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 March 31, 2003 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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). 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 April 30, 2003
----- -----------------------------
VOTING COMMON STOCK, $5.00 PAR VALUE 872,857 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)
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
----------- -------------- -----------
ASSETS
Cash and due from banks $ 153,078 $ 165,747 $ 145,881
Federal funds sold 236,324 121,626 205,400
----------- -------------- -----------
Total cash and cash equivalents 389,402 287,373 351,281
----------- -------------- -----------
Investment securities:
Held-to-maturity, at amortized cost (fair value March 31, 2003-$30,732;
December 31, 2002-$35,268; and March 31, 2002-$22,318) 30,046 34,543 21,765
Available-for-sale, at fair value 883,161 881,327 917,335
----------- -------------- -----------
Total investment securities 913,207 915,870 939,100
----------- -------------- -----------
Gross loans 2,413,447 2,415,396 2,229,677
Less: Allowance for loan losses (43,304) (43,305) (39,722)
----------- -------------- -----------
Net loans 2,370,143 2,372,091 2,189,955
----------- -------------- -----------
Premises and equipment 111,990 110,472 97,710
Interest receivable 17,071 17,696 21,180
Intangible assets 43,512 45,478 46,688
Other assets 39,608 38,896 36,457
----------- -------------- -----------
TOTAL ASSETS $3,884,933 $ 3,787,876 $3,682,371
=========== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 621,313 $ 575,632 $ 532,768
Time and savings 2,724,317 2,700,376 2,588,476
----------- -------------- -----------
Total deposits 3,345,630 3,276,008 3,121,244
Securities sold under agreements to repurchase 146,558 130,360 205,161
Long-term debt 52,139 52,139 50,963
Other liabilities 29,987 25,785 28,971
----------- -------------- -----------
TOTAL LIABILITIES 3,574,314 3,484,292 3,406,339
----------- -------------- -----------
Commitments and contingencies -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock 3,173 3,173 3,176
Non-voting common stock - $5.00 par value, authorized
1,000,000; issued and outstanding March 31, 2003,
December 31, 2002 and March 31, 2002 - 36,409 182 182 182
Voting common stock - $5.00 par value, authorized 2,000,000;
issued and outstanding March 31, 2003 - 872,857;
December 31, 2002 - 874,835; and March 31, 2002 - 884,040 4,364 4,374 4,420
Surplus 65,081 65,081 65,081
Undivided profits 220,217 211,264 187,698
Accumulated other comprehensive income, net of taxes 17,602 19,510 15,475
----------- -------------- -----------
TOTAL STOCKHOLDERS' EQUITY 310,619 303,584 276,032
----------- -------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,884,933 $ 3,787,876 $3,682,371
=========== ============== ===========
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
QUARTER ENDED
MARCH 31,
------------------
2003 2002
-------- --------
INTEREST INCOME:
Interest and fees on loans $ 40,163 $ 41,971
Interest on investment securites:
Taxable 6,985 10,034
Non-taxable 143 163
Federal funds sold 626 798
-------- --------
Total interest income 47,917 52,966
-------- --------
INTEREST EXPENSE:
Interest on deposits 11,193 15,366
Interest on short-term borrowings 360 818
Interest on long-term debt 1,079 1,050
-------- --------
Total interest expense 12,632 17,234
-------- --------
Net interest income 35,285 35,732
Provision for loan losses 938 889
-------- --------
Net interest income after
provision for loan losses 34,347 34,843
-------- --------
NONINTEREST INCOME:
Service charges on deposits 7,941 7,024
Commissions and fees from fiduciary activities 810 849
Fees for other customer services 376 402
Mortgage income 1,609 893
Bankcard discount and fees 1,413 1,262
Insurance premiums 527 298
Other 530 470
-------- --------
Total noninterest income 13,206 11,198
-------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits 16,760 14,254
Net occupancy expense 2,604 2,088
Furniture and equipment expense 1,577 1,421
Bankcard processing fees 1,511 1,372
Data processing fees 2,721 2,541
Amortization expense 1,827 2,178
Other 5,083 5,391
-------- --------
Total noninterest expense 32,083 29,245
-------- --------
Income before income tax expense 15,470 16,796
Income tax expense 5,507 5,627
-------- --------
NET INCOME $ 9,963 $ 11,169
======== ========
NET INCOME PER COMMON SHARE -
BASIC AND DILUTED $ 10.91 $ 12.07
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING-BASIC AND DILUTED 909,599 922,038
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
(DOLLARES 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, 2001 $ 3,201 $ 182 $ 4,448 $ 65,081 $ 178,399 $ 19,604 $ 270,915
Comprehensive income:
Net income 11,169 11,169
Change in unrealized gain
on investment securities
available-for-sale, net of
benefit of $2,080 (4,129) (4,129)
----------
Total comprehensive income 7,040
----------
Reacquired preferred stock (25) 8 (17)
Reacquired voting common stock (28) (1,613) (1,641)
Common stock dividends (224) (224)
Preferred stock dividends (41) (41)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at March 31, 2002 3,176 182 4,420 65,081 187,698 15,475 276,032
Comprehensive income:
Net income 27,879 27,879
Change in unrealized gain
on investment securities
available-for-sale, net of
taxes of $2,131 4,035 4,035
----------
Total comprehensive income 31,914
----------
Reacquired preferred stock (3) (11) (14)
Reacquired voting common stock (46) (3,505) (3,551)
Common stock dividends (673) (673)
Preferred stock dividends (124) (124)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at December 31, 2002 3,173 182 4,374 65,081 211,264 19,510 303,584
Comprehensive income:
Net income 9,963 9,963
Change in unrealized gain
on investment securities
available-for-sale, net of
benefit of $1,027 (1,908) (1,908)
----------
Total comprehensive income 8,055
----------
Reacquired voting common stock (10) (751) (761)
Common stock dividends (218) (218)
Preferred stock dividends (41) (41)
----------- ------- -------- -------- ----------- --------------- ----------
Balance at March 31, 2003 $ 3,173 $ 182 $ 4,364 $ 65,081 $ 220,217 $ 17,602 $ 310,619
=========== ======= ======== ======== =========== =============== ==========
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (DOLLARS IN THOUSANDS)
FOR THE
THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,963 $ 11,169
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 938 889
Depreciation and amortization 4,894 4,260
Amortization of premium on investment securities 203 318
Deferred income tax expense (benefit) 44 (125)
(Gain) loss on sale of premises and equipment (75) 53
Decrease (increase) in accrued interest receivable 625 (1,169)
Decrease in accrued interest payable (556) (6,410)
Origination of mortgage loans held-for-resale (99,177) (71,748)
Proceeds from sales of mortgage loans held-for-resale 96,133 105,571
Gain on sales of mortgage loans held-for-resale (1,603) (371)
Decrease (increase) in other assets 718 (1,917)
Increase in other liabilities 4,758 11,557
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,865 52,077
========= ==========
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans 4,805 (3,353)
Calls, maturities and prepayments of investment securities, held-to-maturity 4,294 1,226
Calls, maturities and prepayments of investment securities, available-for-sale 92,326 78,535
Purchases of investment securities, available-for-sale (97,095) (125,633)
Proceeds from sales of premises and equipment 78 (153)
Purchases of premises and equipment (3,758) (1,987)
(Increase) decrease in other real estate owned (447) 131
Decrease (increase) in intangible assets 161 (964)
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES 364 (52,198)
========= ==========
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 69,622 106,289
Increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase 16,198 (8,862)
Cash dividends paid (259) (265)
Cash paid to reacquire preferred stock - (17)
Cash paid to reacquire common stock (761) (1,641)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 84,800 95,504
========= ==========
NET INCREASE IN CASH AND CASH EQUIVALENTS 102,029 95,383
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 287,373 255,898
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $389,402 $ 351,281
========= ==========
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 2002. The significant accounting policies used during the current
quarter are unchanged from those disclosed in the 2002 Annual Report.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial preparation. In the opinion of management, all material
adjustments necessary to present fairly the financial position of Bancorporation
as and for each of the periods presented, and 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 2003 presentation. Such reclassifications
had no effect on shareholders' equity or net income.
NEW ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions, an amendment of FASB Statements No. 72 and 144 and Interpretation
No. 9." Except for transactions between two or more mutual enterprises, this
Statement removes financial institutions from the scope of both Statement No. 72
and Interpretation 9 and requires that those transactions be accounted for in
accordance with SFAS No. 141 and 142. Additionally, this Statement amends SFAS
No. 144 to include in its scope long-term customer-relationship intangible
assets of financial institutions. Bancorporation adopted the Statement effective
October 1, 2002, and it did not have a material impact on Bancorporation's
financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The Interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure requirements
of the Interpretation are effective and were adopted by Bancorporation as of
December 31, 2002, and require disclosure of the nature of the guarantee, the
maximum potential amount of future payments that the guarantor could be required
to make under the guarantee, and the current amount of the liability, if any,
for the guarantor's obligations under the guarantee. Please refer to Note 15 for
disclosures with respect to Bancorporation's guarantees. The recognition
requirements of the interpretation were effective beginning January 1, 2003.
Management does not anticipate that the implementation of the recognition
requirements of the Interpretation will have a significant effect on
Bancorporation's consolidated financial position or consolidated results of
operations.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of Bancorporation and its subsidiaries are
in accordance with accounting principles generally accepted in the United States
and conform to general practices within the banking industry. Bancorporation's
financial position and results of operations are affected by management's
application of accounting policies, including judgments made to arrive at the
carrying value of assets and liabilities and amounts reported for revenues,
expenses and related disclosures. Different assumptions in the application of
these policies could result in material changes in Bancorporation's consolidated
financial position and/or consolidated results of operations. The more critical
accounting and reporting policies include Bancorporation's accounting for
securities, loans and leases, the allowance for loan and lease losses, valuation
of mortgage servicing rights, mergers and acquisitions and income taxes.
Bancorporation's accounting policies are fundamental to understanding
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Accordingly, Bancorporation's significant accounting policies are
discussed in detail in Bancorporation's 2002 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
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.
Page 6
GOODWILL AND OTHER INTANGIBLES (DOLLARS IN THOUSANDS)
In accordance with SFAS No.142, no goodwill amortization was recorded for the
quarter ended March 31, 2003. At March 31, 2003, the total carrying amount of
intangible assets not subject to amortization was $4,490. The discontinuation of
amortization of goodwill has had an immaterial effect on Bancorporation's
consolidated financial statements.
The following table relates to the carrying values of core deposit intangibles
recorded in Bancorporation's consolidated financial statements, all of which are
being amortized:
AS OF AS OF AS OF
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
----------- -------------- -----------
CORE DEPOSIT INTANGIBLES:
Gross carrying value $ 105,712 $ 105,669 $ 102,362
Accumulated amortization (71,847) (70,034) (64,109)
----------- -------------- -----------
Balance at end of period $ 33,865 $ 35,635 $ 38,253
=========== ============== ===========
Amortization expense on core deposit intangibles was $1,827 and $2,178 for the
quarters ended March 31, 2003 and 2002, respectively.
Bancorporation projects the following aggregate amortization expense:
2003 $8,498
2004 $6,835
2005 $5,555
2006 $3,906
2007 $2,984
Mortgage servicing rights as of March 31, 2003, December 31, 2002 and March 31,
2002 were $5,157, $5,365, and $5,218, respectively. The amortization expense
related to mortgage servicing rights, included as a reduction of mortgage income
in the Consolidated Statements of Income, was $830 and $208 for the quarters
ended March 31, 2003 and 2002, respectively.
MERGERS AND ACQUISITIONS (DOLLARS IN THOUSANDS)
There were no mergers or acquisitions completed during the quarter ended March
31, 2003.
On September 17, 2002, the Bank signed a Letter of Intent to merge with First
Banks, Inc. ("First Banks"), a two-bank holding company headquartered in
Carnesville, Georgia, which is the parent company of First Bank and Trust and
The Bank of Toccoa. As of March 31, 2003, First Banks had total unaudited
consolidated assets, net loans and deposits of $244,609, $189,019 and $207,850,
respectively. The merger was completed effective April 1, 2003.
On March 14, 2003, First-Citizens Bank and Trust of South Carolina entered into
a Branch Purchase and Assumption Agreement to acquire one branch from an
unrelated financial institution with estimated total deposits and loans of
$10,500 and -0-, respectively.
SUBSEQUENT EVENTS (DOLLARS IN THOUSANDS)
On April 30, 2003, Bancorporation's Board of Directors declared a $.25 dividend
on common stock to shareholders of record on May 15, 2003, payable May 23, 2003.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
SUMMARY (DOLLARS IN THOUSANDS)
Net income for the quarter ended March 31, 2003 totaled $9,963, or $10.91 per
common share. Net income for the quarter ended March 31, 2002 totaled $11,169,
or $12.07 per common share.
The primary factors affecting the decrease in net income for the quarter ended
March 31, 2003 were a $496 or 1.42% decrease in net interest income after
provision for loan losses, and a $2,838 or 9.70% increase in noninterest
expense. These unfavorable changes were partially offset by a $2,008 or 17.93%
increase in noninterest income.
Return on average stockholders' equity and average assets are key measures of
earnings performance. Return on average stockholders' equity for the quarters
ended March 31, 2003 and March 31, 2002 was 13.05% and 16.41%, respectively.
Return on assets decreased from 1.24% for the quarter ended March 31, 2002 to
1.05% for the quarter ended March 31, 2003. The decrease in return on assets
was due to a 26 basis point decline in net interest margin after provision for
loan losses to average assets.
Individual components of net income are discussed further in the following
sections.
Page 8
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
THREE MONTHS ENDED
MARCH 31,
------------------------
SELECTED RATIOS: 2003 2002
----------- -----------
Return on average assets 1.05% 1.24%
Return on average stockholders' equity 13.05% 16.41%
Return on average common stockholders' equity 13.19% 16.60%
Yield on average interest-earning assets (tax
equivalent) 4.09% 4.38%
Average loans to average deposits 72.78% 72.84%
Nonperforming assets to total loans .29% .19%
Allowance for loan losses to total loans 1.79% 1.78%
Allowance for loan losses to nonperforming assets 6.27x 9.43x
Average stockholders' equity to average total
assets 8.06% 7.57%
Common stockholders' equity to total assets 7.98% 7.49%
Dividends per common share $ 0.25 $ 0.25
Total risk-based capital ratio 13.27% 13.03%
Tier I risk-based capital ratio 12.02% 11.78%
Tier I leverage ratio 8.01% 7.45%
SELECTED AVERAGE BALANCES:
Total assets $3,841,330 $3,645,157
Interest-earning assets 3,528,659 3,338,321
Investment securities 911,516 907,811
Loans 2,406,547 2,240,332
Deposits 3,306,430 3,075,508
Noninterest-bearing deposits 573,852 507,177
Interest-bearing deposits 2,732,578 2,568,331
Interest-bearing liabilities 2,930,542 2,835,631
Stockholders' equity 309,582 276,086
SELECTED YEAR-TO-DATE BALANCES:
Total assets $3,884,933 $3,682,371
Interest-earning assets 3,562,978 3,374,177
Investment securities 913,207 939,100
Loans 2,413,477 2,229,677
Deposits 3,345,630 3,121,244
Noninterest-bearing deposits 621,313 532,768
Interest-bearing deposits 2,724,317 2,588,476
Interest-bearing liabilities 2,923,014 2,844,600
Stockholders' equity 310,619 276,032
Page 9
NET INTEREST INCOME (DOLLARS IN THOUSANDS)
Net interest income represents the principal source of earnings for
Bancorporation. Table 2 compares average balance sheet items and analyzes net
interest income on a tax equivalent basis for the quarters ended March 31, 2003
and 2002.
TABLE 2: COMPARATIVE AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT RATE/VOLUME
VARIANCE (DOLLARS IN THOUSANDS)
AS OF AND FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------
CHANGE DUE TO (2)
AVERAGE BALANCE INTEREST/EXP (1) YIELD/RATE ------------------- NET
---------------------- -------------------- -------------- YIELD INCREASE
2003 2002 2003 2002 2003 2002 /RATE VOLUME (DECREASE)
---------- ---------- -------- ---------- ------- ----- --------- -------- -----------
INTEREST-EARNING ASSETS:
Loans (3) $2,406,547 $2,240,332 $ 40,357 $ 42,197 6.80% 7.64% $(10,317) $ 8,477 $ (1,840)
Investment securities:
Taxable 899,641 894,337 6,985 10,034 3.15 4.55 (3,174) 125 (3,049)
Non-taxable 11,875 13,474 218 252 7.34 7.48 54 (88) (34)
Federal funds sold 210,596 190,178 626 798 1.21 1.70 (357) 185 (172)
---------- ---------- -------- ---------- --------- -------- -----------
Total interest-earning
assets 3,528,659 3,338,321 48,186 53,281 5.54 6.47 (13,794) 8,699 (5,095)
---------- ---------- -------- ---------- --------- -------- -----------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 144,580 150,874
Premises and equipment 111,306 97,836
Other, less allowance for
Loan losses 56,785 58,126
---------- ----------
Total noninterest-earning
assets 312,671 306,836
---------- ----------
TOTAL ASSETS $3,841,330 $3,645,157
---------- ----------
INTEREST-BEARING LIABILITIES:
Deposits $2,732,578 $2,568,331 $ 11,193 $ 15,366 1.66% 2.43% $ (6,218) $ 2,045 $ (4,173)
Securities sold under
agreements to repurchase 144,833 216,337 360 818 1.01 1.54 84 (542) (458)
Long-term debt 53,131 50,963 1,079 1,050 8.12 8.24 (103) 132 29
---------- ---------- -------- ---------- --------- -------- -----------
Total interest-bearing
liabilities 2,930,542 2,835,631 12,632 17,234 1.75 2.46 (6,237) 1,635 (4,602)
---------- ---------- -------- ---------- --------- -------- -----------
NONINTEREST-BEARING
LIABILITIES:
Demand deposits 573,852 507,177
Other liabilities 27,354 26,263
---------- ----------
Total noninterest-bearing
liabilities 601,206 533,440
---------- ----------
TOTAL LIABILITIES 3,531,748 3,369,071
---------- ----------
Stockholders' equity 309,582 276,086
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY $3,841,330 $3,645,157
========== ==========
Net interest spread 3.79% 4.01%
======= =====
Net interest margin: $ 35,554 $ 36,047 ($7,557) $ 7,064 $ (493)
======== ========== ========= ======== ===========
to average assets 3.75% 4.01%
======= =====
to average interest-earning
assets 4.09% 4.38%
======= =====
(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)
Net interest income on a tax equivalent basis decreased $493 or 1.37% for the
quarter ended March 31, 2003, over the comparable period in 2002. Net interest
margin to average assets decreased from 4.01% for the quarter ended March 31,
2002 to 3.75% for the quarter ended March 31, 2003. This is attributable to a
29 basis point decrease in the net interest margin to average interest-earning
assets.
Net interest margin to average interest-earning assets decreased from 4.38% for
the quarter ended March 31, 2002 to 4.09% for the quarter ended March 31, 2003.
This was primarily attributable to a decrease in the net interest spread from
4.01% for the quarter ended March 31, 2002 to 3.79% for the quarter ended March
31, 2003. The decrease in the net interest spread was due to the decrease in
interest earned on interest-earning assets exceeding the decrease in the cost of
interest-bearing liabilities. The yield on interest-earning assets decreased
from 6.47% for the quarter ended March 31, 2002 to 5.54% for the quarter ended
March 31, 2003, or by 93 basis points, while the cost of interest-bearing
liabilities decreased from 2.46% to 1.75%, or by 71 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.
Decreases in yields on interest-earning assets have occurred as rates have
declined significantly on new loans and investments added to replace those that
were refinanced, inactive or called away. Decreases in rates are primarily due
to a decline in rates paid on new and matured time deposits.
NONINTEREST INCOME AND EXPENSE (DOLLARS IN THOUSANDS)
Noninterest income increased by $2,008 or 17.93% for the quarter ended March 31,
2003, over the comparable period in 2002 primarily due to increases in service
charges on deposits and mortgage income. Service charges on deposits increased
by $917 or 13.06% over the comparable period primarily due to overall deposit
growth. Mortgage income increased by $716, or 80.18%, due to a $1,232 increase
in the gain on sale of mortgage loans. The increase in mortgage income was
partially offset by impairment recorded on mortgage servicing rights totaling
$429. No such impairment was recorded during the quarter ended March 31, 2002.
Noninterest expense increased by $2,838, or 9.70%, for the quarter ended March
31, 2003 over the comparable period in 2002 due to increases in salaries and
employee benefits and net occupancy expense. Salaries and employee benefits
increased by $2,506, or 17.58%, during the quarter primarily due to an increase
in the number of employees, merit increases and increasing health insurance and
pension costs. Net occupancy expense increased by $516, or 24.71%. The
increase is due to $223 additional depreciation expense related to four branches
purchased after the quarter ended March 31, 2002 and on-going growth.
INCOME TAXES (DOLLARS IN THOUSANDS)
Total income tax expense decreased by $120 or 2.13% for the quarter ended March
31, 2003 over the comparable period in 2002. The effective tax rate was 35.60%
and 33.50% at March 31, 2003 and March 31, 2002, respectively.
Page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
INVESTMENT SECURITIES (DOLLARS IN THOUSANDS)
As of March 31, 2003, the investment portfolio totaled $913,207, compared to
$939,100 at March 31, 2002. Bancorporation continues to invest primarily in
short-term U.S. government obligations and agency securities to minimize credit,
interest rate and liquidity risks. The investment portfolio consisted of 94.63%
and 93.59% U.S. government and agency securities as of March 31, 2003 and March
31, 2002, 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 March 31, 2003, loans totaled $2,413,447, compared to $2,229,677 at March
31, 2002, an increase of $183,770, or 8.24%. The composition of the loan
portfolio has not shifted significantly since March 31, 2002. Loan growth was
funded through core deposits and short-term borrowed funds.
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 quarter ended March 31, 2003 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 March 31, 2003
and 2002 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
QUARTER ENDED
MARCH 31,
-----------------------
ALLOWANCE FOR LOAN LOSSES: 2003 2002
---------- -----------
Balance at beginning of period $ 43,305 $ 40,259
Provision for loan losses 938 889
---------- -----------
Charge-offs (1,461) (1,875)
Recoveries 522 449
---------- -----------
Net charge-offs (939) (1,426)
---------- -----------
Balance at end of period $ 43,304 $ 39,722
---------- -----------
Nonperforming assets $ 6,908 $ 4,211
Annualized net charge-offs to:
Average loans .16% .25%
Loans at end of period .16% .26%
Allowance for loan losses 8.66% 14.36%
FUNDING SOURCES (DOLLARS IN THOUSANDS)
Bancorporation's primary source of funds is its deposit base. Total deposits
increased $224,386 or by 7.19% from March 31, 2002 to March 31, 2003. Average
deposits were $3,306,430 and $3,075,508 at March 31, 2003 and March 31, 2002,
respectively.
Short-term borrowings in the form of securities sold under agreements to
repurchase are another source of funds. Short-term borrowings decreased $58,603
or 28.56% from March 31, 2002 to March 31, 2003. Average short-term borrowings
were $144,833 and $216,337 at March 31, 2003 and March 31, 2002, respectively.
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
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 March 31, 2003 and 2002.
CAPITAL RATIOS MARCH 31,
---------------
2003 2002
------ -------
Tier I leverage ratio 8.01% 7.45%
Total risk-based capital ratio 13.27% 13.03%
Tier I 12.02% 11.78%
Tier II 1.25% 1.25%
The Board of Directors each year authorizes management to repurchase outstanding
shares of its capital stock. Purchases are subject to various conditions,
including price and volume limitations (including, in the case of repurchases of
Bancorporation's voting common stock, an annual limit of up to 5% of outstanding
shares), and compliance with applicable South Carolina law. Pursuant to similar
authority during the quarters ended March 31, 2003 and 2002, Bancorporation
repurchased an aggregate of 1,978 and 5,500 shares, respectively, of its
outstanding voting common stock, for an aggregate price of $761 and $1,641,
respectively. With respect to other classes of Bancorporation's capital stock,
aggregate repurchases during the quarters ended March 31, 2003 and 2002 totaled
- -0- and 5 shares, respectively, for an aggregate price of $-0- and $17,
respectively. Repurchases of shares during both periods had an immaterial
impact on Bancorporation's capital.
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, 2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the date of this report (the "Evaluation Date"),
Bancorporation's Chief Executive Officer and Chief Financial Officer have
evaluated Bancorporation's disclosure controls and procedures and concluded
that these controls and procedures are effective to ensure that information
required to be disclosed by Bancorporation in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified by the
Commission's rules.
(b) Changes in Internal Controls
Following the above evaluation, management of Bancorporation is
implementing certain additional internal controls relating only to certain
types of accounts administered by the Bank's trust department.
Bancorporation's management believes that the deficiencies being mitigated
by the new controls do not represent significant deficiencies in
Bancorporation's internal controls and that the events that precipitated
the new controls will not materially affect Bancorporation's financial
position or results of operations.
Page 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
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
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are either attached hereto or
incorporated by reference:
11 Statement re computation of per share earnings (filed herewith).
99 Certification (Pursuant to 18 U.S.C. Section 1350)
(b) The following Form 8-K's were filed or furnished during the quarter
ended March 31, 2003.
Form 8-K furnished on January 31, 2003, reporting that Bancorporation
had announced its results of operations for the year and quarter ended
December 31, 2002.
Form 8-K filed on March 31, 2003, reporting that Bancorporation's bank
subsidiary had consummated its merger with First Banks, Inc.
Page 14
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: May 15, 2003
By: /s/ Craig L. Nix
-----------------
Craig L. Nix
Chief Financial Officer
Page 15
CERTIFICATION
I, Jim B. Apple, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Citizens
Bancorporation of South Carolina, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Jim B. Apple
----------------
Jim B. Apple
Chief Executive Officer
Page 16
CERTIFICATION
I, Craig L. Nix, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Citizens
Bancorporation of South Carolina, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Craig L. Nix
-----------------
Craig L. Nix
Chief Financial Officer
Page 17
EXHIBIT INDEX
11 Statement of Re Computation of Net Income per Share
99 Certification (Pursuant to 18 U.S.C. Section 1350)
Page 18