Business Context and Reporting Period
Company: First Citizens BancShares, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 1997
Operations: The registrant operates three banking subsidiaries: First-Citizens Bank & Trust Company (North Carolina and Virginia), First-Citizens Bank & Trust Company of West Virginia, and Atlantic States Bank (Georgia and North Carolina).
Key Financial Metrics
| Metric | Q3 1997 | Q3 1996 | 9 Months 1997 | 9 Months 1996 |
|---|---|---|---|---|
| Net Income | $19.0 million | $12.4 million | $53.2 million | $45.6 million |
| Earnings Per Share | $1.67 | $1.08 | $4.67 | $4.03 |
| Net Interest Income | $76.5 million | $72.9 million | $226.9 million | $211.3 million |
| Noninterest Income | $31.1 million | $26.1 million | $83.4 million | $75.2 million |
| Noninterest Expense | $76.6 million | $78.1 million | $222.0 million | $209.6 million |
| Total Assets | $8.60 billion | $7.83 billion | $8.60 billion | $7.83 billion |
| Total Loans | $5.21 billion | $4.91 billion | $5.21 billion | $4.91 billion |
| Total Deposits | $7.30 billion | $6.81 billion | $7.30 billion | $6.81 billion |
| Shareholders' Equity | $662.5 million | $593.0 million | $662.5 million | $593.0 million |
| Return on Average Assets | 0.90% | 0.65% | 0.87% | 0.80% |
| Return on Average Equity | 11.57% | 8.39% | 11.19% | 10.71% |
Material Changes vs. Prior Period
- Earnings Growth: Net income increased 52.9% in Q3 1997 compared to Q3 1996. The prior year period was negatively impacted by a one-time FDIC SAIF deposit assessment. Year-to-date net income rose 16.5%.
- Asset Expansion: Total assets grew to $8.60 billion, driven by a $293.4 million increase in loans and a $520 million increase in investment securities since September 1996.
- Acquisitions: The company acquired seven branch offices and First Savings Financial Corp. in 1997, contributing $167.5 million in deposits and $37.8 million in loans.
- Loan Portfolio: Commercial and industrial loans increased 13.5% year-over-year, while consumer loans grew 7.1%. Residential mortgage loans were sold to manage interest rate risk, resulting in a net loss of $300,000 on sales for the nine-month period.
- Expense Management: Noninterest expenses increased 5.9% year-to-date, primarily due to higher personnel costs (salaries up 8.8%) and equipment expenses (up 19.7%). Excluding the 1996 FDIC assessment, the expense increase would have been 11.4%.
Outlook, Risks, and Management Commentary
- Guidance: Management anticipates modest growth in commercial and indirect installment loans for the remainder of 1997. Direct installment and real estate loan growth is expected to be sluggish. Growth projections remain dependent on interest rates.
- Asset Quality: Nonperforming assets decreased to $13.4 million (0.26% of gross loans plus foreclosed properties). Net charge-offs for the nine months ended September 30, 1997, were $3.5 million, down from $4.3 million in the prior year, attributed to increased commercial loan recoveries.
- Capital Adequacy: The company exceeds all minimum regulatory capital requirements. The leverage capital ratio was 6.6%, and the total risk-adjusted capital ratio was 11.4% as of September 30, 1997.
- Risks and Contingencies:
- Year 2000 Compliance: The company anticipates incurring $2 million in Year 2000 remediation expenses in 1997, with an additional $2 million to $3 million expected in 1998.
- Interest Rate Risk: Management actively manages asset/liability maturities to limit exposure to interest rate fluctuations, though upward pressure on rates could deter retail borrowers.
- Bankruptcies: An increase in personal bankruptcies has contributed to higher charge-offs in revolving credit and retail installment loans.
Investor Verification Checklist
- Verify the impact of the 1996 FDIC SAIF assessment on prior year comparability to ensure accurate trend analysis.
- Confirm the sustainability of the 13.5% growth in commercial and industrial loans given the current economic environment.
- Monitor the execution and cost of Year 2000 remediation projects against the projected $2 million to $3 million budget.
- Review the composition of the investment securities portfolio ($2.43 billion) to assess exposure to interest rate changes.
- Assess the adequacy of the loan loss reserve ($83.4 million, 1.60% of loans) in light of rising personal bankruptcies.