UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2005
or
Commission File Number: 0-16471
First Citizens BancShares, Inc
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
(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 an accelerated filer (as defined in Rule 12b-2 of the Act) Yes x No ¨
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 November 4, 2005)
INDEX
Consolidated Balance Sheets
First Citizens BancShares, Inc. and Subsidiaries
(thousands, except share data)
September 30*
2005
December 31#
2004
Assets
Cash and due from banks
Overnight investments
Investment securities held to maturity
Investment securities available for sale
Loans and leases
Less allowance for loan and lease losses
Net loans and leases
Premises and equipment
Income earned not collected
Other assets
Total assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Short-term borrowings
Long-term obligations
Other liabilities
Total liabilities
Shareholders’ Equity
Common stock:
Class A - $1 par value (8,756,778 shares issued during all periods)
Class B - $1 par value (1,677,675 shares issued during all periods)
Surplus
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements.
3
Consolidated Statements of Income
(thousands, except per share data; unaudited)
Loans
Investment securities:
U. S. Government
State, county and municipal
Dividends
Total investment securities interest and dividend income
Total interest income
Deposits
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Service charges on deposit accounts
Cardholder and merchant services income
Trust income
Fees from processing services
Commission income
ATM income
Mortgage income
Other service charges and fees
Securities gains (losses)
Other
Total noninterest income
Salaries and wages
Employee benefits
Occupancy expense
Equipment expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Other comprehensive income (loss) net of taxes
Unrealized securities gains (losses) arising during period
Less: reclassified adjustment for gains (losses) included in net income
Other comprehensive income (loss)
Comprehensive income
Average shares outstanding
Net income per share
4
Consolidated Statements of Changes in Shareholders’ Equity
(thousands, except share data, unaudited)
Balance at December 31, 2003
Redemption of 1,892 shares of Class A common stock
Cash dividends
Unrealized securities losses, net of deferred taxes
Balance at September 30, 2004
Balance at December 31, 2004
Balance at September 30, 2005
5
Consolidated Statements of Cash Flows
OPERATING ACTIVITIES
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles
Deferred tax benefit
Change in current taxes payable
Depreciation
Change in accrued interest payable
Change in income earned not collected
Securities losses (gains)
Origination of loans held for sale
Proceeds from sale of loans
Gain on sale of loans
Net amortization of premiums and discounts
Net change in other assets
Net change in other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES
Net change in loans outstanding
Purchases of investment securities held to maturity
Purchases of investment securities available for sale
Proceeds from maturities of investment securities held to maturity
Proceeds from maturities of investment securities available for sale
Net change in overnight investments
Dispositions of premises and equipment
Additions to premises and equipment
Purchase and sale of branches, net of cash transferred
Net cash used by investing activities
FINANCING ACTIVITIES
Net change in time deposits
Net change in demand and other interest-bearing deposits
Net change in short-term borrowings
Originations of long-term obligations
Repurchases of common stock
Cash dividends paid
Net cash provided by financing activities
Change in cash and due from banks
Cash and due from banks at beginning of period
Cash and due from banks at end of period
CASH PAYMENTS FOR:
Interest
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized securities gains (losses)
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Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
Note A
Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and 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 2004 First Citizens BancShares, Inc. Annual Report, which is incorporated by reference on Form 10-K. Certain amounts for prior periods have been reclassified to conform with statement presentations for 2005. However, the reclassifications have no effect on shareholders’ equity or net income as previously reported.
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. Additionally, the financial results and trends of ISB reflect the de novo nature of its growth.
FCB is a mature banking institution that operates from a single charter from its branch network in North Carolina, Virginia and West Virginia. 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, Neuse, Incorporated, a subsidiary that owns real property used in the banking operation and American Guaranty Insurance Corporation, a property insurance company.
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.
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Interest income
Interest expense
Noninterest income
Noninterest expense
Income (loss) before income taxes
Net income (loss)
Allowance for loan and lease losses
8
Note C
Employee Benefits
BancShares recognized pension expense totaling $11,205 and $9,290, respectively, in the nine-month periods ended September 30, 2005 and 2004. Pension expense is included as a component of employee benefit expense.
Components of Pension Expense
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized net actuarial loss
Pension expense
The assumed discount rate is 5.75 percent for 2005, compared to 6.00 percent for 2004. The expected long-term rate of return on plan assets for 2005 is 8.50 percent, compared to 8.00 percent for 2004.
Note D
Income Taxes
Income tax expense differed from the amounts computed by applying the federal income tax rate of 35 percent in each period to pretax income as a result of the following:
Income at statutory rates
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses
State and local income taxes, including change in valuation allowance, net of federal income tax benefit
Other, net
Total tax expense
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Note E
Asset Securitization and Sale
During the second quarter of 2005, BancShares completed the securitization and sale of $256,232 of its home equity lines of credit. The transaction generated a pre-tax gain of $2,874, which is included in other noninterest income. BancShares continues to service the assets that were sold.
The securitization and sale transaction was accounted for under the provisions of Statement of Financial Accounting Standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (Statement 140). The transaction was completed using a Qualified Special Purpose Entity (QSPE) which, in accordance with Statement 140, is a legally isolated, bankruptcy remote entity beyond the control of the seller. The QSPE is therefore not included within the consolidated financial statements.
BancShares received cash totaling $240,399 from the sale, net of the $7,816 of loans retained by the trust and $8,017 for cash collections and fees retained by the advisors.
BancShares retained a residual interest in the securitized assets in the form of an interest-only strip, which is included within investment securities available for sale and is carried at its estimated fair value. Quoted market prices are not readily available for retained residual interests, so the fair value was estimated based on various factors that may have an impact on the fair value of the retained interests. The assumed discount rate was 10 percent; the assumed rate of credit losses was 10 basis points; the estimated weighted average loan life was 3.3 years. Based on the assumptions used, the estimated fair value of the retained residual interest was $11,586 at the date of the securitization and $12,226 at September 30, 2005. Adverse changes of 10 percent and 20 percent to the assumed rate of credit losses or the estimated weighted average loan life did not have a material impact on the estimated fair value of the retained residual interest. However, 10 percent and 20 percent adverse changes to the assumed discount rate resulted in reductions in the fair value of the retained residual interest of $1,268 and $2,365, respectively.
BancShares established a servicing asset of $1,401, which represents the estimated fair value of the right to service the loans that were securitized and sold. This asset is being amortized over the estimated servicing life of 149 months.
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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). 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 and West Virginia. ISB operates offices in Georgia, Florida, Texas, New Mexico, Arizona, California, Oregon, Washington and Colorado. FCB is in the process of establishing offices in Tennessee and Maryland.
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 2005, the reclassifications have no effect on shareholders’ equity or net income as previously reported.
SUMMARY
BancShares’ earnings and cash flows are derived primarily from the commercial banking activities conducted by its banking subsidiaries, which include commercial and consumer lending, deposit and cash management products, cardholder and merchant services, wealth management services as well as various other products and services typically associated with commercial banking. FCB and ISB gather interest-bearing and noninterest-bearing deposits from retail and commercial customers. BancShares and its subsidiaries also secure supplemental short-term and long-term funding through various non-deposit sources. The liquidity generated from these funding sources is invested in various interest-earning assets including loans, investment securities and overnight investments. In addition, funds are invested in bank premises as well as furniture and equipment used in the subsidiaries’ commercial banking business.
Various external factors influence customer demand for our deposit and loan products. As economic conditions improved in early 2004, loan demand was strong throughout our market areas. However, in late 2004 and during 2005, FCB’s rate of loan growth weakened causing consolidated loan growth to slow. As short-term interest rates have continued to rise in connection with actions by the Federal Reserve, variable loan rates and yields on our investment securities have repriced towards higher market rates allowing improvement in the net interest margin. The increasing level of interest rates also has affected the composition of our deposit base, as customers rotate liquidity from low cost demand deposit and money market accounts to higher cost time deposits.
The general condition of the economy and the relative level of interest rates also influence the quality and collectibility of the loan portfolio, as consumer bankruptcy rates and business debt service levels tend to reflect the general economic cycle. Utilizing various asset–liability management and asset quality monitoring tools, we strive to minimize the potentially adverse financial impact of unforeseen and unfavorable economic trends and to take advantage of favorable economic conditions where 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’ return on average assets and return on average equity historically compare unfavorably to the returns of similarly sized financial holding companies. We have typically placed significant emphasis upon balance sheet liquidity, asset quality and capital conservation, even when those priorities may be detrimental to current earnings.
Our organization’s strengths and competitive position within the financial services industry indicate that continued opportunities for growth and expansion exist. We operate in diverse and growing geographic markets and believe that through superior customer service and a focused strategic emphasis, opportunities exist to increase earnings by attracting customers of other financial institutions. We seek opportunities to increase fee income in areas such as merchant processing, wealth management and private banking services, cash management, client bank services, factoring and insurance. In recent years, we have focused our efforts on customers who own their own businesses, medical and other professionals and individuals who are financially active.
We focus substantial attention on the risks that can endanger our profitability and growth prospects. Such risks generally include those that are internal, and thus substantially controllable by management, and those risks that are external to BancShares. External risks fall into categories of economic, industry systemic, competitive and regulatory. Due to the inability to control the outcome of external risks, management believes that the identification of appropriate strategic initiatives in response to such external risks provides reasonable safeguards to minimize their potential adverse impact.
Detailed information regarding the components of net income and other key financial data over the most recent five quarters is provided in Table 1. Tables 4 and 5 provide information on net interest income. Table 6 provides information related to asset quality.
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(thousands, except per share data and ratios)
Third
Quarter
First
Summary of Operations
Net interest income-taxable equivalent
Selected Quarterly Averages
Investment securities
Interest-earning assets
Interest-bearing liabilities
Shareholders’ equity
Shares outstanding
Selected Quarter-End Balances
Profitability Ratios (averages)
Rate of return (annualized) on:
Dividend payout ratio
Liquidity and Capital Ratios (averages)
Loans to deposits
Shareholders’ equity to total assets
Time certificates of $100,000 or more to total deposits
Per Share of Stock
Book value at period end
Tangible book value at period end
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NET INCOME
BancShares realized a significant increase in earnings during the third quarter of 2005 compared to the third quarter of 2004. Consolidated net income during the third quarter of 2005 equaled $30.0 million, compared to $16.9 million earned during the corresponding period of 2004. The $13.1 million or 77.6 percent increase resulted from improved levels of net interest income and noninterest income, partially offset by higher noninterest expense. Net income per share during the third quarter of 2005 totaled $2.87, compared to $1.62 during the third quarter of 2004, a 77.2 percent increase. Return on average assets amounted to 0.84 percent for the third quarter of 2005 and 0.52 percent for the third quarter of 2004. Return on average equity for the third quarter of 2005 was 10.39 percent compared to 6.34 percent during the third quarter of 2004.
For the first nine months of 2005, BancShares recorded net income of $85.0 million, compared to $50.1 million earned during the first nine months of 2004. The $35.0 million or 69.8 percent increase was also the result of improved net interest income, higher noninterest income as well as lower provision for credit losses. These favorable variances were partially offset by higher noninterest expense. Net income per share for the first nine months of 2005 was $8.15, compared to $4.80 recorded during the same period of 2004. BancShares returned 0.83 percent on average assets during the first nine months of 2005 compared to 0.53 percent during the corresponding period of 2004. Return on average equity for the first nine months of 2005 equaled 10.16 percent compared to 6.39 percent during the same period of 2004.
ISB reported net losses of $1.4 million and $3.3 million during the third quarter and first nine months of 2005, respectively, compared to net losses of $620,000 during the third quarter of 2004 and $2.2 million reported during the first nine months of 2004. Continuing losses by ISB result from higher provision for loan losses as well as costs associated with both planned and actual new branch openings. Since its inception, ISB has generated net losses of $29.6 million. Based on the magnitude of recent and planned branch growth, ISB’s net losses will likely extend into the foreseeable future.
Shareholders’ Equity. BancShares and its banking subsidiaries continue to exceed all minimum regulatory capital requirements, and the banking subsidiaries remain well capitalized. In recent years, the de novo growth and expansion of ISB has consumed significant amounts of capital. BancShares infused $15.0 million into ISB during the first nine months of 2005 to support its rapidly expanding balance sheet. Through September 30, 2005, BancShares has provided $245.0 million in capitalization for ISB and expects to continue to infuse amounts approximating $5.0 million per quarter for the foreseeable future. BancShares’ prospective capacity to provide capital to support the growth and expansion of ISB is dependent upon FCB’s ability to return capital through dividends to BancShares.
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 maturity of the underlying asset. Accordingly, 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 portfolio subjected to strenuous underwriting and monitoring procedures. Our investment securities portfolio consists almost exclusively of high-quality assets, primarily United States Treasury and government agency securities. Generally, the investment securities portfolio grows and shrinks based on loan and deposit trends. When deposit growth exceeds loan demand, we invest excess funds in the securities portfolio. Conversely, when loan demand exceeds deposit growth, we use proceeds from maturing securities to fund loan demand. Overnight investments are selectively made with other financial institutions that are within our risk tolerance.
Interest-earning assets for the third quarter of 2005 averaged $12.75 billion, an increase of $1.19 billion or 10.3 percent from the third quarter of 2004. For the nine months ended September 30, 2005, interest-earning assets averaged $12.31 billion, an increase of $955.0 million or 8.4 percent over the same period of 2004. These increases primarily resulted from growth in investment securities and the loan portfolio.
Loans and Leases. At September 30, 2005 and 2004, loans and leases totaled $9.36 billion and $9.15 billion, respectively. The $208.7 million growth in loans and leases from September 30, 2004 to September 30, 2005 primarily reflects growth within BancShares’ commercial mortgage and construction and land development lending. This growth was partially offset by the securitization and sale of $256.2 million in revolving mortgage loans during the second quarter of 2005. Table 2 details outstanding loans and leases by type for the past five quarters. During the twelve-month period from September 30, 2004 to September 30, 2005, FCB’s overall loan growth has remained modest while ISB’s commercial loans have displayed significant increases.
Commercial real estate loans totaled $3.47 billion at September 30, 2005, 37.0 percent of total loans and leases. This represents an increase of $362.5 million or 11.7 percent since September 30, 2004. Both FCB and ISB have experienced continuing demand for commercial real estate financing in recent quarters. A large percentage of our commercial real estate loans are secured by owner-occupied properties, and were underwritten based primarily upon the cash flow from the operation of the business rather than the value of the underlying real estate collateral.
During the 12-month period ended September 30, 2005, we also experienced a $124.4 million or 21.0 percent increase in construction and land development loans, generated primarily in ISB markets. These loans totaled $716.2 million at September 30, 2005, 7.6 percent of total loans and leases, as compared to $591.8 million at September 30, 2004.
At September 30, 2005 and 2004, commercial and industrial loans were $1.03 billion and $987.8 million, respectively. This $45.9 million or 4.6 percent increase was primarily the result of continued growth in ISB markets. Commercial and industrial loans represent 11.0 percent of total loans and leases as of September 30, 2005.
Revolving mortgage loans totaled $1.38 billion at September 30, 2005, representing 14.7 percent of total loans outstanding. This component of the loan portfolio has decreased $327.8 million since September 30, 2004, the combined result of the securitization and sale of $256.2 million of revolving home equity loans during the second quarter of 2005 and a general reduction in loans outstanding under home equity lines of credit. Higher variable rates of interest have made home equity line of credit borrowing more expensive for consumers.
Consumer loans totaled $1.32 billion at September 30, 2005 and $1.38 billion at September 30, 2004, a decrease of $58.7 million or 4.3 percent from September 30, 2004. This reduction results from lower levels of automobile sales finance activity during 2005.
During the third quarter of 2005, total loans and leases averaged $9.32 billion, an increase of $264.6 million or 2.9 percent from the comparable period of 2004. For the year-to-date, loans and leases have averaged $9.33 billion for 2005 compared to $8.78 billion for the same period of 2004, an increase of $556.6 million or 6.3 percent over the prior year.
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We continue to focus on expansion of banking services to the medical community. At September 30, 2005, 15.8 percent of our loan portfolio represented loans for office facilities, medical and dental equipment and other needs incidental to the respective area of practice. We do not believe that the focus on medical and dental lending presents an inappropriate risk to the overall quality of our loan and lease portfolio.
Our recent growth through ISB has allowed us to mitigate our geographic concentration in North Carolina and Virginia. Although these markets have endured economic instability in the past, we are pleased with the diversification that we are beginning to realize by the growth of ISB. We are aware that, in the absence of rigorous underwriting and monitoring controls, rapid loan and lease growth in new markets may present incremental lending risks. During the expansion of ISB into new markets, we have endeavored to ensure that such controls are functioning effectively and will continue to place emphasis upon maintaining strong lending standards in new markets.
(thousands)
Real estate:
Construction and land development
1-4 family residential mortgage
Commercial mortgage
Revolving mortgage
Other mortgage
Total real estate
Commercial and industrial
Consumer
Lease financing
Total loans and leases
Investment Securities. At September 30, 2005 and 2004, the investment securities portfolio totaled $2.87 billion and $2.03 billion, respectively. Total investment securities have increased 41.6 percent since September 30, 2004. Table 3 presents detailed information relating to the investment securities portfolio. During 2005, deposit growth has exceeded loan demand, resulting in excess liquidity that has been invested in the investment securities portfolio. In addition to deposit growth, excess liquidity resulted from the securitization and sale of revolving mortgage loans as well as the $125 million in subordinated debt issued during the second quarter.
Investment securities available for sale totaled $2.17 billion at September 30, 2005, compared to $1.18 billion at September 30, 2004, a $990.4 million or 83.6 percent increase. Available-for-sale securities are reported at their aggregate fair value.
Investment securities held to maturity totaled $696.9 million at September 30, 2005, compared to $843.4 million at September 30, 2004. This component of our investment securities portfolio continues to decline as securities mature and we classify virtually all acquisitions of new investment securities as available for sale. The average maturity of the held-to-maturity portfolio increased from ten months at September 30, 2004 to thirteen months at September 30, 2005. Securities classified as held-to-maturity reflect BancShares’ ability and positive intent to hold those investments until maturity.
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AverageMaturity(Yrs./Mos.)
Investment securities held to maturity:
U. S. Government:
Within one year
One to five years
Five to ten years
Ten to twenty years
Over twenty years
Total
State, county and municipal:
Total investment securities held to maturity
Investment securities available for sale:
Equity securities
Total investment securities available for sale
Total investment securities
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.
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Overnight investments. Overnight investments totaled $764.8 million at September 30, 2005, compared to $468.5 million at September 30, 2004. Overnight investments averaged $663.0 million during the third quarter of 2005, an increase of $182.7 million or 38.0 percent from the third quarter of 2004. For the nine-month periods ended September 30, overnight investments averaged $583.5 million and $410.1 million, respectively, for 2005 and 2004. The changes in overnight investments resulted from liquidity management decisions.
Income on Interest-Earning Assets. Interest income amounted to $173.5 million during the third quarter of 2005, a $42.1 million or 32.1 percent increase from the third quarter of 2004. This increase resulted from higher yields as well as healthy growth in interest-earning assets. The taxable-equivalent yield on interest-earning assets increased 89 basis points from 4.53 percent in the third quarter of 2004 to 5.42 percent in the third quarter of 2005. The taxable-equivalent yield on loans increased 103 basis points, creating a significant favorable yield variance. The taxable-equivalent yield on investment securities increased 88 basis points in the third quarter of 2005 while the yield on overnight investments increased 202 basis points. These yield improvements reflect higher market rates, which have resulted from actions by the Federal Reserve to increase the fed funds rate.
Loan interest income for the third quarter of 2005 was $146.0 million, an increase of $27.7 million or 23.4 percent from the third quarter of 2004, due to much improved loan yields and modest growth in the loan portfolio. The taxable-equivalent yield on average loans grew from 5.21 percent to 6.24 percent from the third quarter of 2004 to the third quarter of 2005 due to higher market rates.
Within the investment securities portfolio, interest income was $21.8 million during the third quarter of 2005 compared to $11.4 million during the third quarter of 2004, an increase of $10.4 million or 91.0 percent. The increase in interest income resulted from the substantial growth in average investment securities and higher yields, which increased from 2.26 percent to 3.14 percent.
Overnight investments generated interest income of $5.7 million during the third quarter of 2005, compared to $1.7 million during the same period of 2004. The higher income is the combined result of an improved yield and higher funds invested. Overnight investments returned 3.40 percent during the third quarter of 2005 compared to 1.38 percent during the same period of 2004.
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Total interest-earning assets
Checking With Interest
Savings
Money market accounts
Time deposits
Total interest-bearing deposits
Federal funds purchased
Repurchase agreements
Master notes
Other short-term borrowings
Total interest-bearing liabilities
Interest rate spread
Net interest income and net yield on interest-earning assets
Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35.0% and state income tax rate of 6.9% for each period. The taxable-equivalent adjustment was $375 for 2005 and $312 for 2004.
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Interest income amounted to $482.0 million during the first nine months of 2005, a $102.2 million or 26.9 percent increase from the same period of 2004, the combined result of favorable rate and volume variances. The taxable-equivalent yield on interest-earning assets increased 77 basis points from 4.48 percent for the first nine months of 2004 to 5.25 percent during the same period of 2005. Higher market interest rates during 2005 contributed to the favorable rate variance.
For the nine months ended September 30, 2005, loan interest income was $417.7 million, an increase of $78.1 million or 23.0 percent from the same period of 2004. The increase in interest income reflects higher interest rates and growth in the loan portfolio. For the first nine months, the taxable-equivalent loan yield was 6.00 percent during 2005, compared to 5.18 percent during the same period of 2004, up 82 basis points.
For the nine months ended September 30, 2005, income earned on the investment securities portfolio amounted to $51.3 million, compared to $36.6 million during the same period of 2004, an increase of $14.7 million or 40.0 percent. This increase is the combined result of a 61 basis point yield increase and a $225.0 million increase in average investment securities. Interest earned on overnight investments totaled $12.9 million during the first nine months of 2005 compared to $3.5 million during the same period of 2004, a $9.5 million increase. This was the result of the 183 basis points increase in yield and higher average overnight investments, which increased $173.4 million or 42.3 percent in 2005.
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities include interest-bearing deposits as well as short-term borrowings and long-term obligations. Deposits are our primary funding source, although we also utilize non-deposit borrowings to fulfill commercial customer requirements for cash management services and to stabilize our liquidity base. Certain of our long-term borrowings also provide capital strength under existing guidelines established by the Federal Reserve Bank and other banking regulators.
At September 30, 2005 and 2004, interest-bearing liabilities totaled $10.54 billion and $9.43 billion, respectively. During the third quarter of 2005, interest-bearing liabilities averaged $10.31 billion, an increase of $982.4 million or 10.5 percent from the third quarter of 2004. This increase primarily resulted from higher levels of time deposits as customers migrated funds from money market and other short-term deposit instruments to time deposits in order to take advantage of higher market interest rates.
Deposits. At September 30, 2005, total deposits were $12.12 billion, an increase of $998.5 million or 9.0 percent over September 30, 2004. Interest-bearing deposits averaged $9.24 billion during the third quarter of 2005 compared to $8.60 billion during the third quarter of 2004, an increase of $644.3 million or 7.5 percent. Average time deposits increased $493.9 million or 13.1 percent to $4.26 billion. Money market accounts averaged $2.67 billion in the third quarter of 2005, up slightly from $2.57 billion the same quarter of 2004, an improvement of $101.6 million or 4.0 percent. Average Checking With Interest increased $71.0 million or 4.7 percent to $1.57 billion. Offsetting these increases, average savings decreased $22.2 million or 2.9 percent to $734.8 million from the third quarter of 2004 to the third quarter of 2005. For the first nine months of 2005, interest-bearing deposits averaged $9.06 billion compared to $8.53 billion during the same period of 2004. This $532.0 million or 6.2 percent increase results from continued growth primarily among time deposits and money market accounts.
Short-term borrowings. At September 30, 2005, short-term borrowings totaled $696.9 million compared to $457.6 million at September 30, 2004. For the quarters ended September 30, 2005 and 2004, short-term borrowings averaged $661.4 million and $446.5 million, respectively. The $214.9 million or 48.1 percent increase in average short-term borrowings is the result of growth in master notes. Customer interest in these commercial cash management products has improved due to increasing interest rates.
For the nine-month periods ended September 30, 2005 and 2004, short-term borrowings averaged $544.4 million and $439.5 million, respectively, an increase of 23.9 percent primarily due to stronger demand for master notes from commercial cash management customers.
Long-term obligations. At September 30, 2005 and 2004, long-term obligations totaled $409.7 million and $286.4 million, respectively. The increase reflects the impact of $125 million in 5.125 percent ten-year fixed rate subordinated debt issued during the second quarter of 2005.
Expense on Interest-Bearing Liabilities. BancShares’ interest expense amounted to $59.3 million during the third quarter of 2005, a $26.0 million or 78.0 percent increase from the third quarter of 2004. The higher interest expense was the result of higher deposit funding costs caused by escalating market rates and substantially higher average balances of interest-bearing liabilities. The rate on interest-bearing liabilities was 2.28 percent during the third quarter of 2005 compared to 1.42 percent during the same period of 2004.
Year-to-date interest expense was $151.4 million, compared to $95.7 million for the same period of 2004. The $55.8 million or 58.3 percent increase results primarily from higher interest rates. The rate on interest-bearing liabilities increased from 1.38 percent during the first nine months of 2004 to 2.04 percent for the same period of 2005, a 66 basis point increase. In addition to a 104 basis point increase on money market accounts, the rate on time deposits increased 63 basis points.
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Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35.0% and state income tax rate of 6.9% for each period. The taxable-equivalent adjustment was $1,090 for 2005 and $947 for 2004.
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NET INTEREST INCOME
Net interest income totaled $114.2 million during the third quarter of 2005, an increase of $16.1 million or 16.5 percent from the $98.1 million recorded during the third quarter of 2004. The taxable-equivalent net yield on interest-earning assets was 3.57 percent for the third quarter of 2005, an increase of 18 basis points from the 3.39 percent reported for the third quarter of 2004. Net interest income was $330.6 million and $284.1 million for the nine-month periods ended September 30, 2005 and 2004, respectively. This represents an increase of $46.5 million or 16.4 percent. The taxable-equivalent net yield on interest-earning assets increased 25 basis points from 3.35 percent during the first nine months of 2004 to 3.60 percent during the same period of 2005.
During both the three and nine month periods ended September 30, 2005, the growth in net interest income when compared to the same period of 2004 primarily resulted from higher interest rates and the asset-sensitive position of our balance sheet.
On a linked quarter basis, the third quarter 2005 taxable equivalent net yield declined by 6 basis points due primarily to the full quarter impact of the second quarter loan securitization and subordinated debt issuance as well as generally weak loan demand during the third quarter.
Our asset/liability management strategy continues to focus on maintaining high levels of balance sheet liquidity and managing our interest rate risk. 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. We do not use interest rate swaps, floors, collars or other derivative financial instruments to attempt to hedge our interest rate sensitivity and interest rate risk. Management believes that due to the current interest sensitivity position of the balance sheet, future interest rate hikes will benefit net interest income. However, we also recognize that downward movements in market interest rates may have an adverse impact on net interest income.
ASSET QUALITY
The maintenance of excellent asset quality is one of our primary areas of operational focus. Historically, we have dedicated significant resources to ensuring that we are prudent in our lending practices. Accordingly, we have focused on asset quality as a key performance measure. Table 6 provides details concerning loan and lease loss as well as risk element information over the past five quarters and for the year-to-date for 2005 and 2004.
Nonperforming assets. At September 30, 2005, BancShares’ nonperforming assets, consisting of nonaccrual loans and other real estate, amounted to $15.9 million or 0.17 percent of loans plus foreclosed properties compared to $23.8 million at September 30, 2004. Nonaccrual loans totaled $11.1 million at September 30, 2005, compared to $16.1 million at September 30, 2004. Other real estate totaled $4.8 million at September 30, 2005, compared to $7.7 million at September 30, 2004. We closely monitor nonperforming assets, taking necessary actions to minimize potential exposure.
Allowance for Credit Losses. Our allowance for credit losses includes the allowance for loan and lease losses and the liability for unfunded credit commitments. We continuously analyze the growth and risk characteristics of the total loan and lease portfolio under current economic conditions in order to evaluate the adequacy of the allowance for loan and lease losses. Such factors as the financial condition of the borrower, fair market value of collateral and other considerations are recognized in estimating probable credit losses.
At September 30, 2005, the allowance for credit losses amounted to $133.2 million or 1.42 percent of loans outstanding. This compares to $127.9 million or 1.40 percent at September 30, 2004.
The provision for credit losses charged to operations during the third quarter of 2005 was $7.2 million, compared to $8.0 million during the third quarter of 2004, a decrease of $761,000 or 9.5 percent. Net charge-offs for the three months ended September 30, 2005 totaled $7.2 million, compared to net charge-offs of $5.5 million during the same period of 2004. On an annualized basis, these net charge-offs represent 0.30 percent and 0.24 percent of average loans and leases outstanding during the respective periods, both ratios being within our historical average range for quarterly loss ratios. For the nine-month periods ended September 30, total provision for credit losses was $19.5 million for 2005 and $25.7 million for 2004, a decrease of $6.2 million or 24.1 percent. The reduction in provision expense was primarily the result of lower net charge-offs and reduced levels of loan growth. Net charge-offs for the nine-month period ended September 30, 2005 totaled $15.6 million, compared to $17.2 million during the same period of 2004. As a percentage of average loans and leases outstanding, these losses represent 0.22 percent for 2005 and 0.26 percent for 2004 on an annualized basis.
We consider the established allowance for credit losses adequate to absorb losses inherent in the loan and lease portfolio at September 30, 2005. While we use available information to establish provisions for credit losses, future additions to the allowance may be necessary based on changes in economic conditions or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for credit losses. Such agencies may require the recognition of adjustments to the allowance based on their judgments of information available to them at the time of their examination.
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Second
Fourth
(thousands, except ratios)
Allowance for credit losses at beginning of period
Adjustment for sale of loans
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Allowance for credit losses at end of period
Allowance for credit losses includes:
Liability for unfunded credit commitments
Average loans and leases
Loans and leases at period-end
Nonaccrual loans and leases
Other real estate
Total nonperforming assets
Accruing loans and leases 90 days or more past due
Net charge-offs (annualized) to average total loans and leases
Percent of total loans and leases at period-end:
Allowance for credit losses
Nonperforming assets to total loans and leases plus other real estate
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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 service charges on deposit accounts, cardholder and merchant services income, various types of commission-based income including the sale of investments by our broker-dealer subsidiaries, fees from processing services for client banks, mortgage income and various types of revenues derived from wealth management services. Noninterest income also includes gains and losses resulting from securities transactions as well as gains recognized from the securitization and sale of loans.
During the first nine months of 2005, noninterest income was $197.9 million, compared to $188.1 million during the same period of 2004. The $9.8 million or 5.2 percent increase resulted from higher cardholder and merchant services income, other service charges and fees as well as the gain recognized on the securitization and sale of revolving mortgage loans. The favorable variances in these areas more than offset the impact of reductions in service charge income and the absence of securities gains during 2005. Securities transactions generated net gains of $1.9 million during 2004 compared to net losses of $22,000 in 2005.
Cardholder and merchant services income increased $6.6 million from $47.3 million earned in the first nine months of 2004 to $53.9 million in the first nine months of 2005. This 13.9 percent increase in cardholder income was due to increased merchant discount volume and higher interchange fees for debit and credit card transactions.
Other service charges and fees increased $2.5 million or 25.5 percent during 2005, primarily due to new check cashing fees we began collecting in early 2005. The securitization and sale of revolving mortgage loans resulted in a gain of $2.9 million during the second quarter of 2005. This gain is included in other noninterest income. There were no securitization and sale transactions in prior periods.
Trust income contributed an additional $1.2 million during the first nine months of 2005 compared to the same period of 2004. This increase represents a 9.2 percent increase over the same period of 2004, the result of higher fees earned for various trust and fiduciary services. Fees from processing services increased $1.1 million from $17.8 million during the first nine months of 2004 to $18.9 million earned during the first nine months of 2005 due to higher transaction volume for processed banks.
Service charge income decreased $3.3 million or 5.4 percent from the $61.2 million earned during the first nine months of 2004. Much of the reduction relates to commercial service charge income, which has declined as interest rates have increased for accounts subject to commercial analysis.
During the third quarter of 2005, noninterest income was $68.1 million, a $4.5 million or 7.0 percent increase over the $63.6 million earned during the third quarter of 2004. Cardholder and merchant services income increased $2.6 million or 15.4 percent during 2005 due to growth of interchange income for debit and credit transactions. Other service charges and fees increased $1.2 million due to new fees collected during 2005. Trust income increased $502,000 from $4.2 million in 2004 to $4.7 million in 2005. Fees from processing and commission income were also higher.
Partially offsetting these increases, service charges on deposits decreased $1.7 million or 8.0 percent during the third quarter of 2005 due to reductions in commercial service charge income.
NONINTEREST EXPENSE
The primary components of noninterest expense are salaries and related employee benefit costs, occupancy costs related to branch offices and support facilities, and equipment costs for branch offices and technology.
Noninterest expense was $374.0 million for the first nine months of 2005, a 3.7 percent increase over the $360.6 million recorded during the same period of 2004. The $13.3 million increase in noninterest expense results from higher personnel and general operating costs. ISB noninterest expenses increased $10.4 million or 27.3 percent over 2004.
Salary expense increased $4.8 million during 2005 when compared to the same period of 2004. This 3.1 percent increase is primarily due to the growth in employee population required to staff new branch and loan production offices of ISB. ISB’s salary expense increased $3.7 million or 22.7 percent.
Employee benefits expense increased $2.1 million or 5.7 percent during the first nine months of 2005, compared to the corresponding period of 2004 due to a $1.9 million increase in pension expense and $1.8 million of costs related to a benefit enhancement for a post-retirement executive benefit plan. Health expenses declined $2.0 million due to favorable claims experience within our self-insured health plan. ISB’s employee benefits expense increased $1.1 million or 32.1 percent over 2004 due to growth in the employee population.
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Occupancy expense increased $1.7 million to $35.0 million during the first nine months of 2005. This 5.1 percent increase resulted from higher depreciation expense for branch facilities and utilities costs. As a result of additional locations, ISB’s occupancy expense increased $821,000 or 11.1 percent during 2005.
The $4.6 million or 4.8 percent increase in other expense resulted from a $2.8 million increase in cardholder processing costs due to transaction volume growth and a $1.5 million unfavorable variance in losses from the sale of assets. Partially offsetting these higher costs were favorable variances in legal, claims and postage costs.
For the third quarter of 2005, noninterest expense totaled $128.7 million, an $8.3 million or 6.9 percent increase over the same period of 2004. Salary expense totaled $55.7 million during the third quarter of 2005, an increase of $3.0 million or 5.7 percent due primarily to costs for new associates hired to support the ISB expansion. Employee benefits expense increased $1.8 million due to higher pension and executive post-retirement benefit costs. Equipment expense increased $1.1 million or 9.9 percent due to higher software-related expenses.
LIQUIDITY
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 September 30, 2005, BancShares had access to $450.0 million in unfunded borrowings through its correspondent bank network.
Once we have satisfied our loan demand, residual liquidity is invested in overnight and longer-term investment products. Investment securities available for sale provide immediate liquidity as needed. In addition, investment securities held to maturity provide an ongoing liquidity source based on the scheduled maturity dates of the securities.
SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY
BancShares continues to exceed all minimum regulatory capital requirements, and the banking subsidiaries remain well-capitalized. At September 30, 2005 and 2004, the leverage capital ratio of BancShares was 9.22 percent and 9.32 percent, respectively, surpassing the minimum level of 3 percent. As a percentage of risk-adjusted assets, BancShares’ Tier 1 capital ratio was 12.51 percent at September 30, 2005, and 12.16 percent as of September 30, 2004. The minimum ratio allowed is 4 percent of risk-adjusted assets. The total risk-adjusted capital ratio was 15.08 percent at September 30, 2005 and 13.50 percent as of September 30, 2004. The minimum total capital ratio is 8 percent.
The subordinated debt issued during the second quarter of 2005 qualifies as Tier 2 capital under current regulatory guidelines. As a result, BancShares’ total capital ratio has been further strengthened by that transaction.
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.
For the third quarters of 2005 and 2004, the effective tax rates were 35.5 percent and 49.5 percent, respectively. The effective tax rates for the nine-month periods ended September 30, 2005 and 2004 were 37.0 percent and 41.7 percent, respectively. The higher effective tax rate during 2004 resulted from higher state income tax expense that resulted from an examination of BancShares’ North Carolina tax returns for 2000, 2001 and 2002, net of the reversal of unallocated income tax liabilities that were no longer needed. Including estimated interest and net of federal benefit, the additional income tax expense recorded during the third quarter of 2004 amounted to $4.0 million.
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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 much of its expansion has been accomplished on a de novo basis. However, because of FCB’s size, market share and maturity as well as the current modest expansion of its branch network, the costs associated with de novo branching are not material to FCB’s financial performance. Since it first opened in 1997, ISB has followed a similar business model for growth and expansion. Yet, due to the large number of branch offices that have yet to attain sufficient size for 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. ISB’s rapid growth in new markets in recent years has continued to adversely impact its financial performance.
IronStone Bank. ISB’s total assets increased from $1.39 billion at September 30, 2004 to $1.77 billion at September 30, 2005, an increase of $378.8 million or 27.2 percent. ISB’s net interest income increased $11.1 million or 33.1 percent during the first nine months of 2005, when compared to the same period of 2004, the result of higher loan yields and substantially higher levels of average loans outstanding. Provision for credit losses increased $3.6 million or 120.0 percent due to growth in the loan portfolio during the current year and higher net charge-offs.
ISB’s noninterest income increased $1.4 million or 33.7 percent during the first nine months of 2005, due to higher cardholder and merchant services income, partially offset by a reduction in deposit service charges. Noninterest expense increased $10.4 million or 27.2 percent during 2005, the net impact of higher personnel, occupancy and card processing costs. Higher personnel and occupancy reflect the impact of the expanded branch network, much of which relates to the expansion of ISB into California, Colorado, Oregon and Washington. These increases reflect the increased employee population within the growing ISB branch network.
ISB recorded a net loss of $3.3 million during the first nine months of 2005 compared to a net loss of $2.2 million during the same period of 2004. This represents an unfavorable variance of $1.0 million, the result of a higher growth rate of noninterest expenses and provision for loan losses than revenues.
ISB continues to evaluate both existing and new markets for expansion. As such growth occurs, ISB will continue to incur incremental operating costs, particularly in the areas of personnel, occupancy and equipment. As a result of the de novo status of much of the ISB franchise and plans for continued expansion, ISB’s net losses will likely extend into the foreseeable future.
First-Citizens Bank & Trust Company. FCB’s total assets increased from $11.55 billion at September 30, 2004 to $12.59 billion at September 30, 2005, an increase of $1.04 billion or 9.0 percent. FCB’s net interest income increased $34.9 million or 13.2 percent during the first nine months of 2005, the result of higher loan yields and loan growth. Provision for credit losses decreased $9.8 million or 43.2 percent due to lower net charge-offs and slower loan and lease growth during the current year.
FCB’s noninterest income increased $11.3 million or 6.1 percent during the first nine months of 2005, primarily the result of cardholder and merchant income and fees from processing services. Noninterest expense increased $3.6 million or 1.1 percent during the first nine months of 2005, primarily due to higher personnel and occupancy costs.
FCB recorded net income of $98.0 million during the first nine months of 2005 compared to $60.8 million during the same period of 2004. This represents a $37.2 million or 61.2 percent increase in net income, which reflects the favorable impact on net interest income of increases in market interest rates during the past 12 months.
CURRENT ACCOUNTING AND REGULATORY ISSUES
There has been no accounting guidance issued since December 31, 2004, that will have a significant impact on our consolidated financial statements. Further, 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 with the Securities and Exchange Commission from time to time.
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 particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan 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.
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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 September 30, 2005, BancShares’ market risk profile has not changed significantly from December 31, 2004.
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 third quarter of 2005 that had materially affected, or is reasonably likely to materially affect, BancShares’ internal control over financial reporting.
PART II
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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: November 4, 2005
FIRST CITIZENS BANCSHARES, INC.
(Registrant)
By:
/s/ KENNETH A. BLACK
Kenneth A. Black
Vice President, Treasurer
and Chief Financial Officer
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