-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGuaQ62EFOQZFNpmUOzYE2+n3pLzdG+kdsN4BRZcN7CIEIznurQFCkkbSgNdAz+K aEArRuT1n+WjsM/AmZ6HBw== 0000950168-96-000521.txt : 19960329 0000950168-96-000521.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950168-96-000521 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CITIZENS BANCSHARES INC /DE/ CENTRAL INDEX KEY: 0000798941 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 561528994 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16471 FILM NUMBER: 96539848 BUSINESS ADDRESS: STREET 1: 239 FAYETTEVILLE STREET MALL CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9197557000 MAIL ADDRESS: STREET 1: PO BOX 27131 STREET 2: CTWO7 CITY: RALEIGH STATE: NC ZIP: 27611-7131 10-K405 1 FIRST CITIZENS 10-K405 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 December 31, 1995 0-16471 For the fiscal year ended Commission File Number 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) Registrant's Telephone Number, including Area Code: (919) 755-7000 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) 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. [X] Based on last reported sales prices on March 20, 1996, the aggregate market value of the Registrant's voting stock held by nonaffiliates of the Registrant as of such date was $329,759,700. On March 20, 1995, there were 9,638,929 outstanding shares of the Registrant's Class A Common Stock and 1,766,464 outstanding shares of the Registrant's Class B Common Stock. Portions of the Registrant's definitive Proxy Statement dated March 13, 1996 are incorporated in Part III of this report, as is information contained in the 1995 Annual Report. Part I Item 1. Business 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. 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. The Bank is the fifth largest commercial bank in North Carolina based upon total deposits. Its growth has been generated principally by acquisitions and de novo branching that have occurred under the leadership of the R.P. Holding family. As of December 31, 1995, the Bank operated 309 offices in 187 towns and cities. On February 2, 1995, BancShares acquired Pace American Bank ("Pace"), a Virginia-chartered bank with headquarters in Lawrenceville, Virginia. Pace subsequently acquired nine offices from another bank. On January 1, 1996, the Virginia bank was merged into the North Carolina bank. On June 1, 1995, BancShares acquired Bank of White Sulphur Spring ("WSS"), a West Virginia-chartered bank with headquarters in White Sulphur Springs, West Virginia. WSS operated two offices and had $70.8 million in assets as of December 31, 1995. BancShares' executive offices are located at 239 Fayetteville Street, Raleigh, North Carolina, 27601, and its telephone number is 919/755/7000. At December 31, 1995, BancShares and its subsidiaries employed a full-time staff of 3350 and a part-time staff of 804 for a total of 4154 employees. BancShares' principal assets are its investment subsidiary in and receivables from its banking subsidiaries. Its primary sources of income are dividends from the Bank and interest income on funds loaned by BancShares to the Bank. 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 O of BancShares' consolidated financial statements, contained in this report. The 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 and consumer lending; a full-service trust department; and other activities incidental to commercial banking. Bank subsidiaries American Guaranty Insurance Company and Triangle Life Insurance Company underwrite and sell various forms of credit-related insurance products. Neuse, Incorporated ("Neuse"), owns a substantial number of the facilities in which the Bank operates branches. First Citizens Investor Services, Inc., provides various investment products, including third-party mutual funds to customers. Various other subsidiaries are either inactive or not material to BancShares' consolidated financial position or to consolidated net income. As of December 31, 1995, BancShares had consolidated assets of $7.4 billion, consolidated deposits of $6.4 billion and shareholders' equity of $520.8 million. Table 6 includes information such as average assets, deposits, shareholders' equity and interest-earning assets of BancShares for the five years ended December 31, 1995. Rates of return on average assets and average equity and the ratio of shareholders' equity to total assets for the last five years are presented in Table 1 of this report. The banking laws of North Carolina, West Virginia and Virginia allow for statewide branching. Consequently, commercial banking in these states is highly competitive. BancShares' subsidiaries compete with other financial institutions throughout their market areas. During 1994, Congress approved legislation that will allow adequately capitalized and managed bank holding companies to acquire control of banks in any state ("the Interstate Banking Law"). Acquisitions will be subject to anti-trust provisions that limit the state and national deposits that may be controlled by a single bank holding company. Under the Interstate Banking Law, banks will be permitted, beginning June 1, 1997, to merge across state lines, subject to concentration, capital and Community Reinvestment Act requirements and regulatory approval. A state may authorize mergers earlier than June 1, 1997, or a state may enact restrictions on mergers prior to that date. The Interstate Banking Law also allows states to permit out-of-state banks to open new branches within their borders. Currently, in North Carolina, the Reciprocal Interstate Banking Act and the Interstate Branch Banking Act allow a bank or bank holding company based in other states to acquire banks or bank holding companies or establish branches within the State of North Carolina, provided similar laws exist in the other state. The banks operate under the jurisdiction of the Federal Deposit Insurance Corporation and the respective state banking authority and are subject to the laws administered by those authorities and the rules and regulations thereunder. As a registered bank holding company, BancShares is subject to the jurisdiction of the Board of Governors of the Federal Reserve System. BancShares also is registered as a bank 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. Item 2. Properties As of December 31, 1995, the Bank owned land improved by office buildings in which its operates offices at 166 locations. The Bank leases from Neuse 64 locations that have office buildings located thereon in which the Bank maintains offices. In addition, the Bank leases 134 other locations. Additional information relating to premises, equipment and lease commitments is set forth in Note E of BancShares' consolidated financial statements. Item 3. Legal Proceedings BancShares, the banks and various Bank 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. Item 4. Submission of Matters to a Vote of Security Holders Not applicable Part II Item 5. 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 listed on the National Association of Securities Dealers Automated Quotation National Market System under the symbol FCNCA. Stock information for the two-year period ending December 31, 1995, is presented in Table 16. The per share cash dividends paid by BancShares during each quarterly period during 1995 and 1994 are set forth in Table 16 of this report. A cash dividend of 22.5 cents per share was declared by the Board of Directors on January 22, 1996, payable April 1, 1996, to holders of record as of March 18, 1996. 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. Additional information is included on page 35 of Registrant's 1995 Annual Report. Item 6. Selected Financial Data Information is included on page 20 of Registrant's 1995 Annual Report in the table 'Financial Summary and Selected Average Balances and Ratios'. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information is included on pages 20 through 37 of Registrant's 1995 Annual Report Item 8. Financial Statements and Supplementary Data Information is included on the indicated pages of Registrant's 1995 Annual Report: Independent Auditors' Report 38 Consolidated Balance Sheets at December 31, 1995 and 1994 39 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 1995 40 Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three-year period ended December 31, 1995 41 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1995 42 Notes to Consolidated Financial Statements 43-57 Quarterly Financial Summary for 1995 and 1994 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable Part III Information required by Part III of this Report on Form 10-K is incorporated herein by reference from the indicated pages of Registrant's definitive Proxy Statement dated March 13, 1996, as follows: Item 10. Directors and Executive Officers of the Registrant Information found on pages 7-9 under the caption "Proposal 1: Election of Directors" and 13 under the caption "Executive Officers." Item 11. Executive Compensation Information found on pages 9 under the caption "Directors' Fees and Compensation;" 11 under the caption "Compensation Committee Interlocks and Insider Participation;" 14-16 under the captions "Executive Compensation," "Employee Stock Purchase Plan," and "Pension Plan and Other Post-Retirement Benefits." Item 12. Security Ownership of Certain Beneficial Owners and Management Information found on pages 2-6 under the captions "Principal Holders of Voting Securities" and "Ownership of Securities by Management." Item 13. Certain Relationships and Related Transactions Information found on pages 9 under footnote (4) to the table under the caption "Proposal 1:: Election of Directors" and 17 under the caption "Transactions with Management." PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements. See Item 8 2. Financial Statement Schedules. All schedules are omitted as the required information is either inapplicable or is presented in the consolidated financial statements of the Registrant. 3. Exhibits. The following documents are attached hereto or incorporated herein by reference as exhibits: 3.1 Certificate of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 of the 1992 Annual Report to the SEC on Form 10-K) 3.2 Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.2 of the 1993 Annual Report to the SEC on Form 10-K) 4.1 Specimen of Registrant's Class A Common Stock certificate (incorporated herein by reference to Exhibit 4.1 of the 1993 Annual Report to the SEC on Form 10-K) 4.2 Specimen of Registrant's Class B Common Stock certificate (incorporated herein by reference to Exhibit 4.2 of the 1993 Annual Report to the SEC on Form 10-K) *10.1 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Lewis R. Holding (incorporated herein by reference to Exhibit 10.1 of Registrant's 1993 Annual Report to the SEC on Form 10-K) *10.2 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding (incorporated herein by reference to Exhibit 10.2 of Registrant's 1993 Annual Report to the SEC on Form 10-K) *10.3 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and James B. Hyler, Jr. (incorporated herein by reference to Exhibit 10.3 of Registrant's 1993 Annual Report to the SEC on Form 10-K) *10.4 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 23, 1995, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding, Jr.(incorporated herein by reference to Exhibit 10.4 of Registrant's 1994 Annual Report to the SEC on Form 10-K) INCORPORATION BY REFERENCE CROSS REFERENCE SHEET (continued) *10.5 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement dated August 23, 1989, as amended by the Second Amendment of Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and James M. Parker (incorporated herein by reference to Exhibit 10.8 of Registrant's 1993 Annual Report to the SEC on Form 10-K) *10.6 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement dated January 1, 1986, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick (incorporated herein by reference to Exhibit 10.6 of the 1987 Annual Report to the SEC on Form 10-K) *10.7 Consulting Agreement dated February 17, 1988, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick (incorporated herein by reference to Exhibit 10.7 of the 1987 Annual Report to the SEC on Form 10-K) *10.9 Retirement Payment Agreement dated May 1, 1985, between First Federal Savings and Loan Association, Hendersonville, North Carolina ("First Federal"), and William McKay, which agreement was ratified by Registrant upon its acquisition of First Federal (incorporated herein by reference to Exhibit 10.9 of the 1991 Annual Report to the SEC on Form 10-K) *10.10 Retirement Payment Agreement dated August 1, 1987, between First Federal and William McKay, which agreement was ratified by Registrant upon its acquisition of First Federal (incorporated herein by reference to Exhibit 10.10 of the 1991 Annual Report to the SEC on Form 10-K) *10.11 Employment Agreement dated August 4, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash (incorporated herein by reference to Exhibit 10.11 of the 1994 Annual Report to the SEC on Form 10-K) *10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe Homestead and Loan Assn., Inc. ("Edgecombe"), and Brent D. Nash, which agreement was ratified by Registrant upon its acquisition of Edgecombe (incorporated herein by reference to Exhibit 10.12 of the 1994 Annual Report to the SEC on Form 10-K) *10.13 Article IV Section 4.1.d of the Agreement and Plan of Reorganization and Merger by and among First Investors Savings Bank, Inc., SSB, First-Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1994, located at page II-38 of Registrant's S-4 Registration Statement filed with the Commission on December 19, 1994 (Registration No. 33-84514) *10.14 Article IV Section 4.1.e of the Agreement and Plan of Reorganization and Merger by and among State Bank and First-Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1994, located at page I-36 of Registrant's S-4 Registration Statement filed with the Commission on November 16, 1994 (Registration No. 33-86286) *10.15 Article V Section 5.4a of the Agreement and Plan of Reorganization and Merger By and Between Allied Bank Capital, Inc. and First Citizens BancShares, Inc., dated August 7, 1995, located at page 1-47 of Registrant's S-4 Registration Statement filed with the Commission on September 28, 1995 (Registration No. 33-63009) 13 Registrant's Annual Report to Shareholders for the year ended December 31, 1995 (filed herewith) 22 Subsidiaries of the Registrant (filed herewith) 23 Consent of KPMG Peat Marwick LLP (filed herewith) 99 Registrant's definitive Proxy Statement dated March 13, 1996 (filed pursuant to Rule 14aA6(c)) - ------------------ * Denotes a management contract or compensation plan or arrangement in which an executive officer or director of Registrant participates. (b) Reports on Form 8-K. During the fourth quarter of 1995 the Registrant filed no Form 8-K Current Reports. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 28, 1996 FIRST CITIZENS BANCSHARES, INC. (Registrant) /s/ James B. Hyler, Jr. James B. Hyler, Jr. Vice Chairman and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant and in the capacities indicated on March 18, 1996. Signature Title Date /s/Lewis R. Holding Chairman and Chief March 28, 1996 Lewis R. Holding Executive Officer (principal executive officer) /s/Frank B. Holding Executive Vice Chairman March 28, 1996 Frank B. Holding /s/James B. Hyler, Jr. Vice Chairman March 28, 1996 James B. Hyler, Jr. /s/Frank B. Holding, Jr. President March 28, 1996 Frank B. Holding, Jr. /s/Kenneth A. Black Vice President, March 28, 1996 Kenneth A. Black Treasurer, and Chief Financial Officer (principal financial and accounting officer) Signature Title Date /s/John M. Alexander, Jr. Director March 28, 1996 John M. Alexander, Jr. /s/Ted L. Bissett Director March 28, 1996 Ted L. Bissett /s/B. Irvin Boyle Director March 28, 1996 B. Irvin Boyle Director March 28, 1996 George H. Broadrick /s/H. Max Craig, Jr. Director March 28, 1996 H. Max Craig, Jr. /s/Betty M. Farnsworth Director March 28, 1996 Betty M. Farnsworth /s/Lewis M. Fetterman Director March 28, 1996 Lewis M. Fetterman /s/Charles B.C. Holt Director March 28, 1996 Charles B.C. Holt Signature Title Date /s/Gale D. Johnson Director March 28, 1996 Gale D. Johnson /s/Freeman R. Jones Director March 28, 1996 Freeman R. Jones /s/Lucius S. Jones Director March 28, 1996 Lucius S. Jones /s/I. B. Julian Director March 28, 1996 I. B. Julian /s/Joseph T. Maloney, Jr. Director March 28, 1996 Joseph T. Maloney, Jr. /s/J. Claude Mayo, Jr. Director March 28, 1996 J. Claude Mayo, Jr. /s/William McKay Director March 28, 1996 William McKay Signature Title Date /s/Brent D. Nash Director March 28, 1996 Brent D. Nash /s/Lewis T. Nunnelee, II Director March 28, 1996 Lewis T. Nunnelee, II /s/Talbert O. Shaw Director March 28, 1996 Talbert O. Shaw Director March 28, 1996 R. C. Soles, Jr. /s/David L. Ward, Jr. Director March 28, 1996 David L. Ward, Jr. EXHIBIT INDEX
Exhibit Sequential Number Description of Exhibit Page Number 3.1 Certificate of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 of the 1992 Annual Report to the SEC on Form 10-K) - 3.2 Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.2 of the 1993 Annual Report to the SEC on Form 10-K) - 4.1 Specimen of Registrant's Class A Common Stock certificate (incorporated herein by reference to Exhibit 4.1 of the 1993 Annual Report to the SEC on Form 10-K) - 4.2 Specimen of Registrant's Class B Common Stock certificate (incorporated herein by reference to Exhibit 4.2 of the 1993 Annual Report to the SEC on Form 10-K) - 10.1 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Lewis R. Holding (incorporated herein by reference to Exhibit 10.1 of the 1993 Annual Report to the SEC on Form 10-K) - 10.2 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding (incorporated herein by reference to Exhibit 10.2 of the 1993 Annual Report to the SEC on Form 10-K) - 10.3 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Third Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and James B. Hyler, Jr. (incorporated herein by reference to Exhibit 10.3 of the 1993 Annual Report to the SEC on Form 10-K) - 10.4 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 23, 1995, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding, Jr. (incorporated herein by reference to Exhibit 10.4 of the 1994 Annual Report to the SEC on Form 10-K) - 10.5 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated August 23, 1989, as amended by the Second Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 24, 1994, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and James M. Parker (incorporated herein by reference to Exhibit 10.8 of the 1993 Annual Report to the SEC on Form 10-K) -
EXHIBIT INDEX (continued)
Exhibit Sequential Number Description of Exhibit Page Number 10.6 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement dated January 1, 1986, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick (incorporated herein by reference to Exhibit 10.6 of the 1987 Annual Report to the SEC on Form 10-K) - 10.7 Consulting Agreement dated February 17, 1988, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick (incorporated herein by reference to ExhibitE10.7 of the 1987 Annual Report to the SEC on Form 10-K) - 10.9 Retirement Payment Agreement dated May 1, 1985, between First Federal and William McKay, which agreement was ratified by Registrant upon its acquisition of First Federal (incorporated herein by reference to Exhibit 10.9 of the 1991 Annual Report to the SEC on Form 10-K) - 10.10 Retirement Payment Agreement dated August 1, 1987, between First Federal Savings Bank and William McKay, which agreement was ratified by Registrant upon its acquisition of First Federal (incorporated herein by reference to Exhibit 10.10 of the 1991 Annual Report to the SEC on Form 10-K) - 10.11 Employment Agreement dated August 4, 1995, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash (incorporated herein by reference to Exhibit 10.10 of the 1994 Annual Report to the SEC on Form 10-K) - 10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe Homestead and Loan Assn., Inc. ("Edgecombe"), and Brent D. Nash, which agreement was ratified by Registrant upon its acquisition of Edgecombe (incorporated herein by reference to Exhibit 10.10 of the 1994 Annual Report to the SEC on Form 10-K) - 10.13 Article IV Section 4.1.d of the Agreement and Plan of Reorganization and Merger by and among First Investors Savings Bank, Inc., SSB, First-Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1994, located at page II-38 of Registrant's S-4 Registration Statement filed with the Commission on December 19, 1994 (Registration No. 33-84514) - 10.14 Article IV Section 4.1.e of the Agreement and Plan of Reorganization and Merger by and among State Bank and First-Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1994, located at page I-36 of Registrant's S-4 Registration Statement filed with the Commission on November 16, 1994 (Registration No. 33-86286) - 10.15 Article V Section 5.4a of the Agreement and Plan of Reorganization and Merger By and Between Allied Bank Capital, Inc. and First Citizens BancShares, Inc., dated August 7, 1995, located at page I-47 of Registrant's S-4 Registration Statement filed with the Commission on September 28, 1995 (Registration No. 33-63009) 13 Registrant's 1995 Annual Report for the year ended December 31, 1995 (filed herewith) 22 Subsidiaries of the Registrant (filed herewith) 23 Consent of KPMG Peat Marwick LLP (filed herewith) 99 Registrant's definitive Proxy Statement dated March 13, 1996 (filed pursuant to Rule 14aA6(c)) -
EX-13 2 EXHIBIT 13 EXHIBIT 13 1995 ANNUAL REPORT 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 1995, 1994 and 1993. BancShares is a bank holding company with three wholly-owned banking subsidiaries - First-Citizens Bank & Trust Company (the "Bank"), a North Carolina-chartered bank (with branches in North Carolina and Virginia), Bank of Marlinton ("Marlinton") and Bank of White Sulphur Springs ("WSS"), both of which are West Virginia-chartered banks. Marlinton was acquired by BancShares in September 1994, while WSS was acquired during June 1995. This discussion and related financial data should be read in conjunction with the audited consolidated financial statements and related footnotes presented in this report. SUMMARY BancShares experienced an 11.6 percent increase in earnings during 1995, compared to 1994. The increase was due to increased levels of net interest income and noninterest income. These increases offset the growth in noninterest expense during 1995. Consolidated net income amounted to $56.9 million during 1995, compared to $51 million during 1994 and $55.6 million during 1993. Net income per share for the year ended December 31, 1995 totaled $5.37, compared to $5.13 and $5.73 for 1994 and 1993, respectively. Return on average assets totaled 0.83 percent, 0.84 percent and 1.00 percent during 1995, 1994 and 1993, respectively.
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS Table 1 (thousands, except share data and ratios) 1995 1994 1993 1992 1991 SUMMARY OF OPERATIONS Interest income $ 471,109 $ 376,005 $ 364,881 $ 390,380 $ 421,844 =================================================================== Interest income - taxable equivalent $ 473,371 $ 377,858 $ 366,379 $ 391,668 $ 423,368 Interest expense 224,664 148,126 137,934 170,558 245,684 ------------------------------------------------------------------ Net interest income-taxable equivalent 248,707 229,732 228,445 221,110 177,684 Taxable equivalent adjustment 2,262 1,853 1,498 1,288 1,524 ------------------------------------------------------------------ Net interest income 246,445 227,879 226,947 219,822 176,160 Provision for loan losses 5,364 2,786 15,245 17,506 15,626 ------------------------------------------------------------------ Net interest income after provision for loan losses 241,081 225,093 211,702 202,316 160,534 Noninterest income 92,128 83,325 85,737 74,303 70,270 Noninterest expense 245,880 230,582 213,213 199,199 187,596 ------------------------------------------------------------------ Income before income taxes 87,329 77,836 84,226 77,420 43,208 Income taxes 30,423 26,867 28,641 25,657 14,027 =================================================================== Net income $ 56,906 $ 50,969 $ 55,585 $ 51,763 $ 29,181 =================================================================== SELECTED AVERAGE BALANCES Total assets $ 6,846,959 $ 6,098,944 $ 5,576,179 $ 5,308,165 $ 5,084,615 Investment securities 1,611,549 1,599,565 1,522,715 1,522,571 1,597,060 Loans 4,433,517 3,800,318 3,401,093 3,173,285 2,866,834 Interest-earning assets 6,191,422 5,476,690 5,002,144 4,762,846 4,557,240 Deposits 5,952,090 5,335,057 4,894,319 4,684,982 4,491,509 Interest-bearing liabilities 5,410,495 4,838,749 4,445,120 4,299,143 4,156,635 Long-term obligations 26,307 52,499 29,318 18,245 29,960 Shareholders' equity $ 487,895 $ 416,983 $ 362,733 $ 307,818 $ 264,512 Shares outstanding 10,597,066 9,944,927 9,701,389 9,494,118 9,360,904 =================================================================== PROFITABILITY RATIOS (AVERAGES) Rate of return (annualized) on: Total assets 0.83 % 0.84 % 1.00 % 0.98 % 0.57 % Shareholders' equity 11.66 12.22 15.32 16.82 11.03 Dividend payout ratio 15.36 14.13 10.91 9.63 13.62 =================================================================== LIQUIDITY AND CAPITAL RATIOS (AVERAGES) Loans to deposits 74.49 % 71.23 % 69.49 % 67.73 % 63.83 % Shareholders' equity to total assets 7.13 6.84 6.51 5.80 5.20 Time certificates of $100,000 or more to total deposits 8.33 6.41 5.81 6.36 7.88 =================================================================== PER SHARE OF STOCK Net income $ 5.37 $ 5.13 $ 5.73 $ 5.45 $ 3.12 Cash dividends 0.825 0.725 0.625 0.525 0.425 Market price at December 31 (Class A) 55.125 43.50 46.50 50.75 27.50 Book value at December 31 48.60 44.11 39.84 34.74 29.97 Tangible book value at December 31 41.75 39.97 36.53 33.25 28.15 ===================================================================
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 6 is useful in making such an analysis. Much of BancShares' growth in recent years has resulted from various business combinations. Table 2 details the significant transactions, all of which were accounted for as purchases, with the results of operations included with BancShares' Statements of Income since the respective acquisition dates. Significant Acquisitions Table 2 (thousands)
Total Total Date Institution and Location Assets Deposits - -------------------------------------------------------------------------------------------------------------------- June 1995 Bank of White Sulphur Springs $64,589 $59,174 White Sulphur Springs, West Virginia May 1995 9 NationsBank of Virginia branches 133,175 143,494 Southern Virginia March 1995 State Bank 49,700 41,238 Fayetteville, North Carolina February 1995 Pace American Bank 58,660 53,303 Lawrenceville, Virginia February 1995 First Investors Savings Bank, Inc. SSB 44,426 40,846 Whiteville, North Carolina December 1994 First Republic Savings Bank, FSB 53,661 42,998 Roanoke Rapids, North Carolina September 1994 Bank of Marlinton 51,646 46,647 Marlinton, West Virginia August 1994 Edgecombe Homestead Savings Bank 39,181 30,195 Tarboro, North Carolina March 1994 Bank of Bladenboro 21,316 19,515 Bladenboro, North Carolina - --------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS Interest-earning assets averaged $6.19 billion during 1995, an increase of $714.7 million or 13.1 percent over 1994 levels, compared to a 9.5 percent increase in 1994 over 1993 levels. The higher levels of interest-earning assets during 1995 resulted primarily from loan growth. Loans. As of December 31, 1995, gross loans outstanding were $4.58 billion, a 10.4 percent increase over the December 31, 1994, balance of $4.15 billion. During 1995, loans resulting from acquisitions totaled $170.4 million. Loan balances for the last five years are provided in Table 3. During 1995, average loans were $4.43 billion, an increase of $633.2 million or 16.7 percent over 1994, compared to an increase of $399.2 million or 11.7 percent in 1994 when compared to 1993. Loans secured by real estate and loans to individuals experienced the strongest growth during 1995, expanding at rates of 21.5 percent and 15.4 percent, respectively over 1994. Loans secured by real estate averaged $2.75 billion during 1995, compared to $2.27 billion during 1994. Much of the growth in average real estate secured loans during 1995 was among commercial borrowers. Non-real estate commercial and industrial loans experienced little growth during 1995, averaging $438 million during the current year compared to $440.6 million in 1994. LOANS Table 3
December 31 ---------------------------------------------------------------------- (thousands) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- Real estate: Construction and land development $104,540 $100,708 $117,693 $149,847 $164,676 Mortgage: 1-4 family residential 1,438,655 1,296,713 1,138,254 1,036,425 905,858 Commercial 770,246 720,407 614,018 565,735 579,593 Equity Line 397,225 349,092 293,200 283,331 283,565 Other 129,292 109,069 56,029 47,860 50,898 Commercial and industrial 466,462 373,947 408,565 371,656 420,251 Consumer 1,199,400 1,119,994 889,260 706,286 677,815 Lease financing 59,899 60,598 45,398 35,634 30,680 Other 15,000 17,605 22,574 11,101 10,470 - ----------------------------------------------------------------------------------------------------------------------- Total 4,580,719 4,148,133 3,584,991 3,207,875 3,123,806 Less reserve for loan losses 78,495 72,017 70,049 58,380 53,730 ======================================================================================================================= Net loans $4,502,224 $4,076,116 $3,514,942 $3,149,495 $3,070,076 =======================================================================================================================
Loans to individuals averaged $1.17 billion during 1995 compared to $1 billion during 1994. The retail installment loan products continue to be attractive to individual borrowers wishing to finance purchases of new and used vehicles. Management anticipates sustained growth among commercial loans during 1996, with retail loans increasing at more modest levels. The fair value of loans outstanding as of December 31, 1995, net of the loan loss reserve, was $21.4 million above the book value. As of December 31, 1994, the book value exceeded fair value by $103 million. The improvement in the fair value relative to book is due changing market rates between the measurement dates. To minimize the potential adverse impact of interest rate fluctuations, management continuously monitors the maturity and repricing distribution of the loan portfolio. BancShares also offers variable rate loan products and fixed rate callable loans to ease the interest rate risk. Table 4 details the maturity and repricing distribution as of December 31, 1995. Of the gross loans outstanding on December 31, 1995, 26.2 percent have scheduled maturities within one year, 52.8 percent have scheduled maturities between one and five years, while the remaining 21 percent have scheduled maturities extending beyond five years. LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY Table 4
December 31, 1995 Within One to Five After (thousands) One Year Years Five Years Total Real estate: Construction and land development $34,013 $65,191 $5,336 $104,540 Mortgage: 1-4 family residential 256,047 589,151 593,457 1,438,655 Commercial 250,443 480,508 39,295 770,246 Equity Line 27,806 99,306 270,113 397,225 Other 42,020 80,679 6,593 129,292 Commercial and industrial 173,489 267,377 25,596 466,462 Consumer 395,968 782,569 20,863 1,199,400 Lease financing 14,975 44,924 - 59,899 Other 4,866 9,196 938 15,000 Total $1,199,627 $2,418,901 $962,191 $4,580,719 Loans maturing after one year with: Fixed interest rates $1,627,398 $481,882 $2,109,280 Floating or adjustable rates 791,503 480,309 1,271,812 Total $2,418,901 $962,191 $3,381,092
Investment Securities. At December 31, 1995 and 1994, the investment portfolio totaled $1.98 billion and $1.46 billion, respectively. In each period, U.S. Government securities represented substantially all of the portfolio. Investment securities averaged $1.61 billion during 1995, and $1.60 billion during 1994 and $1.52 billion during 1993. The average balance of the investment portfolio remained near 1994 levels during 1995, as deposit growth was sufficient to fund loan demand. The weighted-average maturity of the investment portfolio at December 31, 1995, was 15 months, compared to 11 months at December 31, 1994. Management modestly extended the average maturity of the securities portfolio during 1995 to capture higher yields. At December 31, 1995, the fair value of the Bank's investment portfolio was $8.6 million above book value. The unrealized loss existing as of December 31, 1994, was $35.3 million. The investment portfolio's fair value recovery during 1995 resulted from the maturity of lower-yielding securities and the reinvestment at higher market rates. Table 5 presents detailed information relating to the investment portfolio.
Investment Securities Table 5 December 31 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ Average Taxable- Book Market Maturity Equivalent Book Market Book Market (thousands) Value Value (Yrs./Mos.) Yield Value Value Value Value - ------------------------------------------------------------------------------------------------------------------------------ U. S. Government: Within one year $927,931 $930,120 0/6 5.30 % $849,279 $838,341 $589,666 $594,620 One to five years 1,034,722 1,040,954 1/10 5.78 599,147 575,193 1,223,348 1,223,384 Five to ten years 2,305 2,258 7/5 5.94 2,496 2,281 - - Over ten years 7,171 7,198 18/6 7.30 3,029 2,918 1,257 1,252 - ------------------------------------------------------------------------------------------------------------------------------ Total 1,972,129 1,980,530 1/3 5.56 1,453,951 1,418,733 1,814,271 1,819,256 State, county and municipal: Within one year 1,324 1,328 0/3 7.27 361 364 100 102 One to five years 4,287 4,355 2/9 6.64 1,872 1,871 101 105 Five to ten years 2,227 2,323 6/0 7.48 2,370 2,314 - - Over ten years 195 195 21/8 9.00 - - - - - ------------------------------------------------------------------------------------------------------------------------------ Total 8,033 8,201 3/9 7.03 4,603 4,549 201 207 Other Within one year 506 506 0/11 5.48 100 100 - - One to five years 2,425 2,424 2/1 9.27 - - - - Five to ten years 55 55 6/2 8.00 315 315 315 315 - ------------------------------------------------------------------------------------------------------------------------------ Total 2,986 2,985 1/11 8.60 415 415 315 315 ============================================================================================================================== Total investment securities $1,983,148 $1,991,716 1/3 5.57 % $1,458,969 $1,423,697 $1,814,787 $1,819,778 ==============================================================================================================================
Income on Interest-Earning Assets. Table 6 analyzes the Bank's interest-earning assets and interest-bearing liabilities for the five years ended December 31, 1995. Table 9 identifies the causes for changes in interest income and interest expense for 1995 and 1994. Taxable-equivalent interest income amounted to $473.4 million during 1995, a $95.5 million increase from 1994 levels, compared to an $11.5 million increase from 1993 to 1994. Volume growth contributed to the increase in interest income during both periods, while higher interest rates during 1995 boosted yields on earning assets and contributed to an increase in net interest income compared to 1994. AVERAGE BALANCE SHEETS Table 6
1995 1994 1993 Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ (thousands, taxable equivalent) Balance Expense Rate Balance Expense Rate Balance Expense Rate Assets Loans: Secured by real estate $2,752,463 $233,055 8.47 % $2,265,054 $177,494 7.84 % $2,173,262 $170,150 7.83 % Commercial and industrial 437,970 41,099 9.38 440,566 34,165 7.75 381,722 27,596 7.23 Consumer 1,167,923 102,666 8.79 1,012,359 85,523 8.45 789,374 71,112 9.01 Lease financing 58,332 4,499 7.71 51,160 3,861 7.55 40,576 3,433 8.46 Other 16,829 1,402 8.33 31,179 1,741 5.58 16,159 985 6.10 Total loans 4,433,517 382,721 8.63 3,800,318 302,784 7.97 3,401,093 273,276 8.03 Investment securities: U. S. Government 1,600,713 81,219 5.07 1,597,051 71,573 4.48 1,521,949 90,655 5.96 State, county and municipal 8,016 622 7.76 2,192 176 8.03 451 43 9.53 Other 2,820 184 6.52 322 28 8.70 315 20 6.35 Total investment securities 1,611,549 82,025 5.09 1,599,565 71,777 4.49 1,522,715 90,718 5.96 Federal funds sold 146,356 8,625 5.89 76,807 3,297 4.29 78,336 2,385 3.04 Total interest-earning assets 6,191,422 $473,371 7.65 % 5,476,690 $377,858 6.90 % 5,002,144 $366,379 7.32 % Cash and due from banks 349,998 354,875 320,668 Premises and equipment 200,674 189,421 169,062 Other assets 180,675 148,932 147,422 Reserve for loan losses (75,810) (70,974) (63,117) Total assets $6,846,959 $6,098,944 $5,576,179 Liabilities and shareholders' equity Deposits: Checking With Interest $816,391 $13,555 1.66 % $788,673 $13,495 1.71 % $704,614 $13,271 1.88 % Savings 693,187 15,728 2.27 687,322 15,390 2.24 571,559 14,413 2.52 Money market accounts 742,537 25,167 3.39 788,063 19,280 2.45 797,260 19,017 2.39 Time 2,824,074 152,784 5.41 2,279,639 89,127 3.91 2,116,104 83,653 3.95 Total interest-bearing deposits 5,076,189 207,234 4.08 4,543,697 137,292 3.02 4,189,537 130,354 3.11 Short-term borrowings 307,999 15,773 5.12 242,553 8,314 3.43 226,265 6,118 2.70 Long-term obligations 26,307 1,657 6.30 52,499 2,520 4.80 29,318 1,462 4.99 Total interest-bearing liabilities 5,410,495 $224,664 4.15 % 4,838,749 $148,126 3.06 % 4,445,120 $137,934 3.10 % Demand deposits 875,901 791,360 704,782 Other liabilities 72,668 51,852 63,544 Shareholders' equity 487,895 416,983 362,733 Total liabilities and $6,846,959 $6,098,944 $5,576,179 shareholders' equity Interest rate spread 3.50 % 3.84 % 4.22 % Net interest income and net yield on interest-earning assets $248,707 4.02 % $229,732 4.19 % $228,445 4.57 %
Average loan balances include nonaccrual loans. Table 6 1992 1991 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate $2,075,604 $168,686 8.13 % $1,733,619 $168,056 9.69 % 390,132 34,241 8.78 423,003 40,233 9.51 664,924 70,158 10.55 672,694 79,488 11.82 31,911 3,108 9.74 27,502 2,876 10.46 10,714 650 6.07 10,016 813 8.12 3,173,285 276,843 8.72 2,866,834 291,466 10.17 1,521,154 112,447 7.39 1,585,307 125,391 7.91 1,102 102 9.26 11,569 1,049 9.07 315 16 5.08 184 13 7.07 1,522,571 112,565 7.39 1,597,060 126,453 7.92 66,990 2,260 3.37 93,346 5,449 5.84 4,762,846 $391,668 8.22 % 4,557,240 $423,368 9.29 % 306,795 286,735 159,692 158,352 135,319 130,830 (56,487) (48,542) $5,308,165 $5,084,615 $596,399 $15,192 2.55 % $464,851 $18,852 4.06 % 475,554 14,889 3.13 386,745 18,278 4.73 816,059 25,120 3.08 728,508 36,478 5.01 2,163,094 107,113 4.95 2,329,607 158,427 6.80 4,051,106 162,314 4.01 3,909,711 232,035 5.93 229,792 7,167 3.12 216,964 11,303 5.21 18,245 1,077 5.90 29,960 2,346 7.83 4,299,143 $170,558 3.97 % 4,156,635 $245,684 5.91 % 633,876 581,798 67,328 81,670 307,818 264,512 $5,308,165 $5,084,615 4.25 % 3.38 % $221,110 4.64 % $177,684 3.90 % The average taxable-equivalent yield on the loan portfolio was 8.63 percent in 1995, 7.97 percent in 1994 and 8.03 percent in 1993. The higher yield during 1995 reflects the continued upward repricing of loans due to higher market rates. Taxable-equivalent loan income increased $79.9 million or 26.4 percent from 1994, the result of loan growth and higher rates. This followed an increase of 10.8 percent in taxable-equivalent loan income in 1994 from 1993. Taxable-equivalent income earned on the investment portfolio amounted to $82 million, $71.8 million and $90.7 million during the years ended December 31, 1995, 1994 and 1993, respectively. The average taxable-equivalent yield on the portfolio for these years was 5.09 percent, 4.49 percent and 5.96 percent, respectively. The $10.2 million increase in taxable-equivalent investment income during 1995 resulted from a 60 basis point yield increase. The $18.9 million reduction in taxable-equivalent interest income from 1993 to 1994 was the result of a 147 basis point yield reduction. Improved interest rates during 1995 allowed the portfolio yield to increase as securities purchased during 1993 and 1994 matured and were reinvested at higher rates. Recent reductions in interest rates will likely result in lower investment securities yields during 1996. INTEREST-BEARING LIABILITIES At December 31, 1995 and 1994, interest-bearing liabilities totaled $5.84 billion and $4.98 billion, respectively. Interest-bearing liabilities averaged $5.41 billion during 1995, an increase of 11.8 percent over 1994 levels, with most of the growth occurring in interest-bearing deposits. During 1994, interest-bearing liabilities averaged $4.84 billion, an increase of 8.9 percent over 1993. Deposits. At December 31, 1995, deposits totaled $6.39 billion, an increase of $870.5 million or 15.8 percent from December 31, 1994. Acquisitions contributed to $338.1 million of the increase, with the remaining growth coming from the existing branch network. Total deposits averaged $5.95 billion in 1995, an increase of 11.6 percent or $617 million over 1994. Average interest-bearing deposits were $5.08 billion during 1995, an increase of $532.5 million or 11.8 percent. Average time deposits increased $544.4 million or 23.9 percent from 1994 to 1995. While acquisitions contributed to some of this increase, higher interest rates during 1995 prompted greater interest in time deposits among both retail and business customers. BancShares avoids excessive reliance on high-cost volatile deposits, and during 1995, these funds averaged 8.33 percent of total average deposits. Table 7 provides a maturity distribution for these deposits. The fair value of all deposits was $163.7 million above book value as of December 31, 1995, compared to December 31, 1994, when the fair value was $6.8 million below book value. The increase in fair value relative to book value during 1995 resulted from changing interest rates. MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE Table 7 December 31, 1995 (thousands) Less than three months $294,159 Three to six months 177,077 Six to 12 months 77,820 More than 12 months 51,560 Total $600,616 Borrowed Funds. BancShares has access to various short-term borrowings, including the purchase of federal funds, overnight repurchase obligations and lines of credit from correspondent banks. At December 31, 1995, short-term borrowings totaled $376.5 million, compared to $290.9 million one year earlier. For the year ended December 31, 1995, short-term borrowings averaged $308 million, compared to $242.6 million during 1994 and $226.3 million during 1993. The increase from 1994 to 1995 and from 1993 to 1994 resulted from growth in the Master note program, an overnight borrowing arrangement between BancShares and bank customers. The fair value of short-term borrowings equals the book value, as these financial instruments carry variable rates and adjust to current market conditions. Table 8 provides additional information regarding short-term borrowed funds. SHORT-TERM BORROWINGS Table 8
(thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Amount Rate Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------------------------------------------ Master notes At December 31 $257,178 4.74 % $173,250 4.68 % $153,545 2.50 % Average during year 203,114 4.96 168,725 3.24 146,131 2.63 Maximum month-end balance during year 257,178 - 197,942 - 171,111 - Federal funds purchased At December 31 64,085 5.44 76,430 5.83 33,920 2.70 Average during year 49,226 5.83 21,079 4.09 29,323 2.90 Maximum month-end balance during year 72,165 - 76,430 - 66,460 - Repurchase agreements At December 31 25,022 4.46 14,970 4.43 18,374 2.25 Average during year 23,784 4.86 20,991 3.17 21,325 2.42 Maximum month-end balance during year 25,337 - 20,961 - 24,111 - U. S. Treasury tax and loan accounts At December 31 17,581 5.49 20,046 5.26 22,506 2.72 Average during year 17,070 5.71 24,195 3.78 26,273 2.79 Maximum month-end balance during year 22,410 - 30,117 - 31,111 - Other At December 31 12,665 4.50 6,165 4.58 8,152 4.86 Average during year 14,805 4.69 7,563 5.38 3,213 5.70 Maximum month-end balance during year 16,666 - 10,164 - 8,152 -
At December 31, 1995 and 1994, long-term obligations totaled $23 million and $34.5 million, respectively. The reduction during 1995 results from the scheduled maturity of borrowings. The fair value of long-term obligations as of December 31, 1995, was $552,000 above the book value, compared to December 31, 1994, when the fair value was $1.6 million below the book value. Interest rate movements pushed the fair value of these obligations above their respective book values as of December 31, 1995. Expense of Interest-Bearing Liabilities. Interest expense amounted to $224.7 million in 1995, a $76.5 million or 51.7 percent increase from 1994. This followed a 7.4 percent increase in interest expense during 1994 compared to 1993. The increased interest expense during 1995 was the combined result of higher interest rates and growth in interest-bearing liabilities. Time deposits caused much of the increase in interest expense during 1995. In addition to the $544.4 million increase in average time deposits, the rate on these deposits experienced a 150 basis point rate increase, moving from 3.91 percent in 1994 to 5.41 percent in 1995. The aggregate rate on interest-bearing deposits was 4.08 percent during 1995, compared to 3.02 percent during 1994 and 3.11 percent during 1993. Interest expense on total interest-bearing deposits amounted to $207.2 million during 1995, $137.3 million during 1994 and $130.4 million during 1993. Interest expense on short-term borrowings amounted to $15.8 million in 1995, an increase of $7.5 million or 89.7 percent from 1994. The increase was attributable to a 169 basis point rate increase when compared to 1994 and the higher volume of short-term borrowings during 1995. Interest expense related to short-term borrowings totaled $8.3 million and $6.1 million, respectively, in 1994 and 1993. Interest expense associated with long-term obligations decreased during 1995 to $1.7 million from $2.5 million during 1994. The decrease results from a reduction in average long-term obligations. CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET Table 9 INTEREST INCOME
1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Change from previous year due to: Change from previous year due to: - ----------------------------------------------------------------------------------------------------------------------------------- Yield/ Total Yield/ Total (thousands) Volume Rate Change Volume Rate Change - ----------------------------------------------------------------------------------------------------------------------------------- Interest Income Loans: Secured by real estate $39,186 $16,375 $55,561 $7,157 $187 $7,344 Commercial and industrial (224) 7,158 6,934 4,419 2,150 6,569 Consumer 13,474 3,669 17,143 19,461 (5,050) 14,411 Lease financing 549 89 638 846 (418) 428 Other (999) 660 (339) 878 (122) 756 - ----------------------------------------------------------------------------------------------------------------------------------- Total loans 51,986 27,951 79,937 32,761 (3,253) 29,508 Investment securities: U. S. Government 194 9,452 9,646 3,994 (23,076) (19,082) State, county and municipal 460 (14) 446 153 (20) 133 Other 190 (34) 156 1 7 8 - ----------------------------------------------------------------------------------------------------------------------------------- Total investment securities 844 9,404 10,248 4,148 (23,089) (18,941) Federal funds sold 3,541 1,787 5,328 (57) 969 912 =================================================================================================================================== Total interest-earning assets $56,371 $39,142 $95,513 $36,852 ($25,373) $11,479 =================================================================================================================================== Interest Expense Deposits: Checking With Interest $464 ($404) $60 $1,501 ($1,277) $224 Savings 132 206 338 2,747 (1,770) 977 Money market accounts (1,318) 7,205 5,887 (210) 473 263 Time 25,375 38,282 63,657 6,390 (916) 5,474 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 24,653 45,289 69,942 10,428 (3,490) 6,938 Short-term borrowings 2,802 4,657 7,459 492 1,704 2,196 Long-term obligations (1,454) 591 (863) 1,135 (77) 1,058 =================================================================================================================================== Total interest-bearing liabilities $26,001 $50,537 $76,538 $12,055 ($1,863) $10,192 =================================================================================================================================== Change in net interest income $30,370 ($11,395) $18,975 $24,797 ($23,510) $1,287 ===================================================================================================================================
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 $2,262, $1,853, and $1,498 for the years 1995, 1994 and 1993, respectively. Table 6 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. NET INTEREST INCOME Taxable-equivalent net interest income totaled $248.7 million during 1995, an increase of 8.3 percent over 1994. This followed a slight increase during 1994. Table 9 presents the annual changes in net interest income by components 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. During 1995 and 1994, growth among interest-earning assets was sufficient to offset the impact of a decline in the interest rate spread from the prior year. The interest rate spread decreased to 3.50 percent during 1995 compared to 3.84 percent during 1994 and 4.22 percent in 1993. The average net yield on interest-earning assets decreased by 17 basis points to 4.02 percent in 1995 when compared to 1994. This followed a 38 basis point reduction in 1994 when compared to 1993. Management believes the interest rate spread and the net yield on interest-earning assets will stabilize during 1996 as improvements from the 1995 repricing of investment securities offset the impact of the lower interest rates projected for 1996. Management projects the lower interest rates will reduce the yields on interest-earning assets more rapidly than the accompanying reduction in the rates on interest-bearing liabilities . However, based on projected asset growth, management anticipates net interest income will expand during 1996. Rate Sensitivity. A principal objective of BancShares' asset/liability function is to manage interest rate risk or the exposure to changes in interest rate. 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 10 provides BancShares' interest-sensitivity position as of December 31, 1995, which reflected a one year interest-sensitivity gap of $676 million. The liability-sensitive position is most acute in the first six months and results from growth among time deposits during 1995. As a result of this one year interest-sensitivity gap, movements in interest rates could have an unfavorable impact on net interest income. INTEREST-SENSITIVITY ANALYSIS Table 10
1-30 31-90 91-180 181-365 Total December 31, 1995 Days Days Days Days One Year Total (thousands) Sensitive Sensitive Sensitive Sensitive Sensitive Nonsensitive Total Assets: Loans $1,358,843 $143,782 $227,225 $451,076 $2,180,926 $2,399,793 $4,580,719 Investment securities 114,735 154,630 249,198 411,196 929,759 1,053,389 1,983,148 Federal funds sold 40,445 - - - 40,445 - 40,445 Total interest-earning assets $1,514,023 $298,412 $476,423 $862,272 $3,151,130 $3,453,182 $6,604,312 Liabilities: Checking With Interest - - - - - $874,431 $874,431 Savings and money market accounts $809,813 - - - $809,813 691,894 1,501,707 Time deposits 666,599 $662,023 $839,114 $473,044 2,640,780 427,719 3,068,499 Short-term borrowings 363,891 10,285 285 2,070 376,531 - 376,531 Long-term obligations - - - - - 22,957 22,957 Total interest-bearing liabilities $1,840,303 $672,308 $839,399 $475,114 $3,827,124 $2,017,001 $5,844,125 Interest-sensitivity gap ($326,280) ($373,896) ($362,976) $387,158 ($675,994) $1,436,181 $760,187
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. Management continuously monitors the interest-sensitivity position in order to insure adequate liquidity, while maintaining an acceptable interest rate spread. In addition to other asset/liability management strategies, BancShares underwrites all long-term fixed-rate residential mortgage loans to secondary market standards and generally sells such loans as they are originated. As of December 31, 1995, BancShares had $15.4 million in residential mortgage loans held for sale that were reported at the lower of aggregate cost or market. Additionally, as a strategy to avoid exposure resulting from changes in market rates after a commitment is made and before a loan is closed, forward commitments to sell a percentage of residential mortgage loans are executed when a commitment is made. ASSET QUALITY Nonperforming Assets. Nonperforming assets consist of nonaccrual loans, restructured loans and foreclosed properties. The December 31 balances of these assets for the past five years are presented in Table 11. BancShares' nonperforming assets at December* RISK ELEMENTS Table 11
December 31 (thousands, except ratios) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ Nonaccrual loans $13,208 $21,069 $33,726 $25,814 $17,821 Restructured loans - - 571 2,267 - Other real estate 2,154 5,926 15,879 8,000 9,026 ============================================================================================================================== Total nonperforming assets $15,362 $26,995 $50,176 $36,081 $26,847 ============================================================================================================================== Accruing loans 90 days or more past due $4,230 $5,326 $9,202 $6,960 $12,829 Loans at December 31 $4,580,719 $4,148,133 $3,584,991 $3,207,875 $3,123,806 Ratio of nonperforming assets to total loans plus other real estate 0.34% 0.65% 1.39% 1.12% 0.86% - ------------------------------------------------------------------------------------------------------------------------------ Interest income that would have been earned on nonperforming loans had they been performing $1,556 $1,430 $2,354 $2,413 $1,449 Interest income earned on nonperforming loans 595 693 1,083 1,291 517 ==============================================================================================================================
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, 1995. There were no foreign loans outstanding in any period. Accrual of interest on loans is discontinued when management deems that collection of additional 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. *31, 1995 included nonaccrual loans totaling $13.2 million and $2.2 million in foreclosed property. Nonperforming assets as of December 31, 1995 represent 0.34 percent of loans outstanding and total foreclosed property. Total nonperforming assets totaled $27 million and $50.2 million, respectively, as of December 31, 1994 and 1993. Management continually monitors the loan portfolio to ensure that all loans potentially having a material adverse impact on future operating results, liquidity or capital resources have been classified as nonperforming. Should economic conditions deteriorate, the inability of distressed customers to service their existing debt could cause higher levels of nonperforming assets. Reserve for Loan Losses. Management evaluates the risk characteristics of the loan portfolio under current and projected 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 possible credit losses. Further, management strives to maintain the reserve at a level sufficient to absorb both potential losses on identified nonperforming assets as well as general losses at historical and projected levels. At December 31, 1995, BancShares' reserve for loan losses was $78.5 million or 1.71 percent of loans outstanding. This compares to $72 million or 1.74 percent at December 31, 1994, and $70 million or 1.95 percent at December 31, 1993. The reduction in the reserve ratio over the two year period reflects the reduced level of nonperforming assets. SUMMARY OF LOAN LOSS EXPERIENCE Table 12 (thousands, except ratios)
1995 1994 1993 1992 1991 Balance at beginning of year $72,017 $70,049 $58,380 $53,730 $44,539 Reserve of acquired institutions 3,231 1,009 8,269 - 7,191 Provision for loan losses 5,364 2,786 15,245 17,506 15,626 Charge-offs: Real estate: Construction and land development (118) (334) (786) (460) (871) Mortgage: 1-4 family residential (994) (1,048) (1,349) (1,376) (2,292) Commercial (255) (1,502) (2,013) (4,614) (1,949) Equity Line (47) (192) (250) (293) (48) Other (34) - (3) (16) (24) Commercial and industrial (826) (1,302) (7,331) (3,809) (3,247) Consumer (4,988) (4,085) (3,860) (4,965) (6,541) Lease financing - (17) (51) (39) (15) Total charge-offs (7,262) (8,480) (15,643) (15,572) (14,987) Recoveries: Real estate: Construction and land development 440 920 230 106 19 Mortgage: 1-4 family residential 1,160 834 286 218 136 Commercial 1,476 2,765 856 578 63 Equity Line 28 28 85 1 1 Other - - 3 - 46 Commercial and industrial 761 689 1,240 697 230 Consumer 1,233 1,396 1,085 1,116 865 Lease financing 47 21 13 - 1 Total recoveries 5,145 6,653 3,798 2,716 1,361 Net charge-offs (2,117) (1,827) (11,845) (12,856) (13,626) Balance at end of year $78,495 $72,017 $70,049 $58,380 $53,730 Historical Statistics Balances Average total loans $4,433,517 $3,800,318 $3,401,093 $3,173,285 $2,866,834 Total loans at year-end 4,580,719 4,148,133 3,584,991 3,207,875 3,123,806 Ratios Net charge-offs to average total loans 0.05% 0.05% 0.35% 0.41% 0.48% Reserve for loan losses to total loans at year-end 1.71 1.74 1.95 1.82 1.72
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 $5.4 million during 1995 compared to $2.8 million during 1994 and $15.2 million during 1993. The increase in the provision during 1995 was due to loan growth and slightly higher net charge-offs. Net charge-offs for 1995 were $2.1 million, compared to $1.8 million during 1994 and $11.8 million during 1993. The ratio of net charge-offs to average loans equaled 0.05 percent during 1995 and 1994, down 30 basis points from 1993. Table 12 provides details concerning the reserve and provision for loan losses over the past five years. Management considers the established reserve adequate to absorb future losses that relate to loans outstanding at December 31, 1995, although future additions to the reserve may be necessary based on changes in economic conditions. 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. Table 13 illustrates management's allocation of the reserve among the various loan types. ALLOCATION OF RESERVE for LOAN LOSSES Table 13
- ----------------------------------------------------------------------------------------------------------------------------------- December 31 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Percent Percent Percent Percent Percent of Loans of Loans of Loans of Loans of Loans to Total to Total to Total to Total to Total (thousands) Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans - ------------------------------------------------------------------------------------------------------------------------------------ Real estate: Construction and land development $3,090 2.28 % $2,919 2.43 % $3,135 3.28 % $3,491 4.67 % $1,976 5.27% Mortgage: 1-4 family residential 13,125 31.42 13,459 31.26 15,175 31.74 13,373 32.31 10,417 29.00 Commercial 15,305 16.81 13,636 17.37 13,997 17.13 13,181 17.64 9,245 18.55 Equity Line 2,788 8.67 2,585 8.42 2,112 8.18 2,042 8.83 3,743 9.08 Other 1,318 2.82 1,581 2.63 1,493 1.56 738 1.49 82 1.63 Commercial and industrial 8,384 10.18 10,029 9.01 11,650 11.40 8,190 11.59 5,043 13.45 Consumer 21,587 26.18 20,373 27.00 17,079 24.81 14,875 22.01 17,305 21.70 Lease financing 639 1.31 197 1.46 454 1.27 356 1.11 306 0.98 Other - 0.33 - 0.42 - 0.63 - 0.35 - 0.34 Unallocated 12,259 - 7,238 - 4,954 - 2,134 - 5,613 - =================================================================================================================================== Total $78,495 100.00 % $72,017 100.00 % $70,049 100.00 % $58,380 100.00 % $53,730 100.00% ===================================================================================================================================
At December 31, 1995, BancShares had no foreign loans or any material highly leveraged transactions. Further, management does not contemplate originating or participating in such transactions in the foreseeable future. NONINTEREST INCOME Total noninterest income increased 10.6 percent during 1995 to $92.1 million. This compares to $83.3 million during 1994 and $85.7 million during 1993. Table 14 presents the major components of noninterest income for the past five years. Trust income was $8.9 million in 1995, up 8 percent from 1994 due to higher commission income, particularly from growth in the number of accounts managed by retirement plan services. Income from service charges on deposit accounts was $39.9 million during 1995, an increase of 3.5 percent. This increase was the result of growth in retail individual service charge income due to an increase in the number of customer accounts. Income from deposit service charges amounted to $38.6 million and $43.3 million for the years ended December 31, 1994 and 1993, respectively. The reduction from 1993 to 1994 was primarily the result of higher interest rates, which increased the earnings credit used to offset service charges on certain commercial accounts. NONINTEREST INCOME Table 14
Year ended December 31 ----------------------------------------------------------------------- (thousands) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------- Trust income $8,886 $8,228 $7,197 $6,087 $4,902 Service charges on deposit accounts 39,909 38,567 43,277 42,130 38,451 Credit card income 13,561 12,390 10,618 9,512 9,159 Other service charges and fees 21,227 16,672 8,564 8,078 6,049 Investment securities gains - - - 2,363 - Gain (loss) on sale of mortgage loans 809 (862) 8,010 1,345 - Other 7,736 8,330 8,071 4,788 11,709 ==================================================================================================================== Total $92,128 $83,325 $85,737 $74,303 $70,270 ====================================================================================================================
Credit card income was $13.6 million during 1995, a 9.5 percent increase over 1994, primarily the result of expanding merchant service activity. Management anticipates continued growth within the credit card function during 1996. Income from other service charges and fees amounted to $21.2 million in 1995, $16.7 million in 1994 and $8.6 million in 1993. Growth in this area during 1995 resulted from higher fees for processing services provided to various bank affiliates. These services resulted in an additional $1.7 million during 1995. Additionally, fees generated from the sale of mutual fund and annuity products by First Citizens Investor Services increased $1 million during 1995. During 1995, BancShares recorded $809,000 in gains on the ongoing sale of current fixed-rate mortgage loan production. The gains recorded during 1995 compare to an $862,000 loss recorded during 1994. During 1993, BancShares recorded an $8 million gain on the sale of $276.2 million in residential mortgage loans. Management intends to continue the sale of its long-term fixed-rate residential mortgage loan production, so gains or losses may be incurred due to interest rate volatility. However, management has elected to enter into forward commitments to sell loans as a strategy of limiting exposure to interest rate fluctuations. NONINTEREST EXPENSE Total noninterest expense for 1995 amounted to $245.9 million. This was a 6.6 percent increase over 1994, following an 8.1 percent increase of 1994 noninterest expenses over 1993. Table 15 presents the major components of noninterest expense for the past five years. Salary expense was $106.6 million during 1995, compared to $99.3 million during 1994, an increase of $7.3 million or 7.4 percent, following a $6.7 million or 7.2 percent increase in 1994 over 1993. Increases during each period resulted from merit increases as well as new positions established to centralize certain operational functions. Employee benefits were $17.1 million during 1995, an increase of $2.5 million from 1994. NONINTEREST EXPENSE Table 15
Year ended December 31 ----------------------------------------------------------------------- (thousands) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------- Salaries and wages $106,607 $99,282 $92,579 $85,195 $80,412 Employee benefits 17,080 14,535 13,500 12,791 13,137 Occupancy expense 20,446 18,691 16,972 15,675 15,799 Equipment expense 24,504 23,839 21,231 19,808 18,271 Credit card expense 9,106 8,587 6,814 6,416 5,975 FDIC insurance 8,418 11,831 10,496 10,739 9,618 Telecommunication expense 6,790 6,743 6,528 5,717 5,606 Amortization of intangibles 5,877 3,993 3,157 3,349 3,510 Postage 5,701 4,907 3,996 3,920 3,624 Other 41,351 38,174 37,940 35,589 31,644 ==================================================================================================================== Total $245,880 $230,582 $213,213 $199,199 $187,596 ====================================================================================================================
BancShares recorded occupancy expense of $20.4 million during 1995, an increase of $1.8 million or 9.4 percent during 1995 due to increased rent expense. Occupancy expense was $18.7 million for 1994 and $17 million for 1993. Equipment expense for 1995 was $24.5 million, an increase of 2.8 percent over 1994, when total equipment expenses were $23.8 million. Costs related to deposit insurance fell during 1995. During the third quarter, the Bank Insurance Fund ("BIF") of the FDIC reached the reserve level mandated by Congress. At that time, premiums were reduced and a refund for overpayment retroactive to the date the BIF was fully capitalized was made to institutions for their BIF-insured deposits. However, financial institutions with deposits that are insured under the Savings Association Insurance Fund ("SAIF") continue to pay the higher premiums for SAIF-insured deposits. BancShares' total deposits, approximately one-third are SAIF-insured. Until the SAIF is fully capitalized, these deposits will continue to be subject to higher insurance rates. Various proposals are being considered by the United States Congress concerning a possible merger of the BIF and the SAIF. Central to that discussion is the recapitalization of the SAIF prior to such a merger, and most of the proposals mandate a special one-time assessment of SAIF-insured deposits at rates up to 85 basis points of the SAIF-insured deposits . As of December 31, 1995. BancShares had total SAIF deposits of $1.86 billion. A final assessment rate is yet to be determined, and due to the uncertainty as to which, if any, of the various proposals will be adopted and the ultimate amount of the assessment to be levied on the SAIF-insured deposits, the impact of the proposals and the assessment is impossible to predict with certainty at this time. INCOME TAXES During 1995, BancShares recorded total income tax expense of $30.4 million, compared to $26.9 million in income tax expense during 1994, the increase resulting from higher pre-tax income. BancShares' effective tax rate was 34.8 percent in 1995, 34.5 percent in 1994 and 34 percent in 1993. Total effective tax rates were less than the statutory federal income tax rates primarily due to small amounts of tax-exempt interest income. LIQUIDITY Management recognizes the importance of maintaining a highly liquid investment portfolio with maturities designed to provide needed cash flows to meet the liquidity requirements of the Bank. At December 31, 1995, the investment portfolio totaled $1.98 billion or 26.9 percent of total assets. This compares to $1.46 billion or 23 percent in 1994. The Bank's ability to generate retail deposits is an additional source of liquidity. The rate of growth in average deposits was 11.6 percent during 1995, 9 percent during 1994 and 4.5 percent during 1993. The deposit increase resulted from the existing branch network as well as deposit liability assumptions associated with various business combinations. Another significant liquidity source is cash provided by operating activities. These operating activities generated $100.8 million during 1995, $167.6 million during 1994 and $48 million during 1993. These liquidity sources have enabled BancShares to place little dependence on short-term borrowed funds for its liquidity needs. However, there are readily available sources for borrowed funds through the correspondent bank network. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position and exceeds all minimum regulatory capital requirements. BancShares' total risk-based capital ratios were 10.9 percent, 11.3 percent and 11.5 percent, respectively, at December 31, 1995, 1994 and 1993. BancShares' core capital ratios for December 31, 1995, 1994 and 1993 were 9.6 percent, 10.1 percent and 10.2 percent, respectively. The minimum capital ratios established by Federal Reserve guidelines are 8 percent for total capital and 4 percent for core capital. At December 31, 1995, BancShares' leverage capital ratio was 6.1 percent, compared to 6.5 percent and 5.9 percent at December 31, 1994 and 1993, respectively. The minimum leverage ratio is 3 percent. Failure to meet certain capital requirements may result in certain actions by regulatory agencies that could have a direct material effect on the consolidated financial statements. The rate of return on average shareholders' equity during 1995, 1994 and 1993 amounted to 11.7 percent, 12.2 percent and 15.3 percent, respectively. BancShares' internal capital generation rate was 9.9 percent in 1995, compared with 10.5 percent in 1994 and 13.7 percent in 1993. These rates reflect the ability to generate sufficient capital to support current levels of growth, although significant expansion would likely require additional capital be raised. During the fourth quarter of 1995 the Board of Directors of BancShares reauthorized the purchase of its Class A and Class B common stocks. 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. The repurchase of these shares should not impair capital adequacy because of BancShares' high earnings retention percentage. FOURTH QUARTER ANALYSIS BancShares' net income for the fourth quarter of 1995 totaled $16.3 million, compared to $12.9 million during the same period of 1994. As shown in Table 16, during the fourth quarter of 1995 and 1994, total assets averaged $7.28 billion and $6.23 billion, respectively. Average interest-earning assets increased 18 percent during the fourth quarter of 1995, compared to the same period of 1994. Average loans outstanding during the fourth quarter increased $552.6 million during 1995 over 1994, largely due to growth among loans to individuals. Acquisition growth during 1995 contributed an additional $170.4 million in loans outstanding. Average investment securities increased $373.1 million between the two periods, the result of deposit growth at sufficient levels to generate additional liquidity. Taxable-equivalent interest income on interest-earning assets increased $26.3 million or 26.1 percent in the fourth quarter of 1995 when compared to the same period of 1994. The improved interest income during 1995 resulted from a $15.6 million increase in loan interest income and a $9.2 million increase in investment securities interest income. Both of these increases resulted from average volume growth and higher yields. Interest-earning assets yielded 7.65 percent during the fourth quarter of 1995, a 48 basis point increase from the fourth quarter of 1994. SELECTED QUARTERLY DATA Table 16
1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (thousands, except per share data and ratios) Fourth Third Second First Fourth Third Second First - ------------------------------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS Interest income $126,372 $122,234 $116,282 $106,221 $100,203 $95,254 $91,351 $89,197 - ------------------------------------------------------------------------------------------------------------------------------------ Interest income - taxable equivalent 126,950 122,801 116,845 106,774 100,693 95,731 91,806 89,628 Interest expense 62,968 59,858 55,537 46,301 40,628 37,265 35,307 34,926 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income - taxable equivalent 63,982 62,943 61,308 60,473 60,065 58,466 56,499 54,702 Taxable equivalent adjustment 578 567 563 553 490 477 455 431 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income 63,404 62,376 60,745 59,920 59,575 57,989 56,044 54,271 Provision for loan losses 1,654 1,716 1,460 534 1,486 1,159 (947) 1,088 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 61,750 60,660 59,285 59,386 58,089 56,830 56,991 53,183 Noninterest income 23,856 23,560 23,057 21,655 21,080 21,354 20,517 20,374 Noninterest expense 60,925 59,716 62,876 62,363 59,444 57,361 57,022 56,755 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 24,681 24,504 19,466 18,678 19,725 20,823 20,486 16,802 Income taxes 8,395 8,686 6,842 6,500 6,796 7,138 7,128 5,805 ==================================================================================================================================== Net income $16,286 $15,818 $12,624 $12,178 $12,929 $13,685 $13,358 $10,997 ==================================================================================================================================== SELECTED QUARTERLY AVERAGES Total assets $7,280,893 $7,053,579 $6,702,692 $6,323,537 $6,227,704 $6,102,964 $6,061,930 $6,037,860 Investment securities 1,871,272 1,694,776 1,493,415 1,380,424 1,498,143 1,543,548 1,641,857 1,717,729 Loans 4,552,018 4,500,192 4,424,724 4,253,117 3,999,377 3,854,738 3,712,429 3,618,555 Interest-earning assets 6,599,377 6,376,273 6,061,732 5,716,572 5,590,432 5,480,912 5,434,768 5,386,963 Deposits 6,282,111 6,124,360 5,858,280 5,533,654 5,422,018 5,338,095 5,303,041 5,275,596 Interest-bearing liabilities 5,753,538 5,569,496 5,299,570 5,009,276 4,895,564 4,818,665 4,810,625 4,829,639 Long-term obligations 23,365 24,595 26,174 32,564 43,854 48,908 57,534 59,917 Shareholders' equity $512,768 $498,108 $482,885 $460,695 $443,833 $423,982 $406,002 $394,388 Shares outstanding 10,700,435 10,688,019 10,618,902 10,376,351 10,192,150 9,980,530 9,828,295 9,769,973 ==================================================================================================================================== PROFITABILITY RATIOS (averages) Rate of return(annualized) on: Total assets 0.89% 0.89% 0.76% 0.78% 0.82% 0.89% 0.88% 0.74% Shareholders' equity 12.60 12.60 10.49 10.72 11.56 12.81 13.20 11.31 Dividend payout ratio 14.80 13.42 16.81 17.09 15.75 12.77 12.87 15.49 ==================================================================================================================================== LIQUIDITY AND CAPITAL RATIOS (averages) Loans to deposits 72.46% 73.48% 75.53% 76.86% 73.76 % 72.21% 70.01% 68.59% Shareholders' equity to total assets 7.04 7.06 7.20 7.29 7.13 6.95 6.70 6.53 Time certificates of $100,000 or more to total deposits 9.27 8.61 8.04 7.30 6.63 6.41 6.28 6.21 ==================================================================================================================================== PER SHARE OF STOCK Net income $1.52 $1.49 $1.19 $1.17 $1.27 $1.37 $1.36 $1.13 Cash dividends 0.225 0.20 0.20 0.20 0.20 0.175 0.175 0.175 Class A sales price High 55 1/2 53 3/4 50 46 46 1/2 45 1/2 44 1/2 45 Low 52 1/2 48 1/2 44 42 41 1/2 41 40 40 Class B sales price High 54 1/2 53 1/4 49 1/2 45 45 1/2 44 1/2 43 44 1/2 Low 52 1/2 49 45 44 42 41 40 1/2 40 1/2 ====================================================================================================================================
Stock information related to Class A common stock reflects the sales price, as reported on the Nasdaq National Market System. Stock information for Class B was obtained from a broker-dealer, reflecting the bid prices, prior to any mark-ups, mark-downs or commissions. As of December 31, 1995, there were 3,926 holders of record of the Class A common stock and 745 holders of record of the Class B common stock. Average interest-bearing liabilities experienced an $858 million increase from the fourth quarter of 1994 to the same period of 1995, largely the result of acquisitions and internally generated deposit growth. The rate on these interest-bearing liabilities increased from 3.29 percent to 4.34 percent between the two periods. Taxable-equivalent net interest income increased $3.9 million from the fourth quarter of 1994 to the fourth quarter of 1995. The increase resulted from growth among interest-earning assets, while higher interest rates had a net adverse impact on net interest income. Noninterest income for the fourth quarter of 1995 was $23.9 million, an increase of 13.2 percent. Much of the increase resulted from higher fee income generated from processing CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME Table 17 VARIANCE ANALYSIS - Fourth Quarter
1995 1994 Interest Interest Increase (decrease) due to: Average Income/ Yield/ Average Income/ Yield/ Yield/ Total (thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change Assets Loans: Secured by real estate $2,826,705 $58,918 8.18 % $2,397,516 $48,548 7.99 % $8,831 $1,539 $10,370 Commercial and industrial 461,955 12,771 10.51 425,484 8,459 7.83 1,182 3,130 4,312 Consumer 1,189,310 25,330 8.45 1,097,205 24,364 8.87 2,038 (1,072) 966 Lease financing 58,058 1,177 8.11 56,454 1,041 7.38 31 105 136 Other 15,990 315 7.82 22,718 490 8.57 3,260 (3,435) (175) Total loans 4,552,018 98,511 8.63 3,999,377 82,902 8.25 15,342 267 15,609 Investment securities: U. S. Government 1,860,076 25,652 5.47 1,492,930 16,507 4.39 4,572 4,573 9,145 State, county and municipal 8,208 157 7.59 4,898 98 7.94 64 (5) 59 Other 2,988 44 5.84 315 5 6.30 0 39 39 Total investment securities 1,871,272 25,853 5.48 1,498,143 16,610 4.40 4,636 4,607 9,243 Federal funds sold 176,087 2,586 5.83 92,912 1,182 5.05 1,139 265 1,404 Total interest-earning assets $6,599,377 $126,950 7.66 % $5,590,432 $100,694 7.17 % $21,117 $5,139 $26,256 Liabilities Deposits: Checking With Interest $852,002 $3,342 1.56 % $813,596 $3,526 1.72 % $155 ($339) ($184) Savings 701,528 4,030 2.28 703,405 3,988 2.25 (11) 53 42 Money market accounts 766,821 7,086 3.67 782,683 5,336 2.70 (133) 1,883 1,750 Time 3,035,811 43,313 5.66 2,294,337 24,392 4.22 9,241 9,680 18,921 Total interest-bearing deposits 5,356,162 57,771 4.28 4,594,021 37,242 3.22 9,252 11,277 20,529 Short-term borrowings 374,011 4,816 5.11 257,689 2,823 4.35 1,387 606 1,993 Long-term obligations 23,365 381 6.47 43,854 563 5.09 (298) 116 (182) Total interest-bearing liabilities $5,753,538 $62,968 4.34 % $4,895,564 $40,628 3.29 % $10,341 $11,999 $22,340 Interest rate spread 3.32 % 3.88 % Net interest income and net yield on interest-earning assets $63,982 3.85 % $60,066 4.26 % $10,776 ($6,860) $3,916
services. Noninterest expense amounted to $60.9 million for the quarter ended December 31, 1995, compared to $59.4 million for the quarter ended December 31, 1994. Most of the 2.5 percent increase was in salary expense and various other operating expenses. Tables 16 and 17 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 March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement 121") which establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for those to be disposed of. Statement 121 requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss should be recognized if the sum of the undiscounted future cash flows is less than the carrying amount of the asset. Those assets to be disposed of are to be reported at the lower of the carrying amount or fair value, less costs to sell. Adoption of Statement 121 is required for fiscal years beginning after December 15, 1995. Adoption of this statement should not have a material effect on BancShares' consolidated financial statements at the date of adoption. However this statement could have a material impact on BancShares' consolidated financial statements for future periods should an event or changes in circumstances occur in such future periods, requiring a review by management for impairment. In October 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights, an amendment of SFAS No. 65 ("Statement 122"). Statement 122 amends SFAS No. 65, Accounting for Certain Mortgage Banking Activities, to require that a mortgage banking enterprise, or an entity engaged in mortgage banking activities, recognize as separate assets rights to service mortgage loans for others, however those rights are acquired. A mortgage banking enterprise that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values if it is practicable to estimate those fair values. Statement 122 also requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair values of these rights. Impairment should be recognized through a valuation allowance for each impaired stratum. Statement 122 applies prospectively in fiscal years beginning after December 31, 1995. BancShares will adopt Statement 122 prospectively on January 1, 1996, and does not believe that it will have a material effect on the consolidated financial statements upon adoption. However, this statement could have a material impact on BancShares' future consolidated financial statements in the event that changes in market conditions result in an increased volume of mortgage banking activities or the recognition of impairment valuation allowances. In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation ("Statement 123"). Statement 123 defines a fair value method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. It also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). Statement 123 requires that an employer's financial statements include certain disclosures about stock-based compensation arrangements regardless of the method used to account for them. Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value based method of accounting defined in Statement 123 had been applied. The accounting requirements of Statement 123 are effective for transactions entered into in fiscal years that begin after December 31, 1995. The disclosure requirements are effective for financial statements for fiscal years beginning after December 15, 1995, or for an earlier fiscal year for which Statement 123 is initially adopted for recognizing compensation cost. Pro forma disclosures required for entities that elect to continue to measure compensation cost using APB 25 must include the effects of all awards granted in fiscal years that begin after December 15, 1994. BancShares will continue to measure compensation cost using APB 25, and therefore will make the appropriate disclosures in its financial statements for the year ending December 31, 1996, of net income and earnings per share as if the fair value based method of accounting defined in Statement 123 had been applied. Management has not yet quantified these pro forma disclosures. The FASB also issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of BancShares and monitors the status of changes to issued exposure drafts and to proposed effective dates. Other than the SAIF assessment under consideration, management is not aware of any current recommendations by the 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. INDEPENDENT AUDITORS' REPORT The 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, 1995 and 1994, 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, 1995. 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 generally accepted auditing standards. 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, 1995 and 1994, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. (Signature of KPMG Peat Marwick LLP) KPMG Peat Marwick LLP Raleigh, North Carolina January 22, 1996 CONSOLIDATED BALANCE SHEETS First Citizens BancShares, Inc. and Subsidiaries
December 31 ------------------------------------------------- (thousands, except share data) 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 448,630 $ 455,710 Investment securities (market value $1,991,716 in 1995; $1,423,697 in 1994) 1,983,148 1,458,969 Federal funds sold 40,445 6,750 Loans 4,580,719 4,148,133 Less reserve for loan losses 78,495 72,017 - --------------------------------------------------------------------------------------------------------------------- Net loans 4,502,224 4,076,116 Premises and equipment 208,240 188,824 Income earned not collected 58,237 45,194 Other assets 143,026 101,761 - --------------------------------------------------------------------------------------------------------------------- Total assets $7,383,950 $6,333,324 ===================================================================================================================== Liabilities Deposits: Noninterest-bearing $ 943,445 $ 858,537 Interest-bearing 5,444,637 4,659,052 - --------------------------------------------------------------------------------------------------------------------- Total deposits 6,388,082 5,517,589 Short-term borrowings 376,531 290,861 Long-term obligations 22,957 34,542 Other liabilities 75,543 40,921 - --------------------------------------------------------------------------------------------------------------------- Total liabilities 6,863,113 5,883,913 Shareholders' Equity Common stock: Class A - $1 par value (11,000,000 shares authorized; 8,949,703 shares issued for 1995; 8,419,389 shares issued for 1994) 8,950 8,419 Class B - $1 par value (2,000,000 shares authorized; 1,766,464 shares issued for 1995; 1,769,451 shares issued for 1994) 1,766 1,770 Surplus 106,954 82,631 Retained earnings 403,167 356,591 - --------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 520,837 449,411 - --------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $7,383,950 $6,333,324 ===================================================================================================================== See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31 ---------------------------------------------------------- (thousands, except share and per share data) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------- Interest income Loans $380,676 $300,993 $271,792 Investment securities: U. S. Government 81,219 71,514 90,610 State, county and municipal 405 114 29 Other 184 87 65 - ------------------------------------------------------------------------------------------------------------------------- Total investment securities interest income 81,808 71,715 90,704 Federal funds sold 8,625 3,297 2,385 - ------------------------------------------------------------------------------------------------------------------------- Total interest income 471,109 376,005 364,881 Interest expense Deposits 207,234 137,292 130,354 Short-term borrowings 15,773 8,314 6,118 Long-term obligations 1,657 2,520 1,462 - ------------------------------------------------------------------------------------------------------------------------- Total interest expense 224,664 148,126 137,934 - ------------------------------------------------------------------------------------------------------------------------- Net interest income 246,445 227,879 226,947 Provision for loan losses 5,364 2,786 15,245 - ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 241,081 225,093 211,702 Noninterest income Trust income 8,886 8,228 7,197 Service charges on deposit accounts 39,909 38,567 43,277 Credit card income 13,561 12,390 10,618 Other service charges and fees 21,227 16,672 8,564 Gain (loss) on sale of mortgage loans 809 (862) 8,010 Other 7,736 8,330 8,071 - ------------------------------------------------------------------------------------------------------------------------- Total noninterest income 92,128 83,325 85,737 - ------------------------------------------------------------------------------------------------------------------------- 333,209 308,418 297,439 Noninterest expense Salaries and wages 106,607 99,282 92,579 Employee benefits 17,080 14,535 13,500 Occupancy expense 20,446 18,691 16,972 Equipment expense 24,504 23,839 21,231 Other 77,243 74,235 68,931 - ------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 245,880 230,582 213,213 - ------------------------------------------------------------------------------------------------------------------------- Income before income taxes 87,329 77,836 84,226 Income taxes 30,423 26,867 28,641 - ------------------------------------------------------------------------------------------------------------------------- Net income $56,906 $50,969 $55,585 - ------------------------------------------------------------------------------------------------------------------------- Per share information Net income $ 5.37 $ 5.13 $ 5.73 Cash dividends 0.825 0.725 0.625 Weighted average shares outstanding 10,597,066 9,944,927 9,701,389 ========================================================================================================================= See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY First Citizens BancShares, Inc. and Subsidiaries
Class A Class B Total Common Common Retained Shareholders' (thousands, except share data) Stock Stock Surplus Earnings Equity - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 $7,815 $1,793 $55,447 $268,732 $333,787 Issuance of 164,917 shares of Class A common stock pursuant to employee stock purchase plans 165 5,966 6,131 Redemption of 13,147 shares of Class B common stock (13) (687) (700) Issuance of 6,134 shares of Class A common stock pursuant to the Dividend Reinvestment Plan 6 304 310 Net income 55,585 55,585 Cash dividends (6,063) (6,063) - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 7,986 1,780 61,717 317,567 389,050 Issuance of 79,408 shares of Class A common stock pursuant to employee stock purchase plans 79 2,586 2,665 Redemption of 85,850 shares of Class A common stock and 10,617 shares of Class B common stock (86) (10) (4,132) (4,228) Issuance of 6,694 shares of Class A common stock pursuant to the Dividend Reinvestment Plan 7 276 283 Issuance of 433,068 shares of Class A common stock in connection with various acquisitions 433 18,052 18,485 Net income 50,969 50,969 Cash dividends (7,311) (7,311) Other (502) (502) - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 8,419 1,770 82,631 356,591 449,411 Issuance of 64,881 shares of Class A common stock pursuant to employee stock purchase plans 65 2,556 2,621 Redemption of 28,386 shares of Class A common stock and 2,987 shares of Class B common stock (28) (4) (1,513) (1,545) Issuance of 8,998 shares of Class A common stock pursuant to the Dividend Reinvestment Plan 9 406 415 Issuance of 484,821 shares of Class A common stock in connection with various acquisitions 485 21,361 21,846 Net income 56,906 56,906 Cash dividends (8,817) (8,817) - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 $520,837 ================================================================================================================================ See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31, --------------------------------------------------- (thousands) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 56,906 $ 50,969 $ 55,585 Adjustments: Amortization of intangibles 5,877 3,993 3,157 Provision for loan losses 5,364 2,786 15,245 Deferred tax benefit (1,454) (1,579) (4,807) Change in current taxes payable 3,241 (3,993) (3,540) Depreciation 16,882 15,885 13,092 Change in accrued interest payable 26,696 3,242 (273) Change in income earned not collected (11,746) 1,007 (2,173) Origination of loans held for sale (85,148) (72,804) (315,517) Proceeds from sale of loans 75,964 116,125 284,216 (Gain) loss on sale of mortgage loans (809) 862 (8,010) Net amortization of premiums and discounts 19,634 27,439 17,493 Net change in other assets (15,383) 39,980 (8,396) Net change in other liabilities 4,798 (16,263) 1,944 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 100,822 167,649 48,016 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities Dispositions of premises and equipment 3,445 2,364 910 Additions to premises and equipment (31,147) (20,254) (34,390) Net increase in loans outstanding (254,326) (498,396) (86,550) Purchases of investment securities (1,328,178) (207,601) (1,045,662) Proceeds from maturities of investment securities 826,129 576,293 708,145 Proceeds from sale of investment securities - - 3,956 Net change in federal funds sold (25,023) 16,300 90,000 Purchases of institutions, net of cash acquired 106,092 (6,533) 128,041 - --------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (703,008) (137,827) (235,550) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities Repurchases of common stock (1,545) (4,228) (700) Proceeds from issuance of stock, net of related costs 3,036 2,948 6,441 Cash dividends paid (8,817) (7,311) (6,063) Net change in time deposits 536,251 (4,854) 6,631 Net change in demand and other interest-bearing deposits (3,811) 24,901 174,161 Net change in short-term borrowings 70,188 38,874 34,122 Repayments of long-term obligations (196) (17,294) (541) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 595,106 33,036 214,051 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Change in cash and due from banks (7,080) 62,858 26,517 Cash and due from banks at beginning of year 455,710 392,852 366,335 - --------------------------------------------------------------------------------------------------------------------------- Cash and due from banks at end of year $ 448,630 $455,710 $ 392,852 - --------------------------------------------------------------------------------------------------------------------------- Cash payments for: Interest $ 197,334 $144,844 $ 137,812 Income taxes 27,454 27,667 34,021 - --------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of noncash investing and financing activities: Common stock issued for acquisitions $ 21,846 $ 18,485 - Long-term obligations issued for acquisitions 2,494 - $849 =========================================================================================================================== See accompanying Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation First Citizens BancShares, Inc. ("BancShares") is a bank holding company with three banking subsidiaries - First-Citizens Bank & Trust Company (the "Bank"), Bank of Marlinton ("Marlinton"), and Bank of White Sulphur Springs ("WSS"). On January 1, 1996, a fourth banking subsidiary, based in Virginia, was merged into the Bank. The accounting and reporting policies of BancShares and its subsidiaries are in accordance with generally accepted accounting principles and, with regard to the banking subsidiaries, conform to general industry practices. The Bank, Marlinton and WSS conduct a full-service banking business designed to meet the needs of both consumers and commercial entities in the markets in which they serve. These services include normal taking of deposits, commercial and consumer lending, a full service trust department and other activities incidental to commercial banking. The Bank also services residential mortgages for other entities in exchange for a monthly servicing fee. The Bank's primary market area includes North Carolina and Virginia, while Marlinton and WSS both serve individual communities within West Virginia. The Bank has ten wholly-owned subsidiaries. Neuse, Incorporated owns a substantial number of the facilities in which the Bank operates branches and also operates an insurance agency, which acts as agent for credit-related insurance associated with various areas of the Bank's business. American Guaranty Insurance Company is engaged in writing fire and casualty insurance. Triangle Life Insurance Company writes credit life and credit accident and health insurance. First Citizens Processing Services provides operating support services for affiliate banks. First Citizens Investor Services provides investment services, including sales of annuities and third party mutual funds, to customers of the Bank. Other subsidiaries are either inactive or are not material to the consolidated financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by BancShares in the preparation of its consolidated financial statements are the determination of the reserve for loan losses, the valuation allowance for deferred tax assets, and fair value estimates. Intercompany accounts and transactions have been eliminated. Certain amounts for prior years have been reclassified to conform with the presentations for 1995. However, the reclassifications have no effect on shareholders' equity or net income as previously reported. Investment Securities BancShares adopted Statement of Financial Accounting Standards No. 115 ("Statement 115") effective January 1, 1994. Statement 115 requires segregation of the investment portfolio, with all securities classified as held to maturity, available for sale, or held for trading purposes. As of December 31, 1995 and 1994, all investment securities are classified as held to maturity, as BancShares has the ability and the positive intent to hold its investment securities until maturity. These securities are stated at cost adjusted for amortization of premium and accretion of discount. Accreted discounts and amortized premiums are included in interest income on an effective yield basis. At December 31, 1995 and 1994, BancShares had no investment securities classified as either available for sale or held in a trading portfolio. Loans Loans that are held for investment purposes are carried at their principal amount outstanding. Those loans that are held for sale are carried at the lower of aggregate cost or market. Interest on substantially all loans is accrued and credited to interest income based upon the daily principal amount. Loan Fees Fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans using a method that approximates a constant yield. Mortgage Servicing Rights BancShares adopted Statement of Financial Accounting Standards No. 122 ("Statement 122") effective January 1, 1996. Statement 122 requires any entity engaged in mortgage banking activities to recognize as separate assets any rights to service mortgage loans for others. When mortgage servicing rights are acquired or result from the sale of origination activity with servicing rights retained, the servicer should assign a value to the servicing rights based on the relative fair values if it is practicable to estimate those fair values. Statement 122 also requires a servicer to assess its capitalized mortgage servicing rights for impairment based on the fair values of those rights. BancShares does not believe that the adoption of Statement 122 will have a material impact on its consolidated financial statements upon adoption. However, Statement 122 could have a material impact on BancShares' future consolidated financial statements should market conditions result in an increased volume of mortgage banking activities or the recognition of impairment valuation allowances. Reserve for Loan Losses The reserve for loan losses is established by charges to operating expense and recognition of acquired institutions' previously established reserves. To determine the reserve needed, management evaluates the risk characteristics of the loan portfolio under current and projected 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 possible credit losses. BancShares adopted Statements of Financial Accounting Standards No. 114 and No. 118 (collectively, "Statement 114") effective January 1, 1995. The adoption of Statement 114 did not have a material effect on BancShares' financial condition or results of operations. Under Statement 114, the reserve for loan losses related to loans that are identified as impaired is based on discounted cash flows using the loans' initial interest rates or, if the loan is secured, the fair value of the collateral. Residential mortgage loans, retail installment loans and credit card loans are excluded from Statement 114 as they are evaluated collectively for impairment since they are homogeneous and generally carry smaller individual balances. Management considers the established reserve adequate to absorb future losses that relate to loans outstanding as of December 31, 1995, although future additions to the reserve may be necessary based on changes in economic and other conditions. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's reserve for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. Nonaccrual Loans and Other Real Estate Accrual of interest on loans (including impaired loans) is discontinued when management deems that collection of additional interest is doubtful. At that time, any interest receivable that was accrued during the current period is reversed and any interest accrued in prior periods is charged off. Any payments received from the borrower while the loan is classified as nonaccrual are generally applied to the outstanding principal balance. 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. Other real estate acquired through foreclosure is valued at the lower of the loan balance at the time of foreclosure or estimated fair market value net of selling costs and is included in other assets. Once acquired, other real estate is periodically reviewed to ensure that the fair market value of the property supports the carrying value, with writedowns recorded when necessary. Gains and losses resulting from the sale or writedown of other real estate and income and expenses related to the operation of other real estate are recorded in other expense. Intangible Assets Goodwill arising from acquisitions in which the purchase price exceeds the fair value of net assets acquired is amortized using the straight-line method over a 15 year period. Deposit base intangibles are amortized over the expected life of the specific deposit base using either the straight-line or an accelerated method of amortization based on when the asset was recorded. Intangible assets are subject to periodic review and are adjusted for any impairment of value. Impairment of Long-Lived Assets Statement of Financial Accounting Standards No. 121 ("Statement 121") which became effective January 1, 1996, establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill. Statement 121 requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss should be recognized if the sum of the undiscounted future cash flows is less than the carrying amount of the asset. Those assets to be disposed of are to be reported at the lower of the carrying amount or fair value less costs to sell. Adoption of Statement 121 should not have a material effect on BancShares' consolidated financial statements at the date of adoption. However, Statement 121 could have a material impact on BancShares' consolidated financial statements for future periods should an event or changes in circumstances occur in such future periods, requiring a review by management for impairment. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed by the straight-line method and are charged to operations over the estimated useful lives of the assets, which range from 25 to 40 years for premises and three to 10 years for furniture and equipment. Leasehold improvements are amortized over the terms of the respective leases or the useful lives of the improvements, whichever is shorter. Gains and losses on dispositions are recorded in other income. Maintenance and repairs are charged to occupancy expense or equipment expense as incurred. Income Taxes Income tax expense is based on consolidated net income and generally differs from income taxes paid due to deferred income taxes and benefits arising from income and expenses being recognized in different periods for financial and income tax reporting purposes. BancShares and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its allocation of federal income taxes or receives a payment to the extent that tax benefits are realized. BancShares and its subsidiaries each file separate state income tax returns. Per Share Data Net income per share has been computed by dividing net income by the weighted average number of both classes of common shares outstanding during each period. The weighted average number of shares outstanding for 1995, 1994 and 1993 was 10,597,066; 9,944,927 and 9,701,389, respectively. Outstanding options to purchase shares of common stock were not materially dilutive to the computation of net income per share in any period. Cash dividends per share apply to both Class A and Class B common stock as both classes share equally in dividends. Class A common stock carries one vote per share, while shares of Class B common stock carry 16 votes per share. NOTE B INVESTMENT SECURITIES The aggregate values of investment securities at December 31 along with gross unrealized gains and losses are as follows:
Gross Gross Book Unrealized Unrealized Market Value Gains Losses Value 1995 U. S. Government $1,972,129 $10,697 ($2,296) $1,980,530 State, county and municipal 8,033 178 (10) 8,201 Other 2,986 4 (5) 2,985 Total investment securities $1,983,148 $10,879 ($2,311) $1,991,716 1994 U. S. Government $1,453,951 $39 ($35,257) $1,418,733 State, county and municipal 4,603 10 (64) 4,549 Other 415 0 0 415 Total investment securities $1,458,969 $49 ($35,321) $1,423,697
The maturities of investment securities at December 31 are as follows:
1995 1994 Book Market Book Market Value Value Value Value Within one year $ 929,761 $ 931,954 $ 849,740 $ 838,804 One through five years 1,041,434 1,047,733 601,019 577,065 Five to 10 years 4,587 4,636 5,181 4,910 More than 10 years 7,366 7,393 3,029 2,918 Total investment securities $1,983,148 $1,991,716 $1,458,969 $1,423,697
Investment securities having an aggregate par value of $819,043 at December 31, 1995, and $730,195 at December 31, 1994, were pledged as collateral to secure public funds on deposit and for other purposes as required by law. NOTE C LOANS Loans at December 31 are summarized as follows:
1995 1994 Loans secured by real estate: Construction and land development $ 104,540 $ 100,708 Mortgage 2,735,418 2,475,281 Commercial and industrial 466,462 373,947 Consumer 1,199,400 1,119,994 Lease financing 59,899 60,598 All other loans 15,000 17,605 Total loans $4,580,719 $4,148,133
Included in total loans as of December 31, 1995 and 1994 is unearned income of $4,913 and $4,316, respectively, substantially all of which relates to deferred origination fees. There were no foreign loans outstanding during either period, nor were there any material highly leveraged transactions. There are no loan concentrations exceeding 10 percent of loans outstanding involving multiple borrowers in similar activities or industries at December 31, 1995. Substantially all loans are to customers domiciled within BancShares' principal market areas. At December 31, 1995 and 1994 nonperforming loans consisted of nonaccrual loans and amounted to $13,208 and $21,069, respectively. Gross interest income on nonperforming loans that would have been recorded had these loans been performing was $1,556, $1,430 and $2,354 during 1995, 1994 and 1993, respectively. Interest income recognized on nonperforming loans was $595, $693 and $1,083 during the respective periods. As of December 31, 1995 and 1994, the balance of other real estate acquired through foreclosure was $2,154 and $5,926, respectively. Loans transferred to other real estate totaled $2,110, $1,894 and $5,037 during 1995, 1994 and 1993, respectively. Activity related to the sale of loans is summarized as follows:
1995 1994 1993 Loans held for sale at December 31 $15,388 $ 5,395 $ 49,578 For the year ended December 31: Loans sold 75,155 116,987 276,206 Net gain (loss) on sale of loans 809 (862) 8,010
NOTE D RESERVE FOR LOAN LOSSES Activity in the reserve for loan losses is summarized as follows:
1995 1994 1993 Balance at beginning of year $72,017 $70,049 $58,380 Reserve of acquired institutions 3,231 1,009 8,269 Provision for loan losses 5,364 2,786 15,245 Loans charged off (7,262) (8,480) (15,643) Loans recovered 5,145 6,653 3,798 Net charge-offs (2,117) (1,827) (11,845) Balance at end of year $78,495 $72,017 $70,049
At December 31, 1995, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $11,119, all of which were classified as nonaccrual. Specific reserves of $865 have been established for these loans. The average recorded investment in impaired loans during the year ended December 31, 1995, was approximately $14,326. For the year ended December 31, 1995, BancShares recognized interest income on those impaired loans of approximately $543. The amount of interest income recognized on a cash basis for impaired loans was not material. NOTE E PREMISES AND EQUIPMENT Major classifications of premises and equipment at December 31 are summarized as follows:
1995 1994 1993 Land $ 46,200 $ 40,827 $ 34,921 Premises and leasehold improvements 160,116 141,332 138,660 Furniture and equipment 112,070 106,482 101,082 Total 318,386 288,641 274,663 Less accumulated depreciation and amortization 110,146 99,817 89,789 Net book value $208,240 $188,824 $184,874 Depreciation expense charged to operations $ 16,882 $ 15,885 $ 13,092
Premises with a book value of $3,188 at December 31, 1995, and $3,142 at December 31, 1994, were pledged to secure mortgage notes payable. BancShares leases certain premises and equipment under various lease agreements that provide for payment of property taxes, insurance and maintenance costs. Generally, operating leases provide for one or more renewal options on the same basis as current rental terms. However, certain leases require increased rentals under cost of living escalation clauses. Certain of the leases also provide purchase options. Future minimum rental commitments for noncancellable operating leases with initial or remaining terms of one or more years consisted of the following at December 31, 1995: Year Ending December 31: Amount 1996 $ 9,726 1997 9,304 1998 8,321 1999 7,314 2000 5,588 Thereafter 63,176 - Total minimum payments $103,429 Total rent expense for all operating leases amounted to $11,998 in 1995, $11,118 in 1994 and $10,449 in 1993. NOTE F SHORT-TERM BORROWINGS Short-term borrowings at December 31 are as follows:
1995 1994 Master notes $257,178 $173,250 Federal funds purchased 64,085 76,430 Repurchase agreements 25,022 14,970 U. S. Treasury tax and loan accounts 17,581 20,046 Other 12,665 6,165 Total short-term borrowings $376,531 $290,861
Master notes are overnight unsecured borrowings by BancShares from Bank customers. The rate on Master notes was 4.74 percent as of December 31, 1995. During 1995, the weighted average rate on Master note borrowings was 4.96 percent, and the average amount outstanding was $203,114. The largest amount outstanding at any month-end during 1995 was $257,178. NOTE G LONG-TERM OBLIGATIONS Long-term obligations at December 31 are as follows:
1995 1994 Variable rate note at 6.77 percent and 6.25 percent at December 31, 1995 and 1994, respectively, payable in quarterly installments with final payment of $9,305 due in April 1997, unsecured $ 9,305 $10,445 Federal Home Loan Bank advances with a weighted average rate of 5.21 percent at December 31, 1995, and 4.66 percent at December 31, 1994, with maturities extending to 1999, secured by U.S. Government securities 7,999 20,531 Mortgage notes payable at 8 percent, due in periodic payments through 2004, secured by premises 1,821 2,017 Note payable at 7.89 percent, maturing in 2009, secured by collateralized mortgage obligation 489 700 Subordinated notes payable at 7 percent maturing June 18, 1998 849 849 Subordinated notes payable at 8 percent maturing February 23, 2000 170 - Subordinated notes payable at 7.50 percent maturing February 23, 2005 2,324 - Total long-term obligations $22,957 $34,542
Long-term obligations maturing in each of the five years subsequent to December 31, 1995, are as follows: 1996 $ 176 1997 9,495 1998 1,055 1999 8,222 2000 411 Thereafter 3,598 $22,957 NOTE H COMMON STOCK On October 23, 1995, the Board of Directors of BancShares authorized the corporation to purchase on the open market or in private transactions up to 300,000 shares of its outstanding Class A common stock and up to 100,000 shares of its outstanding Class B common stock. The authorization is effective for a period of 12 months. The following table sets forth information related to shares purchased for the years ended December 31: 1995 1994 1993 Class A Number of shares purchased 28,386 85,850 - Cash disbursed $1,394 $ 3,769 - Class B Number of shares purchased 2,987 10,617 13,147 Cash disbursed $ 151 $ 459 $700 Shares purchased are retired by a charge to common stock for the par value of the shares retired and to retained earnings for the cost in excess of par value. As of December 31, 1995, there were 226,329 shares reserved for issuance under the Dividend Reinvestment and Stock Purchase Plan. Additionally, as of December 31, 1995, a total of 923,917 shares that have been registered for issuance under an employee stock purchase plan remain unissued. NOTE I ESTIMATED FAIR VALUES Fair value estimates for financial instruments are made at a discrete point in time based on relevant market information and information about each financial instrument. Where information regarding the market value of a financial instrument is available, those values are used, as is the case with investment securities and residential mortgage loans. In these cases, an open market exists in which those financial instruments are actively traded. Because no market exists for many financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. For those financial instruments with a fixed interest rate, an analysis of the related cash flows was the basis for estimating fair values. The expected cash flows were then discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. Generally, the fair value of variable rate financial instruments equals the book value. Estimated fair values for financial instruments at December 31 are as follows:
1995 1994 Book Fair Book Fair Value Value Value Value Financial Assets: Cash and due from banks $ 448,630 $ 448,630 $ 455,710 $ 455,710 Investment securities 1,983,148 1,991,716 1,458,969 1,423,697 Federal funds sold 40,445 40,445 6,750 6,750 Loans, net of reserve for loan losses 4,502,224 4,523,601 4,076,116 3,973,097 Income earned not collected 58,237 58,237 45,194 45,194 Financial Liabilities: Deposits 6,388,082 6,551,761 5,517,589 5,510,810 Short-term borrowings 376,531 376,531 290,861 290,861 Long-term obligations 22,957 23,509 34,542 32,933 Accrued interest payable 47,721 47,721 20,391 20,391
Forward commitments to sell loans as of December 31, 1995, and 1994 had no carrying value and unrealized losses of $20 and $23, respectively. For other off-balance sheet commitments and contingencies, carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any projected credit loss from those financial instruments. These amounts are not material to BancShares' financial position. NOTE J EMPLOYEE BENEFIT PLANS Employees who qualify under length of service and other requirements participate in a noncontributory defined benefit pension plan. Under the plan, retirement benefits are based on years of service and average earnings. The policy is to fund the maximum amount allowable for federal income tax purposes. No contribution was made during the three-year period ending December 31, 1995. The plan's assets consist primarily of investments in the Bank's common trust funds, which include listed common stocks and fixed income securities. At December 31, 1995, the plan's assets also included BancShares common stock with a market value of $8,710. While applicable regulations would generally prohibit the ownership of BancShares stock by the plan, the Bank has received an exemption from the Department of Labor which allows the plan to continue to hold the stock. However, the plan's interests for all purposes with respect to the stock are now represented by an independent fiduciary. BancShares has executed an agreement to purchase any or all of the shares held by the plan if the fiduciary determines that it is in the best interest of the plan. The following table sets forth the plan's funded status at December 31:
1995 1994 Pension benefit obligation: Vested ($81,717) ($68,928) Nonvested (1,564) (1,578) Accumulated benefit obligation (83,281) (70,506) Effect of projected future compensation levels (19,800) (17,889) Projected benefit obligation (103,081) (88,395) Market value of plan assets 128,911 105,376 Plan assets in excess of projected benefit obligation 25,830 16,981 Unrecognized net transition asset (8,530) (9,759) Unrecognized net (gain) loss due to difference in past experience and assumptions (17,006) (6,620) Unrecognized prior service cost 1,505 1,659 Prepaid pension asset $1,799 $2,261
The net periodic pension cost (credit) for the years ended December 31 included the following:
1995 1994 1993 Service costs $ 3,139 $ 3,275 $ 2,686 Interest costs 7,073 6,544 6,183 Actual return on plan assets (26,745) 2,101 (7,440) Net amortization and deferral 16,842 (11,373) (1,474) Net periodic pension cost (credit) $ 309 $ 547 ($45)
Prior service cost is being amortized on a straight-line basis over the estimated average remaining service period of employees. In determining the projected benefit obligation at December 31, 1995, 1994, and 1993, the following assumptions were used:
1995 1994 1993 Weighted average discount rate 7.25% 7.75% 7.25% Rate of future compensation increases 4.25 4.50 4.50 Long-term rate of return on plan assets 8.25 8.50 8.25 Employees are also eligible to participate in a matching savings plan after one year of service. During 1995 BancShares made participating contributions to this plan of $3,155 compared to $2,907 during 1994 and $2,709 during 1993. Certain employees have been granted options to purchase shares of BancShares' Class A common stock through employee stock purchase plans. The plans are qualified plans under the Internal Revenue Code. The number of options granted was determined based on each eligible employee's salary as of the grant date. The option price for each of the plans is fixed at 85 percent of the market price on the grant date. As of December 31, 1995, options to purchase a total of 146,800 shares remained, net of the 41,230 options that have been forfeited. Additional information is as follows:
1994 Plan 1992 Plan Options granted 264,113 474,768 Grant date July 1, 1994 July 1, 1992 Option price per share $37.83 $29.96 Number of shares purchased during: 1995 64,881 - 1994 11,202 68,206 1993 - 164,917 Plan termination date June 30, 1996 June 30, 1994
NOTE K OTHER INCOME AND OTHER EXPENSE Included in other income for the year ended December 31, 1995, was net premium income earned by the insurance subsidiaries, which amounted to $3,964. Net premium income earned during 1994 and 1993 was $4,495 and $4,953, respectively. Other expense for the years ended December 31 consisted of the following:
1995 1994 1993 Credit card expense $ 9,106 $ 8,587 $ 6,814 FDIC insurance 8,418 11,831 10,496 Telecommunication 6,790 6,743 6,528 Amortization of intangibles 5,877 3,993 3,157 Postage 5,701 4,907 3,996 Other 41,351 38,174 37,940 Total other expense $77,243 $74,235 $68,931
NOTE L INCOME TAXES At December 31, income tax expense consisted of the following:
1995 1994 1993 Current tax expense Federal $30,757 $28,446 $33,448 State 1,120 - - Total current tax expense 31,877 28,446 33,448 Deferred tax expense (benefit) Federal (111) (1,579) (4,807) State (1,343) - - (1,454) (1,579) (4,807) Total deferred tax benefit Total tax expense $30,423 $26,867 $28,641
Income tax expense differed from the amounts computed by applying the federal income tax rate of 35 percent in each period to pretax income as a result of the following:
1995 1994 1993 Income tax at statutory rates 30,565 $27,243 $29,479 Increase (reduction) in income taxes resulting from: Adjustment to deferred tax assets and liabilities for enacted changes in laws and rates - - (483) Amortization of goodwill 1,280 674 382 Nontaxable income on loans and investments, net of nondeductible expenses (1,378) (1,346) (1,070) State and local income taxes (benefit), including change in valuation allowance, net of federal income tax (145) 73 40 Other, net 101 223 293 Total tax expense $30,423 $26,867 $28,641
The net deferred tax asset included the following components at December 31: 1995 1994 Loan loss reserve $31,426 $27,780 Net deferred loan fees and costs 2,066 1,682 Losses on other real estate 1,286 1,198 Net operating loss carryforwards 978 1,024 Other 6,068 6,190 Gross deferred tax asset 41,824 37,874 Less: valuation allowance (2,620) (3,493) Deferred tax asset 39,204 34,381 Accelerated depreciation 4,654 3,344 Accretion of bond discount 768 292 Net periodic pension credit 639 791 Tax loan loss reserve reversal 1,295 1,071 Other 5,449 4,276 Deferred tax liability 12,805 9,774 Net deferred tax asset $26,399 $24,607 Due to changes in asset mix and the resulting composition of net interest income, BancShares incurred income tax expense within its principal state jurisdiction in 1995. Prior to 1995, BancShares incurred immaterial amounts of state income tax expense and established a valuation allowance for the entire amount of its net state deferred tax asset. During 1995, the valuation allowance, which is recorded net of federal taxes, was reduced by $873, which resulted in a deferred state tax benefit in 1995 of $1,343. At December 31, 1995, the state tax valuation allowance represents approximately 75% of the gross state deferred tax asset. The net state deferred tax asset of $1,343 is the amount which BancShares believes is more likely than not to be realized. NOTE M RELATED PARTY TRANSACTIONS The banks have had, and expect to have in the future, banking transactions in the ordinary course of business with several directors, officers and their associates ("related parties"), on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. Those transactions neither involve more than the normal risk of collectibility nor present any unfavorable features. An analysis of changes in aggregate amounts of related party loans for the year ended December 31, 1995, which excludes aggregate loans totaling less than $60 to any one related party, is as follows: Balance at beginning of year $ 5,643 New loans 8,141 Repayments 1,842 Balance at end of year $11,942 BancShares provides certain processing and operational services to other financial institutions. Certain of these institutions are deemed to be related parties since certain control persons of BancShares are also deemed to be control persons of the other banks. During 1995 and 1994, BancShares received $9,031 and $7,976, respectively, for services rendered to related parties, substantially all of which is included in fee income and relates to data processing services provided. The amount earned by BancShares during 1993 was not material. NOTE N ACQUISITIONS BancShares and the Bank have entered into and consummated numerous acquisitions in recent years. All of the transactions have been accounted for as purchases, with the results of operations not included in BancShares' Statements of Income until after the transaction date. The pro forma impact of the acquisitions as though they had been made at the beginning of the periods presented is not material to BancShares' consolidated financial statements. As of December 31, 1995 and 1994, BancShares had goodwill of $50,249 and $31,274, respectively. Deposit intangibles totaled $23,140 and $10,842, respectively. The following table provides information regarding the significant acquisitions that have been consummated during the three-year period ending December 31, 1995:
Deposit Assets Liabilities Resulting Date Institution/Location Acquired Assumed Intangible June 1995 Bank of White Sulphur Springs $64,589 $59,174 $5,691 White Sulphur Springs, West Virginia May 1995 9 NationsBank of Virginia branches 133,175 143,494 10,801 Southern Virginia March 1995 State Bank 49,700 41,238 5,555 Fayetteville, North Carolina February 1995 First Investors Savings Bank, Inc., SSB 44,426 40,846 4,325 Whiteville, North Carolina February 1995 Pace American Bank 58,660 53,303 6,954 Lawrenceville, Virginia December 1994 First Republic Savings Bank, FSB 53,661 42,998 6,250 Roanoke Rapids, North Carolina September 1994 Bank of Marlinton 51,646 46,647 4,605 Marlinton, West Virginia August 1994 Edgecombe Homestead Savings Bank 39,181 30,195 4,547 Tarboro, North Carolina March 1994 Bank of Bladenboro 21,316 19,515 1,607 Bladenboro, North Carolina September 1993 Pioneer Bancorp, Inc. 268,845 216,226 8,114 Rocky Mount, North Carolina June 1993 Caldwell Savings Bank, Inc. SSB 45,863 40,662 724 Lenoir, North Carolina
During 1993, the Bank also assumed $105,662 in deposit liabilities from the Resolution Trust Corporation ("RTC") in conjunction with the resolution of two institutions by the RTC. The Bank paid a premium of $7,318 for these deposits. During February 1996, BancShares acquired Sanford, North Carolina-based Allied Bank Capital, Inc., and its two subsidiaries, Summit Savings Bank Inc., SSB and Peoples Federal Savings Bank, Inc., SSB. The Bank acquired assets of approximately $265,855 and assumed deposit liabilities of $213,960. The approximate value of the intangible asset which will be recorded is $32,000. NOTE O REGULATORY REQUIREMENTS BancShares and its banking subsidiaries are subject to certain requirements imposed by state and federal banking statutes and regulations. These regulations establish guidelines for minimum capital levels, restrict certain dividend payments and require the maintenance of noninterest-bearing reserve balances at the Federal Reserve Bank. Such reserves averaged $159,417 during 1995, of which $86,215 was satisified by vault cash and the remainder by amounts held in the Federal Reserve Bank. Various regulatory agencies have implemented guidelines that evaluate capital based on risk adjusted assets. An additional capital computation evaluates capital after adjusting for intangibles. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the financial statements. BancShares' capital ratios as of December 31, 1995 and 1994, and the minimum capital standards established by regulatory agencies are set forth below:
Regulatory 1995 1994 Minimum Leverage capital 6.1% 6.5% 3.0% As a percentage of risk adjusted assets: Core capital 9.6% 10.1% 4.0% Total capital 10.9% 11.3% 8.0%
The Board of Directors of the Bank may declare a dividend of a portion of its undivided profits as it may deem appropriate, subject to the requirements of the General Statutes of North Carolina, without prior approval from the requisite regulatory authorities. As of December 31, 1995, this amount was approximately $335,727. Dividends declared by the Bank amounted to $39,273 in 1995, $10,667 in 1994, and $970 in 1993. Various proposals are being considered by the United States Congress concerning a possible merger of the two deposit funds administered by the Federal Deposit Insurance Corporation, the Bank Insurance Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF"). Central to that discussion is the recapitalization of the SAIF prior to such a merger, and most of the proposals mandate a special one-time assessment of SAIF-insured deposits at rates up to 85 basis points of the SAIF-insured deposits. A final assessment rate has yet to be determined, and due to the uncertainty as to which, if any, of the proposals will be adopted and the ultimate amount of the assessment to be levied on the SAIF-insured deposits, the impact of the proposals and the assessment is impossible to predict with certainty at this time. As of December 31, 1995, BancShares and its subsidiaries had $1,857,928 of SAIF-insured deposits. NOTE P COMMITMENTS AND CONTINGENCIES In the normal course of business, BancShares and its subsidiaries have financial instruments with off-balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and forward commitments to sell loans. These instruments involve, to varying degrees, elements of credit, interest rate or liquidity risk. Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit-risk exposure associated with these commitments. In some cases, BancShares requires that collateral be pledged to secure the commitment. At December 31, 1995 and 1994, BancShares had unused commitments totaling $1,403,938 and $1,245,613, respectively. Standby letters of credit are conditional commitments guaranteeing performance of a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements. In order to minimize its exposure, the BancShares' credit policies also govern the issuance of standby letters of credit. At December 31, 1995 and 1994, BancShares had standby letters of credit amounting to $12,188 and $10,410, respectively. Management has elected to enter into forward commitments to sell loans as a hedge against fluctuations in market rates for the commitments to originate residential mortgage loans. These forward commitments, which totaled $16,000 and $1,453 at December 31, 1995 and 1994, respectively, were at fixed prices and were scheduled to settle within 60 days of that date. At December 31, 1995 and 1994, these forward commitments had no carrying value and unrealized losses of $20 and $23, respectively. These amounts are included with the carrying value of loans held for sale and commitments to originate mortgage loans when determining whether a valuation allowance is required to reduce the loans and commitments to originate mortgage loans to the lower of cost or fair value. 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. NOTE Q FIRST CITIZENS BANCSHARES, INC. ("Parent Company") First Citizens BancShares, Inc.'s principal assets are its investments in and receivables from its banking subsidiaries. Its sources of income are dividends and interest income on funds borrowed by the Bank. The Parent Company's condensed balance sheets as of December 31, 1995 and 1994, and the related condensed statements of income and cash flows for the years ended December 31, 1995, 1994, and 1993 are as follows:
Condensed Balance Sheets December 31, 1995 1994 Assets Cash $ 752 $ 725 Investment in bank subsidiaries 482,018 418,409 Due from bank subsidiaries 261,959 178,736 Other assets 39,783 27,901 Total assets $784,512 $625,771 Liabilities and shareholders' equity Short-term borrowings $257,178 $173,250 Other liabilities 6,497 3,110 Common stock: Class A 8,950 8,419 Class B 1,766 1,770 Surplus 106,954 82,631 Retained earnings 403,167 356,591 Total liabilities and shareholders' equity $784,512 $625,771
Condensed Income Statements Year Ended December 31 1995 1994 1993 Interest income $10,562 $6,135 $4,136 Interest expense 10,081 5,470 3,836 Net interest income 481 665 300 Dividends from bank subsidiary 39,273 10,667 970 Other income 39 56 22 Other expense 3,472 2,559 1,737 Income (loss) before income tax benefit and equity in undistributed net income of subsidiaries 36,321 8,829 (445) Income tax benefit 75 14 118 Income (loss) before equity in undistributed income of subsidiaries 36,396 8,843 (327) Equity in undistributed net income of subsidiaries 20,510 42,126 55,912 Net income $56,906 $50,969 $55,585
NOTE Q FIRST CITIZENS BANCSHARES, INC. ("Parent Company") Continued Condensed Statements of Cash Flows Year Ended December 31 1995 1994 1993 Operating Activities Net income $56,906 $50,969 $55,585 Adjustments: Amortization of goodwill 2,769 1,814 1,092 Undistributed net income of subsidiaries (20,510) (42,126) (55,912) Change in other assets (98,897) 4,795 - Change in other liabilities 3,387 (3,739) (3,280) Net cash (used) provided by operating activites (56,345) 11,713 (2,515) Investing Activities Net change in due from subsidiaries (83,223) (17,736) (22,960) Investment in subsidiaries (43,099) - - Purchase of institutions, net of cash acquired 106,092 (6,533) - Net cash used by investing activities (20,230) (24,269) (22,960) Financing Activities: Repurchase of common stock (1,545) (4,228) (700) Proceeds from stock issuance, net of related costs 3,036 2,948 6,441 Cash dividends paid (8,817) (7,311) (6,063) Net change in short-term borrowings 83,928 19,705 25,294 Net cash provided by financing activities 76,602 11,114 24,972 Increase (decrease) in cash 27 (1,442) (503) Cash balance at beginning of year 725 2,167 2,670 Cash balance at end of year $ 752 $ 725 $2,167 Cash payments for: Interest $10,081 $5,470 $3,836 Income taxes 27,454 27,667 34,021 Supplemental disclosure of noncash investing and financing activities: Common stock issued for acquisitions $21,846 $18,485 -
EX-22 3 EXHIBIT 22 Exhibit 22 Subsidiaries of the Registrant Name State First-Citizens Bank & Trust Company Chartered in North Carolina with branches in North Carolina and Virginia Bank of Marlinton West Virginia Bank of White Sulphur Springs West Virginia EX-23 4 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors First Citizens BancShares, Inc: We consent to incorporation by reference in the registration statement on Form S-8 (No. 33-82052) dated July 28, 1994, and the registration statement on Form S-3 (No. 33-54634) dated November 16, 1992, of First Citizens BancShares, Inc, of our report dated January 22, 1996, relating to the consolidated balance sheets of First Citizens BancShares, Inc. and subsidiaries as of December 31, 1995 and 1994, 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, 1995, which report is incorporated by reference in the December 31, 1995 Annual Report on Form 10-K of First Citizens BancShares, Inc. (Signature of KPMG Peat Marwick LLP) KPMG Peat Marwick LLP Raleigh, North Carolina March 28, 1996 EX-27 5 EXHIBIT 27
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 448,630 1,983,148 1,922 78,495 0 2,472,223 318,386 110,147 7,383,950 6,764,613 0 0 0 10,716 403,167 520,837 471,109 563,237 0 0 245,880 5,364 224,664 87,329 30,423 56,906 0 0 0 56,906 5.37 5.37
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