FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002 Commission File Number 0-11172
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0738665
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1230 MAIN STREET
COLUMBIA, SOUTH CAROLINA 29201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 733-2659
--------------
NO CHANGE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 12 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 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2002
----- ----------------------------
VOTING COMMON STOCK, $5.00 PAR VALUE 878,040 SHARES
NON-VOTING COMMON STOCK, $5.00 PAR VALUE 36,409 SHARES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES
===================================================================================================================
CONSOLIDATED STATEMENTS OF CONDITION - UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PAR VALUES)
JUNE 30, December 31, June 30,
2002 2001 2001
----------- -------------- -----------
ASSETS
Cash and due from banks $ 156,351 $ 157,998 $ 146,517
Federal funds sold 138,000 97,900 158,600
----------- -------------- -----------
Total cash and cash equivalents 294,351 255,898 305,117
----------- -------------- -----------
Investment securities:
Held-to-maturity, at amortized cost (fair value June 30, 2002-$22,677;
December 31, 2001-$23,729; and June 30, 2001-$27,321) 22,153 23,309 26,919
Available-for-sale, at fair value 932,432 876,446 790,347
----------- -------------- -----------
Total investment securities 954,585 899,755 817,266
----------- -------------- -----------
Gross loans 2,285,483 2,262,283 2,159,166
Less: Allowance for loan losses (40,740) (40,259) (38,459)
----------- -------------- -----------
Net loans 2,244,743 2,222,024 2,120,707
----------- -------------- -----------
Premises and equipment 104,207 97,497 95,829
Interest receivable 21,520 20,011 22,674
Intangible assets 39,389 43,648 44,686
Other assets 40,365 35,847 33,344
----------- -------------- -----------
TOTAL ASSETS $3,699,160 $ 3,574,680 $3,439,623
=========== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 564,082 $ 507,930 $ 481,455
Time and savings 2,555,754 2,507,024 2,420,177
----------- -------------- -----------
Total deposits 3,119,836 3,014,954 2,901,632
Securities sold under agreements to repurchase 211,312 214,023 199,276
Long-term debt 50,963 50,963 50,963
Other liabilities 26,081 23,825 31,644
----------- -------------- -----------
TOTAL LIABILITIES 3,408,192 3,303,765 3,183,515
----------- -------------- -----------
Commitments and contingencies -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock 3,176 3,201 3,201
Non-voting common stock - $5.00 par value, authorized
1,000,000; issued and outstanding June 30, 2002,
December 31, 2001 and June 30, 2001 - 36,409 182 182 182
Voting common stock - $5.00 par value, authorized 2,000,000;
issued and outstanding June 30, 2002 - 884,040;
December 31, 2001 - 889,540; and June 30, 2001 - 898,244 4,420 4,448 4,491
Surplus 65,081 65,081 65,081
Undivided profits 197,286 178,399 163,427
Accumulated other comprehensive income, net of taxes 20,823 19,604 19,726
----------- -------------- -----------
TOTAL STOCKHOLDERS' EQUITY 290,968 270,915 256,108
----------- -------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,699,160 $ 3,574,680 $3,439,623
=========== ============== ===========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
Page 2
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES
========================================================================================
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(DOLLARS IN THOUSANDS-EXCEPT PER SHARE DATA)
FOR THE FOR THE
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
INTEREST INCOME:
Interest and fees on loans $ 41,743 $ 45,298 $ 83,803 $ 90,100
Interest on investment securites:
Taxable 9,893 10,500 19,926 20,861
Non-taxable 151 254 315 537
Federal funds sold 868 2,547 1,668 5,641
-------- -------- -------- --------
Total interest income 52,655 58,599 105,712 117,139
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits 14,014 24,020 29,380 48,142
Interest on short-term borrowings 865 2,067 1,685 5,800
Interest on long-term debt 1,050 1,050 2,099 2,099
-------- -------- -------- --------
Total interest expense 15,929 27,137 33,164 56,041
-------- -------- -------- --------
Net interest income 36,726 31,462 72,548 61,098
Provision for loan losses 2,571 1,979 3,461 2,603
-------- -------- -------- --------
Net interest income after
provision for loan losses 34,155 29,483 69,087 58,495
-------- -------- -------- --------
NONINTEREST INCOME:
Service charges on deposits 7,620 6,380 14,611 12,277
Commissions and fees from fiduciary activities 802 647 1,652 1,272
Fees for other customer services 786 663 1,505 1,308
Mortgage servicing 693 565 1,366 1,126
Bankcard discount and fees 1,469 1,383 2,729 2,620
Insurance premiums 733 514 1,032 915
Gain on sale of investment securities - 858 - 2,651
Other 595 390 1,148 923
-------- -------- -------- --------
Total noninterest income 12,698 11,400 24,043 23,092
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 15,884 13,731 30,138 26,969
Net occupancy expense 2,249 1,794 4,291 3,624
Furniture and equipment expense 1,491 1,467 2,956 2,911
Amortization of intangibles 2,106 2,519 4,285 5,048
Bankcard processing fees 1,511 1,393 2,881 2,690
Data processing fees 2,620 2,490 5,159 4,586
Professional services 294 568 798 1,145
Other 5,881 5,655 11,010 10,709
-------- -------- -------- --------
Total noninterest expense 32,036 29,617 61,518 57,682
-------- -------- -------- --------
Income before income tax expense 14,817 11,266 31,612 23,905
Income tax expense 4,964 3,774 10,590 8,008
-------- -------- -------- --------
NET INCOME $ 9,853 $ 7,492 $ 21,022 $ 15,897
======== ======== ======== ========
NET INCOME PER COMMON SHARE -
BASIC AND DILUTED $ 10.66 $ 7.97 $ 22.73 $ 16.91
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-BASIC AND DILUTED 920,449 934,677 921,226 935,407
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES
===================================================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME - UNAUDITED
(DOLLARS IN THOUSANDS)
NON- ACCUMULATED TOTAL
VOTING VOTING OTHER STOCK-
PREFERRED COMMON COMMON UNDIVIDED COMPREHENSIVE HOLDERS'
STOCK STOCK STOCK SURPLUS PROFITS INCOME/(LOSS) EQUITY
----------- ------- -------- -------- ----------- --------------- ----------
Balance at December 31, 2000 $ 3,219 $ 182 $ 4,499 $ 65,081 $ 148,502 $ 12,210 $ 233,693
Comprehensive income:
Net income 15,897 15,897
Change in unrealized gain
on investment securities
available-for-sale, net of
taxes of $4,047 7,516 7,516
----------
Total comprehensive income 23,413
----------
Reacquired preferred stock (18) 3 (15)
Reacquired voting common stock (8) (442) (450)
Common stock dividends (450) (450)
Preferred stock dividends (83) (83)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at June 30, 2001 3,201 182 4,491 65,081 163,427 19,726 256,108
Comprehensive income:
Net income 17,980 17,980
Change in unrealized gain
on investment securities
available-for-sale, net of
benefit of $65 (122) (122)
----------
Total comprehensive income 17,858
----------
Reacquired voting common stock (43) (2,476) (2,519)
Common stock dividends (449) (449)
Preferred stock dividends (83) (83)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at December 31, 2001 3,201 182 4,448 65,081 178,399 19,604 270,915
Comprehensive income:
Net income 21,022 21,022
Change in unrealized gain
on investment securities
available-for-sale, net of
taxes of $656 1,219 1,219
----------
Total comprehensive income 22,241
----------
Reacquired preferred stock (25) 8 (17)
Reacquired voting common stock (28) (1,613) (1,641)
Common stock dividends (448) (448)
Preferred stock dividends (82) (82)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at June 30, 2002 $ 3,176 $ 182 $ 4,420 $ 65,081 $ 197,286 $ 20,823 $ 290,968
=========== ======= ======== ======== =========== =============== ==========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARY
==========================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (DOLLARS IN THOUSANDS)
For the six months ended
June 30,
------------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,022 $ 15,897
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 3,461 2,603
Depreciation and amortization 8,838 8,581
Amortization of investment securities 362 392
Deferred income tax benefit (554) (60)
Loss on sales of fixed assets 53 9
(Increase) decrease in interest receivable (1,509) 1,439
(Decrease) increase in interest payable (791) 4,881
Origination of mortgage loans held-for-sale (130,220) (139,315)
Proceeds from sales of mortgage loans held-for-sale 166,408 128,962
Net loss (gain) on sales of mortage loans held-for-sale (423) (514)
Gain on call or sale of investment securities - (2,651)
Increase in other assets (5,551) (1,947)
Increase (decrease) in other liabilities 3,047 (4,644)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,143 13,633
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (61,945) (67,573)
Calls, maturities and prepayments of investment securities held-to-maturity 3,041 11,202
Purchases of investment securities held-to-maturity (2,247) (4,994)
Calls, maturities and prepayments of investment securities available-for-sale 204,882 220,204
Purchases of investment securities available-for-sale (259,035) (289,337)
Proceeds from sales of premises and equipment 90 510
Purchases of premises and equipment (10,565) (6,340)
Decrease (increase) in other real estate owned 132 (430)
Increase in intangible assets (26) (346)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (125,673) (137,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 104,882 346,403
Decrease in securities sold
under agreements to repurchase (2,711) (169,942)
Cash dividends paid (530) (533)
Cash paid to reacquire preferred stock (17) (15)
Cash paid to reacquire common stock (1,641) (450)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 99,983 175,463
NET INCREASE IN CASH AND DUE FROM BANKS 38,453 51,992
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 255,898 253,125
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 294,351 $ 305,117
========== ==========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies of First Citizens
Bancorporation of South Carolina, Inc. ("Bancorporation") is set forth in Note 1
to the Consolidated Financial Statements in Bancorporation's Annual Report on
Form 10-K for 2001. The significant accounting policies used during the current
quarter are unchanged from those disclosed in the 2001 Annual Report.
BASIS OF PRESENTATION
The preceding consolidated financial statements and the notes thereto are
unaudited; however, in the opinion of management, all adjustments comprising
normal recurring accruals necessary for a fair presentation of the consolidated
financial statements have been recorded. Certain amounts in prior periods have
been reclassified to conform to the 2002 presentation.
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS No. 141")
and No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized, but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives (but with no maximum life). The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. Bancorporation adopted SFAS No. 142 effective
January 1, 2002 which had no material affect.
GOODWILL AND OTHER INTANGIBLES (DOLLARS IN THOUSANDS)
In accordance with SFAS 142, no goodwill amortization was recorded for the six
months ended June 30, 2002. Goodwill amortization expense for the six months and
quarter ended June 30, 2001 was $114 and $57, respectively. At June 30, 2002,
the total carrying amount of intangible assets not subject to amortization was
$3,217.
At June 30, 2002, the gross carrying value and accumulated amortization related
to core deposits and other intangibles was $102,387 and $66,215, respectively.
At December 31, 2001, the gross carrying value and accumulated amortization
related to core deposits and other intangibles was $102,362 and $61,930,
respectively. At June 30, 2001, the gross carrying value and accumulated
amortization related to core deposits and other intangibles was $98,603 and
$57,242, respectively. Amortization expense on core deposits and other
intangibles was $4,285 and $4,934 for the six months ended June 30, 2002 and
2001, respectively. Amortization expense on core deposits and other intangibles
was $2,106 and $2,462 for the quarter ended June 30, 2002 and 2001,
respectively. The Corporation estimates that aggregate amortization expense
will be $8,088 for 2002, $7,156 for 2003, $6,304 for 2004, $4,913 for 2005 and
$3,253 for 2006.
ACQUISITIONS
There were no acquisitions during the quarter ending June 30, 2002.
SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS)
On July 3, 2002, Bancorporation entered into an Agreement and Plan of
Reorganization and Merger with CB Financial Corp. ("CBF"). CBF is a Georgia
corporation, which operates as a registered bank holding company and owns all
the outstanding shares of common stock of Citizens Bank, an insured,
state-chartered Georgia bank headquartered in Warrenton, Georgia. Citizens Bank
operates two banking offices in McDuffie and Warren counties. CBF has total
deposits and loans of $39,000 and $19,000, respectively, as of June 30, 2002.
The merger is expected to be completed during the third or fourth quarter of
2002 pending regulatory and CBF shareholder approvals .
On July 15, 2002, First-Citizens Bank and Trust of South Carolina entered into a
Branch Purchase and Assumption Agreement to acquire two branches from an
unrelated financial institution with estimated total deposits and loans of
$20,000 and $5,000, respectively. The acquisition is expected to be completed
during the fourth quarter of 2002 pending regulatory approvals.
On July 24, 2002, Bancorporation's Board of Directors declared a $.25 dividend
on common stock to shareholders of record on August 2, 2002, payable August 15,
2002.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This discussion may contain statements that could be deemed forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act, which statements are
inherently subject to risks and uncertainties. Forward-looking statements are
statements that include projections, predictions, expectations or beliefs about
future events or results or otherwise are not statements of historical fact.
Such statements are often characterized by the use of the qualifying words (and
their derivatives) such as "expect," believe," "estimate," "plan," "project,"
"anticipate," or other statements concerning opinions or judgments of
Bancorporation and its management about future events. Factors that could
influence the accuracy of such forward-looking statements include, but are not
limited to, the financial success or changing strategies of Bancorporations'
customers, actions of government regulators, the level of market interest rates,
and general economic conditions.
SUMMARY (DOLLARS IN THOUSANDS)
Net income for the quarter and six months ended June 30, 2002 totaled $9,853, or
$10.66 per common share and $21,022, or $22.73 per common share, respectively.
Net income for the quarter and six months ended June 30, 2001 totaled $7,492, or
$7.97 per common share and $15,897, or $16.91 per common share, respectively.
The primary factors affecting the increase in net income for the quarter ended
June 30, 2002 were a $4,672 or 15.85% increase in net interest income after
provision for loan losses, and a $1,298 or 11.39% increase in noninterest
income. These favorable changes were partially offset by a $2,419 or 8.17%
increase in noninterest expense, and a $1,190 or 31.53% increase in income tax
expense.
The primary factors affecting the increase in net income for the six months
ended June 30, 2002 were a $10,592 or 18.11% increase in net interest income
after provision for loan losses, and a $951 or 4.12% increase in noninterest
income. These favorable changes were partially offset by a $3,836 or 6.65%
increase in noninterest expense, and a $2,582 or 32.24% increase in income tax
expense.
Return on average stockholders' equity and average assets are key measures of
earnings performance. Return on average stockholders' equity for the quarter
ended June 30, 2002 and June 30, 2001 was 13.90% and 11.93%, respectively. The
increase was primarily the result of an increase in return on assets from .88%
to 1.07% for the quarter ended June 30, 2001 and June 30, 2002, respectively.
The increase in return on assets was due to a 31 basis point increase in net
interest margin to average assets and a 3 basis point improvement in
non-interest margin to average assets. This was offset by an increase of 5
basis points in provision for loan losses to average assets and an increase of
10 basis points in income tax expense to average assets.
Return on average stockholders' equity for the six months ended June 30, 2002
and June 30, 2001 was 15.13% and 13.04%, respectively. The increase was
primarily the result of an increase in return on assets from .94% to 1.16% for
the six months ended June 30, 2001 and June 30, 2002, respectively. The
increase was due to a 35 basis point increase in net interest margin to average
assets. This was offset by an increase of 4 basis points in provision for loan
losses to average assets and an increase of 10 basis points in income tax
expense to average assets.
Net interest income is discussed further in the following section.
Page 7
Table 1 provides summary information on selected ratios, average and year-to-date balances.
TABLE 1: SELECTED SUMMARY INFORMATION (DOLLARS IN THOUSANDS)
AS OF AND FOR THE AS OF AND FOR THE
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
SELECTED RATIOS: 2002 2001 2002 2001
----------- ----------- ----------- -----------
Return on average assets 1.07% .88% 1.16% .94%
Return on average stockholders' equity 13.90% 11.93% 15.13% 13.04%
Return on average common stockholders' equity 14.06% 12.08% 15.30% 13.21%
Yield on average interest-earning assets (tax
equivalent) 4.37% 4.05% 4.38% 4.01%
Average loans to average deposits 72.38% 74.27% 72.61% 75.19%
Nonperforming assets to total loans .34% .24% .34% .24%
Allowance for loan losses to total loans 1.78% 1.78% 1.78% 1.78%
Allowance for loan losses to nonperforming assets N/A N/A 5.37x 7.43x
Average stockholders' equity to average total
assets 7.70% 7.34% 7.64% 7.24%
Common stockholders' equity to total assets 7.78% 7.35% 7.78% 7.35%
Dividends per common share $ 0.25 $ 0.25 $ 0.50 $ 0.50
Total risk-based capital ratio N/A N/A 12.94% 12.31%
Tier I risk-based capital ratio N/A N/A 11.68% 11.06%
Tier I leverage ratio N/A N/A 7.68% 7.13%
SELECTED AVERAGE BALANCES:
Total assets $3,690,772 $3,433,445 $3,668,093 $3,393,646
Interest-earning assets 3,394,135 3,147,910 3,366,383 3,102,936
Investment securities 946,180 789,494 927,102 770,845
Loans 2,246,328 2,128,392 2,243,347 2,103,382
Deposits 3,103,648 2,865,827 3,089,656 2,797,508
Noninterest-bearing deposits 537,590 472,111 522,468 464,109
Interest-bearing deposits 2,566,058 2,393,716 2,567,188 2,333,399
Interest-bearing liabilities 2,840,224 2,676,517 2,837,940 2,651,466
Stockholders' equity 284,230 251,949 280,181 245,862
SELECTED YEAR-TO-DATE BALANCES:
Total assets $3,699,160 $3,439,623 $3,699,160 $3,439,623
Interest-earning assets 3,378,068 3,135,032 3,378,068 3,135,032
Investment securities 954,585 817,266 954,585 817,266
Loans 2,285,483 2,159,166 2,285,483 2,159,166
Deposits 3,119,836 2,901,632 3,119,836 2,901,632
Noninterest-bearing deposits 564,082 481,455 564,082 481,455
Interest-bearing deposits 2,555,754 2,420,177 2,555,754 2,420,177
Interest-bearing liabilities 2,818,029 2,670,416 2,818,029 2,670,416
Stockholders' equity 290,968 256,108 290,968 256,108
NET INTEREST INCOME (DOLLARS IN THOUSANDS)
Net interest income represents the principal source of earnings for
Bancorporation. Tables 2 and 3 compare average balance sheet items and analyzes
net interest income on a tax equivalent basis for the quarters and six months
ended June 30, 2002 and 2001.
Page 8
TABLE 2: COMPARATIVE AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT RATE/VOLUME VARIANCE (DOLLARS IN THOUSANDS)
AS OF AND FOR THE QUARTER ENDED JUNE 30,
--------------------------------------------------------------------------------------
INTEREST YIELD/ CHANGE DUE TO (2)
AVERAGE BALANCE INC/EXP(1) RATE ------------------- NET
---------------------- ---------------- ---------- YIELD INCREASE
2002 2001 2002 2001 2002 2001 /RATE VOLUME (DECREASE)
---------- ---------- ------- ------- ---- ---- --------- -------- -----------
INTEREST-EARNING ASSETS:
Loans (3) $2,246,328 $2,128,392 $41,942 $45,481 7.49 8.57 $ (7,956) $ 4,417 $ (3,539)
Investment securities:
Taxable 933,768 770,317 9,893 10,500 4.25 5.47 (4,080) 3,473 (607)
Non-taxable 12,412 19,177 233 391 7.51 8.16 96 (254) (158)
Federal funds sold 201,627 230,024 868 2,547 1.73 4.44 (1,433) (246) (1,679)
---------- ---------- ------- ------- --------- -------- -----------
Total interest-earning assets 3,394,135 3,147,910 52,936 58,919 6.26 7.51 (13,373) 7,390 (5,983)
---------- ---------- ------- ------- --------- -------- -----------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 132,663 129,025
Premises and equipment 103,763 95,601
Other, less allowance for loan
losses 60,211 60,909
---------- ----------
Total noninterest-earning assets 296,637 285,535
---------- ----------
TOTAL ASSETS $3,690,772 $3,433,445
---------- ----------
INTEREST-BEARING LIABILITIES:
Deposits $2,566,058 $2,393,716 $14,014 $24,020 2.19 4.02 $(11,893) $ 1,887 $ (10,006)
Securities sold under
agreements to repurchase 223,203 231,838 865 2,067 1.55 3.58 (1,135) (67) (1,202)
Long-term debt 50,963 50,963 1,050 1,050 8.24 8.24 - - -
---------- ---------- ------- ------- --------- -------- -----------
Total interest-bearing liabilities 2,840,224 2,676,517 15,929 27,137 2.25 4.07 (13,028) 1,820 (11,208)
---------- ---------- ------- ------- --------- -------- -----------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 537,590 472,111
Other liabilities 28,728 32,868
---------- ----------
Total noninterest-bearing liabilities 566,318 504,979
---------- ----------
TOTAL LIABILITIES 3,406,542 3,181,496
---------- ----------
Stockholders' equity 284,230 251,949
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,690,772 $3,433,445
========== ==========
Net interest spread 4.01 3.44
==== ====
Net interest margin: $37,007 $31,782 $ (345) $ 5,570 $ 5,225
======= ======= ========= ======== ===========
to average assets 4.02 3.71
==== ====
to average interest-earning
assets 4.37 4.05
==== ====
(1) Non-taxable interest income has been adjusted to a taxable equivalent rate, using the federal income tax rate of 35%.
(2) Yield/rate-volume changes have been allocated to each category based on the percentage of each to the total change.
(3) Nonaccrual loans are included in the average loan balances. Interest income on nonaccrual loans is generally recognized
on a cash basis.
Page 9
TABLE 3: COMPARATIVE AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT RATE/VOLUME VARIANCE (DOLLARS IN THOUSANDS)
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------------
INTEREST YIELD/ CHANGE DUE TO (2)
AVERAGE BALANCE INC/EXP(1) RATE ------------------- NET
---------------------- ------------------ ---------- YIELD INCREASE
2002 2001 2002 2001 2002 2001 /RATE VOLUME (DECREASE)
---------- ---------- -------- -------- ---- ---- --------- -------- -----------
INTEREST-EARNING ASSETS:
Loans (3) $2,243,347 $2,103,382 $ 84,228 $ 90,469 7.57 8.67 $(11,539) $ 5,298 $ (6,241)
Investment securities:
Taxable 914,162 750,653 19,926 20,861 4.40 5.60 (4,532) 3,597 (935)
Non-taxable 12,940 20,192 484 826 7.48 8.18 (71) (271) (342)
Federal funds sold 195,934 228,709 1,668 5,641 1.72 4.97 (3,691) (282) (3,973)
---------- ---------- -------- -------- --------- -------- -----------
Total interest-earning assets 3,366,383 3,102,936 106,306 117,797 6.37 7.66 (19,833) 8,342 (11,491)
---------- ---------- -------- -------- --------- -------- -----------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 141,718 131,680
Premises and equipment 100,816 94,927
Other, less allowance for loan losses 59,176 64,103
---------- ----------
Total noninterest-earning assets 301,710 290,710
---------- ----------
TOTAL ASSETS $3,668,093 $3,393,646
---------- ----------
INTEREST-BEARING LIABILITIES:
Deposits $2,567,188 $2,333,399 $ 29,380 $ 48,142 2.31 4.16 $(21,462) $ 2,700 $ (18,762)
Securities sold under
agreements to repurchase 219,789 267,104 1,685 5,800 1.55 4.38 (3,748) (367) (4,115)
Long-term debt 50,963 50,963 2,099 2,099 8.24 8.24 - - -
---------- ---------- -------- -------- --------- -------- -----------
Total interest-bearing liabilities 2,837,940 2,651,466 33,164 56,041 2.36 4.26 (25,210) 2,333 (22,877)
---------- ---------- -------- -------- --------- -------- -----------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 522,468 464,109
Other liabilities 27,504 32,209
---------- ----------
Total noninterest-bearing liabilities 549,972 496,318
---------- ----------
Total liabilities 3,387,912 3,147,784
---------- ----------
Stockholders' equity 280,181 245,862
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,668,093 $3,393,646
========== ==========
Interest rate spread 4.01 3.40
==== ====
Net interest margin: $ 73,142 $ 61,756 $ 5,377 $ 6,009 $ 11,386
======== ======== ========= ======== ===========
to average assets 4.02 3.67
==== ====
To average interest-earning
assets 4.38 4.01
==== ====
(1) Non-taxable interest income has been adjusted to a taxable equivalent rate, using the federal income tax rate of 35%.
(2) Yield/rate-volume changes have been allocated to each category based on the percentage of each to the total change.
(3) Nonaccrual loans are included in the average loan balances. Interest income on nonaccrual loans is generally recognized on
a cash basis.
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
NET INTEREST INCOME (CONTINUED)
CURRENT QUARTER COMPARED TO PRIOR YEAR QUARTER
- ----------------------------------------------------
Net interest income on a tax equivalent basis increased $5,225 or 16.44% for the
quarter ended June 30, 2002, over the comparable period in 2001. Net interest
margin to average assets increased from 3.71% for the quarter ended June 30,
2001 to 4.02% for the quarter ended June 30, 2002. This is attributable to a 32
basis point increase in the net interest margin to average interest-earning
assets. The mix of interest-earning assets to average total assets remained
relatively stable.
Net interest margin to average interest-earning assets increased from 4.05% for
the quarter ended June 30, 2001 to 4.37% for the quarter ended June 30, 2002.
This was attributable to an increase in the net interest spread from 3.44% for
the quarter ended June 30, 2001 to 4.01% for the quarter ended June 30, 2002.
The increase in the net interest spread was due to the decrease in the cost of
interest-bearing liabilities exceeding the decrease in interest earned on
interest-earning assets. The yield on interest-earning assets decreased from
7.51% at June 30, 2002 to 6.26% at June 30, 2001, or 125 basis points, while the
cost of interest-bearing liabilities decreased from 4.07% to 2.25%, or 182 basis
points. The decrease in the yield on interest-earning assets was due to a
decrease in the yields on loans, investment securities and federal funds sold.
The decrease in the cost of interest-bearing liabilities was due to a decrease
in the rates paid on interest-bearing deposits and securities sold under
agreements to repurchase.
CURRENT YEAR-TO-DATE PERIOD COMPARED TO PRIOR YEAR-TO-DATE PERIOD
- -----------------------------------------------------------------
Net interest income on a tax equivalent basis increased $11,386 or 18.44% for
the six months ended June 30, 2002, over the comparable period in 2001. Net
interest margin to average assets increased from 3.67% for the six months ended
June 30, 2001 to 4.02% for the six months ended June 30, 2002. This is
attributable to a 37 basis point increase in the net interest margin to average
interest-earning assets.
Net interest margin to average interest-earning assets increased from 4.01% for
the six months ended June 30, 2001 to 4.38% for the six months ended June 30,
2002. This was attributable to an increase in the net interest spread from
3.40% for the six months ended June 30, 2001 to 4.01% for the six months ended
June 30, 2002. The increase in the net interest spread was due to the decrease
in the cost of interest-bearing liabilities exceeding the decrease in interest
earned on interest-earning assets. The yield on interest-earning assets
decreased from 7.66% at June 30, 2001 to 6.37% at June 30, 2002, or 129 basis
points, while the cost of interest-bearing liabilities decreased from 4.26% to
2.36%, or 190 basis points. The decrease in the yield on interest-earning
assets was due to a decrease in the yields on loans, investment securities and
federal funds sold. The decrease in the cost of interest-bearing liabilities
was due to a decrease in the rates paid on interest-bearing deposits and
securities sold under agreements to repurchase.
NONINTEREST INCOME AND EXPENSE (DOLLARS IN THOUSANDS)
CURRENT QUARTER COMPARED TO PRIOR YEAR QUARTER
- ----------------------------------------------------
Noninterest income increased by $1,298 or 11.39% for the quarter ended June 30,
2002, over the comparable period in 2001 due to increases in service charges on
deposits, insurance premiums, and commissions and fees from fiduciary
activities. Service charges on deposits increased by $1,240 or 19.44% over the
comparable period primarily due to overall deposit growth. Insurance premiums
earned and commissions and fees from fiduciary activities increased by $219 or
42.61% and $155 or 23.96%, respectively, over the comparable period. The
increase was partially offset by a decrease in gain on sale of investment
securities of $858.
Noninterest expense increased by $2,419 or 8.17% for the quarter ended June 30,
2002 over the comparable period in 2001 due to increases in salaries and
employee benefits expense, net occupancy expense, data processing expense and
bankcard processing expense. Salaries and employee benefits expense increased
$2,153 or 15.68% over the comparable period primarily due to an increase in the
number of employees and merit increases. Net occupancy expense increased by
$455 or 25.36% over the comparable period due to an increase in depreciation
expense. Data processing expense increased $130 or 5.22% over the comparable
period due to the on-going growth realized by Bancorporation. Bankcard
processing expense increased by $118 or 8.47% over the comparable period due to
increased bankcard activity. The increase was partially offset by a decrease in
amortization of intangibles of $413 or 16.40% due to the run off of goodwill
related to former acquisitions.
Overall, the noninterest margin (noninterest income less noninterest expense) to
average assets improved from a negative 2.13% for the quarter ended June 30,
2001 to a negative 2.10% for the quarter ended June 30, 2002. This was due to a
2 basis point improvement in non-interest expense to average assets and a 1
basis point improvement in non-interest income to average assets.
Page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
NONINTEREST INCOME AND EXPENSE (CONTINUED)
CURRENT YEAR-TO-DATE PERIOD COMPARED TO PRIOR YEAR-TO-DATE PERIOD
- -----------------------------------------------------------------
Noninterest income increased by $951 or 4.12% for the six months ended June 30,
2002, over the comparable period in 2001 due to increases in service charges on
deposits, commissions and fees from fiduciary activities and mortgage servicing
fees. Service charges on deposits increased by $2,334 or 19.01% over the
comparable period, primarily due to overall deposit growth. Commissions and fees
from fiduciary activities and mortgage servicing fees increased $380 or 29.87%
and $240 or 21.31%, respectively, over the comparable period. The increase was
offset by a decrease in gain on sale of investment securities of $2,651.
Noninterest expense increased by $3,836 or 6.65% for the six months ended June
30, 2002 over the comparable period in 2001 due to increases in salaries and
employee benefits expense, net occupancy expense, data processing expense and
bankcard processing expense. Salaries and employee benefits expense increased
$3,169 or 11.75% over the comparable period primarily due to an increase in the
number of employees and merit increases. Net occupancy expense increased by
$667 or 18.41% over the comparable period due to an increase in depreciation.
Data processing expense increased $573 or 12.49% over the comparable period due
to the on-going growth realized by Bancorporation. Bankcard processing expense
increased by $191 or 7.10% over the comparable period due to increased bankcard
activity. The increase was partially offset by a decrease in amortization of
intangibles of $763 or 15.11% over the comparable period due to the run off of
goodwill related to former acquisitions.
Overall, the noninterest margin (noninterest income less noninterest expense) to
average assets remained constant at a negative 2.06% for the six months ended
June 30, 2002 and for the six months ended June 30, 2001.
INCOME TAXES (DOLLARS IN THOUSANDS)
Total income tax expense increased by $1,190 or 31.53% for the quarter ended
June 30, 2002 over the comparable period in 2001 due to the increase in net
income. Total income tax expense increased by $2,582 or 32.24% for the six
months ended June 30, 2002 over the comparable period in 2001 due to the
increase in net income. The effective tax rate was 33.5% at June 30, 2002 and
June 30, 2001.
FINANCIAL CONDITION
INVESTMENT SECURITIES (DOLLARS IN THOUSANDS)
As of June 30, 2002, the investment portfolio totaled $954,585, compared to
$817,266 at June 30, 2001. The investment portfolio increased as funds were
shifted from federal funds sold to the bond portfolio. Bancorporation continues
to invest primarily in short-term U.S. government obligations and agency
securities to minimize credit, interest rate and liquidity risk. The investment
portfolio consisted of 93.07% and 93.16% U.S. government and government agency
securities as of June 30, 2002 and June 30, 2001, respectively. The remainder
of the investment portfolio consists of municipal bonds and equity securities.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
As of June 30, 2002, loans totaled $2,285,483, compared to $2,159,166 at June
30, 2001, an increase of $126,317, or 5.85%, the result of normal loan growth.
Between June 30, 2001 and June 30, 2002, approximately $209 of loans were
acquired from other financial institutions. The composition of the loan
portfolio has not shifted significantly since June 30, 2001. Loan growth was
funded through core deposits and short-term borrowed funds.
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (CONTINUED)
It is the policy of Bancorporation to maintain an allowance for loan losses to
absorb potential losses inherent in the loan portfolio. Management believes
that the provision taken during the six months ended June 30, 2002 was
appropriate to provide an allowance for loan losses which considers the past
experience of charge-offs, the level of past due and nonaccrual loans, the size
and mix of the loan portfolio, credit classifications and general economic
conditions in Bancorporation's market areas.
An analysis of activity in the allowance for loan losses as of June 30, 2002 and
2001 is presented below. The allowance for loan losses is maintained through
charges to the provision for loan losses. Loan charge-offs and recoveries are
charged or credited directly to the allowance for loan losses.
AS OF AND FOR THE AS OF AND FOR THE
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
ALLOWANCE FOR LOAN LOSSES: 2002 2001 2002 2001
---------- ---------- ---------- ----------
Balance at beginning of period $ 39,722 $ 37,197 $ 40,259 $ 37,001
Provision for loan losses 2,571 1,979 3,461 2,603
---------- ---------- ---------- ----------
Charge-offs (1,923) (1,094) (3,799) (1,861)
Recoveries 370 377 819 716
---------- ---------- ---------- ----------
Net charge-offs (1,553) (717) (2,980) (1,145)
---------- ---------- ---------- ----------
Balance at end of period $ 40,740 $ 38,459 $ 40,740 $ 38,459
---------- ---------- ---------- ----------
Nonperforming assets $ 7,591 $ 5,177 $ 7,591 $ 5,177
Annualized net charge-offs to:
Average loans .28% .13% .27% .11%
Loans at end of period .27% .13% .26% .11%
Allowance for loan losses 15.25% 7.46% 14.63% 5.95%
FUNDING SOURCES (DOLLARS IN THOUSANDS)
Bancorporation's primary source of funds is its deposit base. Total deposits
increased $218,204 or 7.52% from June 30, 2001 to June 30, 2002. Between June
30, 2001 and June 30, 2002, approximately $45,330 of deposits were acquired from
other financial institutions. Average deposits were $3,089,656 and $2,797,508
at June 30, 2002 and June 30, 2001, respectively.
Short-term borrowings in the form of securities sold under agreements to
repurchase are another source of funds. Short-term borrowings increased $12,036
or 6.04% from June 30, 2001 to June 30, 2002. Average short-term borrowings
were $219,789 and $267,104 at June 30, 2002 and June 30, 2001, respectively.
CAPITAL RESOURCES
Regulatory agencies define capital as Tier I, consisting of stockholders' equity
less ineligible intangible assets, and Total Capital, consisting of Tier I
capital plus the allowable portion of the allowance for loan losses and certain
long-term debt.
Regulatory guidelines require a minimum ratio of total capital to risk-adjusted
assets of 8 percent, with at least 50 percent consisting of tangible common
stockholders' equity and a minimum Tier I leverage ratio of 3 percent. Banks
which meet or exceed a Tier I ratio of 6 percent, a total capital ratio of 10
percent, and a Tier I leverage ratio of 5 percent are considered
well-capitalized by regulatory standards. The following table details
Bancorporation's capital ratios at June 30, 2002 and 2001.
Page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
CAPITAL RESOURCES (CONTINUED)
CAPITAL RATIOS June 30,
--------------
2002 2001
------ ------
Tier I leverage ratio 7.68% 7.13%
Total risk-based capital ratio 12.94% 12.31%
Tier I 11.68% 11.06%
Tier II 1.26% 1.25%
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented as part of Bancorporation's
Annual Report on Form 10-K for the year ended December 31, 2001.
Page 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Bancorporation and its subsidiaries, are not parties to, nor is any of their
property the subject of, any material or other pending legal proceeding, other
than ordinary routine proceedings incidental to their business.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Registrant was held on April 24, 2002. At
the meeting, Shareholders voted to elect 18 directors for terms of one year or
until their respective successors are duly elected and qualified for 2002. The
18 Nominees, listed below, were elected as Directors for a term of 1 year.
Nominees For Withheld Broker Non-Votes
-------------------- ------- -------- ----------------
C.H. Ames 817,234 2,352 -
J.B. Apple 812,103 2,624 4,859
R.W. Blackmon 817,305 2,281 -
P.M. Bristow 812,103 2,624 4,859
G.H. Broadrick 817,305 2,281 -
W.C. Cottingham 816,744 2,842 -
D.E. Dukes 817,305 2,281 -
W.E. Hancock, III 817,305 2,281 -
R.B. Haynes 817,305 2,281 -
W.E. Haynes 817,305 2,281 -
L.M. Henderson 817,305 2,281 -
F.B. Holding 812,135 2,592 4,859
D.H. Jordan 817,305 2,281 -
C.S. McLaurin, III 812,103 2,624 4,859
N.W. Morrisette, Jr. 817,305 2,281 -
E.P. Palmer 817,305 2,281 -
W.E. Sellars 817,305 2,281 -
H.F. Sherrill 817,305 2,281 -
No other matters were voted on at the meeting, and there was no solicitation in
opposition to management's Nominees listed in the Proxy Statement.
Item 5. Other Information
Registrant announced on July 5, 2002, that it has entered into an Agreement and
Plan of Reorganization and Merger with CB Financial Corp. ("CBF"), a bank
holding company headquartered in Warrenton, Georgia which is the parent company
of Citizens Bank of Warrenton. Under the agreement, CBF will be merged into
Registrant, and Citizens Bank of Warrenton will become a subsidiary of
Registrant.
Citizens Bank of Warrenton is a state-chartered bank with two full service
offices in Warrenton and Thomson, Georgia. As of June 30, 2002, CBF had total
consolidated assets of $43.63 million and total consolidated deposits of $39.09
million.
The transaction, which is subject to the approval of shareholders of CBF and
receipt of required regulatory approvals, is expected to be completed during the
third or fourth quarter of 2002.
Page 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are either attached hereto or
incorporated by reference:
3.1 Articles of Incorporation of the Registrant as amended (incorporated
herein by reference to Exhibit 3.1 of the Registrant's 1994 Annual
Report on Form 10-K).
3.3 Bylaws of the Registrant as amended (incorporated herein by reference
to Exhibit 3.3 of the Registrant's 2001 Annual Report on Form 10-K).
4.1 Amended and Restated Trust Agreement of FCB/SC Capital Trust I
(incorporated herein by reference to Exhibit 4.1 of Registrant's
Statement No. 333-60319 filed with the SEC on July 31, 1998).
4.2 Form of Guaranty Agreement (incorporated herein by reference to
Exhibit 4.2 of Registrant's registration Statement No. 333-60319 filed
with the SEC on July 31, 1998).
4.3 Junior Subordinated Indenture between Registrant and Bankers Trust
Company, as Debenture Trustee (incorporated herein by reference to
Exhibit 4.3 of registrant's Registration Statement No. 333-60319 filed
with the SEC on July 31, 1998).
4.4 Form of Certificate evidencing Capital Securities (incorporated herein
by reference to Exhibit 4.5 in the Registrant's Registration Statement
No. 333-60319 filed with the SEC on July 31, 1998).
4.5 Form of Junior Subordinated Debenture (incorporated herein by
reference to Exhibit 4.6 in the Registrant's Registration Statement
No. 333-60319 filed with the SEC on July 31, 1998).
11 Statement re computation of per share earnings (filed herewith).
(b) No reports on Form 8-K were filed during the quarter ended June 30,
2002.
Page 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CITIZENS BANCORPORATION
OF SOUTH CAROLINA, INC.
(Registrant)
Dated: August 14, 2002 By: /s/ Craig L. Nix
---------------- --------------------------------
Craig L. Nix
(Chief Financial Officer)
CERTIFICATION
(Pursuant to 18 U.S.C. Section 1350)
The undersigned hereby certifies that, to his knowledge, (I) the Form 10-Q
filed by First Citizens Bancorporation of South Carolina, Inc. (the "Company")
for the quarter ended June 30, 2002, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (II) the
information contained in that report fairly presents, in all material respects,
the financial condition at June 30, 2002, June 30, 2001, and December 31, 2001,
and the results of operations of the Company for the six months and quarter
ended June 30, 2002 and June 30, 2001.
Date: August 14, 2002 /s/ Jim B. Apple
---------------------------------------
Jim B. Apple
(Chief Executive Officer)
Date: August 14, 2002 /s/ Craig L. Nix
---------------------------------------
Craig L. Nix
Chief Financial Officer
Page 17