UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended March 31, 2008
or
o Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Commission
File Number: 0-16471
First
Citizens BancShares, Inc
(Exact name
of Registrant as specified in its charter)
(State or other jurisdiction
of
(I.R.S. Employer Identification Number)
incorporation or organization)
4300 Six Forks Road, Raleigh, North
Carolina
27609
(Address of principle 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
Indicate by
check mark whether the Registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of ‘accelerated
filer and large accelerated filer’ in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer x Accelerated
filer Non-accelerated
filer Smaller reporting
company r
Indicate by
check mark whether the Registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes No x
Class A
Common Stock—$1 Par Value—8,756,778 shares
Class
B Common Stock—$1 Par Value—1,677,675 shares
(Number
of shares outstanding, by class, as of May 8, 2008)
INDEX
|
|
|
Page(s)
|
|
|
|
|
PART I. |
FINANCIAL
INFORMATION
|
|
|
|
|
|
Item 1. |
Financial Statements
(Unaudited) |
|
|
|
|
|
|
Consolidated
Balance Sheets at March 31, 2008, December 31, 2007 and
March 31, 2007 |
3
|
|
|
|
|
|
Consolidated
Statements of Income for the three-month periods
ended March 31, 2008, and March 31,
2007
|
4
|
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the three-month
periods ended March 31, 2008, and March 31,
2007 |
5
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the three-month periods
ended March 31, 2008, and March 31, 2007 |
6
|
|
|
|
|
|
Notes to Consolidated
Financial Statements |
7-10
|
|
|
|
|
Item 2. |
Management’s Discussion
and Analysis of Financial Condition and Results
of Operations |
|
|
|
|
|
Item 3. |
Quantitative and
Qualitative Disclosures about Market Risk |
|
|
|
|
|
Item 4 |
Controls and
Procedures |
|
|
|
|
|
PART
II. OTHER
INFORMATION
PART
I
Item
1. Financial Statements (Unaudited)
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
First
Citizens BancShares, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31*
|
|
|
December
31#
|
|
|
March
31*
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
Assets
|
|
(thousands,
except share data)
|
|
|
|
|
Cash
and due from banks
|
|
$ |
734,581 |
|
|
$ |
793,788 |
|
|
$ |
847,202 |
|
Overnight
investments
|
|
|
803,500 |
|
|
|
266,209 |
|
|
|
799,848 |
|
Investment
securities available for sale
|
|
|
3,198,948 |
|
|
|
3,229,241 |
|
|
|
2,934,995 |
|
Investment
securities held to maturity
|
|
|
7,189 |
|
|
|
7,594 |
|
|
|
96,803 |
|
Loans
and leases
|
|
|
11,029,937 |
|
|
|
10,963,904 |
|
|
|
10,262,356 |
|
Less
allowance for loan and lease losses
|
|
|
141,591 |
|
|
|
136,974 |
|
|
|
132,640 |
|
Net
loans and leases
|
|
|
10,888,346 |
|
|
|
10,826,930 |
|
|
|
10,129,716 |
|
Premises
and equipment
|
|
|
773,658 |
|
|
|
757,694 |
|
|
|
726,041 |
|
Income
earned not collected
|
|
|
77,967 |
|
|
|
79,343 |
|
|
|
74,648 |
|
Goodwill
|
|
|
102,625 |
|
|
|
102,625 |
|
|
|
102,625 |
|
Other
intangible assets
|
|
|
5,343 |
|
|
|
5,858 |
|
|
|
7,427 |
|
Other
assets
|
|
|
154,361 |
|
|
|
142,825 |
|
|
|
134,473 |
|
Total
assets
|
|
$ |
16,746,518 |
|
|
$ |
16,212,107 |
|
|
$ |
15,853,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
2,540,340 |
|
|
$ |
2,519,256 |
|
|
$ |
2,701,786 |
|
Interest-bearing
|
|
|
10,686,651 |
|
|
|
10,409,288 |
|
|
|
10,020,746 |
|
Total
deposits
|
|
|
13,226,991 |
|
|
|
12,928,544 |
|
|
|
12,722,532 |
|
Short-term
borrowings
|
|
|
1,270,813 |
|
|
|
1,305,287 |
|
|
|
1,245,025 |
|
Long-term
obligations
|
|
|
609,335 |
|
|
|
404,392 |
|
|
|
405,356 |
|
Other
liabilities
|
|
|
153,345 |
|
|
|
132,676 |
|
|
|
138,538 |
|
Total
liabilities
|
|
|
15,260,484 |
|
|
|
14,770,899 |
|
|
|
14,511,451 |
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A - $1 par value (8,756,778 shares issued for all periods)
|
|
|
8,757 |
|
|
|
8,757 |
|
|
|
8,757 |
|
Class
B - $1 par value (1,677,675 shares issued for all periods)
|
|
|
1,678 |
|
|
|
1,678 |
|
|
|
1,678 |
|
Surplus
|
|
|
143,766 |
|
|
|
143,766 |
|
|
|
143,766 |
|
Retained
earnings
|
|
|
1,275,989 |
|
|
|
1,246,473 |
|
|
|
1,175,449 |
|
Accumulated
other comprehensive income
|
|
|
55,844 |
|
|
|
40,534 |
|
|
|
12,677 |
|
Total
shareholders' equity
|
|
|
1,486,034 |
|
|
|
1,441,208 |
|
|
|
1,342,327 |
|
Total
liabilities and shareholders' equity
|
|
$ |
16,746,518 |
|
|
$ |
16,212,107 |
|
|
$ |
15,853,778 |
|
*
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
#
Derived from the 2007 Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
First
Citizens BancShares, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Interest
income
|
|
(thousands,
except share and per share data)
|
|
Loans
and leases
|
|
$ |
177,164 |
|
|
$ |
176,600 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
U. S.
Government
|
|
|
35,333 |
|
|
|
32,744 |
|
State,
county and municipal
|
|
|
53 |
|
|
|
58 |
|
Other
|
|
|
772 |
|
|
|
774 |
|
Total
investment securities interest and dividend income
|
|
|
36,158 |
|
|
|
33,576 |
|
Overnight
investments
|
|
|
4,081 |
|
|
|
7,461 |
|
Total
interest income
|
|
|
217,403 |
|
|
|
217,637 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
79,259 |
|
|
|
80,011 |
|
Short-term
borrowings
|
|
|
8,181 |
|
|
|
12,682 |
|
Long-term
obligations
|
|
|
7,386 |
|
|
|
6,755 |
|
Total
interest expense
|
|
|
94,826 |
|
|
|
99,448 |
|
Net
interest income
|
|
|
122,577 |
|
|
|
118,189 |
|
Provision
for credit losses
|
|
|
10,118 |
|
|
|
3,532 |
|
Net
interest income after provision for credit losses
|
|
|
112,459 |
|
|
|
114,657 |
|
Noninterest
income
|
|
|
|
|
|
|
|
|
Cardholder
and merchant services income
|
|
|
23,050 |
|
|
|
22,377 |
|
Service
charges on deposit accounts
|
|
|
19,981 |
|
|
|
17,157 |
|
Wealth
management services
|
|
|
13,182 |
|
|
|
11,697 |
|
Fees
from processing services
|
|
|
8,804 |
|
|
|
8,187 |
|
Other
service charges and fees
|
|
|
4,090 |
|
|
|
3,751 |
|
Mortgage
income
|
|
|
1,990 |
|
|
|
1,779 |
|
Insurance
commissions
|
|
|
2,481 |
|
|
|
2,128 |
|
ATM
income
|
|
|
1,659 |
|
|
|
1,587 |
|
Securities
gains
|
|
|
8,051 |
|
|
|
- |
|
Other
|
|
|
380 |
|
|
|
368 |
|
Total
noninterest income
|
|
|
83,668 |
|
|
|
69,031 |
|
Noninterest
expense
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
62,785 |
|
|
|
58,594 |
|
Employee
benefits
|
|
|
18,183 |
|
|
|
13,177 |
|
Occupancy
expense
|
|
|
15,349 |
|
|
|
13,855 |
|
Equipment
expense
|
|
|
13,960 |
|
|
|
13,772 |
|
Other
|
|
|
35,364 |
|
|
|
39,197 |
|
Total
noninterest expense
|
|
|
145,641 |
|
|
|
138,595 |
|
Income
before income taxes
|
|
|
50,486 |
|
|
|
45,093 |
|
Income
taxes
|
|
|
18,101 |
|
|
|
16,109 |
|
Net
income
|
|
$ |
32,385 |
|
|
$ |
28,984 |
|
Average
shares outstanding
|
|
|
10,434,453 |
|
|
|
10,434,453 |
|
Net
income per share
|
|
$ |
3.10 |
|
|
$ |
2.78 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Citizens BancShares, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Income
(loss)
|
|
|
Equity
|
|
|
|
(thousands,
except share data)
|
|
Balance
at December 31, 2006
|
|
$ |
8,757 |
|
|
$ |
1,678 |
|
|
$ |
143,766 |
|
|
$ |
1,148,372 |
|
|
$ |
8,246 |
|
|
$ |
1,310,819 |
|
Adjustment
resulting from adoption of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FASB
Interpretation No. 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
962 |
|
|
|
- |
|
|
|
962 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,984 |
|
|
|
- |
|
|
|
28,984 |
|
Unrealized
securities gains arising during period,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of
$2,973 deferred tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,722 |
|
|
|
4,722 |
|
Change
in unrecognized loss on cash flow hedge,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of
$190 deferred tax benefit
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(291 |
) |
|
|
(291 |
) |
Total comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,415 |
|
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,869 |
) |
|
|
- |
|
|
|
(2,869 |
) |
Balance
at March 31, 2007
|
|
$ |
8,757 |
|
|
$ |
1,678 |
|
|
$ |
143,766 |
|
|
$ |
1,175,449 |
|
|
$ |
12,677 |
|
|
$ |
1,342,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$ |
8,757 |
|
|
$ |
1,678 |
|
|
$ |
143,766 |
|
|
$ |
1,246,473 |
|
|
$ |
40,534 |
|
|
$ |
1,441,208 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,385 |
|
|
|
- |
|
|
|
32,385 |
|
Unrealized
securities gains arising during period,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of
$10,551 deferred tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,501 |
|
|
|
17,501 |
|
Change
in unrecognized loss on cash flow hedge,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of
$1,429 deferred tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,191 |
) |
|
|
(2,191 |
) |
Total comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,695 |
|
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,869 |
) |
|
|
- |
|
|
|
(2,869 |
) |
Balance
at March 31, 2008
|
|
$ |
8,757 |
|
|
$ |
1,678 |
|
|
$ |
143,766 |
|
|
$ |
1,275,989 |
|
|
$ |
55,844 |
|
|
$ |
1,486,034 |
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
First
Citizens BancShares, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(thousands)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
32,385 |
|
|
$ |
28,984 |
|
Adjustments
to reconcile net income to cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Amortization
of intangibles
|
|
|
515 |
|
|
|
573 |
|
Provision
for credit losses
|
|
|
10,118 |
|
|
|
3,532 |
|
Deferred
tax benefit
|
|
|
(5,866 |
) |
|
|
(2,654 |
) |
Change
in current taxes payable
|
|
|
29,742 |
|
|
|
15,058 |
|
Depreciation
|
|
|
13,306 |
|
|
|
12,678 |
|
Change
in accrued interest payable
|
|
|
(14,521 |
) |
|
|
(907 |
) |
Change
in income earned not collected
|
|
|
1,376 |
|
|
|
(3,086 |
) |
Securities
gains
|
|
|
(8,051 |
) |
|
|
- |
|
Origination
of loans held for sale
|
|
|
(153,883 |
) |
|
|
(118,184 |
) |
Proceeds
from sale of loans
|
|
|
127,682 |
|
|
|
128,448 |
|
Loss
(gain) on sale of loans
|
|
|
(244 |
) |
|
|
(467 |
) |
Net
amortization of premiums and discounts
|
|
|
(388 |
) |
|
|
(1,208 |
) |
Net
change in other assets
|
|
|
(14,792 |
) |
|
|
(19,162 |
) |
Net
change in other liabilities
|
|
|
1,625 |
|
|
|
1,335 |
|
Net
cash provided by operating activities
|
|
|
19,004 |
|
|
|
44,940 |
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
change in loans outstanding
|
|
|
(44,886 |
) |
|
|
5,494 |
|
Purchases
of investment securities available for sale
|
|
|
(410,582 |
) |
|
|
(309,431 |
) |
Proceeds
from maturities of investment securities held to maturity
|
|
|
406 |
|
|
|
122,355 |
|
Proceeds
from maturities of investment securities available for
sale
|
|
|
477,365 |
|
|
|
385,229 |
|
Net
change in overnight investments
|
|
|
(537,291 |
) |
|
|
(451,251 |
) |
Dispositions
of premises and equipment
|
|
|
- |
|
|
|
505 |
|
Additions
to premises and equipment
|
|
|
(29,270 |
) |
|
|
(32,140 |
) |
Net
cash used by investing activities
|
|
|
(544,258 |
) |
|
|
(279,239 |
) |
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
change in time deposits
|
|
|
68,199 |
|
|
|
(17,073 |
) |
Net
change in demand and other interest-bearing deposits
|
|
|
230,248 |
|
|
|
(3,719 |
) |
Net
change in short-term borrowings
|
|
|
(34,531 |
) |
|
|
94,178 |
|
Origination
of long-term obligations
|
|
|
205,000 |
|
|
|
- |
|
Cash
dividends paid
|
|
|
(2,869 |
) |
|
|
(2,869 |
) |
Net
cash provided by financing activities
|
|
|
466,047 |
|
|
|
70,517 |
|
|
|
|
|
|
|
|
|
|
Change
in cash and due from banks
|
|
|
(59,207 |
) |
|
|
(163,782 |
) |
Cash
and due from banks at beginning of period
|
|
|
793,788 |
|
|
|
1,010,984 |
|
Cash
and due from banks at end of period
|
|
$ |
734,581 |
|
|
$ |
847,202 |
|
CASH
PAYMENTS FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
109,347 |
|
|
$ |
100,355 |
|
Income
taxes
|
|
|
1,583 |
|
|
|
3,562 |
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
Unrealized
securities gains
|
|
$ |
28,052 |
|
|
$ |
7,695 |
|
Unrealized
loss on cash flow hedge
|
|
|
(3,620 |
) |
|
|
(2,274 |
) |
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
(Dollars in thousands, except per share
amounts)
Note
A
Accounting
Policies and Other Matters
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 notes required by accounting principles generally accepted in the United
States of America for complete financial statements.
In the opinion of management, the consolidated
financial 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
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the 2007 First Citizens
BancShares, Inc. Form 10-K. Certain amounts for prior periods have
been reclassified to conform with statement presentations for
2008. However, the reclassifications have no effect on shareholders’
equity or net income as previously reported.
At March 31,
2008, loans totaling $1,315,382 were pledged to secure debt obligations,
compared to $265,548 at March 31, 2007. ISB's home equity loans and
residential mortgage loans were pledged to the Federal Home Loan Bank of Atlanta
(FHLB) during both periods. For March 31, 2008, ISB had also pledged its
commercial real estate loans to the FHLB.
Note
B
Operating
Segments
BancShares conducts its banking operations
through its two wholly-owned subsidiaries, First-Citizens Bank & Trust
Company (FCB) and IronStone Bank (ISB). Although FCB and ISB offer
similar products and services to customers, each entity operates in distinct
geographic markets and each entity operates under a separate
charter. The financial results and trends of ISB reflect the impact
of the de novo nature of its growth.
FCB is a
mature banking institution that operates under a state bank charter from its
branch network in North Carolina, Virginia, West Virginia, Maryland and
Tennessee. ISB began operations in 1997 and currently operates in
Georgia, Florida, Texas, Arizona, California, New Mexico, Colorado, Oregon and
Washington under a federal thrift charter.
In the
aggregate, FCB and its consolidated subsidiaries, which are integral to its
branch operation, and ISB account for more than 90 percent of consolidated
assets, revenues and net income. Other includes activities of the
parent company and Neuse, Incorporated, a subsidiary that owns real property
used in the banking operation.
The
adjustments in the accompanying tables represent the elimination of the impact
of certain inter-company transactions. The adjustments to interest
income and interest expense neutralize the earnings and cost of inter-company
borrowings. The adjustments to noninterest income and noninterest
expense reflect the elimination of management fees and other service fees paid
by one company to another within BancShares’ consolidated group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
ISB
|
|
|
FCB
|
|
|
Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(thousands)
|
Interest
income
|
|
$ |
35,899 |
|
|
$ |
178,948 |
|
|
$ |
8,410 |
|
|
$ |
223,257 |
|
|
$ |
(5,854 |
) |
|
$ |
217,403 |
|
Interest
expense
|
|
|
20,002 |
|
|
|
69,587 |
|
|
|
11,091 |
|
|
|
100,680 |
|
|
|
(5,854 |
) |
|
|
94,826 |
|
Net
interest income
|
|
|
15,897 |
|
|
|
109,361 |
|
|
|
(2,681 |
) |
|
|
122,577 |
|
|
|
- |
|
|
|
122,577 |
|
Provision
for credit losses
|
|
|
5,716 |
|
|
|
4,402 |
|
|
|
- |
|
|
|
10,118 |
|
|
|
- |
|
|
|
10,118 |
|
Net
interest income after provision for credit losses
|
|
|
10,181 |
|
|
|
104,959 |
|
|
|
(2,681 |
) |
|
|
112,459 |
|
|
|
- |
|
|
|
112,459 |
|
Noninterest
income
|
|
|
3,133 |
|
|
|
83,189 |
|
|
|
(1 |
) |
|
|
86,321 |
|
|
|
(2,653 |
) |
|
|
83,668 |
|
Noninterest
expense
|
|
|
20,658 |
|
|
|
127,012 |
|
|
|
624 |
|
|
|
148,294 |
|
|
|
(2,653 |
) |
|
|
145,641 |
|
Income
(loss) before income taxes
|
|
|
(7,344 |
) |
|
|
61,136 |
|
|
|
(3,306 |
) |
|
|
50,486 |
|
|
|
- |
|
|
|
50,486 |
|
Income
tax expense (credit)
|
|
|
(2,763 |
) |
|
|
22,018 |
|
|
|
(1,154 |
) |
|
|
18,101 |
|
|
|
- |
|
|
|
18,101 |
|
Net
income (loss)
|
|
$ |
(4,581 |
) |
|
$ |
39,118 |
|
|
$ |
(2,152 |
) |
|
$ |
32,385 |
|
|
$ |
- |
|
|
$ |
32,385 |
|
At
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,661,988 |
|
|
$ |
13,930,381 |
|
|
$ |
2,691,191 |
|
|
$ |
19,283,560 |
|
|
$ |
(2,537,042 |
) |
|
$ |
16,746,518 |
|
Loans
and leases
|
|
|
2,129,561 |
|
|
|
8,900,376 |
|
|
|
- |
|
|
|
11,029,937 |
|
|
|
- |
|
|
|
11,029,937 |
|
Allowance
for loan and lease losses
|
|
|
27,715 |
|
|
|
113,876 |
|
|
|
- |
|
|
|
141,591 |
|
|
|
- |
|
|
|
141,591 |
|
Deposits
|
|
|
2,070,666 |
|
|
|
11,209,084 |
|
|
|
- |
|
|
|
13,279,750 |
|
|
|
(52,759 |
) |
|
|
13,226,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
ISB
|
|
|
FCB
|
|
|
Other
|
|
|
Total
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(thousands)
|
Interest
income
|
|
$ |
33,808 |
|
|
$ |
181,867 |
|
|
$ |
9,851 |
|
|
$ |
225,526 |
|
|
$ |
(7,889 |
) |
|
$ |
217,637 |
|
Interest
expense
|
|
|
17,935 |
|
|
|
76,123 |
|
|
|
13,279 |
|
|
|
107,337 |
|
|
|
(7,889 |
) |
|
|
99,448 |
|
Net
interest income
|
|
|
15,873 |
|
|
|
105,744 |
|
|
|
(3,428 |
) |
|
|
118,189 |
|
|
|
- |
|
|
|
118,189 |
|
Provision
for credit losses
|
|
|
318 |
|
|
|
3,214 |
|
|
|
- |
|
|
|
3,532 |
|
|
|
- |
|
|
|
3,532 |
|
Net
interest income after provision for credit losses
|
|
|
15,555 |
|
|
|
102,530 |
|
|
|
(3,428 |
) |
|
|
114,657 |
|
|
|
- |
|
|
|
114,657 |
|
Noninterest
income
|
|
|
3,201 |
|
|
|
69,022 |
|
|
|
(127 |
) |
|
|
72,096 |
|
|
|
(3,065 |
) |
|
|
69,031 |
|
Noninterest
expense
|
|
|
19,105 |
|
|
|
122,436 |
|
|
|
119 |
|
|
|
141,660 |
|
|
|
(3,065 |
) |
|
|
138,595 |
|
Income
(loss) before income taxes
|
|
|
(349 |
) |
|
|
49,116 |
|
|
|
(3,674 |
) |
|
|
45,093 |
|
|
|
- |
|
|
|
45,093 |
|
Income
tax expense (credit)
|
|
|
(83 |
) |
|
|
17,463 |
|
|
|
(1,271 |
) |
|
|
16,109 |
|
|
|
- |
|
|
|
16,109 |
|
Net
income (loss)
|
|
$ |
(266 |
) |
|
$ |
31,653 |
|
|
$ |
(2,403 |
) |
|
$ |
28,984 |
|
|
$ |
- |
|
|
$ |
28,984 |
|
At
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,225,229 |
|
|
$ |
13,359,371 |
|
|
$ |
2,438,870 |
|
|
$ |
18,023,470 |
|
|
$ |
(2,169,692 |
) |
|
$ |
15,853,778 |
|
Loans
and leases
|
|
|
1,881,368 |
|
|
|
8,380,988 |
|
|
|
- |
|
|
|
10,262,356 |
|
|
|
- |
|
|
|
10,262,356 |
|
Allowance
for loan and lease losses
|
|
|
22,580 |
|
|
|
110,060 |
|
|
|
- |
|
|
|
132,640 |
|
|
|
- |
|
|
|
132,640 |
|
Deposits
|
|
|
1,826,095 |
|
|
|
10,935,271 |
|
|
|
- |
|
|
|
12,761,366 |
|
|
|
(38,834 |
) |
|
|
12,722,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
C
Employee
Benefits
BancShares
recognized pension expense totaling $1,666 and $2,625, respectively, in the
three-month periods ended March 31, 2008 and 2007. Pension expense is
included as a component of employee benefit expense.
|
|
Three
month periods ended March 31,
|
|
Components of Net
Periodic Benefit Cost
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
5,457 |
|
|
$ |
4,235 |
|
Interest
cost
|
|
|
9,087 |
|
|
|
5,250 |
|
Expected
return on assets
|
|
|
(12,975 |
) |
|
|
(7,442 |
) |
Amortization
of prior service cost
|
|
|
97 |
|
|
|
59 |
|
Amortization
of net actuarial loss
|
|
|
- |
|
|
|
523 |
|
Total
net periodic benefit cost
|
|
$ |
1,666 |
|
|
$ |
2,625 |
|
The expected
long-term rate of return on plan assets for 2008 is 8.50 percent, and the
assumed discount rate is 6.25 percent.
Note
D
Fair
Value Disclosures
BancShares
adopted the provisions of SFAS No. 157 Fair Value Measurements
(Statement 157) and SFAS No. 159 The Fair Value Option for Financial
Assets and Liabilities (Statement 159) on January 1, 2008.
Statement 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. Statement 157 does
not require any new fair value measurements, but clarifies and standardizes some
divergent practices that have emerged since prior guidance was
issued. Statement 157 creates a three-level hierarchy under which
individual fair value estimates are to be ranked based on the relative
reliability of the inputs used in the valuation.
Statement 157
defines fair value as the price that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value measurements for assets
and liabilities, BancShares considers the principal or most advantageous market
in which those assets or liabilities are sold and considers assumptions that
market participants would use when pricing those assets or
liabilities. Fair values determined using level 1 inputs rely on
active and observable markets to price identical assets or liabilities. In
situations where identical assets and liabilities are not traded in active
markets, fair values may be determined based on level 2 inputs, which exist when
observable data exists for similar assets and liabilities. Fair
values for assets and liabilities that are not actively traded in observable
markets are based on level 3 inputs, which are considered to be
unobservable.
Among
BancShares’ assets and liabilities, investment securities available for sale and
an interest rate swap accounted for as a cash flow hedge are reported at their
fair values on a recurring basis. Certain other assets are adjusted
to their fair value on a nonrecurring basis, including loans held for sale,
which are carried at the lower of cost or market, and goodwill and other
intangible assets, which are periodically tested for
impairment. Loans held for investment, deposits, short-term
borrowings and long-term obligations are not reported at fair
value.
For assets
and liabilities carried at fair value, the following table provides fair value
information as of March 31, 2008:
|
|
Fair value
measurements at March 31, 2008 using:
|
Description
|
Fair
value at March 31, 2008
|
Quoted
prices in active markets for identical assets
and liabilities (Level 1 inputs)
|
Quoted
prices for similar assets and liabilities (Level 2
inputs)
|
Significant unobservable
inputs (Level 3 inputs)
|
Assets measured at
fair value
|
(thousands)
|
Investment
securities available for sale
|
$ 3,198,948
|
$ 3,071,031
|
$ 79,521
|
$ 48,396
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured
at fair value
|
|
|
|
|
Cash
flow hedge
|
8,974
|
-
|
8,974
|
-
|
Prices for US
Treasury and government agency securities are readily available in the active
markets in which those securities are traded, and the resulting fair values are
shown in the ‘Level 1 input’ column. Prices for mortgage-backed
securities and for state, county and municipal securities are obtained for
similar securities, and the resulting fair values are shown in the ‘Level 2
input’ column. Prices for all other securities, which include a
residual interest that was retained from a securitization transaction and other
non-marketable investments, are determined based on various assumptions that are
not observable. The fair values for these investment securities are
shown in the ‘Level 3 input’ column. With respect to the residual
interest in the asset securitization, the assumed prepayment speed, discount
rate and credit spread are not observable in the market due to illiquidity and
the uniqueness of the underlying assets. Non-marketable investment securities,
which are carried at their purchase price, include those that may only be
redeemed by the issuer.
Under the
terms of the existing cash flow hedge, BancShares pays a fixed payment to the
counterparty in exchange for receipt of a variable payment that is determined
based on the 3-month LIBOR rate. The fair value of the cash flow
hedge is therefore based on projected LIBOR rates for the duration of the hedge,
values that, while observable in the market, are subject to adjustment due to
pricing considerations for the specific instrument.
For those
investment securities available for sale with fair values that are determined by
reliance on significant unobservable inputs, the following table identifies the
factors causing the change in fair value from January 1, 2008 to March 31,
2008:
Description
|
Investment
securities available for sale with fair values based on significant
unobservable inputs
|
|
(thousands)
|
Beginning
balance, January 1, 2008
|
$ 40,016
|
Total
gains (losses), realized or unrealized:
|
|
Included
in earnings
|
|
Included
in other comprehensive income
|
411
|
Purchases,
sales, issuances and settlements, net
|
7,969
|
Transfers
in/out of Level 3
|
-
|
Ending
balance, March 31, 2008
|
$ 48,396
|
No gains or
losses were reported for the three-month period ended March 31, 2008 that relate
to fair values estimated based on significant unobservable inputs.
Statement 159
allows an entity to elect to measure certain financial assets and liabilities at
fair value with changes in fair value recognized in the income statement each
period. The statement also requires additional disclosures to identify the
effects of an entity’s fair value election on its earnings. Upon the
adoption of Statement 159, BancShares did not elect to report any assets and
liabilities at fair value.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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. Intercompany
accounts and transactions have been eliminated. Although certain amounts for
prior years have been reclassified to conform to statement presentations for
2008, the reclassifications have no effect on shareholders' equity or net income
as previously reported.
OVERVIEW
BancShares is
a financial holding company with two wholly owned banking subsidiaries:
First-Citizens Bank & Trust Company (FCB), a North Carolina-chartered bank,
and IronStone Bank (ISB), a federally-chartered thrift
institution. FCB operates branches in North Carolina, Virginia, West
Virginia, Maryland and Tennessee. ISB operates in Georgia, Florida,
Texas, New Mexico, Arizona, California, Oregon, Washington, Colorado, Oklahoma,
Missouri and Kansas. Unless otherwise noted, the terms we, us and
BancShares refer to the consolidated financial position and consolidated results
of operations for BancShares.
BancShares’
earnings and cash flows are derived primarily from the commercial banking
activities conducted by its banking subsidiaries. These activities
include commercial and consumer lending, deposit and cash management products,
cardholder, merchant, wealth management services as well as various other
products and services typically offered by commercial banks. FCB and
ISB gather interest-bearing and noninterest-bearing deposits from retail and
commercial customers. BancShares and its subsidiaries also secure
funding through various non-deposit sources. We invest the
liquidity generated from these funding sources in various types of
interest-earning assets such as loans and leases, investment securities and
overnight investments. We also invest in bank premises, furniture and
equipment used to conduct the subsidiaries’ commercial banking
business.
Various
external factors influence customer demand for our loan, lease and deposit
products. In an effort to stimulate and control the rate of growth of
economic activity and inflation, monetary actions by the Federal Reserve are
significant to the interest rate environment in which we
operate. Interest rate decisions by the Federal Reserve have a
significant impact on the pricing of and demand for loan, deposit and cash
management products.
In addition
to the interest rate environment, the general strength of the economy influences
demand as well as the quality and collectibility of our loan and lease
portfolio. External economic indicators such as consumer bankruptcy
rates and business debt service capacity closely follow trends in the economic
cycle.
Although we
are unable to control the external factors that influence our business, through
the utilization of various liquidity, interest rate and credit risk management
tools, we seek to minimize the potentially adverse risks of unforeseen and
unfavorable economic trends and take advantage of favorable economic conditions
when appropriate.
Financial
institutions frequently focus their strategic and operating emphasis on
maximizing profitability and therefore measure their relative success by
reference to profitability measures such as return on average assets or return
on average shareholders’ equity. BancShares’ profitability measures
have historically compared unfavorably to the returns of similar-sized financial
holding companies. Instead, we place primary emphasis upon asset
quality, balance sheet liquidity and capital conservation, even when those
priorities may be detrimental to short-term profitability.
Based on our
organization’s competitive position and strategic focus within the financial
services industry, we believe opportunities for significant growth and expansion
exist. We operate in diverse and growing geographic markets and
believe that by offering competitive products and superior customer service, we
can increase our business volumes and profitability. In recent years,
we have focused our efforts on customers who own their own businesses, medical
and other professionals and financially active individuals.
We seek to
increase fee income in areas such as cardholder and merchant services,
insurance, cash management and wealth management services. Leveraging
our investments in technology, we also focus on opportunities to generate income
by providing processing services to other banks.
Financial
Summary
|
|
|
|
|
|
|
|
|
Table
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Summary
of Operations
|
(thousands,
except share data and ratios)
|
|
Interest
income
|
$ 217,403
|
|
$ 230,826
|
|
$ 232,120
|
|
$ 223,473
|
|
$ 217,637
|
|
Interest
expense
|
94,826
|
|
109,197
|
|
111,185
|
|
103,884
|
|
99,448
|
|
Net
interest income
|
122,577
|
|
121,629
|
|
120,935
|
|
119,589
|
|
118,189
|
|
Provision
for credit losses
|
10,118
|
|
11,795
|
|
17,333
|
|
934
|
|
3,532
|
|
Net
interest income after provision
|
|
|
|
|
|
|
|
|
|
|
for
credit losses
|
112,459
|
|
109,834
|
|
103,602
|
|
118,655
|
|
114,657
|
|
Noninterest
income
|
83,668
|
|
76,534
|
|
77,285
|
|
72,620
|
|
69,031
|
|
Noninterest
expense
|
145,641
|
|
146,285
|
|
146,906
|
|
142,878
|
|
138,595
|
|
Income
before income taxes
|
50,486
|
|
40,083
|
|
33,981
|
|
48,397
|
|
45,093
|
|
Income
taxes
|
18,101
|
|
13,920
|
|
11,362
|
|
17,546
|
|
16,109
|
|
Net
income
|
$ 32,385
|
|
$ 26,163
|
|
$ 22,619
|
|
$ 30,851
|
|
$ 28,984
|
|
Net
interest income-taxable equivalent
|
$ 124,430
|
|
$ 123,666
|
|
$ 122,980
|
|
$ 121,409
|
|
$ 119,964
|
|
Selected
Quarterly Averages
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
16,307,994
|
|
$
16,276,649
|
|
$
16,092,009
|
|
$
15,725,976
|
|
$
15,572,613
|
|
Investment
securities
|
3,183,636
|
|
3,272,015
|
|
3,162,011
|
|
3,047,753
|
|
3,092,261
|
|
Loans
and leases
|
10,961,706
|
|
10,831,571
|
|
10,623,247
|
|
10,360,913
|
|
10,230,858
|
|
Interest-earning
assets
|
14,691,141
|
|
14,655,309
|
|
14,476,247
|
|
14,118,884
|
|
13,908,622
|
|
Deposits
|
12,905,651
|
|
12,876,549
|
|
12,728,527
|
|
12,524,786
|
|
12,502,206
|
|
Interest-bearing
liabilities
|
12,309,132
|
|
12,216,067
|
|
12,052,307
|
|
11,698,285
|
|
11,557,940
|
|
Long-term
obligations
|
475,732
|
|
404,367
|
|
405,101
|
|
405,339
|
|
408,277
|
|
Shareholders'
equity
|
$ 1,466,411
|
|
$ 1,420,348
|
|
$ 1,385,284
|
|
$ 1,353,739
|
|
$ 1,323,327
|
|
Shares
outstanding
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
Selected
Quarter-End Balances
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
16,746,518
|
|
$
16,212,107
|
|
$
16,311,870
|
|
$
16,008,605
|
|
$
15,853,778
|
|
Investment
securities
|
3,206,137
|
|
3,236,835
|
|
3,266,150
|
|
3,023,799
|
|
3,031,798
|
|
Loans
and leases
|
11,029,937
|
|
10,963,904
|
|
10,763,158
|
|
10,513,041
|
|
10,262,356
|
|
Interest-earning
assets
|
15,039,574
|
|
14,466,948
|
|
14,542,241
|
|
14,232,802
|
|
14,094,002
|
|
Deposits
|
13,226,991
|
|
12,928,544
|
|
12,980,447
|
|
12,772,322
|
|
12,722,532
|
|
Interest-bearing
liabilities
|
12,566,799
|
|
12,118,967
|
|
12,170,559
|
|
11,830,904
|
|
11,671,127
|
|
Long-term
obligations
|
609,335
|
|
404,392
|
|
404,266
|
|
405,314
|
|
405,356
|
|
Shareholders'
equity
|
$ 1,486,034
|
|
$ 1,441,208
|
|
$ 1,401,575
|
|
$ 1,367,980
|
|
$ 1,342,327
|
|
Shares
outstanding
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
10,434,453
|
|
Profitability
Ratios (averages)
|
|
|
|
|
|
|
|
|
|
|
Rate of
return (annualized) on:
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
0.80
|
%
|
0.64
|
%
|
0.56
|
%
|
0.79
|
%
|
0.75
|
%
|
Shareholders'
equity
|
8.88
|
|
7.31
|
|
6.48
|
|
9.14
|
|
8.88
|
|
Dividend
payout ratio
|
8.87
|
|
10.96
|
|
12.67
|
|
9.29
|
|
9.89
|
|
Liquidity
and Capital Ratios (averages)
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases to deposits
|
84.94
|
%
|
84.12
|
%
|
83.46
|
%
|
82.72
|
%
|
81.83
|
%
|
Shareholders'
equity to total assets
|
8.99
|
|
8.73
|
|
8.61
|
|
8.61
|
|
8.50
|
|
Time
certificates of $100,000 or more to
|
|
|
|
|
|
|
|
|
|
|
total
deposits
|
18.13
|
|
18.04
|
|
17.67
|
|
16.95
|
|
16.60
|
|
Per
Share of Stock
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$ 3.10
|
|
$ 2.51
|
|
$ 2.17
|
|
$ 2.96
|
|
$ 2.78
|
|
Cash
dividends
|
0.275
|
|
0.275
|
|
0.275
|
|
0.275
|
|
0.275
|
|
Book
value at period end
|
142.42
|
|
138.12
|
|
134.32
|
|
131.10
|
|
128.64
|
|
Tangible
book value at period end
|
132.07
|
|
127.72
|
|
123.88
|
|
120.61
|
|
118.10
|
|
We attempt to
mitigate certain of the risks that can endanger our profitability and growth
prospects. While we are attentive to all areas of risk, economic risk
is especially problematic due to the lack of control and the potential material
impact upon our financial results. Specific economic risks include
recession, rapid movements in interest rates, changes in the yield curve and
significant shifts in inflation expectations.
PERFORMANCE
SUMMARY
BancShares
realized an increase in earnings during the first quarter of 2008 compared to
the first quarter of 2007. Consolidated net income during the first
quarter of 2008 equaled $32.4 million compared to $29.0 million earned during
the corresponding period of 2007. The annualized return on
average assets was 0.80 percent during the first quarter of 2008, compared to
0.75 percent during the same period of 2007. The annualized return on
average equity was 8.88 percent during 2008, unchanged from 2007. Net
income per share during the first quarter of 2008 totaled $3.10, compared to
$2.78 during the first quarter of 2007, an 11.5 percent increase.
The $3.4
million or 11.7 percent earnings increase resulted primarily from a gain arising
from the redemption of Visa, Inc. stock in conjunction with its initial public
offering and the reversal of an accrued liability for Visa member bank
liabilities established in 2007. Significantly higher provision
for credit losses reduced current period earnings.
INTEREST-EARNING
ASSETS
Interest-earning
assets include loans and leases, investment securities and overnight
investments, all of which reflect varying interest rates based on the risk level
and repricing characteristics of the underlying asset. Riskier
investments typically carry a higher interest rate, but expose the investor to
potentially higher levels of default. We have historically focused on
maintaining high asset quality, which results in a loan and lease portfolio
subjected to strenuous underwriting and monitoring
procedures. Our investment securities portfolio includes
high-quality assets, primarily United States Treasury and government agency
securities. Generally, the investment securities portfolio grows and
shrinks based on trends among loans and leases, deposits and
borrowings. When growth among deposits and borrowings exceeds loan
and lease demand, we invest excess funds in the securities
portfolio. Conversely, when loan and lease demand exceeds growth in
deposit and borrowings, we use proceeds from maturing securities to fund loan
and lease demand. Overnight investments are selectively made with other
financial institutions that are within our risk tolerance.
During the
first quarter of 2008, interest-earning assets averaged $14.69 billion, an
increase of $782.5 million or 5.6 percent from the first quarter of
2007. This increase primarily reflects growth in the loan and lease
portfolio.
Loans and
leases. At March 31, 2008 and 2007, loans and leases totaled
$11.03 billion and $10.26 billion, respectively. The $767.6 million
or 7.5 percent growth from March 31, 2007 to March 31, 2008 resulted from growth
within the commercial mortgage, revolving mortgage and commercial and industrial
loan portfolios.
Commercial
real estate loans totaled $4.05 billion at March 31, 2008, representing 36.8
percent of total loans and leases. This balance represents an
increase of $313.8 million or 8.4 percent since March 31,
2007. Demand for loans secured by owner-occupied medical and
professional facilities remained reasonably strong, particularly in expansion
markets. These loans are underwritten based primarily upon the cash
flow from the operation of the business rather than the value of the real estate
collateral.
Commercial
and industrial loans equaled $1.72 billion or 15.6 percent of total loans and
leases outstanding. These loans have increased $170.4 million or 11.0
percent since March 31, 2007. Customer demand and expansion markets
have supported the growth of these loans.
At March 31,
2008, revolving mortgage loans totaled $1.52 billion, representing 13.8 percent
of total loans outstanding, an increase of $219.9 million or 16.9 percent
compared to March 31, 2007. Retail customers have increased
utilization of home equity loans due to lower market rates compared to other
consumer debt alternatives.
Construction
and land development loans totaled $817.8 million or 7.4 percent of total loans
at March 31, 2008, an increase of $38.1 million or 4.9 percent since March 31,
2007. Given the continuing softening of real estate markets, we
have lessened our focus on growth of this area of lending, particularly in the
Atlanta, Georgia and Southwest Florida markets.
Loans
and Leases
|
|
|
|
|
Table
2
|
|
|
|
|
|
|
|
2008
|
2007
|
|
First
|
Fourth
|
Third
|
Second
|
First
|
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Real
estate:
|
(thousands)
|
Construction
and land development
|
$ 817,832
|
$ 810,818
|
$ 816,328
|
$ 784,960
|
$ 779,718
|
Commercial
mortgage
|
4,053,773
|
3,982,496
|
3,899,289
|
3,815,113
|
3,739,948
|
Residential
mortgage
|
1,027,469
|
1,029,030
|
1,037,460
|
1,038,602
|
1,020,945
|
Revolving
mortgage
|
1,521,191
|
1,494,431
|
1,454,659
|
1,374,212
|
1,301,311
|
Other
mortgage
|
147,082
|
145,552
|
153,487
|
159,421
|
157,576
|
Total
real estate loans
|
7,567,347
|
7,462,327
|
7,361,223
|
7,172,308
|
6,999,498
|
Commercial
and industrial
|
1,721,927
|
1,707,394
|
1,615,550
|
1,589,519
|
1,551,532
|
Consumer
|
1,308,269
|
1,368,228
|
1,375,001
|
1,362,356
|
1,345,631
|
Lease
financing
|
340,620
|
340,601
|
329,535
|
315,965
|
302,581
|
Other
|
91,774
|
85,354
|
81,849
|
72,893
|
63,114
|
Total
loans and leases
|
11,029,937
|
10,963,904
|
10,763,158
|
10,513,041
|
10,262,356
|
Less
allowance for loan and lease losses
|
141,591
|
136,974
|
133,576
|
129,276
|
132,640
|
Net
loans and leases
|
$ 10,888,346
|
$ 10,826,930
|
$ 10,629,582
|
$ 10,383,765
|
$ 10,129,716
|
We anticipate
moderate growth in commercial mortgage and commercial and industrial loans in
2008, as our expansion into new markets continues to generate higher levels of
loan and lease demand among our business customers. All growth
projections are subject to change as a result of economic deterioration or
improvement, competitive forces and other external factors.
Investment
securities. Investment securities available for sale equaled
$3.20 billion at March 31, 2008, compared to $2.93 billion at March 31,
2007. The $264.0 million or 9.0 percent increase resulted from growth
in deposits and borrowings that was not absorbed by loan and lease
growth. Available-for-sale securities are reported at their aggregate
fair value. Investment securities held to maturity totaled $7.2
million at March 31, 2008, compared to $96.8 million at March 31,
2007. In order to augment liquidity, we continued to reinvest
proceeds from maturities of held-to-maturity securities into securities
designated as available-for sale. Securities that are classified as
held to maturity reflect BancShares’ ability and positive intent to hold those
investments until maturity.
Income on interest-earning
assets. Interest income amounted to $217.4 million during the
first quarter of 2008, a $234,000 decrease from the first quarter of
2007. During the first quarter of 2008, the impact of lower asset
yields more than offset the impact of balance sheet growth when compared to the
same period of 2007. The taxable-equivalent yield on interest-earning
assets equaled 6.00 percent for the first quarter of 2008, compared to 6.38
percent for the corresponding period of 2007.
Loan and lease interest income for the first
quarter of 2008 equaled $177.2 million, an increase of $564,000 from the first
quarter of 2007, the combined result of lower yields offset by favorable growth
in average loan and lease balances. The taxable-equivalent yield was
6.51 percent during the first quarter of 2008, a 50 basis point reduction from
the same period of 2007. The reduced yields resulted from new loans
and leases originated at current market rates and repricing of outstanding
variable-rate loans. Average loans and leases increased $730.8
million or 7.1 percent from 2007 to 2008.
Investment
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
March 31, 2007
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Taxable
|
|
|
|
|
|
|
|
|
Average
|
|
|
Taxable
|
|
|
|
|
|
|
Fair
|
|
|
Maturity
|
|
|
Equivalent
|
|
|
|
|
|
Fair
|
|
|
Maturity
|
|
|
Equivalent
|
|
|
|
Cost
|
|
|
Value
|
|
|
(Yrs./Mos.)
|
|
|
Yield
|
|
|
Cost
|
|
|
Value
|
|
|
(Yrs./Mos.)
|
|
|
Yield
|
|
|
|
(thousands)
|
|
Investment
securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S.
Government:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
$ |
1,575,484 |
|
|
$ |
1,596,864 |
|
|
|
0/6 |
|
|
|
4.85
|
% |
|
$ |
1,522,251 |
|
|
$ |
1,515,123 |
|
|
|
0/6 |
|
|
|
4.06
|
% |
One to
five years
|
|
|
1,407,293 |
|
|
|
1,443,238 |
|
|
|
1/7 |
|
|
|
3.77 |
|
|
|
1,267,976 |
|
|
|
1,268,807 |
|
|
|
1/7 |
|
|
|
4.92 |
|
Five to
ten years
|
|
|
4,362 |
|
|
|
4,376 |
|
|
|
5/8 |
|
|
|
4.85 |
|
|
|
6,335 |
|
|
|
6,139 |
|
|
|
6/4 |
|
|
|
4.88 |
|
Over
ten years
|
|
|
75,168 |
|
|
|
75,776 |
|
|
|
26/9 |
|
|
|
5.47 |
|
|
|
71,151 |
|
|
|
70,047 |
|
|
|
27/5 |
|
|
|
5.45 |
|
Total
|
|
|
3,062,307 |
|
|
|
3,120,254 |
|
|
|
1/8 |
|
|
|
4.37 |
|
|
|
2,867,713 |
|
|
|
2,860,116 |
|
|
|
1/0 |
|
|
|
5.45 |
|
State,
county and municipal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
|
1,072 |
|
|
|
1,075 |
|
|
|
0/6 |
|
|
|
3.81 |
|
|
|
871 |
|
|
|
870 |
|
|
|
0/3 |
|
|
|
3.02 |
|
One to
five years
|
|
|
1,875 |
|
|
|
1,877 |
|
|
|
2/4 |
|
|
|
4.23 |
|
|
|
2,726 |
|
|
|
2,692 |
|
|
|
2/6 |
|
|
|
3.97 |
|
Five to
ten years
|
|
|
356 |
|
|
|
373 |
|
|
|
5/0 |
|
|
|
4.95 |
|
|
|
470 |
|
|
|
476 |
|
|
|
5/11 |
|
|
|
4.90 |
|
Over
ten years
|
|
|
66 |
|
|
|
66 |
|
|
|
20/8 |
|
|
|
4.44 |
|
|
|
211 |
|
|
|
211 |
|
|
|
24/4 |
|
|
|
3.46 |
|
Total
|
|
|
3,369 |
|
|
|
3,391 |
|
|
|
2/4 |
|
|
|
4.15 |
|
|
|
4,278 |
|
|
|
4,249 |
|
|
|
3/6 |
|
|
|
3.86 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
One to
five years
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Five to
ten years
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Over
ten years
|
|
|
7,053 |
|
|
|
8,672 |
|
|
|
12/1 |
|
|
|
11.13 |
|
|
|
9,566 |
|
|
|
10,039 |
|
|
|
11/2 |
|
|
|
10.66 |
|
Total
|
|
|
7,053 |
|
|
|
8,672 |
|
|
|
11/2 |
|
|
|
11.13 |
|
|
|
9,566 |
|
|
|
10,039 |
|
|
|
11/2 |
|
|
|
10.66 |
|
Equity
securities
|
|
|
42,714 |
|
|
|
66,631 |
|
|
|
|
|
|
|
|
|
|
|
34,297 |
|
|
|
60,591 |
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
$ |
3,115,443 |
|
|
$ |
3,198,948 |
|
|
|
|
|
|
|
|
|
|
$ |
2,915,854 |
|
|
$ |
2,934,995 |
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S.
Government:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
$ |
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
88,294 |
|
|
$ |
87,889 |
|
|
|
0/4 |
|
|
|
3.71
|
% |
One to
five years
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
|
|
2/11 |
|
|
|
8.00 |
|
Five to
ten years
|
|
|
5,163 |
|
|
|
5,267 |
|
|
|
9/0 |
|
|
|
5.54
|
% |
|
|
1,175 |
|
|
|
1,165 |
|
|
|
9/11 |
|
|
|
5.71 |
|
Over
ten years
|
|
|
191 |
|
|
|
226 |
|
|
|
19/3 |
|
|
|
6.31 |
|
|
|
5,500 |
|
|
|
5,502 |
|
|
|
10/1 |
|
|
|
5.59 |
|
Total
|
|
|
5,354 |
|
|
|
5,493 |
|
|
|
9/5 |
|
|
|
5.56 |
|
|
|
94,972 |
|
|
|
94,559 |
|
|
|
1/0 |
|
|
|
3.85 |
|
State,
county and municipal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
One to
five years
|
|
|
149 |
|
|
|
153 |
|
|
|
1/1 |
|
|
|
5.88 |
|
|
|
149 |
|
|
|
154 |
|
|
|
4/1 |
|
|
|
5.88 |
|
Five to
ten years
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Over
ten years
|
|
|
1,436 |
|
|
|
1,520 |
|
|
|
10/1 |
|
|
|
6.02 |
|
|
|
1,432 |
|
|
|
1,548 |
|
|
|
12/1 |
|
|
|
6.02 |
|
Total
|
|
|
1,585 |
|
|
|
1,673 |
|
|
|
9/3 |
|
|
|
6.01 |
|
|
|
1,581 |
|
|
|
1,702 |
|
|
|
10/3 |
|
|
|
6.01 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
One to
five years
|
|
|
250 |
|
|
|
250 |
|
|
|
0/4 |
|
|
|
3.25 |
|
|
|
250 |
|
|
|
250 |
|
|
|
1/4 |
|
|
|
3.25 |
|
Five to
ten years
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Total
|
|
|
250 |
|
|
|
250 |
|
|
|
0/4 |
|
|
|
3.25 |
|
|
|
250 |
|
|
|
250 |
|
|
|
1/4 |
|
|
|
3.25 |
|
Total
investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
to maturity
|
|
|
7,189 |
|
|
|
7,416 |
|
|
|
9/1 |
|
|
|
5.58 |
|
|
|
96,803 |
|
|
|
96,511 |
|
|
|
1/0 |
|
|
|
3.88 |
|
Total
investment securities
|
|
$ |
3,122,632 |
|
|
$ |
3,206,364 |
|
|
|
|
|
|
|
|
|
|
$ |
3,012,657 |
|
|
$ |
3,031,506 |
|
|
|
|
|
|
|
|
|
Average
maturity assumes callable securities mature on their earliest call
date; yields are based on amortized cost; yields related to
securities that are
|
|
exempt
from federal and/or state income taxes are stated on a taxable-equivalent
basis assuming statutory rates of 35% for federal income tax
purposes
|
|
and
6.9% for state income taxes for all periods.
|
|
|
|
|
|
|
|
|
|
|
Interest
income earned on the investment securities portfolio amounted to $36.2 million
during the first quarter of 2008 and $33.6 million during the same period of
2007, an increase of $2.6 million or 7.7 percent. This increase in
income is the result of slightly improved yields and higher average
volume. The taxable-equivalent yield increased 18 basis points from
4.54 percent in the first quarter of 2007 to 4.72 percent in the first quarter
of 2008 due to higher market rates. Average investment
securities increased $91.4 million from $3.09 billion during the first quarter
of 2007 to $3.18 billion during the first quarter of 2008. We
anticipate significant reduction in the yield on the investment securities
portfolio during the remaining quarters of 2008 due to sharply lower market
rates on purchases of new securities.
Interest
income from overnight investments amounted to $4.1 million during the first
quarter of 2008, a decrease of $3.4 million from the $7.5 million earned during
the first quarter of 2007, the combined result of a yield decline of 216 basis
points and a $39.7 million reduction in average balances.
INTEREST-BEARING
LIABILITIES
Interest-bearing
liabilities include our interest-bearing deposits as well as short-term
borrowings and long-term obligations. Deposits represent our primary
funding source, although we also utilize non-deposit borrowings to stabilize our
liquidity base and to fulfill commercial customer demand for cash management
services. Certain of our long-term borrowings also provide
capital strength under existing guidelines established by the Federal Reserve
Bank and other banking regulators.
Deposits. At
March 31, 2008, total deposits equaled $13.23 billion, an increase of $504.5
million or 4.0 percent over March 31, 2007. Average interest-bearing
deposits were $10.51 billion during the first quarter of 2008, an increase of
$564.6 million or 5.7 percent from the first quarter of 2007. Average
time deposits increased $383.9 million or 7.5 percent to $5.50 billion from the
first quarter of 2007 to the same period of 2008. During the first
quarter of 2008, money market accounts averaged $3.06 billion, compared to $2.77
billion in the first quarter of 2007. Partially offsetting these
increases, average balances of Checking With Interest dropped $56.1 million
while average savings accounts declined $52.7 million.
We attribute
the growth of time deposits since the first quarter of 2007 to the volatility in
the stock market and overall instability of the economy. However, due
to significantly lower rates, we expect the composition of interest-bearing
deposits will shift throughout 2008 with reductions in time deposits and
increases in balances held in money market accounts. Competition for
deposit business in our market areas is extremely intense. While we
have access to non-deposit borrowing sources, we prefer to fund loan and lease
demand with traditional core bank deposits. Therefore, generating
acceptable levels of deposit growth is a critical challenge for us, particularly
during periods of strong loan demand.
Short-term
borrowings At March 31, 2008, short-term borrowings
totaled $1.27 billion compared to $1.25 billion at March 31,
2007. For the quarters ended March 31, 2008 and 2007, short-term
borrowings averaged $1.32 billion and $1.20 billion,
respectively. The $119.1 million or 9.9 percent growth in average
short-term borrowings was the result of significantly higher customer demand for
our commercial master note and overnight repurchase obligation products, key
offerings within our cash management suite of products.
Long-term
obligations. Long-term obligations equaled $609.3 million at
March 31, 2008, up $204.0 million from March 31, 2007. During
the first quarter 2008, we sought to take advantage of lower funding costs on
long-term borrowings from the Federal Home Loan Bank of Atlanta.
Expense on interest-bearing
liabilities. Interest expense amounted to $94.8 million during
the first quarter of 2008, a $4.6 million or 4.6 percent decrease from the first
quarter of 2007. The lower interest expense was the net result of
lower rates and higher average volume. The rate on average
interest-bearing liabilities equaled 3.10 percent during the first quarter of
2008, a 39 basis point decrease in the aggregate blended rate on
interest-bearing liabilities as compared to the first quarter of
2007. Average interest-bearing liabilities increased
$751.2 million or 6.5 percent from first quarter of 2007 to the first quarter of
2008.
Consolidated
Taxable Equivalent Rate/Volume Variance Analysis - First
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
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
|
|
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases
|
|
$ |
10,961,706 |
|
|
$ |
177,664 |
|
|
|
6.51
|
% |
|
$ |
10,230,858 |
|
|
$ |
177,065 |
|
|
|
7.01
|
% |
|
$ |
13,028 |
|
|
$ |
(12,429 |
) |
|
$ |
599 |
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S.
Government
|
|
|
3,108,764 |
|
|
|
36,658 |
|
|
|
4.73 |
|
|
|
3,014,804 |
|
|
|
34,021 |
|
|
|
4.54 |
|
|
|
1,138 |
|
|
|
1,499 |
|
|
|
2,637 |
|
State,
county and municipal
|
|
|
4,963 |
|
|
|
81 |
|
|
|
6.56 |
|
|
|
5,830 |
|
|
|
91 |
|
|
|
6.33 |
|
|
|
(13 |
) |
|
|
3 |
|
|
|
(10 |
) |
Other
|
|
|
69,909 |
|
|
|
772 |
|
|
|
4.44 |
|
|
|
71,627 |
|
|
|
774 |
|
|
|
4.38 |
|
|
|
(16 |
) |
|
|
14 |
|
|
|
(2 |
) |
Total
investment securities
|
|
|
3,183,636 |
|
|
|
37,511 |
|
|
|
4.72 |
|
|
|
3,092,261 |
|
|
|
34,886 |
|
|
|
4.54 |
|
|
|
1,109 |
|
|
|
1,516 |
|
|
|
2,625 |
|
Overnight
investments
|
|
|
545,799 |
|
|
|
4,081 |
|
|
|
3.01 |
|
|
|
585,503 |
|
|
|
7,461 |
|
|
|
5.17 |
|
|
|
(373 |
) |
|
|
(3,007 |
) |
|
|
(3,380 |
) |
Total
interest-earning assets
|
|
$ |
14,691,141 |
|
|
$ |
219,256 |
|
|
|
6.00
|
% |
|
$ |
13,908,622 |
|
|
$ |
219,412 |
|
|
|
6.38
|
% |
|
$ |
13,764 |
|
|
$ |
(13,920 |
) |
|
$ |
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
With Interest
|
|
$ |
1,419,402 |
|
|
$ |
370 |
|
|
|
0.10
|
% |
|
$ |
1,475,547 |
|
|
$ |
454 |
|
|
|
0.12
|
% |
|
$ |
(14 |
) |
|
$ |
(70 |
) |
|
$ |
(84 |
) |
Savings
|
|
|
540,123 |
|
|
|
282 |
|
|
|
0.21 |
|
|
|
592,804 |
|
|
|
311 |
|
|
|
0.21 |
|
|
|
(28 |
) |
|
|
(1 |
) |
|
|
(29 |
) |
Money
market accounts
|
|
|
3,057,897 |
|
|
|
19,666 |
|
|
|
2.59 |
|
|
|
2,768,393 |
|
|
|
22,555 |
|
|
|
3.30 |
|
|
|
2,187 |
|
|
|
(5,076 |
) |
|
|
(2,889 |
) |
Time
deposits
|
|
|
5,495,535 |
|
|
|
58,941 |
|
|
|
4.31 |
|
|
|
5,111,594 |
|
|
|
56,691 |
|
|
|
4.50 |
|
|
|
4,480 |
|
|
|
(2,230 |
) |
|
|
2,250 |
|
Total
interest-bearing deposits
|
|
|
10,512,957 |
|
|
|
79,259 |
|
|
|
3.03 |
|
|
|
9,948,338 |
|
|
|
80,011 |
|
|
|
3.26 |
|
|
|
6,625 |
|
|
|
(7,377 |
) |
|
|
(752 |
) |
Federal
funds purchased
|
|
|
35,527 |
|
|
|
274 |
|
|
|
3.10 |
|
|
|
78,535 |
|
|
|
1,002 |
|
|
|
5.17 |
|
|
|
(438 |
) |
|
|
(290 |
) |
|
|
(728 |
) |
Repurchase
agreements
|
|
|
290,689 |
|
|
|
1,218 |
|
|
|
1.69 |
|
|
|
272,767 |
|
|
|
2,469 |
|
|
|
3.67 |
|
|
|
128 |
|
|
|
(1,379 |
) |
|
|
(1,251 |
) |
Master
notes
|
|
|
935,224 |
|
|
|
5,996 |
|
|
|
2.58 |
|
|
|
774,306 |
|
|
|
8,295 |
|
|
|
4.34 |
|
|
|
1,413 |
|
|
|
(3,712 |
) |
|
|
(2,299 |
) |
Other
short-term borrowings
|
|
|
59,003 |
|
|
|
693 |
|
|
|
4.72 |
|
|
|
75,717 |
|
|
|
916 |
|
|
|
4.91 |
|
|
|
(196 |
) |
|
|
(27 |
) |
|
|
(223 |
) |
Long-term
obligations
|
|
|
475,732 |
|
|
|
7,386 |
|
|
|
6.21 |
|
|
|
408,277 |
|
|
|
6,755 |
|
|
|
6.62 |
|
|
|
1,079 |
|
|
|
(448 |
) |
|
|
631 |
|
Total
interest-bearing liabilities
|
|
$ |
12,309,132 |
|
|
$ |
94,826 |
|
|
|
3.10
|
% |
|
$ |
11,557,940 |
|
|
$ |
99,448 |
|
|
|
3.49
|
% |
|
$ |
8,611 |
|
|
$ |
(13,233 |
) |
|
$ |
(4,622 |
) |
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
2.90
|
% |
|
|
|
|
|
|
|
|
|
|
2.89
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and net yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
interest-earning assets
|
|
|
|
|
|
$ |
124,430 |
|
|
|
3.41
|
% |
|
|
|
|
|
$ |
119,964 |
|
|
|
3.50
|
% |
|
$ |
5,153 |
|
|
$ |
(687 |
) |
|
$ |
4,466 |
|
Average loan
and lease balances include nonaccrual loans and leases. Yields
related to loans, leases 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% and state income tax rate
of 6.90% for each period. The taxable-equivalent
adjustment was $1,853 for 2008 and $1,775 for
2007.
NET
INTEREST INCOME
Net interest income totaled $122.6 million
during the first quarter of 2008, an increase of $4.4 million or 3.7 percent
from the first quarter of 2007. The taxable-equivalent net yield on
interest-earning assets equaled 3.41 percent for the first quarter of 2008, down
9 basis points from the 3.50 percent recorded for the first quarter of
2007. However, the net yield for the first quarter of 2008 increased
six basis points above the fourth quarter of 2007. The continued
compression of the taxable-equivalent net yield results from competitive
interest rate pressures and the extremely low absolute level of current interest
rates on many of our deposit and borrowing products.
Our
asset/liability management strategy continues to focus on maintaining high
levels of balance sheet liquidity. We maintain portfolios of
interest-earning assets and interest-bearing liabilities with maturities or
repricing characteristics that will protect against wide interest rate
fluctuations, thereby limiting, to the extent possible, the ultimate interest
rate exposure.
NONINTEREST
INCOME
The growth of noninterest income is essential
to our ability to sustain adequate levels of profitability. The
primary sources of noninterest income are cardholder and merchant services
income, service charges on deposit accounts, revenues derived from wealth
management services and fees from processing services. During 2008,
we also recorded a significant securities gain.
During the
first three months of 2008, noninterest income amounted to $83.7 million,
compared to $69.0 million during the same period of 2007. Of the
$14.6 million or 21.2 percent increase in noninterest income, $8.1 million
resulted from a securities gain recognized in conjunction with our investment in
Visa, Inc. During the first quarter of 2008, Visa completed its
initial public offering resulting in a conversion of our former member-bank
equity investment to a new class of restricted stock. Immediately
thereafter, a portion of our new Visa stock was redeemed for cash thereby
triggering the gain. Other noninterest income increases were recorded
in fees from wealth management services, service charges on deposit accounts and
cardholder and merchant services income.
Service
charges on deposit accounts generated $20.0 million and $17.2 million for the
first quarter of 2008 and 2007, respectively. The $2.8 million or
16.5 percent increase was primarily due to improved commercial service charge
income and higher bad check and overdraft charges. Commercial service
charges increased as a result of lower interest rates, which translate into
higher service charge income on commercial analysis accounts. In the
second half of 2007, we implemented new tiered levels of pricing for NSF and
overdraft items that has resulted in higher fee income.
Fees from
wealth management services amounted to $13.2 million during the first quarter of
2008, compared to $11.7 million during the first quarter of 2007. The
$1.5 million or 12.7 percent increase was due to strong broker/dealer and asset
management results.
Cardholder
and merchant services generated $23.1 million during the first quarter of 2008,
an increase of $673,000 or 3.0 percent compared to the first quarter of
2007. This increase resulted from higher business credit card and
debit card interchange volume. The growth rate of revenue derived
from merchant processing services slowed during the current quarter due
primarily to weakness in consumer spending.
Fees from
processing services, which relate to check processing and other
industry-specific services provided to other financial institutions, totaled
$8.8 million in the first quarter of 2008 and $8.2 million in the first quarter
of 2007. The $617,000 or 7.5 percent increase was the combined result
of continued growth in business volumes generated by client banks.
NONINTEREST
EXPENSE
The primary
components of noninterest expense are salaries and related employee benefit
costs, occupancy expenses related to branch offices and support facilities, and
equipment costs related to branch offices and technology.
Noninterest expense equaled $145.6 million for
the first three months of 2008, a $7.0 million or 5.1 percent increase over the
$138.6 million recorded during the same period of 2007. Noninterest
expense for 2008 includes a $3.3 million credit to other expense resulting from
the reversal of a litigation reserve that was accrued during the fourth quarter
of 2007 as an estimate of exposure resulting from our Visa member bank
status. Once Visa completed its initial public offering during 2008,
a portion of the proceeds were retained, and the member bank liabilities that
were the basis for the 2007 accruals were settled. ISB’s continued
growth and expansion continue to contribute to the increase in operating
costs. ISB’s noninterest expense increased from $19.1 million for the
first quarter of 2007 to $20.7 million in 2008, a $1.6 million or 8.1 percent
increase.
Salaries and
wages increased $4.2 million or 7.2 percent during the first quarter of 2008
when compared to the same period of 2007. The increase resulted from
2007 merit increases and workforce expansions both as a result of new branch
offices and headcount additions in several support
functions. Employee benefits expense totaled $18.2 million for the
first three months of 2008, an increase of $5.0 million. The 38.0
percent increase results from $3.1 million of benefits arising from the
retirement of an executive officer, $831,000 accrued as a result of enhancements
to agreements with two other executive officers and higher employer health
costs.
Occupancy
expense amounted to $15.3 million during the first quarter of 2008 and $13.9
million during the first quarter of 2007. The $1.5 million or 10.8 percent
increase resulted from higher building depreciation, rent expense and other
costs arising from branch expansion and costs related to the corporate
headquarters building. ISB reported an 11.3 percent increase during
the first quarter of 2008 due to new branch locations.
Other
expenses decreased $3.8 million or 9.8 percent from the first quarter of 2007 to
the first quarter of 2008. This reduction includes the $3.3 million
reversal of Visa member bank accrued liabilities that were settled as a result
of Visa’s initial public offering. Advertising costs declined $1.8
million during the first quarter of 2008, while postage,
cardholder and merchant services and other third party processing costs
experienced increases in 2008.
INCOME
TAXES
BancShares continually monitors and evaluates
the potential impact of current events on the estimates used to establish income
tax expenses and income tax liabilities. On a periodic basis, we
evaluate our income tax positions based on current tax law, positions taken by
various tax auditors within the jurisdictions that BancShares is required to
file income tax returns as well as potential or pending audits or assessments by
such tax auditors.
Income tax
expense amounted to $18.1 million during the three months ended March 31, 2008,
compared to $16.1 million during the same period of 2007. The 12.4
percent increase in income tax expense was primarily the result of higher
pre-tax earnings. The effective tax rates for these periods
equaled 35.9 percent and 35.7 percent, respectively.
On January 1,
2007, we adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies uncertainty in income taxes
recognized by establishing a recognition threshold and a measurement attribute
for the financial statement treatment of a tax position taken or expected to be
taken in a tax return. The adoption of FIN 48 resulted in a reduction
in the liability for unrecognized tax benefits, which was offset by a $962,000
increase in retained earnings.
SHAREHOLDERS'
EQUITY AND CAPITAL ADEQUACY
BancShares continues to exceed minimum
regulatory capital standards, and the banking subsidiaries remain
well-capitalized. At March 31, 2008 and 2007, the leverage capital
ratios of BancShares were 9.80 percent and 9.60 percent, respectively,
surpassing the minimum level of 3 percent. As a percentage of
risk-adjusted assets, BancShares' Tier 1 capital ratios were 13.12 percent at
March 31, 2008 and 13.09 percent at March 31, 2007. The minimum ratio
allowed is 4 percent of risk-adjusted assets. The total risk-adjusted
capital ratios were 15.47 percent at March 31, 2008 and 15.52 percent as of
March 31, 2007. The minimum total capital ratio is 8
percent.
The continued
de novo growth and operating losses of ISB has required BancShares to infuse
significant amounts of capital into ISB to support its expanding balance
sheet. BancShares infused $7.0 million into ISB during the first
quarter of 2008. Since ISB was formed in 1997, BancShares has
provided $311.0 million in capital. BancShares’ prospective capacity
to provide capital to support the growth and expansion of ISB is highly
dependent upon FCB’s ability to return capital through dividends to
BancShares.
Summary
of Loan and Lease Loss Experience and Risk Elements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
First
|
|
|
Fourth
|
|
|
|
|
|
Third
|
|
|
Second
|
|
|
|
|
|
First
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
Quarter
|
|
|
|
(thousands,
except ratios)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for credit losses at beginning of period
|
|
$ |
144,271 |
|
|
$ |
140,871 |
|
|
|
|
|
$ |
136,396 |
|
|
$ |
139,496 |
|
|
|
|
|
$ |
138,646 |
|
Provision
for credit losses
|
|
|
10,118 |
|
|
|
11,795 |
|
|
|
|
|
|
17,333 |
|
|
|
934 |
|
|
|
|
|
|
3,532 |
|
Adjustment
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(6,606 |
) |
|
|
(9,657 |
) |
|
|
|
|
|
(14,099 |
) |
|
|
(4,954 |
) |
|
|
|
|
|
(3,980 |
) |
Recoveries
|
|
|
1,308 |
|
|
|
1,262 |
|
|
|
|
|
|
1,241 |
|
|
|
920 |
|
|
|
|
|
|
1,298 |
|
Net
charge-offs
|
|
|
(5,298 |
) |
|
|
(8,395 |
) |
|
|
|
|
|
(12,858 |
) |
|
|
(4,034 |
) |
|
|
|
|
|
|
(2,682 |
) |
Allowance
for credit losses at end of period
|
|
$ |
149,091 |
|
|
$ |
144,271 |
|
|
|
# |
|
|
$ |
140,871 |
|
|
$ |
136,396 |
|
|
|
|
|
|
$ |
139,496 |
|
Allowance
for credit losses includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses
|
|
$ |
141,591 |
|
|
$ |
136,974 |
|
|
|
|
|
|
$ |
133,576 |
|
|
$ |
129,276 |
|
|
|
|
|
|
$ |
132,640 |
|
Liability
for unfunded credit commitments
|
|
|
7,500 |
|
|
|
7,297 |
|
|
|
|
|
|
|
7,295 |
|
|
|
7,120 |
|
|
|
|
|
|
|
6,856 |
|
Allowance
for credit losses at end of period
|
|
$ |
149,091 |
|
|
$ |
144,271 |
|
|
|
|
|
|
$ |
140,871 |
|
|
$ |
136,396 |
|
|
|
|
|
|
$ |
139,496 |
|
Historical
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
loans and leases
|
|
$ |
10,961,706 |
|
|
$ |
10,831,571 |
|
|
|
|
|
|
$ |
10,623,247 |
|
|
$ |
10,360,913 |
|
|
|
|
|
|
$ |
10,230,858 |
|
Loans
and leases at period-end
|
|
|
11,029,937 |
|
|
|
10,963,904 |
|
|
|
|
|
|
|
10,763,158 |
|
|
|
10,513,041 |
|
|
|
|
|
|
|
10,262,356 |
|
Risk
Elements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans and leases
|
|
$ |
39,259 |
|
|
$ |
13,021 |
|
|
|
|
|
|
$ |
18,227 |
|
|
$ |
12,458 |
|
|
|
|
|
|
$ |
14,943 |
|
Other
real estate
|
|
|
3,987 |
|
|
|
6,893 |
|
|
|
|
|
|
|
5,202 |
|
|
|
6,352 |
|
|
|
|
|
|
|
6,245 |
|
Total
nonperforming assets
|
|
$ |
43,246 |
|
|
$ |
19,914 |
|
|
|
|
|
|
$ |
23,429 |
|
|
$ |
18,810 |
|
|
|
|
|
|
$ |
21,188 |
|
Accruing
loans and leases 90 days or more past due
|
|
$ |
7,569 |
|
|
$ |
7,124 |
|
|
|
|
|
|
$ |
10,322 |
|
|
$ |
9,289 |
|
|
|
|
|
|
$ |
8,396 |
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs (annualized) to average total loans and leases
|
|
|
0.19
|
% |
|
|
0.31 |
|
|
%
|
|
|
|
0.48
|
% |
|
|
0.16 |
|
|
%
|
|
|
|
0.11
|
% |
Percent
of loans and leases at period-end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses
|
|
|
1.28 |
|
|
|
1.25 |
|
|
|
|
|
|
|
1.24 |
|
|
|
1.23 |
|
|
|
|
|
|
|
1.29 |
|
Reserve
for unfunded commitments
|
|
|
0.07 |
|
|
|
0.07 |
|
|
|
|
|
|
|
0.07 |
|
|
|
0.07 |
|
|
|
|
|
|
|
0.07 |
|
Allowance
for credit losses
|
|
|
1.35 |
|
|
|
1.32 |
|
|
|
|
|
|
|
1.31 |
|
|
|
1.30 |
|
|
|
|
|
|
|
1.36 |
|
Nonperforming
assets to total loans and leases plus other real estate
|
|
|
0.39 |
|
|
|
0.18 |
|
|
|
|
|
|
|
0.22 |
|
|
|
0.18 |
|
|
|
|
|
|
|
0.21 |
|
RISK
MANAGEMENT
In the normal
course of business, BancShares is exposed to various risks. To
manage the major risks that are inherent in the operation of a financial holding
company and to provide reasonable assurance that our long-term business
objectives will be attained, various policies and risk management processes
identify, monitor and manage risk within acceptable
tolerances. Management continually refines and enhances its risk
management policies and procedures to maintain effective risk
management.
The most
prominent risk exposures are credit, interest rate and liquidity
risk. Credit risk is the risk of not collecting the amount of a loan
or investment when it is contractually due. Interest rate risk is the
potential reduction of net interest income as a result of changes in market
interest rates. Liquidity risk is the possible inability to fund
obligations to depositors, creditors, investors or borrowers.
Credit
risk. BancShares manages and monitors extensions of credit and
the quality of the loan and lease portfolio through rigorous initial
underwriting processes and periodic ongoing reviews. Underwriting
standards reflect credit policies and procedures, and much of the credit
decision process is centralized. We maintain a credit review function
that conducts independent risk reviews and analyses for the purpose of ensuring
compliance with credit policies and to monitor asset quality
trends. The independent risk reviews include portfolio analysis
by geographic location and horizontal reviews across industry sectors within the
banking subsidiaries. BancShares strives to identify potential credit
problems as early as possible, to take charge-offs or write-downs as appropriate
and to maintain adequate allowances for credit losses that are inherent in the
loan and lease portfolio. The maintenance of excellent asset quality
is one of our key performance measures.
We maintain a
well-diversified loan and lease portfolio and seek to avoid the risk associated
with large concentrations within specific geographic areas or
industries. Our continuing expansion has allowed us to mitigate our
historic exposure to geographic risk concentration in North Carolina and
Virginia. However, as we have entered new markets, we have endeavored
to ensure that rigorous centralized underwriting and monitoring controls are
functioning effectively. We will continue to place emphasis upon
maintaining strong lending standards in new markets.
In recent
years, we have sought opportunities to provide financial services to businesses
associated with and professionals within the medical community. Due
to strong loan growth within this industry, our loans and leases to borrowers in
medical, dental or related fields totaled $2.35 billion as of March 31, 2008,
which represents 21.3 percent of loans and leases outstanding, compared to $1.97
billion or 19.2 percent of loans and leases at March 31, 2007. No
other industry represented more than 10 percent of total loans and leases
outstanding at March 31, 2008.
Nonperforming
assets include nonaccrual loans and leases and other real
estate. Other real estate includes foreclosed property as well
as branch facilities that we have closed but not sold. At March
31, 2008, BancShares' nonperforming assets amounted to $43.2 million or 0.39
percent of loans and leases plus foreclosed properties, compared to $21.2
million at March 31, 2007. During the first quarter of 2008,
we moved $27.9 million of residential construction loans to nonaccrual
status. These loans are secured by properties located in the Atlanta,
Georgia and Southwest Florida markets, areas that have suffered from significant
excess capacity and falling property values. Our borrowers, who are
dependent on proceeds from sales to fund their obligations to us, face
significant liquidity challenges. Further, due to concerns about other
borrowers' ability to comply with existing loan repayment terms, additional
residential construction loans totaling $42.2 million were identified as
potential problem loans as of March 31, 2008. As real estate markets
remain soft, we will continue to closely monitor nonperforming assets, taking
necessary actions to minimize potential exposure.
At March 31,
2008, the allowance for credit losses totaled $149.1 million or 1.35 percent of
total loans and leases, compared to 1.36 percent at March 31,
2007. The allowance for credit losses includes the allowance for loan
and lease losses and the reserve for unfunded credit commitments. We
continuously analyze the growth and risk characteristics of the loan and lease
portfolio under current economic conditions in order to evaluate the adequacy of
the allowance. Such factors as the financial condition of borrowers,
fair market value of collateral and other considerations are recognized in
estimating probable credit losses.
Management considers the established allowance
adequate to absorb estimated probable losses that relate to loans and leases
outstanding at March 31, 2008, although future additions may be necessary based
on changes in economic conditions and other factors. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the allowance for credit losses. Such agencies
may require adjustments to the allowance based on information available to them
at the time of their examination.
The provision
for credit losses charged to operations during the first quarter of 2008 was
$10.1 million, compared to $3.5 million during the first quarter of
2007. The $6.6 million increase in the provision for credit losses
during 2008 resulted primarily from allowances related to the residential
construction loan portfolio and higher net charge-offs. Net
charge-offs during the first quarter of 2008 equaled $5.3 million compared to
$2.7 million during the first quarter of 2007 with increases noted among both
commercial and consumer loans. On an annualized basis, net
charge-offs represent 0.19 percent of average loans and leases during the first
quarter of 2008 compared to 0.11 percent in the first quarter of
2007.
Interest rate
risk. Interest rate risk results principally from assets and
liabilities maturing or repricing at different points in time, from assets and
liabilities repricing at the same point in time but in different amounts and
from short-term and long-term interest rates changing in different magnitudes,
an event frequently described by the resulting impact on the shape of the yield
curve. Market interest rates may also have a direct or indirect
impact on the interest rate and repricing characteristics of loans and leases
that are originated as well as the rate characteristics of our interest-bearing
liabilities.
We do not
typically utilize interest rate swaps, floors, collars or other derivative
financial instruments to attempt to hedge our rate sensitivity and interest rate
risk. However, during the second quarter of 2007, in conjunction with
the issuance of $115.0 million in trust preferred securities, we entered into an
interest rate swap to synthetically convert the variable rate coupon on the
securities to a fixed rate of 7.125 percent for a period of five
years.
We assess our
interest rate risk by simulating future amounts of net interest income under
various interest rate scenarios and comparing those results to forecasted net
interest income assuming stable rates. These simulations indicate
that net interest income will vary by less than 4 percent when interest rates
rise or decline by 200 basis points. We also utilize the market value
of equity as a tool in measuring and managing interest rate risk. The
market value of equity is estimated to vary by less than 10 percent when
interest rates move 200 basis points in either direction.
Liquidity
risk. Liquidity risk results from the mismatching of asset and
liability cash flows. BancShares manages this risk by structuring its
balance sheet prudently and by maintaining various borrowing resources to fund
potential cash needs. BancShares has historically maintained a strong
focus on liquidity, and our deposit base represents our primary liquidity
source. Through our deposit pricing strategies, we have the ability
to stimulate or curtail deposit growth. BancShares also maintains
additional sources for borrowed funds through federal funds lines of credit and
other borrowing facilities. At March 31, 2008, BancShares had access
to $525.0 million in unfunded borrowings through its correspondent bank
network. Through membership in the Federal Home Loan Bank of Atlanta,
our subsidiary banks have access to overnight, short-term and long-term funding,
subject to underwriting and collateral requirements. We also utilize
deposit brokers to provide funding.
Once we have
generated the needed liquidity and satisfied our loan and lease demand, residual
liquidity is invested in overnight and longer-term investment
products. Investment securities available for sale provide immediate
liquidity as needed.
SEGMENT
REPORTING
BancShares
conducts its banking operations through its two banking subsidiaries, FCB and
ISB. Although FCB and ISB offer similar products and services to
customers, each entity operates in distinct geographic markets and has separate
management groups. We monitor growth and financial results in these
institutions separately and, within each institution, by geographic
segregation.
Although FCB
has grown through acquisition in certain of its markets, throughout its history
the majority of its expansion has been accomplished on a de novo
basis. Since it first opened in 1997, ISB has followed a similar
business model for growth and expansion. Because of its size, the
costs associated with FCB’s current rate of expansion are not material to its
financial performance. However, due to the rapid pace of its growth
and the number of branch offices that have not attained sufficient size to
achieve profitability, the financial results and trends of ISB are significantly
affected by its current and continuing growth. Each new market ISB
enters creates additional operating costs that are typically not fully offset by
operating revenues until the third year after initial opening. Losses
incurred since ISB’s inception total $39.3 million.
IronStone
Bank. At March 31, 2008, ISB operated 55 facilities in twelve
states, with a focus on markets with favorable growth prospects. Our
business model for new markets has two primary requirements. First,
we hire experienced bankers who are established in the markets we are entering
and who are focused on strong asset quality and delivering high-quality customer
service while maintaining strong asset quality. Second, we occupy
branch facilities located in areas conducive to attracting medical and
professional customers. While these are costly goals, we believe that
they are critical to establishing a solid foundation for future success in new
markets. As its newest branches continue to mature, we expect ISB
will operate at a loss throughout 2008.
ISB’s total
assets equaled $2.66 billion at March 31, 2008 compared to $2.23 billion at
March 31, 2007, an increase of $436.8 million or 19.6 percent. ISB
recorded a net loss of $4.6 million during the first quarter of 2008, compared
to net loss of $266,000 during the same period of 2007. This
represents an unfavorable variance of $4.3 million.
Net interest
income increased $24,000 during the first quarter of 2008, the result of loan
growth offset by a reduction in the net yield on interest-earning
assets. The provision for credit losses increased $5.4 million during
the first quarter of 2008 primarily due to the $27.9 million of
residential construction loans moved to nonaccrual status during the
quarter. The provision for credit losses also increased due to higher
net charge-offs, which increased from $219,000 in the first quarter of 2007
to $1.8 million in the first quarter of 2008. On an annualized basis,
the ratio of current quarter net charge-offs to average loans and leases
outstanding equaled 0.34 percent, compared to 0.04 percent in the prior
year.
ISB’s
noninterest income decreased $68,000 or 2.1 percent during the first quarter of
2008, the net result of lower working capital finance fees and improved service
charge income and cardholder income. Noninterest expense increased
$1.6 million or 8.1 percent during the first quarter of 2008, versus the same
period of 2007. Salary expense increased $510,000 or 6.9 percent due
to merit increases and new positions. Occupancy expense was up
$415,000 or 11.3 percent due to the new facilities. Other expense
equaled $5.8 million during the first quarter of 2008 compared to $5.3 million
during the first quarter of 2007 caused by higher general operating expenses,
such as credit card processing and third party processing fees.
First-Citizens Bank &
Trust Company. At March 31, 2008, FCB operated 342 branches in
five states.
FCB’s total
assets increased from $13.36 billion at March 31, 2007 to $13.93 billion at
March 31, 2008, an increase of $571.0 million or 4.3 percent. FCB
recorded net income of $39.1 million during the first quarter of 2008 compared
to $31.7 million during the same period of 2007. This
represents a $7.5 million or 23.6 percent increase in net income due to the
nonrecurring gain in noninterest income. FCB’s net interest income increased
$3.6 million or 3.4 percent during 2008, due to higher balances of
interest-earning assets.
The provision for credit losses increased $1.2
million due to higher net charge offs, which increased by 42.2
percent. FCB’s ratio of net charge-offs to average loans and leases
was 0.16 percent for the first quarter of 2008 compared to 0.10 percent for the
same period of 2007. FCB’s noninterest income increased $14.2 million
or 20.5 percent during the first quarter of 2008, primarily the result of the
nonrecurring gain from the sale of Visa, Inc. stock. Other
improvements were noted in service charges on deposit accounts, wealth
management services and fees from processing services. Noninterest
expense increased $4.6 million or 3.7 percent during 2008, caused principally by
higher personnel, occupancy and credit card processing costs.
CURRENT
ACCOUNTING AND REGULATORY ISSUES
In September
2007, the FASB issued Statement of Financial Accounting Standards No. 157
“Fair Value Measurements” (Statement 157). Statement 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. Statement 157 does not require any new
fair value measurements, but clarifies and standardizes some divergent practices
that have emerged since prior guidance was issued. We adopted
Statement 157 on January 1, 2008, and the adoption did not have a material
impact on our consolidated financial statements.
In September
2007, the FASB issued Summary of Statement No. 158 “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans” (Statement
158). In addition to other provisions that have already been applied
for all periods presented, Statement 158 requires sponsors of defined benefit
and other post-retirement plans to measure the funded status of a plan as of the
date of its year-end statement of financial position. For BancShares,
that provision will become effective December 31, 2008.
In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities” (Statement 159). Statement 159 allows an
entity to elect to measure certain financial assets and liabilities at fair
value with changes in fair value recognized in the income statement each period.
The statement also requires additional disclosures to identify the effects of an
entity’s fair value election on its earnings. We adopted Statement 159 on
January 1, 2008, and the adoption did not have a material impact on financial
condition, results of operations, or liquidity.
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
Statements in
this Report and exhibits relating to plans, strategies, economic performance and
trends, projections of results of specific activities or investments,
expectations or beliefs about future events or results, and other statements
that are not descriptions of historical facts, may be forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.
Forward-looking
information is inherently subject to risks and uncertainties, and actual results
could differ materially from those currently anticipated due to a number of
factors, which include, but are not limited to, factors discussed in our Annual
Report on Form 10-K and in other documents filed by us from time to time with
the Securities and Exchange Commission.
Forward-looking
statements may be identified by terms such as “may,” “will,” “should,” “could,”
“expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,”
“predicts,” “forecasts,” “projects,” “potential” or “continue,” or similar terms
or the negative of these terms, or other statements concerning opinions or
judgments of BancShares’ management about future events.
Factors that
could influence the accuracy of those forward-looking statements include, but
are not limited to, the financial success or changing strategies of our
customers, customer acceptance of our services, products and fee structure, the
competitive nature of the financial services industry, our ability to compete
effectively against other financial institutions in our banking markets, actions
of government regulators, the level of market interest rates and our ability to
manage our interest rate risk, changes in general economic conditions that
affect our loan and lease portfolio, the abilities of our borrowers to repay
their loans and leases, the values of real estate and other collateral, and
other developments or changes in our business that we do not
expect.
Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We have no obligation to update these forward-looking
statements.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
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 of financial instruments or reduced net interest income in future
periods. As of March 31, 2008, BancShares’ market risk profile has
not changed significantly from December 31, 2007. Changes in fair
value that result from movement in market rates cannot 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.
Item
4. Controls
and Procedures
BancShares’
management, with the participation of its Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of BancShares’ disclosure controls and procedures in accordance with Rule 13a-15
of the Securities Exchange Act of 1934 (Exchange Act). Based on their
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, BancShares’ disclosure
controls and procedures were effective in enabling it to record, process,
summarize and report in a timely manner the information required to be disclosed
in reports it files under the Exchange Act.
No change in
BancShares’ internal control over financial reporting occurred during the first
quarter of 2008 that had materially affected, or is reasonably likely to
materially affect, BancShares’ internal control over financial
reporting.
PART
II
Item
6.
Exhibits
|
10
|
Retirement
Agreement and Release between Registrant’s subsidiary, First-Citizens Bank
& Trust Company, the Registrant and James B. Hyler,
Jr.
|
|
31.1 |
Certification
of Chief Executive Officer |
|
31.2 |
Certification
of Chief Financial Officer |
|
32 |
Certifications
of Chief Executive Officer and Chief Financial
Officer |
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.
Dated: May
8,
2008
FIRST CITIZENS
BANCSHARES, INC.
(Registrant)
By: /s/ KENNETH A.
BLACK
Kenneth A. Black
Vice President, Treasurer
and Chief Financial Officer