-----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, AZ6TxQfhXr1hxCMRD+n6CAEsXBkh0vwf6s4LH322jMuYEMM8+POcxh9JNvHaH6G1 +WJhFseG5mebyMHPo0d4lg== 0001021408-01-001755.txt : 20010320 0001021408-01-001755.hdr.sgml : 20010320 ACCESSION NUMBER: 0001021408-01-001755 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010319 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-K SEC ACT: SEC FILE NUMBER: 000-16471 FILM NUMBER: 1571889 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-K 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number 0-16471 ------------------- FIRST CITIZENS BANCSHARES, INC. (Exact name of Registrant as specified in the charter) Delaware 56-1528994 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number)
239 Fayetteville Street Mall Raleigh, North Carolina 27601 (Address of Principal Executive Offices, Zip Code) (919) 716-7000 (Registrant's Telephone Number, including Area Code) ------------------- 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. [_] Based on last reported sales prices on March 12, 2001, the aggregate market value of the Registrant's voting stock held by nonaffiliates of the Registrant as of such date was $541,527,807. On March 12, 2001, there were 8,813,454 outstanding shares of the Registrant's Class A Common Stock and 1,707,657 outstanding shares of the Registrant's Class B Common Stock. Portions of the Registrant's definitive Proxy Statement dated March 19, 2001 are incorporated in Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CROSS REFERENCE INDEX PART 1 Item 1 Description of Business............................ 3 Item 2 Properties......................................... 4 Item 3 Legal Proceedings.................................. 26 Item 4 Submission of Matters to a Vote of Shareholders.... None PART II Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters........................ 4 Item 6 Selected Financial Data............................ 5 Item 7 Management's Discussion and Analysis of Financial Item 7A Condition and Results of Operations................ 4-26 Quantitative and Qualitative Disclosures about Item 8 Market Risk........................................ 16 Financial Statements and Supplementary Data Independent Auditors' Report....................... 27 Consolidated Balance Sheets at December 31, 2000 and 1999........................................... 28 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2000.................................. 29 Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three-year period ended December 31, 2000..................... 30 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000.................................. 31 Notes to Consolidated Financial Statements......... 32-47 Quarterly Financial Summary for 2000 and 1999...... 24 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............... None PART III Item 10 Directors and Executive Officers of Registrant..... * Item 11 Executive Compensation............................. * Item 12 Security Ownership of Certain Beneficial Owners and Management......................................... * Item 13 Certain Relationships and Related Transactions..... * PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements (see Item 8 for reference) (2) Financial Statement Schedules normally required on Form 10-K are omitted since they are not applicable, except as referred to in Item 8. (3) Exhibits have been filed separately with the Commission and are available upon written request. (b) During the quarter ended December 31, 2000, no reports on Form 8-K were filed.
- ------------------------- * Information required by Item 10 is incorporated herein by reference to the information that appears under the headings "Section 16(a) Beneficial Ownership Reporting Compliance", "Proposal 1: Election of Directors" and "Executive Officers" on pages 5-13 of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. Information required by Item 11 is incorporated herein by reference to the information that appears under the heading "Director Compensation" on page 7 and under the headings "Executive Compensation", "Pension Plan" and "Employment Contracts, Termination of Employment, and Change-in-Control Agreements" on pages 10-11 of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. Information required by Item 12 is incorporated herein by reference to the information that appears under the headings "Beneficial Ownership of Voting Securities" on pages 2-3 of the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. Information required by Item 13 is incorporated herein by reference to the information that appears under the heading "Salary Committee" on pages 8-9 and under the heading "Transactions with Related Parties" on pages 12-13 of Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. 2 Description of Business - ------------------------------------------------------------------------------- First Citizens BancShares, Inc. ("BancShares") was incorporated under the laws of Delaware on August 7, 1986, to become the successor to First Citizens Corporation ("FCC"), a North Carolina corporation that was the bank holding company of First-Citizens Bank & Trust Company (the "Bank"), its banking subsidiary. On October 21, 1986, FCC was merged into BancShares, and BancShares became the sole shareholder of the Bank. On April 28, 1997, BancShares opened Atlantic States Bank ("ASB"), a federally-chartered thrift institution, which has continued to open new branches in the suburban Atlanta, Georgia area. During 1999, ASB expanded in the Fort Myers area of southwestern Florida. At December 31, 2000, ASB had 38 offices with total assets of $678.2 million. During 2000, BancShares became a financial holding company, a designation that allows BancShares to offer products and services that a bank holding company may not provide. As a first step to exercising the broader powers available to a financial holding company, during 2000, American Guaranty Insurance Company ("AGI"), which was formerly a wholly-owned subsidiary of the Bank, became a wholly-owned subsidiary of BancShares. As a direct subsidiary of BancShares, AGI will have more flexibility in its product offering than it did as a subsidiary of the Bank. The Bank was chartered on March 4, 1893, as the Bank of Smithfield, Smithfield, North Carolina, and through a series of mergers and name changes, it later became First-Citizens Bank & Trust Company. As of December 31, 2000, the Bank operated 363 offices in North Carolina, Virginia and West Virginia. BancShares' executive offices are located at 3128 Smoketree Court, Raleigh, North Carolina 27604, and its telephone number is (919) 716-7000. At December 31, 2000, BancShares and its subsidiaries employed a full-time staff of 4,181 and a part-time staff of 730 for a total of 4,911 employees. BancShares' principal assets are its investment in and receivables from its banking subsidiaries and its investment securities portfolio. Its primary sources of income are dividends from the Bank and interest income on its investment securities portfolio. Certain legal restrictions exist regarding the ability of the Bank to transfer funds to BancShares in the form of cash dividends or loans. For information regarding these restrictions, see Note P of BancShares' consolidated financial statements, contained in this report. BancShares' subsidiary banks seek to meet the needs of both consumers and commercial entities in their respective market areas. These services, offered at most offices, include normal taking of deposits, cashing of checks, and providing for individual and commercial cash needs; numerous checking and savings plans; commercial, small business and consumer lending; a full-service trust department; and other activities incidental to commercial banking. Triangle Life Insurance Company underwrites and sells credit-related life insurance products. First Citizens Investor Services, Inc., provides various investment products, including annuities, discount brokerage services and third-party mutual funds to customers. First-Citizens Bank, A Virginia Corporation is the issuing and processing bank for BancShares' retail credit cards. Various other subsidiaries are either inactive or not material to BancShares' consolidated financial position or to consolidated net income. As a registered financial holding company, BancShares is subject to the jurisdiction of the Board of Governors of the Federal Reserve System. BancShares also is registered as a financial holding company with the North Carolina Commissioner of Banks and is subject to the regulations promulgated by the Commissioner. The internal affairs of BancShares, including the rights of its shareholders, are governed by Delaware law and by its Certificate of Incorporation and Bylaws. BancShares files periodic reports under the Securities Exchange Act of 1934 and is subject to the jurisdiction of the Securities and Exchange Commission. The Bank is also regulated by the North Carolina Commissioner of Banks as well as the Federal Deposit Insurance Corporation. ASB is regulated by the Office of Thrift Supervision. AGI is regulated by the North Carolina Department of Insurance. 3 Properties - ------------------------------------------------------------------------------- Through its subsidiary financial institutions, as of December 31, 2000, BancShares operated branch offices at 401 locations in North Carolina, Virginia, West Virginia, Florida and Georgia. BancShares owns many of the buildings and leases other facilities from third parties. Additional information relating to premises, equipment and lease commitments is set forth in Note E of BancShares' consolidated financial statements. Market for Registrant's Common Equity and Related Shareholder Matters - ------------------------------------------------------------------------------- BancShares' Class A and Class B common stock is traded in the over-the-counter market, and the Class A common stock is quoted on the National Association of Securities Dealers Automated Quotation National Market System under the symbol FCNCA. The Class B common stock is quoted on the Over the Counter Bulletin Board. As of December 31, 2000, there were 3,190 holders of record of the Class A common stock, and 588 holders of record of the Class B common stock. The per share cash dividends paid by BancShares and the high and low sales prices for each quarterly period during 2000 and 1999 are set forth in Table 18 under the caption "Management's Discussion and Analysis" of this report. A cash dividend of 25 cents per share was declared by the Board of Directors on January 22, 2001, payable April 2, 2001, to holders of record as of March 19, 2001. Payment of dividends is made at the discretion of the Board of Directors and is contingent upon satisfactory earnings as well as projected future capital needs. Subject to the foregoing, it is currently management's expectation that comparable cash dividends will continue to be paid in the future. Management's Discussion and Analysis - ------------------------------------------------------------------------------- INTRODUCTION Management's discussion and analysis of earnings and related financial data are presented to assist in understanding the financial condition and results of operations of First Citizens BancShares, Inc. ("BancShares"), for the years 2000, 1999 and 1998. BancShares is a financial holding company with two wholly-owned banking subsidiaries: First-Citizens Bank & Trust Company ("FCB"), a North Carolina-chartered bank, and Atlantic States Bank ("ASB"), a federally-chartered thrift institution. First Citizens Bank operates branches in North Carolina, West Virginia, and Virginia. Atlantic States Bank operates branches in Georgia and Florida. This discussion and related financial data should be read in conjunction with the audited consolidated financial statements and related footnotes presented on pages 27 through 47 of this report. SUMMARY BancShares experienced a 20.2 percent increase in net income during 2000, compared to 1999. The increase was the result of higher levels of net interest income and nonrecurring gains in noninterest income, partially offset by higher noninterest expense and provision for loan losses. Consolidated net income amounted to $98.3 million during 2000, compared to $81.8 million during 1999 and $71.0 million during 1998. The improvement in net income during 1999 over 1998 resulted from growth in net interest income and noninterest income at levels that exceeded the growth in noninterest expense. Net income per share for the year ended December 31, 2000 totaled $9.32, compared to $7.70 and $6.62 for 1999 and 1998, respectively. Return on average assets totaled 0.98 percent during 2000 and 0.85 percent and 0.77 percent during 1999 and 1998, respectively. 4 Table 1 FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- (thousands, except share data and ratios) SUMMARY OF OPERATIONS Interest income......... $ 708,170 $ 633,891 $ 619,487 $ 572,276 $ 534,195 Interest expense........ 342,828 281,542 292,071 268,013 248,250 ----------- ---------- ---------- ---------- ---------- Net interest income..... 365,342 352,349 327,416 304,263 285,945 Provision for loan losses................. 15,488 11,672 19,879 8,726 8,907 ----------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............ 349,854 340,677 307,537 295,537 277,038 Noninterest income...... 202,190 165,339 145,417 114,914 103,058 Noninterest expense..... 394,784 375,620 342,213 300,401 278,422 ----------- ---------- ---------- ---------- ---------- Income before income taxes.................. 157,260 130,396 110,741 110,050 101,674 Income taxes............ 58,949 48,596 39,732 39,492 36,207 ----------- ---------- ---------- ---------- ---------- Net income............ $ 98,311 $ 81,800 $ 71,009 $ 70,558 $ 65,467 =========== ========== ========== ========== ========== Net interest income, taxable equivalent... $ 368,190 $ 354,566 $ 329,764 $ 306,726 $ 288,251 =========== ========== ========== ========== ========== SELECTED AVERAGE BALANCES Total assets............ $10,005,597 $9,622,774 $9,173,020 $8,304,412 $7,681,019 Investment securities... 1,618,584 1,908,300 2,305,395 2,300,706 1,998,059 Loans................... 6,955,772 6,399,114 5,847,531 5,086,723 4,842,266 Interest-earning assets................. 8,984,878 8,638,698 8,281,072 7,569,075 6,987,659 Deposits................ 8,390,920 8,105,443 7,759,315 7,088,018 6,653,302 Interest-bearing liabilities............ 7,772,889 7,517,483 7,249,290 6,521,818 6,044,553 Long-term obligations... 154,634 157,897 133,935 10,472 13,483 Shareholders' equity.... $ 763,386 $ 693,559 $ 629,089 $ 638,825 $ 576,988 Shares outstanding...... 10,551,607 10,625,457 10,626,311 11,341,153 11,340,982 =========== ========== ========== ========== ========== SELECTED PERIOD-END BALANCES Total assets............ $10,691,617 $9,717,099 $9,605,787 $8,951,109 $8,055,572 Investment securities... 1,816,720 1,371,894 2,160,329 2,483,294 2,161,236 Loans................... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508 Interest-earning assets................. 9,357,794 8,596,326 8,588,645 8,010,841 7,247,744 Deposits................ 8,971,868 8,173,598 8,112,408 7,579,567 6,954,028 Interest-bearing liabilities............ 8,384,692 7,554,229 7,542,636 7,052,749 6,265,482 Long-term obligations... 154,332 155,683 158,801 10,856 6,922 Shareholders' equity.... $ 810,728 $ 728,757 $ 660,749 $ 601,640 $ 615,507 Shares outstanding...... 10,522,836 10,610,399 10,625,559 10,627,453 11,410,880 =========== ========== ========== ========== ========== PROFITABILITY RATIOS (averages) Rate of return on: Total assets.......... 0.98% 0.85% 0.77% 0.85% 0.85% Shareholders' equity.. 12.88 11.79 11.29 11.04 11.35 Dividend payout ratio... 10.73 12.99 15.11 16.08 16.03 =========== ========== ========== ========== ========== LIQUIDITY AND CAPITAL RATIOS (averages) Loans to deposits....... 82.90% 78.95% 75.36% 71.77% 72.78% Shareholders' equity to total assets........... 7.63 7.21 6.86 7.69 7.51 Time certificates of $100,000 or more to total deposits......... 9.46 9.02 9.21 9.62 8.99 =========== ========== ========== ========== ========== PER SHARE OF STOCK Net income.............. $ 9.32 $ 7.70 $ 6.62 $ 6.22 $ 5.77 Cash dividends.......... 1.00 1.00 1.00 1.000 0.925 Market price at December 31 (Class A)........... 80.75 69.75 90.00 104.03 77.00 Book value at December 31..................... 77.04 68.68 62.18 56.61 53.94 Tangible book value at December 31............ 65.76 58.13 50.73 47.11 45.42 =========== ========== ========== ========== ==========
5 The after-tax impact of all nonrecurring items was a net gain of $14.7 million during 2000, a net gain of $2.6 million during 1999 and a net gain of $2.0 million during 1998. The per share amounts of the nonrecurring items were $1.39, $0.25 and $0.19, respectively, during 2000, 1999 and 1998. The primary nonrecurring items were: During 2000: . Sale of mortgage servicing rights--BancShares recognized $12.1 million in net income resulting from the sale of mortgage servicing rights; the pre-tax income of $20.2 million is included in gain on sale of mortgage servicing rights; . Sale of branches--BancShares recognized $2.6 million in net income from the sale of four branch offices; the pre-tax gain of $4.1 million is included in gain on sale of branches; . Provision for branch closings--BancShares recognized a net-of-tax loss of $1.9 million related to closing 15 branches; the pre-tax impact of $3.1 million is included in occupancy expense ($1.3 million) and other expense ($1.8 million); . Gains on sales of available for sale securities--BancShares recognized after-tax gains of $1.1 million; the pre-tax gain of $1.8 million is included in securities gains. During 1999: . Sale of branches--BancShares recognized $2.8 million in net income from the sale of branch offices; the pre-tax gain of $5.1 million is included in gain on sale of branches; . Gains on sales of available for sale securities--BancShares recognized after-tax gains of $1.1 million; the pre-tax gain of $1.7 million is included in securities gains; During 1998: . Sale of branches--BancShares recognized $2.0 million in net income from the sale of branch offices; the pre-tax impact of $3.1 million is included in gains on the sale of branch offices; An analysis of BancShares' financial condition and growth can be made by examining the changes and trends in interest-earning assets and interest- bearing liabilities, and a discussion of these changes and trends follows. The information presented in Table 5 is useful in making such an analysis. Table 2 details acquisitions and divestitures during 1998, 1999 and 2000. All of the acquisitions were accounted for as purchases, with the results of operations included with BancShares' Statements of Income since the respective acquisition dates. Table 2 BRANCH ACQUISITIONS AND DIVESTITURES
Total Total Year Institution and Location Loans Deposits ---- ------------------------------------------------- ------- -------- (thousands) 2000 Purchase of six branches by First Citizens Bank $13,569 $143,078 2000 Sale of four branches by First Citizens Bank (91,406) (91,810) 1999 Purchase of five branches by Atlantic States Bank 12 27,506 1999 Sale of eight branches by First Citizens Bank (38,735) (123,048) 1998 Purchase of 18 branches by First Citizens Bank 8,715 320,408 1998 Sale of five branches by First Citizens Bank (34,774) (138,390)
INTEREST-EARNING ASSETS Interest-earning assets averaged $8.98 billion during 2000, an increase of $346.2 million or 4.0 percent over 1999 levels, compared to a $357.6 million or 4.3 percent increase in 1999 over 1998 levels. Growth among interest- earning assets during 2000 and 1999 resulted from increases in loan balances. Loans. As of December 31, 2000, gross loans outstanding were $7.11 billion, a 5.3 percent increase over the December 31, 1999 balance of $6.75 billion, which was a 9.0 percent increase over the December 31, 1998 balance of $6.20 billion. The $358.7 million increase in loans during 2000 was primarily due to growth among loans secured by real 6 estate. Growth in these areas was partially offset by reductions in consumer and commercial and industrial loans. During 1999, the $555.4 million increase in loans resulted from growth among commercial loans secured by real estate as well as commercial and industrial loans. This growth was partially offset by reductions in consumer loans outstanding. Loan balances for the last five years are provided in Table 3. Table 3 LOANS
December 31 ------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (thousands) Real estate: Construction and land development........... $ 216,439 $ 186,119 $ 157,603 $ 113,735 $ 109,806 Mortgage: 1-4 family residential.......... 1,550,329 1,326,642 1,299,508 1,411,279 1,542,836 Commercial............ 1,993,067 1,810,904 1,495,214 1,055,529 882,067 Equity Line........... 851,810 755,342 617,062 603,714 411,856 Other................. 186,247 161,652 160,289 136,639 132,954 ---------- ---------- ---------- ---------- ---------- Total real estate loans................. 4,797,892 4,240,659 3,729,676 3,320,896 3,079,519 Commercial and industrial............. 933,515 985,738 845,068 633,580 514,535 Consumer................ 1,218,134 1,393,227 1,516,712 1,402,093 1,251,704 Lease financing......... 134,483 123,908 93,680 74,589 68,694 Other................... 25,668 7,507 10,455 14,614 16,056 ---------- ---------- ---------- ---------- ---------- Total gross loans...... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508 Less reserve for loan losses................. 102,655 98,690 96,115 84,360 81,439 ---------- ---------- ---------- ---------- ---------- Net loans.............. $7,007,037 $6,652,349 $6,099,476 $5,361,412 $4,849,069 ========== ========== ========== ========== ==========
- ------- All information presented in this table relates to domestic loans as BancShares makes no foreign loans. The growth among commercial-purpose loans has resulted from a strong focus in recent years on commercial customers. As a percentage of total loans, commercial loans secured by real estate have grown from 17.9 percent as of December 31, 1996, to 28.0 percent as of December 31, 2000. Commercial and industrial loans, which represented 10.4 percent of total loans as of December 31, 1996, have grown to 13.1 percent as of December 31, 2000. As the percentage of commercial-purpose loans has increased, residential mortgage loans, which were 31.3 percent of total loans at December 31, 1996, have declined to 21.8 percent of the December 31, 2000 portfolio. Consumer loans have decreased from 25.4 percent of total loans at December 31, 1996 to 17.1 percent at December 31, 2000. Much of the reduction in consumer loans has resulted from a decrease in sales finance activity since 1998. As demand among commercial customers has grown, management has elected to fund part of that growth by allowing indirect automobile financing activity to decline. Although FCB has a long history of sales finance activity, this area has become extremely competitive in recent years, and profit margins are very thin. Despite the reduction in sales finance activity, BancShares continues to provide traditional installment lending to its retail customers through its branch and alternative delivery networks. During 2000, average loans were $6.96 billion, an increase of $556.7 million or 8.7 percent over 1999, compared to an increase of $551.6 million or 9.4 percent in 1999 when compared to 1998. Loans secured by real estate averaged $4.57 billion during 2000, compared to $3.97 billion during 1999, an increase of 16.2 percent. Much of the $594.9 million increase in average real estate secured loans during 2000 was among commercial real estate loans, residential mortgage loans and retail home equity loans. Consumer loans averaged $1.30 billion during 2000 compared to $1.43 billion during 1999, the reduction resulting from reduced sales finance volume. During 2001, management anticipates continued demand from commercial customers for real-estate secured lending and commercial and industrial type lending, although that demand may not equal the levels achieved during 2000 and 7 1999. In order to fund this demand, management anticipates continued reductions in the sales finance area. BancShares anticipates continued growth of direct installment and home equity lending to its retail customers. Investment Securities. At December 31, 2000, and 1999, the investment portfolio totaled $1.82 billion and $1.37 billion, respectively. In each period, U.S. Treasury and government agency securities represented substantially all of the portfolio. Investment securities averaged $1.62 billion during 2000, $1.91 billion during 1999 and $2.31 billion during 1998. Investment securities available for sale include marketable equity securities that are recorded at their fair value, with the unrealized gain included as a component of shareholders' equity, net of deferred taxes. During 2000, investment securities available for sale increased primarily due to the purchase of stock in the Federal Home Loan Bank ("FHLB"). This purchase resulted from FCB's decision to join the FHLB. Table 4 presents detailed information relating to the investment portfolio. Income on Interest-Earning Assets. Table 5 analyzes the interest-earning assets and interest-bearing liabilities for the five years ending December 31, 2000. Table 8 identifies the causes for changes in interest income and interest expense for 2000 and 1999. Interest income amounted to $708.2 million during 2000, a $74.3 million increase from 1999 levels, compared to a $14.4 million increase from 1998 to 1999. Interest income growth during 2000 resulted from an improved blended asset yield, higher average loan balances and higher market rates. During 1999, loan growth was the primary factor for the increase in interest income over 1998. Total interest-earning assets yielded 7.91 percent during 2000, a 55 basis point increase from the 7.36 percent reported in 1999. The average taxable- equivalent yield on the loan portfolio increased from 8.01 percent in 1999 to 8.44 percent in 2000. The higher loan yield during 2000 reflects the market- driven money rates that generally increased during 2000 as well as the shift in the portfolio composition from lower-yielding sales finance loans to more favorably priced commercial and home equity loans. Loan interest income increased $74.2 million or 14.5 percent from 1999, the result of loan growth and higher loan yields. This followed an increase of 6.6 percent in loan interest income in 1999 over 1998, which resulted from the growth in average loans during 1999. Interest income earned on the investment portfolio amounted to $97.6 million, $107.1 million and $134.2 million during the years ended December 31, 2000, 1999 and 1998, respectively. The average taxable-equivalent yield on the portfolio for these years was 6.04 percent, 5.62 percent and 5.83 percent, respectively. The $9.6 million decrease in investment interest income during 2000 reflected the portfolio shrinkage, partially offset by an improved yield. The $27.1 million decrease in investment interest income from 1998 to 1999 was primarily the result of the reduction in the average investment securities portfolio during 1999. INTEREST-BEARING LIABILITIES At December 31, 2000 and 1999 interest-bearing liabilities totaled $8.38 billion and $7.55 billion, respectively. Interest-bearing liabilities averaged $7.77 billion during 2000, an increase of $255.4 million or 3.4 percent over 1999 levels. Increases in interest-bearing deposits contributed $237.0 million to the increase largely due to growth in time deposits. During 1999, interest- bearing liabilities averaged $7.52 billion, an increase of $268.2 million or 3.7 percent over 1998, with much of that growth resulting from money market accounts. There were no significant changes in the composition of BancShares' funding base during 2000 or 1999. Deposits. At December 31, 2000, deposits totaled $8.97 billion, an increase of $798.3 million or 9.8 percent from the $8.17 billion in deposits recorded as of December 31, 1999. Deposits from acquisitions, net of deposits divested, contributed $51.3 million during 2000. The remaining growth in deposits resulted from various marketing and promotional activities as well as ASB's deposit growth as it continues to expand its franchise. Total deposits averaged $8.39 billion in 2000, an increase of $285.5 million or 3.5 percent over 1999. Average interest-bearing deposits were $7.04 billion during 2000, an increase of $237.0 million or 3.5 percent from 1999. Total time deposits averaged $3.86 billion during 2000, an increase of $179.1 million or 4.9 percent over 1999. The growth in 2000, which reversed the small reduction experienced during 1999, resulted from higher market interest rates offered on certificates of deposit and IRAs during 2000. Money market accounts averaged $1.48 billion during 2000, compared to $1.36 billion during 1999, an increase of $117.8 million or 8.7 percent. 8 During 1999, total deposits averaged $8.11 billion, an increase of $346.1 million or 4.5 percent over 1998. Average interest-bearing deposits were $6.8 billion during 1999, an increase of $226.3 million or 3.4 percent over 1998. Money market deposits averaged $1.36 billion during 1999, an increase of $242.1 million or 21.7 percent over 1998. During 1999, average time deposits were $3.68 billion, a reduction of $45.0 million or 1.2 percent from 1998. Table 4 INVESTMENT SECURITIES
December 31, ---------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------- --------------------- --------------------- Average Taxable Maturity Equivalent Cost Fair Value (Yrs./Mos.) Yield Cost Fair Value Cost Fair Value ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- (thousands) Investment securities held to maturity: U. S. Government: Within one year........ $1,450,484 $1,452,268 0/6 6.35% $1,077,354 $1,067,979 $1,337,371 $1,345,775 One to five years...... 315,194 318,898 1/4 6.68 263,009 255,805 791,026 794,805 Five to ten years...... 210 216 8/6 8.04 176 178 122 127 Over ten years......... 7,834 7,891 25/11 7.30 9,665 9,552 3,288 3,396 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Total.................. 1,773,722 1,779,273 0/9 6.41 1,350,204 1,333,514 2,131,807 2,144,103 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- State, county and municipal: Within one year........ 700 702 0/3 7.55 699 703 425 427 One to five years...... 1,758 1,800 2/5 7.42 1,963 1,990 2,665 2,765 Over ten years......... 1,681 1,808 11/8 8.15 150 152 160 166 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Total.................. 4,139 4,310 5/10 7.74 2,812 2,845 3,250 3,358 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Other: Within one year........ 20 20 0/1 5.84 -- -- 10 10 One to five years...... 35 35 1/7 6.96 55 55 55 55 Five to ten years...... 250 250 7/7 4.50 250 250 250 250 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Total.................. 305 305 6/5 4.49 305 305 315 315 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Total investment securities held to maturity............... 1,778,166 1,783,888 0/9 6.41 1,353,321 1,336,664 2,135,372 2,147,776 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Investment securities available for sale..... 28,875 38,554 -- -- 7,751 18,573 10,264 24,957 ---------- ---------- ----- ---- ---------- ---------- ---------- ---------- Total investment securities............. $1,807,041 $1,822,442 0/9 6.41% $1,361,072 $1,355,237 $2,145,636 $2,172,733 ========== ========== ===== ==== ========== ========== ========== ==========
- ------- Yields are based on amortized cost; yields related to securities that are exempt from federal and/or state income taxes are stated on a taxable- equivalent basis assuming statutory rates of 35% for federal taxes for all periods and 7.00% for state income taxes for 2000 and 1999 and 7.25% for 1998. 9 Table 5 AVERAGE BALANCE SHEETS
2000 1999 ---------------------------- --------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ----------- -------- ------ ---------- -------- ------ (thousands, taxable equivalent) Assets Loans................... $ 6,955,772 $587,192 8.44% $6,399,114 $512,419 8.01% Investment securities: U. S. Government....... 1,588,930 96,576 6.08 1,881,591 106,435 5.66 State, county and municipal............. 4,212 357 8.48 2,893 217 7.50 Other.................. 25,442 764 3.00 23,816 548 2.30 ----------- -------- ---- ---------- -------- ---- Total investment securities........... 1,618,584 97,697 6.04 1,908,300 107,200 5.62 Overnight investments... 410,522 26,129 6.36 331,284 16,489 4.98 ----------- -------- ---- ---------- -------- ---- Total interest-earning assets............... 8,984,878 $711,018 7.91% 8,638,698 $636,108 7.36% Cash and due from banks.................. 476,929 459,202 Premises and equipment.. 418,388 382,092 Other assets............ 225,861 239,833 Reserve for loan losses................. (100,459) (97,051) ----------- ---------- Total assets.......... $10,005,597 $9,622,774 =========== ========== Liabilities and shareholders' equity Interest-bearing deposits: Checking With Interest.............. $ 1,068,545 $ 6,338 0.59% $1,074,885 $ 6,858 0.64% Savings................ 633,666 9,436 1.49 687,191 10,730 1.56 Money market accounts.. 1,477,248 63,386 4.29 1,359,433 47,881 3.52 Time deposits.......... 3,859,946 219,796 5.69 3,680,867 179,452 4.88 ----------- -------- ---- ---------- -------- ---- Total interest-bearing deposits............. 7,039,405 298,956 4.25 6,802,376 244,921 3.60 Short-term borrowings... 578,850 31,219 5.39 557,210 23,921 4.29 Long-term obligations... 154,634 12,653 8.18 157,897 12,700 8.04 ----------- -------- ---- ---------- -------- ---- Total interest-bearing liabilities.......... 7,772,889 $342,828 4.41% 7,517,483 $281,542 3.75% Demand deposits......... 1,351,515 1,303,067 Other liabilities....... 117,807 108,665 Shareholders' equity.... 763,386 693,559 ----------- ---------- Total liabilities and shareholders' equity............... $10,005,597 $9,622,774 =========== ========== Interest rate spread.... 3.50% 3.61% Net interest income and net yield on interest-earning assets................. $368,190 4.10% $354,566 4.10% ======== ==== ======== ====
- -------- Average loan balances include nonaccrual loans. Interest income related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable- equivalent basis assuming a statutory federal income tax rate of 35% for all periods, and state income tax rates of 7.00% for 2000 and 1999 and 7.25% for 1998. 10 Table 5 AVERAGE BALANCE SHEETS (continued)
1998 1997 1996 - --------------------------- --------------------------- --------------------------- Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate - ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ (thousands, taxable equivalent) $5,847,531 $480,741 8.22% $5,086,723 $430,933 8.47% $4,842,266 $412,832 8.53% 2,273,579 133,535 5.87 2,267,652 133,007 5.87 1,988,518 114,831 5.77 4,340 318 7.33 5,560 421 7.57 6,607 507 7.67 27,476 507 1.85 27,494 481 1.75 2,934 172 5.86 - ---------- -------- ---- ---------- -------- ---- ---------- -------- ---- 2,305,395 134,360 5.83 2,300,706 133,909 5.82 1,998,059 115,510 5.78 128,146 6,734 5.25 181,646 9,897 5.45 147,334 8,159 5.54 - ---------- -------- ---- ---------- -------- ---- ---------- -------- ---- 8,281,072 $621,835 7.51% 7,569,075 $574,739 7.59% 6,987,659 $536,501 7.68% 400,896 345,578 324,353 343,307 251,163 218,434 237,564 220,828 231,140 (89,819) (82,232) (80,567) - ---------- ---------- ---------- $9,173,020 $8,304,412 $7,681,019 ========== ========== ========== $1,035,761 $ 10,255 0.99% $ 928,122 $ 9,909 1.07% $ 878,878 $ 10,791 1.23% 697,227 12,954 1.86 704,531 14,121 2.00 719,962 15,059 2.09 1,117,286 39,135 3.50 919,049 34,062 3.71 825,139 29,217 3.54 3,725,818 193,173 5.18 3,489,614 185,657 5.32 3,258,713 175,838 5.40 - ---------- -------- ---- ---------- -------- ---- ---------- -------- ---- 6,576,092 255,517 3.89 6,041,316 243,749 4.03 5,682,692 230,905 4.06 539,263 25,850 4.79 470,030 23,420 4.98 348,378 16,388 4.70 133,935 10,704 7.99 10,472 844 8.06 13,483 957 7.10 - ---------- -------- ---- ---------- -------- ---- ---------- -------- ---- 7,249,290 $292,071 4.03% 6,521,818 $268,013 4.11% 6,044,553 $248,250 4.11% 1,183,223 1,046,703 970,610 111,418 97,066 88,868 629,089 638,825 576,988 - ---------- ---------- ---------- $9,173,020 $8,304,412 $7,681,019 ========== ========== ========== 3.48% 3.48% 3.57% $329,764 3.98% $306,726 4.05% $288,251 4.13% ======== ==== ======== ==== ======== ====
11 Table 6 MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
December 31, 2000 ----------------- (thousands) Less than three months............................... $296,174 Three to six months.................................. 158,674 Six to 12 months..................................... 237,233 More than 12 months.................................. 196,460 -------- Total............................................... $888,541 ========
BancShares has historically avoided excessive reliance on high-dollar deposits. During 2000, these funds averaged 9.46 percent of total average deposits, compared to 9.02 percent in 1999. Table 6 provides a maturity distribution for these deposits. Short-Term Borrowings. BancShares has access to various short-term borrowings, including the purchase of federal funds, overnight repurchase obligations and credit lines with various correspondent banks. At December 31, 2000, short-term borrowings totaled $632.4 million, compared to $568.3 million one year earlier. For the year ended December 31, 2000, short-term borrowings averaged $578.9 million, compared to $557.2 million during 1999 and $539.3 million during 1998. The increases from 1999 to 2000 and from 1998 to 1999 resulted from higher levels of overnight repurchase agreements between FCB and its commercial customers. Table 7 provides additional information regarding short-term borrowed funds. Table 7 SHORT-TERM BORROWINGS
2000 1999 1998 ------------- ------------- ------------- Amount Rate Amount Rate Amount Rate -------- ---- -------- ---- -------- ---- (thousands) Master notes At December 31................... $322,944 5.39% $326,984 4.14% $326,603 3.63% Average during year.............. 309,145 5.35 322,154 4.16 320,480 4.60 Maximum month-end balance during year............................ 327,774 -- 355,795 -- 354,442 -- Repurchase agreements At December 31................... 181,404 4.89 125,832 3.89 95,863 3.38 Average during year.............. 170,925 4.88 117,681 3.76 79,676 4.13 Maximum month-end balance during year............................ 197,113 -- 132,540 -- 106,620 -- Federal funds purchased At December 31................... 71,825 5.93 53,195 4.06 84,345 4.68 Average during year.............. 43,157 6.23 60,077 4.92 62,758 5.24 Maximum month-end balance during year............................ 73,015 -- 88,460 -- 104,675 -- Other At December 31................... 56,199 4.16 62,290 5.39 61,329 5.59 Average during year.............. 55,623 6.56 57,298 5.45 76,349 5.93 Maximum month-end balance during year............................ 63,893 -- 67,870 -- 178,954 --
Long-Term Obligations. At December 31, 2000 and 1999, long-term obligations totaled $154.3 million and $155.7 million, respectively. During 2000, long- term obligations averaged $154.6 million, compared to $157.9 million during 1999 and $133.9 million during 1998. The decrease from 1999 to 2000 results from the reclassification of long-term obligations to short-term borrowings once the scheduled maturity is less than one year. The increase from 1998 to 1999 results from the issuance of $150 million in trust preferred capital securities during the first quarter of 1998. The trust preferred capital securities are thirty year obligations with interest paid semi-annually at a rate of 8.05%. BancShares issued these obligations to provide capital to support its continued expansion. Management views these securities as a financially-effective method of providing capital resources without diluting the ownership interest of existing shareholders. 12 Expense of Interest-Bearing Liabilities. Interest expense amounted to $342.8 million in 2000, a $61.3 million or 21.8 percent increase from 1999. This followed a 3.6 percent decrease in interest expense during 1999 compared to 1998. The increase in interest expense during 2000 was the combined result of higher interest rates and increases in average interest-bearing liabilities. During 1999, the impact of lower interest rates more than offset the impact of the growth in interest-bearing liabilities resulting in a reduction in interest expense of $10.5 million. The blended rate on all interest-bearing liabilities was 4.41 percent during 2000, compared to 3.75 percent in 1999 and 4.03 percent in 1998. The higher cost of borrowing during 2000 resulted from market pressures which pushed deposit rates and other borrowing costs higher. The aggregate rate on interest-bearing deposits was 4.25 percent during 2000, compared to 3.60 percent during 1999 and 3.89 percent during 1998. Interest expense on total interest-bearing deposits amounted to $299.0 million during 2000, an increase from the $244.9 million recorded during 1999 and $255.5 million recorded during 1998. The growth in interest expense from 1999 to 2000 was the result of higher interest rates and increased average balances. From 1998 to 1999, the reduction of interest expense was the result of lower interest rates, partially offset by higher average balances. Interest expense on short-term borrowings amounted to $31.2 million in 2000, an increase of $7.3 million or 30.5 percent from 1999. Interest expense related to short-term borrowings totaled $23.9 million and $25.9 million, respectively, in 1999 and 1998. The increase during 2000 was attributable to the growth in average short-term borrowings and higher interest rates. During 1999, the growth in interest expense resulting from growth in short-term borrowings was more than offset by lower interest rates when compared to 1998. Interest expense associated with long-term obligations during 2000 and 1999 was $12.7 million compared to $10.7 million during 1998. The increase in interest expense in long-term obligations during 1999 primarily resulted from higher average balances when compared to 1998, the result of the March 1998 issuance of the trust preferred capital securities. 13 NET INTEREST INCOME Taxable-equivalent net interest income totaled $368.2 million during 2000, an increase of 3.8 percent over 1999. This followed an increase of 7.5 percent during 1999. Table 8 presents the annual changes in net interest income due to changes in volume, yields and rates. This table is presented on a taxable- equivalent basis to adjust for the tax-exempt status of income earned on certain loans, leases and municipal securities. Table 8 CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
2000 1999 --------------------------------------- ------------------------------------- Change from previous year due to: Change from previous year due to: --------------------------------------- ------------------------------------- Total Total Volume Yield/Rate Change Volume Yield/Rate Change ----------- ------------- ----------- ---------- ------------- ----------- (thousands) Assets: Loans................... $ 44,575 $ 30,198 $ 74,773 $ 46,859 $ (15,181) $ 31,678 Investment securities: U. S. Government....... (16,555) 6,696 (9,859) (22,668) (4,432) (27,100) State, county and municipal............. 99 41 140 (107) 6 (101) Other.................. 37 179 216 (75) 116 41 ----------- ----------- ----------- ---------- ----------- ----------- Total investment securities............ (16,419) 6,916 (9,503) (22,850) (4,310) (27,160) Federal funds sold...... 3,944 5,696 9,640 10,383 (628) 9,755 ----------- ----------- ----------- ---------- ----------- ----------- Total interest-earning assets................ $ 32,100 $ 42,810 $ 74,910 $ 34,392 $ (20,119) $ 14,273 =========== =========== =========== ========== =========== =========== Liabilities: Deposits: Checking With Interest.............. $ (40) $ (480) $ (520) $ 308 $ (3,705) $ (3,397) Savings................ (836) (458) (1,294) (159) (2,065) (2,224) Money market accounts.. 4,150 11,355 15,505 8,388 358 8,746 Time................... 8,731 31,613 40,344 (2,436) (11,285) (13,721) ----------- ----------- ----------- ---------- ----------- ----------- Total interest-bearing deposits.............. 12,005 42,030 54,035 6,101 (16,697) (10,596) Short-term borrowings... 929 6,369 7,298 360 (2,289) (1,929) Long-term obligations... (262) 215 (47) 1,922 74 1,996 ----------- ----------- ----------- ---------- ----------- ----------- Total interest-bearing liabilities........... $ 12,672 $ 48,614 $ 61,286 $ 8,383 $ (18,912) $ (10,529) =========== =========== =========== ========== =========== =========== Change in net interest income................ $ 19,428 $ (5,804) $ 13,624 $ 26,009 $ (1,207) $ 24,802 =========== =========== =========== ========== =========== ===========
- ------- Changes in income relating to certain loans and investment securities are stated on a fully tax-equivalent basis at a rate that approximates BancShares' marginal tax rate. The taxable equivalent adjustment was $2,848, $2,217, and $2,348 for the years 2000, 1999 and 1998, respectively. Table 5 provides detailed information on average balances, income/expense and yield/rate by category. The rate/volume variance is allocated equally between the changes in volume and rate. The interest rate spread was 3.50 percent during 2000, a decrease of 11 basis points from 3.61 during 1999. The interest rate spread was 3.48 percent during in 1998. The net yield on interest-earning assets was 4.10 percent in 2000 and 1999, and 3.98 percent during 1998. The higher net yields realized in 2000 and 1999 when compared to 1998 result from favorable changes in the composition of the loan portfolio and an increasing loan-to-deposit ratio. While loan volume increases continue to support growth in interest income, competitive market conditions for deposits continue to constrain BancShares' net interest income. 14 Table 9 INTEREST-SENSITIVITY ANALYSIS
December 31, 2000 --------------------------------------------------------------------------------- 1-30 31-90 91-180 181-365 Total Days Days Days Days One Year Total Sensitive Sensitive Sensitive Sensitive Sensitive Nonsensitive Total ---------- --------- --------- ---------- ---------- ------------ ---------- (thousands) Assets: Loans................... $1,798,476 $ 192,287 $ 272,838 $ 500,455 $2,764,056 $4,345,636 $7,109,692 Investment securities... 122,121 328,059 393,713 607,412 1,451,305 365,415 1,816,720 Overnight investments... 431,382 -- -- -- 431,382 -- 431,382 ---------- --------- --------- ---------- ---------- ---------- ---------- Total interest-earning assets................ $2,351,979 $ 520,346 $ 666,551 $1,107,867 $4,646,743 $4,711,051 $9,357,794 ========== ========= ========= ========== ========== ========== ========== Liabilities: Interest-bearing deposits............... $2,201,068 $ 832,451 $ 790,823 $1,114,053 $4,938,395 $2,659,593 $7,597,988 Short-term borrowings... 595,224 36,848 -- 300 632,372 -- 632,372 Long-term obligations... -- -- -- -- -- 154,332 154,332 ---------- --------- --------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities........... $2,796,292 $ 869,299 $ 790,823 $1,114,353 $5,570,767 $2,813,925 $8,384,692 ========== ========= ========= ========== ========== ========== ========== Interest-sensitivity gap.................... $ (444,313) $(348,953) $(124,272) $ (6,486) $ (924,024) $1,897,126 $ 973,102 ========== ========= ========= ========== ========== ========== ==========
- ------- Assets and liabilities with maturities of one year or less and those that may be adjusted within this period are considered interest sensitive. The interest-sensitivity position has meaning only as of the date for which it was prepared. Rate Sensitivity. A principal objective of BancShares' asset/liability function is to manage interest rate risk or the exposure to changes in interest rates. Management maintains portfolios of interest-earning assets and interest-bearing liabilities with maturities or repricing opportunities that will protect against wide interest rate fluctuations, thereby limiting, to the extent possible, the ultimate interest rate exposure. Table 9 provides BancShares' interest-sensitivity position as of December 31, 2000, which reflected a one year negative interest-sensitivity gap of $924.0 million. As a result of this one year negative gap, increases in interest rates could have an unfavorable impact on net interest income. Table 10 LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
December 31, 2000 ------------------------------------------- One to Within Five After One Year Years Five Years Total ---------- ---------- ---------- ---------- (thousands) Real estate: Construction and land development..................... $ 74,971 $ 109,392 $ 32,076 $ 216,439 Mortgage: 1-4 family residential.......... 326,093 587,954 636,282 1,550,329 Commercial...................... 708,868 991,217 292,982 1,993,067 Equity Line..................... 59,627 212,952 579,231 851,810 Other........................... 64,511 94,130 27,606 186,247 Commercial and industrial......... 296,052 467,324 170,139 933,515 Consumer.......................... 362,565 785,509 70,060 1,218,134 Lease financing................... 33,621 100,862 -- 134,483 Other............................. 9,150 12,312 4,206 25,668 ---------- ---------- ---------- ---------- Total............................ $1,935,458 $3,361,652 $1,812,582 $7,109,692 ========== ========== ========== ========== Loans maturing after one year with: Fixed interest rates.............. $2,890,313 $1,157,160 $4,047,473 Floating or adjustable rates...... 471,339 655,422 1,126,761 ---------- ---------- ---------- Total............................ $3,361,652 $1,812,582 $5,174,234 ========== ========== ==========
15 To minimize the potential adverse impact of interest rate fluctuations, management monitors the maturity and repricing distribution of the loan portfolio and markets variable rate and fixed rate callable loans to reduce its interest rate risk. Table 10 details the maturity and repricing distribution of the loan portfolio as of December 31, 2000. Of the gross loans outstanding on December 31, 2000, 27.2 percent have scheduled maturities within one year, 47.3 percent have scheduled maturities between one and five years, while the remaining 25.5 percent have scheduled maturities extending beyond five years. As a result of historically low interest rates during the several years preceding 2000, customer demand for long-term fixed-rate loans was strong. The higher interest rates during 2000 renewed customer interest in variable rate pricing, resulting in some easing of the demand for long-term fixed-rate loans. BancShares will continue to offer competitive variable rate lending options to lessen its exposure to changes in interest rates. In addition to other asset/liability management strategies, BancShares generally underwrites long-term fixed-rate residential mortgage loans to secondary market standards and sells such loans as they are originated. As of December 31, 2000, BancShares had $20.0 million in residential mortgage loans available for sale that were reported at the lower of aggregate cost or market. Additionally, BancShares attempts to avoid exposure resulting from changes in market rates by entering into forward commitments to sell portions of its current production of residential mortgage loans. Table 11 MARKET RISK DISCLOSURES
Maturing in Years ended December 31, ----------------------------------------------- 2001 2002 2003 2004 2005 Thereafter Total Fair value ---------- -------- ------- ------- ------- ---------- ---------- ---------- (thousands) Assets Investment securities held to maturity Fixed rate............. $1,451,305 $316,334 $ 115 -- $ 538 $ 9,874 $1,778,166 $1,783,888 Average rate (%)....... 6.35% 6.68% 5.94% -- 7.98% 7.23% 6.41% -- Investment securities available for sale Marketable equity securities............ -- -- -- -- -- 38,554 38,554 38,554 Loans Fixed rate............. 1,302,723 964,344 748,589 646,631 530,749 1,157,160 5,350,196 5,243,712 Average rate (%)....... 8.19% 8.13% 8.14% 8.17% 8.33% 7.80% 8.10% -- Variable rate.......... 632,735 69,847 105,404 153,858 142,230 655,422 1,759,496 1,759,496 Average rate (%)....... 9.52% 9.47% 9.20% 9.03% 9.13% 9.02% 9.24% -- Liabilities Savings and interest- bearing checking Fixed rate............. 3,362,336 -- -- -- -- -- 3,362,336 3,362,336 Average rate (%)....... 2.27% -- -- -- -- -- 2.27% -- Certificates of deposit Fixed rate............. 3,327,083 483,235 210,847 55,971 119,682 274 4,197,092 4,208,997 Average rate (%)....... 6.04% 6.53% 5.97% 5.89% 5.85% 5.82% 6.09% -- Variable rate.......... 28,890 9,670 -- -- -- -- 38,560 38,560 Average rate (%)....... 4.03% 4.76% -- -- -- -- 4.22% -- Long-term obligations Fixed rate............. 252 552 552 300 2,478 150,198 154,332 122,152 Average rate (%)....... 6.75% 7.16% 7.16% 7.50% 7.94% 8.04% 8.03% --
Table 11 provides information regarding the market risk profile of BancShares at December 31, 2000. Market risk is the potential economic loss resulting from changes in market prices and interest rates. This risk can either result in diminished current fair values or reduced net interest income in future periods. 16 ASSET QUALITY Nonperforming Assets. Nonperforming asset balances for the past five years are presented in Table 12. BancShares' nonperforming assets at December 31, 2000 included nonaccrual loans totaling $15.9 million and $1.9 million in foreclosed property. Nonperforming assets as of December 31, 2000 represent 0.25 percent of loans outstanding. Nonperforming assets totaled $12.3 million and $14.0 million, respectively, as of December 31, 1999, and 1998. Of the $15.9 million in nonaccrual loans at December 31, 2000, $6.6 million were classified as impaired. At December 31, 1999, BancShares reported $10.7 million in nonaccrual loans, of which $5.7 million were impaired. As of December 31, 2000, BancShares reported accruing loans 90 days or more past due of $6.7 million, compared to $3.6 million at December 31, 1999, and $5.7 million at December 31, 1998. The economic slowdown in late 2000 contributed to the increase in nonperforming assets as of December 31, 2000. Management continues to closely monitor past due accounts to identify all loans that should be classified as nonperforming. Continued economic deterioration would likely cause higher levels of nonperforming assets. Table 12 RISK ELEMENTS
December 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (thousands, except ratios) Nonaccrual loans........ $ 15,933 $ 10,720 $ 12,489 $ 12,681 $ 12,810 Other real estate....... 1,880 1,600 1,529 1,462 1,160 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets............... $ 17,813 $ 12,320 $ 14,018 $ 14,143 $ 13,970 ========== ========== ========== ========== ========== Accruing loans 90 days or more past due....... $ 6,731 $ 3,576 $ 5,721 $ 3,953 $ 4,983 Loans at December 31.... $7,109,692 $6,751,039 $6,195,591 $5,445,772 $4,930,508 Ratio of nonperforming assets to total loans plus other real estate................. 0.25% 0.18% 0.23% 0.26% 0.28% ---------- ---------- ---------- ---------- ---------- Interest income that would have been earned on nonperforming loans had they been performing............. $ 1,209 $ 894 $ 1,108 $ 1,156 $ 1,162 Interest income earned on nonperforming loans.................. 587 287 409 349 259 ---------- ---------- ---------- ---------- ----------
- ------- There are no loan concentrations to any multiple number of borrowers engaged in similar activities or industries in excess of 10 percent of total loans at December 31, 2000. There were no foreign loans outstanding in any period. Accrual of interest on residential mortgage loans is discontinued when the loan reaches 92 days past due. Accrual of interest on all other loans is discontinued when management deems that collection of additional interest is doubtful. Residential mortgage loans are returned to an accrual status when the loan balance is less than 92 days past due. Other loans are returned to an accrual status when both principal and interest are current, and the loan is determined to be performing in accordance with the applicable loan terms. Reserve for Loan Losses. Management evaluates the risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrower, fair market value of collateral and other items that, in management's opinion, deserve current recognition in estimating probable credit losses. At December 31, 2000, BancShares' reserve for loan losses was $102.7 million or 1.44 percent of loans outstanding. This compares to $98.7 million or 1.46 percent at December 31, 1999, and $96.1 million or 1.55 percent at December 31, 1998. The reductions in the ratio of the reserve for loan losses to gross loans during 1999 and 2000 result from changes in the loan portfolio composition. The growth in lower-risk real estate secured lending and the offsetting reductions in higher-risk sales finance lending have both contributed to lower aggregate loss estimates. The smaller reduction in the reserve ratio during 2000, when compared to 1999, reflects management's concern regarding general economic conditions and the impact those conditions may have on loans outstanding at December 31, 2000. 17 Table 13 SUMMARY OF LOAN LOSS EXPERIENCE
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (thousands, except ratios) Balance at beginning of year................... $ 98,690 $ 96,115 $ 84,360 $ 81,439 $ 78,495 Reserve of acquired institutions........... -- -- -- 481 1,387 Provision for loan losses................. 15,488 11,672 19,879 8,726 8,907 Charge-offs: Real estate: Construction and land development.......... -- (7) (2) (7) (40) Mortgage: 1-4 family residential......... (898) (966) (826) (1,350) (1,604) Commercial........... (280) (111) (112) (245) (248) Equity Line.......... (805) (23) (134) (90) (58) Other................ -- -- -- -- (52) Commercial and industrial............ (5,678) (1,800) (2,001) (1,061) (1,076) Consumer............... (8,199) (10,748) (10,789) (11,540) (8,515) Lease financing........ (46) (32) (203) (38) (60) ---------- ---------- ---------- ---------- ---------- Total charge-offs.... (15,906) (13,687) (14,067) (14,331) (11,653) ---------- ---------- ---------- ---------- ---------- Recoveries: Real estate: Construction and land development.......... 8 42 93 1,723 307 Mortgage: 1-4 family residential......... 347 368 689 2,505 1,534 Commercial........... 688 1,262 2,877 1,502 530 Equity Line.......... 33 13 10 3 19 Other................ -- -- -- -- -- Commercial and industrial............ 1,581 835 512 698 493 Consumer............... 1,726 2,070 1,762 1,614 1,420 Lease financing........ -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total recoveries..... 4,383 4,590 5,943 8,045 4,303 ---------- ---------- ---------- ---------- ---------- Net charge-offs...... (11,523) (9,097) (8,124) (6,286) (7,350) ---------- ---------- ---------- ---------- ---------- Balance at end of year.................. $ 102,655 $ 98,690 $ 96,115 $ 84,360 $ 81,439 ========== ========== ========== ========== ========== Historical Statistics Balances Average total loans.... $6,955,772 $6,399,114 $5,847,531 $5,086,723 $4,842,266 Total loans at year- end................... 7,109,692 6,751,039 6,195,591 5,445,772 4,930,508 Ratios Net charge-offs to average total loans... 0.17% 0.14% 0.14% 0.12% 0.15% Reserve for loan losses to total loans at year-end.............. 1.44 1.46 1.55 1.55 1.65 ---------- ---------- ---------- ---------- ----------
- ------- All information presented in this table relates to domestic loans as BancShares makes no foreign loans. The provision for loan losses charged to operations was $15.5 million during 2000 compared to $11.7 million during 1999 and $19.9 million during 1998. Net charge-offs for 2000 totaled $11.5 million, compared to $9.1 million during 1999 and $8.1 million during 1998. Gross charge-offs for 2000 were $15.9 million, compared to $13.7 million in 1999 and $14.1 million in 1998. The growth in charge-offs during 2000 results from losses among commercial and industrial loans, which were $5.7 million during 2000, compared to $1.8 million during 1999. The increase during 2000 results from the seasoning of the loans originated during 1999 and 1998. The higher net charge-offs in 1999 compared to 1998 resulted from lower recoveries. During 2000, total recoveries were $4.4 million, compared to $4.6 million during 1999 and $5.9 million during 1998. Gross recoveries during 2000 decreased slightly due to reductions in recoveries of commercial real estate and consumer loans. The decrease of recoveries in 1999 resulted primarily from lower recoveries for commercial mortgage loans. 18 The ratio of net charge-offs to average loans outstanding equaled 0.17 percent during 2000 and 0.14 percent during 1999 and 1998. Low by industry standards, these loss ratios reflect the quality of BancShares' balance sheet. Table 13 provides details concerning the reserve and provision for loan losses for the past five years. Management considers the established reserve adequate to absorb losses that relate to loans outstanding at December 31, 2000, although future additions to the reserve may be necessary based on changes in economic conditions and other factors. In addition, as part of their examination process, various regulatory agencies periodically review the reserve for loan losses. Those agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examinations. Table 14 ALLOCATION OF RESERVE FOR LOAN LOSSES
December 31 ------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------------- --------------- --------------- --------------- --------------- Percent Percent Percent Percent Percent of of of of of Loans Loans Loans Loans Loans to to to to to Total Total Total Total Total Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (thousands) Real estate: Construction and land development........... $ 5,411 3.04% $ 4,653 2.76% $ 3,027 2.54% $ 3,235 2.09% $ 3,234 2.23% Mortgage: 1-4 family residential.......... 6,416 21.81 5,721 19.65 11,182 20.97 14,779 25.92 13,127 31.29 Commercial............ 31,786 28.04 32,198 26.82 26,835 24.13 16,388 19.38 16,514 17.89 Equity Line........... 4,600 11.98 4,098 11.19 3,338 9.96 4,257 11.09 2,898 8.35 Other................. 2,860 2.62 3,232 2.39 3,075 2.59 1,712 2.51 1,798 2.70 Commercial and industrial............. 19,951 13.13 20,084 14.60 13,591 13.64 9,533 11.63 9,243 10.44 Consumer................ 24,523 17.13 26,279 20.64 32,099 24.49 31,025 25.74 24,890 25.38 Lease financing......... 1,560 1.89 1,572 1.84 1,123 1.51 992 1.37 985 1.39 Other................... 254 0.36 190 0.11 180 0.17 324 0.27 324 0.33 Unallocated............. 5,294 -- 663 -- 1,665 -- 2,115 -- 8,426 -- -------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total.................. $102,655 100.00% $98,690 100.00% $96,115 100.00% $84,360 100.00% $81,439 100.00% ======== ====== ======= ====== ======= ====== ======= ====== ======= ======
Table 14 details management's allocation of the reserve among the various loan types. The process used to allocate the loan loss reserve considers, among other factors, whether the borrower is a retail or commercial customer, whether the loan is secured or unsecured, and whether the loan is an open or closed-end agreement. Generally, loans to commercial customers are evaluated individually and assigned a credit grade, while loans to retail customers are evaluated among groups of loans with similar characteristics. Loans evaluated individually are assigned a credit grade using such factors as the reliability and adequacy of the borrower's cash flow, the value of any underlying collateral and the value of any guarantee. The rating becomes the basis for the reserve allocation for that individual loan. Groups of homogeneous loans are aggregated over their remaining lives and estimated loss projections for each period become the basis for the reserve allocation. The loss estimates are based on prior experience and current economic conditions. The amount of the reserve for loan losses not allocated through these loss models becomes the unallocated reserve. The increase in the unallocated reserve at December 31, 2000 reflects uncertainties that exist regarding probable losses inherent in the portfolio resulting from continued economic pressures when compared to 1998 and 1999. While management believes the focus on identifying problem loans is highly effective, it is not possible to identify all potential losses, and the current economic uncertainty exacerbates the potential impact of that limitation. At December 31, 2000, BancShares had no foreign loans or any loans to finance highly-leveraged transactions. Further, management does not anticipate originating or participating in such transactions in the future. 19 NONINTEREST INCOME Total noninterest income was $202.2 million during 2000, an increase of $36.9 million or 22.3 percent over 1999. This compares to $165.3 million during 1999 and $145.4 million during 1998. Table 15 presents the major components of noninterest income for the past five years. A significant portion of the increase in noninterest income during 2000 can be attributed to nonrecurring gains from the sale of mortgage servicing rights, the sale of branches and securities gains. Table 15 NONINTEREST INCOME
Year ended December 31 -------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (thousands) Service charges on deposit accounts........................ $ 59,384 $ 55,169 $ 47,055 $ 41,748 $ 40,710 Credit card income............... 36,837 30,820 25,558 20,053 16,147 Gain on sale of mortgage servicing rights................ 20,187 -- -- -- -- Commission-based income: Investments..................... 12,974 10,700 9,034 6,407 4,505 Insurance....................... 3,718 3,072 1,325 351 -- Other........................... 603 -- -- -- -- -------- -------- -------- -------- -------- Total commission-based income.. 17,295 13,772 10,359 6,758 4,505 Trust income..................... 14,814 13,848 12,710 11,284 10,008 Fees from processing services.... 14,556 12,987 11,652 10,511 9,733 ATM income....................... 10,844 10,655 10,397 8,524 6,728 Mortgage income.................. 5,172 6,440 8,797 2,106 256 Gain on sale of branches......... 4,085 5,063 3,067 -- -- Other service charges and fees... 12,077 9,935 10,176 7,311 2,912 Securities transactions.......... 1,810 1,706 -- -- -- Other............................ 5,129 4,944 5,646 6,619 12,059 -------- -------- -------- -------- -------- Total.......................... $202,190 $165,339 $145,417 $114,914 $103,058 ======== ======== ======== ======== ========
Among core components of noninterest income, BancShares benefited from increases in income from service charges on deposit accounts. Service charge income was $59.4 million during 2000, compared to $55.2 million in 1999 and $47.1 million in 1998. The $4.2 million or 7.6 percent increase in service charges during 2000 can be attributed to higher bad check fees. Credit card income grew from $30.8 million in 1999 to $36.8 million during 2000, an increase of $6.0 million or 19.5 percent, the result of continued strong growth in merchant income. Credit card income recognized during 1999 represented a $5.3 million or 20.6 percent increase from 1998. Commission-based income was $17.3 million during 2000, a $3.5 million or 25.6 percent increase over 1999. The growth during 2000 was largely due to growth in property and casualty insurance commissions and by continued increases in mutual fund and annuity sales through First Citizens Investor Services. Fees for data processing services also experienced growth during 2000, contributing $14.6 million during 2000, $13.0 million during 1999 and $11.7 million during 1998. These services are primarily provided to various related parties of BancShares. 20 NONINTEREST EXPENSE Total noninterest expense for 2000 amounted to $394.8 million. This was a 5.1 percent increase over 1999, following a 9.8 percent increase in 1999 noninterest expenses over 1998. Table 16 presents the major components of noninterest expense for the past five years. Table 16 NONINTEREST EXPENSE
Year ended December 31 -------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (thousands) Salaries and wages................ $168,778 $160,440 $142,020 $126,474 $115,461 Employee benefits................. 32,136 30,455 27,434 23,718 20,425 Equipment expense................. 38,153 37,745 36,545 32,035 27,068 Occupancy expense................. 33,835 30,041 28,112 23,338 22,023 Credit card expense............... 16,870 14,712 12,658 11,722 10,097 Amortization of intangibles....... 10,637 10,963 10,652 8,641 7,951 Telecommunication expense......... 10,799 10,052 9,046 8,032 7,711 Advertising expense............... 7,277 7,313 5,836 6,522 4,352 Postage expense................... 7,062 7,096 6,826 6,623 6,383 Consultant expense................ 5,273 5,840 7,134 5,626 3,408 Other............................. 63,964 60,963 55,950 47,670 53,543 -------- -------- -------- -------- -------- Total............................ $394,784 $375,620 $342,213 $300,401 $278,422 ======== ======== ======== ======== ========
In conjunction with the closing of 15 branch offices during 2000, BancShares recognized $3.1 million in noninterest expense. Lease obligations of $1.3 million were recognized by a charge to occupancy expense. Leasehold improvement write-offs of $1.8 million were recorded in other expenses. Salary expense was $168.8 million during 2000, compared to $160.4 million during 1999, an increase of $8.3 million or 5.2 percent, following an $18.4 million or 13.0 percent increase in 1999 over 1998. Increases during each period resulted from merit increases and staffing requirements for new branches. BancShares had 4,575 full time equivalent employees at December 31, 2000, compared to 4,652 at December 31, 1999 and 4,486 at December 31, 1998. Employee benefits expense was $32.1 million during 2000, an increase of $1.7 million or 5.5 percent from 1999. The $30.5 million in benefits expense recorded during 1999 represented an increase of $3.0 million or 11.0 percent over 1998. During 2000, higher FICA and employee health insurance costs contributed to the increase in total employee benefits expense. Partially offsetting this increase during 2000 was a reduction in pension expense. During 1999, the increased benefits exense primarily resulted from higher pension, FICA and employee health insurance costs. BancShares recorded occupancy expense of $33.8 million during 2000, an increase of $3.8 million or 12.6 percent due to the nonrecurring costs associated with the branch closings as well as higher depreciation expense for new branch offices. Occupancy expense during 1999 was $30.0 million, an increase of $1.9 million or 6.9 percent over 1998, primarily the result of higher depreciation expense resulting from new and replacement branch offices. Equipment expense for 2000 was $38.2 million, an increase of $408,000 or 1.1 percent over 1999, when total equipment expenses were $37.7 million. During 1999, equipment expense was $1.2 million or 3.3 percent above the amount recorded during 1998. Expenses related to credit card processing were $16.9 million in 2000 and $14.7 million in 1999, an increase of $2.2 million or 14.7 percent. In 1999, credit card processing expense increased $2.1 million or 16.2 percent from 1998. For both periods, the increase in credit card processing expense resulted from growth in cardholder and merchant volume. 21 INCOME TAXES During 2000, BancShares recorded total income tax expense of $58.9 million, compared to $48.6 million in income tax expense during 1999. BancShares' effective tax rate was 37.5 percent in 2000, 37.3 percent in 1999, and 35.9 percent in 1998. The increase in the effective tax rate in 1999 was primarily the result of growth in FCB's taxable income obligation to the State of North Carolina. LIQUIDITY Management places great importance on the maintenance of a highly liquid investment portfolio with varying maturities to provide needed cash flows to meet liquidity requirements. At December 31, 2000, the investment portfolio totaled $1.82 billion or 17.0 percent of total assets. This compares to $1.37 billion or 14.1 percent in 1999. The weighted-average maturity of the investment portfolio was 9 months at December 31, 2000, compared to 11 months at December 31, 1999. In conjunction with the increase in the investment securities portfolio, the liquidity available by maturing securities, coupled with other traditional sources, should be adequate to meet anticipated liquidity needs. The ability to retain existing deposits and attract new deposit relationships is a fundamental source of liquidity for BancShares. The rate of growth in average deposits was 3.5 percent during 2000, 4.5 percent during 1999 and 9.5 percent during 1998. The deposit growth results from various marketing and promotional activities, deposit growth in ASB's new markets as well as deposit liability assumptions associated with various business combinations. In addition to deposits, there are readily available sources for borrowed funds through BancShares' relationships with its correspondent bank network. BancShares utilizes these borrowed funds from time to time to provide temporary balance sheet liquidity and for an intermediate source of capital infusions from BancShares into FCB and ASB. SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY BancShares maintains an adequate capital position that exceeds all minimum regulatory capital requirements. As provided in Table 17, BancShares' total risk-based capital ratios were 11.7 percent, 11.3 percent and 11.2 percent, respectively, at December 31, 2000, 1999 and 1998. BancShares' Tier 1 capital ratios for December 31, 2000, 1999 and 1998 were 10.4 percent, 10.0 percent, and 9.9 percent respectively. The minimum capital ratios established by Federal Reserve guidelines are 8 percent for total capital and 4 percent for Tier 1 capital. At December 31, 2000, BancShares' leverage capital ratio was 8.1 percent, compared to 7.9 percent and 7.3 percent at December 31, 1999 and 1998, respectively. The minimum leverage ratio is 3 percent. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a direct material effect on the financial statements. Table17 ANALYSIS OF BANCSHARES' CAPITAL ADEQUACY
December 31 -------------------------------- Regulatory 2000 1999 1998 Minimum ---------- ---------- ---------- ---------- (thousands) Tier 1 capital...................... $ 835,678 $ 760,195 $ 679,987 Tier 2 capital...................... 104,582 99,443 92,184 ---------- ---------- ---------- Total capital....................... $ 940,260 $ 859,638 $ 772,171 ========== ========== ========== Risk-adjusted assets................ $8,057,478 $7,616,890 $6,878,932 ========== ========== ========== Risk-based capital ratios Tier 1 capital.................... 10.37% 9.98% 9.89% 4.00% Total capital..................... 11.67% 11.29% 11.23% 8.00% Tier 1 leverage ratio............... 8.11% 7.91% 7.31% 3.00%
The capital ratios during 1998 reflect the net impact of large share repurchases and the issuance of $150 million in trust preferred capital securities during March 1998. As of December 31, 1997, BancShares recorded a reduction in 22 capital of $73.7 million for two stock purchases that were funded during 1998. In response to the reduction in shareholders' equity, management elected to issue the trust preferred capital securities, which qualify as Tier 1 capital for regulatory purposes. During the fourth quarter of 2000 the Board of Directors of BancShares reauthorized the purchase of its Class A and Class B common stock. Management views the purchase of its stock as a good investment and will continue to repurchase shares when market conditions are favorable for such transactions and excess capital exists to fund purchases. FOURTH QUARTER ANALYSIS BancShares' net income for the fourth quarter of 2000 totaled $24.0 million, compared to $19.3 million during the same period of 1999, an increase of $4.7 million or 24.2 percent. The increase in net income was primarily due to a $7.4 million increase in noninterest income and a $3.8 million increase in net interest income, partially offset by a $3.4 million increase in noninterest expense and a $1.4 million increase in provision for loan losses. As indicated in Table 18, total assets averaged $10.42 billion and $9.72 billion during the fourth quarter of 2000 and 1999, respectively. Interest-earning assets averaged $9.34 billion during the fourth quarter of 2000, an increase of 8.2 percent over the same period of 1999. Average loans outstanding during the fourth quarter of 2000 were $7.08 billion, an increase of $431.7 million over the same period of 1999. Loan growth was strongest among commercial-purpose loans. Investment securities averaged $1.75 billion during the fourth quarter of 2000, a $164.3 million increase from the comparable period of 1999. 23 Table 18 SELECTED QUARTERLY DATA
2000 1999 ------------------------------------------------ ---------------------------------------------- Fourth Third Second First Fourth Third Second First ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- (thousands, except per share data and ratios) SUMMARY OF OPERATIONS Interest income......... $ 189,328 $ 182,966 $ 171,890 $ 163,986 $ 161,251 $ 160,224 $ 156,960 $ 155,456 Interest expense........ 96,754 91,509 80,184 74,381 72,511 70,497 68,821 69,713 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income..... 92,574 91,457 91,706 89,605 88,740 89,727 88,139 85,743 Provision for loan losses................. 4,857 4,197 2,975 3,459 3,503 3,329 2,178 2,662 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses............ 87,717 87,260 88,731 86,146 85,237 86,398 85,961 83,081 Noninterest income...... 49,384 67,358 44,097 41,351 41,975 45,898 39,271 38,195 Noninterest expense..... 99,287 101,257 97,953 96,287 95,911 95,104 93,387 91,218 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes.................. 37,814 53,361 34,875 31,210 31,301 37,192 31,845 30,058 Income taxes............ 13,826 20,006 13,421 11,696 11,984 14,060 11,542 11,010 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net income............. $ 23,988 $ 33,355 $ 21,454 $ 19,514 $ 19,317 $ 23,132 $ 20,303 $ 19,048 =========== =========== ========== ========== ========== ========== ========== ========== Net interest income-- taxable equivalent.... $ 93,240 $ 92,162 $ 92,414 $ 90,374 $ 89,267 $ 90,258 $ 88,703 $ 86,338 =========== =========== ========== ========== ========== ========== ========== ========== SELECTED QUARTERLY AVERAGES Total assets............ $10,420,204 $10,167,665 $9,772,765 $9,658,251 $9,721,360 $9,644,135 $9,605,512 $9,517,513 Investment securities... 1,747,536 1,633,653 1,594,291 1,497,278 1,583,216 1,897,593 2,066,519 2,091,575 Loans................... 7,077,991 7,036,622 6,917,041 6,789,203 6,646,312 6,474,200 6,289,714 6,180,106 Interest-earning assets................. 9,335,530 9,142,585 8,788,776 8,667,039 8,627,990 8,689,146 8,659,199 8,558,123 Deposits................ 8,693,634 8,524,930 8,211,252 8,128,968 8,140,962 8,121,209 8,139,147 8,018,971 Interest-bearing liabilities............ 8,126,969 7,886,410 7,560,267 7,512,781 7,533,727 7,518,874 7,490,958 7,495,944 Long-term obligations... 154,609 154,979 153,773 155,171 158,975 156,856 157,453 158,307 Shareholders' equity.... $ 799,234 $ 770,418 $ 748,648 $ 734,777 $ 720,617 $ 702,065 $ 683,771 $ 668,087 Shares outstanding...... 10,528,680 10,534,049 10,551,766 10,592,378 10,625,208 10,625,559 10,625,559 10,625,559 =========== =========== ========== ========== ========== ========== ========== ========== SELECTED QUARTER-END BALANCES Total assets............ $10,691,617 $10,361,296 $9,943,877 $9,880,732 $9,717,099 $9,577,715 $9,628,477 $9,702,163 Investment securities... 1,816,720 1,730,439 1,543,033 1,547,214 1,371,894 1,699,520 1,975,476 2,099,882 Loans................... 7,109,692 7,097,773 7,006,824 6,828,095 6,751,039 6,574,807 6,376,372 6,244,828 Interest-earning assets................. 9,357,794 9,278,658 8,871,522 8,896,750 8,596,326 8,590,485 8,647,045 8,694,710 Deposits................ 8,971,868 8,668,642 8,366,364 8,295,850 8,173,598 8,062,091 8,170,433 8,179,098 Interest-bearing liabilities............ 8,384,692 8,068,241 7,626,805 7,655,102 7,554,229 7,454,172 7,522,636 7,620,262 Long-term obligations... 154,332 154,687 153,761 154,915 155,683 156,840 156,870 157,529 Shareholders' equity.... $ 810,728 $ 789,341 $ 758,985 $ 741,136 $ 728,757 $ 713,069 $ 692,570 $ 676,253 Shares outstanding...... 10,522,836 10,533,814 10,534,614 10,566,849 10,610,399 10,625,559 10,625,559 10,625,559 =========== =========== ========== ========== ========== ========== ========== ========== PROFITABILITY RATIOS (averages) Rate of return(annualized) on: Total assets........... 0.92% 1.31% 0.88% 0.81% 0.79% 0.95% 0.85% 0.81% Shareholders' equity... 11.94 17.22 11.53 10.68 10.64 13.07 11.91 11.56 Dividend payout ratio... 10.96 7.89 12.32 13.59 13.74 11.47 13.09 13.97 =========== =========== ========== ========== ========== ========== ========== ========== LIQUIDITY AND CAPITAL RATIOS (averages) Loans to deposits....... 81.42% 82.54% 84.24% 83.52% 81.64% 79.72% 77.28% 77.07% Shareholders' equity to total assets........... 7.67 7.58 7.66 7.61 7.41 7.28 7.12 7.02 Time certificates of $100,000 or more to total deposits......... 9.92 9.54 9.27 9.01 8.96 9.06 9.01 9.04 =========== =========== ========== ========== ========== ========== ========== ========== PER SHARE OF STOCK Net income.............. $ 2.28 $ 3.17 $ 2.03 $ 1.84 $ 1.82 $ 2.18 $ 1.91 $ 1.79 Cash dividends.......... 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 Class A sales price High................... 80.75 73.31 65.00 69.06 78.00 82.00 97.50 92.00 Low.................... 69.38 56.44 58.25 56.47 69.06 76.25 78.00 68.00 Class B sales price High................... 72.50 64.50 62.25 70.00 78.50 80.63 80.81 88.00 Low.................... 62.00 52.00 51.00 58.00 70.00 76.50 76.00 76.00 =========== =========== ========== ========== ========== ========== ========== ==========
- ------- Average loan balances include nonaccrual loans. Interest income related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable- equivalent basis assuming a statutory federal income tax rate of 35% for all periods, and state income tax rates of 7.00% for 2000 and 1999 and 7.25% for 1998. Stock information related to Class A and Class B common stock reflects the sales price, as reported on the Nasdaq National Market System. As of December 31, 2000, there were 3,190 holders of record of the Class A common stock and 588 holders of record of the Class B common stock. 24 Due to higher market rates of interest when compared to 1999, interest income increased $28.1 million or 17.4 percent in the fourth quarter of 2000 when compared to the same period of 1999. Average interest-earning assets increased $707.5 million from the fourth quarter of 1999 to the fourth quarter of 2000. The yield on average loans increased 60 basis points to 8.64 percent during the fourth quarter of 2000 from 8.04 percent during the same period in 1999. Total interest-earning assets yielded 8.10 percent during the fourth quarter of 2000, an increase from the 7.44 percent recorded during the fourth quarter of 1999. Average interest-bearing liabilities experienced a $593.2 million increase from the fourth quarter of 1999 to the same period of 2000, primarily the result of increases in average deposits and short-term borrowings. The growth in average deposits was strongest among time deposits, while short-term borrowings increased $46.4 million from 1999 to 2000. Net interest income increased $3.8 million or 4.3 percent from the fourth quarter of 1999 to the fourth quarter of 2000, with such increase resulting from loan growth. Table 19 CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS--FOURTH QUARTER
Increase (decrease) due 2000 1999 to: -------------------------- -------------------------- ------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ Yield/ Total Balance Expense Rate Balance Expense Rate Volume Rate Change ---------- -------- ------ ---------- -------- ------ ------- ------- ------- (thousands) Assets Loans................... $7,077,991 $153,729 8.64% $6,646,312 $134,647 8.04% $ 8,891 $10,191 $19,082 Investment securities: U. S. Government....... 1,706,146 27,384 6.39 1,558,215 21,772 5.54 2,171 3,441 5,612 State, county and municipal............. 4,674 99 8.43 2,812 52 7.34 37 10 47 Other.................. 36,716 391 4.24 22,189 144 2.57 124 123 247 ---------- -------- ---- ---------- -------- ---- ------- ------- ------- Total investment securities............ 1,747,536 27,874 6.35 1,583,216 21,968 5.50 2,332 3,574 5,906 Overnight investments... 510,003 8,391 6.55 398,462 5,163 5.14 1,628 1,600 3,228 ---------- -------- ---- ---------- -------- ---- ------- ------- ------- Total interest-earning assets................. $9,335,530 $189,994 8.10% $8,627,990 $161,778 7.44% $12,851 $15,365 $28,216 ========== ======== ==== ========== ======== ==== ======= ======= ======= Liabilities Deposits: Checking With Interest.............. $1,083,490 $ 1,669 0.61% $1,080,164 $ 1,593 0.59% $ 13 $ 63 $ 76 Savings................ 606,519 2,044 1.34 668,251 2,623 1.56 (226) (353) (579) Money market accounts.. 1,516,924 17,347 4.55 1,446,161 13,829 3.79 715 2,803 3,518 Time deposits.......... 4,127,761 63,482 6.12 3,588,935 44,348 4.90 7,382 11,752 19,134 ---------- -------- ---- ---------- -------- ---- ------- ------- ------- Total interest-bearing deposits.............. 7,334,694 84,542 4.59 6,783,511 62,393 3.65 7,884 14,265 22,149 Short-term borrowings... 637,666 9,035 5.64 591,241 6,957 4.67 591 1,487 2,078 Long-term obligations... 154,609 3,177 8.17 158,975 3,161 7.89 (91) 107 16 ---------- -------- ---- ---------- -------- ---- ------- ------- ------- Total interest-bearing liabilities............ $8,126,969 $ 96,754 4.74% $7,533,727 $ 72,511 3.82% $ 8,384 $15,859 $24,243 ========== ======== ==== ========== ======== ==== ======= ======= ======= Interest rate spread.... 3.36% 3.62% Net interest income and net yield on interest- earning assets......... $ 93,240 3.97% $ 89,267 4.10% $ 4,467 $ (494) $ 3,973 ======== ==== ======== ==== ======= ======= =======
- ------- Average loan balances include nonaccrual loans. Interest income related to loans and securities exempt from both federal and state income taxes, federal income taxes only, or state income taxes only, are stated on a taxable- equivalent basis assuming a statutory federal income tax rate of 35% for each period, and state income tax rates of 7.00% for each period. 25 Noninterest income for the fourth quarter of 2000 was $49.4 million, an increase of $7.4 million or 17.7 percent. Noninterest income during the fourth quarter of 2000 included a $4.1 million gain recognized on the sale of four branch offices, while no such gains were recognized during the fourth quarter of 1999. Increases were also recorded in insurance commissions, service charge income, and other service charges and fees. Noninterest expense amounted to $99.3 million for the quarter ended December 31, 2000, compared to $95.9 million for the quarter ended December 31, 1999. Much of the nonrecurring costs of the branch closings was recorded during the fourth quarter, resulting in increases in occupancy expense and other expense. Other increases were recognized in employee benefits expense, the result of higher employee health insurance costs and credit card expense, caused by higher cardholder and merchant volume. Tables 18 and 19 are useful when making quarterly comparisons. LEGAL PROCEEDINGS BancShares and various subsidiaries have been named as defendants in various legal actions arising from their normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares' consolidated financial position. CURRENT ACCOUNTING AND REGULATORY ISSUES In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. BancShares adopted the provisions of SFAS No. 133 on January 1, 2001, but, as a result of BancShares' limited use of derivative instruments, the adoption of SFAS No. 133 did not have a material impact on its consolidated financial statements. In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage- Backed Securities Retained after the securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." BancShares does not retain securitized loans. Therefore, SFAS 134, which became effective during 1999, had no impact on BancShares' consolidated financial statements. During September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is effective for recognition and classification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. SFAS No. 140 is not expected to have a material impact on BancShares' consolidated financial statements. Management is not aware of any current recommendations by regulatory authorities that, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital ratios or results of operations. FORWARD-LOOKING STATEMENTS This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," "anticipate," or other statements concerning opinions or judgment of BancShares and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of BancShares' customers, actions of government regulators, the level of market interest rates, and general economic conditions. 26 INDEPENDENT AUDITORS' REPORT BOARD OF DIRECTORS AND SHAREHOLDERS FIRST CITIZENS BANCSHARES, INC. We have audited the accompanying consolidated balance sheets of First Citizens BancShares, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Citizens BancShares, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. [KPMG LLP LOGO] Raleigh, North Carolina January 22, 2001 27 CONSOLIDATED BALANCE SHEETS First Citizens BancShares, Inc. and Subsidiaries
December 31 ---------------------- 2000 1999 ----------- ---------- (thousands, except Assets share data) Cash and due from banks................................. $ 755,930 $ 591,605 Overnight investments................................... 431,382 473,393 Investment securities held to maturity (fair value of $1,783,888 in 2000 and $1,336,664 in 1999)............. 1,778,166 1,353,321 Investment securities available for sale (cost of $28,875 in 2000 and $7,751 in 1999).................... 38,554 18,573 Loans................................................... 7,109,692 6,751,039 Less reserve for loan losses............................ 102,655 98,690 ----------- ---------- Net loans............................................. 7,007,037 6,652,349 Premises and equipment.................................. 444,731 397,397 Income earned not collected............................. 62,580 52,621 Other assets............................................ 173,237 177,840 ----------- ---------- Total assets.......................................... $10,691,617 $9,717,099 =========== ========== Liabilities Deposits: Noninterest-bearing.................................... $ 1,373,880 $1,343,353 Interest-bearing....................................... 7,597,988 6,830,245 ----------- ---------- Total deposits........................................ 8,971,868 8,173,598 Short-term borrowings................................... 632,372 568,301 Long-term obligations................................... 154,332 155,683 Other liabilities....................................... 122,317 90,760 ----------- ---------- Total liabilities..................................... 9,880,889 8,988,342 Shareholders' Equity Common stock: Class A--$1 par value (11,000,000 shares authorized; 8,813,454 shares issued for 2000; 8,890,039 shares issued for 1999)...................................... 8,813 8,890 Class B--$1 par value (2,000,000 shares authorized; 1,709,382 shares issued for 2000; 1,720,360 shares issued for 1999)...................................... 1,709 1,720 Surplus................................................. 143,766 143,766 Retained earnings....................................... 650,148 567,801 Accumulated other comprehensive income.................. 6,292 6,580 ----------- ---------- Total shareholders' equity............................ 810,728 728,757 ----------- ---------- Total liabilities and shareholders' equity............ $10,691,617 $9,717,099 =========== ==========
See accompanying Notes to Consolidated Financial Statements. 28 CONSOLIDATED STATEMENTS OF INCOME First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31 ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (thousands, except share and per share data) INTEREST INCOME Loans..................................... $ 584,475 $ 510,272 $ 478,504 Investment securities: U. S. Government......................... 96,576 106,435 133,535 State, county and municipal.............. 226 147 207 Dividends................................ 764 548 507 ---------- ---------- ---------- Total investment securities interest and dividend income........................ 97,566 107,130 134,249 Overnight investments..................... 26,129 16,489 6,734 ---------- ---------- ---------- Total interest income................... 708,170 633,891 619,487 INTEREST EXPENSE Deposits.................................. 298,956 244,921 255,517 Short-term borrowings..................... 31,219 23,921 25,850 Long-term obligations..................... 12,653 12,700 10,704 ---------- ---------- ---------- Total interest expense.................. 342,828 281,542 292,071 ---------- ---------- ---------- Net interest income..................... 365,342 352,349 327,416 Provision for loan losses................. 15,488 11,672 19,879 ---------- ---------- ---------- Net interest income after provision for loan losses............................ 349,854 340,677 307,537 NONINTEREST INCOME Service charges on deposit accounts....... 59,384 55,169 47,055 Credit card income........................ 36,837 30,820 25,558 Gain on sale of mortgage servicing rights................................... 20,187 -- -- Commission-based income................... 17,295 13,772 10,359 Trust income.............................. 14,814 13,848 12,710 Fees from processing services............. 14,556 12,987 11,652 ATM income................................ 10,844 10,655 10,397 Mortgage income........................... 5,172 6,440 8,797 Gain on sale of branches.................. 4,085 5,063 3,067 Other service charges and fees............ 12,077 9,935 10,176 Securities gains.......................... 1,810 1,706 -- Other..................................... 5,129 4,944 5,646 ---------- ---------- ---------- Total noninterest income................ 202,190 165,339 145,417 NONINTEREST EXPENSE Salaries and wages........................ 168,778 160,440 142,020 Employee benefits......................... 32,136 30,455 27,434 Occupancy expense......................... 33,835 30,041 28,112 Equipment expense......................... 38,153 37,745 36,545 Other..................................... 121,882 116,939 108,102 ---------- ---------- ---------- Total noninterest expense............... 394,784 375,620 342,213 ---------- ---------- ---------- Income before income taxes................ 157,260 130,396 110,741 Income taxes.............................. 58,949 48,596 39,732 ---------- ---------- ---------- Net income.............................. 98,311 81,800 71,009 ---------- ---------- ---------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Unrealized securities gains (losses) arising during period.................... 816 (1,384) (411) Less: reclassification adjustment for gains included in net income............. 1,104 1,083 -- ---------- ---------- ---------- Other comprehensive loss................. (288) (2,467) (411) ---------- ---------- ---------- Comprehensive income..................... $ 98,023 $ 79,333 $ 70,598 ========== ========== ========== PER SHARE INFORMATION Net income available to common shareholders............................ $ 9.32 $ 7.70 $ 6.62 Cash dividends........................... 1.00 1.00 1.00 Weighted average shares outstanding....... 10,551,607 10,625,457 10,626,311 ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. 29 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY First Citizens BancShares, Inc. and Subsidiaries
Class Class Accumulated A B Other Total Common Common Retained Comprehensive Shareholders' Stock Stock Surplus Earnings Income Equity ------ ------ -------- -------- ------------- ------------- (thousands, except share data) Balance at December 31, 1997................... $8,906 $1,722 $143,760 $437,794 $9,458 $601,640 Redemption of 1,894 shares of Class B common stock........... (2) (202) (204) Obligation to repurchase common stock........... (624) (624) Net income.............. 71,009 71,009 Unrealized securities losses, net of tax benefit................ (411) (411) Cash dividends.......... (10,661) (10,661) ------ ------ -------- -------- ------ -------- Balance at December 31, 1998................... 8,906 1,720 143,760 497,316 9,047 660,749 Redemption of 10,075 shares of Class A common stock........... (10) (696) (706) Net income.............. 81,800 81,800 Unrealized securities losses, net of tax benefit................ (2,467) (2,467) Cash dividends.......... (10,619) (10,619) Other................... (6) 6 -- ------ ------ -------- -------- ------ -------- Balance at December 31, 1999................... 8,890 1,720 143,766 567,801 6,580 728,757 Redemption of 76,585 shares of Class A common stock........... (77) (4,653) (4,730) Redemption of 10,978 shares of Class B common stock........... (11) (765) (776) Net income.............. 98,311 98,311 Unrealized securities losses, net of tax benefit................ (288) (288) Cash dividends.......... (10,546) (10,546) ------ ------ -------- -------- ------ -------- Balance at December 31, 2000................... $8,813 $1,709 $143,766 $650,148 $6,292 $810,728 ====== ====== ======== ======== ====== ========
See accompanying Notes to Consolidated Financial Statements. 30 CONSOLIDATED STATEMENTS OF CASH FLOWS First Citizens BancShares, Inc. and Subsidiaries
Year Ended December 31 -------------------------------- 2000 1999 1998 ---------- --------- --------- (thousands) OPERATING ACTIVITIES Net income.................................. $ 98,311 $ 81,800 $ 71,009 Adjustments to reconcile net income to cash provided by operating activities: Amortization of intangibles................ 11,323 12,236 11,373 Provision for loan losses.................. 15,488 11,672 19,879 Deferred tax expense (benefit)............. 516 (3,478) (6,271) Change in current taxes payable............ 832 (6,697) 1,118 Depreciation............................... 30,349 30,849 27,205 Change in accrued interest payable......... 27,469 (4,462) (1,731) Change in income earned not collected...... (10,095) 9,031 4,979 Securities gains........................... (1,810) (1,706) -- Gain on sales of branches.................. (4,085) (5,063) (3,067) Gain on sale of mortgage servicing rights.. (20,187) -- -- Provision for branches to be closed........ 3,102 -- -- Origination of loans held for sale......... (247,621) (468,109) (684,715) Proceeds from sale of loans held for sale.. 251,378 531,640 734,249 Loss (gain) on loans held for sale......... (484) (2,485) (6,183) Net amortization of premiums and discounts................................. (1,016) 12,176 10,157 Net change in other assets................. 2,163 (4,832) (17,418) Net change in other liabilities............ (358) (4,267) 24,741 ---------- --------- --------- Net cash provided by operating activities............................... 155,275 188,305 185,325 ---------- --------- --------- INVESTING ACTIVITIES Net increase in loans outstanding.......... (451,150) (664,314) (827,353) Purchases of investment securities held to maturity.................................. (1,373,185) (463,313) (740,404) Purchases of investment securities available for sale........................ (21,651) (2,170) -- Proceeds from maturities of investment securities held to maturity............... 949,356 1,233,188 1,052,463 Proceeds from sales of investment securities available for sale............. 2,337 7,624 -- Proceeds from sale of mortgage servicing rights.................................... 26,513 -- -- Net change in overnight investments........ 42,011 (240,668) (150,950) Dispositions of premises and equipment..... 5,353 6,447 4,056 Additions to premises and equipment........ (84,246) (68,869) (92,837) Purchase and sale of branches, net of cash transferred............................... 120,042 (104,903) 177,688 ---------- --------- --------- Net cash used by investing activities..... (784,620) (296,978) (577,337) ---------- --------- --------- FINANCING ACTIVITIES Net change in time deposits................ 613,802 (61,568) (95,954) Net change in demand and other interest- bearing deposits.......................... 133,200 273,173 447,070 Net change in short-term borrowings........ 61,520 (2,957) (28,745) Originations of long-term obligations...... 1,200 -- 151,006 Repurchases of common stock................ (5,506) (706) (74,520) Cash dividends paid........................ (10,546) (10,619) (10,661) ---------- --------- --------- Net cash provided by financing activities............................... 793,670 197,323 388,196 ---------- --------- --------- Change in cash and due from banks........... 164,325 88,650 (3,816) Cash and due from banks at beginning of period..................................... 591,605 502,955 506,771 ---------- --------- --------- Cash and due from banks at end of period.... $ 755,930 $ 591,605 $ 502,955 ========== ========= ========= CASH PAYMENTS FOR: Interest................................... $ 315,359 $ 285,507 $ 294,095 Income taxes............................... 58,096 56,754 42,802 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Unrealized securities losses............... $ (1,143) $ (3,871) $ (1,062) Change in obligation to repurchase common stock..................................... -- -- 624
See accompanying Notes to Consolidated Financial Statements. 31 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation First Citizens BancShares, Inc. ("BancShares") is a financial holding company with two banking subsidiaries--First-Citizens Bank & Trust Company, headquartered in Raleigh, North Carolina ("FCB"), which operates branches in North Carolina, Virginia and West Virginia; and Atlantic States Bank ("ASB"), a federally-chartered thrift institution headquartered in Fort Myers, Florida with branch offices in the metropolitan Atlanta, Georgia area and Southwest Florida. FCB and ASB offer full-service banking services designed to meet the needs of both retail and commercial customers in the markets in which they serve. The services offered include transaction and savings deposits, commercial and consumer lending, a full service trust department, a full service securities broker-dealer, insurance services and other activities incidental to commercial banking. BancShares is also the parent company of American Guaranty Insurance Company, which is engaged in writing property and casualty insurance. FCB has six subsidiaries. First Citizens Investor Services is a registered broker-dealer in securities that provides investment services, including sales of annuities and third party mutual funds. First-Citizens Bank, A Virginia Corporation, is the issuing and processing bank for BancShares' retail credit cards and merchant accounts. Triangle Life Insurance Company writes credit life and credit accident and health insurance. Other subsidiaries are either inactive or are not material to the consolidated financial statements. Nontraditional banking segments within BancShares' operations are not material to the consolidated financial statements. The accounting and reporting policies of BancShares and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America and, with regard to the banking subsidiaries, conform to general industry practices. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by BancShares in the preparation of its consolidated financial statements are the determination of the reserve for loan losses, the valuation allowance for deferred tax assets, and fair value estimates. Intercompany accounts and transactions have been eliminated. Certain amounts for prior years have been reclassified to conform with statement presentations for 2000. However, the reclassifications have no effect on shareholders' equity or net income as previously reported. Investment Securities For investment securities classified as held to maturity, BancShares has the ability and the positive intent to hold those investments until maturity. These securities are stated at cost adjusted for amortization of premium and accretion of discount. Accreted discounts and amortized premiums are included in interest income on an effective yield basis. Marketable equity securities are classified as available for sale and are carried at their fair value with the difference between the cost basis and the fair value, net of deferred income taxes, recorded as a component of comprehensive income within shareholders' equity. At December 31, 2000 and 1999, BancShares had no investment securities held for trading purposes. Overnight Investments Overnight investments include federal funds sold and interest-bearing demand deposit balances in other banks. 32 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Loans Loans that are held for investment purposes are carried at the principal amount outstanding. Loans that are classified as held for sale are carried at the lower of aggregate cost or fair value. Interest on loans is accrued and credited to interest income on a constant yield basis based upon the daily principal amount outstanding. Loan Fees Fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans. The deferred fees and costs are recorded as an adjustment to loans outstanding using a method that approximates a constant yield. Mortgage Servicing Rights There are no mortgage servicing rights ("MSRs") outstanding at December 31, 2000. BancShares sold its MSRs during the third quarter of 2000. At December 31, 1999, the carrying value of MSRs was included in other assets on BancShares' consolidated balance sheet. Previously, capitalization of MSRs occurred when the underlying loan was sold. Capitalized MSRs were amortized over the projected life of the serviced loans and were periodically reviewed for impairment. Reserve for Loan Losses The reserve for loan losses is established by charges to operating expense. To determine the reserve needed, management evaluates the risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrower, fair value of collateral and other items that, in management's opinion, deserve current recognition in estimating credit losses. Management considers the established reserve adequate to absorb probable losses that relate to loans outstanding as of December 31, 2000, although future additions to the reserve may be necessary based on changes in economic and other conditions. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review BancShares' reserve for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. Nonaccrual Loans, Impaired Loans and Other Real Estate Accrual of interest on residential mortgage loans is discontinued when the loan reaches 92 days past due. Accrual of interest on all other loans is discontinued when management deems that collection of additional principal or interest is doubtful. Residential mortgage loans return to an accrual status when the loan balance is less than 92 days past due. Other loans are returned to an accrual status when both principal and interest are current and the loan is determined to be performing in accordance with the applicable loan terms. Management considers a loan to be impaired when based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to contractual terms of the loan agreement. Impaired loans are valued using either the discounted expected cash flow method using the loan's original effective interest rate or the collateral value. When the ultimate collectibility of an impaired loan's principal is doubtful, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent that any interest has been foregone. Additional cash receipts are recorded as recoveries of any amounts previously charged off. Other real estate is valued at the lower of the loan balance at the time of foreclosure or estimated fair value net of selling costs and is included in other assets. Once acquired, other real estate is periodically reviewed to ensure that the fair value of the property supports the carrying value, with writedowns recorded when necessary. Gains and losses 33 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) resulting from the sale or writedown of other real estate and income and expenses related to the operation of other real estate are recorded in other expense. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed by the straight-line method and are charged to operations over the estimated useful lives of the assets, which range from 25 to 40 years for premises and three to 10 years for furniture and equipment. Leasehold improvements are amortized over the terms of the respective leases or the useful lives of the improvements, whichever is shorter. Gains and losses on dispositions are recorded in other expense. Maintenance and repairs are charged to occupancy expense or equipment expense as incurred. Intangible Assets Intangible assets include goodwill and deposit-related intangibles that result from acquisitions in which the purchase price exceeds the fair value of net assets acquired. Intangible assets are generally amortized using the straight-line method over a 15-year period. Intangible assets are subject to periodic review and are adjusted for any impairment of value. As of December 31, 2000 and 1999, BancShares had unamortized goodwill of $46,340 and $55,774 respectively. Unamortized deposit intangibles totaled $72,418 and $56,208, respectively. Income Taxes Income tax expense is based on consolidated income before income taxes and generally differs from income taxes paid due to deferred income taxes and benefits arising from income and expenses being recognized in different periods for financial and income tax reporting purposes. BancShares uses the asset and liability method to account for deferred income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of BancShares' assets and liabilities at enacted rates expected to be in effect when such amounts are realized or settled. BancShares and its subsidiaries file a consolidated federal income tax return. BancShares and its subsidiaries each file separate state income tax returns. Per Share Data Net income per share has been computed by dividing net income by the weighted average number of both classes of common shares outstanding during each period. The weighted average number of shares outstanding for 2000, 1999, and 1998 was 10,551,607; 10,625,457; and 10,626,311, respectively. BancShares had no potential common stock for all periods outstanding. During 1998, the calculation of net income per share reflected the impact of changes in the value of BancShares' obligation to repurchase shares of its common stock that were previously owned by a company-sponsored pension plan. The obligation to repurchase those shares was recorded at fair value as of December 31, 1997. Increases in the fair value of that obligation, which totaled $624 during 1998, were deducted from net income in calculating net income per share during 1998. Cash dividends per share apply to both Class A and Class B common stock. Class A common stock carries one vote per share, while shares of Class B common stock carry 16 votes per share. Comprehensive Income Accumulated other comprehensive income consists entirely of unrealized gains (losses) on investment securities available for sale. 34 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) The tax effects of the components of other comprehensive income included in the consolidated statements of income are as follows for the years ended December 31:
2000 1999 1998 ----- ------- ----- Unrealized losses arising during the period......... $(149) $ (781) $(651) Less: reclassification adjustments for gains included in net income............................. 706 623 -- ----- ------- ----- Total tax effect.................................. $(855) $(1,404) $(651) ===== ======= =====
NOTE B--INVESTMENT SECURITIES The aggregate values of investment securities at December 31 along with gains and losses determined on an individual security basis are as follows:
Gross Gross Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- Investment securities held to maturity at December 31 2000 U. S. Government................. $1,773,722 $ 8,221 $ (2,670) $1,779,273 State, county and municipal...... 4,139 171 -- 4,310 Other............................ 305 -- -- 305 ---------- ---------- ---------- ---------- Total investment securities held to maturity.................... $1,778,166 $ 8,392 $ (2,670) $1,783,888 ========== ========== ========== ========== 1999 U. S. Government................. $1,350,204 $ 241 $ (16,931) $1,333,514 State, county and municipal...... 2,812 35 (2) 2,845 Other............................ 305 -- -- 305 ---------- ---------- ---------- ---------- Total investment securities held to maturity.................... $1,353,321 $ 276 $ (16,933) $1,336,664 ========== ========== ========== ========== Investment securities available for sale at December 31 2000 Marketable equity securities..... $ 27,611 $ 9,660 $ -- $ 37,271 Municipal securities............. 1,264 19 -- 1,283 ---------- ---------- ---------- ---------- Total investment securities available for sale............. $ 28,875 $ 9,679 $ -- $ 38,554 ========== ========== ========== ========== 1999 Marketable equity securities..... $ 7,751 $ 10,974 $ (152) $ 18,573 ========== ========== ========== ========== The maturities of investment securities held to maturity at December 31 are as follows: 2000 1999 --------------------- ---------------------- Cost Fair Value Cost Fair Value ---------- ---------- ---------- ---------- Maturing in: One year or less................. $1,451,204 $1,452,990 $1,078,053 $1,068,682 One through five years........... 316,987 320,733 265,027 257,850 Five to 10 years................. 460 466 426 428 Over 10 years.................... 9,515 9,699 9,815 9,704 ---------- ---------- ---------- ---------- Total investment securities held to maturity.................... $1,778,166 $1,783,888 $1,353,321 $1,336,664 ========== ========== ========== ==========
Municipal securities available for sale at December 31, 2000 mature in more than 10 years. 35 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) During 2000, sales of investment securities available for sale resulted in gross realized gains of $1,976. BancShares also realized a loss of $166 resulting from an impaired investment. During 1999, BancShares recognized gross gains of $1,706 on the sale of investment securities available for sale. There were no sales of investment securities during 1998. Investment securities having an aggregate carrying value of $1,285,386 at December 31, 2000 and $1,183,749 at December 31, 1999, were pledged as collateral to secure public funds on deposit, to secure certain short-term borrowings and for other purposes as required by law. NOTE C--LOANS Loans outstanding at December 31 include the following:
2000 1999 ---------- ---------- Loans secured by real estate: Construction and land development.................... $ 216,439 $ 186,119 Residential mortgage................................. 1,550,329 1,326,642 Other real estate mortgage loans..................... 3,031,124 2,727,898 ---------- ---------- Total loans secured by real estate................ 4,797,892 4,240,659 Commercial and industrial............................. 933,515 985,738 Consumer.............................................. 1,218,134 1,393,227 Lease financing....................................... 134,483 123,908 All other loans....................................... 25,668 7,507 ---------- ---------- Total loans......................................... $7,109,692 $6,751,039 ========== ==========
There were no foreign loans outstanding during either period, nor were there any loans to finance highly leveraged transactions. There are no loan concentrations exceeding ten percent of loans outstanding involving multiple borrowers in similar activities or industries at December 31, 2000. Substantially all loans are to customers domiciled within BancShares' principal market areas. At December 31, 2000 and 1999, nonperforming loans consisted of nonaccrual loans of $15,933 and $10,720, respectively. Gross interest income on nonperforming loans that would have been recorded had these loans been performing was $1,209, $894, and $1,108, respectively, during 2000, 1999 and 1998. Interest income recognized on nonperforming loans was $587, $287 and $409 during the respective periods. As of December 31, 2000 and 1999, the balance of other real estate acquired through foreclosure was $1,880 and $1,600. Loans transferred to other real estate totaled $3,019, $4,500 and $2,051 during 2000, 1999 and 1998. As part of the management of its exposure to changes in interest rates, BancShares sells portions of its originated residential mortgage loan portfolio. Loan sale activity is summarized below:
2000 1999 1998 -------- -------- -------- Loans held for sale at December 31............... $ 19,980 $ 23,253 $ 84,299 For the year ended December 31: Loans sold...................................... 250,894 529,155 728,066 Net gain on sale of loans....................... 484 2,485 6,183
Until 2000, FCB operated a mortgage servicing operation for its own loans and for loans owned by various investors. During 2000, FCB elected to discontinue the servicing operation. The right to service $1,633,075 of loans owned by others was sold to an independent third party, while a separate servicer was retained to service BancShares' residential mortgage loans. BancShares received $26,513 from the sale of its mortgage servicing rights and recognized a gain of $20,187. 36 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) The changes in the carrying values of mortgage servicing rights for 2000, 1999 and 1998 is summarized in the following table:
2000 1999 1998 ------ ------ ------ Balance at beginning of year........................... $6,832 $4,405 $2,527 Amounts capitalized during year........................ 180 3,700 2,599 Amounts amortized during year.......................... 686 1,273 721 Amounts sold during the year........................... 6,326 -- -- ------ ------ ------ Balance at end of year................................. $ -- $6,832 $4,405 ====== ====== ======
The carrying value of loans serviced for others was $1,646,876 and $1,366,416 as of December 31, 1999 and 1998, respectively. NOTE D--RESERVE FOR LOAN LOSSES Activity in the reserve for loan losses is summarized as follows:
2000 1999 1998 -------- -------- -------- Balance at the beginning of year............... $ 98,690 $ 96,115 $ 84,360 Provision for loan losses...................... 15,488 11,672 19,879 Loans charged off.............................. (15,906) (13,687) (14,067) Loans recovered................................ 4,383 4,590 5,943 -------- -------- -------- Net charge-offs................................ (11,523) (9,097) (8,124) -------- -------- -------- Balance at the end of year..................... $102,655 $ 98,690 $ 96,115 ======== ======== ========
At December 31, 2000 and 1999, impaired loans totaled $6,592 and $5,696, respectively, all of which were classified as nonaccrual. Total reserves of $1,496 and $1,107 have been established for impaired loans outstanding as December 31, 2000 and 1999, respectively. The average recorded investment in impaired loans during the years ended December 31, 2000, 1999 and 1998, was $5,710, $6,229 and $7,580, respectively. For the years ended December 31, 2000, 1999 and 1998, BancShares recognized cash basis interest income on those impaired loans of $301, $143 and $194, respectively. NOTE E--PREMISES AND EQUIPMENT Major classifications of premises and equipment at December 31 are summarized as follows:
2000 1999 -------- -------- Land...................................................... $106,175 $ 93,954 Premises and leasehold improvements....................... 313,529 251,904 Furniture and equipment................................... 215,638 218,094 -------- -------- Total.................................................... 635,342 563,952 Less accumulated depreciation and amortization............ 190,611 166,555 -------- -------- Net book value........................................... $444,731 $397,397 ======== ========
There were no premises pledged to secure borrowings at December 31, 2000. Premises with a book value of $922 at December 31, 1999, were pledged to secure mortgage notes payable. BancShares leases certain premises and equipment under various lease agreements that provide for payment of property taxes, insurance and maintenance costs. Generally, operating leases provide for one or more renewal options on the same basis as current rental terms. However, certain leases require increased rentals under cost of living escalation clauses. Certain of the leases also provide purchase options. 37 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Future minimum rental commitments for noncancellable operating leases with initial or remaining terms of one or more years consisted of the following at December 31, 2000: Year Ending December 31: 2001............................................................. $10,801 2002............................................................. 8,260 2003............................................................. 6,547 2004............................................................. 5,033 2005............................................................. 3,426 Thereafter....................................................... 50,270 ------- Total minimum payments......................................... $84,337 =======
Total rent expense for all operating leases amounted to $14,897 in 2000, $13,946 in 1999 and $13,687 in 1998. NOTE F--DEPOSITS Deposits at December 31 are summarized as follows:
2000 1999 ---------- ---------- Demand................................................. $1,373,880 $1,343,353 Checking with interest................................. 1,140,472 1,103,298 Money market accounts.................................. 1,621,193 1,495,007 Savings................................................ 600,671 650,671 Time................................................... 4,235,652 3,581,269 ---------- ---------- Total deposits....................................... $8,971,868 $8,173,598 ========== ==========
Total time deposits with a minimum denomination of $100 were $888,541 and $725,646 at December 31, 2000 and 1999, respectively. At December 31, 2000, the scheduled maturities of time deposits were: 2001........................................................... $3,355,973 2002........................................................... 492,905 2003........................................................... 210,847 2004........................................................... 55,971 2005........................................................... 119,682 Thereafter..................................................... 274 ---------- Total time deposits.......................................... $4,235,652 ==========
NOTE G--SHORT-TERM BORROWINGS Short-term borrowings at December 31 are as follows:
2000 1999 -------- -------- Master notes.............................................. $322,944 $326,984 Repurchase agreements..................................... 181,404 125,832 Federal funds purchased................................... 71,825 53,195 Other..................................................... 56,199 62,290 -------- -------- Total short-term borrowings............................. $632,372 $568,301 ======== ========
38 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) At December 31, 2000, BancShares and its subsidiaries had unused credit lines allowing access of up to $560,000 on an unsecured basis. These included overnight borrowings and short-term borrowings under a credit facility that expires on November 6, 2001. Additionally, under various borrowing arrangements with the Federal Reserve and the Federal Home Loan Bank of Atlanta, BancShares and its subsidiaries have access, on a secured basis, to additional borrowings as needed. NOTE H--LONG-TERM OBLIGATIONS Long-term obligations at December 31 include:
2000 1999 -------- -------- Trust preferred capital securities at 8.05 percent matur- ing March 5, 2028....................................... $150,000 $150,000 Unsecured fixed rate notes payable: 7.25 percent maturing February 23, 2001................ -- 1,284 8.00 percent maturing February 23, 2005................ 2,178 2,178 7.50 percent note due in annual installments maturing September 1, 2005..................................... 1,200 -- 6.75 percent note due in annual installments maturing September 1, 2003..................................... 755 1,006 Unsecured variable rate note at 6.51 percent payable in quarterly installments.................................. -- 564 Mortgage notes payable at 8.00 percent, secured by prem- ises.................................................... -- 410 Other.................................................... 199 241 -------- -------- Total long-term obligations............................ $154,332 $155,683 ======== ========
The trust preferred capital securities were issued by a wholly-owned subsidiary of BancShares, and BancShares has guaranteed the repayment of those securities. The proceeds from the issuance of the trust preferred capital securities were invested in BancShares and that investment became the sole asset of the trust. BancShares then made a capital infusion into FCB. The trust preferred capital securities qualify as Tier 1 capital for regulatory capital adequacy requirements for BancShares and FCB. BancShares may redeem the trust preferred capital securities in whole or in part after March 1, 2008. 39 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Long-term obligations maturing in each of the five years subsequent to December 31, 2000 include: 2001............................................................. $ 252 2002............................................................. 552 2003............................................................. 552 2004............................................................. 300 2005............................................................. 2,478 Thereafter....................................................... 150,198 -------- $154,332 ========
NOTE I--COMMON STOCK On October 23, 2000 the Board of Directors of BancShares authorized the purchase in the open market or in private transactions of up to 300,000 shares of its outstanding Class A common stock and up to 100,000 shares of its outstanding Class B common stock. The authorization is effective for a period of 12 months. During 1999 and 1998, the Board of Directors of BancShares had made similar authorizations to repurchase shares of BancShares stock. The following table provides information related to shares purchased pursuant to authorizations for the years ended December 31:
2000 1999 1998 ------ ------ ------- Class A Number of shares purchased.......................... 76,585 10,075 726,400 Cash disbursed...................................... $4,730 $ 706 $71,068 Class B Number of shares purchased.......................... 10,978 -- 33,494 Cash disbursed...................................... $ 776 $ -- $ 3,452
Stock purchases are retired by a charge to common stock for the par value of the shares retired and to retained earnings for the cost in excess of par value. NOTE J--ESTIMATED FAIR VALUES Fair value estimates are made at a specific point in time based on relevant market information and information about each financial instrument. Where information regarding the fair value of a financial instrument is available, those values are used, as is the case with investment securities and residential mortgage loans. In these cases, an open market exists in which those financial instruments are actively traded. Because no market exists for many financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. For these financial instruments with a fixed interest rate, an analysis of the related cash flows was the basis for estimating fair values. The expected cash flows were then discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. Generally, the fair value of variable rate financial instruments equals the book value. 40 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands)
2000 1999 --------------------- --------------------- Carrying Carrying Value Fair Value Value Fair Value ---------- ---------- ---------- ---------- Cash and due from banks........ $ 755,930 $ 755,930 $ 591,605 $ 591,605 Overnight investments.......... 431,382 431,382 473,393 473,393 Investment securities held to maturity...................... 1,778,166 1,783,888 1,353,321 1,336,664 Investment securities available for sale...................... 38,554 38,554 18,573 18,573 Loans, net of reserve for loan losses........................ 7,007,037 7,003,208 6,652,349 6,890,653 Income earned not collected.... 62,580 62,580 52,621 52,621 Deposits....................... 8,971,868 8,983,773 8,173,598 8,181,634 Short-term borrowings.......... 632,372 632,372 568,301 568,301 Long-term obligations.......... 154,332 122,152 155,683 135,222 Accrued interest payable....... 75,299 75,299 47,830 47,830
Forward commitments to sell loans as of December 31, 2000, and 1999 had no carrying value and unrealized losses of $185 and $268, respectively. For other off-balance sheet commitments and contingencies, carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to BancShares' financial position. NOTE K--EMPLOYEE BENEFIT PLANS Employees who qualify under length of service and other requirements participate in a noncontributory defined benefit pension plan. Under the plan, retirement benefits are based on years of service and average earnings. The policy is to fund the maximum amount that is deductible for federal income tax purposes. No contributions were made during the three-year period ending December 31, 2000. The plan's assets consist primarily of investments in FCB's common trust funds, which include listed common stocks and fixed income securities. The following table sets forth the plan's funded status at December 31:
2000 1999 -------- -------- Change in benefit obligation Net benefit obligation at beginning of year............ $140,002 $145,797 Service cost........................................... 5,912 6,131 Interest cost.......................................... 10,890 10,075 Actuarial (gain) loss.................................. 7,904 (15,811) Gross benefits paid.................................... (9,329) (6,190) -------- -------- Net benefit obligation at end of year.................. $155,379 $140,002 ======== ======== Change in plan assets Fair value of plan assets at beginning of year......... $183,582 $177,601 Actual return on plan assets........................... 3,030 12,171 Gross benefits paid.................................... (9,329) (6,190) -------- -------- Fair value of plan assets at end of year............... $177,283 $183,582 ======== ======== Funded status at end of year........................... $ 21,904 $ 43,580 Unrecognized net actuarial gain........................ (32,738) (49,833) Unrecognized prior service cost........................ 737 891 Unrecognized net transition asset...................... (2,392) (3,620) -------- -------- Net amount recognized in other liabilities at end of year.................................................. $(12,489) $ (8,982) ======== ========
41 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) The net periodic pension cost for the years ended December 31 included the following:
2000 1999 1998 -------- -------- ------- Components of net periodic benefit cost Service cost.................................... $ 5,912 $ 6,131 $ 4,940 Interest cost................................... 10,890 10,075 9,334 Expected return on assets....................... (12,221) (10,712) (9,807) Amortization of: Transition asset............................... (1,228) (1,228) (1,228) Prior service cost............................. 154 154 154 -------- -------- ------- Total net periodic benefit cost............... $ 3,507 $ 4,420 $ 3,393 ======== ======== =======
Prior service cost is being amortized on a straight-line basis over the estimated average remaining service period of employees. In determining the projected benefit obligation at December 31, 2000, 1999 and 1998, the following assumptions were used:
2000 1999 1998 ---- ---- ---- Weighted average discount rate............................. 7.25% 7.50% 6.75% Long-term rate of return on plan assets.................... 8.50 8.50 8.25 Rate of future compensation increases...................... 4.75 4.75 4.50
Employees are also eligible to participate in a 401(k) plan after 31 days of service. The 401(k) plan allows associates to defer portions of their salary. Based on the employee's contribution, BancShares will match up to 75% of the employee contribution. BancShares made participating contributions of $5,210, $4,654 and $4,134 during 2000, 1999 and 1998, respectively. NOTE L--OTHER NONINTEREST EXPENSE Other noninterest expense for the years ended December 31 included:
2000 1999 1998 -------- -------- -------- Credit card expense............................ $ 16,870 $ 14,712 $ 12,658 Telecommunications expense..................... 10,799 10,052 9,046 Amortization of intangibles.................... 10,637 10,963 10,652 Advertising expense............................ 7,277 7,313 5,836 Postage expense................................ 7,062 7,096 6,826 Consultant expense............................. 5,273 5,840 7,134 Other.......................................... 63,964 60,963 55,950 -------- -------- -------- Total other noninterest expense.............. $121,882 $116,939 $108,102 ======== ======== ======== NOTE M--INCOME TAXES At December 31, income tax expense consisted of the following: 2000 1999 1998 -------- -------- -------- Current tax expense Federal....................................... $ 55,159 $ 48,261 $ 44,442 State......................................... 3,274 3,813 1,561 -------- -------- -------- Total current tax expense.................... 58,433 52,074 46,003 -------- -------- -------- Deferred tax expense (benefit) Federal....................................... (153) (2,754) (5,252) State......................................... 669 (724) (1,019) -------- -------- -------- Total deferred tax expense (benefit)......... 516 (3,478) (6,271) -------- -------- -------- Total tax expense............................ $ 58,949 $ 48,596 $ 39,732 ======== ======== ========
42 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Income tax expense differed from the amounts computed by applying the federal income tax rate of 35 percent in each period to pretax income as a result of the following:
2000 1999 1998 ------- ------- ------- Income at statutory rates........................ $55,041 $45,639 $38,759 Increase (reduction) in income taxes resulting from: Amortization of goodwill........................ 1,979 2,096 2,082 Nontaxable income on loans and investments, net of nondeductible expenses...................... (1,174) (1,276) (1,346) State and local income taxes, including change in valuation allowance, net of federal income tax benefit.................................... 2,563 2,008 352 Other, net...................................... 540 129 (115) ------- ------- ------- Total tax expense.............................. $58,949 $48,596 $39,732 ======= ======= =======
The net deferred tax asset included the following components at December 31:
2000 1999 ------- ------- Reserve for loan losses..................................... $39,085 $38,757 Deferred compensation....................................... 5,373 5,333 Net pension liability....................................... 4,830 3,550 Other....................................................... 3,141 2,973 ------- ------- Gross deferred tax asset.................................. 52,429 50,613 Less valuation allowance.................................... 1,974 2,606 ------- ------- Deferred tax asset........................................ 50,455 48,007 ------- ------- Accelerated depreciation.................................... 5,132 5,200 Lease financing activities.................................. 8,307 5,777 Unrealized gain on marketable equity securities............. 3,387 4,242 Net deferred loan fees and costs............................ 3,204 2,295 Other....................................................... 1,307 1,500 ------- ------- Deferred tax liability.................................... 21,337 19,014 ------- ------- Net deferred tax asset.................................... $29,118 $28,993 ======= =======
The valuation allowance of $1,974 and $2,606 at December 31, 2000 and 1999, respectively, is the amount necessary to reduce BancShares' gross state deferred tax asset to the amount which is more likely than not to be realized. NOTE N--RELATED PARTY TRANSACTIONS BancShares, FCB and ASB have had, and expect to have in the future, banking transactions in the ordinary course of business with several directors, officers and their associates ("Related Parties"), on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. Those transactions neither involve more than the normal risk of collectibility nor present any unfavorable features. An analysis of changes in the aggregate amounts of loans to Related Parties for the year ended December 31, 2000 is as follows: Balance at beginning of year..................................... $28,805 New loans........................................................ 5,925 Repayments....................................................... (9,959) ------- Balance at end of year........................................... $24,771 =======
43 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) BancShares provides certain processing and operational services to other financial institutions. Certain of these institutions are deemed to be Related Parties since significant shareholders of BancShares are also deemed to be significant shareholders of the other banks. During 2000, 1999 and 1998, BancShares received $14,353, $12,723 and $12,012, respectively, for services rendered to these Related Parties, substantially all of which is included in fees from processing services and relates to data processing services. During 2000, 1999 and 1998, BancShares sold several of its branch offices to Related Parties. Income from sale of branches includes gains of $4,085, $4,432 and $3,067 earned on the sale of these branches. Investment securities available for sale includes investments in certain Related Parties. For 2000, these investments had a carrying value of $8,254 and a cost of $508. For 1999, these investments had a carrying value of $10,624 and a cost of $680. NOTE O--ACQUISITIONS AND DIVESTITURES BancShares and its subsidiaries have consummated numerous acquisitions in recent years. All of the acquisitions have been accounted for as purchases, with the results of operations not included in BancShares' Consolidated Statements of Income until after the transaction date. The pro forma impact of the acquisitions as though they had been made at the beginning of the periods presented is not material to BancShares' consolidated financial statements. The following table provides information regarding the acquisitions and divestitures of branches that have been consummated during the three-year period ended December 31, 2000:
Year Transaction Assets/1/ Deposits Intangible ---- -------------------------------- --------- --------- ---------- 2000 Purchase of six branches by FCB $ 15,726 $ 143,078 $18,138 2000 Sale of four branches by FCB/2/ (94,773) (91,810) (3,780) 1999 Purchase of five branches by ASB 289 27,506 981 1999 Sale of eight branches by FCB/2/ (41,523) (123,048) (1,004) 1998 Purchase of 18 branches by FCB 13,112 320,408 34,897 1998 Sale of five branches by FCB/2/ (37,436) (138,390) (6,276)
------- /1/Excludes the transfer of cash /2/Sale of certain offices was made to related parties; see Note N NOTE P--REGULATORY REQUIREMENTS Various regulatory agencies have implemented guidelines that evaluate capital based on risk adjusted assets. An additional capital computation evaluates tangible capital based on tangible assets. Minimum capital requirements set forth by the regulators require a Tier 1 capital ratio of no less than 4 percent, a total capital ratio of no less than 8 percent of risk adjusted assets, and a leverage capital ratio of no less than 4 percent of tangible assets. To meet the FDIC's well capitalized standards, the Tier 1 and total capital ratios must be at least 6 percent and 10 percent, respectively. Failure to meet minimum capital requirements may result in certain actions by regulators that could have a direct material effect on the consolidated financial statements. Based on the most recent notifications from its regulators, FCB and ASB are well capitalized under the regulatory framework for prompt corrective action. Management believes that as of December 31, 2000, BancShares, FCB and ASB met all capital adequacy requirements to which they are subject and was not aware of any conditions or events that would affect FCB's and ASB's well capitalized status. 44 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) Following is an analysis of FCB and ASB capital ratios as of December 31, 2000 and 1999.
Requirement for FCB ASB Well- ---------------------- ------------------ capitalized 2000 1999 2000 1999 Status ---------- ---------- -------- -------- --------------- Risk-based capital: Tier 1 capital.......... $ 782,658 $ 733,212 $ 66,683 $ 51,788 Total capital........... 857,632 813,424 71,156 54,891 Risk-adjusted assets.... 6,835,098 7,265,921 459,998 327,218 Quarterly average tangible assets........ 9,560,837 9,046,638 -- -- Adjusted total assets... -- -- 677,358 468,095 Tier 1 capital ratio.... 11.45% 10.09% 14.50% 15.83% 6.00% Total capital ratio..... 12.55 11.20 15.47 16.78 10.00 Leverage capital ratio.. 8.19 8.10 9.84 11.06 5.00
The Board of Directors of FCB may declare a dividend on a portion of its undivided profits as it may deem appropriate, subject to the requirements of the FDIC and the General Statutes of North Carolina, without prior regulatory approval. As of December 31, 2000, this amount was $555,167. Dividends declared by FCB amounted to $50,037 in 2000, $48,485 in 1999 and $68,606 in 1998. BancShares and its banking subsidiaries are subject to certain requirements imposed by state and federal banking statutes and regulations. These regulations require the maintenance of noninterest-bearing reserve balances at the Federal Reserve Bank. Banks are allowed to reduce the required balances by the amount of its vault cash. For 2000, the requirement was $126,032 for FCB and $589 for ASB. Both obligations were fully satisfied by vault cash balances. NOTE Q--COMMITMENTS AND CONTINGENCIES In the normal course of business, BancShares and its subsidiaries have financial instruments with off-balance sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and forward commitments to sell loans. These instruments involve, to varying degrees, elements of credit, interest rate or liquidity risk. Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Established credit standards control the credit-risk exposure associated with these commitments. In some cases, BancShares requires that collateral be pledged to secure the commitment. At December 31, 2000 and 1999, BancShares had unused commitments totaling $3,158,561 and $2,820,530 respectively. Standby letters of credit are commitments guaranteeing performance of a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements. In order to minimize its exposure, BancShares' credit policies also govern the issuance of standby letters of credit. At December 31, 2000 and 1999, BancShares had standby letters of credit amounting to $18,744 and $27,129, respectively. Management has elected to enter into forward commitments to sell loans as protection against fluctuations in market rates for the commitments to originate residential mortgage loans. These forward commitments, which totaled $40,000 and $23,000 at December 31, 2000 and 1999, respectively, were at fixed prices and were scheduled to settle within 60 days of that date. At December 31, 2000 and 1999, these forward commitments had no carrying value and unrealized losses of $185 and $268 respectively. These amounts are included with the carrying value of loans held for sale and commitments to originate mortgage loans when determining whether a valuation allowance is required to reduce the loans and commitments to the lower of cost or fair value. 45 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) BancShares and various subsidiaries have been named as defendants in various legal actions arising from their normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material effect on BancShares' consolidated financial statements. NOTE R--FIRST CITIZENS BANCSHARES, INC. (PARENT COMPANY) First Citizens BancShares, Inc.'s principal assets are its investments in and receivables from its subsidiaries. Its sources of income are dividends and interest income. The Parent Company's condensed balance sheets as of December 31, 2000 and 1999, and the related condensed statements of income and cash flows for the years ended December 31, 2000, 1999 and 1998 are as follows: CONDENSED BALANCE SHEETS
December 31 --------------------- 2000 1999 ---------- ---------- (thousands) Assets Cash.................................................. $ 4,952 $ 2,906 Investment securities held to maturity................ 160,000 50,000 Investment securities available for sale.............. 14,266 15,751 Investment in subsidiaries............................ 935,376 846,529 Due from subsidiaries................................. 160,236 275,841 Other assets.......................................... 51,772 56,362 ---------- ---------- Total assets........................................ $1,326,602 $1,247,389 ========== ========== Liabilities and Shareholders' Equity Short-term borrowings................................. $ 357,944 $ 356,984 Long-term obligations................................. 154,640 154,640 Other liabilities..................................... 3,290 7,008 Shareholders' equity.................................. 810,728 728,757 ---------- ---------- Total liabilities and shareholders' equity.......... $1,326,602 $1,247,389 ========== ==========
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 --------------------------- 2000 1999 1998 -------- -------- ------- Interest income............................... $ 20,030 $ 17,137 $18,015 Interest expense.............................. 31,370 28,035 27,521 -------- -------- ------- Net interest income (loss).................... (11,340) (10,898) (9,506) Dividends from subsidiaries................... 50,037 48,485 68,606 Other income.................................. 1,840 1,814 95 Other operating expense....................... 6,875 7,346 7,288 -------- -------- ------- Income before income tax benefit and equity in undistributed net income of subsidiaries..... 33,662 32,055 51,907 Income tax benefit............................ (3,668) (3,600) (3,774) -------- -------- ------- Income before equity in undistributed net income of subsidiaries....................... 37,330 35,655 55,681 Equity in undistributed net income of subsidiaries................................. 60,981 46,145 15,328 -------- -------- ------- Net income.................................. $ 98,311 $ 81,800 $71,009 ======== ======== =======
46 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 ------------------------------- 2000 1999 1998 --------- --------- --------- OPERATING ACTIVITIES Net income................................... $ 98,311 $ 81,800 $ 71,009 Adjustments Undistributed net income of subsidiaries.... (60,981) (46,145) (15,328) Net amortization of premiums and discounts.. (185) 1,742 2,159 Securities gains............................ (1,810) (1,706) -- Change in other assets...................... 4,590 7,895 4,005 Change in other liabilities................. (2,863) (17,102) 14,447 --------- --------- --------- Net cash provided by operating activities.... 37,062 26,484 76,292 --------- --------- --------- INVESTING ACTIVITIES Net change in due from subsidiaries......... 115,605 (151,808) (12,925) Purchase of investment securities held to maturity................................... (130,136) (40,000) (10,000) Maturities of investment securities held to maturity................................... 20,136 200,000 -- Proceeds from sales of investment securities available for sale......................... 2,337 7,624 -- Investment in subsidiaries.................. (27,866) (15,000) (154,640) --------- --------- --------- Net cash used by investing activities........ (19,924) (816) (177,565) --------- --------- --------- FINANCING ACTIVITIES Net change in short-term borrowings......... 960 (15,619) 27,074 Originations of long-term obligations....... -- -- 154,640 Repurchase of common stock.................. (5,506) (706) (74,520) Cash dividends paid......................... (10,546) (10,619) (10,661) --------- --------- --------- Net cash (used) provided by financing activities.................................. (15,092) (26,944) 96,533 --------- --------- --------- Net change in cash........................... 2,046 356 (4,740) Cash balance at beginning of year............ 2,906 2,550 7,290 --------- --------- --------- Cash balance at end of year.................. $ 4,952 $ 2,906 $ 2,550 ========= ========= ========= Cash payments for Interest.................................... $ 31,006 $ 29,159 $ 22,768 Income taxes................................ 58,096 56,754 42,802 Supplemental disclosure of noncash investing and financing activities: Unrealized securities losses................ (1,143) (3,871) (1,062) Change in obligation to repurchase common stock...................................... -- -- 624
47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 7, 2001 First Citizens BancShares, Inc. (Registrant) /s/ James B. Hyler, Jr. _________________________________________ James B. Hyler, Jr. Vice Chairman and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant and in the capacities indicated on March 7, 2001.
Signature Title Date --------- ----- ---- /s/ Lewis R. Holding Chairman and Chief Executive March 7, 2001 ___________________________________________ Officer (principal executive Lewis R. Holding officer) /s/ Frank B. Holding Executive Vice Chairman March 7, 2001 ___________________________________________ Frank B. Holding /s/ James B. Hyler, Jr. Vice Chairman March 7, 2001 ___________________________________________ James B. Hyler, Jr. /s/ Frank B. Holding, Jr. President March 7, 2001 ___________________________________________ Frank B. Holding, Jr. /s/ Kenneth A. Black Vice President, Treasurer, and March 7, 2001 ___________________________________________ Chief Financial Officer Kenneth A. Black (principal financial and accounting officer) /s/ John M. Alexander, Jr. Director March 7, 2001 ___________________________________________ John M. Alexander, Jr. /s/ Carmen Holding Ames Director March 7, 2001 ___________________________________________ Carmen Holding Ames /s/ B. Irvin Boyle Director March 7, 2001 ___________________________________________ B. Irvin Boyle /s/ George H. Broadrick Director March 7, 2001 ___________________________________________ George H. Broadrick /s/ Betty M. Farnsworth Director March 7, 2001 ___________________________________________ Betty M. Farnsworth /s/ Lewis M. Fetterman Director March 7, 2001 ___________________________________________ Lewis M. Fetterman
48
Signature Title Date --------- ----- ---- /s/ Charles B.C. Holt Director March 7, 2001 ___________________________________________ Charles B.C. Holt /s/ Gale D. Johnson Director March 7, 2001 ___________________________________________ Gale D. Johnson /s/ Freeman R. Jones Director March 7, 2001 ___________________________________________ Freeman R. Jones /s/ Lucius S. Jones Director March 7, 2001 ___________________________________________ Lucius S. Jones /s/ Joseph T. Maloney, Jr. Director March 7, 2001 ___________________________________________ Joseph T. Maloney, Jr. /s/ J. Claude Mayo, Jr. Director March 7, 2001 ___________________________________________ J. Claude Mayo, Jr. /s/ Lewis T. Nunnelee, II Director March 7, 2001 ___________________________________________ Lewis T. Nunnelee, II /s/ Talbert O. Shaw Director March 7, 2001 ___________________________________________ Talbert O. Shaw /s/ R. C. Soles, Jr. Director March 7, 2001 ___________________________________________ R. C. Soles, Jr. /s/ David L. Ward, Jr. Director March 7, 2001 ___________________________________________
David L. Ward, Jr. 49 EXHIBIT INDEX *3.1 Certificate of Incorporation of the Registrant, as amended 3.2 Bylaws of the Registrant, as amended *4.1 Specimen of Registrant's Class A Common Stock certificate *4.2 Specimen of Registrant's Class B Common Stock certificate *10.1 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Fourth Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated October 26, 1998, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Lewis R. Holding *10.2 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Fourth Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated October 26, 1998, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding *10.3 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 1, 1986, as amended by the Fourth Amendment of Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated October 26, 1998, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and James B. Hyler, Jr. *10.4 Employee Death Benefit and Post-Retirement Non-Competition and Consultation Agreement, dated January 23, 1996, as amended by the First Amendment of Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement, dated October 26, 1998, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B. Holding, Jr. *10.5 Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement dated January 22, 1996, as amended by the First Amendment of Employee Death Benefit and Post-Retirement Noncompetition and Consultation Agreement, dated October 26, 1998, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Joseph A. Cooper, Jr. *10.6 Second Death Benefit and Post-Retirement Non-Competition and Consultation Agreement dated April 28, 1997, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick *10.7 Consulting Agreement dated February 17, 1988, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick *10.11 Employment Agreement dated August 4, 1995, between Registrant's subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash *10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe Homestead Bank, Inc. SSB ("Edgecombe"), and Brent D. Nash, which agreement was ratified by Registrant upon its acquisition of Edgecombe *10.13 Article IV Section 4.1.d of the Agreement and Plan of Reorganization and Merger by and among First Investors Savings Bank, Inc., SSB, First- Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1995, located at page II-38 of Registrant's S-4 Registration Statement filed with the SEC on December 19, 1994 (Registration No. 33-84514) *10.14 Article IV Section 4.1.e of the Agreement and Plan of Reorganization and Merger by and among State Bank and First-Citizens Bank & Trust Company and First Citizens BancShares, Inc., dated October 25, 1995, located at page I-36 of Registrant's S-4 Registration Statement filed with the SEC on November 16, 1994 (Registration No. 33-86286) *10.16 Amended and Restated Trust Agreement of FCB/NC Capital Trust I *10.17 Form of Guarantee Agreement *10.18 Junior Subordinated Indenture between Registrant and Bankers Trust Company, as Debenture Trustee 22 Subsidiaries of the Registrant 99 Proxy Statement for Registrant's 2001 Annual Meeting (previously filed) - ------- * Incorporated by reference from a previous filing COPIES OF EXHIBITS ARE AVAILABLE UPON WRITTEN REQUEST TO KENNETH A. BLACK, CHIEF FINANCIAL OFFICER OF FIRST CITIZENS BANCSHARES, INC. 50 EX-3.2 2 0002.txt BYLAWS, AS AMENDED EXHIBIT 3.2 BYLAWS OF FIRST CITIZENS BANCSHARES, INC. (As last amended October 23, 2000) Index ----- ARTICLE I Offices ------- Section 1. Principal Office Section 2. Registered Offices Section 3. Other Offices ARTICLE II Meetings of Shareholders ------------------------ Section 1. Place of Meetings Section 2. Annual Meetings Section 3. Special Meetings Section 4. Notice of Meetings Section 5. Voting Lists Section 6. Quorum Section 7. Proxies Section 8. Voting of Shares Section 9. Informal Action By Shareholders Section 10. Presiding Officer Section 11. Notice of Shareholder Business and Nominations Section 12. Conduct of Meetings ARTICLE III Directors --------- Section 1. General Powers Section 2. Number, Term and Qualifications Section 3. Election of Directors Section 4. Removal Section 5. Vacancies Section 6. Chairman of the Board Section 7. Compensation Section 8. Committees of the Board ARTICLE IV Meetings of Directors --------------------- Section 1. Regular Meetings Section 2. Special Meetings Section 3. Notice of Meetings Section 4. Quorum Section 5. Manner of Acting Section 6. Informal Action by Directors ARTICLE V Executive Committee ------------------- Section 1. Membership and General Powers Section 2. Vacancies Section 3. Removal Section 4. Minutes Section 5. Responsibility of Directors Section 6. Ex Officio Members Section 7. Chairman of the Executive Committee ARTICLE VI Executive Management Group -------------------------- Section 1. Membership and Duties ARTICLE VII Officers -------- Section 1. Number Section 2. Election and Term Section 3. Removal Section 4. Compensation Section 5. Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, and President Section 6. Vice Chairman Section 7. President Section 8. Executive Vice Presidents, Senior Vice Presidents and Other Vice Presidents Section 9. Secretary Section 10. Assistant Secretaries Section 11. Treasurer Section 12. Assistant Treasurers Section 13. Other Officers Section 14. Bonds ARTICLE VIII Contracts, Loans, Checks and Deposits ------------------------------------- Section 1. Contracts Section 2. Loans Section 3. Checks and Drafts Section 4. Deposits ARTICLE IX Certificates of Stock and Their Transfer ---------------------------------------- Section 1. Certificates of Stock Section 2. Transfer of Stock Section 3. Fixing Record Date Section 4. Lost Certificates Section 5. Registered Shareholders Section 6. Treasury Shares ARTICLE X General Provisions ------------------ Section 1. Dividends Section 2. Seal Section 3. Annual Statement Section 4. Notice and Waiver of Notice Section 5. Amendments Section 6. Fiscal Year Section 7. Indemnification Section 8. Disallowance of Deductions BYLAWS OF FIRST CITIZENS BANCSHARES, INC. (As last amended October 23, 2000) ARTICLE I Offices ------- Section 1. Principal Office: The principal office of the corporation ---------------- shall be located in Raleigh, Wake County, North Carolina. Section 2. Registered Offices: The registered office of the ------------------ corporation required by law to be maintained in the State of Delaware shall be located in Wilmington, New Castle County, Delaware. The registered office of the corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. Section 3. Other Offices: The corporation may have offices at such ------------- other places, either within or without the State of Delaware, as the Board of Directors from time to time may determine, or as the affairs of the corporation may require. ARTICLE II Meetings of Shareholders ------------------------ Section 1. Place of Meetings: All meetings of shareholders shall be ----------------- held at the principal office of the corporation or at such other place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or agreed upon by a majority of the shareholders entitled to vote thereat. Section 2. Annual Meetings: The annual meeting of shareholders shall --------------- be held at the designated location on such date during the first six months of each year as shall be determined by the Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, the President or the Board of Directors. The purpose of such annual meeting shall be to elect directors of the corporation and for the transaction of such other business as may properly be brought before the meeting. Section 3. Special Meetings: Special meetings of the shareholders ---------------- may be called at any time by the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President or Secretary, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors. Such written request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of shareholders shall be limited to the purpose stated in the notice. Section 4. Notice of Meetings: Written or printed notice stating the ------------------ place, day and hour of the meeting shall be delivered not less than ten nor more than sixty days before the date thereof, either personally or by mail, by or at the direction of the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, Secretary, or other person calling the meeting, to each shareholder of record entitled to vote at such meeting. In the case of an annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless such a statement is expressly required by the provisions of the General Corporation Law of the State of Delaware. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called. In the case of a special meeting called by the written request of a majority of the members of the Board of Directors or the written request of the holders of a majority in amount of the entire capital stock of the corporation issued, outstanding and entitled to vote, the notice also shall state that the meeting is being called upon such written request. When a meeting is adjourned for thirty (30) days or more, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. When a meeting is adjourned for less than thirty (30) days in any one adjournment, it is not necessary to give any notice of the adjourned meeting other than by announcement of the time and place thereof at the meeting at which the adjournment is taken. Section 5. Voting Lists: The officer who has charge of the stock ------------ ledger of the corporation shall prepare and make, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be opened to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 6. Quorum: The holders of a majority of the stock issued and ------ outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by the General Corporation Law of the State of Delaware or by the Certificate of Incorporation of the corporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2 The shareholders present at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 7. Proxies: Each shareholder entitled to vote at a meeting ------- of shareholders or to express consent or dissent to corporate action in writing without a meeting may vote in person or may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 8. Voting of Shares: Unless otherwise provided in the ---------------- Certificate of Incorporation and subject to the provisions of the General Corporation Law of the State of Delaware, each shareholder shall at every meeting of shareholders be entitled to one vote for each share of issued and outstanding capital stock held by such shareholder. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, any reference in these Bylaws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Voting on all matters except the election of directors shall be by voice vote or by a show of hands unless the holders of a majority of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter. Section 9. Informal Action by Shareholders: Unless otherwise ------------------------------- provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. Section 10. Presiding Officer: The succession order for purposes of ----------------- these Bylaws shall be: the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President in order of seniority, Vice President in order of seniority, and Secretary. In the event neither the Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, nor the President is present, the shareholders may elect a Chairman of the meeting. Section 11. Notice of Shareholder Business and Nominations: ---------------------------------------------- 3 (A) Annual Meetings of Shareholders. ------------------------------- (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders only (a) pursuant to the corporation's notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors, or (c) by any shareholder of the corporation who was a shareholder of record of the corporation at the time the notice provided for in this Section 11(A) is delivered to the Secretary of the corporation, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this Section 11(A). (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of this Section 11, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation and any such proposed business, other than the nominations of persons for election to the Board of Directors, must constitute a proper matter for shareholder action. To be timely, a shareholder's notice must be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 45th day, nor earlier than the close of business on the 90th day, prior to the first anniversary of the date that proxy statements were first mailed to the corporation's shareholders in conjunction with the preceding year's annual meeting (provided, however, that in the event that the date of the annual meeting is more than thirty days before or after the anniversary date of the preceding year's annual meeting, notice by the shareholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder, and such notice shall be accompanied by the written consent of each person whom the shareholder proposes to nominate to being nominated and to serving as a director if elected; (b) as to any other business that the shareholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought before the meeting, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the By-laws of the corporation, the language of the proposed amendment), (iii) a statement of the shareholder's reasons for desiring such business to be brought before the meeting, and (iv) any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and 4 (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of capital stock of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner, (iii) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve or adopt the proposal or elect the nominee, and/or (2) otherwise to solicit proxies from shareholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a shareholder if the shareholder has notified the corporation of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act and such shareholder's proposal has been included in a proxy statement that has been prepared by the corporation to solicit proxies for such annual meeting. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of that proposed nominee to serve as a director of the corporation. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 11 to the contrary, in the event that the number of directors of the corporation has been increased since the date of the preceding year's annual meeting, thereby creating one or more unfilled vacancies which will be filled at an annual meeting, and there is no public announcement by the corporation naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Section 11(A) regarding the nomination of persons for election as directors also shall be considered timely, but only with respect to nominees for the vacant additional directorships resulting from the increase in the number of directors, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (B) Special Meetings of Shareholders. Only such business -------------------------------- shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. If, as determined by the Board of Directors, the corporation's notice of meeting indicates that directors shall be elected at a special meeting, nominations of persons for election to the Board of Directors may be made at that meeting (1) by or at the direction of the Board of Directors or (2) by any shareholder of the corporation who is a shareholder of record at the time the notice provided for in this Section 11(B) is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and upon such election, and who complies with the notice procedures set forth in this Section 11(B). In the event the corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to fill the directorships to be voted upon at the meeting, as specified in the corporation's notice of meeting, if the shareholder's notice required by paragraph (A)(2) of this Section 11 shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and 5 not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a shareholder's notice as described above. (C) General. ------- (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 11 shall be eligible to be elected at an annual or special meeting of shareholders of the corporation to serve as directors, and only such business shall be considered, transacted or voted upon at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 11. Except as otherwise provided by law, the presiding officer or chairman of the meeting (as determined as provided in Section 10 of this Article II) shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 11 (including whether the shareholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited, or is part of a group which solicited, or did not so solicit, as the case may be, proxies in support of such shareholder's nominee or proposal in compliance with such shareholder's representation as required by clause (A)(2)(c)(iv) of this Section 11), and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 11, to declare that such nomination shall be disregarded or that such proposed business shall not be considered, transacted or voted upon. Notwithstanding the foregoing provisions of this Section 11, if the shareholder (or a qualified representative of the shareholder) does not appear at the annual or special meeting of shareholders of the corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be considered, transacted or voted upon, notwithstanding that a written notice of such nomination or proposed business has been received by the corporation in accordance with this Section 11 or that proxies in respect of such vote may have been received by the corporation. (2) For purposes of this Section 11, and with respect to any annual or special meeting of shareholders, "public announcement" of the date of such meeting or of nominees proposed by the Board of Directors to be elected as directors at such meeting shall include disclosure of the meeting date or nominees in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document (including without limitation a Current Report on Form 8-K) publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act, or the mailing by the corporation to shareholders entitled to vote at the meeting of a proxy statement disclosing the date of the meeting or the names of such nominees. (3) Notwithstanding the foregoing provisions of this Section 11, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of shareholders (a) to request inclusion of proposals of business in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act, or (b) of the holders of any series of preferred stock that may be issued from time to time to elect directors pursuant to any applicable provisions of the certificate of incorporation. 6 Section 12. Conduct of Meetings: The time of the opening and the ------------------- closing of the polls for each matter upon which the shareholders will vote at an annual or special meeting of shareholders shall be announced at the meeting by the presiding officer or chairman of the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of a meeting of shareholders, or of meetings of shareholders in general, as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as are adopted by the Board of Directors, the presiding officer or chairman of any meeting of shareholders shall have the right and authority to convene and to adjourn the meeting and to prescribe such rules, regulations and procedures, and take all such other actions, as in his or her judgment are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer or chairman of the meeting, may include, without limitation: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to shareholders of record of the corporation, their duly authorized and constituted proxies, or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding officer or chairman at any meeting of shareholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business (including without limitation the nomination of a person for election as a director) was not properly brought before or made at the meeting and if such presiding officer or chairman should so determine, he or she shall so declare to the meeting and any such matter or business (including any nomination) not properly brought before or made at the meeting shall not be considered, transacted or voted upon. Unless and to the extent determined by the Board of Directors or the presiding or chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE III Directors --------- Section 1. General Powers: The business and affairs of the corporation -------------- shall be managed by the Board of Directors or by such Committees of the Board as the Board may establish pursuant to these Bylaws. The directors shall have and exercise full power in the management and conduct of the business and affairs of the corporation and do all such lawful acts and things as are not by statute, or by Certificate of Incorporation, or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2. Number, Term and Qualifications: The number of directors of ------------------------------- the corporation shall be not less than five nor more than thirty. The directors, by a majority vote of the remaining directors, though less than a quorum, or by the sole remaining director, shall determine the exact number of directors which shall be not less than five nor more than thirty without a Bylaw modification. Each director shall hold office until his death, resignation, retirement, removal, disqualification, or until his successor is elected and qualified. Directors need not be residents of the State of Delaware nor shareholders of the corporation; provided, however, that not less than three- fourths (3/4) of the directors shall be residents of the State of North Carolina and stock ownership for qualification shall be subject to North Carolina law. 7 Section 3. Election of Directors: Except as provided in Section 5 of this --------------------- Article, the directors shall be elected by written ballot at the annual meeting of the shareholders and those persons who receive the highest number of votes shall be deemed to have been elected. Section 4. Removal: Any director may be removed from office, with or ------- without cause, by a vote of shareholders holding a majority of the shares entitled to vote at an election of directors. If any directors are so removed, new directors may be elected at the same meeting. Section 5. Vacancies: Vacancies and newly created directorships resulting --------- from any increase in the authorized number of directors may be filled by a majority vote of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any shareholder or shareholders owning at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 6. Chairman of the Board: There may be a Chairman of the Board of --------------------- Directors elected by the directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board. Section 7. Compensation: The Board of Directors may compensate directors ------------ for their services as such and may provide for the payment of all expenses incurred by directors in attending regular and special meetings of the Board. Members of special or standing committees of the Board of Directors may be allowed like compensation for attending such committee meetings. Section 8. Committees of the Board: The Board of Directors may, by ----------------------- resolution adopted by a majority of the whole Board, designate one or more committees of the Board, each committee to consist of two or more directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution and these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it, except as limited by the provisions of the General Corporation Law of the State of Delaware; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors or as set forth in these Bylaws. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 8 ARTICLE IV Meetings of Directors --------------------- Section 1. Regular Meetings: A regular meeting of the Board of Directors ---------------- shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings, one of which shall be held in each calendar quarter. Section 2. Special Meetings: Special meetings of the Board of Directors ---------------- may be called by or at the request of the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President or any two directors. Such meetings may be held either within or without the State of Delaware. Section 3. Notice of Meetings: Regular meetings of the Board of Directors ------------------ may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least one day before the meeting, give notice thereof by any usual means of communication. Such notice need not specify the purpose for which the meeting is called, unless a statement of the specific purpose is otherwise required by these Bylaws. Section 4. Quorum: A majority of the Board of Directors as established by ------ the Bylaws and fixed by the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 5. Manner of Acting: Except as otherwise provided in these ---------------- Bylaws, or as specifically provided by statute or by the Certificate of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Informal Action by Directors: Unless otherwise restricted by ---------------------------- the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of a committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or the committee, whether done before or after the action so taken. ARTICLE V Executive Committee ------------------- Section 1. Members and General Powers: A majority of the qualified -------------------------- members of the Board of Directors then in office may, by proper resolution, appoint an Executive Committee which shall 9 be composed of not less than three nor more than seven directors who shall have and exercise the powers of the Board of Directors in the management of the business affairs of the corporation, except at such time as the Board of Directors is in session. However, the Board of Directors shall have the power to direct, limit or control said Executive Committee by resolution at any special or regular meeting or by general rules adopted for its guidance. The Executive Committee shall not have any authority to take any action prohibited by the General Corporation Law of the State of Delaware; provided, however, that such Executive Committee shall have the power to declare dividends and to authorize the issuance of stock. A majority of the members of the Executive Committee shall constitute a quorum. Further, the Executive Committee shall have authority to take informal action by written consent as provided in Article IV, Section 6 for the Board of Directors. Section 2. Vacancies: Any vacancy occurring on the Executive Committee --------- shall be filled by the vote of a majority of the number of qualified directors at a regular or special meeting of the Board of Directors. Section 3. Removal: Any member of the Executive Committee may be removed ------- at any time with or without cause by a majority of the number of qualified directors then in office. Section 4. Minutes: The Executive Committee shall keep regular minutes of ------- its proceedings and report the same to the Board when required. Section 5. Responsibility of Directors: The designation of an Executive --------------------------- Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or him by law. If such action taken by the Executive Committee is not thereafter formally considered by the full Board, a director may dissent from such action by filing his written objection with the Secretary with reasonable promptness after learning of such action. Section 6. Ex Officio Members: A majority of the qualified members of the ------------------ Board of Directors then in office may, by proper resolution, appoint one or more ex officio members of the Executive Committee; provided, however, that such ex officio members shall not be included or counted in the regular membership of the Executive Committee nor included in the requirements for a quorum as set forth in Section 1 above, nor shall the attendance of such ex officio members be required at any regular or special meeting of the Executive Committee nor shall such persons be required to execute written consent minutes in order for the Executive Committee to take informal action as provided in Article IV, Section 6. Each ex officio member appointed by the Board will be eligible to vote at any regular or special meeting of the Executive Committee at which such ex officio member is in attendance. Section 7. Chairman of the Executive Committee: A Chairman of the ----------------------------------- Executive Committee shall be elected by the members of the Board of Directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Executive Committee and perform such other duties as may be directed by the Executive Committee. ARTICLE VI 10 Executive Management Group -------------------------- Section 1. Membership and Duties: The Executive Management Group of the --------------------- corporation shall consist of the Chairman of the Board and the Executive Vice Chairman of the Board, who shall be the Chief Executive Officers of the corporation. The Executive Management Group shall carry into effect all legal directives of the Board of Directors or the Executive Committee and shall at all times exercise general supervision over the interests, affairs and obligations of the corporation and perform all duties with reference to or incident to their offices, subject to such regulations and restrictions as the Board of Directors shall from time to time determine. Each member of the Executive Management Group shall be an ex officio member of all committees to which said Executive Management Group member is not specifically appointed. ARTICLE VII Officers -------- Section 1. Number: The officers of the corporation shall consist of a ------ Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, and Secretary and may also consist of one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, and other specially designated Vice Presidents or Assistant Vice Presidents as may be determined by the Board of Directors, and such Assistant Secretaries and other officers as may be deemed necessary or advisable by the Board of Directors, each of which officers or assistant officers thereto shall have such powers as may be delegated to them by the Board of Directors, the Executive Management Group and these Bylaws. Any two or more offices may be held by the same person, except that no officer may act in more than one capacity where action of two or more officers is required. Section 2. Election and Term: The officers of the corporation shall be ----------------- elected by the Board of Directors. Such elections may be held at any regular or special meeting of the Board. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or until his successor is duly elected and qualified. Section 3. Removal: Any officer or agent elected or appointed by the ------- Board of Directors may be removed by the affirmative vote of a majority of the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Compensation: The compensation of all officers of the ------------ corporation shall be fixed by the Board of Directors or as delegated by the Board of Directors. Section 5. Chairman of the Board, Executive Vice Chairman of the Board, ------------------------------------------------------------ Vice Chairman of the Board, and President: The Chairman of the Board shall - ----------------------------------------- preside at all meetings of the Board of Directors and the meetings of shareholders. In his absence or disability, the Executive Vice Chairman shall perform the duties of the Chairman of the Board at all such meetings. In the absence or disability of both the Chairman of the Board and the Executive Vice Chairman of the Board, the Vice Chairman of the Board shall perform such duties. In the absence of all of the Chairman of the Board, Executive Vice Chairman of the Board, and the Vice Chairman of the Board, the President shall perform such duties. 11 The Chairman of the Board and the Executive Vice Chairman of the Board, being the members of the Executive Management Group, shall, subject to the control of the Board of Directors, supervise, control and manage the corporation and shall be jointly responsible to the Board for the carrying out of the Executive Management Group functions. The Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, and the President, or any one of them, shall sign, with any other proper officer, certificates for shares of the corporation and any deeds, leases, mortgages, bonds, contracts or other instruments which may be lawfully executed on behalf of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors, the Chairman of the Board or the Executive Management Group to some other officer or agent. The Chairman of the Board, the Executive Vice Chairman of the Board, the Vice Chairman of the Board, and the President, and each of them, may, when exercising the authority granted in this Section, use the title of "President"; and all documents signed on behalf of the corporation by any such person, for purposes of, among other things, N.C. Gen. Stat. (S) 47-18.3, shall be deemed to have been signed by the President of the corporation. Section 6. Vice Chairman: The Vice Chairman shall be the chief operating ------------- officer of the corporation and, subject to the control of the Board of Directors, the Chairman of the Board and the Executive Management Group, shall operate, administer and supervise the management of the corporation in accordance with these Bylaws. The Vice Chairman shall sign, with any other proper officer, all documents referred to in Section 5 above and in general, he shall perform all duties incident to the office of Vice Chairman and such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or the Executive Management Group from time to time. Section 7. President: The President shall be the principal staff officer --------- of the corporation and, subject to the control of the Board of Directors, the Chairman of the Board, the Executive Management Group, and the Vice Chairman of the Board, shall direct, administer and supervise all of the staff and support functions of the corporation in accordance with these Bylaws. The President shall sign, with any other proper officer, all documents referred to in Section 5 above, and, in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Executive Management Group or the Vice Chairman from time to time. Section 8. Executive Vice Presidents, Senior Vice Presidents and other ----------------------------------------------------------- Vice Presidents: The duties of the Executive Vice Presidents, the Senior Vice - --------------- Presidents and other Vice Presidents shall be to perform the tasks assigned and exercise the powers of the office given to them as directed by the Board of Directors, the Executive Management Group, the Chairman of the Board and the Vice Chairman of the Board, and to have such other powers as the Board of Directors shall prescribe. Section 9. Secretary: The Secretary shall attend and keep accurate --------- records of the acts and proceedings of all meetings of shareholders and directors. He shall give or cause to be given all notices required by law and by these Bylaws. He shall have general charge of the corporate books and records and of the corporate seal, and he shall affix the corporate seal to any lawfully executed instrument requiring it. He shall have general charge of the stock transfer books of the corporation and shall keep, at the registered or principal office of the corporation, a record of shareholders showing the name and address of each shareholder and the number and class of the shares held by 12 each. He shall sign such instruments as may require his signature and shall perform such other duties as may be assigned to him by the Vice Chairman, the Executive Management Group or the Board of Directors. The Secretary shall sign, with the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, or a Vice President, or other authorized officer, certificates for shares of the corporation. Section 10. Assistant Secretaries: In the absence of the Secretary or in --------------------- the event of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretaries, unless otherwise determined by the Board of Directors, shall perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary. They shall perform such other duties as may be assigned to them by the Secretary, the Vice Chairman, the Executive Management Group or the Board of Directors. Any Assistant Secretary may sign, with the Chairman of the Board, Executive Vice Chairman of the Board, Vice Chairman of the Board, President, or a Vice President, or other authorized officer, certificates for shares of the corporation. Section 11. Treasurer: The Treasurer shall have custody of all funds and --------- securities belonging to the corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He shall keep full and accurate accounts of the finances of the corporation and shall render to the Vice Chairman and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. The Treasurer, in general, shall perform all duties incident to his office and such other duties as may be assigned to him from time to time by the Vice Chairman, the Executive Management Group or the Board of Directors. Section 12. Assistant Treasurers: In the absence of the Treasurer or in -------------------- the event of his death, inability, or refusal to act, the Assistant Treasurers in the order of their length of service as Assistant Treasurers, unless otherwise determined by the Board of Directors, shall perform the duties of the Treasurer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Treasurer. They shall perform such other duties as may be assigned to them by the Treasurer, the Vice Chairman, the Executive Management Group or the Board of Directors. Section 13. Other Officers: The duties of all officers and employees not -------------- defined and enumerated in the Bylaws shall be prescribed and fixed by the Executive Management Group and the Vice Chairman and in carrying out the authority to do all other acts necessary to be done to carry out the prescribed duties unless otherwise ordered by the Board of Directors, including but not limited to the power to sign, certify or endorse notes, certificates of indebtedness, deeds, checks, drafts or other contracts for and on behalf of the corporation and/or to affix the seal of the corporation to such documents as may require it. Section 14. Bonds: The Board of Directors may by resolution require any ----- or all officers, agents and employees of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors. 13 ARTICLE VIII Contracts, Loans, Checks and Deposits ------------------------------------- Section 1. Contracts: The Board of Directors may authorize any officer or --------- officers, agent or agents, to enter into any contract, lease, or to execute and deliver any instrument on behalf of the corporation, and such authority may be general or confined to specific instances. The Board of Directors may enter into employment contracts for any length of time it deems wise. Section 2. Loans: No loans shall be contracted on behalf of the ----- corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or specific in nature and scope. Section 3. Checks and Drafts: All checks, drafts or other orders for the ----------------- payment of money issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as from time to time shall be determined by resolution of the Board of Directors. Section 4. Deposits: All funds of the corporation not otherwise employed -------- from time to time shall be deposited to the credit of the corporation in such depositories as the Board of Directors shall direct. ARTICLE IX Certificates of Stock and Their Transfer ---------------------------------------- Section 1. Certificates of Stock: Certificates representing stock in the --------------------- corporation shall be issued in such form as the Board of Directors shall determine to every shareholder for the fully paid shares owned by him; such stock certificates shall indicate thereon a reference to any and all restrictive conditions of said stock. These certificates shall be signed by the Chairman of the Board, or the Executive Vice Chairman of the Board, or the Vice Chairman of the Board, or the President, or any Vice President and the Secretary, an Assistant Secretary, Treasurer or an Assistant Treasurer or may have facsimile signatures of such officers placed thereon and such officers shall have the power to make or order to be made by an authorized officer or transfer agent any and all transfers of the securities of the corporation. They shall be consecutively numbered or otherwise identified; and the name and address of the persons to whom they are issued, with the number of shares and the date of issue, shall be entered on the stock transfer books of the corporation. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such an officer, transfer agent or registrar at the date of issue. Section 2. Transfer of Stock: Transfer of stock shall be made on the ----------------- stock transfer books of the corporation only upon surrender of the certificates for the shares sought to be transferred by the registered holder thereof or by his duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued. 14 Upon surrender to the corporation or its transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation or its transfer agent to issue a new certificate to the person entitled thereto, to cancel the old certificate and to record the transaction upon its books. Section 3. Fixing Record Date: In order that the corporation may ------------------ determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost Certificates: The Board of Directors may authorize and ----------------- direct the issuance of a new share certificate or certificates in place of a certificate or certificates claimed to have been lost, stolen or destroyed, upon receipt of an affidavit to such fact from the person claiming the loss, theft or destruction. When authorizing such issuance of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the claimant, or his legal representative, to advertise the same in such manner as it may require and/or to give the corporation a bond in such sum as the Board may direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost, stolen or destroyed; or the Board may, by resolution reciting the circumstances justifying such action, authorize the issuance of the new certificate or certificates without requiring such a bond. Section 5. Registered Shareholders: The corporation shall be entitled to ----------------------- recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to interest in such share or shares on the part of any other person, whether or not it shall have express or other notice hereof, except as otherwise provided by the laws of Delaware. Section 6. Treasury Shares: Treasury shares of the corporation shall --------------- consist of such shares as have been issued and thereafter acquired but not cancelled by the corporation. Treasury shares shall not carry voting or dividend rights. ARTICLE X General Provisions ------------------ Section 1. Dividends: Dividends upon the capital stock of the --------- corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors or the Executive Committee at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. 15 Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Seal: The corporate seal of the corporation shall have ---- inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 3. Annual Statement: The Board of Directors shall present at each ---------------- annual meeting, and at any special meeting of the shareholders when called for by majority vote of the shareholders, a full and clear statement of the business and condition of the corporation. Section 4. Notice and Waiver of Notice: Whenever any notice is required --------------------------- to be given to any shareholder or director under the provisions of the General Corporation Law of the State of Delaware or under the provisions of the Certificate of Incorporation or Bylaws of this corporation, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, telephone, telecopier or other electronic communication media. Whenever notice is required to be given under the provisions of the General Corporation Law of the State of Delaware or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. The attendance by a director at a meeting of the Board or a committee of the Board shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Amendments: Except as otherwise provided herein, these Bylaws ---------- may be altered, amended or repealed and new bylaws may be adopted at any regular meeting of the Board of Directors or the shareholders, or at any special meeting of the Board of Directors or shareholders if notice of such alteration, amendment, repeal or adoption, be contained in the notice of said special meeting. Section 6. Fiscal Year: The fiscal year of the corporation shall be fixed ----------- by the Board of Directors. Section 7. Indemnification: The corporation shall indemnify its officers, --------------- directors, employees and agents to the maximum extent permitted by the General Corporation Law of the State of Delaware. 16 Section 8. Disallowance of Deductions: Any payments made to or on behalf -------------------------- of an officer or director of the corporation, including salary, commission, bonus, interest, rent or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense of the corporation by the Internal Revenue Service (and such determination shall be acceded to by the corporation, or such determination shall be rendered final by the appropriate taxing authority, or a judgment of a court of competent jurisdiction and no appeal shall be taken therefrom, or the applicable period for filing notice of appeal shall have expired), then such sum shall be reimbursed by such officer or director to the corporation to the full extent of such disallowance. It shall be the duty of the Board of Directors to enforce the payment of any such sum disallowed and such repayment may not be waived. However, in lieu of such direct payment by the officer or director involved to the corporation, and subject to the determination of the Board of Directors in its sole discretion, proportionate amounts may be withheld from future compensation payments of such officer or director until the amount owed to the corporation as a result of such disallowance has been fully recovered. 17 -----END PRIVACY-ENHANCED MESSAGE-----