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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..............................