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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File Number 0-16471
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FIRST CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in the charter)
Delaware 56-1528994
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
239 Fayetteville Street Mall
Raleigh, North Carolina 27601
(Address of Principal Executive Offices, Zip Code)
(919) 716-7000
(Registrant's Telephone Number, including Area Code)
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Securities registered pursuant to:
Section 12(b) of the Act: None
Section 12(g) of the Act: Class A Common Stock, Par Value $1
Class B Common Stock, Par Value $1
(Title of Class)
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Based on last reported sales prices on March 12, 2001, the aggregate market
value of the Registrant's voting stock held by nonaffiliates of the Registrant
as of such date was $541,527,807.
On March 12, 2001, there were 8,813,454 outstanding shares of the
Registrant's Class A Common Stock and 1,707,657 outstanding shares of the
Registrant's Class B Common Stock.
Portions of the Registrant's definitive Proxy Statement dated March 19, 2001
are incorporated in Part III of this report.
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CROSS REFERENCE INDEX
PART 1 Item 1 Description of Business............................ 3
Item 2 Properties......................................... 4
Item 3 Legal Proceedings.................................. 26
Item 4 Submission of Matters to a Vote of Shareholders.... None
PART II Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters........................ 4
Item 6 Selected Financial Data............................ 5
Item 7 Management's Discussion and Analysis of Financial
Item 7A Condition and Results of Operations................ 4-26
Quantitative and Qualitative Disclosures about
Item 8 Market Risk........................................ 16
Financial Statements and Supplementary Data
Independent Auditors' Report....................... 27
Consolidated Balance Sheets at December 31, 2000
and 1999........................................... 28
Consolidated Statements of Income for each of the
years in the three-year period ended
December 31, 2000.................................. 29
Consolidated Statements of Changes in Shareholders'
Equity for each of the years in the three-year
period ended December 31, 2000..................... 30
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 2000.................................. 31
Notes to Consolidated Financial Statements......... 32-47
Quarterly Financial Summary for 2000 and 1999...... 24
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures............... None
PART III Item 10 Directors and Executive Officers of Registrant..... *
Item 11 Executive Compensation............................. *
Item 12 Security Ownership of Certain Beneficial Owners and
Management......................................... *
Item 13 Certain Relationships and Related Transactions..... *
PART IV Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) (1) Financial Statements (see Item 8 for reference)
(2) Financial Statement Schedules normally required on
Form 10-K are omitted since they are not applicable,
except as referred to in Item 8.
(3) Exhibits have been filed separately with the
Commission and are available upon written request.
(b) During the quarter ended December 31, 2000, no
reports on Form 8-K were filed.
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* Information required by Item 10 is incorporated herein by reference to the
information that appears under the headings "Section 16(a) Beneficial
Ownership Reporting Compliance", "Proposal 1: Election of Directors" and
"Executive Officers" on pages 5-13 of the Registrant's Proxy Statement for
the 2001 Annual Meeting of Shareholders.
Information required by Item 11 is incorporated herein by reference to the
information that appears under the heading "Director Compensation" on page
7 and under the headings "Executive Compensation", "Pension Plan" and
"Employment Contracts, Termination of Employment, and Change-in-Control
Agreements" on pages 10-11 of the Registrant's Proxy Statement for the 2001
Annual Meeting of Shareholders.
Information required by Item 12 is incorporated herein by reference to the
information that appears under the headings "Beneficial Ownership of Voting
Securities" on pages 2-3 of the Registrant's Proxy Statement for the 2001
Annual Meeting of Shareholders.
Information required by Item 13 is incorporated herein by reference to the
information that appears under the heading "Salary Committee" on pages 8-9
and under the heading "Transactions with Related Parties" on pages 12-13 of
Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders.
2
Description of Business
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First Citizens BancShares, Inc. ("BancShares") was incorporated under the laws
of Delaware on August 7, 1986, to become the successor to First Citizens
Corporation ("FCC"), a North Carolina corporation that was the bank holding
company of First-Citizens Bank & Trust Company (the "Bank"), its banking
subsidiary. On October 21, 1986, FCC was merged into BancShares, and
BancShares became the sole shareholder of the Bank.
On April 28, 1997, BancShares opened Atlantic States Bank ("ASB"), a
federally-chartered thrift institution, which has continued to open new
branches in the suburban Atlanta, Georgia area. During 1999, ASB expanded in
the Fort Myers area of southwestern Florida. At December 31, 2000, ASB had 38
offices with total assets of $678.2 million.
During 2000, BancShares became a financial holding company, a designation that
allows BancShares to offer products and services that a bank holding company
may not provide. As a first step to exercising the broader powers available to
a financial holding company, during 2000, American Guaranty Insurance Company
("AGI"), which was formerly a wholly-owned subsidiary of the Bank, became a
wholly-owned subsidiary of BancShares. As a direct subsidiary of BancShares,
AGI will have more flexibility in its product offering than it did as a
subsidiary of the Bank.
The Bank was chartered on March 4, 1893, as the Bank of Smithfield,
Smithfield, North Carolina, and through a series of mergers and name changes,
it later became First-Citizens Bank & Trust Company. As of December 31, 2000,
the Bank operated 363 offices in North Carolina, Virginia and West Virginia.
BancShares' executive offices are located at 3128 Smoketree Court, Raleigh,
North Carolina 27604, and its telephone number is (919) 716-7000. At December
31, 2000, BancShares and its subsidiaries employed a full-time staff of 4,181
and a part-time staff of 730 for a total of 4,911 employees.
BancShares' principal assets are its investment in and receivables from its
banking subsidiaries and its investment securities portfolio. Its primary
sources of income are dividends from the Bank and interest income on its
investment securities portfolio. Certain legal restrictions exist regarding
the ability of the Bank to transfer funds to BancShares in the form of cash
dividends or loans. For information regarding these restrictions, see Note P
of BancShares' consolidated financial statements, contained in this report.
BancShares' subsidiary banks seek to meet the needs of both consumers and
commercial entities in their respective market areas. These services, offered
at most offices, include normal taking of deposits, cashing of checks, and
providing for individual and commercial cash needs; numerous checking and
savings plans; commercial, small business and consumer lending; a full-service
trust department; and other activities incidental to commercial banking.
Triangle Life Insurance Company underwrites and sells credit-related life
insurance products. First Citizens Investor Services, Inc., provides various
investment products, including annuities, discount brokerage services and
third-party mutual funds to customers. First-Citizens Bank, A Virginia
Corporation is the issuing and processing bank for BancShares' retail credit
cards. Various other subsidiaries are either inactive or not material to
BancShares' consolidated financial position or to consolidated net income.
As a registered financial holding company, BancShares is subject to the
jurisdiction of the Board of Governors of the Federal Reserve System.
BancShares also is registered as a financial holding company with the North
Carolina Commissioner of Banks and is subject to the regulations promulgated
by the Commissioner. The internal affairs of BancShares, including the rights
of its shareholders, are governed by Delaware law and by its Certificate of
Incorporation and Bylaws. BancShares files periodic reports under the
Securities Exchange Act of 1934 and is subject to the jurisdiction of the
Securities and Exchange Commission.
The Bank is also regulated by the North Carolina Commissioner of Banks as well
as the Federal Deposit Insurance Corporation. ASB is regulated by the Office
of Thrift Supervision. AGI is regulated by the North Carolina Department of
Insurance.
3
Properties
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Through its subsidiary financial institutions, as of December 31, 2000,
BancShares operated branch offices at 401 locations in North Carolina,
Virginia, West Virginia, Florida and Georgia. BancShares owns many of the
buildings and leases other facilities from third parties.
Additional information relating to premises, equipment and lease commitments
is set forth in Note E of BancShares' consolidated financial statements.
Market for Registrant's Common Equity and Related Shareholder Matters
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BancShares' Class A and Class B common stock is traded in the over-the-counter
market, and the Class A common stock is quoted on the National Association of
Securities Dealers Automated Quotation National Market System under the symbol
FCNCA. The Class B common stock is quoted on the Over the Counter Bulletin
Board. As of December 31, 2000, there were 3,190 holders of record of the
Class A common stock, and 588 holders of record of the Class B common stock.
The per share cash dividends paid by BancShares and the high and low sales
prices for each quarterly period during 2000 and 1999 are set forth in Table
18 under the caption "Management's Discussion and Analysis" of this report. A
cash dividend of 25 cents per share was declared by the Board of Directors on
January 22, 2001, payable April 2, 2001, to holders of record as of March 19,
2001. Payment of dividends is made at the discretion of the Board of Directors
and is contingent upon satisfactory earnings as well as projected future
capital needs. Subject to the foregoing, it is currently management's
expectation that comparable cash dividends will continue to be paid in the
future.
Management's Discussion and Analysis
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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. ("BancShares"), for the years
2000, 1999 and 1998. BancShares is a financial holding company with two
wholly-owned banking subsidiaries: First-Citizens Bank & Trust Company
("FCB"), a North Carolina-chartered bank, and Atlantic States Bank ("ASB"), a
federally-chartered thrift institution. First Citizens Bank operates branches
in North Carolina, West Virginia, and Virginia. Atlantic States Bank operates
branches in Georgia and Florida.
This discussion and related financial data should be read in conjunction
with the audited consolidated financial statements and related footnotes
presented on pages 27 through 47 of this report.
SUMMARY
BancShares experienced a 20.2 percent increase in net income during 2000,
compared to 1999. The increase was the result of higher levels of net interest
income and nonrecurring gains in noninterest income, partially offset by
higher noninterest expense and provision for loan losses. Consolidated net
income amounted to $98.3 million during 2000, compared to $81.8 million during
1999 and $71.0 million during 1998. The improvement in net income during 1999
over 1998 resulted from growth in net interest income and noninterest income
at levels that exceeded the growth in noninterest expense. Net income per
share for the year ended December 31, 2000 totaled $9.32, compared to $7.70
and $6.62 for 1999 and 1998, respectively. Return on average assets totaled
0.98 percent during 2000 and 0.85 percent and 0.77 percent during 1999 and
1998, respectively.
4
Table 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
2000 1999 1998 1997 1996
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(thousands, except share data and ratios)
SUMMARY OF OPERATIONS
Interest income......... $ 708,170 $ 633,891 $ 619,487 $ 572,276 $ 534,195
Interest expense........ 342,828 281,542 292,071 268,013 248,250
----------- ---------- ---------- ---------- ----------
Net interest income..... 365,342 352,349 327,416 304,263 285,945
Provision for loan
losses................. 15,488 11,672 19,879 8,726 8,907
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Net interest income
after provision for
loan losses............ 349,854 340,677 307,537 295,537 277,038
Noninterest income...... 202,190 165,339 145,417 114,914 103,058
Noninterest expense..... 394,784 375,620 342,213 300,401 278,422
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Income before income
taxes.................. 157,260 130,396 110,741 110,050 101,674
Income taxes............ 58,949 48,596 39,732 39,492 36,207
----------- ---------- ---------- ---------- ----------
Net income............ $ 98,311 $ 81,800 $ 71,009 $ 70,558 $ 65,467
=========== ========== ========== ========== ==========
Net interest income,
taxable equivalent... $ 368,190 $ 354,566 $ 329,764 $ 306,726 $ 288,251
=========== ========== ========== ========== ==========
SELECTED AVERAGE
BALANCES
Total assets............ $10,005,597 $9,622,774 $9,173,020 $8,304,412 $7,681,019
Investment securities... 1,618,584 1,908,300 2,305,395 2,300,706 1,998,059
Loans................... 6,955,772 6,399,114 5,847,531 5,086,723 4,842,266
Interest-earning
assets................. 8,984,878 8,638,698 8,281,072 7,569,075 6,987,659
Deposits................ 8,390,920 8,105,443 7,759,315 7,088,018 6,653,302
Interest-bearing
liabilities............ 7,772,889 7,517,483 7,249,290 6,521,818 6,044,553
Long-term obligations... 154,634 157,897 133,935 10,472 13,483
Shareholders' equity.... $ 763,386 $ 693,559 $ 629,089 $ 638,825 $ 576,988
Shares outstanding...... 10,551,607 10,625,457 10,626,311 11,341,153 11,340,982
=========== ========== ========== ========== ==========
SELECTED PERIOD-END
BALANCES
Total assets............ $10,691,617 $9,717,099 $9,605,787 $8,951,109 $8,055,572
Investment securities... 1,816,720 1,371,894 2,160,329 2,483,294 2,161,236
Loans................... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508
Interest-earning
assets................. 9,357,794 8,596,326 8,588,645 8,010,841 7,247,744
Deposits................ 8,971,868 8,173,598 8,112,408 7,579,567 6,954,028
Interest-bearing
liabilities............ 8,384,692 7,554,229 7,542,636 7,052,749 6,265,482
Long-term obligations... 154,332 155,683 158,801 10,856 6,922
Shareholders' equity.... $ 810,728 $ 728,757 $ 660,749 $ 601,640 $ 615,507
Shares outstanding...... 10,522,836 10,610,399 10,625,559 10,627,453 11,410,880
=========== ========== ========== ========== ==========
PROFITABILITY RATIOS
(averages)
Rate of return on:
Total assets.......... 0.98% 0.85% 0.77% 0.85% 0.85%
Shareholders' equity.. 12.88 11.79 11.29 11.04 11.35
Dividend payout ratio... 10.73 12.99 15.11 16.08 16.03
=========== ========== ========== ========== ==========
LIQUIDITY AND CAPITAL
RATIOS (averages)
Loans to deposits....... 82.90% 78.95% 75.36% 71.77% 72.78%
Shareholders' equity to
total assets........... 7.63 7.21 6.86 7.69 7.51
Time certificates of
$100,000 or more to
total deposits......... 9.46 9.02 9.21 9.62 8.99
=========== ========== ========== ========== ==========
PER SHARE OF STOCK
Net income.............. $ 9.32 $ 7.70 $ 6.62 $ 6.22 $ 5.77
Cash dividends.......... 1.00 1.00 1.00 1.000 0.925
Market price at December
31 (Class A)........... 80.75 69.75 90.00 104.03 77.00
Book value at December
31..................... 77.04 68.68 62.18 56.61 53.94
Tangible book value at
December 31............ 65.76 58.13 50.73 47.11 45.42
=========== ========== ========== ========== ==========
5
The after-tax impact of all nonrecurring items was a net gain of $14.7
million during 2000, a net gain of $2.6 million during 1999 and a net gain of
$2.0 million during 1998. The per share amounts of the nonrecurring items were
$1.39, $0.25 and $0.19, respectively, during 2000, 1999 and 1998. The primary
nonrecurring items were:
During 2000:
. Sale of mortgage servicing rights--BancShares recognized $12.1 million
in net income resulting from the sale of mortgage servicing rights; the
pre-tax income of $20.2 million is included in gain on sale of mortgage
servicing rights;
. Sale of branches--BancShares recognized $2.6 million in net income from
the sale of four branch offices; the pre-tax gain of $4.1 million is
included in gain on sale of branches;
. Provision for branch closings--BancShares recognized a net-of-tax loss
of $1.9 million related to closing 15 branches; the pre-tax impact of
$3.1 million is included in occupancy expense ($1.3 million) and other
expense ($1.8 million);
. Gains on sales of available for sale securities--BancShares recognized
after-tax gains of $1.1 million; the pre-tax gain of $1.8 million is
included in securities gains.
During 1999:
. Sale of branches--BancShares recognized $2.8 million in net income from
the sale of branch offices; the pre-tax gain of $5.1 million is included
in gain on sale of branches;
. Gains on sales of available for sale securities--BancShares recognized
after-tax gains of $1.1 million; the pre-tax gain of $1.7 million is
included in securities gains;
During 1998:
. Sale of branches--BancShares recognized $2.0 million in net income from
the sale of branch offices; the pre-tax impact of $3.1 million is
included in gains on the sale of branch offices;
An analysis of BancShares' financial condition and growth can be made by
examining the changes and trends in interest-earning assets and interest-
bearing liabilities, and a discussion of these changes and trends follows. The
information presented in Table 5 is useful in making such an analysis. Table 2
details acquisitions and divestitures during 1998, 1999 and 2000. All of the
acquisitions were accounted for as purchases, with the results of operations
included with BancShares' Statements of Income since the respective
acquisition dates.
Table 2
BRANCH ACQUISITIONS AND DIVESTITURES
Total Total
Year Institution and Location Loans Deposits
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(thousands)
2000 Purchase of six branches by First Citizens Bank $13,569 $143,078
2000 Sale of four branches by First Citizens Bank (91,406) (91,810)
1999 Purchase of five branches by Atlantic States Bank 12 27,506
1999 Sale of eight branches by First Citizens Bank (38,735) (123,048)
1998 Purchase of 18 branches by First Citizens Bank 8,715 320,408
1998 Sale of five branches by First Citizens Bank (34,774) (138,390)
INTEREST-EARNING ASSETS
Interest-earning assets averaged $8.98 billion during 2000, an increase of
$346.2 million or 4.0 percent over 1999 levels, compared to a $357.6 million
or 4.3 percent increase in 1999 over 1998 levels. Growth among interest-
earning assets during 2000 and 1999 resulted from increases in loan balances.
Loans. As of December 31, 2000, gross loans outstanding were $7.11 billion,
a 5.3 percent increase over the December 31, 1999 balance of $6.75 billion,
which was a 9.0 percent increase over the December 31, 1998 balance of $6.20
billion. The $358.7 million increase in loans during 2000 was primarily due to
growth among loans secured by real
6
estate. Growth in these areas was partially offset by reductions in consumer
and commercial and industrial loans. During 1999, the $555.4 million increase
in loans resulted from growth among commercial loans secured by real estate as
well as commercial and industrial loans. This growth was partially offset by
reductions in consumer loans outstanding. Loan balances for the last five
years are provided in Table 3.
Table 3
LOANS
December 31
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2000 1999 1998 1997 1996
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(thousands)
Real estate:
Construction and land
development........... $ 216,439 $ 186,119 $ 157,603 $ 113,735 $ 109,806
Mortgage:
1-4 family
residential.......... 1,550,329 1,326,642 1,299,508 1,411,279 1,542,836
Commercial............ 1,993,067 1,810,904 1,495,214 1,055,529 882,067
Equity Line........... 851,810 755,342 617,062 603,714 411,856
Other................. 186,247 161,652 160,289 136,639 132,954
---------- ---------- ---------- ---------- ----------
Total real estate
loans................. 4,797,892 4,240,659 3,729,676 3,320,896 3,079,519
Commercial and
industrial............. 933,515 985,738 845,068 633,580 514,535
Consumer................ 1,218,134 1,393,227 1,516,712 1,402,093 1,251,704
Lease financing......... 134,483 123,908 93,680 74,589 68,694
Other................... 25,668 7,507 10,455 14,614 16,056
---------- ---------- ---------- ---------- ----------
Total gross loans...... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508
Less reserve for loan
losses................. 102,655 98,690 96,115 84,360 81,439
---------- ---------- ---------- ---------- ----------
Net loans.............. $7,007,037 $6,652,349 $6,099,476 $5,361,412 $4,849,069
========== ========== ========== ========== ==========
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All information presented in this table relates to domestic loans as
BancShares makes no foreign loans.
The growth among commercial-purpose loans has resulted from a strong focus
in recent years on commercial customers. As a percentage of total loans,
commercial loans secured by real estate have grown from 17.9 percent as of
December 31, 1996, to 28.0 percent as of December 31, 2000. Commercial and
industrial loans, which represented 10.4 percent of total loans as of December
31, 1996, have grown to 13.1 percent as of December 31, 2000. As the
percentage of commercial-purpose loans has increased, residential mortgage
loans, which were 31.3 percent of total loans at December 31, 1996, have
declined to 21.8 percent of the December 31, 2000 portfolio.
Consumer loans have decreased from 25.4 percent of total loans at December
31, 1996 to 17.1 percent at December 31, 2000. Much of the reduction in
consumer loans has resulted from a decrease in sales finance activity since
1998. As demand among commercial customers has grown, management has elected
to fund part of that growth by allowing indirect automobile financing activity
to decline. Although FCB has a long history of sales finance activity, this
area has become extremely competitive in recent years, and profit margins are
very thin. Despite the reduction in sales finance activity, BancShares
continues to provide traditional installment lending to its retail customers
through its branch and alternative delivery networks.
During 2000, average loans were $6.96 billion, an increase of $556.7 million
or 8.7 percent over 1999, compared to an increase of $551.6 million or 9.4
percent in 1999 when compared to 1998. Loans secured by real estate averaged
$4.57 billion during 2000, compared to $3.97 billion during 1999, an increase
of 16.2 percent. Much of the $594.9 million increase in average real estate
secured loans during 2000 was among commercial real estate loans, residential
mortgage loans and retail home equity loans. Consumer loans averaged
$1.30 billion during 2000 compared to $1.43 billion during 1999, the reduction
resulting from reduced sales finance volume.
During 2001, management anticipates continued demand from commercial
customers for real-estate secured lending and commercial and industrial type
lending, although that demand may not equal the levels achieved during 2000
and
7
1999. In order to fund this demand, management anticipates continued
reductions in the sales finance area. BancShares anticipates continued growth
of direct installment and home equity lending to its retail customers.
Investment Securities. At December 31, 2000, and 1999, the investment
portfolio totaled $1.82 billion and $1.37 billion, respectively. In each
period, U.S. Treasury and government agency securities represented
substantially all of the portfolio. Investment securities averaged $1.62
billion during 2000, $1.91 billion during 1999 and $2.31 billion during 1998.
Investment securities available for sale include marketable equity securities
that are recorded at their fair value, with the unrealized gain included as a
component of shareholders' equity, net of deferred taxes. During 2000,
investment securities available for sale increased primarily due to the
purchase of stock in the Federal Home Loan Bank ("FHLB"). This purchase
resulted from FCB's decision to join the FHLB. Table 4 presents detailed
information relating to the investment portfolio.
Income on Interest-Earning Assets. Table 5 analyzes the interest-earning
assets and interest-bearing liabilities for the five years ending December 31,
2000. Table 8 identifies the causes for changes in interest income and
interest expense for 2000 and 1999. Interest income amounted to $708.2 million
during 2000, a $74.3 million increase from 1999 levels, compared to a $14.4
million increase from 1998 to 1999. Interest income growth during 2000
resulted from an improved blended asset yield, higher average loan balances
and higher market rates. During 1999, loan growth was the primary factor for
the increase in interest income over 1998.
Total interest-earning assets yielded 7.91 percent during 2000, a 55 basis
point increase from the 7.36 percent reported in 1999. The average taxable-
equivalent yield on the loan portfolio increased from 8.01 percent in 1999 to
8.44 percent in 2000. The higher loan yield during 2000 reflects the market-
driven money rates that generally increased during 2000 as well as the shift
in the portfolio composition from lower-yielding sales finance loans to more
favorably priced commercial and home equity loans. Loan interest income
increased $74.2 million or 14.5 percent from 1999, the result of loan growth
and higher loan yields. This followed an increase of 6.6 percent in loan
interest income in 1999 over 1998, which resulted from the growth in average
loans during 1999.
Interest income earned on the investment portfolio amounted to $97.6
million, $107.1 million and $134.2 million during the years ended December 31,
2000, 1999 and 1998, respectively. The average taxable-equivalent yield on the
portfolio for these years was 6.04 percent, 5.62 percent and 5.83 percent,
respectively. The $9.6 million decrease in investment interest income during
2000 reflected the portfolio shrinkage, partially offset by an improved yield.
The $27.1 million decrease in investment interest income from 1998 to 1999 was
primarily the result of the reduction in the average investment securities
portfolio during 1999.
INTEREST-BEARING LIABILITIES
At December 31, 2000 and 1999 interest-bearing liabilities totaled $8.38
billion and $7.55 billion, respectively. Interest-bearing liabilities averaged
$7.77 billion during 2000, an increase of $255.4 million or 3.4 percent over
1999 levels. Increases in interest-bearing deposits contributed $237.0 million
to the increase largely due to growth in time deposits. During 1999, interest-
bearing liabilities averaged $7.52 billion, an increase of $268.2 million or
3.7 percent over 1998, with much of that growth resulting from money market
accounts. There were no significant changes in the composition of BancShares'
funding base during 2000 or 1999.
Deposits. At December 31, 2000, deposits totaled $8.97 billion, an increase
of $798.3 million or 9.8 percent from the $8.17 billion in deposits recorded
as of December 31, 1999. Deposits from acquisitions, net of deposits divested,
contributed $51.3 million during 2000. The remaining growth in deposits
resulted from various marketing and promotional activities as well as ASB's
deposit growth as it continues to expand its franchise. Total deposits
averaged $8.39 billion in 2000, an increase of $285.5 million or 3.5 percent
over 1999.
Average interest-bearing deposits were $7.04 billion during 2000, an
increase of $237.0 million or 3.5 percent from 1999. Total time deposits
averaged $3.86 billion during 2000, an increase of $179.1 million or 4.9
percent over 1999. The growth in 2000, which reversed the small reduction
experienced during 1999, resulted from higher market interest rates offered on
certificates of deposit and IRAs during 2000. Money market accounts averaged
$1.48 billion during 2000, compared to $1.36 billion during 1999, an increase
of $117.8 million or 8.7 percent.
8
During 1999, total deposits averaged $8.11 billion, an increase of $346.1
million or 4.5 percent over 1998. Average interest-bearing deposits were $6.8
billion during 1999, an increase of $226.3 million or 3.4 percent over 1998.
Money market deposits averaged $1.36 billion during 1999, an increase of
$242.1 million or 21.7 percent over 1998. During 1999, average time deposits
were $3.68 billion, a reduction of $45.0 million or 1.2 percent from 1998.
Table 4
INVESTMENT SECURITIES
December 31,
----------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------- --------------------- ---------------------
Average Taxable
Maturity Equivalent
Cost Fair Value (Yrs./Mos.) Yield Cost Fair Value Cost Fair Value
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
(thousands)
Investment securities
held to maturity:
U. S. Government:
Within one year........ $1,450,484 $1,452,268 0/6 6.35% $1,077,354 $1,067,979 $1,337,371 $1,345,775
One to five years...... 315,194 318,898 1/4 6.68 263,009 255,805 791,026 794,805
Five to ten years...... 210 216 8/6 8.04 176 178 122 127
Over ten years......... 7,834 7,891 25/11 7.30 9,665 9,552 3,288 3,396
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Total.................. 1,773,722 1,779,273 0/9 6.41 1,350,204 1,333,514 2,131,807 2,144,103
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
State, county and
municipal:
Within one year........ 700 702 0/3 7.55 699 703 425 427
One to five years...... 1,758 1,800 2/5 7.42 1,963 1,990 2,665 2,765
Over ten years......... 1,681 1,808 11/8 8.15 150 152 160 166
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Total.................. 4,139 4,310 5/10 7.74 2,812 2,845 3,250 3,358
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Other:
Within one year........ 20 20 0/1 5.84 -- -- 10 10
One to five years...... 35 35 1/7 6.96 55 55 55 55
Five to ten years...... 250 250 7/7 4.50 250 250 250 250
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Total.................. 305 305 6/5 4.49 305 305 315 315
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Total investment
securities held to
maturity............... 1,778,166 1,783,888 0/9 6.41 1,353,321 1,336,664 2,135,372 2,147,776
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Investment securities
available for sale..... 28,875 38,554 -- -- 7,751 18,573 10,264 24,957
---------- ---------- ----- ---- ---------- ---------- ---------- ----------
Total investment
securities............. $1,807,041 $1,822,442 0/9 6.41% $1,361,072 $1,355,237 $2,145,636 $2,172,733
========== ========== ===== ==== ========== ========== ========== ==========
- -------
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 taxes for all
periods and 7.00% for state income taxes for 2000 and 1999 and 7.25% for 1998.
9
Table 5
AVERAGE BALANCE SHEETS
2000 1999
---------------------------- ---------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- -------- ------ ---------- -------- ------
(thousands, taxable equivalent)
Assets
Loans................... $ 6,955,772 $587,192 8.44% $6,399,114 $512,419 8.01%
Investment securities:
U. S. Government....... 1,588,930 96,576 6.08 1,881,591 106,435 5.66
State, county and
municipal............. 4,212 357 8.48 2,893 217 7.50
Other.................. 25,442 764 3.00 23,816 548 2.30
----------- -------- ---- ---------- -------- ----
Total investment
securities........... 1,618,584 97,697 6.04 1,908,300 107,200 5.62
Overnight investments... 410,522 26,129 6.36 331,284 16,489 4.98
----------- -------- ---- ---------- -------- ----
Total interest-earning
assets............... 8,984,878 $711,018 7.91% 8,638,698 $636,108 7.36%
Cash and due from
banks.................. 476,929 459,202
Premises and equipment.. 418,388 382,092
Other assets............ 225,861 239,833
Reserve for loan
losses................. (100,459) (97,051)
----------- ----------
Total assets.......... $10,005,597 $9,622,774
=========== ==========
Liabilities and
shareholders' equity
Interest-bearing
deposits:
Checking With
Interest.............. $ 1,068,545 $ 6,338 0.59% $1,074,885 $ 6,858 0.64%
Savings................ 633,666 9,436 1.49 687,191 10,730 1.56
Money market accounts.. 1,477,248 63,386 4.29 1,359,433 47,881 3.52
Time deposits.......... 3,859,946 219,796 5.69 3,680,867 179,452 4.88
----------- -------- ---- ---------- -------- ----
Total interest-bearing
deposits............. 7,039,405 298,956 4.25 6,802,376 244,921 3.60
Short-term borrowings... 578,850 31,219 5.39 557,210 23,921 4.29
Long-term obligations... 154,634 12,653 8.18 157,897 12,700 8.04
----------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities.......... 7,772,889 $342,828 4.41% 7,517,483 $281,542 3.75%
Demand deposits......... 1,351,515 1,303,067
Other liabilities....... 117,807 108,665
Shareholders' equity.... 763,386 693,559
----------- ----------
Total liabilities and
shareholders'
equity............... $10,005,597 $9,622,774
=========== ==========
Interest rate spread.... 3.50% 3.61%
Net interest income and
net yield
on interest-earning
assets................. $368,190 4.10% $354,566 4.10%
======== ==== ======== ====
- --------
Average loan balances include nonaccrual loans. Interest income 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% for all
periods, and state income tax rates of 7.00% for 2000 and 1999 and 7.25% for
1998.
10
Table 5
AVERAGE BALANCE SHEETS (continued)
1998 1997 1996
- --------------------------- --------------------------- ---------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(thousands, taxable equivalent)
$5,847,531 $480,741 8.22% $5,086,723 $430,933 8.47% $4,842,266 $412,832 8.53%
2,273,579 133,535 5.87 2,267,652 133,007 5.87 1,988,518 114,831 5.77
4,340 318 7.33 5,560 421 7.57 6,607 507 7.67
27,476 507 1.85 27,494 481 1.75 2,934 172 5.86
- ---------- -------- ---- ---------- -------- ---- ---------- -------- ----
2,305,395 134,360 5.83 2,300,706 133,909 5.82 1,998,059 115,510 5.78
128,146 6,734 5.25 181,646 9,897 5.45 147,334 8,159 5.54
- ---------- -------- ---- ---------- -------- ---- ---------- -------- ----
8,281,072 $621,835 7.51% 7,569,075 $574,739 7.59% 6,987,659 $536,501 7.68%
400,896 345,578 324,353
343,307 251,163 218,434
237,564 220,828 231,140
(89,819) (82,232) (80,567)
- ---------- ---------- ----------
$9,173,020 $8,304,412 $7,681,019
========== ========== ==========
$1,035,761 $ 10,255 0.99% $ 928,122 $ 9,909 1.07% $ 878,878 $ 10,791 1.23%
697,227 12,954 1.86 704,531 14,121 2.00 719,962 15,059 2.09
1,117,286 39,135 3.50 919,049 34,062 3.71 825,139 29,217 3.54
3,725,818 193,173 5.18 3,489,614 185,657 5.32 3,258,713 175,838 5.40
- ---------- -------- ---- ---------- -------- ---- ---------- -------- ----
6,576,092 255,517 3.89 6,041,316 243,749 4.03 5,682,692 230,905 4.06
539,263 25,850 4.79 470,030 23,420 4.98 348,378 16,388 4.70
133,935 10,704 7.99 10,472 844 8.06 13,483 957 7.10
- ---------- -------- ---- ---------- -------- ---- ---------- -------- ----
7,249,290 $292,071 4.03% 6,521,818 $268,013 4.11% 6,044,553 $248,250 4.11%
1,183,223 1,046,703 970,610
111,418 97,066 88,868
629,089 638,825 576,988
- ---------- ---------- ----------
$9,173,020 $8,304,412 $7,681,019
========== ========== ==========
3.48% 3.48% 3.57%
$329,764 3.98% $306,726 4.05% $288,251 4.13%
======== ==== ======== ==== ======== ====
11
Table 6
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
December 31, 2000
-----------------
(thousands)
Less than three months............................... $296,174
Three to six months.................................. 158,674
Six to 12 months..................................... 237,233
More than 12 months.................................. 196,460
--------
Total............................................... $888,541
========
BancShares has historically avoided excessive reliance on high-dollar
deposits. During 2000, these funds averaged 9.46 percent of total average
deposits, compared to 9.02 percent in 1999. Table 6 provides a maturity
distribution for these deposits.
Short-Term Borrowings. BancShares has access to various short-term
borrowings, including the purchase of federal funds, overnight repurchase
obligations and credit lines with various correspondent banks. At December 31,
2000, short-term borrowings totaled $632.4 million, compared to $568.3 million
one year earlier. For the year ended December 31, 2000, short-term borrowings
averaged $578.9 million, compared to $557.2 million during 1999 and $539.3
million during 1998. The increases from 1999 to 2000 and from 1998 to 1999
resulted from higher levels of overnight repurchase agreements between FCB and
its commercial customers. Table 7 provides additional information regarding
short-term borrowed funds.
Table 7
SHORT-TERM BORROWINGS
2000 1999 1998
------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
(thousands)
Master notes
At December 31................... $322,944 5.39% $326,984 4.14% $326,603 3.63%
Average during year.............. 309,145 5.35 322,154 4.16 320,480 4.60
Maximum month-end balance during
year............................ 327,774 -- 355,795 -- 354,442 --
Repurchase agreements
At December 31................... 181,404 4.89 125,832 3.89 95,863 3.38
Average during year.............. 170,925 4.88 117,681 3.76 79,676 4.13
Maximum month-end balance during
year............................ 197,113 -- 132,540 -- 106,620 --
Federal funds purchased
At December 31................... 71,825 5.93 53,195 4.06 84,345 4.68
Average during year.............. 43,157 6.23 60,077 4.92 62,758 5.24
Maximum month-end balance during
year............................ 73,015 -- 88,460 -- 104,675 --
Other
At December 31................... 56,199 4.16 62,290 5.39 61,329 5.59
Average during year.............. 55,623 6.56 57,298 5.45 76,349 5.93
Maximum month-end balance during
year............................ 63,893 -- 67,870 -- 178,954 --
Long-Term Obligations. At December 31, 2000 and 1999, long-term obligations
totaled $154.3 million and $155.7 million, respectively. During 2000, long-
term obligations averaged $154.6 million, compared to $157.9 million during
1999 and $133.9 million during 1998. The decrease from 1999 to 2000 results
from the reclassification of long-term obligations to short-term borrowings
once the scheduled maturity is less than one year. The increase from 1998 to
1999 results from the issuance of $150 million in trust preferred capital
securities during the first quarter of 1998. The trust preferred capital
securities are thirty year obligations with interest paid semi-annually at a
rate of 8.05%. BancShares issued these obligations to provide capital to
support its continued expansion. Management views these securities as a
financially-effective method of providing capital resources without diluting
the ownership interest of existing shareholders.
12
Expense of Interest-Bearing Liabilities. Interest expense amounted to $342.8
million in 2000, a $61.3 million or 21.8 percent increase from 1999. This
followed a 3.6 percent decrease in interest expense during 1999 compared to
1998. The increase in interest expense during 2000 was the combined result of
higher interest rates and increases in average interest-bearing liabilities.
During 1999, the impact of lower interest rates more than offset the impact of
the growth in interest-bearing liabilities resulting in a reduction in
interest expense of $10.5 million. The blended rate on all interest-bearing
liabilities was 4.41 percent during 2000, compared to 3.75 percent in 1999 and
4.03 percent in 1998. The higher cost of borrowing during 2000 resulted from
market pressures which pushed deposit rates and other borrowing costs higher.
The aggregate rate on interest-bearing deposits was 4.25 percent during
2000, compared to 3.60 percent during 1999 and 3.89 percent during 1998.
Interest expense on total interest-bearing deposits amounted to $299.0 million
during 2000, an increase from the $244.9 million recorded during 1999 and
$255.5 million recorded during 1998. The growth in interest expense from 1999
to 2000 was the result of higher interest rates and increased average
balances. From 1998 to 1999, the reduction of interest expense was the result
of lower interest rates, partially offset by higher average balances.
Interest expense on short-term borrowings amounted to $31.2 million in 2000,
an increase of $7.3 million or 30.5 percent from 1999. Interest expense
related to short-term borrowings totaled $23.9 million and $25.9 million,
respectively, in 1999 and 1998. The increase during 2000 was attributable to
the growth in average short-term borrowings and higher interest rates. During
1999, the growth in interest expense resulting from growth in short-term
borrowings was more than offset by lower interest rates when compared to 1998.
Interest expense associated with long-term obligations during 2000 and 1999
was $12.7 million compared to $10.7 million during 1998. The increase in
interest expense in long-term obligations during 1999 primarily resulted from
higher average balances when compared to 1998, the result of the March 1998
issuance of the trust preferred capital securities.
13
NET INTEREST INCOME
Taxable-equivalent net interest income totaled $368.2 million during 2000,
an increase of 3.8 percent over 1999. This followed an increase of 7.5 percent
during 1999. Table 8 presents the annual changes in net interest income due to
changes in volume, yields and rates. This table is presented on a taxable-
equivalent basis to adjust for the tax-exempt status of income earned on
certain loans, leases and municipal securities.
Table 8
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
2000 1999
--------------------------------------- -------------------------------------
Change from previous year due to: Change from previous year due to:
--------------------------------------- -------------------------------------
Total Total
Volume Yield/Rate Change Volume Yield/Rate Change
----------- ------------- ----------- ---------- ------------- -----------
(thousands)
Assets:
Loans................... $ 44,575 $ 30,198 $ 74,773 $ 46,859 $ (15,181) $ 31,678
Investment securities:
U. S. Government....... (16,555) 6,696 (9,859) (22,668) (4,432) (27,100)
State, county and
municipal............. 99 41 140 (107) 6 (101)
Other.................. 37 179 216 (75) 116 41
----------- ----------- ----------- ---------- ----------- -----------
Total investment
securities............ (16,419) 6,916 (9,503) (22,850) (4,310) (27,160)
Federal funds sold...... 3,944 5,696 9,640 10,383 (628) 9,755
----------- ----------- ----------- ---------- ----------- -----------
Total interest-earning
assets................ $ 32,100 $ 42,810 $ 74,910 $ 34,392 $ (20,119) $ 14,273
=========== =========== =========== ========== =========== ===========
Liabilities:
Deposits:
Checking With
Interest.............. $ (40) $ (480) $ (520) $ 308 $ (3,705) $ (3,397)
Savings................ (836) (458) (1,294) (159) (2,065) (2,224)
Money market accounts.. 4,150 11,355 15,505 8,388 358 8,746
Time................... 8,731 31,613 40,344 (2,436) (11,285) (13,721)
----------- ----------- ----------- ---------- ----------- -----------
Total interest-bearing
deposits.............. 12,005 42,030 54,035 6,101 (16,697) (10,596)
Short-term borrowings... 929 6,369 7,298 360 (2,289) (1,929)
Long-term obligations... (262) 215 (47) 1,922 74 1,996
----------- ----------- ----------- ---------- ----------- -----------
Total interest-bearing
liabilities........... $ 12,672 $ 48,614 $ 61,286 $ 8,383 $ (18,912) $ (10,529)
=========== =========== =========== ========== =========== ===========
Change in net interest
income................ $ 19,428 $ (5,804) $ 13,624 $ 26,009 $ (1,207) $ 24,802
=========== =========== =========== ========== =========== ===========
- -------
Changes in income relating to certain loans and investment securities are
stated on a fully tax-equivalent basis at a rate that approximates BancShares'
marginal tax rate. The taxable equivalent adjustment was $2,848, $2,217, and
$2,348 for the years 2000, 1999 and 1998, respectively. Table 5 provides
detailed information on average balances, income/expense and yield/rate by
category. The rate/volume variance is allocated equally between the changes in
volume and rate.
The interest rate spread was 3.50 percent during 2000, a decrease of 11
basis points from 3.61 during 1999. The interest rate spread was 3.48 percent
during in 1998. The net yield on interest-earning assets was 4.10 percent in
2000 and 1999, and 3.98 percent during 1998. The higher net yields realized in
2000 and 1999 when compared to 1998 result from favorable changes in the
composition of the loan portfolio and an increasing loan-to-deposit ratio.
While loan volume increases continue to support growth in interest income,
competitive market conditions for deposits continue to constrain BancShares'
net interest income.
14
Table 9
INTEREST-SENSITIVITY ANALYSIS
December 31, 2000
---------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 Total
Days Days Days Days One Year Total
Sensitive Sensitive Sensitive Sensitive Sensitive Nonsensitive Total
---------- --------- --------- ---------- ---------- ------------ ----------
(thousands)
Assets:
Loans................... $1,798,476 $ 192,287 $ 272,838 $ 500,455 $2,764,056 $4,345,636 $7,109,692
Investment securities... 122,121 328,059 393,713 607,412 1,451,305 365,415 1,816,720
Overnight investments... 431,382 -- -- -- 431,382 -- 431,382
---------- --------- --------- ---------- ---------- ---------- ----------
Total interest-earning
assets................ $2,351,979 $ 520,346 $ 666,551 $1,107,867 $4,646,743 $4,711,051 $9,357,794
========== ========= ========= ========== ========== ========== ==========
Liabilities:
Interest-bearing
deposits............... $2,201,068 $ 832,451 $ 790,823 $1,114,053 $4,938,395 $2,659,593 $7,597,988
Short-term borrowings... 595,224 36,848 -- 300 632,372 -- 632,372
Long-term obligations... -- -- -- -- -- 154,332 154,332
---------- --------- --------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities........... $2,796,292 $ 869,299 $ 790,823 $1,114,353 $5,570,767 $2,813,925 $8,384,692
========== ========= ========= ========== ========== ========== ==========
Interest-sensitivity
gap.................... $ (444,313) $(348,953) $(124,272) $ (6,486) $ (924,024) $1,897,126 $ 973,102
========== ========= ========= ========== ========== ========== ==========
- -------
Assets and liabilities with maturities of one year or less and those that may
be adjusted within this period are considered interest sensitive. The
interest-sensitivity position has meaning only as of the date for which it was
prepared.
Rate Sensitivity. A principal objective of BancShares' asset/liability
function is to manage interest rate risk or the exposure to changes in
interest rates. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure. Table 9 provides
BancShares' interest-sensitivity position as of December 31, 2000, which
reflected a one year negative interest-sensitivity gap of $924.0 million. As a
result of this one year negative gap, increases in interest rates could have
an unfavorable impact on net interest income.
Table 10
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
December 31, 2000
-------------------------------------------
One to
Within Five After
One Year Years Five Years Total
---------- ---------- ---------- ----------
(thousands)
Real estate:
Construction and land
development..................... $ 74,971 $ 109,392 $ 32,076 $ 216,439
Mortgage:
1-4 family residential.......... 326,093 587,954 636,282 1,550,329
Commercial...................... 708,868 991,217 292,982 1,993,067
Equity Line..................... 59,627 212,952 579,231 851,810
Other........................... 64,511 94,130 27,606 186,247
Commercial and industrial......... 296,052 467,324 170,139 933,515
Consumer.......................... 362,565 785,509 70,060 1,218,134
Lease financing................... 33,621 100,862 -- 134,483
Other............................. 9,150 12,312 4,206 25,668
---------- ---------- ---------- ----------
Total............................ $1,935,458 $3,361,652 $1,812,582 $7,109,692
========== ========== ========== ==========
Loans maturing after one year
with:
Fixed interest rates.............. $2,890,313 $1,157,160 $4,047,473
Floating or adjustable rates...... 471,339 655,422 1,126,761
---------- ---------- ----------
Total............................ $3,361,652 $1,812,582 $5,174,234
========== ========== ==========
15
To minimize the potential adverse impact of interest rate fluctuations,
management monitors the maturity and repricing distribution of the loan
portfolio and markets variable rate and fixed rate callable loans to reduce
its interest rate risk. Table 10 details the maturity and repricing
distribution of the loan portfolio as of December 31, 2000. Of the gross loans
outstanding on December 31, 2000, 27.2 percent have scheduled maturities
within one year, 47.3 percent have scheduled maturities between one and five
years, while the remaining 25.5 percent have scheduled maturities extending
beyond five years. As a result of historically low interest rates during the
several years preceding 2000, customer demand for long-term fixed-rate loans
was strong. The higher interest rates during 2000 renewed customer interest in
variable rate pricing, resulting in some easing of the demand for long-term
fixed-rate loans. BancShares will continue to offer competitive variable rate
lending options to lessen its exposure to changes in interest rates.
In addition to other asset/liability management strategies, BancShares
generally underwrites long-term fixed-rate residential mortgage loans to
secondary market standards and sells such loans as they are originated. As of
December 31, 2000, BancShares had $20.0 million in residential mortgage loans
available for sale that were reported at the lower of aggregate cost or
market. Additionally, BancShares attempts to avoid exposure resulting from
changes in market rates by entering into forward commitments to sell portions
of its current production of residential mortgage loans.
Table 11
MARKET RISK DISCLOSURES
Maturing in Years ended December 31,
-----------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair value
---------- -------- ------- ------- ------- ---------- ---------- ----------
(thousands)
Assets
Investment securities
held to maturity
Fixed rate............. $1,451,305 $316,334 $ 115 -- $ 538 $ 9,874 $1,778,166 $1,783,888
Average rate (%)....... 6.35% 6.68% 5.94% -- 7.98% 7.23% 6.41% --
Investment securities
available for sale
Marketable equity
securities............ -- -- -- -- -- 38,554 38,554 38,554
Loans
Fixed rate............. 1,302,723 964,344 748,589 646,631 530,749 1,157,160 5,350,196 5,243,712
Average rate (%)....... 8.19% 8.13% 8.14% 8.17% 8.33% 7.80% 8.10% --
Variable rate.......... 632,735 69,847 105,404 153,858 142,230 655,422 1,759,496 1,759,496
Average rate (%)....... 9.52% 9.47% 9.20% 9.03% 9.13% 9.02% 9.24% --
Liabilities
Savings and interest-
bearing checking
Fixed rate............. 3,362,336 -- -- -- -- -- 3,362,336 3,362,336
Average rate (%)....... 2.27% -- -- -- -- -- 2.27% --
Certificates of deposit
Fixed rate............. 3,327,083 483,235 210,847 55,971 119,682 274 4,197,092 4,208,997
Average rate (%)....... 6.04% 6.53% 5.97% 5.89% 5.85% 5.82% 6.09% --
Variable rate.......... 28,890 9,670 -- -- -- -- 38,560 38,560
Average rate (%)....... 4.03% 4.76% -- -- -- -- 4.22% --
Long-term obligations
Fixed rate............. 252 552 552 300 2,478 150,198 154,332 122,152
Average rate (%)....... 6.75% 7.16% 7.16% 7.50% 7.94% 8.04% 8.03% --
Table 11 provides information regarding the market risk profile of
BancShares at December 31, 2000. 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 or reduced net interest income
in future periods.
16
ASSET QUALITY
Nonperforming Assets. Nonperforming asset balances for the past five years
are presented in Table 12. BancShares' nonperforming assets at December 31,
2000 included nonaccrual loans totaling $15.9 million and $1.9 million in
foreclosed property. Nonperforming assets as of December 31, 2000 represent
0.25 percent of loans outstanding. Nonperforming assets totaled $12.3 million
and $14.0 million, respectively, as of December 31, 1999, and 1998. Of the
$15.9 million in nonaccrual loans at December 31, 2000, $6.6 million were
classified as impaired. At December 31, 1999, BancShares reported $10.7
million in nonaccrual loans, of which $5.7 million were impaired. As of
December 31, 2000, BancShares reported accruing loans 90 days or more past due
of $6.7 million, compared to $3.6 million at December 31, 1999, and $5.7
million at December 31, 1998. The economic slowdown in late 2000 contributed
to the increase in nonperforming assets as of December 31, 2000. Management
continues to closely monitor past due accounts to identify all loans that
should be classified as nonperforming. Continued economic deterioration would
likely cause higher levels of nonperforming assets.
Table 12
RISK ELEMENTS
December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(thousands, except ratios)
Nonaccrual loans........ $ 15,933 $ 10,720 $ 12,489 $ 12,681 $ 12,810
Other real estate....... 1,880 1,600 1,529 1,462 1,160
---------- ---------- ---------- ---------- ----------
Total nonperforming
assets............... $ 17,813 $ 12,320 $ 14,018 $ 14,143 $ 13,970
========== ========== ========== ========== ==========
Accruing loans 90 days
or more past due....... $ 6,731 $ 3,576 $ 5,721 $ 3,953 $ 4,983
Loans at December 31.... $7,109,692 $6,751,039 $6,195,591 $5,445,772 $4,930,508
Ratio of nonperforming
assets to total loans
plus other real
estate................. 0.25% 0.18% 0.23% 0.26% 0.28%
---------- ---------- ---------- ---------- ----------
Interest income that
would have been earned
on nonperforming loans
had they been
performing............. $ 1,209 $ 894 $ 1,108 $ 1,156 $ 1,162
Interest income earned
on nonperforming
loans.................. 587 287 409 349 259
---------- ---------- ---------- ---------- ----------
- -------
There are no loan concentrations to any multiple number of borrowers engaged
in similar activities or industries in excess of 10 percent of total loans at
December 31, 2000. There were no foreign loans outstanding in any period.
Accrual of interest on residential mortgage loans is discontinued when the
loan reaches 92 days past due. Accrual of interest on all other loans is
discontinued when management deems that collection of additional interest is
doubtful. Residential mortgage loans are returned to an accrual status when
the loan balance is less than 92 days past due. Other loans are returned to an
accrual status when both principal and interest are current, and the loan is
determined to be performing in accordance with the applicable loan terms.
Reserve for Loan Losses. Management evaluates the risk characteristics of
the loan portfolio under current economic conditions and considers such
factors as the financial condition of the borrower, fair market value of
collateral and other items that, in management's opinion, deserve current
recognition in estimating probable credit losses.
At December 31, 2000, BancShares' reserve for loan losses was $102.7 million
or 1.44 percent of loans outstanding. This compares to $98.7 million or 1.46
percent at December 31, 1999, and $96.1 million or 1.55 percent at
December 31, 1998. The reductions in the ratio of the reserve for loan losses
to gross loans during 1999 and 2000 result from changes in the loan portfolio
composition. The growth in lower-risk real estate secured lending and the
offsetting reductions in higher-risk sales finance lending have both
contributed to lower aggregate loss estimates. The smaller reduction in the
reserve ratio during 2000, when compared to 1999, reflects management's
concern regarding general economic conditions and the impact those conditions
may have on loans outstanding at December 31, 2000.
17
Table 13
SUMMARY OF LOAN LOSS EXPERIENCE
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(thousands, except ratios)
Balance at beginning of
year................... $ 98,690 $ 96,115 $ 84,360 $ 81,439 $ 78,495
Reserve of acquired
institutions........... -- -- -- 481 1,387
Provision for loan
losses................. 15,488 11,672 19,879 8,726 8,907
Charge-offs:
Real estate:
Construction and land
development.......... -- (7) (2) (7) (40)
Mortgage:
1-4 family
residential......... (898) (966) (826) (1,350) (1,604)
Commercial........... (280) (111) (112) (245) (248)
Equity Line.......... (805) (23) (134) (90) (58)
Other................ -- -- -- -- (52)
Commercial and
industrial............ (5,678) (1,800) (2,001) (1,061) (1,076)
Consumer............... (8,199) (10,748) (10,789) (11,540) (8,515)
Lease financing........ (46) (32) (203) (38) (60)
---------- ---------- ---------- ---------- ----------
Total charge-offs.... (15,906) (13,687) (14,067) (14,331) (11,653)
---------- ---------- ---------- ---------- ----------
Recoveries:
Real estate:
Construction and land
development.......... 8 42 93 1,723 307
Mortgage:
1-4 family
residential......... 347 368 689 2,505 1,534
Commercial........... 688 1,262 2,877 1,502 530
Equity Line.......... 33 13 10 3 19
Other................ -- -- -- -- --
Commercial and
industrial............ 1,581 835 512 698 493
Consumer............... 1,726 2,070 1,762 1,614 1,420
Lease financing........ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total recoveries..... 4,383 4,590 5,943 8,045 4,303
---------- ---------- ---------- ---------- ----------
Net charge-offs...... (11,523) (9,097) (8,124) (6,286) (7,350)
---------- ---------- ---------- ---------- ----------
Balance at end of
year.................. $ 102,655 $ 98,690 $ 96,115 $ 84,360 $ 81,439
========== ========== ========== ========== ==========
Historical Statistics
Balances
Average total loans.... $6,955,772 $6,399,114 $5,847,531 $5,086,723 $4,842,266
Total loans at year-
end................... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508
Ratios
Net charge-offs to
average total loans... 0.17% 0.14% 0.14% 0.12% 0.15%
Reserve for loan losses
to total loans at
year-end.............. 1.44 1.46 1.55 1.55 1.65
---------- ---------- ---------- ---------- ----------
- -------
All information presented in this table relates to domestic loans as
BancShares makes no foreign loans.
The provision for loan losses charged to operations was $15.5 million during
2000 compared to $11.7 million during 1999 and $19.9 million during 1998. Net
charge-offs for 2000 totaled $11.5 million, compared to $9.1 million during
1999 and $8.1 million during 1998. Gross charge-offs for 2000 were $15.9
million, compared to $13.7 million in 1999 and $14.1 million in 1998. The
growth in charge-offs during 2000 results from losses among commercial and
industrial loans, which were $5.7 million during 2000, compared to $1.8
million during 1999. The increase during 2000 results from the seasoning of
the loans originated during 1999 and 1998. The higher net charge-offs in 1999
compared to 1998 resulted from lower recoveries.
During 2000, total recoveries were $4.4 million, compared to $4.6 million
during 1999 and $5.9 million during 1998. Gross recoveries during 2000
decreased slightly due to reductions in recoveries of commercial real estate
and consumer loans. The decrease of recoveries in 1999 resulted primarily from
lower recoveries for commercial mortgage loans.
18
The ratio of net charge-offs to average loans outstanding equaled 0.17
percent during 2000 and 0.14 percent during 1999 and 1998. Low by industry
standards, these loss ratios reflect the quality of BancShares' balance sheet.
Table 13 provides details concerning the reserve and provision for loan losses
for the past five years.
Management considers the established reserve adequate to absorb losses that
relate to loans outstanding at December 31, 2000, although future additions to
the reserve may be necessary based on changes in economic conditions and other
factors. In addition, as part of their examination process, various regulatory
agencies periodically review the reserve for loan losses. Those agencies may
require the recognition of additions to the reserve based on their judgments
of information available to them at the time of their examinations.
Table 14
ALLOCATION OF RESERVE FOR LOAN LOSSES
December 31
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of of of of of
Loans Loans Loans Loans Loans
to to to to to
Total Total Total Total Total
Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(thousands)
Real estate:
Construction and land
development........... $ 5,411 3.04% $ 4,653 2.76% $ 3,027 2.54% $ 3,235 2.09% $ 3,234 2.23%
Mortgage:
1-4 family
residential.......... 6,416 21.81 5,721 19.65 11,182 20.97 14,779 25.92 13,127 31.29
Commercial............ 31,786 28.04 32,198 26.82 26,835 24.13 16,388 19.38 16,514 17.89
Equity Line........... 4,600 11.98 4,098 11.19 3,338 9.96 4,257 11.09 2,898 8.35
Other................. 2,860 2.62 3,232 2.39 3,075 2.59 1,712 2.51 1,798 2.70
Commercial and
industrial............. 19,951 13.13 20,084 14.60 13,591 13.64 9,533 11.63 9,243 10.44
Consumer................ 24,523 17.13 26,279 20.64 32,099 24.49 31,025 25.74 24,890 25.38
Lease financing......... 1,560 1.89 1,572 1.84 1,123 1.51 992 1.37 985 1.39
Other................... 254 0.36 190 0.11 180 0.17 324 0.27 324 0.33
Unallocated............. 5,294 -- 663 -- 1,665 -- 2,115 -- 8,426 --
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total.................. $102,655 100.00% $98,690 100.00% $96,115 100.00% $84,360 100.00% $81,439 100.00%
======== ====== ======= ====== ======= ====== ======= ====== ======= ======
Table 14 details management's allocation of the reserve among the various
loan types. The process used to allocate the loan loss reserve considers,
among other factors, whether the borrower is a retail or commercial customer,
whether the loan is secured or unsecured, and whether the loan is an open or
closed-end agreement. Generally, loans to commercial customers are evaluated
individually and assigned a credit grade, while loans to retail customers are
evaluated among groups of loans with similar characteristics. Loans evaluated
individually are assigned a credit grade using such factors as the reliability
and adequacy of the borrower's cash flow, the value of any underlying
collateral and the value of any guarantee. The rating becomes the basis for
the reserve allocation for that individual loan. Groups of homogeneous loans
are aggregated over their remaining lives and estimated loss projections for
each period become the basis for the reserve allocation. The loss estimates
are based on prior experience and current economic conditions. The amount of
the reserve for loan losses not allocated through these loss models becomes
the unallocated reserve.
The increase in the unallocated reserve at December 31, 2000 reflects
uncertainties that exist regarding probable losses inherent in the portfolio
resulting from continued economic pressures when compared to 1998 and 1999.
While management believes the focus on identifying problem loans is highly
effective, it is not possible to identify all potential losses, and the
current economic uncertainty exacerbates the potential impact of that
limitation.
At December 31, 2000, BancShares had no foreign loans or any loans to
finance highly-leveraged transactions. Further, management does not anticipate
originating or participating in such transactions in the future.
19
NONINTEREST INCOME
Total noninterest income was $202.2 million during 2000, an increase of
$36.9 million or 22.3 percent over 1999. This compares to $165.3 million
during 1999 and $145.4 million during 1998. Table 15 presents the major
components of noninterest income for the past five years. A significant
portion of the increase in noninterest income during 2000 can be attributed to
nonrecurring gains from the sale of mortgage servicing rights, the sale of
branches and securities gains.
Table 15
NONINTEREST INCOME
Year ended December 31
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(thousands)
Service charges on deposit
accounts........................ $ 59,384 $ 55,169 $ 47,055 $ 41,748 $ 40,710
Credit card income............... 36,837 30,820 25,558 20,053 16,147
Gain on sale of mortgage
servicing rights................ 20,187 -- -- -- --
Commission-based income:
Investments..................... 12,974 10,700 9,034 6,407 4,505
Insurance....................... 3,718 3,072 1,325 351 --
Other........................... 603 -- -- -- --
-------- -------- -------- -------- --------
Total commission-based income.. 17,295 13,772 10,359 6,758 4,505
Trust income..................... 14,814 13,848 12,710 11,284 10,008
Fees from processing services.... 14,556 12,987 11,652 10,511 9,733
ATM income....................... 10,844 10,655 10,397 8,524 6,728
Mortgage income.................. 5,172 6,440 8,797 2,106 256
Gain on sale of branches......... 4,085 5,063 3,067 -- --
Other service charges and fees... 12,077 9,935 10,176 7,311 2,912
Securities transactions.......... 1,810 1,706 -- -- --
Other............................ 5,129 4,944 5,646 6,619 12,059
-------- -------- -------- -------- --------
Total.......................... $202,190 $165,339 $145,417 $114,914 $103,058
======== ======== ======== ======== ========
Among core components of noninterest income, BancShares benefited from
increases in income from service charges on deposit accounts. Service charge
income was $59.4 million during 2000, compared to $55.2 million in 1999 and
$47.1 million in 1998. The $4.2 million or 7.6 percent increase in service
charges during 2000 can be attributed to higher bad check fees. Credit card
income grew from $30.8 million in 1999 to $36.8 million during 2000, an
increase of $6.0 million or 19.5 percent, the result of continued strong
growth in merchant income. Credit card income recognized during 1999
represented a $5.3 million or 20.6 percent increase from 1998.
Commission-based income was $17.3 million during 2000, a $3.5 million or
25.6 percent increase over 1999. The growth during 2000 was largely due to
growth in property and casualty insurance commissions and by continued
increases in mutual fund and annuity sales through First Citizens Investor
Services.
Fees for data processing services also experienced growth during 2000,
contributing $14.6 million during 2000, $13.0 million during 1999 and $11.7
million during 1998. These services are primarily provided to various related
parties of BancShares.
20
NONINTEREST EXPENSE
Total noninterest expense for 2000 amounted to $394.8 million. This was a
5.1 percent increase over 1999, following a 9.8 percent increase in 1999
noninterest expenses over 1998. Table 16 presents the major components of
noninterest expense for the past five years.
Table 16
NONINTEREST EXPENSE
Year ended December 31
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(thousands)
Salaries and wages................ $168,778 $160,440 $142,020 $126,474 $115,461
Employee benefits................. 32,136 30,455 27,434 23,718 20,425
Equipment expense................. 38,153 37,745 36,545 32,035 27,068
Occupancy expense................. 33,835 30,041 28,112 23,338 22,023
Credit card expense............... 16,870 14,712 12,658 11,722 10,097
Amortization of intangibles....... 10,637 10,963 10,652 8,641 7,951
Telecommunication expense......... 10,799 10,052 9,046 8,032 7,711
Advertising expense............... 7,277 7,313 5,836 6,522 4,352
Postage expense................... 7,062 7,096 6,826 6,623 6,383
Consultant expense................ 5,273 5,840 7,134 5,626 3,408
Other............................. 63,964 60,963 55,950 47,670 53,543
-------- -------- -------- -------- --------
Total............................ $394,784 $375,620 $342,213 $300,401 $278,422
======== ======== ======== ======== ========
In conjunction with the closing of 15 branch offices during 2000, BancShares
recognized $3.1 million in noninterest expense. Lease obligations of $1.3
million were recognized by a charge to occupancy expense. Leasehold
improvement write-offs of $1.8 million were recorded in other expenses.
Salary expense was $168.8 million during 2000, compared to $160.4 million
during 1999, an increase of $8.3 million or 5.2 percent, following an $18.4
million or 13.0 percent increase in 1999 over 1998. Increases during each
period resulted from merit increases and staffing requirements for new
branches. BancShares had 4,575 full time equivalent employees at December 31,
2000, compared to 4,652 at December 31, 1999 and 4,486 at December 31, 1998.
Employee benefits expense was $32.1 million during 2000, an increase of $1.7
million or 5.5 percent from 1999. The $30.5 million in benefits expense
recorded during 1999 represented an increase of $3.0 million or 11.0 percent
over 1998. During 2000, higher FICA and employee health insurance costs
contributed to the increase in total employee benefits expense. Partially
offsetting this increase during 2000 was a reduction in pension expense.
During 1999, the increased benefits exense primarily resulted from higher
pension, FICA and employee health insurance costs.
BancShares recorded occupancy expense of $33.8 million during 2000, an
increase of $3.8 million or 12.6 percent due to the nonrecurring costs
associated with the branch closings as well as higher depreciation expense for
new branch offices. Occupancy expense during 1999 was $30.0 million, an
increase of $1.9 million or 6.9 percent over 1998, primarily the result of
higher depreciation expense resulting from new and replacement branch offices.
Equipment expense for 2000 was $38.2 million, an increase of $408,000 or 1.1
percent over 1999, when total equipment expenses were $37.7 million. During
1999, equipment expense was $1.2 million or 3.3 percent above the amount
recorded during 1998.
Expenses related to credit card processing were $16.9 million in 2000 and
$14.7 million in 1999, an increase of $2.2 million or 14.7 percent. In 1999,
credit card processing expense increased $2.1 million or 16.2 percent from
1998. For both periods, the increase in credit card processing expense
resulted from growth in cardholder and merchant volume.
21
INCOME TAXES
During 2000, BancShares recorded total income tax expense of $58.9 million,
compared to $48.6 million in income tax expense during 1999. BancShares'
effective tax rate was 37.5 percent in 2000, 37.3 percent in 1999, and 35.9
percent in 1998. The increase in the effective tax rate in 1999 was primarily
the result of growth in FCB's taxable income obligation to the State of North
Carolina.
LIQUIDITY
Management places great importance on the maintenance of a highly liquid
investment portfolio with varying maturities to provide needed cash flows to
meet liquidity requirements. At December 31, 2000, the investment portfolio
totaled $1.82 billion or 17.0 percent of total assets. This compares to $1.37
billion or 14.1 percent in 1999. The weighted-average maturity of the
investment portfolio was 9 months at December 31, 2000, compared to 11 months
at December 31, 1999. In conjunction with the increase in the investment
securities portfolio, the liquidity available by maturing securities, coupled
with other traditional sources, should be adequate to meet anticipated
liquidity needs.
The ability to retain existing deposits and attract new deposit
relationships is a fundamental source of liquidity for BancShares. The rate of
growth in average deposits was 3.5 percent during 2000, 4.5 percent during
1999 and 9.5 percent during 1998. The deposit growth results from various
marketing and promotional activities, deposit growth in ASB's new markets as
well as deposit liability assumptions associated with various business
combinations.
In addition to deposits, there are readily available sources for borrowed
funds through BancShares' relationships with its correspondent bank network.
BancShares utilizes these borrowed funds from time to time to provide
temporary balance sheet liquidity and for an intermediate source of capital
infusions from BancShares into FCB and ASB.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position that exceeds all minimum
regulatory capital requirements. As provided in Table 17, BancShares' total
risk-based capital ratios were 11.7 percent, 11.3 percent and 11.2 percent,
respectively, at December 31, 2000, 1999 and 1998. BancShares' Tier 1 capital
ratios for December 31, 2000, 1999 and 1998 were 10.4 percent, 10.0 percent,
and 9.9 percent respectively. The minimum capital ratios established by
Federal Reserve guidelines are 8 percent for total capital and 4 percent for
Tier 1 capital. At December 31, 2000, BancShares' leverage capital ratio was
8.1 percent, compared to 7.9 percent and 7.3 percent at December 31, 1999 and
1998, respectively. The minimum leverage ratio is 3 percent. Failure to meet
certain capital requirements may result in actions by regulatory agencies that
could have a direct material effect on the financial statements.
Table17
ANALYSIS OF BANCSHARES' CAPITAL ADEQUACY
December 31
-------------------------------- Regulatory
2000 1999 1998 Minimum
---------- ---------- ---------- ----------
(thousands)
Tier 1 capital...................... $ 835,678 $ 760,195 $ 679,987
Tier 2 capital...................... 104,582 99,443 92,184
---------- ---------- ----------
Total capital....................... $ 940,260 $ 859,638 $ 772,171
========== ========== ==========
Risk-adjusted assets................ $8,057,478 $7,616,890 $6,878,932
========== ========== ==========
Risk-based capital ratios
Tier 1 capital.................... 10.37% 9.98% 9.89% 4.00%
Total capital..................... 11.67% 11.29% 11.23% 8.00%
Tier 1 leverage ratio............... 8.11% 7.91% 7.31% 3.00%
The capital ratios during 1998 reflect the net impact of large share
repurchases and the issuance of $150 million in trust preferred capital
securities during March 1998. As of December 31, 1997, BancShares recorded a
reduction in
22
capital of $73.7 million for two stock purchases that were funded during 1998.
In response to the reduction in shareholders' equity, management elected to
issue the trust preferred capital securities, which qualify as Tier 1 capital
for regulatory purposes.
During the fourth quarter of 2000 the Board of Directors of BancShares
reauthorized the purchase of its Class A and Class B common stock. Management
views the purchase of its stock as a good investment and will continue to
repurchase shares when market conditions are favorable for such transactions
and excess capital exists to fund purchases.
FOURTH QUARTER ANALYSIS
BancShares' net income for the fourth quarter of 2000 totaled $24.0 million,
compared to $19.3 million during the same period of 1999, an increase of $4.7
million or 24.2 percent. The increase in net income was primarily due to a
$7.4 million increase in noninterest income and a $3.8 million increase in net
interest income, partially offset by a $3.4 million increase in noninterest
expense and a $1.4 million increase in provision for loan losses. As indicated
in Table 18, total assets averaged $10.42 billion and $9.72 billion during the
fourth quarter of 2000 and 1999, respectively. Interest-earning assets
averaged $9.34 billion during the fourth quarter of 2000, an increase of 8.2
percent over the same period of 1999. Average loans outstanding during the
fourth quarter of 2000 were $7.08 billion, an increase of $431.7 million over
the same period of 1999. Loan growth was strongest among commercial-purpose
loans. Investment securities averaged $1.75 billion during the fourth quarter
of 2000, a $164.3 million increase from the comparable period of 1999.
23
Table 18
SELECTED QUARTERLY DATA
2000 1999
------------------------------------------------ ----------------------------------------------
Fourth Third Second First Fourth Third Second First
----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
(thousands, except per share data and ratios)
SUMMARY OF OPERATIONS
Interest income......... $ 189,328 $ 182,966 $ 171,890 $ 163,986 $ 161,251 $ 160,224 $ 156,960 $ 155,456
Interest expense........ 96,754 91,509 80,184 74,381 72,511 70,497 68,821 69,713
----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..... 92,574 91,457 91,706 89,605 88,740 89,727 88,139 85,743
Provision for loan
losses................. 4,857 4,197 2,975 3,459 3,503 3,329 2,178 2,662
----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 87,717 87,260 88,731 86,146 85,237 86,398 85,961 83,081
Noninterest income...... 49,384 67,358 44,097 41,351 41,975 45,898 39,271 38,195
Noninterest expense..... 99,287 101,257 97,953 96,287 95,911 95,104 93,387 91,218
----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 37,814 53,361 34,875 31,210 31,301 37,192 31,845 30,058
Income taxes............ 13,826 20,006 13,421 11,696 11,984 14,060 11,542 11,010
----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 23,988 $ 33,355 $ 21,454 $ 19,514 $ 19,317 $ 23,132 $ 20,303 $ 19,048
=========== =========== ========== ========== ========== ========== ========== ==========
Net interest income--
taxable equivalent.... $ 93,240 $ 92,162 $ 92,414 $ 90,374 $ 89,267 $ 90,258 $ 88,703 $ 86,338
=========== =========== ========== ========== ========== ========== ========== ==========
SELECTED QUARTERLY
AVERAGES
Total assets............ $10,420,204 $10,167,665 $9,772,765 $9,658,251 $9,721,360 $9,644,135 $9,605,512 $9,517,513
Investment securities... 1,747,536 1,633,653 1,594,291 1,497,278 1,583,216 1,897,593 2,066,519 2,091,575
Loans................... 7,077,991 7,036,622 6,917,041 6,789,203 6,646,312 6,474,200 6,289,714 6,180,106
Interest-earning
assets................. 9,335,530 9,142,585 8,788,776 8,667,039 8,627,990 8,689,146 8,659,199 8,558,123
Deposits................ 8,693,634 8,524,930 8,211,252 8,128,968 8,140,962 8,121,209 8,139,147 8,018,971
Interest-bearing
liabilities............ 8,126,969 7,886,410 7,560,267 7,512,781 7,533,727 7,518,874 7,490,958 7,495,944
Long-term obligations... 154,609 154,979 153,773 155,171 158,975 156,856 157,453 158,307
Shareholders' equity.... $ 799,234 $ 770,418 $ 748,648 $ 734,777 $ 720,617 $ 702,065 $ 683,771 $ 668,087
Shares outstanding...... 10,528,680 10,534,049 10,551,766 10,592,378 10,625,208 10,625,559 10,625,559 10,625,559
=========== =========== ========== ========== ========== ========== ========== ==========
SELECTED QUARTER-END
BALANCES
Total assets............ $10,691,617 $10,361,296 $9,943,877 $9,880,732 $9,717,099 $9,577,715 $9,628,477 $9,702,163
Investment securities... 1,816,720 1,730,439 1,543,033 1,547,214 1,371,894 1,699,520 1,975,476 2,099,882
Loans................... 7,109,692 7,097,773 7,006,824 6,828,095 6,751,039 6,574,807 6,376,372 6,244,828
Interest-earning
assets................. 9,357,794 9,278,658 8,871,522 8,896,750 8,596,326 8,590,485 8,647,045 8,694,710
Deposits................ 8,971,868 8,668,642 8,366,364 8,295,850 8,173,598 8,062,091 8,170,433 8,179,098
Interest-bearing
liabilities............ 8,384,692 8,068,241 7,626,805 7,655,102 7,554,229 7,454,172 7,522,636 7,620,262
Long-term obligations... 154,332 154,687 153,761 154,915 155,683 156,840 156,870 157,529
Shareholders' equity.... $ 810,728 $ 789,341 $ 758,985 $ 741,136 $ 728,757 $ 713,069 $ 692,570 $ 676,253
Shares outstanding...... 10,522,836 10,533,814 10,534,614 10,566,849 10,610,399 10,625,559 10,625,559 10,625,559
=========== =========== ========== ========== ========== ========== ========== ==========
PROFITABILITY RATIOS
(averages)
Rate of
return(annualized) on:
Total assets........... 0.92% 1.31% 0.88% 0.81% 0.79% 0.95% 0.85% 0.81%
Shareholders' equity... 11.94 17.22 11.53 10.68 10.64 13.07 11.91 11.56
Dividend payout ratio... 10.96 7.89 12.32 13.59 13.74 11.47 13.09 13.97
=========== =========== ========== ========== ========== ========== ========== ==========
LIQUIDITY AND CAPITAL
RATIOS (averages)
Loans to deposits....... 81.42% 82.54% 84.24% 83.52% 81.64% 79.72% 77.28% 77.07%
Shareholders' equity to
total assets........... 7.67 7.58 7.66 7.61 7.41 7.28 7.12 7.02
Time certificates of
$100,000 or more to
total deposits......... 9.92 9.54 9.27 9.01 8.96 9.06 9.01 9.04
=========== =========== ========== ========== ========== ========== ========== ==========
PER SHARE OF STOCK
Net income.............. $ 2.28 $ 3.17 $ 2.03 $ 1.84 $ 1.82 $ 2.18 $ 1.91 $ 1.79
Cash dividends.......... 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Class A sales price
High................... 80.75 73.31 65.00 69.06 78.00 82.00 97.50 92.00
Low.................... 69.38 56.44 58.25 56.47 69.06 76.25 78.00 68.00
Class B sales price
High................... 72.50 64.50 62.25 70.00 78.50 80.63 80.81 88.00
Low.................... 62.00 52.00 51.00 58.00 70.00 76.50 76.00 76.00
=========== =========== ========== ========== ========== ========== ========== ==========
- -------
Average loan balances include nonaccrual loans. Interest income 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% for all
periods, and state income tax rates of 7.00% for 2000 and 1999 and 7.25% for
1998.
Stock information related to Class A and Class B common stock reflects the
sales price, as reported on the Nasdaq National Market System. As of December
31, 2000, there were 3,190 holders of record of the Class A common stock and
588 holders of record of the Class B common stock.
24
Due to higher market rates of interest when compared to 1999, interest
income increased $28.1 million or 17.4 percent in the fourth quarter of 2000
when compared to the same period of 1999. Average interest-earning assets
increased $707.5 million from the fourth quarter of 1999 to the fourth quarter
of 2000. The yield on average loans increased 60 basis points to 8.64 percent
during the fourth quarter of 2000 from 8.04 percent during the same period in
1999. Total interest-earning assets yielded 8.10 percent during the fourth
quarter of 2000, an increase from the 7.44 percent recorded during the fourth
quarter of 1999.
Average interest-bearing liabilities experienced a $593.2 million increase
from the fourth quarter of 1999 to the same period of 2000, primarily the
result of increases in average deposits and short-term borrowings. The growth
in average deposits was strongest among time deposits, while short-term
borrowings increased $46.4 million from 1999 to 2000.
Net interest income increased $3.8 million or 4.3 percent from the fourth
quarter of 1999 to the fourth quarter of 2000, with such increase resulting
from loan growth.
Table 19
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS--FOURTH QUARTER
Increase (decrease) due
2000 1999 to:
-------------------------- -------------------------- -------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
Balance Expense Rate Balance Expense Rate Volume Rate Change
---------- -------- ------ ---------- -------- ------ ------- ------- -------
(thousands)
Assets
Loans................... $7,077,991 $153,729 8.64% $6,646,312 $134,647 8.04% $ 8,891 $10,191 $19,082
Investment securities:
U. S. Government....... 1,706,146 27,384 6.39 1,558,215 21,772 5.54 2,171 3,441 5,612
State, county and
municipal............. 4,674 99 8.43 2,812 52 7.34 37 10 47
Other.................. 36,716 391 4.24 22,189 144 2.57 124 123 247
---------- -------- ---- ---------- -------- ---- ------- ------- -------
Total investment
securities............ 1,747,536 27,874 6.35 1,583,216 21,968 5.50 2,332 3,574 5,906
Overnight investments... 510,003 8,391 6.55 398,462 5,163 5.14 1,628 1,600 3,228
---------- -------- ---- ---------- -------- ---- ------- ------- -------
Total interest-earning
assets................. $9,335,530 $189,994 8.10% $8,627,990 $161,778 7.44% $12,851 $15,365 $28,216
========== ======== ==== ========== ======== ==== ======= ======= =======
Liabilities
Deposits:
Checking With
Interest.............. $1,083,490 $ 1,669 0.61% $1,080,164 $ 1,593 0.59% $ 13 $ 63 $ 76
Savings................ 606,519 2,044 1.34 668,251 2,623 1.56 (226) (353) (579)
Money market accounts.. 1,516,924 17,347 4.55 1,446,161 13,829 3.79 715 2,803 3,518
Time deposits.......... 4,127,761 63,482 6.12 3,588,935 44,348 4.90 7,382 11,752 19,134
---------- -------- ---- ---------- -------- ---- ------- ------- -------
Total interest-bearing
deposits.............. 7,334,694 84,542 4.59 6,783,511 62,393 3.65 7,884 14,265 22,149
Short-term borrowings... 637,666 9,035 5.64 591,241 6,957 4.67 591 1,487 2,078
Long-term obligations... 154,609 3,177 8.17 158,975 3,161 7.89 (91) 107 16
---------- -------- ---- ---------- -------- ---- ------- ------- -------
Total interest-bearing
liabilities............ $8,126,969 $ 96,754 4.74% $7,533,727 $ 72,511 3.82% $ 8,384 $15,859 $24,243
========== ======== ==== ========== ======== ==== ======= ======= =======
Interest rate spread.... 3.36% 3.62%
Net interest income and
net yield on interest-
earning assets......... $ 93,240 3.97% $ 89,267 4.10% $ 4,467 $ (494) $ 3,973
======== ==== ======== ==== ======= ======= =======
- -------
Average loan balances include nonaccrual loans. Interest income 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% for each
period, and state income tax rates of 7.00% for each period.
25
Noninterest income for the fourth quarter of 2000 was $49.4 million, an
increase of $7.4 million or 17.7 percent. Noninterest income during the fourth
quarter of 2000 included a $4.1 million gain recognized on the sale of four
branch offices, while no such gains were recognized during the fourth quarter
of 1999. Increases were also recorded in insurance commissions, service charge
income, and other service charges and fees.
Noninterest expense amounted to $99.3 million for the quarter ended December
31, 2000, compared to $95.9 million for the quarter ended December 31, 1999.
Much of the nonrecurring costs of the branch closings was recorded during the
fourth quarter, resulting in increases in occupancy expense and other expense.
Other increases were recognized in employee benefits expense, the result of
higher employee health insurance costs and credit card expense, caused by
higher cardholder and merchant volume. Tables 18 and 19 are useful when making
quarterly comparisons.
LEGAL PROCEEDINGS
BancShares and various subsidiaries have been named as defendants in various
legal actions arising from their normal business activities in which damages
in various amounts are claimed. Although the amount of any ultimate liability
with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial position.
CURRENT ACCOUNTING AND REGULATORY ISSUES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. BancShares adopted the provisions of SFAS No. 133 on January 1,
2001, but, as a result of BancShares' limited use of derivative instruments,
the adoption of SFAS No. 133 did not have a material impact on its
consolidated financial statements.
In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-
Backed Securities Retained after the securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." BancShares does not retain securitized
loans. Therefore, SFAS 134, which became effective during 1999, had no impact
on BancShares' consolidated financial statements.
During September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 140"), which replaced SFAS No. 125. SFAS No. 140
revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures. SFAS No.
140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is
effective for recognition and classification of collateral and disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. SFAS No. 140 is not expected to have a material
impact on BancShares' consolidated financial statements.
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
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 qualifying words
(and their derivatives) such as "expect," "believe," "estimate," "plan,"
"project," "anticipate," or other statements concerning opinions or judgment
of BancShares 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 BancShares'
customers, actions of government regulators, the level of market interest
rates, and general economic conditions.
26
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS
FIRST CITIZENS BANCSHARES, INC.
We have audited the accompanying consolidated balance sheets of First
Citizens BancShares, Inc. and Subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Citizens BancShares, Inc. and Subsidiaries as of December 31, 2000 and 1999,
and the results of their operations and cash flows for each of the years in
the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
[KPMG LLP LOGO]
Raleigh, North Carolina
January 22, 2001
27
CONSOLIDATED BALANCE SHEETS
First Citizens BancShares, Inc. and Subsidiaries
December 31
----------------------
2000 1999
----------- ----------
(thousands, except
Assets share data)
Cash and due from banks................................. $ 755,930 $ 591,605
Overnight investments................................... 431,382 473,393
Investment securities held to maturity (fair value of
$1,783,888 in 2000 and $1,336,664 in 1999)............. 1,778,166 1,353,321
Investment securities available for sale (cost of
$28,875 in 2000 and $7,751 in 1999).................... 38,554 18,573
Loans................................................... 7,109,692 6,751,039
Less reserve for loan losses............................ 102,655 98,690
----------- ----------
Net loans............................................. 7,007,037 6,652,349
Premises and equipment.................................. 444,731 397,397
Income earned not collected............................. 62,580 52,621
Other assets............................................ 173,237 177,840
----------- ----------
Total assets.......................................... $10,691,617 $9,717,099
=========== ==========
Liabilities
Deposits:
Noninterest-bearing.................................... $ 1,373,880 $1,343,353
Interest-bearing....................................... 7,597,988 6,830,245
----------- ----------
Total deposits........................................ 8,971,868 8,173,598
Short-term borrowings................................... 632,372 568,301
Long-term obligations................................... 154,332 155,683
Other liabilities....................................... 122,317 90,760
----------- ----------
Total liabilities..................................... 9,880,889 8,988,342
Shareholders' Equity
Common stock:
Class A--$1 par value (11,000,000 shares authorized;
8,813,454 shares issued for 2000; 8,890,039 shares
issued for 1999)...................................... 8,813 8,890
Class B--$1 par value (2,000,000 shares authorized;
1,709,382 shares issued for 2000; 1,720,360 shares
issued for 1999)...................................... 1,709 1,720
Surplus................................................. 143,766 143,766
Retained earnings....................................... 650,148 567,801
Accumulated other comprehensive income.................. 6,292 6,580
----------- ----------
Total shareholders' equity............................ 810,728 728,757
----------- ----------
Total liabilities and shareholders' equity............ $10,691,617 $9,717,099
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
28
CONSOLIDATED STATEMENTS OF INCOME
First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31
----------------------------------
2000 1999 1998
---------- ---------- ----------
(thousands, except share and per
share data)
INTEREST INCOME
Loans..................................... $ 584,475 $ 510,272 $ 478,504
Investment securities:
U. S. Government......................... 96,576 106,435 133,535
State, county and municipal.............. 226 147 207
Dividends................................ 764 548 507
---------- ---------- ----------
Total investment securities interest and
dividend income........................ 97,566 107,130 134,249
Overnight investments..................... 26,129 16,489 6,734
---------- ---------- ----------
Total interest income................... 708,170 633,891 619,487
INTEREST EXPENSE
Deposits.................................. 298,956 244,921 255,517
Short-term borrowings..................... 31,219 23,921 25,850
Long-term obligations..................... 12,653 12,700 10,704
---------- ---------- ----------
Total interest expense.................. 342,828 281,542 292,071
---------- ---------- ----------
Net interest income..................... 365,342 352,349 327,416
Provision for loan losses................. 15,488 11,672 19,879
---------- ---------- ----------
Net interest income after provision for
loan losses............................ 349,854 340,677 307,537
NONINTEREST INCOME
Service charges on deposit accounts....... 59,384 55,169 47,055
Credit card income........................ 36,837 30,820 25,558
Gain on sale of mortgage servicing
rights................................... 20,187 -- --
Commission-based income................... 17,295 13,772 10,359
Trust income.............................. 14,814 13,848 12,710
Fees from processing services............. 14,556 12,987 11,652
ATM income................................ 10,844 10,655 10,397
Mortgage income........................... 5,172 6,440 8,797
Gain on sale of branches.................. 4,085 5,063 3,067
Other service charges and fees............ 12,077 9,935 10,176
Securities gains.......................... 1,810 1,706 --
Other..................................... 5,129 4,944 5,646
---------- ---------- ----------
Total noninterest income................ 202,190 165,339 145,417
NONINTEREST EXPENSE
Salaries and wages........................ 168,778 160,440 142,020
Employee benefits......................... 32,136 30,455 27,434
Occupancy expense......................... 33,835 30,041 28,112
Equipment expense......................... 38,153 37,745 36,545
Other..................................... 121,882 116,939 108,102
---------- ---------- ----------
Total noninterest expense............... 394,784 375,620 342,213
---------- ---------- ----------
Income before income taxes................ 157,260 130,396 110,741
Income taxes.............................. 58,949 48,596 39,732
---------- ---------- ----------
Net income.............................. 98,311 81,800 71,009
---------- ---------- ----------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAXES
Unrealized securities gains (losses)
arising during period.................... 816 (1,384) (411)
Less: reclassification adjustment for
gains included in net income............. 1,104 1,083 --
---------- ---------- ----------
Other comprehensive loss................. (288) (2,467) (411)
---------- ---------- ----------
Comprehensive income..................... $ 98,023 $ 79,333 $ 70,598
========== ========== ==========
PER SHARE INFORMATION
Net income available to common
shareholders............................ $ 9.32 $ 7.70 $ 6.62
Cash dividends........................... 1.00 1.00 1.00
Weighted average shares outstanding....... 10,551,607 10,625,457 10,626,311
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
29
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
First Citizens BancShares, Inc. and Subsidiaries
Class Class Accumulated
A B Other Total
Common Common Retained Comprehensive Shareholders'
Stock Stock Surplus Earnings Income Equity
------ ------ -------- -------- ------------- -------------
(thousands, except share data)
Balance at December 31,
1997................... $8,906 $1,722 $143,760 $437,794 $9,458 $601,640
Redemption of 1,894
shares of Class B
common stock........... (2) (202) (204)
Obligation to repurchase
common stock........... (624) (624)
Net income.............. 71,009 71,009
Unrealized securities
losses, net of tax
benefit................ (411) (411)
Cash dividends.......... (10,661) (10,661)
------ ------ -------- -------- ------ --------
Balance at December 31,
1998................... 8,906 1,720 143,760 497,316 9,047 660,749
Redemption of 10,075
shares of Class A
common stock........... (10) (696) (706)
Net income.............. 81,800 81,800
Unrealized securities
losses, net of tax
benefit................ (2,467) (2,467)
Cash dividends.......... (10,619) (10,619)
Other................... (6) 6 --
------ ------ -------- -------- ------ --------
Balance at December 31,
1999................... 8,890 1,720 143,766 567,801 6,580 728,757
Redemption of 76,585
shares of Class A
common stock........... (77) (4,653) (4,730)
Redemption of 10,978
shares of Class B
common stock........... (11) (765) (776)
Net income.............. 98,311 98,311
Unrealized securities
losses, net of tax
benefit................ (288) (288)
Cash dividends.......... (10,546) (10,546)
------ ------ -------- -------- ------ --------
Balance at December 31,
2000................... $8,813 $1,709 $143,766 $650,148 $6,292 $810,728
====== ====== ======== ======== ====== ========
See accompanying Notes to Consolidated Financial Statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31
--------------------------------
2000 1999 1998
---------- --------- ---------
(thousands)
OPERATING ACTIVITIES
Net income.................................. $ 98,311 $ 81,800 $ 71,009
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of intangibles................ 11,323 12,236 11,373
Provision for loan losses.................. 15,488 11,672 19,879
Deferred tax expense (benefit)............. 516 (3,478) (6,271)
Change in current taxes payable............ 832 (6,697) 1,118
Depreciation............................... 30,349 30,849 27,205
Change in accrued interest payable......... 27,469 (4,462) (1,731)
Change in income earned not collected...... (10,095) 9,031 4,979
Securities gains........................... (1,810) (1,706) --
Gain on sales of branches.................. (4,085) (5,063) (3,067)
Gain on sale of mortgage servicing rights.. (20,187) -- --
Provision for branches to be closed........ 3,102 -- --
Origination of loans held for sale......... (247,621) (468,109) (684,715)
Proceeds from sale of loans held for sale.. 251,378 531,640 734,249
Loss (gain) on loans held for sale......... (484) (2,485) (6,183)
Net amortization of premiums and
discounts................................. (1,016) 12,176 10,157
Net change in other assets................. 2,163 (4,832) (17,418)
Net change in other liabilities............ (358) (4,267) 24,741
---------- --------- ---------
Net cash provided by operating
activities............................... 155,275 188,305 185,325
---------- --------- ---------
INVESTING ACTIVITIES
Net increase in loans outstanding.......... (451,150) (664,314) (827,353)
Purchases of investment securities held to
maturity.................................. (1,373,185) (463,313) (740,404)
Purchases of investment securities
available for sale........................ (21,651) (2,170) --
Proceeds from maturities of investment
securities held to maturity............... 949,356 1,233,188 1,052,463
Proceeds from sales of investment
securities available for sale............. 2,337 7,624 --
Proceeds from sale of mortgage servicing
rights.................................... 26,513 -- --
Net change in overnight investments........ 42,011 (240,668) (150,950)
Dispositions of premises and equipment..... 5,353 6,447 4,056
Additions to premises and equipment........ (84,246) (68,869) (92,837)
Purchase and sale of branches, net of cash
transferred............................... 120,042 (104,903) 177,688
---------- --------- ---------
Net cash used by investing activities..... (784,620) (296,978) (577,337)
---------- --------- ---------
FINANCING ACTIVITIES
Net change in time deposits................ 613,802 (61,568) (95,954)
Net change in demand and other interest-
bearing deposits.......................... 133,200 273,173 447,070
Net change in short-term borrowings........ 61,520 (2,957) (28,745)
Originations of long-term obligations...... 1,200 -- 151,006
Repurchases of common stock................ (5,506) (706) (74,520)
Cash dividends paid........................ (10,546) (10,619) (10,661)
---------- --------- ---------
Net cash provided by financing
activities............................... 793,670 197,323 388,196
---------- --------- ---------
Change in cash and due from banks........... 164,325 88,650 (3,816)
Cash and due from banks at beginning of
period..................................... 591,605 502,955 506,771
---------- --------- ---------
Cash and due from banks at end of period.... $ 755,930 $ 591,605 $ 502,955
========== ========= =========
CASH PAYMENTS FOR:
Interest................................... $ 315,359 $ 285,507 $ 294,095
Income taxes............................... 58,096 56,754 42,802
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized securities losses............... $ (1,143) $ (3,871) $ (1,062)
Change in obligation to repurchase common
stock..................................... -- -- 624
See accompanying Notes to Consolidated Financial Statements.
31
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
First Citizens BancShares, Inc. ("BancShares") is a financial holding
company with two banking subsidiaries--First-Citizens Bank & Trust Company,
headquartered in Raleigh, North Carolina ("FCB"), which operates branches in
North Carolina, Virginia and West Virginia; and Atlantic States Bank ("ASB"),
a federally-chartered thrift institution headquartered in Fort Myers, Florida
with branch offices in the metropolitan Atlanta, Georgia area and Southwest
Florida.
FCB and ASB offer full-service banking services designed to meet the needs
of both retail and commercial customers in the markets in which they serve.
The services offered include transaction and savings deposits, commercial and
consumer lending, a full service trust department, a full service securities
broker-dealer, insurance services and other activities incidental to
commercial banking. BancShares is also the parent company of American Guaranty
Insurance Company, which is engaged in writing property and casualty
insurance.
FCB has six subsidiaries. First Citizens Investor Services is a registered
broker-dealer in securities that provides investment services, including sales
of annuities and third party mutual funds. First-Citizens Bank, A Virginia
Corporation, is the issuing and processing bank for BancShares' retail credit
cards and merchant accounts. Triangle Life Insurance Company writes credit
life and credit accident and health insurance. Other subsidiaries are either
inactive or are not material to the consolidated financial statements.
Nontraditional banking segments within BancShares' operations are not material
to the consolidated financial statements.
The accounting and reporting policies of BancShares and its subsidiaries are
in accordance with accounting principles generally accepted in the United
States of America and, with regard to the banking subsidiaries, conform to
general industry practices. The preparation of consolidated 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 disclosure of
contingent liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant
estimates made by BancShares in the preparation of its consolidated financial
statements are the determination of the reserve for loan losses, the valuation
allowance for deferred tax assets, and fair value estimates.
Intercompany accounts and transactions have been eliminated. Certain amounts
for prior years have been reclassified to conform with statement presentations
for 2000. However, the reclassifications have no effect on shareholders'
equity or net income as previously reported.
Investment Securities
For investment securities classified as held to maturity, BancShares has the
ability and the positive intent to hold those investments until maturity.
These securities are stated at cost adjusted for amortization of premium and
accretion of discount. Accreted discounts and amortized premiums are included
in interest income on an effective yield basis. Marketable equity securities
are classified as available for sale and are carried at their fair value with
the difference between the cost basis and the fair value, net of deferred
income taxes, recorded as a component of comprehensive income within
shareholders' equity. At December 31, 2000 and 1999, BancShares had no
investment securities held for trading purposes.
Overnight Investments
Overnight investments include federal funds sold and interest-bearing demand
deposit balances in other banks.
32
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Loans
Loans that are held for investment purposes are carried at the principal
amount outstanding. Loans that are classified as held for sale are carried at
the lower of aggregate cost or fair value. Interest on loans is accrued and
credited to interest income on a constant yield basis based upon the daily
principal amount outstanding.
Loan Fees
Fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of
the related loans. The deferred fees and costs are recorded as an adjustment
to loans outstanding using a method that approximates a constant yield.
Mortgage Servicing Rights
There are no mortgage servicing rights ("MSRs") outstanding at December 31,
2000. BancShares sold its MSRs during the third quarter of 2000.
At December 31, 1999, the carrying value of MSRs was included in other
assets on BancShares' consolidated balance sheet. Previously, capitalization
of MSRs occurred when the underlying loan was sold. Capitalized MSRs were
amortized over the projected life of the serviced loans and were periodically
reviewed for impairment.
Reserve for Loan Losses
The reserve for loan losses is established by charges to operating expense.
To determine the reserve needed, management evaluates the risk characteristics
of the loan portfolio under current economic conditions and considers such
factors as the financial condition of the borrower, fair value of collateral
and other items that, in management's opinion, deserve current recognition in
estimating credit losses.
Management considers the established reserve adequate to absorb probable
losses that relate to loans outstanding as of December 31, 2000, although
future additions to the reserve may be necessary based on changes in economic
and other conditions. Additionally, various regulatory agencies, as an
integral part of their examination process, periodically review BancShares'
reserve for loan losses. Such agencies may require the recognition of
additions to the reserve based on their judgments of information available to
them at the time of their examination.
Nonaccrual Loans, Impaired Loans and Other Real Estate
Accrual of interest on residential mortgage loans is discontinued when the
loan reaches 92 days past due. Accrual of interest on all other loans is
discontinued when management deems that collection of additional principal or
interest is doubtful. Residential mortgage loans return to an accrual status
when the loan balance is less than 92 days past due. Other loans are returned
to an accrual status when both principal and interest are current and the loan
is determined to be performing in accordance with the applicable loan terms.
Management considers a loan to be impaired when based on current information
and events, it is probable that a borrower will be unable to pay all amounts
due according to contractual terms of the loan agreement. Impaired loans are
valued using either the discounted expected cash flow method using the loan's
original effective interest rate or the collateral value. When the ultimate
collectibility of an impaired loan's principal is doubtful, all cash receipts
are applied to principal. Once the recorded principal balance has been reduced
to zero, future cash receipts are applied to interest income, to the extent
that any interest has been foregone. Additional cash receipts are recorded as
recoveries of any amounts previously charged off.
Other real estate is valued at the lower of the loan balance at the time of
foreclosure or estimated fair value net of selling costs and is included in
other assets. Once acquired, other real estate is periodically reviewed to
ensure that the fair value of the property supports the carrying value, with
writedowns recorded when necessary. Gains and losses
33
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
resulting from the sale or writedown of other real estate and income and
expenses related to the operation of other real estate are recorded in other
expense.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation and amortization
are computed by the straight-line method and are charged to operations over
the estimated useful lives of the assets, which range from 25 to 40 years for
premises and three to 10 years for furniture and equipment. Leasehold
improvements are amortized over the terms of the respective leases or the
useful lives of the improvements, whichever is shorter. Gains and losses on
dispositions are recorded in other expense. Maintenance and repairs are
charged to occupancy expense or equipment expense as incurred.
Intangible Assets
Intangible assets include goodwill and deposit-related intangibles that
result from acquisitions in which the purchase price exceeds the fair value of
net assets acquired. Intangible assets are generally amortized using the
straight-line method over a 15-year period. Intangible assets are subject to
periodic review and are adjusted for any impairment of value. As of December
31, 2000 and 1999, BancShares had unamortized goodwill of $46,340 and $55,774
respectively. Unamortized deposit intangibles totaled $72,418 and $56,208,
respectively.
Income Taxes
Income tax expense is based on consolidated income before income taxes and
generally differs from income taxes paid due to deferred income taxes and
benefits arising from income and expenses being recognized in different
periods for financial and income tax reporting purposes. BancShares uses the
asset and liability method to account for deferred income taxes. The objective
of the asset and liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting
basis and the income tax basis of BancShares' assets and liabilities at
enacted rates expected to be in effect when such amounts are realized or
settled. BancShares and its subsidiaries file a consolidated federal income
tax return. BancShares and its subsidiaries each file separate state income
tax returns.
Per Share Data
Net income per share has been computed by dividing net income by the
weighted average number of both classes of common shares outstanding during
each period. The weighted average number of shares outstanding for 2000, 1999,
and 1998 was 10,551,607; 10,625,457; and 10,626,311, respectively. BancShares
had no potential common stock for all periods outstanding.
During 1998, the calculation of net income per share reflected the impact of
changes in the value of BancShares' obligation to repurchase shares of its
common stock that were previously owned by a company-sponsored pension plan.
The obligation to repurchase those shares was recorded at fair value as of
December 31, 1997. Increases in the fair value of that obligation, which
totaled $624 during 1998, were deducted from net income in calculating net
income per share during 1998.
Cash dividends per share apply to both Class A and Class B common stock.
Class A common stock carries one vote per share, while shares of Class B
common stock carry 16 votes per share.
Comprehensive Income
Accumulated other comprehensive income consists entirely of unrealized gains
(losses) on investment securities available for sale.
34
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
The tax effects of the components of other comprehensive income included in
the consolidated statements of income are as follows for the years ended
December 31:
2000 1999 1998
----- ------- -----
Unrealized losses arising during the period......... $(149) $ (781) $(651)
Less: reclassification adjustments for gains
included in net income............................. 706 623 --
----- ------- -----
Total tax effect.................................. $(855) $(1,404) $(651)
===== ======= =====
NOTE B--INVESTMENT SECURITIES
The aggregate values of investment securities at December 31 along with gains
and losses determined on an individual security basis are as follows:
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Investment securities held to
maturity at December 31
2000
U. S. Government................. $1,773,722 $ 8,221 $ (2,670) $1,779,273
State, county and municipal...... 4,139 171 -- 4,310
Other............................ 305 -- -- 305
---------- ---------- ---------- ----------
Total investment securities held
to maturity.................... $1,778,166 $ 8,392 $ (2,670) $1,783,888
========== ========== ========== ==========
1999
U. S. Government................. $1,350,204 $ 241 $ (16,931) $1,333,514
State, county and municipal...... 2,812 35 (2) 2,845
Other............................ 305 -- -- 305
---------- ---------- ---------- ----------
Total investment securities held
to maturity.................... $1,353,321 $ 276 $ (16,933) $1,336,664
========== ========== ========== ==========
Investment securities available
for sale at December 31
2000
Marketable equity securities..... $ 27,611 $ 9,660 $ -- $ 37,271
Municipal securities............. 1,264 19 -- 1,283
---------- ---------- ---------- ----------
Total investment securities
available for sale............. $ 28,875 $ 9,679 $ -- $ 38,554
========== ========== ========== ==========
1999
Marketable equity securities..... $ 7,751 $ 10,974 $ (152) $ 18,573
========== ========== ========== ==========
The maturities of investment securities held to maturity at December 31 are
as follows:
2000 1999
--------------------- ----------------------
Cost Fair Value Cost Fair Value
---------- ---------- ---------- ----------
Maturing in:
One year or less................. $1,451,204 $1,452,990 $1,078,053 $1,068,682
One through five years........... 316,987 320,733 265,027 257,850
Five to 10 years................. 460 466 426 428
Over 10 years.................... 9,515 9,699 9,815 9,704
---------- ---------- ---------- ----------
Total investment securities held
to maturity.................... $1,778,166 $1,783,888 $1,353,321 $1,336,664
========== ========== ========== ==========
Municipal securities available for sale at December 31, 2000 mature in more
than 10 years.
35
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
During 2000, sales of investment securities available for sale resulted in
gross realized gains of $1,976. BancShares also realized a loss of $166
resulting from an impaired investment. During 1999, BancShares recognized
gross gains of $1,706 on the sale of investment securities available for sale.
There were no sales of investment securities during 1998.
Investment securities having an aggregate carrying value of $1,285,386 at
December 31, 2000 and $1,183,749 at December 31, 1999, were pledged as
collateral to secure public funds on deposit, to secure certain short-term
borrowings and for other purposes as required by law.
NOTE C--LOANS
Loans outstanding at December 31 include the following:
2000 1999
---------- ----------
Loans secured by real estate:
Construction and land development.................... $ 216,439 $ 186,119
Residential mortgage................................. 1,550,329 1,326,642
Other real estate mortgage loans..................... 3,031,124 2,727,898
---------- ----------
Total loans secured by real estate................ 4,797,892 4,240,659
Commercial and industrial............................. 933,515 985,738
Consumer.............................................. 1,218,134 1,393,227
Lease financing....................................... 134,483 123,908
All other loans....................................... 25,668 7,507
---------- ----------
Total loans......................................... $7,109,692 $6,751,039
========== ==========
There were no foreign loans outstanding during either period, nor were there
any loans to finance highly leveraged transactions. There are no loan
concentrations exceeding ten percent of loans outstanding involving multiple
borrowers in similar activities or industries at December 31, 2000.
Substantially all loans are to customers domiciled within BancShares'
principal market areas.
At December 31, 2000 and 1999, nonperforming loans consisted of nonaccrual
loans of $15,933 and $10,720, respectively. Gross interest income on
nonperforming loans that would have been recorded had these loans been
performing was $1,209, $894, and $1,108, respectively, during 2000, 1999 and
1998. Interest income recognized on nonperforming loans was $587, $287 and
$409 during the respective periods. As of December 31, 2000 and 1999, the
balance of other real estate acquired through foreclosure was $1,880 and
$1,600. Loans transferred to other real estate totaled $3,019, $4,500 and
$2,051 during 2000, 1999 and 1998.
As part of the management of its exposure to changes in interest rates,
BancShares sells portions of its originated residential mortgage loan
portfolio. Loan sale activity is summarized below:
2000 1999 1998
-------- -------- --------
Loans held for sale at December 31............... $ 19,980 $ 23,253 $ 84,299
For the year ended December 31:
Loans sold...................................... 250,894 529,155 728,066
Net gain on sale of loans....................... 484 2,485 6,183
Until 2000, FCB operated a mortgage servicing operation for its own loans
and for loans owned by various investors. During 2000, FCB elected to
discontinue the servicing operation. The right to service $1,633,075 of loans
owned by others was sold to an independent third party, while a separate
servicer was retained to service BancShares' residential mortgage loans.
BancShares received $26,513 from the sale of its mortgage servicing rights and
recognized a gain of $20,187.
36
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
The changes in the carrying values of mortgage servicing rights for 2000,
1999 and 1998 is summarized in the following table:
2000 1999 1998
------ ------ ------
Balance at beginning of year........................... $6,832 $4,405 $2,527
Amounts capitalized during year........................ 180 3,700 2,599
Amounts amortized during year.......................... 686 1,273 721
Amounts sold during the year........................... 6,326 -- --
------ ------ ------
Balance at end of year................................. $ -- $6,832 $4,405
====== ====== ======
The carrying value of loans serviced for others was $1,646,876 and
$1,366,416 as of December 31, 1999 and 1998, respectively.
NOTE D--RESERVE FOR LOAN LOSSES
Activity in the reserve for loan losses is summarized as follows:
2000 1999 1998
-------- -------- --------
Balance at the beginning of year............... $ 98,690 $ 96,115 $ 84,360
Provision for loan losses...................... 15,488 11,672 19,879
Loans charged off.............................. (15,906) (13,687) (14,067)
Loans recovered................................ 4,383 4,590 5,943
-------- -------- --------
Net charge-offs................................ (11,523) (9,097) (8,124)
-------- -------- --------
Balance at the end of year..................... $102,655 $ 98,690 $ 96,115
======== ======== ========
At December 31, 2000 and 1999, impaired loans totaled $6,592 and $5,696,
respectively, all of which were classified as nonaccrual. Total reserves of
$1,496 and $1,107 have been established for impaired loans outstanding as
December 31, 2000 and 1999, respectively. The average recorded investment in
impaired loans during the years ended December 31, 2000, 1999 and 1998, was
$5,710, $6,229 and $7,580, respectively. For the years ended December 31,
2000, 1999 and 1998, BancShares recognized cash basis interest income on those
impaired loans of $301, $143 and $194, respectively.
NOTE E--PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows:
2000 1999
-------- --------
Land...................................................... $106,175 $ 93,954
Premises and leasehold improvements....................... 313,529 251,904
Furniture and equipment................................... 215,638 218,094
-------- --------
Total.................................................... 635,342 563,952
Less accumulated depreciation and amortization............ 190,611 166,555
-------- --------
Net book value........................................... $444,731 $397,397
======== ========
There were no premises pledged to secure borrowings at December 31, 2000.
Premises with a book value of $922 at December 31, 1999, were pledged to
secure mortgage notes payable.
BancShares leases certain premises and equipment under various lease
agreements that provide for payment of property taxes, insurance and
maintenance costs. Generally, operating leases provide for one or more renewal
options on the same basis as current rental terms. However, certain leases
require increased rentals under cost of living escalation clauses. Certain of
the leases also provide purchase options.
37
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Future minimum rental commitments for noncancellable operating leases with
initial or remaining terms of one or more years consisted of the following at
December 31, 2000:
Year Ending December 31:
2001............................................................. $10,801
2002............................................................. 8,260
2003............................................................. 6,547
2004............................................................. 5,033
2005............................................................. 3,426
Thereafter....................................................... 50,270
-------
Total minimum payments......................................... $84,337
=======
Total rent expense for all operating leases amounted to $14,897 in 2000,
$13,946 in 1999 and $13,687 in 1998.
NOTE F--DEPOSITS
Deposits at December 31 are summarized as follows:
2000 1999
---------- ----------
Demand................................................. $1,373,880 $1,343,353
Checking with interest................................. 1,140,472 1,103,298
Money market accounts.................................. 1,621,193 1,495,007
Savings................................................ 600,671 650,671
Time................................................... 4,235,652 3,581,269
---------- ----------
Total deposits....................................... $8,971,868 $8,173,598
========== ==========
Total time deposits with a minimum denomination of $100 were $888,541 and
$725,646 at December 31, 2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of time deposits were:
2001........................................................... $3,355,973
2002........................................................... 492,905
2003........................................................... 210,847
2004........................................................... 55,971
2005........................................................... 119,682
Thereafter..................................................... 274
----------
Total time deposits.......................................... $4,235,652
==========
NOTE G--SHORT-TERM BORROWINGS
Short-term borrowings at December 31 are as follows:
2000 1999
-------- --------
Master notes.............................................. $322,944 $326,984
Repurchase agreements..................................... 181,404 125,832
Federal funds purchased................................... 71,825 53,195
Other..................................................... 56,199 62,290
-------- --------
Total short-term borrowings............................. $632,372 $568,301
======== ========
38
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
At December 31, 2000, BancShares and its subsidiaries had unused credit
lines allowing access of up to $560,000 on an unsecured basis. These included
overnight borrowings and short-term borrowings under a credit facility that
expires on November 6, 2001. Additionally, under various borrowing
arrangements with the Federal Reserve and the Federal Home Loan Bank of
Atlanta, BancShares and its subsidiaries have access, on a secured basis, to
additional borrowings as needed.
NOTE H--LONG-TERM OBLIGATIONS
Long-term obligations at December 31 include:
2000 1999
-------- --------
Trust preferred capital securities at 8.05 percent matur-
ing March 5, 2028....................................... $150,000 $150,000
Unsecured fixed rate notes payable:
7.25 percent maturing February 23, 2001................ -- 1,284
8.00 percent maturing February 23, 2005................ 2,178 2,178
7.50 percent note due in annual installments maturing
September 1, 2005..................................... 1,200 --
6.75 percent note due in annual installments maturing
September 1, 2003..................................... 755 1,006
Unsecured variable rate note at 6.51 percent payable in
quarterly installments.................................. -- 564
Mortgage notes payable at 8.00 percent, secured by prem-
ises.................................................... -- 410
Other.................................................... 199 241
-------- --------
Total long-term obligations............................ $154,332 $155,683
======== ========
The trust preferred capital securities were issued by a wholly-owned
subsidiary of BancShares, and BancShares has guaranteed the repayment of those
securities. The proceeds from the issuance of the trust preferred capital
securities were invested in BancShares and that investment became the sole
asset of the trust. BancShares then made a capital infusion into FCB. The
trust preferred capital securities qualify as Tier 1 capital for regulatory
capital adequacy requirements for BancShares and FCB. BancShares may redeem
the trust preferred capital securities in whole or in part after March 1,
2008.
39
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Long-term obligations maturing in each of the five years subsequent to
December 31, 2000 include:
2001............................................................. $ 252
2002............................................................. 552
2003............................................................. 552
2004............................................................. 300
2005............................................................. 2,478
Thereafter....................................................... 150,198
--------
$154,332
========
NOTE I--COMMON STOCK
On October 23, 2000 the Board of Directors of BancShares authorized the
purchase in the open market or in private transactions of up to 300,000 shares
of its outstanding Class A common stock and up to 100,000 shares of its
outstanding Class B common stock. The authorization is effective for a period
of 12 months. During 1999 and 1998, the Board of Directors of BancShares had
made similar authorizations to repurchase shares of BancShares stock.
The following table provides information related to shares purchased
pursuant to authorizations for the years ended December 31:
2000 1999 1998
------ ------ -------
Class A
Number of shares purchased.......................... 76,585 10,075 726,400
Cash disbursed...................................... $4,730 $ 706 $71,068
Class B
Number of shares purchased.......................... 10,978 -- 33,494
Cash disbursed...................................... $ 776 $ -- $ 3,452
Stock purchases are retired by a charge to common stock for the par value of
the shares retired and to retained earnings for the cost in excess of par
value.
NOTE J--ESTIMATED FAIR VALUES
Fair value estimates are made at a specific point in time based on relevant
market information and information about each financial instrument. Where
information regarding the fair value of a financial instrument is available,
those values are used, as is the case with investment securities and
residential mortgage loans. In these cases, an open market exists in which
those financial instruments are actively traded.
Because no market exists for many financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates. For these financial instruments with a fixed interest
rate, an analysis of the related cash flows was the basis for estimating fair
values. The expected cash flows were then discounted to the valuation date
using an appropriate discount rate. The discount rates used represent the
rates under which similar transactions would be currently negotiated.
Generally, the fair value of variable rate financial instruments equals the
book value.
40
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
2000 1999
--------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
Cash and due from banks........ $ 755,930 $ 755,930 $ 591,605 $ 591,605
Overnight investments.......... 431,382 431,382 473,393 473,393
Investment securities held to
maturity...................... 1,778,166 1,783,888 1,353,321 1,336,664
Investment securities available
for sale...................... 38,554 38,554 18,573 18,573
Loans, net of reserve for loan
losses........................ 7,007,037 7,003,208 6,652,349 6,890,653
Income earned not collected.... 62,580 62,580 52,621 52,621
Deposits....................... 8,971,868 8,983,773 8,173,598 8,181,634
Short-term borrowings.......... 632,372 632,372 568,301 568,301
Long-term obligations.......... 154,332 122,152 155,683 135,222
Accrued interest payable....... 75,299 75,299 47,830 47,830
Forward commitments to sell loans as of December 31, 2000, and 1999 had no
carrying value and unrealized losses of $185 and $268, respectively. For other
off-balance sheet commitments and contingencies, carrying amounts are
reasonable estimates of the fair values for such financial instruments.
Carrying amounts include unamortized fee income and, in some cases, reserves
for any credit losses from those financial instruments. These amounts are not
material to BancShares' financial position.
NOTE K--EMPLOYEE BENEFIT PLANS
Employees who qualify under length of service and other requirements
participate in a noncontributory defined benefit pension plan. Under the plan,
retirement benefits are based on years of service and average earnings. The
policy is to fund the maximum amount that is deductible for federal income tax
purposes. No contributions were made during the three-year period ending
December 31, 2000. The plan's assets consist primarily of investments in FCB's
common trust funds, which include listed common stocks and fixed income
securities.
The following table sets forth the plan's funded status at December 31:
2000 1999
-------- --------
Change in benefit obligation
Net benefit obligation at beginning of year............ $140,002 $145,797
Service cost........................................... 5,912 6,131
Interest cost.......................................... 10,890 10,075
Actuarial (gain) loss.................................. 7,904 (15,811)
Gross benefits paid.................................... (9,329) (6,190)
-------- --------
Net benefit obligation at end of year.................. $155,379 $140,002
======== ========
Change in plan assets
Fair value of plan assets at beginning of year......... $183,582 $177,601
Actual return on plan assets........................... 3,030 12,171
Gross benefits paid.................................... (9,329) (6,190)
-------- --------
Fair value of plan assets at end of year............... $177,283 $183,582
======== ========
Funded status at end of year........................... $ 21,904 $ 43,580
Unrecognized net actuarial gain........................ (32,738) (49,833)
Unrecognized prior service cost........................ 737 891
Unrecognized net transition asset...................... (2,392) (3,620)
-------- --------
Net amount recognized in other liabilities at end of
year.................................................. $(12,489) $ (8,982)
======== ========
41
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
The net periodic pension cost for the years ended December 31 included the
following:
2000 1999 1998
-------- -------- -------
Components of net periodic benefit cost
Service cost.................................... $ 5,912 $ 6,131 $ 4,940
Interest cost................................... 10,890 10,075 9,334
Expected return on assets....................... (12,221) (10,712) (9,807)
Amortization of:
Transition asset............................... (1,228) (1,228) (1,228)
Prior service cost............................. 154 154 154
-------- -------- -------
Total net periodic benefit cost............... $ 3,507 $ 4,420 $ 3,393
======== ======== =======
Prior service cost is being amortized on a straight-line basis over the
estimated average remaining service period of employees. In determining the
projected benefit obligation at December 31, 2000, 1999 and 1998, the
following assumptions were used:
2000 1999 1998
---- ---- ----
Weighted average discount rate............................. 7.25% 7.50% 6.75%
Long-term rate of return on plan assets.................... 8.50 8.50 8.25
Rate of future compensation increases...................... 4.75 4.75 4.50
Employees are also eligible to participate in a 401(k) plan after 31 days of
service. The 401(k) plan allows associates to defer portions of their salary.
Based on the employee's contribution, BancShares will match up to 75% of the
employee contribution. BancShares made participating contributions of $5,210,
$4,654 and $4,134 during 2000, 1999 and 1998, respectively.
NOTE L--OTHER NONINTEREST EXPENSE
Other noninterest expense for the years ended December 31 included:
2000 1999 1998
-------- -------- --------
Credit card expense............................ $ 16,870 $ 14,712 $ 12,658
Telecommunications expense..................... 10,799 10,052 9,046
Amortization of intangibles.................... 10,637 10,963 10,652
Advertising expense............................ 7,277 7,313 5,836
Postage expense................................ 7,062 7,096 6,826
Consultant expense............................. 5,273 5,840 7,134
Other.......................................... 63,964 60,963 55,950
-------- -------- --------
Total other noninterest expense.............. $121,882 $116,939 $108,102
======== ======== ========
NOTE M--INCOME TAXES
At December 31, income tax expense consisted of the following:
2000 1999 1998
-------- -------- --------
Current tax expense
Federal....................................... $ 55,159 $ 48,261 $ 44,442
State......................................... 3,274 3,813 1,561
-------- -------- --------
Total current tax expense.................... 58,433 52,074 46,003
-------- -------- --------
Deferred tax expense (benefit)
Federal....................................... (153) (2,754) (5,252)
State......................................... 669 (724) (1,019)
-------- -------- --------
Total deferred tax expense (benefit)......... 516 (3,478) (6,271)
-------- -------- --------
Total tax expense............................ $ 58,949 $ 48,596 $ 39,732
======== ======== ========
42
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
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:
2000 1999 1998
------- ------- -------
Income at statutory rates........................ $55,041 $45,639 $38,759
Increase (reduction) in income taxes resulting
from:
Amortization of goodwill........................ 1,979 2,096 2,082
Nontaxable income on loans and investments, net
of nondeductible expenses...................... (1,174) (1,276) (1,346)
State and local income taxes, including change
in valuation allowance, net of federal income
tax benefit.................................... 2,563 2,008 352
Other, net...................................... 540 129 (115)
------- ------- -------
Total tax expense.............................. $58,949 $48,596 $39,732
======= ======= =======
The net deferred tax asset included the following components at December 31:
2000 1999
------- -------
Reserve for loan losses..................................... $39,085 $38,757
Deferred compensation....................................... 5,373 5,333
Net pension liability....................................... 4,830 3,550
Other....................................................... 3,141 2,973
------- -------
Gross deferred tax asset.................................. 52,429 50,613
Less valuation allowance.................................... 1,974 2,606
------- -------
Deferred tax asset........................................ 50,455 48,007
------- -------
Accelerated depreciation.................................... 5,132 5,200
Lease financing activities.................................. 8,307 5,777
Unrealized gain on marketable equity securities............. 3,387 4,242
Net deferred loan fees and costs............................ 3,204 2,295
Other....................................................... 1,307 1,500
------- -------
Deferred tax liability.................................... 21,337 19,014
------- -------
Net deferred tax asset.................................... $29,118 $28,993
======= =======
The valuation allowance of $1,974 and $2,606 at December 31, 2000 and 1999,
respectively, is the amount necessary to reduce BancShares' gross state
deferred tax asset to the amount which is more likely than not to be realized.
NOTE N--RELATED PARTY TRANSACTIONS
BancShares, FCB and ASB have had, and expect to have in the future, banking
transactions in the ordinary course of business with several directors,
officers and their associates ("Related Parties"), on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others. Those transactions neither
involve more than the normal risk of collectibility nor present any
unfavorable features.
An analysis of changes in the aggregate amounts of loans to Related Parties
for the year ended December 31, 2000 is as follows:
Balance at beginning of year..................................... $28,805
New loans........................................................ 5,925
Repayments....................................................... (9,959)
-------
Balance at end of year........................................... $24,771
=======
43
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
BancShares provides certain processing and operational services to other
financial institutions. Certain of these institutions are deemed to be Related
Parties since significant shareholders of BancShares are also deemed to be
significant shareholders of the other banks. During 2000, 1999 and 1998,
BancShares received $14,353, $12,723 and $12,012, respectively, for services
rendered to these Related Parties, substantially all of which is included in
fees from processing services and relates to data processing services.
During 2000, 1999 and 1998, BancShares sold several of its branch offices to
Related Parties. Income from sale of branches includes gains of $4,085, $4,432
and $3,067 earned on the sale of these branches.
Investment securities available for sale includes investments in certain
Related Parties. For 2000, these investments had a carrying value of $8,254
and a cost of $508. For 1999, these investments had a carrying value of
$10,624 and a cost of $680.
NOTE O--ACQUISITIONS AND DIVESTITURES
BancShares and its subsidiaries have consummated numerous acquisitions in
recent years. All of the acquisitions have been accounted for as purchases,
with the results of operations not included in BancShares' Consolidated
Statements of Income until after the transaction date. The pro forma impact of
the acquisitions as though they had been made at the beginning of the periods
presented is not material to BancShares' consolidated financial statements.
The following table provides information regarding the acquisitions and
divestitures of branches that have been consummated during the three-year
period ended December 31, 2000:
Year Transaction Assets/1/ Deposits Intangible
---- -------------------------------- --------- --------- ----------
2000 Purchase of six branches by FCB $ 15,726 $ 143,078 $18,138
2000 Sale of four branches by FCB/2/ (94,773) (91,810) (3,780)
1999 Purchase of five branches by ASB 289 27,506 981
1999 Sale of eight branches by FCB/2/ (41,523) (123,048) (1,004)
1998 Purchase of 18 branches by FCB 13,112 320,408 34,897
1998 Sale of five branches by FCB/2/ (37,436) (138,390) (6,276)
-------
/1/Excludes the transfer of cash
/2/Sale of certain offices was made to related parties; see Note N
NOTE P--REGULATORY REQUIREMENTS
Various regulatory agencies have implemented guidelines that evaluate
capital based on risk adjusted assets. An additional capital computation
evaluates tangible capital based on tangible assets. Minimum capital
requirements set forth by the regulators require a Tier 1 capital ratio of no
less than 4 percent, a total capital ratio of no less than 8 percent of risk
adjusted assets, and a leverage capital ratio of no less than 4 percent of
tangible assets. To meet the FDIC's well capitalized standards, the Tier 1 and
total capital ratios must be at least 6 percent and 10 percent, respectively.
Failure to meet minimum capital requirements may result in certain actions by
regulators that could have a direct material effect on the consolidated
financial statements.
Based on the most recent notifications from its regulators, FCB and ASB are
well capitalized under the regulatory framework for prompt corrective action.
Management believes that as of December 31, 2000, BancShares, FCB and ASB met
all capital adequacy requirements to which they are subject and was not aware
of any conditions or events that would affect FCB's and ASB's well capitalized
status.
44
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Following is an analysis of FCB and ASB capital ratios as of December 31,
2000 and 1999.
Requirement for
FCB ASB Well-
---------------------- ------------------ capitalized
2000 1999 2000 1999 Status
---------- ---------- -------- -------- ---------------
Risk-based capital:
Tier 1 capital.......... $ 782,658 $ 733,212 $ 66,683 $ 51,788
Total capital........... 857,632 813,424 71,156 54,891
Risk-adjusted assets.... 6,835,098 7,265,921 459,998 327,218
Quarterly average
tangible assets........ 9,560,837 9,046,638 -- --
Adjusted total assets... -- -- 677,358 468,095
Tier 1 capital ratio.... 11.45% 10.09% 14.50% 15.83% 6.00%
Total capital ratio..... 12.55 11.20 15.47 16.78 10.00
Leverage capital ratio.. 8.19 8.10 9.84 11.06 5.00
The Board of Directors of FCB may declare a dividend on a portion of its
undivided profits as it may deem appropriate, subject to the requirements of
the FDIC and the General Statutes of North Carolina, without prior regulatory
approval. As of December 31, 2000, this amount was $555,167. Dividends
declared by FCB amounted to $50,037 in 2000, $48,485 in 1999 and $68,606 in
1998.
BancShares and its banking subsidiaries are subject to certain requirements
imposed by state and federal banking statutes and regulations. These
regulations require the maintenance of noninterest-bearing reserve balances at
the Federal Reserve Bank. Banks are allowed to reduce the required balances by
the amount of its vault cash. For 2000, the requirement was $126,032 for FCB
and $589 for ASB. Both obligations were fully satisfied by vault cash
balances.
NOTE Q--COMMITMENTS AND CONTINGENCIES
In the normal course of business, BancShares and its subsidiaries have
financial instruments with off-balance sheet risk in order to meet the
financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit, standby letters of credit and forward
commitments to sell loans. These instruments involve, to varying degrees,
elements of credit, interest rate or liquidity risk.
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity requirements.
Established credit standards control the credit-risk exposure associated with
these commitments. In some cases, BancShares requires that collateral be
pledged to secure the commitment. At December 31, 2000 and 1999, BancShares
had unused commitments totaling $3,158,561 and $2,820,530 respectively.
Standby letters of credit are commitments guaranteeing performance of a
customer to a third party. Those guarantees are issued primarily to support
public and private borrowing arrangements. In order to minimize its exposure,
BancShares' credit policies also govern the issuance of standby letters of
credit. At December 31, 2000 and 1999, BancShares had standby letters of
credit amounting to $18,744 and $27,129, respectively.
Management has elected to enter into forward commitments to sell loans as
protection against fluctuations in market rates for the commitments to
originate residential mortgage loans. These forward commitments, which totaled
$40,000 and $23,000 at December 31, 2000 and 1999, respectively, were at fixed
prices and were scheduled to settle within 60 days of that date. At December
31, 2000 and 1999, these forward commitments had no carrying value and
unrealized losses of $185 and $268 respectively. These amounts are included
with the carrying value of loans held for sale and commitments to originate
mortgage loans when determining whether a valuation allowance is required to
reduce the loans and commitments to the lower of cost or fair value.
45
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
BancShares and various subsidiaries have been named as defendants in various
legal actions arising from their normal business activities in which damages
in various amounts are claimed. Although the amount of any ultimate liability
with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial statements.
NOTE R--FIRST CITIZENS BANCSHARES, INC. (PARENT COMPANY)
First Citizens BancShares, Inc.'s principal assets are its investments in
and receivables from its subsidiaries. Its sources of income are dividends and
interest income. The Parent Company's condensed balance sheets as of
December 31, 2000 and 1999, and the related condensed statements of income and
cash flows for the years ended December 31, 2000, 1999 and 1998 are as
follows:
CONDENSED BALANCE SHEETS
December 31
---------------------
2000 1999
---------- ----------
(thousands)
Assets
Cash.................................................. $ 4,952 $ 2,906
Investment securities held to maturity................ 160,000 50,000
Investment securities available for sale.............. 14,266 15,751
Investment in subsidiaries............................ 935,376 846,529
Due from subsidiaries................................. 160,236 275,841
Other assets.......................................... 51,772 56,362
---------- ----------
Total assets........................................ $1,326,602 $1,247,389
========== ==========
Liabilities and Shareholders' Equity
Short-term borrowings................................. $ 357,944 $ 356,984
Long-term obligations................................. 154,640 154,640
Other liabilities..................................... 3,290 7,008
Shareholders' equity.................................. 810,728 728,757
---------- ----------
Total liabilities and shareholders' equity.......... $1,326,602 $1,247,389
========== ==========
CONDENSED STATEMENTS OF INCOME
Year Ended December 31
---------------------------
2000 1999 1998
-------- -------- -------
Interest income............................... $ 20,030 $ 17,137 $18,015
Interest expense.............................. 31,370 28,035 27,521
-------- -------- -------
Net interest income (loss).................... (11,340) (10,898) (9,506)
Dividends from subsidiaries................... 50,037 48,485 68,606
Other income.................................. 1,840 1,814 95
Other operating expense....................... 6,875 7,346 7,288
-------- -------- -------
Income before income tax benefit and equity in
undistributed net income of subsidiaries..... 33,662 32,055 51,907
Income tax benefit............................ (3,668) (3,600) (3,774)
-------- -------- -------
Income before equity in undistributed net
income of subsidiaries....................... 37,330 35,655 55,681
Equity in undistributed net income of
subsidiaries................................. 60,981 46,145 15,328
-------- -------- -------
Net income.................................. $ 98,311 $ 81,800 $71,009
======== ======== =======
46
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
-------------------------------
2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net income................................... $ 98,311 $ 81,800 $ 71,009
Adjustments
Undistributed net income of subsidiaries.... (60,981) (46,145) (15,328)
Net amortization of premiums and discounts.. (185) 1,742 2,159
Securities gains............................ (1,810) (1,706) --
Change in other assets...................... 4,590 7,895 4,005
Change in other liabilities................. (2,863) (17,102) 14,447
--------- --------- ---------
Net cash provided by operating activities.... 37,062 26,484 76,292
--------- --------- ---------
INVESTING ACTIVITIES
Net change in due from subsidiaries......... 115,605 (151,808) (12,925)
Purchase of investment securities held to
maturity................................... (130,136) (40,000) (10,000)
Maturities of investment securities held to
maturity................................... 20,136 200,000 --
Proceeds from sales of investment securities
available for sale......................... 2,337 7,624 --
Investment in subsidiaries.................. (27,866) (15,000) (154,640)
--------- --------- ---------
Net cash used by investing activities........ (19,924) (816) (177,565)
--------- --------- ---------
FINANCING ACTIVITIES
Net change in short-term borrowings......... 960 (15,619) 27,074
Originations of long-term obligations....... -- -- 154,640
Repurchase of common stock.................. (5,506) (706) (74,520)
Cash dividends paid......................... (10,546) (10,619) (10,661)
--------- --------- ---------
Net cash (used) provided by financing
activities.................................. (15,092) (26,944) 96,533
--------- --------- ---------
Net change in cash........................... 2,046 356 (4,740)
Cash balance at beginning of year............ 2,906 2,550 7,290
--------- --------- ---------
Cash balance at end of year.................. $ 4,952 $ 2,906 $ 2,550
========= ========= =========
Cash payments for
Interest.................................... $ 31,006 $ 29,159 $ 22,768
Income taxes................................ 58,096 56,754 42,802
Supplemental disclosure of noncash investing
and financing activities:
Unrealized securities losses................ (1,143) (3,871) (1,062)
Change in obligation to repurchase common
stock...................................... -- -- 624
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 7, 2001 First Citizens BancShares, Inc.
(Registrant)
/s/ James B. Hyler, Jr.
_________________________________________
James B. Hyler, Jr.
Vice Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
Registrant and in the capacities indicated on March 7, 2001.
Signature Title Date
--------- ----- ----
/s/ Lewis R. Holding Chairman and Chief Executive March 7, 2001
___________________________________________ Officer (principal executive
Lewis R. Holding officer)
/s/ Frank B. Holding Executive Vice Chairman March 7, 2001
___________________________________________
Frank B. Holding
/s/ James B. Hyler, Jr. Vice Chairman March 7, 2001
___________________________________________
James B. Hyler, Jr.
/s/ Frank B. Holding, Jr. President March 7, 2001
___________________________________________
Frank B. Holding, Jr.
/s/ Kenneth A. Black Vice President, Treasurer, and March 7, 2001
___________________________________________ Chief Financial Officer
Kenneth A. Black (principal financial and
accounting officer)
/s/ John M. Alexander, Jr. Director March 7, 2001
___________________________________________
John M. Alexander, Jr.
/s/ Carmen Holding Ames Director March 7, 2001
___________________________________________
Carmen Holding Ames
/s/ B. Irvin Boyle Director March 7, 2001
___________________________________________
B. Irvin Boyle
/s/ George H. Broadrick Director March 7, 2001
___________________________________________
George H. Broadrick
/s/ Betty M. Farnsworth Director March 7, 2001
___________________________________________
Betty M. Farnsworth
/s/ Lewis M. Fetterman Director March 7, 2001
___________________________________________
Lewis M. Fetterman
48
Signature Title Date
--------- ----- ----
/s/ Charles B.C. Holt Director March 7, 2001
___________________________________________
Charles B.C. Holt
/s/ Gale D. Johnson Director March 7, 2001
___________________________________________
Gale D. Johnson
/s/ Freeman R. Jones Director March 7, 2001
___________________________________________
Freeman R. Jones
/s/ Lucius S. Jones Director March 7, 2001
___________________________________________
Lucius S. Jones
/s/ Joseph T. Maloney, Jr. Director March 7, 2001
___________________________________________
Joseph T. Maloney, Jr.
/s/ J. Claude Mayo, Jr. Director March 7, 2001
___________________________________________
J. Claude Mayo, Jr.
/s/ Lewis T. Nunnelee, II Director March 7, 2001
___________________________________________
Lewis T. Nunnelee, II
/s/ Talbert O. Shaw Director March 7, 2001
___________________________________________
Talbert O. Shaw
/s/ R. C. Soles, Jr. Director March 7, 2001
___________________________________________
R. C. Soles, Jr.
/s/ David L. Ward, Jr. Director March 7, 2001
___________________________________________
David L. Ward, Jr.
49
EXHIBIT INDEX
*3.1 Certificate of Incorporation of the Registrant, as amended
3.2 Bylaws of the Registrant, as amended
*4.1 Specimen of Registrant's Class A Common Stock certificate
*4.2 Specimen of Registrant's Class B Common Stock certificate
*10.1 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the Fourth
Amendment of Employee Death Benefit and Post-Retirement Non-Competition
and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Lewis
R. Holding
*10.2 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the Fourth
Amendment of Employee Death Benefit and Post-Retirement Non-Competition
and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank
B. Holding
*10.3 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the Fourth
Amendment of Employee Death Benefit and Post-Retirement Non-Competition
and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and James
B. Hyler, Jr.
*10.4 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 23, 1996, as amended by the First
Amendment of Employee Death Benefit and Post-Retirement Noncompetition
and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank
B. Holding, Jr.
*10.5 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement dated January 22, 1996, as amended by the First
Amendment of Employee Death Benefit and Post-Retirement Noncompetition
and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and
Joseph A. Cooper, Jr.
*10.6 Second Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated April 28, 1997, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H.
Broadrick
*10.7 Consulting Agreement dated February 17, 1988, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H.
Broadrick
*10.11 Employment Agreement dated August 4, 1995, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash
*10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe
Homestead Bank, Inc. SSB ("Edgecombe"), and Brent D. Nash, which
agreement was ratified by Registrant upon its acquisition of Edgecombe
*10.13 Article IV Section 4.1.d of the Agreement and Plan of Reorganization
and Merger by and among First Investors Savings Bank, Inc., SSB, First-
Citizens Bank & Trust Company and First Citizens BancShares, Inc.,
dated October 25, 1995, located at page II-38 of Registrant's S-4
Registration Statement filed with the SEC on December 19, 1994
(Registration No. 33-84514)
*10.14 Article IV Section 4.1.e of the Agreement and Plan of Reorganization
and Merger by and among State Bank and First-Citizens Bank & Trust
Company and First Citizens BancShares, Inc., dated October 25, 1995,
located at page I-36 of Registrant's S-4 Registration Statement filed
with the SEC on November 16, 1994 (Registration No. 33-86286)
*10.16 Amended and Restated Trust Agreement of FCB/NC Capital Trust I
*10.17 Form of Guarantee Agreement
*10.18 Junior Subordinated Indenture between Registrant and Bankers Trust
Company, as Debenture Trustee
22 Subsidiaries of the Registrant
99 Proxy Statement for Registrant's 2001 Annual Meeting (previously filed)
- -------
* Incorporated by reference from a previous filing
COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO
KENNETH A. BLACK, CHIEF FINANCIAL OFFICER OF FIRST CITIZENS BANCSHARES, INC.
50