10-K 1 d10k.htm FORM 10-K FORM 10-K

 

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, 2002

 

Commission File Number 0-16471

 

 

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)

 

3128 Smoketree Court

Raleigh, North Carolina 27604

(Address of Principal Executive Offices, Zip Code)

 

(919) 716-7000

(Registrant’s Telephone Number, including Area Code)

 

 

    

Securities registered pursuant to:

     
    

    Section 12(b) of the Act:

   

8.40% Preferred Securities of FCB/NC Capital Trust II

    

    Section 12(g) of the Act:

   

Class A Common Stock, Par Value $1

         

Class B Common Stock, Par Value $1

         

(Title of Class)

 

 

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. ¨

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x     No ¨

 

The aggregate market value of the Registrant’s common equity held by nonaffiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $673,916,280.

 

On March 13, 2003, there were 8,793,233 outstanding shares of the Registrant’s Class A Common Stock and 1,677,675 outstanding shares of the Registrant’s Class B Common Stock.

 

Portions of the Registrant’s definitive Proxy Statement dated March 24, 2003 are incorporated in Part III of this report.

 

 

CROSS REFERENCE INDEX

 

PART 1

   

Item 1

   

Description of Business

   

3

    

Item 2

   

Properties

   

4

    

Item 3

   

Legal Proceedings

   

31

    

Item 4

   

Submission of Matters to a Vote of Security Holders

   

None

PART II

   

Item 5

   

Market for the Registrant’s Common Equity and Related Stockholder Matters

   

4

    

Item 6

   

Selected Financial Data

   

7

    

Item 7

   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   

5-33

    

Item 7A

   

Quantitative and Qualitative Disclosures about Market Risk

   

18-19

    

Item 8

   

Financial Statements and Supplementary Data

     
         

Independent Auditors’ Report

   

34

         

Consolidated Balance Sheets at December 31, 2002 and 2001

   

35

         

Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 2002

   

36

         

Consolidated Statements of Changes in Shareholders’ Equity for
each of the years in the three-year period ended December 31, 2002

   

37

         

Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2002

   

38

         

Notes to Consolidated Financial Statements

   

39-60

         

Quarterly Financial Summary for 2002 and 2001

   

29

    

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 and Related Shareholder Matters

   

*

    

Item 13

   

Certain Relationships and Related Transactions

   

*

    

Item 14

   

Controls and Procedures

   

4

PART IV

   

Item 15

   

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)

   

The Exhibits listed on the Exhibit Index contained in this Form 10-K have been filed separately with the Commission and are available upon written request.

     
    

(b)

   

During the quarter ended December 31, 2002, no reports on Form 8-K were filed.

     
*   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 4-10 of the Registrant’s Proxy Statement for the 2003 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 6 and under the heading ‘Executive Compensation’ on pages 9-10 of the Registrant’s Proxy Statement for the 2003 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 2-4 of the Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders.

 

     Information required by Item 13 is incorporated herein by reference to the information that appears under the heading ‘Compensation Committee’ on pages 7-8 and under the heading ‘Transactions with Related Parties’ on pages 11-12 of Registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders.

 

2

 

Description of Business

First Citizens BancShares, Inc. (BancShares) was incorporated under the laws of Delaware on August 7, 1986, to become the holding company of First-Citizens Bank & Trust Company (First Citizens Bank or FCB), its banking subsidiary. On October 21, 1986 BancShares became the sole shareholder of First Citizens Bank. FCB 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, 2002, FCB operated 342 offices in North Carolina, Virginia and West Virginia.

 

On April 28, 1997, BancShares launched Atlantic States Bank (ASB), a federally chartered thrift institution. ASB branches were initially concentrated within the metropolitan Atlanta, Georgia market. In 1999, ASB expanded its presence into Florida, focusing initially on selected markets in southwest Florida. The targeted market areas within Florida have grown to now include Jacksonville and Fort Lauderdale. Except for the acquisition of several grocery store locations, all of ASB’s growth in Georgia and Florida has been on a de novo basis. During 2002, ASB continued its expansion into high-growth markets by opening three offices in Austin, Texas, operating under the name of IronStone Bank, a division of ASB (ISB). At December 31, 2002, ASB had 41 offices with total assets of $1.04 billion.

 

During early 2003, ISB opened an initial office in Scottsdale, Arizona. ISB has also announced plans to open branch offices in the San Diego and LaJolla communities in Southern California and Newport Beach and Sacramento in Northern California. These markets have been selected based on their strong anticipated economic growth rates and the desire to bring a bank with a focus on customer service to the retail and business customers in these communities.

 

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”), formerly a wholly-owned subsidiary of FCB, became a wholly-owned subsidiary of BancShares. As a direct subsidiary of BancShares, AGI has more flexibility in its product offering than it did as a subsidiary of FCB.

 

BancShares’ executive offices are located at 3128 Smoketree Court, Raleigh, North Carolina 27604, and its telephone number is (919) 716-7000. Although BancShares does not maintain a dedicated website, information regarding BancShares is available at FCB’s website, firstcitizens.com. At December 31, 2002, BancShares and its subsidiaries employed a full-time staff of 4,166 and a part-time staff of 775 for a total of 4,941 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 FCB and interest income on its investment securities portfolio. Certain legal restrictions exist regarding the ability of FCB and ASB to transfer funds to BancShares in the form of cash dividends or loans. For information regarding these restrictions, see Note Q 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, 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. Nantahala, Inc. owns loans originated by FCB. First Citizens Investor Services, Inc., a registered broker-dealer in securities, provides various investment products, including annuities, discount brokerage services and third-party mutual funds to customers. First Citizens Bank, National Association (formerly, First-Citizens Bank, A Virginia Corporation) (FCB-NA) is the issuing and processing bank for BancShares’ retail credit cards. Pisgah, Inc., a wholly-owned subsidiary of FCB-NA, owns credit card receivables. 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 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

 

3

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.

 

FCB 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 and Triangle Life Insurance Company are regulated by the North Carolina Department of Insurance.

 

Properties

Through its subsidiary financial institutions, as of December 31, 2002, BancShares operated branch offices at 383 locations in North Carolina, Virginia, West Virginia, Florida, Georgia and Texas. 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 Stockholder Matters

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 Nasdaq National Market System under the symbol FCNCA. The Class B common stock is quoted on the OTC Bulletin Board. As of December 31, 2002, there were 2,734 holders of record of the Class A common stock, and 515 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 2002 and 2001 are set forth in Table 18 under the caption ‘Per Share of Stock’ of this report. A cash dividend of 27.5 cents per share was declared by the Board of Directors on January 27, 2003, payable April 7, 2003, to holders of record as of March 17, 2003. 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.

 

Controls and Procedures

In conjunction with this filing and their certifications of the disclosures contained within this filing, Chief Executive Officer Lewis R. Holding and Chief Financial Officer Kenneth A. Black evaluated the effectiveness of Registrant’s disclosure controls and procedures. This review, which occurred within 90 days of this report’s filing, found the disclosure controls and procedures to be effective.

 

There were no significant changes in Registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation by Mr. Holding and Mr. Black.

 

Available Information

BancShares does not have its own separate Internet website. However, BancShares will provide a hyperlink from FCB’s Internet website (http://www.firstcitizens.com) to the SEC’s website where the public may obtain copies of BancShares’ annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Interested parties may also directly access the SEC’s Internet website that contains reports and other information that BancShares files electronically with the SEC. The address of the SEC’s website is http://www.sec.gov. BancShares will provide paper copies of its filings free of charge upon request to Kenneth A. Black, Chief Financial Officer.

 

4

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

INTRODUCTION

 

Management’s discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. (“BancShares”), for the years 2002, 2001 and 2000. 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. FCB operates branches in North Carolina, West Virginia, and Virginia. ASB operates branches in Georgia, Florida, Texas and Arizona.

 

This discussion and related financial data should be read in conjunction with our audited consolidated financial statements and related footnotes, presented on pages 34 through 60 of this report. Intercompany accounts and transactions have been eliminated. Although certain amounts for prior years have been reclassified to conform to statement presentations for 2002, the reclassifications have no effect on shareholders’ equity or net income as previously reported.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of our audited consolidated financial statements and the information included in management’s discussion and analysis is governed by policies that are based on accounting principles generally accepted in the United States of America and general practices within the banking industry. Among the more significant policies are those that govern accounting for loans and reserve for loan losses, investment securities and intangible assets. These policies are discussed in Note A of the consolidated financial statements.

 

Estimates and judgments are integral to our accounting for certain items, and those estimates and judgments affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. BancShares periodically evaluates its estimates, including those related to the reserve for loan losses, impairment of investment securities, goodwill and intangible assets, pension plan assumptions and contingencies. While we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. Further information regarding the accounting policies that we consider to be critical is provided below and in other portions of this discussion.

 

Reserve for loan losses.    The reserve for loan losses reflects the estimated losses that will result from the inability of our customers to make required payments. The reserve for loan losses results from management’s evaluation of 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 our opinion, deserve current recognition in estimating possible credit losses. Our evaluation process is based on historical evidence and current trends among delinquencies, defaults and nonperforming assets. Our estimate of the reserve for loan losses does not include the impact of events that might occur in the future.

 

Management considers the established reserve adequate to absorb losses that relate to loans outstanding at December 31, 2002, although future additions to the reserve may be necessary based on changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the reserve for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional reserves may be required.

 

Other than temporary impairment of investment securities.    Our policy regarding other than temporary impairment of investment securities requires a continuous monitoring of our investment securities. Individual investment securities with a fair value that is less than 80% of original cost over a continuous period that spans two quarter-ends are evaluated for impairment during the subsequent quarter. That evaluation includes an assessment of both qualitative and quantitative measures to determine whether, in management’s judgment, the investment is likely to recover its original value. When that evaluation concludes that no such recovery is likely, the unrealized loss is reported as an other than temporary

 

5

impairment, and the loss is recorded as a securities transaction on the consolidated statements of income. If our analysis suggests that a loss of asset value has occurred, management may elect to record an other than temporary impairment, even if the prescribed period of time has not lapsed.

 

Pension plan assumptions.    Although the assets and liabilities associated with the defined benefit pension plan maintained for our associates are not included within the audited financial statements, the selection of key assumptions used to determine the value of the pension obligation and the plan’s assets can have a direct impact on the pension expense that we report within employee benefit expense in our consolidated statement of income. The discount rate is used to determine the present value of the benefits that the pension plan will pay to the plan participants. The discount rate reflects the interest rate that could be obtained by a suitable investment used to fund the obligation being considered. Given the reductions in market interest rates during the past two years, the discount rate used to determine the pension obligation has declined from 7.25 percent at December 31, 2000, to 7.00 percent at December 31, 2001 and to 6.50 percent at December 31, 2002. Assuming other variables remain unchanged, a reduction in the discount rate would result in higher pension expense.

 

The estimated long-term rate of return on plan assets is used to calculate the value of plan assets over time. The long-term rate of return on plan assets was 8.50 percent at December 31, 2002, 2001 and 2000. Due to the significant reductions in projected investment rates of return, we have adjusted the long-term rate of return on plan assets to 8.00 percent, and our pension expense for 2003 will be based on that assumption. If market rates and investment returns remain at current levels for a prolonged period of time, this rate would be further reduced. Assuming other variables remain unchanged, a reduction in the long-term rate of return on plan assets would result in higher pension expense.

 

The assumed rate of future compensation increases allows the pension obligations, which are dependent on compensation over a period of time prior to retirement, to be estimated. This amount, which is reviewed annually based on actual experience, has remained at 4.75 percent for 2002, 2001 and 2000. Assuming other variables remain unchanged, a reduction in the rate of future compensation increases would result in lower pension expense.

 

Goodwill and Intangible Assets.  Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired in a business combination, is tested at least annually for impairment. The impairment test is a two-step process that begins with an estimation of the fair value of each reporting unit and a comparison of that fair value to the carrying value of the reporting unit. If the initial evaluation suggests that an impairment of the asset value exists, the second step would determine the amount of the impairment, if any. If the test concludes that goodwill is impaired, the carrying value would be adjusted, and an impairment loss would be recorded.

 

Other intangible assets with estimable lives are amortized on a straight-line basis over their estimated useful lives. The estimated useful lives are periodically reviewed for reasonableness.

 

SUMMARY

 

BancShares reported net income of $92.8 million during 2002, compared to $86.9 million in 2001 and $98.3 million in 2000. Net income for 2002 represented a 6.7 percent increase when compared to 2001. The $5.8 million increase was the result of higher net interest income and noninterest income, partially offset by increased levels of noninterest expense and provision for loan losses. The $11.4 million reduction in net income during 2001 from 2000 resulted from increased levels of noninterest expense and provision for loan losses, partially offset by improved levels of noninterest income and marginally higher net interest income. Net income per share for 2002 totaled $8.85, compared to $8.27 and $9.32 for 2001 and 2000, respectively. Return on average assets was 0.78 percent during 2002, 0.77 percent during 2001 and 0.98 percent during 2000. Detailed information regarding the components of net income over the five years from 1998 through 2002 is provided in the following discussion. Tables 5 and 8 provide information on net interest income. Table 13 provides details related to the provision for loan losses. Tables 15 and 16 present information regarding the components of noninterest income and expense, respectively.

 

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 2002, 2001 and 2000. All of the acquisitions were accounted for as purchases, with the results of operations included with BancShares’ consolidated statements of income since the respective acquisition dates.

 

 

6

 

Table 1

FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS

 

    

2002

     

2001

     

2000

     

1999

     

1998

  
    

(thousands, except share data and ratios)

  

SUMMARY OF OPERATIONS

                                             

Interest income

   

$

596,169

 

   

$

715,427

 

   

$

708,170

 

   

$

633,891

 

   

$

619,487

 

Interest expense

   

 

214,018

 

   

 

346,510

 

   

 

342,828

 

   

 

281,542

 

   

 

292,071

 

    
  
  
  
  

Net interest income

   

 

382,151

 

   

 

368,917

 

   

 

365,342

 

   

 

352,349

 

   

 

327,416

 

Provision for loan losses

   

 

26,550

 

   

 

24,134

 

   

 

15,488

 

   

 

11,672

 

   

 

19,879

 

    
  
  
  
  

Net interest income after provision for loan losses

   

 

355,601

 

   

 

344,783

 

   

 

349,854

 

   

 

340,677

 

   

 

307,537

 

Noninterest income

   

 

221,389

 

   

 

215,555

 

   

 

202,190

 

   

 

165,339

 

   

 

145,417

 

Noninterest expense

   

 

433,447

 

   

 

422,597

 

   

 

394,784

 

   

 

375,620

 

   

 

342,213

 

    
  
  
  
  

Income before income taxes

   

 

143,543

 

   

 

137,741

 

   

 

157,260

 

   

 

130,396

 

   

 

110,741

 

Income taxes

   

 

50,787

 

   

 

50,805

 

   

 

58,949

 

   

 

48,596

 

   

 

39,732

 

    
  
  
  
  

Net income

   

$

92,756

 

   

$

86,936

 

   

$

98,311

 

   

$

81,800

 

   

$

71,009

 

    
  
  
  
  

Net interest income, taxable equivalent

   

$

383,494

 

   

$

370,857

 

   

$

368,190

 

   

$

354,566

 

   

$

329,764

 

    
  
  
  
  

SELECTED AVERAGE BALANCES

                                             

Total assets

   

$

11,843,239

 

   

$

11,235,859

 

   

$

10,005,597

 

   

$

9,622,774

 

   

$

9,173,020

 

Investment securities

   

 

2,610,622

 

   

 

2,196,473

 

   

 

1,618,584

 

   

 

1,908,300

 

   

 

2,305,395

 

Loans

   

 

7,379,607

 

   

 

7,105,915

 

   

 

6,955,772

 

   

 

6,399,114

 

   

 

5,847,531

 

Interest-earning assets

   

 

10,553,574

 

   

 

10,038,074

 

   

 

8,984,878

 

   

 

8,638,698

 

   

 

8,281,072

 

Deposits

   

 

10,007,398

 

   

 

9,405,328

 

   

 

8,390,920

 

   

 

8,105,443

 

   

 

7,759,315

 

Interest-bearing liabilities

   

 

9,129,168

 

   

 

8,798,893

 

   

 

7,772,889

 

   

 

7,517,483

 

   

 

7,249,290

 

Long-term obligations

   

 

263,291

 

   

 

186,636

 

   

 

154,634

 

   

 

157,897

 

   

 

133,935

 

Shareholders’ equity

   

$

924,877

 

   

$

847,374

 

   

$

763,386

 

   

$

693,559

 

   

$

629,089

 

Shares outstanding

   

 

10,478,843

 

   

 

10,507,289

 

   

 

10,551,607

 

   

 

10,625,457

 

   

 

10,626,311

 

    
  
  
  
  

SELECTED PERIOD-END BALANCES

                                             

Total assets

   

$

12,231,890

 

   

$

11,864,991

 

   

$

10,691,617

 

   

$

9,717,099

 

   

$

9,605,787

 

Investment securities

   

 

2,539,236

 

   

 

2,791,296

 

   

 

1,816,720

 

   

 

1,371,894

 

   

 

2,160,329

 

Loans

   

 

7,620,263

 

   

 

7,196,177

 

   

 

7,109,692

 

   

 

6,751,039

 

   

 

6,195,591

 

Interest-earning assets

   

 

10,783,069

 

   

 

10,489,382

 

   

 

9,357,794

 

   

 

8,596,326

 

   

 

8,588,645

 

Deposits

   

 

10,439,620

 

   

 

9,961,605

 

   

 

8,971,868

 

   

 

8,173,598

 

   

 

8,112,408

 

Interest-bearing liabilities

   

 

9,298,080

 

   

 

9,206,903

 

   

 

8,384,692

 

   

 

7,554,229

 

   

 

7,542,636

 

Long-term obligations

   

 

253,409

 

   

 

284,009

 

   

 

154,332

 

   

 

155,683

 

   

 

158,801

 

Shareholders’ equity

   

$

967,291

 

   

$

885,043

 

   

$

810,728

 

   

$

728,757

 

   

$

660,749

 

Shares outstanding

   

 

10,473,294

 

   

 

10,483,456

 

   

 

10,522,836

 

   

 

10,610,399

 

   

 

10,625,559

 

    
  
  
  
  

PROFITABILITY RATIOS (averages)

                                             

Rate of return on:

                                             

Total assets

   

 

0.78

%

   

 

0.77

%

   

 

0.98

%

   

 

0.85

%

   

 

0.77

%

Shareholders’ equity

   

 

10.03

 

   

 

10.26

 

   

 

12.88

 

   

 

11.79

 

   

 

11.29

 

Dividend payout ratio

   

 

11.30

 

   

 

12.09

 

   

 

10.73

 

   

 

12.99

 

   

 

15.11

 

    
  
  
  
  

LIQUIDITY AND CAPITAL RATIOS (averages)

                                             

Loans to deposits

   

 

73.74

%

   

 

75.55

%

   

 

82.90

%

   

 

78.95

%

   

 

75.36

%

Shareholders’ equity to total assets

   

 

7.81

 

   

 

7.54

 

   

 

7.63

 

   

 

7.21

 

   

 

6.86

 

Time certificates of $100,000 or more
to total deposits

   

 

10.87

 

   

 

11.43

 

   

 

9.46

 

   

 

9.02

 

   

 

9.21

 

    
  
  
  
  

PER SHARE OF STOCK

                                             

Net income

   

$

8.85

 

   

$

8.27

 

   

$

9.32

 

   

$

7.70

 

   

$

6.62

 

Cash dividends

   

 

1.00

 

   

 

1.00

 

   

 

1.00

 

   

 

1.00

 

   

 

1.00

 

Market price at December 31 (Class A)

   

 

96.60

 

   

 

97.75

 

   

 

80.75

 

   

 

69.75

 

   

 

90.00

 

Book value at December 31

   

 

92.36

 

   

 

84.42

 

   

 

77.04

 

   

 

68.68

 

   

 

62.18

 

Tangible book value at December 31

   

 

81.73

 

   

 

73.78

 

   

 

65.76

 

   

 

58.13

 

   

 

50.73

 

    
  
  
  
  

 

7

Table 2

ACQUISITIONS AND DIVESTITURES

 

Year

        

Institution and Location

   

Total Loans

     

Total Deposits

  
              

(thousands)

  

2002

        

Purchase of two branches by First Citizens Bank

   

$

4,201

 

   

$

24,285

 

2001

        

Purchase of two branches by First Citizens Bank

   

 

11,187

 

   

 

50,493

 

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

)

 

INTEREST-EARNING ASSETS

 

Interest-earning assets averaged $10.55 billion during 2002, an increase of $515.5 million or 5.1 percent over 2001 levels, compared to a $1.05 billion or 11.7 percent increase in 2001 over 2000 levels. Growth among interest-earning assets during 2002 and 2001 resulted from increases in the investment securities portfolio and moderate loan growth.

 

Loans.    As of December 31, 2002, gross loans outstanding were $7.62 billion, a 5.9 percent increase over the December 31, 2001 balance of $7.20 billion. Loan balances for the last five years are presented in Table 3. The $424.1 million increase in loans during 2002 was primarily due to growth of revolving loans secured by real estate, commercial mortgage loans and consumer loans. The $305.9 million increase in revolving loans secured by real estate reflects robust demand for the retail EquityLine product. The $226.4 million increase in commercial mortgage loans reflects the continuing demand for these loans among business customers. Consumer loans, which totaled $1.15 billion at December 31, 2002, increased 7.4 percent during 2002, the result of growth among credit card loans and indirect automobile loans originated through our sales finance unit.

 

Table 3

LOANS

 

    

December 31

    

2002

   

2001

   

2000

   

1999

   

1998

    

(thousands)

Real estate:

                                   

Construction and land development

   

$

799,278

   

$

801,354

   

$

748,941

   

$

637,982

   

$

529,038

Mortgage:

                                   

Commercial

   

 

2,035,646

   

 

1,809,260

   

 

1,542,832

   

 

1,406,498

   

 

1,171,802

1-4 family residential

   

 

1,058,082

   

 

1,260,010

   

 

1,485,691

   

 

1,298,998

   

 

1,266,393

Revolving

   

 

1,335,024

   

 

1,024,181

   

 

851,810

   

 

755,342

   

 

617,062

Other

   

 

150,226

   

 

151,332

   

 

173,825

   

 

148,584

   

 

148,072

    
  
  
  
  

Total real estate loans

   

 

5,378,256

   

 

5,046,137

   

 

4,803,099

   

 

4,247,404

   

 

3,732,367

Commercial and industrial

   

 

925,775

   

 

915,596

   

 

928,592

   

 

979,242

   

 

842,679

Consumer

   

 

1,154,280

   

 

1,073,954

   

 

1,217,850

   

 

1,392,978

   

 

1,516,410

Lease financing

   

 

141,372

   

 

139,966

   

 

134,483

   

 

123,908

   

 

93,680

Other

   

 

20,580

   

 

20,524

   

 

25,668

   

 

7,507

   

 

10,455

    
  
  
  
  

Total gross loans

   

 

7,620,263

   

 

7,196,177

   

 

7,109,692

   

 

6,751,039

   

 

6,195,591

Less reserve for loan losses

   

 

112,533

   

 

107,087

   

 

102,655

   

 

98,690

   

 

96,115

    
  
  
  
  

Net loans

   

$

7,507,730

   

$

7,089,090

   

$

7,007,037

   

$

6,652,349

   

$

6,099,476

    
  
  
  
  

All information presented in this table relates to domestic loans as BancShares makes no foreign loans.

 

8

 

Commercial and industrial loans totaled $926.3 million at December 31, 2002, an increase of 1.2 percent over 2001, evidence of sluggish loan demand for this type of financing among business customers, due in turn to generally weak economic conditions in BancShares key market areas. Loans secured by 1-4 family residential mortgages declined $197.0 million during 2002, primarily the result of refinance activity among portfolio loans and the popularity of the Equityline product. Since 2001, substantially all of the residential mortgage loans offered by BancShares have been originated through correspondents, resulting in a gradual decline in 1-4 family residential mortgage loan balances as outstanding loans amortize or are refinanced.

 

During 2001, the $86.5 million increase in loans was primarily due to growth of commercial mortgage loans and revolving loans secured by real estate. Commercial mortgage loans increased $238.4 million and revolving loans increased $172.4 million during 2001, both resulting from customer demand for these products. Partially offsetting these increases was a reduction of $211.4 million in residential mortgage loans and $143.9 million in consumer loans. The reduction in residential mortgage loans during 2001 resulted from sales and refinancing of existing portfolio loans, while the reduction in consumer loans resulted primarily from reductions in automobile sales finance activity.

 

Despite the current low level of interest rates, which would normally stimulate loan demand and business growth, current economic conditions and geopolitical risks contribute to general uncertainty among business and retail customers. Management anticipates general weakness in demand for business loan products during 2003 due to continued sluggish economic prospects. However, for both business and retail customers, we expect revolving loans secured by real estate will continue to grow during 2003. Management projects consumer loans will exhibit modest growth rates due to stable levels of automobile purchases. All growth projections, however, are subject to change as a result of further economic deterioration or improvement.

 

Investment Securities.    At December 31, 2002, and 2001, the investment securities portfolio totaled $2.54 billion and $2.79 billion, respectively. Investment securities held to maturity totaled $2.42 billion and $2.66 billion, respectively, at December 31, 2002 and 2001. In each period, U.S. Treasury and government agency securities represented substantially the entire held-to-maturity portfolio.

 

Investment securities available for sale at December 31, 2002 and 2001 totaled $121.7 million and $132.4 million, respectively. Investment securities available for sale include U.S. Treasury obligations, government agency securities and equity securities. Unrealized gains and losses on available-for-sale securities are included as a component of shareholders’ equity, net of deferred taxes.

 

Investment securities averaged $2.61 billion during 2002, $2.20 billion during 2001 and $1.62 billion during 2000. As a percentage of average interest-earning assets, investment securities represented 24.7 percent, 21.9 percent and 18.0 percent during 2002, 2001 and 2000, respectively. Table 4 presents detailed information relating to the investment securities portfolio.

 

Overnight Investments.    At December 31, 2002 and 2001, overnight investments, which include federal funds sold and interest-bearing deposits in other financial institutions, totaled $623.6 million and $501.9 million, respectively. These investments averaged $563.3 million, $735.7 million and $410.5 million, respectively, during 2002, 2001 and 2000. During 2002, average overnight securities decreased $172.3 million or 23.4 percent, the result of interest-earning asset and liquidity management decisions. The increase in 2001 resulted from increased liquidity from deposit growth.

 

9

Table 4

INVESTMENT SECURITIES

 

   

December 31

   

2002

    

2001

  

2000

   

Cost

  

Fair

Value

   

Average Maturity (Yrs./Mos.)

   

Taxable Equivalent Yield

    

Cost

  

Fair

Value

  

Cost

  

Fair

Value

   

(thousands, except maturity and yield information)

Investment securities held to maturity:

                                                

U. S. Government:

                                                

Within one year

  

$

1,643,877

  

$

1,652,014

   

0/5

   

2.71

%

  

$

2,452,587

  

$

2,474,155

  

$

1,450,484

  

$

1,452,268

One to five years

  

 

744,938

  

 

755,010

   

1/6

   

2.28

 

  

 

197,174

  

 

197,169

  

 

315,194

  

 

318,898

Five to ten years

  

 

91

  

 

97

   

7/0

   

8.00

 

  

 

148

  

 

155

  

 

210

  

 

216

Over ten years

  

 

26,378

  

 

27,517

   

15/2

   

7.39

 

  

 

5,348

  

 

5,475

  

 

7,834

  

 

7,891

   
 
  
  
 
 
 
 

Total

  

 

2,415,284

  

 

2,434,638

   

0/8

   

4.63

 

  

 

2,655,257

  

 

2,676,954

  

 

1,773,722

  

 

1,779,273

   
 
  
  
 
 
 
 

State, county and municipal:

                                                

Within one year

  

 

—  

  

 

—  

   

—  

   

—  

 

  

 

1,254

  

 

1,278

  

 

700

  

 

702

One to five years

  

 

480

  

 

502

   

2/6

   

5.55

 

  

 

500

  

 

517

  

 

1,758

  

 

1,800

Five to ten years

  

 

144

  

 

154

   

4/2

   

5.88

 

  

 

143

  

 

149

  

 

1,681

  

 

1,808

Over ten years

  

 

1,415

  

 

1,551

   

15/4

   

6.02

 

  

 

1,412

  

 

1,517

  

 

—  

  

 

—  

   
 
  
  
 
 
 
 

Total

  

 

2,039

  

 

2,207

   

8/0

   

6.25

 

  

 

3,309

  

 

3,461

  

 

4,139

  

 

4,310

   
 
  
  
 
 
 
 

Other

                                                

Within one year

  

 

10

  

 

10

   

0/1

   

2.32

 

  

 

25

  

 

25

  

 

20

  

 

20

One to five years

  

 

—  

  

 

—  

   

—  

   

—  

 

  

 

10

  

 

10

  

 

35

  

 

35

Five to ten years

  

 

250

  

 

250

   

5/7

   

7.75

 

  

 

250

  

 

250

  

 

250

  

 

250

   
 
  
  
 
 
 
 

Total

  

 

260

  

 

260

   

5/10

   

7.03

 

  

 

285

  

 

285

  

 

305

  

 

305

   
 
  
  
 
 
 
 

Total investment securities held to maturity

  

 

2,417,583

  

 

2,437,105

   

0/11

   

2.61

 

  

 

2,658,851

  

 

2,680,700

  

 

1,778,166

  

 

1,783,888

   
 
  
  
 
 
 
 

Investment securities available for sale

                                                

U. S. Government:

                                                

Within one year

  

 

45,245

  

 

45,353

   

0/4

   

1.98

%

  

 

51,560

  

 

51,563

  

 

—  

  

 

—  

One to five years

  

 

20,196

  

 

20,356

   

1/7

   

1.90

 

  

 

25,695

  

 

25,664

  

 

—  

  

 

—  

   
 
  
  
 
 
 
 

Total

  

 

65,441

  

 

65,709

   

0/9

   

1.96

 

  

 

77,255

  

 

77,227

  

 

—  

  

 

—  

   
 
  
  
 
 
 
 

State, county and municipal:

                                                

One to five years

  

 

282

  

 

281

   

4/7

   

1.86

 

  

 

—  

  

 

—  

  

 

—  

  

 

—  

Five to ten years

  

 

165

  

 

163

   

9/8

   

6.51

 

  

 

—  

  

 

—  

  

 

—  

  

 

—  

Over ten years

  

 

145

  

 

145

   

29/11

   

1.15

 

  

 

1,263

  

 

1,281

  

 

—  

  

 

—  

   
 
  
  
 
 
 
 

Total

  

 

592

  

 

589

   

12/3

   

2.98

 

  

 

1,263

  

 

1,281

  

 

—  

  

 

—  

   
 
  
  
 
 
 
 

Marketable equity securities

  

 

41,316

  

 

55,355

   

—  

   

—  

 

  

 

41,279

  

 

53,937

  

 

28,875

  

 

38,554

   
 
  
  
 
 
 
 

Total investment securities available for sale

  

 

107,349

  

 

121,653

   

0/10

   

1.97

 

  

 

119,797

  

 

132,445

  

 

28,875

  

 

38,554

   
 
  
  
 
 
 
 

Total investment securities

  

$

2,524,932

  

$

2,558,758

              

$

2,778,648

  

$

2,813,145

  

$

1,807,041

  

$

1,822,442

   
 
             
 
 
 

The average maturity assumes callable securities mature on their earliest call date; yields are based on amortized cost; yields related to securities that are exempt from federal and/or state income taxes are stated on a taxable-equivalent basis assuming statutory rates of 35% for federal income tax purposes for all periods and 6.90% for state income taxes for 2002 and 2001 and 7.00% for 2000.

 

Income on Interest-Earning Assets.    Interest income amounted to $596.2 million during 2002, a $119.3 million or 16.7 percent decrease from 2001, compared to a $7.3 million or 1.0 percent increase from 2000 to 2001. The decline in interest income during 2002 reflected the net impact of lower yields on interest-earning assets, partially offset by higher average assets. The increase in interest income during 2001, when compared to 2000, resulted from loan growth, partially offset by lower asset yields.

 

Table 5 analyzes interest-earning assets and interest-bearing liabilities for the five years ending December 31, 2002. To help assess the impact of the tax-exempt status of income earned on certain loans, leases and municipal securities, Table 5 is prepared on a taxable-equivalent basis. The taxable-equivalent yield on interest-earning assets was 5.66 percent during 2002, a 149 basis point decrease from the 7.15 percent reported in 2001. Although the reduction in market interest rates was significant to the yield reduction, also affecting the yield on interest-earning assets is a continual change in our asset mix. As a percentage of average interest-earning assets, loans represented 69.9 percent, 70.8 percent and 77.4 percent during 2002, 2001 and 2000, respectively. The reduction in the ratio of loans to total earning assets during 2001 and 2002 highlights the current economic climate that is characterized by deposit growth prompted by investor fears of

 

10

more risky investment options. This deposit growth has generated excess balance sheet liquidity that is not being absorbed by adequate demand for quality loans. As a result, our average investment in lower-yielding investment securities and overnight investments has increased, further reducing our asset yield.

 

The taxable-equivalent yield on the loan portfolio decreased from 8.00 percent in 2001 to 6.66 percent in 2002. As a result of that reduction, loan interest income decreased $76.1 million or 13.4 percent from 2001. This followed a decrease of $17.9 million or 3.1 percent in loan interest income in 2001 over 2000, the net result of decreased loan yields and higher average loans outstanding. The lower loan yields during 2002 and 2001 reflect the continued reductions in interest rates triggered by reductions in the discount and federal funds rates by the Federal Reserve Bank. These reductions have led to reductions in the prime interest rate, resulting in lower yields on prime-based loans as well as frequent refinancing of fixed-rate loans.

 

Interest income earned on the investment securities portfolio amounted to $96.7 million, $120.2 million and $97.6 million during 2002, 2001 and 2000, respectively. The taxable-equivalent yield on the investment securities portfolio was 3.71 percent, 5.48 percent and 6.04 percent, respectively, for 2002, 2001 and 2000. The $23.5 million decrease in investment interest income during 2002 reflected lower yields, partially offset by higher average securities. The $22.6 million increase in investment interest income from 2000 to 2001 was the result of increases in average investment securities during 2001, partially offset by a lower taxable-equivalent yield on the investment securities portfolio.

 

Interest earned on overnight investments was $9.0 million during 2002, compared to $28.7 million during 2001 and $26.1 million during 2000. The $19.7 million reduction during 2002 resulted from a 231 basis point yield reduction and a reduction in average overnight investments. During 2001, interest income earned from overnight investments increased $2.5 million over 2000, the net result of the growth in average overnight investments and a 246 basis point yield reduction.

 

INTEREST-BEARING LIABILITIES

 

At December 31, 2002, and 2001 interest-bearing liabilities totaled $9.30 billion and $9.21 billion, respectively, an increase of $91.2 million or 1.0 percent. The increase during 2002 results from moderately higher levels of interest-bearing deposits, partially offset by lower short-term borrowings and long-term obligations. Interest-bearing liabilities averaged $9.13 billion during 2002, an increase of $330.3 million or 3.8 percent over 2001 levels. During 2001, interest-bearing liabilities averaged $8.80 billion, an increase of $1.03 billion or 13.2 percent over 2000, with much of that growth resulting from time deposits and money market deposits.

 

Deposits.    At December 31, 2002, deposits totaled $10.44 billion, an increase of $478.0 million or 4.8 percent from the $9.96 billion in deposits recorded as of December 31, 2001. Total deposits averaged $10.01 billion in 2002, an increase of $602.1 million or 6.4 percent over 2001. Average interest-bearing deposits were $8.34 billion during 2002, an increase of $384.4 million or 4.8 percent. Money market deposits averaged $2.31 billion, an increase of $561.1 million or 32.2 percent over 2001. Average Checking With Interest deposits were $1.27 billion in 2002 and $1.15 billion in 2001. This represented an increase of $121.1 million or 10.6 percent. Management attributes much of the deposit growth during 2002 to continued volatility within the equity markets and investor attraction to the safety and soundness of traditional bank deposits. However, due to very low market interest rates, customers have been reluctant to invest in time deposit products but are instead shifting available liquidity to money market deposit and other checking account products. As a result, average time deposits decreased $331.6 million or 7.4 percent during 2002. These deposits averaged $4.12 billion during 2002, compared to $4.45 billion during 2001.

 

During 2001, total deposits averaged $9.41 billion, an increase of $1.01 billion or 12.1 percent over 2000. Average interest-bearing deposits were $7.95 billion during 2001, an increase of $912.1 million or 13.0 percent. Time deposits averaged $4.45 billion during 2001, an increase of $593.2 million or 15.4 percent over 2000. Average money market accounts were $1.74 billion during 2001, an increase of $267.1 million or 18.1 percent. As in 2002, we attribute the deposit growth in 2001 primarily to funds leaving more volatile equity markets.

 

11

Table 5

AVERAGE BALANCE SHEETS

 

    

2002

     

2001

  
    

Average Balance

       

Interest Income/Expense

   

Yield/ Rate

     

Average Balance

       

Interest Income/Expense

   

Yield/ Rate

  
    

(thousands, taxable equivalent)

  

Assets:

                                                  

Loans

   

$

7,379,607

 

     

$

491,770

   

6.66

%

   

$

7,105,915

 

     

$

568,379

   

8.00

%

Investment securities:

                                                  

U. S. Government

   

 

2,550,835

 

     

 

94,794

   

3.72

 

   

 

2,147,697

 

     

 

117,608

   

5.48

 

State, county and municipal

   

 

3,699

 

     

 

301

   

8.14

 

   

 

4,804

 

     

 

416

   

8.66

 

Other

   

 

56,088

 

     

 

1,673

   

2.98

 

   

 

43,972

 

     

 

2,288

   

5.20

 

    
    
  
  
    
  

Total investment securities

   

 

2,610,622

 

     

 

96,768

   

3.71

 

   

 

2,196,473

 

     

 

120,312

   

5.48

 

Overnight investments

   

 

563,345

 

     

 

8,974

   

1.59

 

   

 

735,686

 

     

 

28,676

   

3.90

 

    
    
  
  
    
  

Total interest-earning assets

   

 

10,553,574

 

     

$

597,512

   

5.66

%

   

 

10,038,074

 

     

$

717,367

   

7.15

%

Cash and due from banks

   

 

669,770

 

                   

 

592,270

 

                

Premises and equipment

   

 

494,534

 

                   

 

466,549

 

                

Other assets

   

 

235,484

 

                   

 

243,841

 

                

Reserve for loan losses

   

 

(110,123

)

                   

 

(104,875

)

                
    
                  
               

Total assets

   

$

11,843,239

 

                   

$

11,235,859

 

                
    
                  
               

Liabilities and shareholders’ equity:

                                                  

Interest-bearing deposits:

                                                  

Checking With Interest

   

$

1,266,185

 

     

$

3,450

   

0.27

%

   

$

1,145,115

 

     

$

6,060

   

0.53

%

Savings

   

 

642,764

 

     

 

3,435

   

0.53

 

   

 

608,882

 

     

 

6,680

   

1.10

 

Money market accounts

   

 

2,305,486

 

     

 

35,743

   

1.55

 

   

 

1,744,389

 

     

 

54,309

   

3.11

 

Time deposits

   

 

4,121,474

 

     

 

145,278

   

3.52

 

   

 

4,453,109

 

     

 

243,703

   

5.47

 

    
    
  
  
    
  

Total interest-bearing deposits

   

 

8,335,909

 

     

 

187,906

   

2.25

 

   

 

7,951,495

 

     

 

310,752

   

3.91

 

Short-term borrowings

   

 

529,968

 

     

 

4,528

   

0.85

 

   

 

660,762

 

     

 

20,643

   

3.12

 

Long-term obligations

   

 

263,291

 

     

 

21,584

   

8.20

 

   

 

186,636

 

     

 

15,115

   

8.10

 

    
    
  
  
    
  

Total interest-bearing liabilities

   

 

9,129,168

 

     

$

214,018

   

2.34

%

   

 

8,798,893

 

     

$

346,510

   

3.94

%

Demand deposits

   

 

1,671,489

 

                   

 

1,453,833

 

                

Other liabilities

   

 

117,705

 

                   

 

135,759

 

                

Shareholders’ equity

   

 

924,877

 

                   

 

847,374

 

                
    
                  
               

Total liabilities and shareholders’ equity

   

$

11,843,239

 

                   

$

11,235,859

 

                
    
                  
               

Interest rate spread

                     

3.32

%

                     

3.21

%

Net interest income and net yield on interest-earning assets

              

$

383,494

   

3.63

%

              

$

370,857

   

3.69

%

               
  
             
  

Average loan balances include nonaccrual loans. Yields related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable-equivalent basis assuming a statutory federal income tax rate of 35% for all periods, and state income tax rates of 6.90% for 2002 and 2001 and 7.00% for 2000.

 

12

Table 5

AVERAGE BALANCE SHEETS (continued)

 

2000

     

1999

     

1998

  

Average

Balance

     

Interest Income/Expense

   

Yield/ Rate

     

Average Balance

       

Interest Income/Expense

   

Yield/ Rate

     

Average Balance

       

Interest Income/Expense

   

Yield/ Rate

  

(thousands, taxable equivalent)

  
                                                                   

$6,955,772

     

$

587,192

   

8.44

%

   

$

6,399,114

 

     

$

512,419

   

8.01

%

   

$

5,847,531

 

     

$

480,741

   

8.22

%

                                                                   

1,588,930

     

 

96,576

   

6.08

 

   

 

1,881,591

 

     

 

106,435

   

5.66

 

   

 

2,273,579

 

     

 

133,535

   

5.87

 

4,212

     

 

357

   

8.48

 

   

 

2,893

 

     

 

217

   

7.50

 

   

 

4,340

 

     

 

318

   

7.33

 

25,442

     

 

764

   

3.00

 

   

 

23,816

 

     

 

548

   

2.30

 

   

 

27,476

 

     

 

507

   

1.85

 

     
  
  
    
  
  
    
  

1,618,584

     

 

97,697

   

6.04

 

   

 

1,908,300

 

     

 

107,200

   

5.62

 

   

 

2,305,395

 

     

 

134,360

   

5.83

 

410,522

     

 

26,129

   

6.36

 

   

 

331,284

 

     

 

16,489

   

4.98

 

   

 

128,146

 

     

 

6,734

   

5.25

 

     
  
  
    
  
  
    
  

8,984,878

     

$

711,018

   

7.91

%

   

 

8,638,698

 

     

$

636,108

   

7.36

%

   

 

8,281,072

 

     

$

621,835

   

7.51

%

476,929

                   

 

459,202

 

                   

 

400,896

 

                

418,388

                   

 

382,092

 

                   

 

343,307

 

                

225,861

                   

 

239,833

 

                   

 

237,564

 

                

(100,459)

                   

 

(97,051

)

                   

 

(89,819

)

                
                   
                  
               

$10,005,597

                   

$

9,622,774

 

                   

$

9,173,020

 

                
                   
                  
               
                                                                   
                                                                   

$1,068,545

     

$

6,338

   

0.59

%

   

$

1,074,885

 

     

$

6,858

   

0.64

%

   

$

1,035,761

 

     

$

10,255

   

0.99

%

633,666

     

 

9,436

   

1.49

 

   

 

687,191

 

     

 

10,730

   

1.56

 

   

 

697,227

 

     

 

12,954

   

1.86

 

1,477,248

     

 

63,386

   

4.29

 

   

 

1,359,433

 

     

 

47,881

   

3.52

 

   

 

1,117,286

 

     

 

39,135

   

3.50

 

3,859,946

     

 

219,796

   

5.69

 

   

 

3,680,867

 

     

 

179,452

   

4.88

 

   

 

3,725,818

 

     

 

193,173

   

5.18

 

     
  
  
    
  
  
    
  

7,039,405

     

 

298,956

   

4.25

 

   

 

6,802,376

 

     

 

244,921

   

3.60

 

   

 

6,576,092

 

     

 

255,517

   

3.89

 

578,850

     

 

31,219

   

5.39

 

   

 

557,210

 

     

 

23,921

   

4.29

 

   

 

539,263

 

     

 

25,850

   

4.79

 

154,634

     

 

12,653

   

8.18

 

   

 

157,897

 

     

 

12,700

   

8.04

 

   

 

133,935

 

     

 

10,704

   

7.99

 

     
  
  
    
  
  
    
  

7,772,889

     

$

342,828

   

4.41

%

   

 

7,517,483

 

     

$

281,542

   

3.75

%

   

 

7,249,290

 

     

$

292,071

   

4.03

%

1,351,515

                   

 

1,303,067

 

                   

 

1,183,223

 

                

117,807

                   

 

108,665

 

                   

 

111,418

 

                

763,386

                   

 

693,559

 

                   

 

629,089

 

                
                   
                  
               

$10,005,597

                   

$

9,622,774

 

                   

$

9,173,020

 

                
                   
                  
               
             

3.50

%

                     

3.61

%

                     

3.48

%

      

$

368,190

   

4.10

%

              

$

354,566

   

4.10

%

              

$

329,764

   

3.98

%

      
  
             
  
             
  

 

 

13

 

During 2002, time deposits in excess of $100,000 averaged 10.87 percent of total deposits, compared to 11.43 percent in 2001. We do not accept brokered deposits or solicit out-of-market deposits. Table 6 provides a maturity distribution for these deposits.

 

Table 6

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE

      

December 31, 2002

      

(thousands)

Less than three months

     

$

354,185

Three to six months

     

 

198,378

Six to 12 months

     

 

223,961

More than 12 months

     

 

286,707

      

Total

     

$

1,063,231

      

 

Short-Term Borrowings.    At December 31, 2002, short-term borrowings totaled $462.6 million, compared to $611.4 million one year earlier. For the year ended December 31, 2002, short-term borrowings averaged $530.0 million, compared to $660.8 million during 2001 and $578.9 million during 2000. The $130.8 million or 19.8 percent decrease from 2001 to 2002 resulted from lower master notes, repurchase obligations and federal funds purchased, such reductions in turn being caused by the very low market rates of interest paid on such accounts during 2002. The $81.9 million or 14.2 percent increase from 2000 to 2001 resulted from higher levels of master notes and repurchase obligations as business customers more extensively utilized these forms of cash management instruments. Table 7 provides additional information regarding short-term borrowed funds.

 

Table 7

SHORT-TERM BORROWINGS

 

    

2002

     

2001

     

2000

    

Amount

   

Rate

     

Amount

   

Rate

     

Amount

   

Rate

    

(thousands)

Master notes

                                        

At December 31

   

$

239,718

   

0.40

%

   

$

305,537

   

0.85

%

   

$

322,944

   

5.39

Average during year

   

 

272,736

   

0.91

 

   

 

329,941

   

3.16

 

   

 

309,145

   

5.35

Maximum month-end balance during year

   

 

290,574

   

—  

 

   

 

343,886

   

—  

 

   

 

327,774

   

—  

Repurchase agreements

                                        

At December 31

   

 

166,201

   

0.25

 

   

 

201,763

   

0.60

 

   

 

181,404

   

4.89

Average during year

   

 

194,704

   

0.52

 

   

 

213,830

   

2.50

 

   

 

170,925

   

4.88

Maximum month-end balance during year

   

 

203,456

   

—  

 

   

 

231,353

   

—  

 

   

 

197,113

   

—  

Federal funds purchased

                                        

At December 31

   

 

30,980

   

0.98

 

   

 

41,700

   

1.21

 

   

 

71,825

   

5.93

Average during year

   

 

41,044

   

1.52

 

   

 

63,115

   

3.97

 

   

 

43,157

   

6.23

Maximum month-end balance during year

   

 

53,000

   

—  

 

   

 

92,850

   

—  

 

   

 

73,015

   

—  

Other

                                        

At December 31

   

 

25,728

   

1.12

 

   

 

62,390

   

2.25

 

   

 

56,199

   

4.16

Average during year

   

 

21,484

   

1.85

 

   

 

53,876

   

4.39

 

   

 

55,623

   

6.56

Maximum month-end balance during year

   

 

61,371

   

—  

 

   

 

63,408

   

—  

 

   

 

63,893

   

—  

 

14

 

BancShares continues to have access to various short-term borrowings, including the purchase of federal funds, overnight repurchase obligations and credit lines with various correspondent banks. Management anticipates continued use of these credit sources as needed during 2003.

 

Long-Term Obligations.    At December 31, 2002 and 2001, long-term obligations totaled $253.4 million and $284.0 million, respectively. In each case, the outstanding balance includes $250 million in trust preferred capital securities, $150 million of which were issued in 1998 and $100 million that was issued in October of 2001. The December 31, 2001 balance also includes $30 million in borrowings that were repaid during 2002.

 

During 2002, long-term obligations averaged $263.3 million, compared to $186.6 million during 2001 and $154.6 million during 2000. The $76.7 million increase during 2002 reflects the full-year impact of the $100 million in trust preferred capital securities that were issued during 2001, net of the early repayment of $30 million in long-term obligations. The higher level of long-term obligations during 2001, when compared to 2000, results from the partial-year impact of the trust preferred securities and the $30 million that was borrowed during 2001.

 

Expense of Interest-Bearing Liabilities.    Interest expense amounted to $214.0 million in 2002, a $132.5 million or 38.2 percent decrease from 2001. This followed a $3.7 million or 1.1 percent increase in interest expense during 2001 compared to 2000. The decrease in interest expense during 2002 was the result of lower market interest rates, while the increase in interest expense during 2001 was the net result of higher average volume, partially offset by lower interest rates. The blended rate on all interest-bearing liabilities was 2.34 percent during 2002, compared to 3.94 percent in 2001 and 4.41 percent in 2000. The reductions during 2002 and 2001 resulted from the actions by the Federal Reserve Bank to lower discount and federal funds rates repeatedly during 2001 and again during late 2002. The reductions in these key index rates pushed deposit and other borrowing costs lower during 2001 and 2002.

 

The aggregate rate on interest-bearing deposits was 2.25 percent during 2002, compared to 3.91 percent during 2001 and 4.25 percent during 2000. Interest expense on interest-bearing deposits amounted to $187.9 million during 2002, a 39.5 percent decrease from the $310.8 million recorded during 2001, which was a 3.9 percent increase over the $299.0 million recorded during 2000. The decline in interest expense from 2001 to 2002 was the net result of lower interest rates and higher average deposits. From 2000 to 2001, the increase in interest expense was the result of higher average deposit balances partially offset by lower average interest rates.

 

Interest expense for time deposits was $145.3 million during 2002, a $98.4 million or 40.4 percent decrease from 2001, the combined result of lower interest rates and a reduction in average time deposit balances. The $243.7 million in interest expense recorded during 2001 represents a $23.9 million or 10.9 percent increase over 2000, the net result of growth in average time deposits, partially offset by the impact of interest rate reductions.

 

Interest expense on short-term borrowings amounted to $4.5 million in 2002, a decrease of $16.1 million or 78.1 percent from 2001. Interest expense related to short-term borrowings totaled $20.6 million and $31.2 million, respectively, in 2001 and 2000. The decrease during 2002 was attributable to lower interest rates and decreases in average short-term borrowings. During 2001, the decline in interest expense resulted from lower interest rates, partially offset by higher average short-term borrowings when compared to 2000.

 

Interest expense associated with long-term obligations increased $6.5 million or 42.8 percent during 2002 to $21.6 million. The increase resulted from higher average volume, resulting from the full-year impact of the 2001 trust preferred securities and slightly higher rates. Due to the fixed-rate nature of the $250 million in trust preferred capital securities, the reductions in market interest rates during 2001 and 2002 did not reduce the cost of these borrowings.

 

NET INTEREST INCOME

 

Net interest income was $382.2 million during 2002, a $13.2 million or 3.6 percent increase over 2001. During 2001, net interest income was $368.9 million, a $3.6 million or 1.0 percent increase over 2000. Taxable-equivalent net interest income totaled $383.5 million during 2002, an increase of $12.6 million or 3.4 percent over 2001. This followed an increase of $2.7 million or 0.7 percent during 2001. 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.

 

15

 

As Table 8 demonstrates, the combination of rapidly falling interest rates and the extremely low level to which such interest rates fell significantly challenged our ability to generate increased net interest income during 2002 and 2001. We were unable to adjust the interest rate paid on many of our deposit products in a similar magnitude as that which our interest-earning assets were being impacted by actions of the Federal Reserve Bank. However, in both years, the impact of balance sheet growth was adequate to more than offset the unfavorable impact of lower interest rates. The unfavorable impact of market interest rates on our net interest income is evident by the trend noted in the taxable-equivalent net yield on interest-earning assets, which measures the relationship between taxable-equivalent net interest income and average interest-earning assets. Despite the small increases in net interest income in each successive year, the net yield declined from 4.10 percent in 2000 to 3.69 percent in 2001 and 3.63 percent in 2002.

 

Table 8

CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME

 

    

2002

     

2001

  
    

Change from previous year due to:

     

Change from previous year due to:

  
    

Volume

     

Yield/

Rate

     

Total

Change

     

Volume

     

Yield/

Rate

     

Total

Change

  
    

(thousands)

  

Assets:

                                                      

Loans

   

$

20,065

 

   

$

(96,674

)

   

$

(76,609

)

   

$

12,342

 

   

$

(31,155

)

   

$

(18,813

)

Investment securities:

                                                      

U. S. Government

   

 

18,528

 

   

 

(41,342

)

   

 

(22,814

)

   

 

32,280

 

   

 

(11,248

)

   

 

21,032

 

State, county and municipal

   

 

(93

)

   

 

(22

)

   

 

(115

)

   

 

51

 

   

 

8

 

   

 

59

 

Other

   

 

495

 

   

 

(1,110

)

   

 

(615

)

   

 

760

 

   

 

764

 

   

 

1,524

 

    
  
  
  
  
  

Total investment securities

   

 

18,930

 

   

 

(42,474

)

   

 

(23,544

)

   

 

33,091

 

   

 

(10,476

)

   

 

22,615

 

Overnight investments

   

 

(4,715

)

   

 

(14,987

)

   

 

(19,702

)

   

 

16,685

 

   

 

(14,138

)

   

 

2,547

 

    
  
  
  
  
  

Total interest-earning assets

   

$

34,280

 

   

$

(154,135

)

   

$

(119,855

)

   

$

62,118

 

   

$

(55,769

)

   

$

6,349

 

    
  
  
  
  
  

Liabilities:

                                                      

Deposits:

                                                      

Checking With Interest

   

$

485

 

   

$

(3,095

)

   

$

(2,610

)

   

$

430

 

   

$

(708

)

   

$

(278

)

Savings

   

 

276

 

   

 

(3,521

)

   

 

(3,245

)

   

 

(320

)

   

 

(2,436

)

   

 

(2,756

)

Money market accounts

   

 

13,083

 

   

 

(31,649

)

   

 

(18,566

)

   

 

9,890

 

   

 

(18,967

)

   

 

(9,077

)

Time

   

 

(14,920

)

   

 

(83,505

)

   

 

(98,425

)

   

 

33,119

 

   

 

(9,212

)

   

 

23,907

 

    
  
  
  
  
  

Total interest-bearing deposits

   

 

(1,076

)

   

 

(121,770

)

   

 

(122,846

)

   

 

43,119

 

   

 

(31,323

)

   

 

11,796

 

Short-term borrowings

   

 

(2,602

)

   

 

(13,513

)

   

 

(16,115

)

   

 

3,488

 

   

 

(14,064

)

   

 

(10,576

)

Long-term obligations

   

 

6,246

 

   

 

223

 

   

 

6,469

 

   

 

2,605

 

   

 

(143

)

   

 

2,462

 

    
  
  
  
  
  

Total interest-bearing liabilities

   

$

2,568

 

   

$

(135,060

)

   

$

(132,492

)

   

$

49,212

 

   

$

(45,530

)

   

$

3,682

 

    
  
  
  
  
  

Change in net interest income

   

$

31,712

 

   

$

(19,075

)

   

$

12,637

 

   

$

12,906

 

   

$

(10,239

)

   

$

2,667

 

    
  
  
  
  
  

Changes in income relating to certain loans and investment securities are stated on a taxable-equivalent basis at a rate that approximates BancShares’ marginal tax rate. The taxable equivalent adjustment was $1,343 and $1,940 for the years 2002 and 2001 respectively. Table 5 provides detailed information on average balances, income/expense, yield/rate by category and the relevant income tax rates. The rate/volume variance is allocated equally between the changes in volume and rate.

 

Another measure of the impact of lower interest rates is the interest rate spread, which measures the absolute difference between the yield on interest-earning assets and the cost of interest-bearing liabilities, without regard to any balance sheet changes. The interest rate spread was 3.32 percent during 2002, 3.21 during 2001 and 3.50 percent during 2000. We attribute the 11 basis point increase in the interest rate spread during 2002 to a reduction in time deposits, which contributed to the decline in the blended rate on interest-bearing liabilities. This shift from higher-cost time deposits to transaction deposits caused the rate on interest-bearing liabilities to fall faster than the yield on interest-earning assets. The reduction in the interest rate spread during 2001 resulted from market-driven reductions in interest rates.

 

16

 

Table 9

INTEREST-SENSITIVITY ANALYSIS

 

December 31, 2002

   

1-30

Days Sensitive

     

31-90 Days Sensitive

     

91-180 Days Sensitive

     

181-365 Days Sensitive

   

Total

One Year Sensitive

     

Total Nonsensitive

   

Total

    

(thousands)

Assets:

                                                         

Loans

   

$

4,025,286

 

   

$

130,624

 

   

$

204,950

 

   

$

395,250

   

$

4,756,110

 

   

$

2,864,153

   

$

7,620,263

Investment securities held to maturity

   

 

136,674

 

   

 

420,028

 

   

 

542,868

 

   

 

544,310

   

 

1,643,880

 

   

 

773,703

   

 

2,417,583

Investment securities available for sale

   

 

25,078

 

   

 

—  

 

   

 

—  

 

   

 

20,275

   

 

45,353

 

   

 

76,300

   

 

121,653

Overnight investments

   

 

623,570

 

   

 

—  

 

   

 

—  

 

   

 

—  

   

 

623,570

 

   

 

—  

   

 

623,570

    
  
  
  
  
  
  

Total interest-earning assets

   

$

4,810,608

 

   

$

550,652

 

   

$

747,818

 

   

$

959,835

   

$

7,068,913

 

   

$

3,714,156

   

$

10,783,069

    
  
  
  
  
  
  

Liabilities:

                                                         

Interest-bearing deposits

   

$

4,570,765

 

   

$

580,600

 

   

$

808,801

 

   

$

909,655

   

$

6,869,821

 

   

$

1,712,223

   

$

8,582,044

Short-term borrowings

   

 

462,075

 

   

 

—  

 

   

 

—  

 

   

 

552

   

 

462,627

 

   

 

—  

   

 

462,627

Long-term obligations

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

   

 

—  

 

   

 

253,409

   

 

253,409

    
  
  
  
  
  
  

Total interest-bearing liabilities

   

$

5,032,840

 

   

$

580,600

 

   

$

808,801

 

   

$

910,207

   

$

7,332,448

 

   

$

1,965,632

   

$

9,298,080

    
  
  
  
  
  
  

Interest-sensitivity gap

   

$

(222,232

)

   

$

(29,948

)

   

$

(60,983

)

   

$

49,628

   

$

(263,535

)

   

$

1,748,524

   

$

1,484,989

    
  
  
  
  
  
  

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 extreme 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, 2002, which reflected a one-year negative interest-sensitivity gap of $263.5 million. Theoretically, as a result of this liability-sensitive position, we would expect that increases in interest rates would have an unfavorable impact on net interest income and that further reductions in interest rates would have a favorable impact on net interest income. However, we anticipate portions of our interest-bearing deposits that are classified as sensitive to changes in interest rates would not immediately respond to interest rate increases until more traditional interest rate spreads between transaction deposits and time deposits are re-established. As a result, management believes that an increase in interest rates would likely have a favorable effect on net interest income. Conversely, we project that further interest rate reductions would cause net interest income to decline due to an inability to adjust certain deposit accounts’ rates accordingly.

 

To minimize the potential adverse impact of interest rate fluctuations, management monitors the maturity and repricing distribution of the loan portfolio to reduce its interest rate risk. Additionally, much of the residential mortgage loan production is originated through a correspondent, protecting BancShares from the interest rate exposure that is typical in such lending. Table 10 details the maturity and repricing distribution as of December 31, 2002. Of the gross loans outstanding on December 31, 2002, 43.3 percent have scheduled maturities within one year, 35.4 percent have scheduled maturities between one and five years, while the remaining 21.3 percent have scheduled maturities extending beyond five years. While BancShares continues to have a large percentage of its loan portfolio at fixed interest rates, we continue to offer competitive variable rate lending options to lessen our interest rate exposure.

 

17

 

Table 10

LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY

 

    

December 31, 2002

    

Within One

Year

   

One to Five

Years

   

After Five

Years

   

Total

    

(thousands)

Real estate:

                            

Construction and land development

   

$

453,223

   

$

299,835

   

$

46,220

   

$

799,278

Mortgage:

                            

Commercial

   

 

1,251,888

   

 

644,889

   

 

138,869

   

 

2,035,646

1-4 family residential

   

 

408,678

   

 

308,443

   

 

340,961

   

 

1,058,082

Revolving

   

 

93,108

   

 

332,527

   

 

909,389

   

 

1,355,024

Other

   

 

92,144

   

 

48,259

   

 

9,823

   

 

150,226

    
  
  
  

Total real estate loans

   

 

2,299,041

   

 

1,633,953

   

 

1,445,262

   

 

5,378,256

Commercial and industrial

   

 

512,076

   

 

289,714

   

 

123,985

   

 

925,775

Consumer

   

 

442,230

   

 

663,345

   

 

48,705

   

 

1,154,280

Lease financing

   

 

35,343

   

 

106,029

   

 

—  

   

 

141,372

Other

   

 

12,196

   

 

6,925

   

 

1,459

   

 

20,580

    
  
  
  

Total

   

$

3,300,886  

   

$

2,699,966

   

$

1,619,411

   

$

7,620,263

    
  
  
  

Loans maturing after one year with:

                            

Fixed interest rates

          

$

2,015,038

   

$

613,855

   

$

2,628,893

Floating or adjustable rates

          

 

684,928

   

 

1,005,556

   

 

1,690,484

           
  
  

Total

          

$

2,699,966

   

$

1,619,411

   

$

4,319,377

           
  
  

 

Market risk disclosures. Table 11 provides information regarding the market risk profile of BancShares at December 31, 2002. Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can result in diminished current fair values or reduced net interest income or both in future periods. The more significant changes in our market risk profile from December 31, 2001 to December 31, 2002 include:

 

  •   the fair value of investment securities held to maturity has declined $243.6 million or 9.1 percent; all of the decrease relates to reductions in fixed-rate securities;

 

  •   the fair value of investment securities available for sale has decreased $10.8 million or 8.9 percent; excluding the marketable equity securities, all of the decrease relates to reductions in fixed-rate securities;

 

  •   the fair value of fixed rate loans has declined $737.8 million or 17.4 percent, the result of refinance activity among fixed rate loans during 2002;

 

  •   the fair value of variable rate loans has increased $1.13 billion or 38.0 percent due to strong demand for Equity Line and other variable rate loans during 2002;

 

  •   the fair value of savings and interest-bearing checking deposits increased $726.6 million or 18.7 percent, the result of general volume increases;

 

  •   the fair value of fixed rate time deposits decreased $388.0 million or 8.7 percent; the decrease results from reductions in short-term time deposits;

 

  •   the fair value of short-term borrowings declined $148.8 million due to a reduction in short-term borrowings;

 

  •   the fair value of long-term obligations, all of which are fixed-rate, decreased $16.9 million or 6.1 percent, the result of a reduction in long-term borrowings;

 

18

 

Table 11

MARKET RISK DISCLOSURES

 

    

Maturing in Years ended December 31,

                   

Fair

Value

    

2003

     

2004

     

2005

     

2006

     

2007

     

Thereafter

     

Total

     
    

(thousands)

Assets:

                                                                      

Investment securities held to maturity

                                                                      

Fixed rate

   

$

1,643,887

 

   

$

692,629

 

   

$

52,980

 

   

$

83

 

   

$

211

 

   

$

27,793

 

   

$

2,417,583

 

   

$

2,437,105

Average rate (%)

   

 

2.70

%

   

 

2.14

%

   

 

4.14

%

   

 

4.43

%

   

 

1.23

%

   

 

5.69

%

   

 

2.60

%

       

Investment securities available for sale

                                                                      

Fixed rate

   

 

45,353

 

   

 

20,356

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

589

 

   

 

66,298

 

   

 

66,298

Average rate (%)

   

 

1.98

%

   

 

1.90

%

                              

 

2.57

%

   

 

1.96

%

       

Equity securities

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

55,355

 

   

 

55,355

 

   

 

55,355

Loans

                                                                      

Fixed rate

   

 

665,314

 

   

 

599,641

 

   

 

482,465

 

   

 

566,709

 

   

 

345,417

 

   

 

869,921

 

   

 

3,529,467

 

   

 

3,500,802

Average rate (%)

   

 

7.64

%

   

 

7.55

%

   

 

7.47

%

   

 

7.13

%

   

 

7.16

%

   

 

7.41

%

   

 

7.42

%

   

 

—  

Variable rate

   

 

1,086,365

 

   

 

497,382

 

   

 

444,155

 

   

 

475,398

 

   

 

515,553

 

   

 

1,071,943

 

   

 

4,090,796

 

   

 

4,090,796

Average rate (%)

   

 

5.24

%

   

 

5.61

%

   

 

5.50

%

   

 

5.02

%

   

 

4.89

%

   

 

5.15

%

   

 

5.22

%

       

Liabilities:

                                                                      

Savings and interest-bearing checking

                                                                      

Fixed rate

   

 

4,611,710

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

4,611,710

 

   

 

4,611,710

Average rate (%)

   

 

0.52

%

                                                

 

0.52

%

       

Time deposits

                                                                      

Fixed rate

   

 

2,855,749

 

   

 

715,390

 

   

 

149,040

 

   

 

82,555

 

   

 

116,890

 

   

 

145

 

   

 

3,919,769

 

   

 

4,072,489

Average rate (%)

   

 

2.62

%

   

 

3.75

%

   

 

5.57

%

   

 

4.71

%

   

 

4.13

%

   

 

4.42

%

   

 

3.03

%

       

Variable rate

   

 

41,253

 

   

 

9,312

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

50,565

 

   

 

50,565

Average rate (%)

   

 

1.30

%

   

 

1.50

%

                                       

 

1.34

%

       

Short-term borrowings

                                                                      

Fixed rate

   

 

462,627

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

462,627

 

   

 

462,627

Average rate (%)

   

 

0.42

%

                                                

 

0.42

%

       

Long-term obligation

                                                                      

Fixed rate

   

 

48

 

   

 

349

 

   

 

2,463

 

   

 

376

 

   

 

—  

 

   

 

250,173

 

   

 

253,409

 

   

 

258,277

Average rate (%)

   

 

12.00

%

   

 

8.13

%

   

 

7.94

%

   

 

7.50

%

            

 

8.19

%

   

 

8.18

%

       

 

ASSET QUALITY

 

Nonperforming Assets.    Nonperforming assets include nonaccrual loans and other real estate. With the exception of certain residential mortgage loans, the accrual of interest on loans is discontinued when we deem that collection of additional principal or interest is doubtful; 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. The accrual of interest on certain residential mortgage loans is discontinued when a loan is more than three monthly payments past due; the accrual of interest on these loans resumes when the loan is less than three monthly payments past due. Other real estate includes foreclosed property as well as branch facilities we have closed but have yet to be sold. Nonperforming assets balances for the past five years are presented in Table 12.

 

BancShares’ nonperforming assets at December 31, 2002 totaled $22.9 million, compared to $20.2 million at December 31, 2001 and $17.8 million at December 31, 2000. As a percentage of total loans and other real estate, nonperforming assets represented 0.30 percent, 0.28 percent and 0.25 percent as of December 31, 2002, 2001 and 2000. Nonperforming assets included nonaccrual loans totaling $15.5 million at December 31, 2002, compared to $14.0 million at December 31, 2001 and $15.9 million at December 31, 2000. At December 31, 2002, nonaccrual loans included $9.3 million in balances classified as impaired. At December 31, 2001, impaired loans totaled $6.3 million. The increases in loan balances classified as nonaccrual and impaired during 2002 resulted from the weak economy as well as our ongoing efforts to identify and successfully resolve credit exposures.

 

19

 

Table 12

RISK ELEMENTS

 

    

December 31,

  
    

2002

     

2001

     

2000

     

1999

     

1998

  
    

(thousands, except ratios)

  

Nonaccrual loans

   

$

15,521

 

   

$

13,983

 

   

$

15,933

 

   

$

10,720

 

   

$

12,489

 

Other real estate

   

 

7,330

 

   

 

6,263

 

   

 

1,880

 

   

 

1,600

 

   

 

1,529

 

    
  
  
  
  

Total nonperforming assets

   

$

22,851

 

   

$

20,246

 

   

$

17,813

 

   

$

12,320

 

   

$

14,018

 

    
  
  
  
  

Accruing loans 90 days or more past due

   

$

9,566

 

   

$

12,981

 

   

$

6,731

 

   

$

3,576

 

   

$

5,721

 

Loans at December 31

   

$

7,620,263

 

   

$

7,196,177

 

   

$

7,109,692

 

   

$

6,751,039

 

   

$

6,195,591

 

Ratio of nonperforming assets to total loans plus other real estate

   

 

0.30

%

   

 

0.28

%

   

 

0.25

%

   

 

0.18

%

   

 

0.23

%

    
  
  
  
  

Interest income that would have been earned on nonperforming loans had they been performing

   

$

1,190

 

   

$

1,060

 

   

$

1,209

 

   

$

894

 

   

$

1,108

 

Interest income earned on nonperforming loans

   

 

753

 

   

 

333

 

   

 

587

 

   

 

287

 

   

 

409

 

    
  
  
  
  

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, 2002. There were no foreign loans outstanding in any period.

 

Other real estate totaled $7.3 million, $6.3 million and $1.9 million at December 31, 2002, 2001 and 2000, respectively, the result of higher foreclosure activity required during 2002 to minimize losses from deteriorating credits. Although our levels of nonperforming assets increased during 2002 and 2001, we noted an improvement in delinquencies as of December 31, 2002. Accruing loans 90 days or more past due totaled $9.6 million at December 31, 2002, compared to $13.0 million at December 31, 2001.

 

Management anticipates the level of nonperforming assets will not decline from the current levels until consistently positive trends in economic activity are evident. Should economic conditions worsen, we would expect to see higher levels of nonperforming assets. Management continues to closely monitor past due accounts to identify any loans that should be classified as impaired or non-accrual.

 

Reserve for Loan Losses. At December 31, 2002, BancShares’ reserve for loan losses was $112.5 million or 1.48 percent of loans outstanding. This compares to $107.1 million or 1.49 percent at December 31, 2001, and $102.7 million or 1.44 percent at December 31, 2000.

 

The provision for loan losses charged to operations was $26.6 million during 2002 compared to $24.1 million during 2001 and $15.5 million during 2000. The $2.4 million or 10.0 percent increase in provision for loan losses from 2001 to 2002 resulted from growth in nonperforming assets, higher loss estimates and higher net charge-offs during 2002.

 

Net charge-offs for 2002 totaled $21.1 million, compared to $18.9 million during 2001, and $11.5 million during 2000. The ratio of net charge-offs to average loans outstanding equaled 0.29 percent during 2002, 0.27 percent during 2001 and 0.17 percent during 2000. Despite the increases during 2001 and 2002, these loss ratios continue to reflect the quality of BancShares’ loan portfolio. Table 13 provides details concerning the reserve for loan losses and provision for loan losses for the past five years.

 

20

 

Table 13

SUMMARY OF LOAN LOSS EXPERIENCE

 

    

2002

     

2001

     

2000

     

1999

     

1998

  
    

(thousands, except ratios)

  

Balance at beginning of year

   

$

107,087

 

   

$

102,655

 

   

$

98,690

 

   

$

96,115

 

   

$

84,360

 

Adjustment for sale of loans

   

 

—  

 

   

 

(777

)

   

 

—  

 

   

 

—  

 

   

 

—  

 

Provision for loan losses

   

 

26,550

 

   

 

24,134

 

   

 

15,488

 

   

 

11,672

 

   

 

19,879

 

Charge-offs:

                                             

Real estate:

                                             

Construction and land development

   

 

(580

)

   

 

(205

)

   

 

—  

 

   

 

(7

)

   

 

(2

)

Mortgage:

                                             

Commercial

   

 

(1,186

)

   

 

(2,758

)

   

 

(280

)

   

 

(111

)

   

 

(112

)

1-4 family residential

   

 

(2,916

)

   

 

(1,171

)

   

 

(898

)

   

 

(966

)

   

 

(826

)

Revolving

   

 

(902

)

   

 

(899

)

   

 

(805

)

   

 

(23

)

   

 

(134

)

Other

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

    
  
  
  
  

Total real estate loans

   

 

(5,584

)

   

 

(5,033

)

   

 

(1,983

)

   

 

(1,107

)

   

 

(1,074

)

Commercial and industrial

   

 

(7,654

)

   

 

(6,736

)

   

 

(5,678

)

   

 

(1,800

)

   

 

(2,001

)

Consumer

   

 

(10,117

)

   

 

(10,101

)

   

 

(8,199

)

   

 

(10,748

)

   

 

(10,789

)

Lease financing

   

 

(1,585

)

   

 

(422

)

   

 

(46

)

   

 

(32

)

   

 

(203

)

    
  
  
  
  

Total charge-offs

   

 

(24,940

)

   

 

(22,292

)

   

 

(15,906

)

   

 

(13,687

)

   

 

(14,067

)

    
  
  
  
  

Recoveries:

                                             

Real estate:

                                             

Construction and land development

   

 

—  

 

   

 

—  

 

   

 

8

 

   

 

42

 

   

 

93

 

Mortgage:

                                             

Commercial

   

 

954

 

   

 

504

 

   

 

688

 

   

 

1,262

 

   

 

2,877

 

1-4 family residential

   

 

239

 

   

 

260

 

   

 

347

 

   

 

368

 

   

 

689

 

Revolving

   

 

15

 

   

 

58

 

   

 

33

 

   

 

13

 

   

 

10

 

Other

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

    
  
  
  
  

Total real estate loans

   

 

1,208

 

   

 

822

 

   

 

1,076

 

   

 

1,685

 

   

 

3,669

 

Commercial and industrial

   

 

1,212

 

   

 

755

 

   

 

1,581

 

   

 

835

 

   

 

512

 

Consumer

   

 

1,413

 

   

 

1,787

 

   

 

1,726

 

   

 

2,070

 

   

 

1,762

 

Lease financing

   

 

3

 

   

 

3

 

   

 

—  

 

   

 

—  

 

   

 

—  

 

    
  
  
  
  

Total recoveries

   

 

3,836

 

   

 

3,367

 

   

 

4,383

 

   

 

4,590

 

   

 

5,943

 

    
  
  
  
  

Net charge-offs

   

 

(21,104

)