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2001. However, the reclassifications have no effect on shareholders' equity or net income as previously reported. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), which establishes accounting and reporting standards for derivative instruments and for hedging activities. BancShares adopted the provisions of Statement 133 on January 1, 2001, but, as a result of BancShares' limited use of derivative instruments, the adoption of Statement 133 did not have a material impact on its consolidated financial statements. First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Financial Summary Table 1 2001 2000 First Fourth Third Second First (thousands, except per share data and ratios) Quarter Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Summary of Operations Interest income $189,026 $189,328 $182,966 $171,890 $163,986 Interest expense 96,443 96,754 91,509 80,184 74,381 - ---------------------------------------------------------------------------------------------------------------- Net interest income 92,583 92,574 91,457 91,706 89,605 Provision for loan losses 5,676 4,857 4,197 2,975 3,459 - ---------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 86,907 87,717 87,260 88,731 86,146 Noninterest income 52,811 49,384 67,358 44,097 41,351 Noninterest expense 102,800 99,287 101,257 97,953 96,287 - ---------------------------------------------------------------------------------------------------------------- Income before income taxes 36,918 37,814 53,361 34,875 31,210 Income taxes 14,059 13,826 20,006 13,421 11,696 - ---------------------------------------------------------------------------------------------------------------- Net income $22,859 $23,988 $33,355 $21,454 $19,514 ================================================================================================================ Net interest income-taxable equivalent $93,091 $93,240 $92,162 $92,414 $90,374 - ---------------------------------------------------------------------------------------------------------------- Selected Quarterly Averages Total assets $10,785,178 $10,420,204 $10,167,665 $9,772,765 $9,658,251 Investment securities 1,854,401 1,747,536 1,633,653 1,594,291 1,497,278 Loans 7,101,238 7,077,991 7,036,622 6,917,041 6,789,203 Interest-earning assets 9,616,497 9,335,530 9,142,585 8,788,776 8,667,039 Deposits 9,037,155 8,693,634 8,524,930 8,211,252 8,128,968 Interest-bearing liabilities 8,470,303 8,126,969 7,886,410 7,560,267 7,512,781 Long-term obligations 154,639 154,609 154,979 153,773 155,171 Shareholders' equity $819,289 $799,234 $770,418 $748,648 $734,777 Shares outstanding 10,521,253 10,528,680 10,534,049 10,551,766 10,592,378 - ---------------------------------------------------------------------------------------------------------------- Selected Quarter-End Balances Total assets $11,145,917 $10,691,617 $10,361,296 $9,943,877 $9,880,732 Investment securities 1,868,886 1,816,720 1,730,439 1,543,033 1,547,214 Loans 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095 Interest-earning assets 9,870,346 9,357,794 9,278,658 8,871,522 8,896,750 Deposits 9,365,356 8,971,868 8,668,642 8,366,364 8,295,850 Interest-bearing liabilities 8,730,946 8,384,692 8,068,241 7,626,805 7,655,102 Long-term obligations 154,836 154,332 154,687 153,761 154,915 Shareholders' equity $830,135 $810,728 $789,341 $758,985 $741,136 Shares outstanding 10,513,475 10,522,836 10,533,814 10,534,614 10,566,849 - ---------------------------------------------------------------------------------------------------------------- Profitability Ratios (averages) Rate of return (annualized) on: Total assets 0.86 % 0.92 % 1.31 % 0.88 % 0.81 % Shareholders' equity 11.32 11.94 17.22 11.53 10.68 Dividend payout ratio 11.52 10.96 7.89 12.32 13.59 - ---------------------------------------------------------------------------------------------------------------- Liquidity and Capital Ratios (averages) Loans to deposits 78.58 % 81.42 % 82.54 % 84.24 % 83.52 % Shareholders' equity to total assets 7.60 7.67 7.58 7.66 7.61 Time certificates of $100,000 or more to total deposits 10.36 9.92 9.54 9.27 9.01 - ------------------------------------------------------------------------------------------------------------------- Per Share of Stock Net income $2.17 $2.28 $3.17 $2.03 $1.84 Cash dividends 0.25 0.25 0.25 0.25 0.25 Book value at period end 78.96 77.04 74.93 72.05 70.14 Tangible book value at period end 67.52 65.76 64.77 61.92 59.79 - ------------------------------------------------------------------------------------------------------------------- </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Outstanding Loans by Type Table 2 2001 2000 First Fourth Third Second First (thousands) Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Real estate: Construction and land development $237,354 $216,439 $209,592 $200,483 $208,518 Mortgage: 1-4 family residential 1,596,920 1,550,329 1,515,694 1,460,512 1,368,732 Commercial 1,997,798 1,993,067 1,980,802 1,934,302 1,866,544 Equity Line 862,231 851,810 838,198 813,908 776,164 Other 186,740 186,247 201,107 204,962 184,397 Commercial and industrial 943,722 933,515 942,507 946,067 950,445 Consumer 1,140,407 1,218,134 1,248,793 1,297,982 1,340,671 Lease financing 134,352 134,483 134,655 131,579 127,822 Other 25,011 25,668 26,425 17,029 4,802 - ------------------------------------------------------------------------------------------------------------------------------- Total loans 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095 Less reserve for loan losses 103,825 102,655 101,565 100,515 99,590 - ------------------------------------------------------------------------------------------------------------------------------- Net loans $7,020,710 $7,007,037 $6,996,208 $6,906,309 $6,728,505 - ------------------------------------------------------------------------------------------------------------------------------- </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Investment Securities Table 3 March 31, 2001 March 31, 2000 Average Taxable Average Taxable Book Fair Maturity Equivalent Book Fair Maturity Equivalent (thousands) Value Value (Yrs./Mos.) Yield Value Value (Yrs./Mos.) Yield - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> U. S. Government: Within one year $1,506,877 $1,518,839 0/6 6.18% $1,200,835 $1,184,701 0/7 5.63% One to five years 303,006 307,373 1/4 5.76 315,939 310,768 1/11 6.60 Five to ten years 199 207 8/3 8.04 309 310 8/7 8.11 Over 10 years 7,331 7,448 25/8 7.30 9,026 8,831 26/7 7.33 - ------------------------------------------------------------------------------------------------------------------------------------ Total 1,817,413 1,833,867 0/8 6.11 1,526,109 1,504,610 0/10 5.84 State, county and municipal: Within one year 650 653 0/3 7.41 900 904 0/6 7.28 One to five years 1,607 1,664 2/4 6.68 1,761 1,777 1/2 7.27 Five to ten years 142 151 8/1 5.88 - - - - Over ten years 1,541 1,712 15/3 5.85 1,557 1,586 18/0 8.59 - ------------------------------------------------------------------------------------------------------------------------------------ Total 3,940 4,029 9/11 6.30 4,218 4,267 7/7 7.76 Other: Within one year 10 10 0/9 5.36 10 10 0/4 5.24 One to five years 35 35 1/4 6.96 45 45 2/2 5.47 Five to ten years 250 250 7/4 4.50 250 250 8/4 2.25 - ------------------------------------------------------------------------------------------------------------------------------------ Total 295 295 5/0 4.96 305 305 5/6 4.95 - ------------------------------------------------------------------------------------------------------------------------------------ Total securities held to maturity 1,821,648 1,838,191 0/10 6.11% 1,530,632 1,509,182 1/0 5.85% Marketable equity securities 36,855 47,238 8,619 16,582 ==================================================================================================================================== Total investment securities $1,858,503 $1,885,429 $1,539,251 $1,525,764 ==================================================================================================================================== </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Consolidated Taxable Equivalent Rate/Volume Variance Analysis - First Quarter Table 4 2001 2000 Increase (decrease) due to: Interest Interest Average Income Yield Average Income Yield Yield (thousands) Balance Expense /Rate Balance Expense /Rate Volume /Rate Total - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets: Total loans $7,101,238 $151,489 8.64 % $6,789,203 $138,653 8.20 % $13,161 $2,260 $15,421 Investment securities: U. S. Government 1,811,204 28,398 6.36 1,474,744 20,915 5.70 4,916 2,567 7,483 State, county and municipal 5,210 112 8.72 3,615 75 8.34 33 4 37 Other 37,987 512 5.47 18,919 122 2.59 189 201 390 - -------------------------------------------------------------------------------------------------------------------------- Total investment securities 1,854,401 29,022 6.35 1,497,278 21,112 5.67 5,138 2,772 7,910 Overnight investments 660,859 9,023 5.54 380,558 4,990 5.27 3,725 308 4,033 ========================================================================================================================== Total interest-earning assets $9,616,498 $189,534 7.99 % $8,667,039 $164,755 7.63 % $22,024 $5,340 $27,364 ========================================================================================================================== Liabilities: Deposits: Checking with Interest $1,096,526 $ 1,920 0.71 % $1,065,212 $ 1,552 0.59 % $ 48 $ 320 $ 368 Savings 601,946 1,985 1.34 654,292 2,529 1.55 (202) (342) (544) Money market accounts 1,643,742 16,958 4.18 1,495,715 14,436 3.88 1,417 1,105 2,522 Time deposits 4,329,409 64,633 6.05 3,602,133 46,283 5.17 9,909 8,441 18,350 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 7,671,623 85,496 4.52 6,817,352 64,800 3.82 11,172 9,524 20,696 Federal funds purchased 74,151 1,003 5.49 33,672 471 5.63 555 (23) 532 Repurchase agreements 189,556 1,997 4.27 139,543 1,495 4.31 526 (24) 502 Master notes 325,452 3,961 4.94 306,817 3,518 4.61 202 241 443 Other short-term borrowings 54,885 815 6.02 60,226 947 6.32 (86) (46) (132) Long-term obligations 154,639 3,171 8.32 155,171 3,150 8.16 (26) 47 21 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $8,470,306 $ 96,443 4.62 % $7,512,781 $ 74,381 3.98 % $12,343 $9,719 $22,062 - -------------------------------------------------------------------------------------------------------------------------- Interest rate spread 3.37 % 3.65 % - -------------------------------------------------------------------------------------------------------------------------- Net interest income and net yield on interest-earning assets $ 93,091 3.93 % $ 90,374 4.19 % $9,681 ($4,379) $5,302 - -------------------------------------------------------------------------------------------------------------------------- Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% for each period, and a state income tax rate of 6.9% for 2001 and 7% for 2000. </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Table 5 2000 1999 Increase (decrease) due to: - ----------------------------------------------------------------------------------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Yield/ Total (thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets Total loans $6,914,735 $433,463 8.37 % $6,315,810 $377,772 7.99 % $36,742 $18,949 $55,691 Investment securities: U. S. Government 1,549,675 69,192 5.96 1,990,566 84,663 5.69 (19,096) 3,625 (15,471) State, county and municipal 4,057 258 8.49 2,921 165 7.55 68 25 93 Other 21,554 373 2.31 24,365 404 2.22 (47) 16 (31) - ----------------------------------------------------------------------------------------------------------------------------- Total investment securities 1,575,286 69,823 5.92 2,017,852 85,232 5.65 (19,075) 3,666 (15,409) Overnight investments 377,120 17,738 6.28 308,759 11,326 4.90 2,866 3,546 6,412 - ----------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $8,867,141 $521,024 7.85 % $8,642,421 $474,330 7.33 % $20,533 $26,161 $46,694 ============================================================================================================================= Liabilities Deposits: Checking with Interest $1,063,527 $4,669 0.59 % $1,073,106 $5,265 0.66 % ($41) ($555) ($596) Savings 642,781 7,392 1.54 693,574 8,107 1.56 (601) (114) (715) Money market accounts 1,463,926 46,039 4.20 1,330,206 34,052 3.42 3,829 8,158 11,987 Time deposits 3,770,027 156,314 5.54 3,711,848 135,104 4.87 2,387 18,823 21,210 - ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 6,940,261 214,414 4.13 6,808,734 182,528 3.58 5,574 26,312 31,886 Federal funds purchased 36,113 1,674 6.19 55,147 1,970 4.78 (777) 481 (296) Repurchase agreements 163,181 5,923 4.85 112,865 3,065 3.63 1,597 1,261 2,858 Master notes 303,394 11,859 5.22 320,233 9,649 4.03 (569) 2,779 2,210 Other short-term borrowings 56,413 2,728 6.46 57,497 2,280 5.30 (46) 494 448 Long-term obligations 154,642 9,476 8.19 157,533 9,539 8.10 (172) 109 (63) - ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $7,654,004 $246,074 4.29 % $7,512,009 $209,031 3.72 % $5,607 $31,436 $37,043 ============================================================================================================================= Interest rate spread 3.56 % 3.61 % - ----------------------------------------------------------------------------------------------------------------------------- Net interest income and net yield on interest-earning assets $274,950 4.14 % $265,299 4.10 % $14,926 ($5,275) $9,651 - ----------------------------------------------------------------------------------------------------------------------------- Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% for each period, and state income tax rates of 7.00% for 2000 and 1999. The taxable equivalent adjustment was $2,187 and $1,690 for 2000 and 1999, respectively. </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
<TABLE> <CAPTION> Summary of Loan Loss Experience and Risk Elements Table 5 2001 2000 First Fourth Third Second First (thousands, except ratios) Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Reserve balance at beginning of period $102,655 $101,565 $100,515 $99,590 $98,690 Provision for loan losses 5,676 4,857 4,197 2,975 3,459 Net charge-offs: Charge-offs (5,273) (5,232) (3,989) (3,395) (3,290) Recoveries 767 1,465 842 1,345 731 - --------------------------------------------------------------------------------------------------------------------- Net charge-offs (4,506) (3,767) (3,147) (2,050) (2,559) ===================================================================================================================== Reserve balance at end of period $103,825 $102,655 $101,565 $100,515 $99,590 ===================================================================================================================== Historical Statistics Balances Average total loans $7,101,238 $7,077,991 $7,036,622 $6,917,041 $6,789,203 Total loans at period-end 7,124,535 7,109,692 7,097,773 7,006,824 6,828,095 - --------------------------------------------------------------------------------------------------------------------- Risk Elements Nonaccrual loans $12,830 $15,933 $13,918 $9,910 $10,546 Other real estate acquired through foreclosure 3,082 1,880 2,079 1,249 2,071 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $15,912 $17,813 $15,997 $11,159 $12,617 - --------------------------------------------------------------------------------------------------------------------- Accruing loans 90 days or more past due $6,413 $6,731 $6,866 $6,051 $5,294 - --------------------------------------------------------------------------------------------------------------------- Ratios Net charge-offs (annualized) to average total loans 0.26 % 0.21 % 0.18 % 0.12 % 0.15 % Reserve for loan losses to total loans at period-end 1.46 1.44 1.43 1.43 1.46 Nonperforming assets to total loans plus foreclosed real estate at period-end 0.22 0.25 0.23 0.16 0.18 - --------------------------------------------------------------------------------------------------------------------- </TABLE> First Citizens BancShares, Inc. and Subsidiaries First Quarter 2001
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"). This discussion and analysis 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' two banking subsidiaries. First-Citizens Bank & Trust Company ("FCB") operates branches in North Carolina, Virginia, and West Virginia. Atlantic States Bank ("ASB") operates offices in Georgia and Florida. SUMMARY BancShares realized increased earnings during the first quarter of 2001 compared to the first quarter of 2000. Consolidated net income during the first quarter of 2001 was $22.9 million, compared to $19.5 million earned during the corresponding period of 2000. Net income per share during the first quarter of 2001 totaled $2.17, compared to $1.84 during the first quarter of 2000. Annualized return on average assets was 0.86 percent for the first quarter of 2001 and 0.81 percent for the first quarter of 2000. The higher net income and net income per share resulted from improved net interest income and noninterest income. These improvements were partially offset by higher noninterest expense and provision for loan losses during the first quarter of 2001. During the first quarter of 2001, BancShares recognized nonrecurring after-tax securities gains of $3.3 million. These gains were recognized as a result of business combinations involving companies in which BancShares had an equity investment. The securities received in exchange for the acquired entities are valued at their fair values, resulting in gain recognition. The securities gains recognized during the first quarter of 2001 represented $0.31 per share. Adjusting for the nonrecurring gains, net income per share for the first quarter of 2001 was $1.86. Adjusted return on average assets was 0.74 percent, and the adjusted return on average equity was 9.68 percent. There were no nonrecurring items during the first quarter of 2000. Various 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 first three months of 2001 and 2000. INTEREST-EARNING ASSETS At March 31, 2001, interest-earning assets totaled $9.87 billion, an increase of $973.6 million or 10.9 percent from March 31, 2000. This increase results from growth in overnight investments, investment securities and the loan portfolio. Loans. At March 31, 2001 and 2000, gross loans totaled $7.12 billion and $6.83 billion, respectively. As of December 31, 2000, gross loans were $7.11 billion. The $296.4 million growth in loans from March 31, 2000 to March 31, 2001 results from growth within BancShares' commercial and small business loans. This growth has resulted from customer demand and BancShares' continued focus on these products during this period. During the first quarter of 2001, loan demand among residential mortgage loans has surged due to interest rate reductions. As much of BancShares' residential mortgage loan production is immediately sold into the secondary market, this loan demand does not generate growth in loans outstanding. When combined with more modest demand for other loan products, loans outstanding have been essentially unchanged from December 31, 2000 to March 31, 2001. During the first quarter of 2001, loans averaged $7.10 billion, an increase of $312.0 million or 4.6 percent from the comparable period of 2000. Demand among commercial, business, and EquityLine customers and BancShare'ability to offer desirable products through accessible delivery networks fueled the strong growth in loans. Commercial loans, which averaged $2.62 billion during the first quarter of 2001, increased $118.6 million or 4.7 percent over the first quarter of 2000. Business loans, which averaged $830.2 million during the first quarter of 2001, increased $153.4 million over the first quarter of 2000. EquityLine loans averaged $860.5 million during the first three months of 2001, compared to $765.1 million during the same period in 2000. This represents an increase of $95.3 million, or 12.5 percent, over the first three months of 2000 as consumers continue to demand the flexibility offered by lines of credit secured by home equity. Management anticipates modest growth among commercial-purpose loans during 2001. Management projects retail loans will experience further run-off during 2001 due to reductions in automobile loans originated through FCB's sales finance network. Growth projections are largely dependent on interest rate movements, as further easing of interest rates will stimulate retail and commercial loan growth. Investment securities. At March 31, 2001 and 2000, the investment portfolio totaled $1.87 billion and $1.55 billion, respectively. At December 31, 2000, the investment portfolio was $1.82 billion. The $321.7 million, or 20.8 percent increase in investment securities results from securities purchases made as a result of renewed deposit growth during late 2000 and the first quarter of 2001. All securities that are classified as held-to-maturity reflect BancShares' ability and positive intent to hold those investments until maturity. Available-for-sale securities are reported at their aggregate fair value. Table 3 presents detailed information relating to the investment securities portfolio. Overnight investments. Overnight investments averaged $660.9 million during the first quarter of 2001, an increase of $280.3 million or 73.7 percent from the first quarter of 2000. This growth resulted from strong deposit growth. Income on Interest-Earning Assets. Interest income amounted to $189.0 million during the first quarter of 2001, a 15.3 percent increase over the first quarter of 2000. Growth among interest-earning assets and improved yields contributed to higher interest income in the first quarter of 2001 when compared to the same period of 2000. The taxable-equivalent yield on interest-earning assets for the first quarter of 2001 was 7.99 percent, compared to 7.63 percent for the corresponding period of 2000. Loan interest income for the first quarter of 2001 was $151.0 million, an increase of $13.1 million or 9.5 percent from the first quarter of 2000, the combined result of volume growth and improved yields. The taxable-equivalent yield on the loan portfolio was 8.64 percent during the first quarter of 2001, compared to 8.20 percent during the same period of 2000. The higher loan yields resulted from market-driven rate movements and a lower percentage of the loan portfolio in lower-yielding loans. Income earned on the investment securities portfolio amounted to $29.0 million during the first quarter of 2001 and $21.1 million during the same period of 2000, an increase of $7.9 million or 37.5 percent. This increase is the result of a $357.1 million increase in the average securities portfolio and a 68 basis point yield increase. The increase in the average securities portfolio reflects slower growth in the loan portfolio and stronger growth among deposit liabilities. The investment securities portfolio taxable-equivalent yield increased from 5.67 percent for the quarter ended March 31, 2000, to 6.35 percent for the quarter ended March 31, 2001, the result of increased market rates. Interest income from overnight investments increased $4.0 million from the first quarter of 2000 to the same period of 2001, an 80.1 percent increase. This large increase results from higher average invested balances and a 27 basis point yield improvement. As a result of reductions in interest rates by the Federal Reserve during 2001, management anticipates the rate of growth in interest income to soften somewhat during the second and third quarters of 2001. However, continued asset growth should allow net interest income to see modest growth in coming quarters. INTEREST-BEARING LIABILITIES. At March 31, 2001 and 2000, interest-bearing liabilities totaled $8.73 billion and $7.66 billion, respectively, compared to $8.38 billion as of December 31, 2000. During the first quarter of 2001, interest-bearing liabilities averaged $8.47 billion, an increase of $957.5 million or 12.7 percent from the first quarter of 2000. This increase primarily resulted from an increase in interest-bearing deposits. Since March 31, 2000, the net impact of all deposit assumptions and divestitures was a net increase of $101.8 million. Deposit liabilities assumed since December 31, 2000 total $50,493. No deposits have been divested during 2001. Deposits. At March 31, 2001, total deposits were $9.37 billion, an increase of $1.07 billion or 12.9 percent over March 31, 2000. Compared to the December 31, 2000 balance of $8.97 billion, total deposits have increased $393.5 million. Average interest-bearing deposits were $7.67 billion during the first quarter of 2001 compared to $6.82 billion during the first quarter of 2000, an increase of $854.3 million, due primarily to growth among time deposits. Average time deposits increased $727.3 million from the first quarter of 2000 to the first quarter of 2001. Average money market account deposits increased $148.0 million or 9.9 percent for the first quarter of 2000 to the same period of 2001. Management attributes the growth in interest-bearing deposits from the first quarter of 2000 to the first quarter of 2001 to several factors. FCB and ASB have been focusing on deposit gathering and retention to fund the strong loan demand in their fast growing market areas. While these efforts have been successful, some of the deposit growth has resulted from investors seeking the safety of traditional bank deposits in recent quarters as equity markets have been extraordinarily volatile. Although it is unclear how long the economic uncertainty will continue to adversely affect the equity markets, BancShares continues to provide attractive products at reasonable rates to attract and retain core deposit relationships. Time deposits of $100,000 or more averaged 10.04 percent of total deposits during the first quarter of 2001, compared to 9.01 percent during the same period of 2000. Borrowed Funds. At March 31, 2001, short-term borrowings totaled $668.2 million compared to $632.4 million at December 31, 2000 and $587.1 million at March 31, 2000. For the quarters ended March 31, 2001 and 2000, short-term borrowings averaged $644.0 million and $540.3 million, respectively. The higher average short-term borrowings is primarily the result of growth among repurchase obligations, which resulted from increased customer demand. Additionally, federal funds purchased were higher due to increased purchases of correspondent banks' excess liquidity. Expense on Interest-Bearing Liabilities. BancShares' interest expense amounted to $96.4 million during the first quarter of 2001, a $22.1 million or 29.7 percent increase from the first quarter of 2000. The higher interest expense was the result of higher average volume and a 64 basis point increase in the aggregate blended rate on interest-bearing liabilities. The rate on these liabilities was 4.62 percent during the first quarter of 2001, compared to 3.98 percent during the first quarter of 2000. NET INTEREST INCOME Net interest income totaled $92.6 million during the first quarter of 2001, an increase of 3.3 percent from the first quarter of 2000. The improvement in net interest income results from balance sheet growth. The impact of the growth among interest-earning assets was greater than the cost resulting from the growth of interest-bearing liabilities. However, the unfavorable impact of changing interest rates partially offset the benefit of volume growth. The taxable-equivalent net yield on interest-earning assets was 3.93 percent for the first quarter of 2001, compared to the 4.19 percent achieved for the first quarter of 2000. The taxable equivalent interest rate spread for the first quarter of 2001 was 3.37 percent compared to 3.65 percent for the same period of 2000. 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. Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values or reduced net interest income in future periods. As of March 31, 2001, BancShares' market risk profile has not changed significantly from December 31, 2000. Changes in fair value that result from movement in market rates can not be predicted with any degree of certainty. Therefore, the impact that future changes in market rates will have on the fair values of financial instruments is uncertain. ASSET QUALITY Reserve for loan losses. Management continuously analyzes the growth and risk characteristics of the total loan portfolio under current 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 probable credit losses. At March 31, 2001, the reserve for loan losses amounted to $103.8 million or 1.46 percent of loans outstanding. This compares to $102.7 million or 1.44 percent at December 31, 2000, and $99.6 million or 1.46 percent at March 31, 2000. The provision for loan losses charged to operations during the first quarter of 2001 was $5.7 million, compared to $3.5 million during the first quarter of 2000. The increase in the provision was largely attributable to an increase in net charge-offs during 2001 compared to 2000. Net charge-offs for the three months ended March 31, 2001 totaled $4.5 million, compared to net charge-offs of $2.6 million during the same period of 2000. On an annualized basis, these net charge-offs represent 0.26 percent and 0.15 percent of average loans outstanding during the respective periods. The $1.9 million increase in net charge-offs during 2001 primarily resulted from credit losses recorded on three commercial customers. Management remains committed to maintaining high levels of credit quality. Table 5 provides details concerning the reserve and provision for loan losses over the past five quarters. Nonperforming assets. At March 31, 2001, BancShares' nonperforming assets amounted to $15.9 million or 0.22 percent of gross loans plus foreclosed properties, compared to $17.8 million at December 31, 2000, and $12.6 million at March 31, 2000. Despite the volatility in recent quarters, management views these levels of nonperforming assets as further evidence of strong asset quality. Management continues to closely monitor nonperforming assets, taking necessary actions to minimize potential exposure. Management considers the established reserve adequate to absorb estimated probable losses that relate to loans outstanding at March 31, 2001. 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 adjustments to the reserve based on their judgments of information available to them at the time of their examination. NONINTEREST INCOME During the first three months of 2001, noninterest income was $52.8 million, compared to $41.4 million during the same period of 2000. The $11.5 million or 27.7 percent increase was due to nonrecurring securities transactions and growth in service charges on deposit accounts and credit card income. During the first quarter of 2001, BancShares recognized nonrecurring securities gains of $5.5 million. These gains were recognized as a result of business combinations involving companies in which BancShares had an equity investment. During the first three months of 2001, total service charges on deposit accounts were $15.9 million, compared to $14.1 million earned during the same period of 2000, an increase of $1.9 million or 13.3 percent. This increase resulted from volume growth and higher bad check charges adopted in late 2000. BancShares recorded credit card income of $9.4 million during the first quarter of 2001, compared to $7.8 million earned during the same period of 2000. The $1.6 million or 19.9 percent increase resulted from higher interchange income and merchant fee income. NONINTEREST EXPENSE Noninterest expense was $102.8 million for the first three months of 2001, a 6.8 percent increase over the $96.3 million recorded during the same period of 2000. Much of the $6.5 million increase in total noninterest expense relates to continued franchise expansion and the investments required to support that growth. Salaries and wages increased $2.8 million during 2001 when compared to the same period of 2000. This 6.8 percent increase reflects the growth in employee population required to staff the new branch offices in Virginia, Florida, and Georgia. Occupancy expense was $9.0 million during the first quarter of 2001 and $8.2 million during the first quarter of 2000. Higher costs were recorded in depreciation on bank buildings and utilities. Equipment expense was $9.7 million for the first three months of 2001, a 5.6 percent increase over the $9.2 million recorded during the same period of 2000. Much of the increase was the result of higher depreciation on software and maintenance contracts. Other expenses increased $623,000 or 23.9 percent from the first quarter of 2000 to the first quarter of 2001, due to higher credit card processing expenses and non-credit charge-offs. INCOME TAXES Income tax expense amounted to $14.1 million during the three months ended March 31, 2001, compared to $11.7 million during the same period of 2000, a 20.2 percent increase resulting from higher pre-tax income. The effective tax rates for these periods were 38.1 percent and 37.5 percent, respectively. 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. Loan growth during the first quarter was funded by growth in deposits and by liquidity granted from maturity of investment securities. Deposits are expected to display seasonal patterns through the remainder of 2001, providing funds for projected loan growth. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. At March 31, 2001 and 2000, the leverage capital ratios of BancShares were 7.97 percent and 8.14 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares' Tier 1 capital ratios were 10.43 percent at March 31, 2001 and 10.08 percent at March 31, 2000. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratios were 11.77 percent at March 31, 2001 and 11.37 percent as of March 31, 2000. The minimum total capital ratio is 8 percent. BancShares and its subsidiary banks exceed the capital standards established by their respective regulatory agencies. ACCOUNTING MATTERS During September 2000, the FASB issues SFAS No. 140 'Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities' ('SFAS No. 140'), which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. SFAS No. 140 is effective for transfers and servicing of financial assets and Extinguishments of liabilities occurring after March 31, 2001. SFAS 140 is effective for recognition and classification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. SFAS No. 140 is not expected to have a material 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. FORWARD-LOOKING STATEMENTS This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," or other statements concerning opinions or judgments of BancShares and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of BancShares' customers, actions of government regulators, the level of market interest rates, and general economic conditions.