<PAGE>
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (under Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
First Citizens BancShares, Inc.
(Name of Registrant as Specified In Its Charter)
First Citizens BancShares, Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEES (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1996
NOTICE is hereby given that the Annual Meeting of Shareholders of First
Citizens BancShares, Inc. ("BancShares") will be held as follows:
<TABLE>
<S> <C>
Place: First-Citizens Bank & Trust Company
Second Floor Conference Room
239 Fayetteville Street Mall
Raleigh, North Carolina
Date: Monday, April 22, 1996
Time: 1:00 p.m.
</TABLE>
The purposes of the meeting are:
1. To elect a 25-member Board of Directors, each member to hold office for
a term of one year or until his or her respective successor is duly
elected and qualified.
2. To ratify the appointment of KPMG Peat Marwick LLP as BancShares'
independent public accountants for 1996.
3. To transact any other business that may properly come before the Annual
Meeting.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ENSURE THE PRESENCE OF A QUORUM, ALL SHAREHOLDERS, EVEN THOUGH THEY
PLAN TO ATTEND, ARE URGED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED FOR THAT PURPOSE.
THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT AND VOTE IN
PERSON IF YOU ATTEND THE MEETING.
By Order of the Board of Directors
(Signature of Alexander G. McFadyen, Jr.)
ALEXANDER G. MACFADYEN, JR., Secretary
March 13, 1996
<PAGE>
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Citizens BancShares, Inc.
("BancShares") for use at the Annual Meeting of Shareholders of BancShares to be
held in the Second Floor Conference Room, Raleigh Main Office, First-Citizens
Bank & Trust Company, 239 Fayetteville Street Mall, Raleigh, North Carolina, at
1 o'clock p.m. on April 22, 1996, or any adjournments thereof. In addition to
solicitation by mail, proxies may be solicited personally or by telephone by
directors, officers or employees of BancShares and its subsidiary,
First-Citizens Bank & Trust Company ("Bank"). Expenses of such proxy
solicitation will be paid by BancShares. Persons named in the proxy to represent
shareholders at the meeting are: Lewis R. Holding, Frank B. Holding, James B.
Hyler, Jr., Frank B. Holding, Jr., Lewis T. Nunnelee, II, and David L. Ward, Jr.
This Proxy Statement is first being mailed to shareholders on March 13, 1996.
A proxy form that is properly executed and returned, and not revoked, will
be voted in accordance with the instructions contained in the proxy. If no
instructions are given, the proxy will be voted FOR the slate of 25 nominees
named herein for election to the Board of Directors, and FOR ratification of the
appointment of KPMG Peat Marwick LLP as BancShares' independent public
accountants for 1996. On such other matters as may properly come before the
meeting, the proxy will be voted in accordance with the best judgment of the
persons named in the proxy to represent the shareholders. If any nominee is
unable to serve, the proxy may be voted for a person designated by the Board of
Directors to replace such nominee. A shareholder who executes a proxy has the
right to revoke it at any time before it is voted by filing with the Secretary
of BancShares either an instrument revoking the proxy or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and requesting the
right to vote in person.
RECORD DATE; VOTING SECURITIES
March 1, 1996, is the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. At the Annual Meeting
shareholders will be entitled to cast the number of votes to which they are
entitled based on the shares of BancShares' voting securities standing of record
in their respective names at the close of business on that date.
As of March 1, 1996, BancShares had issued and outstanding: 9,639,129
shares of Class A Common Stock, $1 par value per share, each share being
entitled to one vote on each matter submitted for voting and on each director to
be elected, and 1,766,464 shares of Class B Common Stock, $1 par value per
share, each share being entitled to 16 votes on each matter submitted for voting
and on each director to be elected.
In the voting on each proposal described in this Proxy Statement (other
than the election of directors) abstentions will have the same effect as votes
against the proposal, but broker non-votes will have no effect.
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
As of March 1, 1996, the shareholders identified in the following table
beneficially owned more than 5% of one or both classes of BancShares' voting
securities:
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES*
<S> <C> <C> <C>
Claire Holding Bristow 50,995(1) 100,812(1) 4.39%
Summerville, SC (.53%) (5.71%)
George H. Broadrick 1,265,048(2) 325,916(2) 17.10%
Charlotte, NC (13.12%) (18.45%)
Hope Holding Connell 39,569(3) 109,197(3) 4.72%
Raleigh, NC (.41%) (6.18%)
Elizabeth C. Holding 51,153(4) 100,885(4) 4.39%
Washington, DC (.53%) (5.71%)
Frank B. Holding 2,580,922(5) 633,977(5) 33.57%
Smithfield, NC (26.78%) (35.89%)
Frank B. Holding, Jr. 55,475(6) 105,943(6) 4.62%
Raleigh, NC (.58%) (6.00%)
Lewis R. Holding 1,200,946(7) 328,494(7) 17.04%
Lyford Cay, Bahamas (12.46%) (18.60%)
Olivia B. Holding 48,656(8) 104,015(8) 4.52%
Raleigh, NC (.50%) (5.89%)
</TABLE>
* This column reflects the aggregate votes attributable to the combined shares
of Class A and Class B beneficially owned by each principal shareholder
listed above, as a percentage of the aggregate votes that may be cast by the
holders of all shares of BancShares' outstanding voting securities.
(1) Claire Holding Bristow exercises sole voting and investment power as to
45,995 shares of Class A and 99,562 shares of Class B held on her own
behalf. She exercises shared voting and investment power as to an additional
5,000 shares of Class A and 1,250 shares of Class B held in a trust for her
benefit in a nominee name by the Bank's Trust Department. All of such shares
also are included in the beneficial ownership shown above for her father,
Frank B. Holding, who disclaims beneficial ownership as to such shares.
(2) George H. Broadrick exercises sole voting and investment power as to 55,742
shares of Class A held on his own behalf and as to 953,806 shares of Class A
and 262,041 shares of Class B held by him as sole trustee of two irrevocable
trusts for the benefit of the adult daughters of Lewis R. Holding. He
exercises shared voting and investment power as to 245,500 shares of Class A
and 61,375 shares of Class B held by him and Carolyn S. Holding as
co-trustees of four irrevocable trusts for the benefit of Lewis R. Holding's
adult daughters, which shares also are included in the beneficial ownership
of Lewis R. Holding. Mr. Broadrick disclaims beneficial ownership as to
10,000 shares of Class A and 2,500 shares of Class B included above and
owned by his spouse.
(3) Hope Holding Connell exercises sole voting and investment power as to 33,469
shares of Class A and 101,722 shares of Class B held on her own behalf. She
disclaims beneficial ownership as to 1,200 shares of Class A and 6,250
shares of Class B held by her spouse on his own behalf and/or as custodian
for their minor son. She exercises shared voting and investment power as to
an additional 4,900 shares of Class A and 1,225 shares of Class B held in a
trust for her benefit in a nominee name by the Bank's Trust Department. All
of such shares also are included in the beneficial ownership shown above for
her father, Frank B. Holding, who disclaims beneficial ownership as to such
shares.
(4) Elizabeth C. Holding exercises sole voting and investment power as to 46,153
shares of Class A and 99,635 shares of Class B held on her own behalf. She
exercises shared voting and investment power as to an additional 5,000
shares of Class A and 1,250 shares of Class B held in a trust for her
benefit in a nominee name by the Bank's Trust Department. All of such shares
also are included in the beneficial ownership shown above for her father,
Frank B. Holding, who disclaims beneficial ownership as to such shares.
(5) Frank B. Holding exercises sole voting and investment power as to 1,638,050
shares of Class A held on his own behalf. He disclaims beneficial ownership
as to 318,124 shares of Class A and 514,677 shares of Class B held by his
spouse,
2
<PAGE>
adult son and daughters and their spouses, and 24,700 shares of Class A and
6,175 shares of Class B held in a nominee name by the Bank's Trust
Department for the benefit of his adult son and daughters, all of which
shares are included above. He exercises shared voting and investment power
as to an aggregate of 600,048 shares of Class A and 113,125 shares of Class
B held by the following corporations and other entities which, for
beneficial ownership purposes, are deemed controlled by Mr. Holding: First
Citizens Bancorporation of South Carolina, Inc. (183,600 shares of Class A
and 45,900 shares of Class B); Fidelity BancShares (N.C.), Inc. (100,000
shares of Class A); Southern BancShares (N.C.), Inc. (19,100 shares of Class
A and 19,775 shares of Class B); Southern Bank and Trust Company (46,000
shares of Class A); Goshen, Inc. (54,000 shares of Class A); The Heritage
Bank (23,628 shares of Class A); Yadkin Valley Company (4,995 shares of
Class A and 1,725 shares of Class B); Yadkin Valley Life Insurance Company
(700 shares of Class A and 175 shares of Class B); Twin States Farming, Inc.
(4,900 shares of Class A and 1,225 shares of Class B); The Robert P. Holding
Foundation, Inc., a charitable foundation of which Mr. Holding is a director
(132,796 shares of Class A and 36,525 shares of Class B); and in a nominee
name by the Bank's Trust Department (30,329 shares of Class A and 7,800
shares of Class B held in a fiduciary capacity for the benefit of various
third parties). Included in Frank B. Holding's beneficial ownership are
268,820 shares of Class A and 46,225 shares of Class B also shown as
beneficially owned by his brother, Lewis R. Holding, of which 30,329 shares
of Class A and 7,800 shares of Class B also are included in the beneficial
ownership of James B. Hyler, Jr. (See "OWNERSHIP OF SECURITIES BY
MANAGEMENT"), and an aggregate of 245,848 shares of Class A and 520,852
shares of Class B also are included in the ownership of his adult son and
daughters, each of whom is listed individually in the table above.
(6) Frank B. Holding, Jr. exercises sole voting and investment power as to
40,095 shares of Class A and 85,318 shares of Class B held on his own behalf
and 6,780 shares of Class A and 18,750 shares of Class B held by him as
custodian for his minor children. He exercises shared voting and investment
power as to an additional 4,900 shares of Class A and 1,225 shares of Class
B held in a trust for his benefit in a nominee name by the Bank's Trust
Department, and he disclaims beneficial ownership as to 3,700 shares of
Class A and 650 shares of Class B included above and held by his spouse. All
of such shares also are included in the beneficial ownership shown above for
his father, Frank B. Holding, who disclaims beneficial ownership as to such
shares.
(7) Lewis R. Holding exercises sole voting and investment power as to 610,935
shares of Class A and 207,706 shares of Class B held on his own behalf. He
disclaims beneficial ownership as to certain shares included above and held
by his spouse individually (48,963 shares of Class A and 12,025 shares of
Class B); by his spouse and George H. Broadrick as co-trustees of four
irrevocable trusts for the benefit of his adult daughters (245,500 shares of
Class A and 61,375 shares of Class B) and by his adult daughters (26,728
shares of Class A and 1,163 shares of Class B). He exercises shared voting
and investment power as to an aggregate of 265,125 shares of Class A and
44,825 shares of Class B held by the following corporations and other
entities which, for beneficial ownership purposes, are deemed controlled by
Mr. Holding: Fidelity BancShares (N.C.), Inc. (100,000 shares of Class A);
Yadkin Valley Company (4,995 shares of Class A and 1,725 shares of Class B);
Yadkin Valley Life Insurance Company (700 shares of Class A and 175 shares
of Class B); The Robert P. Holding Foundation, Inc., a charitable foundation
of which Mr. Holding is a director (132,796 shares of Class A and 36,525
shares of Class B); and in a nominee name by the Bank's Trust Department
(30,329 shares of Class A and 7,800 shares of Class B held in a fiduciary
capacity for the benefit of various third parties). Included in Lewis R.
Holding's beneficial ownership are 268,820 shares of Class A and 46,225
shares of Class B also shown as beneficially owned by his brother, Frank B.
Holding, of which 30,329 shares of Class A and 7,800 shares of Class B also
are included in the beneficial ownership of James B. Hyler, Jr. (See
"OWNERSHIP OF SECURITIES BY MANAGEMENT").
(8) Olivia B. Holding exercises sole voting and investment power as to 43,756
shares of Class A and 102,790 shares of Class B held on her own behalf. She
exercises shared voting and investment power as to an additional 4,900
shares of Class A and 1,225 shares of Class B held in a trust for her
benefit in a nominee name by the Bank's Trust Department. All of such shares
also are included in the beneficial ownership shown above for her father,
Frank B. Holding, who disclaims beneficial ownership as to such shares.
3
<PAGE>
OWNERSHIP OF SECURITIES BY MANAGEMENT
As of March 1, 1996, the beneficial ownership of BancShares' voting
securities by the directors, nominees for director, certain named executive
officers, and by all directors, nominees and executive officers as a group, of
BancShares and the Bank was as follows:
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP* CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES**
<S> <C> <C> <C>
John M. Alexander, Jr. 1,434 (1) 225 (1) .01%
Raleigh, NC (.01%) (.01%)
Ted L. Bissett 7,265 (2) 1,375 (2) .08%
Spring Hope, NC (.08%) (.08%)
B. Irvin Boyle 700 175 .01%
Charlotte, NC (.01%) (.01%)
George H. Broadrick 1,265,048 (3) 325,916 (3) 17.10%
Charlotte, NC (13.12%) (18.45%)
H. Max Craig, Jr. 12,299 (4) 3,550 (4) .18%
Stanley, NC (.13%) (.20%)
Betty M. Farnsworth 1,561 (5) 250 .01%
Pilot Mountain, NC (.02%) (.01%)
Lewis M. Fetterman 12,995 (6) 2,750 (6) .15%
Clinton, NC (.13%) (.16%)
Frank B. Holding 2,580,922 (7) 633,977 (7) 33.57%
Smithfield, NC (26.78%) (35.89%)
Frank B. Holding, Jr. 55,475 (8) 105,943 (8) 4.62%
Raleigh, NC (.58%) (6.00%)
Lewis R. Holding 1,200,946 (9) 328,494 (9) 17.04%
Lyford Cay, Bahamas (12.46%) (18.60%)
Charles B. C. Holt 2,570 (10) -0- .01%
Fayetteville, NC (.03%)
Edwin A. Hubbard 15,248 (11) -0- .04%
Sanford, NC (.16%)
James B. Hyler, Jr. 35,695 (12) 7,900 (12) .43%
Raleigh, NC (.37%) (.45%)
Gale D. Johnson 481 50 .01%
Dunn, NC (.01%) (.01%)
Freeman R. Jones 4,100 250 .02%
Midland, NC (.04%) (.01%)
Lucius S. Jones 1,000 -0- .01%
Wendell, NC (.01%)
I. B. Julian 13,000 3,500 .18%
Fayetteville, NC (.13%) (.20%)
Joseph T. Maloney, Jr. 22,452 5,400 .29%
Fayetteville, NC (.23%) (.31%)
J. Claude Mayo, Jr. 1,000 -0- .01%
Rocky Mount, NC (.01%)
William McKay 1,083 (13) -0- .01%
Flat Rock, NC (.01%)
Brent D. Nash 12,502 (14) -0- .03%
Tarboro, NC (.13%)
Lewis T. Nunnelee, II 600 450 .02%
Wilmington, NC (.01%) (.03%)
James M. Parker 1,002 (15) -0- .01%
Raleigh, NC (.01%)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP* CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES**
<S> <C> <C> <C>
Talbert O. Shaw 119 -0- .01%
Raleigh, NC (.01%)
R. C. Soles, Jr. 13,838 -0- .04%
Tabor City, NC (.14%)
David L. Ward, Jr. 28,600 (16) 8,638 (16) .44%
New Bern, NC (.30%) (.49%)
All directors, nominees for 4,701,748 (17) 1,207,650 (17) 63.38%(17)(18)
director and executive (48.76%) (18) (68.37%)
officers as a group (36
persons)
</TABLE>
* Except as otherwise stated in the footnotes following this table, shares
shown as beneficially owned, to the best of BancShares' management's
knowledge, are owned directly by the persons named and such persons
exercise sole voting and investment power with respect to those shares.
** This column reflects the aggregate votes attributable to the combined shares
of Class A and Class B beneficially owned by each director, nominee, and
executive officer, and by the group, as a percentage of the aggregate votes
that may be cast by the holders of all shares of BancShares' outstanding
voting securities.
(1) John M. Alexander, Jr. exercises sole voting and investment power as to 534
shares of Class A held on his own behalf. He exercises shared voting and
investment power as to 900 shares of Class A and 225 shares of Class B held
of record by Raleigh Tractor & Truck Company, of which he is President.
(2) Ted L. Bissett exercises sole voting and investment power as to 5,581
shares of Class A and 1,075 shares of Class B held on his own behalf. He
exercises shared voting and investment power as to 1,684 shares of Class A
and 300 shares of Class B held by his children.
(3) For an explanation of the nature of the beneficial ownership of George H.
Broadrick, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (2).
(4) H. Max Craig, Jr. exercises sole voting and investment power as to 699
shares of Class A and 400 shares of Class B held on his own behalf. He
exercises shared voting and investment power as to 11,600 shares of Class A
and 3,150 shares of Class B held by Gaston County Dyeing Machine Company,
of which he is President and Chairman of the Board.
(5) Betty M. Farnsworth exercises sole voting and investment power as to 1,461
shares of Class A and 250 shares of Class B held on her own behalf. She
disclaims beneficial ownership as to 100 shares of Class A held by an adult
son.
(6) Lewis M. Fetterman exercises sole voting and investment power as to 10,146
shares of Class A and 2,200 shares of Class B held on his own behalf. He
disclaims beneficial ownership as to 2,849 shares of Class A and 550 shares
of Class B included above and held in trust for his spouse.
(7) For an explanation of the nature of the beneficial ownership of Frank B.
Holding, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (5).
(8) For an explanation of the nature of the beneficial ownership of Frank B.
Holding, Jr., see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (6).
(9) For an explanation of the nature of the beneficial ownership of Lewis R.
Holding, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (7).
(10) Charles B. C. Holt exercises sole voting and investment power as to 1,966
shares of Class A held on his own behalf. He exercises shared voting and
investment power as to 139 shares of Class A held by him as Trustee of the
Holt Oil Company, Inc. Retirement Plan, and disclaims beneficial ownership
as to 465 shares of Class A held by his spouse.
(11) Edwin A. Hubbard exercises sole voting and investment power as to 8,586
shares of Class A held on his own behalf. He disclaims beneficial ownership
as to 6,662 shares of Class A held by his spouse.
(12) James B. Hyler, Jr. exercises sole voting and investment power as to 4,805
shares of Class A and 100 shares of Class B held on his own behalf. In
addition, he holds options exercisable within 60 days to buy 561 shares of
Class A.
5
<PAGE>
He exercises shared voting and investment power as to certain shares held
in a nominee name by the Trust Department of the Bank, which shares, for
beneficial ownership purposes, are deemed controlled by Mr. Hyler (30,329
shares of Class A and 7,800 shares of Class B held in a fiduciary capacity
for the benefit of various third parties); such shares also are included in
the beneficial ownership shown above for Lewis R. Holding and Frank B.
Holding.
(13) William McKay exercises sole voting and investment power as to 939 shares
of Class A held on his own behalf. He exercises shared voting and
investment power as to 144 shares of Class A held jointly with his spouse.
(14) Brent D. Nash exercises sole voting and investment power as to 5,731 shares
of Class A held on his own behalf. He disclaims beneficial ownership as to
5,685 shares of Class A owned by his spouse and 1,086 shares of Class A
owned by his daughter.
(15) James M. Parker exercises sole voting and investment power as to 451 shares
of Class A held on his own behalf, and holds options exercisable within 60
days to buy an additional 551 shares of Class A.
(16) David L. Ward, Jr. exercises sole voting and investment power as to 24,100
shares of Class A and 7,513 shares of Class B held on his own behalf. He
exercises shared voting and investment power as to 1,000 shares of Class A
and 250 shares of Class B held by him and J. Troy Smith, Jr. as Co-Trustees
of the Ward and Smith, P.A. Profit-Sharing Trust. He disclaims beneficial
ownership as to 3,500 shares of Class A and 875 shares of Class B owned by
his spouse.
(17) Certain numbers of shares included in the beneficial ownership of Frank B.
Holding, Lewis R. Holding, James B. Hyler, Jr. and Frank B. Holding, Jr.
are reflected separately in the beneficial ownership of each of such
individuals, but are included only once in the beneficial ownership shown
for the group.
(18) Includes a total of 3,852 shares of Class A as to which the executive
officers included in the group hold options that may be exercised within 60
days. The calculation of the percentage of Class A beneficially owned by
the group, including the named executive officers, and the percentage of
combined Class A and Class B total votes is based on the 9,639,129 shares
of Class A outstanding at March 1, 1996, plus the 3,852 shares of Class A
capable of being issued within 60 days to the executive officers in the
group upon the exercise of their stock options pursuant to the 1994
Employee Stock Purchase Plan. No stock options were issued to non-employee
members of the Board of Directors or to Lewis R. Holding, Frank B. Holding,
or Frank B. Holding, Jr.
6
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
BancShares' Bylaws provide for not less than five nor more than 26
directors. Within those limits, the Board of Directors has the authority to
establish the number of directors to be elected each year and has set the number
of directors at 25 for election at the Annual Meeting. No more than 25 directors
may be elected at this meeting and the 25 nominees receiving the highest numbers
of votes will be deemed to have been elected.
The persons named below have been nominated by the Board of Directors for
election as directors of BancShares. Each nominee currently serves as a director
of BancShares and has been nominated to be reelected for a term of one year or
until resignation, retirement, death or until his or her respective successor
has been duly elected and qualified:
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
John M. Alexander, Jr. (2) Director 1990 President and Chief Operating Officer,
46 Cardinal International Trucks, Inc.
(truck dealer)
Ted L. Bissett Director 1970 President, F.D. Bissett & Son, Inc. (farm
59 supplies)
B. Irvin Boyle Director 1980 Attorney, of Counsel to Johnston, Taylor,
84 Allison & Hord; former Senior Partner
of Boyle & Alexander (attorneys)
George H. Broadrick (2) Director, Chairman of 1975 Retired President and Consultant,
73 Executive Committee First-Citizens Bank & Trust Company and
and Consultant First Citizens BancShares, Inc.
H. Max Craig, Jr. (2) Director 1981 President and Chairman of the Board,
65 Gaston County Dyeing Machine Company
(textile machinery manufacturing)
Betty M. Farnsworth Director 1985 Homemaker and former Director, Farmers
69 Bank, Pilot Mountain, N.C.
Lewis M. Fetterman Director 1980 President and Owner, Fetterman Group and
74 LMF Consulting & Marketing Co.;
Assistant to President, Heartland
Enterprises, Inc.; Director, Lundy
Packing Co.; former Chief Executive
Officer, Fetterman Farms, Ltd.,
Innovative Pork Concepts, Indiana
Packers Co. and IPC Genetics
(agribusiness)
Frank B. Holding (2)(3) Executive Vice 1962 Executive Vice Chairman of the Board
67 Chairman of the (former Vice Chairman), First-Citizens
Board Bank & Trust Company and First Citizens
BancShares, Inc.; Vice Chairman of the
Board (former President),
First-Citizens Bank and Trust Company
of South Carolina and First Citizens
Bancorporation of South Carolina, Inc.
Frank B. Holding, Jr. (2)(3) President and 1993 President, First Citizens BancShares,
34 Director Inc. and First-Citizens Bank & Trust
Company (former Area Vice President;
prior to that, Regional Vice President,
First-Citizens Bank & Trust Company)
Lewis R. Holding (3) Chairman of the Board 1957 Chairman of the Board, First-Citizens
68 Bank & Trust Company and First Citizens
BancShares, Inc.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
Charles B. C. Holt Director 1995 Secretary/Treasurer (former President),
63 Holt Oil Company, Inc. (wholesale
petroleum products distributor); former
Chairman of the Board, State Bank,
Fayetteville, NC
Edwin A. Hubbard Director 1996 Retired Businessman; Chairman of the
77 Board and Co-Owner, Stroud-Hubbard
Company, Inc. (retail shoe company);
former Chairman of the Board, Allied
Bank Capital, Inc. and Summit Savings
Bank, Inc., SSB, Sanford, NC
James B. Hyler, Jr. Vice Chairman of the 1988 Vice Chairman of the Board and Chief
48 Board Operating Officer (former President),
First-Citizens Bank & Trust Company and
First Citizens BancShares, Inc.
Gale D. Johnson, M.D. Director 1974 Retired Surgeon; Director, Health
76 Affairs, Campbell University; former
President, Gale D. Johnson, M.D., P.A.
Freeman R. Jones Director and Chairman 1974 President, EFC Corporation (real estate
69 of Salary Committee investment)
Lucius S. Jones Director 1994 President and Owner, United Realty &
53 Construction Company, Inc. (residential
construction, sales and development);
former Vice Chairman of the Board,
Pioneer Bancorp, Inc. and Pioneer
Savings Bank, Inc., Rocky Mount, NC
I. B. Julian Director 1977 Retired Executive and former Consultant,
88 First-Citizens Bank & Trust Company
Joseph T. Maloney, Jr. Director 1976 Private Investor
66
J. Claude Mayo, Jr. Director 1994 Retired Owner, Mayo Insurance Agency;
68 former Chairman of the Board, Pioneer
Bancorp, Inc. and Pioneer Savings Bank,
Inc., Rocky Mount, NC
William McKay Director 1991 Retired President, Chief Executive
70 Officer and Director, First Federal
Savings Bank, Hendersonville, NC
Brent D. Nash Director 1995 Senior Vice President, First-Citizens
60 Bank & Trust Company; former President,
Chief Executive Officer and Director,
Edgecombe Homestead Savings Bank, Inc.,
SSB, Tarboro, NC
Lewis T. Nunnelee, II Director 1979 Chairman of the Board and former
70 President, Coastal Beverage Company,
Inc. (wholesale beer distributor)
Talbert O. Shaw, Ph.D. Director 1993 President, Shaw University (educator)
68
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
R. C. Soles, Jr. Director 1995 Attorney and Partner, Soles, Phipps, Ray
61 & Prince (attorneys); Senator, North
Carolina Senate; former Chairman of the
Board, First Investors Savings Bank,
Inc., SSB, Whiteville, NC
David L. Ward, Jr. (2)(4) Director and Chairman 1971 Senior Attorney and President, Ward and
60 of Audit Committee Smith, P.A. (attorneys)
</TABLE>
(1) The term "Year First Elected" refers to the year in which a director first
became a director of BancShares or its predecessor, First Citizens
Corporation, or, if elected prior to the formation of First Citizens
Corporation in 1982, of the Bank.
(2) The following directors of BancShares also serve as directors of other
publicly held companies or their subsidiaries, as follows: John M.
Alexander, Jr. serves as a director of North Carolina Railroad Company,
Raleigh, N.C.; George H. Broadrick and Frank B. Holding serve as directors
of First Citizens Bancorporation of South Carolina, Inc., Columbia, S.C.; H.
Max Craig, Jr. serves as a director of Public Service Company of North
Carolina, Inc., Gastonia, N.C.; Frank B. Holding serves as a director of
Southern BancShares (N.C.), Inc., Mount Olive, N.C.; Frank B. Holding, Jr.
serves as a director of North Carolina Natural Gas Corporation,
Fayetteville, N.C.; and David L. Ward, Jr. serves as a director of Carolina
Telephone and Telegraph Company, Wake Forest, N.C., a subsidiary of Sprint
Corp.
(3) Lewis R. Holding and Frank B. Holding are brothers; Frank B. Holding, Jr. is
the son of Frank B. Holding and the nephew of Lewis R. Holding.
(4) The law firm of Ward and Smith, P.A., New Bern, N.C., of which David L.
Ward, Jr. is Senior Attorney and President, served as General Counsel for
BancShares and the Bank during 1995, which relationship is expected to
continue through 1996. BancShares and the Bank paid $2,078,884 in legal fees
to Ward and Smith, P.A. during 1995.
DIRECTORS' FEES AND COMPENSATION
For their services as directors, each member of the Board of Directors
(except Messrs. L. Holding, F. Holding, J. Hyler, F. Holding, Jr. and E.
Hubbard) receives an annual retainer of $10,000, plus $500 for attendance at
each meeting of the Board and $500 for attendance at each meeting of a committee
that is held on a day other than in conjunction with a meeting of the Board.
In addition to, or in lieu of, such director's fees, certain BancShares'
directors receive other compensation from BancShares or the Bank, as follows:
William McKay receives compensation in addition to the regular director's
fees described above pursuant to various arrangements related to the Bank's 1991
acquisition of First Federal Savings Bank, Hendersonville, N.C. ("First
Federal"). The acquisition was effected pursuant to an agreement which provided
that the former directors of First Federal would serve as local advisory
directors for the Bank and receive for such services a monthly fee of $700
(which is equal to the directors' fees previously paid by First Federal) until
June 1994, plus an additional semiannual fee of $625 until January 1996. Mr.
McKay served as Chairman of First Federal at the time of the acquisition and
receives fees pursuant to this special arrangement as well as the fees described
above for his services as a member of the Boards of Directors of BancShares and
the Bank. Additionally, at the time of the acquisition, Mr. McKay (as well as
certain other directors of First Federal) was a party to two agreements (entered
into during 1985 and 1987) with First Federal providing for retirement benefits.
Pursuant to the 1985 agreement, Mr. McKay deferred $300 per month of his
directors' fees paid by First Federal for a period of five years and became
entitled to a monthly retirement benefit of $1,249 for a period of ten years,
commencing during 1990. Pursuant to the 1987 agreement, Mr. McKay began
receiving a monthly retirement benefit of $835 during August 1992, which
benefits will continue for a period of ten years. The Bank assumed First
Federal's obligations for these payments as part of the acquisition.
9
<PAGE>
Brent D. Nash receives compensation in addition to the regular director's
fees described above pursuant to various arrangements related to the 1994 merger
of Edgecombe Homestead Savings Bank, Inc., SSB, Tarboro, N.C. ("Edgecombe") into
the Bank. The merger was effected pursuant to an agreement providing that Mr.
Nash, the former President, Chief Executive Officer and a director of Edgecombe,
would be appointed to the Board of Directors of BancShares. Pursuant to the
written agreement pertaining to the merger, as of the effective date of the
merger the Bank and Mr. Nash also entered into an employment agreement providing
for his employment as a Senior Vice President in the Bank's Tarboro office at a
salary of $113,000 per year. The employment agreement also includes various
noncompetition and nonsolicitation covenants by Mr. Nash, provides normal
employee benefits and has a term continuing to January 12, 2001, when Mr. Nash
will reach age 65. Following that date, Mr. Nash will begin receiving retirement
benefits pursuant to the Bank's Pension Plan. In addition, he will receive
retirement payments pursuant to an agreement with Edgecombe, whereby he deferred
his director's fees of $300 per month over a five year period in return for
payments of $1,300 per month for a period of 120 months after age 65. The Bank
assumed Edgecombe's responsibilities for such retirement payments as part of the
merger.
R. C. Soles, Jr. became a director of BancShares and the Bank in connection
with the 1995 merger of First Investors Savings Bank, Inc., SSB, Whiteville,
N.C. ("First Investors") into the Bank. Mr. Soles served as Chairman of the
Board of First Investors prior to the merger. The written agreement pertaining
to the merger provided that Mr. Soles would be appointed to the Board of
Directors of BancShares and that the former directors of First Investors,
including Mr. Soles, would become local advisory directors for the Bank and
receive for such services a fee of $835 per quarter until February 23, 2000. Mr.
Soles receives such fees for serving as a local advisory director in addition to
the normal director's fees described above.
Charles B. C. Holt became a director of BancShares and the Bank in
connection with the 1995 merger of State Bank, Fayetteville, N.C. ("State Bank")
into the Bank. Mr. Holt served as Chairman of the Board of State Bank prior to
the merger. The written agreement pertaining to the merger provided that Mr.
Holt would be appointed to the Board of Directors of BancShares and that the
former directors of State Bank, including Mr. Holt, would become local advisory
directors for the Bank and receive for such services a monthly fee of $250 until
March 2, 1998. Mr. Holt receives such fees for serving as a local advisory
director in addition to the normal director's fees described above.
Edwin A. Hubbard receives special compensation, in lieu of the standard
BancShares' director's fees described above, pursuant to an arrangement related
to BancShares' February 14, 1996 acquisition of Allied Bank Capital, Inc.,
Sanford, N.C. ("Allied"). Mr. Hubbard served as Chairman of the Board of Allied.
Pursuant to the Allied acquisition agreement, Mr. Hubbard was selected by
BancShares to serve as a member of the Boards of BancShares and the Bank and
will receive a monthly fee of $3,250 (which is equal to the directors' fees
previously paid by Allied) until the end of his fourth elected term as a
director of BancShares. Also, Mr. Hubbard (as well as certain other directors of
Allied) was a participant in Allied's Independent Directors' Retirement Plan,
which provides for monthly retirement benefits. Pursuant to the Plan, Mr.
Hubbard will receive $1,200 per month for a period of ten years following
BancShares' acquisition of Allied. The Bank assumed Allied's obligations for
these retirement payments as part of the merger.
George H. Broadrick, since his retirement as President of the Bank in 1987,
has received additional compensation of $50 per hour, plus expenses, for
services rendered pursuant to a consulting agreement with the Bank. In addition,
Mr. Broadrick receives benefits under the Bank's Pension Plan and (for a period
of 10 years following his retirement) payments of $4,778 per month pursuant to a
separate agreement with the Bank under which he has agreed to provide the Bank
with certain consultation services and that he will not "compete" (as defined in
the agreement) against the Bank during the period following his retirement.
Betty M. Farnsworth, Lucius S. Jones, I. B. Julian, Joseph T. Maloney, J.
Claude Mayo, and Lewis T. Nunnelee, II, also serve on the local advisory boards
of the Bank in their respective communities, and each receives quarterly fees of
$125 for attendance at such local advisory board meetings in addition to the
fees described above for their services as members of the Boards of Directors of
BancShares and the Bank.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of BancShares held four meetings in 1995. All
directors attended at least 75% of the aggregate number of meetings of
BancShares' Board of Directors and any committees on which they served during
their terms.
10
<PAGE>
BancShares' Board of Directors and the Bank's Board of Directors have the
same members. The Boards of Directors have several standing committees,
including a Salary Committee and an Audit Committee. BancShares' Board of
Directors does not have a standing nominating committee or any other committee
performing an equivalent function.
The Audit Committee of BancShares and the Bank consists of David L. Ward,
Jr. - Chairman, John M. Alexander, Jr., H. Max Craig, Jr., Betty M. Farnsworth,
and J. Claude Mayo, Jr. The Audit Committee oversees the establishment of the
scope and detail of the continuous audit program conducted by the Bank's
internal audit staff. The General Auditor of the Bank reports directly to the
Audit Committee and, at least quarterly, the Committee reviews reports on the
work of the internal audit staff, the Corporate Finance Department and the
Commercial Credit Administration Department. Subject to the approval of
BancShares' Board of Directors and ratification by the shareholders, the Audit
Committee engages a qualified firm of independent certified public accountants
to conduct an annual audit of BancShares' consolidated financial statements. It
receives written reports, supplemented by such oral reports as it deems
necessary, from such firm and reviews non-audit services proposed by management
to be provided by the accounting firm. During 1995, the Audit Committee held
four meetings.
The members of the Salary Committee and the Cash Incentive Plan Committee
of the Bank's Board of Directors are listed below. The Salary Committee provides
overall guidance for the officer compensation programs, including salaries and
other forms of compensation. At least annually, the Salary Committee reviews the
officer compensation programs, including salary, pension and such other employee
benefit matters as it deems appropriate. In conjunction with management, it
makes recommendations to the entire Board of Directors with regard to proposed
salaries and other forms of compensation, which recommendations are subject to
approval by the Board. During 1995, the Salary Committee held one meeting. The
Cash Incentive Plan Committee was appointed by the Board of Directors to make
recommendations regarding the payment of bonuses under the Cash Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Salary Committee are Freeman R.
Jones -- Chairman, Lewis M. Fetterman and Lewis T. Nunnelee, II.
The members of the Cash Incentive Plan Committee are Freeman R.
Jones -- Chairman, and George H. Broadrick. Mr. Broadrick retired as President
of BancShares and the Bank in 1987 and currently serves as Chairman of the
Executive Committees of BancShares and the Bank.
After receipt of the recommendations of the Salary Committee, the Board of
Directors makes all final decisions regarding executive compensation matters.
Members of the Board of Directors who are executive officers abstain from
participation in both the discussion of and the voting on such matters.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Bank's goal is to provide an executive compensation program that will
enable it to attract and retain qualified and motivated individuals as executive
officers. Currently, the Bank's executive compensation program includes: (a)
base salary, (b) a Section 423 employee stock purchase plan approved by
shareholders during 1994 under which a grant of options to purchase shares of
BancShares' Class A Common Stock was made during 1994 to all eligible employees
(including the executive officers named in the Summary Compensation Table below,
except Lewis R. Holding, Frank B. Holding and Frank B. Holding, Jr.), all of
which options expire on June 15, 1996; and (c) contributions to the individual
accounts of all participating employees (including executive officers) under the
Bank's Section 401(k) salary deferral plan. In addition, the Bank provides other
employee benefit and welfare plans customary for companies of its size.
Effective as of January 1995, the Salary Committee made recommendations to
the Board of Directors (and the Board of Directors made final decisions)
regarding the amounts of the 1995 salaries of Lewis R. Holding, Frank B.
Holding, James B. Hyler, Jr., and Frank B. Holding, Jr., and the maximum
aggregate amount for 1995 merit increases in the salaries of the Bank's other
officers and employees. With respect to Messrs. L. Holding, F. Holding, J.
Hyler, and F. Holding, Jr., the Committee's recommendations were based on its
evaluation of their individual levels of responsibility and performance and, in
the case of Mr. L. Holding in particular, his current leadership and direction
and his historical importance in the development and growth of both the Bank and
BancShares. With respect to the salaries of other executive officers, the Vice
Chairman, with the consent of the Chairman, was directed by the Board of
Directors to set 1995
11
<PAGE>
salaries on an individual merit basis. In connection with the Bank's normal
annual performance review system, the performance of each such other executive
officer is graded by the person to whom that officer reports. Based on the
results of each individual officer's performance appraisal, for 1995 the officer
could be awarded an annual merit increase of up to 8% of 1994 base salary.
However, the performance review process and, thus, the setting of salaries
largely are subjective and, except as described above, there are no specific
formulae, objective criteria or other such mechanism by which adjustments to the
salary of each executive officer (including Messrs. L. Holding, F. Holding, J.
Hyler and F. Holding, Jr.) are tied empirically to his individual performance or
to BancShares' financial performance.
The 1995 Cash Incentive Plan (the "1995 Plan") was approved by the Board of
Directors during January 1995 to provide an additional incentive (in the form of
the opportunity to receive cash bonuses) for management to perform at higher
levels and thereby improve BancShares' financial performance. Under the terms of
the Plan, if BancShares' return on shareholders' equity ("ROE") for 1995 was 12%
or higher, then the Cash Incentive Plan Committee could set aside a bonus pool
for the payment of cash bonuses in an aggregate amount of up to 1% of
BancShares' 1995 pre-tax income. However, as BancShares' ROE for 1995 was less
than 12%, no cash bonuses were approved for 1995 and the Board of Directors did
not approve a Cash Incentive Plan for 1996.
The amounts of contributions to the separate accounts of executive officers
under the Bank's 401(k) salary deferral plan and the amounts of stock options
granted to executive officers under the 1994 employee stock purchase plan were
determined solely by formulae under the terms of those plans. However, under tax
laws applicable to the employee stock purchase plan, Messrs. L. Holding, F.
Holding and F. Holding, Jr. were not eligible to be granted options because of
their ownership of stock possessing 5% or more of the total combined voting
power or value of all classes of BancShares' stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility of annual compensation in excess of $1,000,000 paid to certain
executive officers of public corporations. As none of BancShares' executive
officers receive annual compensation approaching that amount, BancShares' Board
of Directors has not yet adopted a policy with respect to Section 162(m).
Salary Committee: FREEMAN R. JONES, LEWIS M. FETTERMAN, LEWIS T. NUNNELEE,
II
Cash Incentive Plan Committee: FREEMAN R. JONES, GEORGE H. BROADRICK
12
<PAGE>
EXECUTIVE OFFICERS
The following individuals have been designated by the Boards of Directors
of BancShares and the Bank as "executive officers." All executive officers serve
at the pleasure of the Board of Directors and each has served for the past five
years in the capacities indicated, with the exceptions noted below:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lewis R. Holding 68 Chairman of the Board, BancShares and Bank (Chief Executive Officer)
Frank B. Holding 67 Executive Vice Chairman of the Board, BancShares and Bank; formerly Vice Chairman
James B. Hyler, Jr. 48 Vice Chairman of the Board, BancShares and Bank (Chief Operating Officer); formerly
President
Frank B. Holding, Jr. 34 President of BancShares and Bank (Chief Administrative Officer); formerly Area Vice
President and, prior to that, Regional Vice President of Bank
Kenneth A. Black 43 Vice President and Treasurer of BancShares; Group Vice President and Treasurer of Bank
(Chief Financial Officer); formerly General Vice President of Bank
Alexander G. MacFadyen, Jr. 54 Secretary of BancShares; Group Vice President and Secretary of Bank; previously
General Vice President of Bank
Wayne D. Duncan 54 Executive Vice President of Bank (Retail Lending); formerly Senior Regional Vice
President and, prior to that, Regional Vice President of Bank
John R. Francis, Jr. 42 Executive Vice President of Bank (Virginia Regional Executive); formerly President,
Community Bank Group, First Union National Bank, Roanoke, VA (successor by merger to
Dominion Bank, Roanoke, VA, of which he served as Vice President, Blue Ridge Group)
William C. Orr 53 Executive Vice President of Bank (Commercial Credit Administration); formerly Group
Vice President and, prior to that, General Vice President of Bank
James M. Parker 53 Executive Vice President of Bank (Eastern Regional Executive); formerly Regional Vice
President of Bank
Edward L. Willingham, IV 41 Executive Vice President of Bank (Central Regional Executive); formerly Regional Vice
President and, prior to that, Senior Vice President of Bank
J. Allen Woodward 45 Executive Vice President of Bank (Western Regional Executive); formerly Vice President
and Area Executive, First Union National Bank of North Carolina, Durham, NC
William J. Cathcart 56 Group Vice President of Bank (Trust Department); formerly General Vice President
Joseph A. Cooper, Jr. 42 Group Vice President and Chief Information Officer of Bank; formerly Associate
Partner, Andersen Consulting, Dallas, Texas; prior to that, Chief Technology Officer,
NationsBank of NC, Charlotte, NC
Richard H. Lane 51 Senior Vice President of Bank (General Auditor); formerly Audit Director and Vice
President of NCNB Corp., Charlotte, NC
</TABLE>
13
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the years ending December 31, 1995, 1994,
and 1993, the cash and certain other compensation paid to or received or
deferred by each of the five named executive officers of BancShares and the
Bank.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
OTHER RESTRICTED PAYOUTS
NAME AND ANNUAL STOCK OPTIONS/ LTIP
PRINCIPAL SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS
POSITION (1) YEAR ($)(2)(3) ($)(4) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis R. Holding 1995 528,971 -0- -0- -0- -0- -0-
Chairman of the Board 1994 504,247 29,669 -0- -0- -0- -0-
1993 471,274 41,593 -0- -0- -0- -0-
Frank B. Holding 1995 528,971 -0- -0- -0- -0- -0-
Executive Vice Chairman 1994 504,247 29,669 -0- -0- -0- -0-
of the Board 1993 471,274 41,593 -0- -0- -0- -0-
James B. Hyler, Jr. 1995 384,204 -0- -0- -0- -0- -0-
Vice Chairman of the Board 1994 365,474 21,546 -0- -0- 1,197 -0-
and Chief Operating Officer 1993 337,348 29,962 -0- -0- -0- -0-
Frank B. Holding, Jr. 1995 230,125 -0- -0- -0- -0- -0-
President and Chief 1994 210,333 12,900 -0- -0- -0- -0-
Administrative Officer 1993 (6) -- -- -- -- -- --
James M. Parker, 1995 179,856 -0- -0- -0- -0- -0-
Executive Vice President of the 1994 169,014 9,922 -0- -0- 551 -0-
Bank and Eastern Regional Executive 1993 162,314 14,311 -0- -0- -0- -0-
<CAPTION>
ALL
NAME AND OTHER
PRINCIPAL COMPENSATION
POSITION (1) ($)(5)
<S> <C>
Lewis R. Holding 9,240
Chairman of the Board 9,240
10,173
Frank B. Holding 9,240
Executive Vice Chairman 9,240
of the Board 10,173
James B. Hyler, Jr. 9,240
Vice Chairman of the Board 9,240
and Chief Operating Officer 10,173
Frank B. Holding, Jr. 7,406
President and Chief 5,214
Administrative Officer --
James M. Parker, 5,940
Executive Vice President of the 5,940
Bank and Eastern Regional Executive 6,617
</TABLE>
(1) Positions listed are the named executive officers' current positions with
BancShares and the Bank. See "Executive Officers" above for a listing of
each individual's previous positions.
(2) Includes amounts deferred at the election of each named executive officer
pursuant to the Bank's Section 401(k) salary deferral plan.
(3) Of the salary shown above as paid to Frank B. Holding during 1995, 1994, and
1993, the Bank was reimbursed certain amounts by two of its affiliates as
follows: First-Citizens Bank and Trust Company of South Carolina --
$86,214, $82,109 and $76,737, respectively; and Southern Bank and Trust
Company -- $68,791, $65,512 and $61,229, respectively. These payments were
made pursuant to agreements between the Bank and its affiliates whereby Mr.
Holding provides certain management services to the affiliates in return for
their reimbursement to the Bank of a portion of his salary.
(4) Consists entirely of awards paid under BancShares' annual cash incentive
plan.
(5) For 1995 and 1994, consists entirely of the Bank's matching contributions on
behalf of each named executive officer under the Bank's Section 401(k)
salary deferral plan; for 1993, consists of, respectively, the Bank's
matching contributions on behalf of each named executive officer, and the
portion of the Bank's discretionary profit sharing contribution allocated to
the individual account of each named executive officer, under the Bank's
Section 401(k) salary deferral plan as follows: Mr. L. Holding -- $8,994 and
$1,179; Mr. F. Holding -- $8,994 and $1,179; Mr. Hyler -- $8,994 and $1,179;
and Mr. Parker -- $5,782 and $835.
(6) Mr. F. Holding, Jr. first became an executive officer of the Bank in 1994.
EMPLOYEE STOCK PURCHASE PLAN
During 1994 options to purchase shares of BancShares Class A Common Stock
were granted to substantially all employees of BancShares and its subsidiaries
pursuant to the 1994 Employee Stock Purchase Plan (the "1994 Stock Plan"), which
was approved by shareholders at the 1994 Annual Meeting. No additional options
have been granted since 1994, and all options remaining unexercised as of June
15, 1996, will expire.
14
<PAGE>
The following table contains information with respect to the exercise of
stock options during 1995, and the value of options held at December 31, 1995,
by each named executive officer.
AGGREGATED OPTION EXERCISES IN 1995
AND DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS
SHARES OPTIONS AT AT DECEMBER
ACQUIRED VALUE DECEMBER 31, 1995 31, 1995
ON EXERCISE REALIZED (#) ($)(2)
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
Lewis R. Holding (3) -0- $ -0- -0- -0- $ -0-
Frank B. Holding (3) -0- -0- -0- -0- -0-
James B. Hyler, Jr. 561 8,581 561 4 9,703
Frank B. Holding, Jr. (3) -0- -0- -0- -0- -0-
James M. Parker -0- -0- 551 -0- 9,530
<CAPTION>
NAME UNEXERCISABLE
<S> <C>
Lewis R. Holding (3) $-0-
Frank B. Holding (3) -0-
James B. Hyler, Jr. 69
Frank B. Holding, Jr. (3) -0-
James M. Parker -0-
</TABLE>
(1) Represents the aggregate fair market value of shares acquired on the dates
options were exercised, minus the aggregate exercise or purchase price paid
for those shares (at $37.83 per share).
(2) Represents the aggregate fair market value at December 31, 1995, of shares
underlying unexercised options, minus the aggregate exercise or purchase
price of those shares (at $37.83 per share).
(3) Under the terms of the 1994 Stock Plan, Messrs. L. Holding, F. Holding and
F. Holding, Jr. were excluded from participation and were not granted any
options.
PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS
The following table shows the estimated benefits payable to a covered
participant at normal retirement age under the Bank's qualified defined benefit
pension plan (the "Pension Plan") based on various specified numbers of years of
service and various levels of covered compensation.
<TABLE>
<CAPTION>
FINAL
AVERAGE YEARS OF SERVICE
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 16,815 $ 25,223 $ 33,630 $ 42,038 $ 50,446 58,853 $ 64,853
125,000 21,440 32,160 42,880 53,601 64,321 75,041 82,541
150,000 26,065 39,098 52,130 65,163 78,196 91,228 100,228
175,000 30,690 46,035 61,380 76,726 92,071 107,416 117,916
200,000 35,315 52,973 70,630 88,288 105,946 120,000 120,000
225,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
250,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
300,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
400,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
450,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
500,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
550,000 38,872 58,307 77,743 97,179 116,615 120,000 120,000
</TABLE>
Benefits shown in the table are computed as straight life annuities
beginning at age 65 and are not subject to a deduction for Social Security
benefits or any other offset amount. A participant's compensation covered by the
Pension Plan includes base salary (including amounts deferred pursuant to the
Bank's Section 401(k) salary deferral plan) and bonuses, and the participant's
benefits are based on his "final average compensation" which is the
participant's highest average annual covered compensation for any five
consecutive years during his last ten complete calendar years as a plan
participant. However, under current tax laws, $150,000 is the maximum amount of
compensation for 1995 that can be included for purposes of calculating a
participant's "final average compensation". The estimated years of service and
"final average compensation", respectively, as of January 1, 1996, for each of
the named executive officers are as follows: Mr. L. Holding -- 42 years and
$245,189; Mr. F. Holding -- 39 years and $243,221; Mr. Hyler -- 16 years and
$216,942; Mr. F. Holding, Jr. -- 12 years and $112,931; Mr. Parker -- 29 years
and $154,146. During 1995, the maximum annual
15
<PAGE>
benefit permitted by tax laws for a retiring participant was $120,000 and the
maximum eligible final average compensation was $219,224.
In addition to benefits under the Pension Plan, each of certain senior
officers of BancShares and the Bank is party to a separate agreement with the
Bank under which the Bank has agreed to pay a specified monthly amount to the
officer for a period of ten years following his retirement at age 65 (or at such
other age as is agreed upon between the Bank and the officer). In return for
such payments, each officer has agreed that he will provide certain limited
consultation services to, and will not "compete"(as defined in the agreement)
against, the Bank during the period following his retirement. If the officer
dies during the period payments are being made under the agreement, the
remaining balance of payments due under the agreement will be paid to the
officer's designated beneficiary or his estate. The amounts of monthly payments
provided for in agreements currently in effect between the Bank and each of the
named executive officers are as follows: Mr. L. Holding -- $18,544; Mr. F.
Holding -- $18,544; Mr. Hyler -- $13,358; Mr. F. Holding, Jr. -- $8,466; and Mr.
Parker -- $4,134.
PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
(the "CTSR") on BancShares' Class A Common Stock during the previous five fiscal
years, with the CTSR over the same measurement period of the Nasdaq-U.S. index
and the Nasdaq Banks index. Each line graph assumes $100 invested on January 1,
1991, and that dividends were reinvested in additional shares.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG
FIRST CITIZENS BANCSHARES, INC., NASDAQ BANKS AND
NASDAQ-US COMPANIES INDICES
(The Performance Graph appears here. The plot points are listed in the table
below:)
Year + BancShares [ ] Nasdaq Banks * Nasdaq-US
1990 $100 $100 $100
1991 147 164 161
1992 274 239 187
1993 254 272 215
1994 242 271 210
1995 311 404 296
16
<PAGE>
TRANSACTIONS WITH MANAGEMENT
The Bank has banking transactions in the ordinary course of business with
certain of its directors, executive officers, principal shareholders and their
associates. All extensions of credit included in such transactions have been
approved by the Board of Directors and were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
Lewis R. Holding, Chairman and Chief Executive Officer of BancShares and
the Bank, and Frank B. Holding, Executive Vice Chairman of BancShares and the
Bank, also are principal shareholders of Southern BancShares (N.C.), Inc., Mount
Olive, North Carolina ("Southern"), of which Frank B. Holding also serves as a
director. During 1995, the Bank provided certain services to Southern's wholly
owned bank subsidiary for which the Bank was paid an aggregate of $2,002,962.
Services provided by the Bank included, without limitation, certain data and
item processing services, securities portfolio management services, internal
audit services, management consulting services, and service as trustee for
Southern's pension and Section 401(k) plans. During 1996, the projected payments
from Southern to the Bank for similar services, pursuant to various agreements
between the Bank, Southern and its subsidiary, will amount to approximately
$2,500,000.
Certain specific relationships or transactions with directors are described
above in footnote 4 to the table listing directors under the caption "PROPOSAL
1: ELECTION OF DIRECTORS".
PROPOSAL 2: RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the shareholders, the Board of Directors has
approved the engagement of KPMG Peat Marwick LLP ("Peat Marwick"), certified
public accountants, as BancShares' independent public accountants for 1996, and
a proposal to ratify that appointment will be submitted at the Annual Meeting.
Representatives of Peat Marwick are expected to be present at the Annual
Meeting and available to respond to appropriate questions and will have the
opportunity to make a statement if they so desire.
THE AUDIT COMMITTEE AND BOARD OF DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1996. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES
REPRESENTED, IN PERSON AND BY PROXY, AND ENTITLED TO BE CAST AT THE ANNUAL
MEETING IS REQUIRED FOR APPROVAL OF PROPOSAL 2.
PROPOSALS OF SHAREHOLDERS
Any proposal of a shareholder intended to be presented at the 1997 Annual
Meeting must be received by BancShares at its principal office in Raleigh, North
Carolina no later than November 30, 1996, in order that any such proposal be
timely received for inclusion in the proxy solicitation materials to be issued
in connection with that meeting. It is anticipated that the 1997 Annual Meeting
will be held on a date during April 1997.
ANNUAL REPORT ON FORM 10-K
BancShares is required to file with the Securities and Exchange Commission
an Annual Report on Form 10-K within 90 days following the end of each fiscal
year. ON OR AFTER MARCH 30, 1996, UPON WRITTEN REQUEST TO KENNETH A. BLACK,
CHIEF FINANCIAL OFFICER, CORPORATE FINANCE DEPARTMENT, FIRST-CITIZENS BANK &
TRUST COMPANY, POST OFFICE BOX 27131, RALEIGH, NORTH CAROLINA 27611-7131, BY A
SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING, A COPY OF BANCSHARES' ANNUAL
REPORT ON FORM 10-K FOR 1995, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES
THERETO, WILL BE FORWARDED WITHOUT CHARGE TO THE SHAREHOLDER MAKING SUCH
REQUEST.
17
<PAGE>
OTHER MATTERS
Management knows of no other business that will be brought before the
Annual Meeting or any adjournments thereof. Should other matters properly come
before the meeting, the persons named in the proxy to represent the shareholders
will vote in accordance with their best judgment on such matters.
By Order of the Board of Directors
(Signature of Alexander G. MacFadyen, Jr.)
ALEXANDER G. MACFADYEN, JR., SECRETARY
March 13, 1996
18
<PAGE>
1995 ANNUAL REPORT
19
<PAGE>
INTRODUCTION
Management's discussion and analysis of earnings and related financial data
are presented to assist in understanding the financial condition and results of
operations of First Citizens BancShares, Inc. ("BancShares"), for the years
1995, 1994 and 1993. BancShares is a bank holding company with three
wholly-owned banking subsidiaries -- First-Citizens Bank & Trust Company (the
"Bank"), a North Carolina-chartered bank (with branches in North Carolina and
Virginia), Bank of Marlinton ("Marlinton") and Bank of White Sulphur Springs
("WSS"), both of which are West Virginia-chartered banks. Marlinton was acquired
by BancShares in September 1994, while WSS was acquired during June 1995. This
discussion and related financial data should be read in conjunction with the
audited consolidated financial statements and related footnotes presented on
pages 39 through 58 of this report.
TABLE 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
SUMMARY OF OPERATIONS
Interest income........................................ $ 471,109 $ 376,005 $ 364,881 $ 390,380 $ 421,844
Interest income-taxable equivalent..................... $ 473,371 $ 377,858 $ 366,379 $ 391,668 $ 423,368
Interest expense....................................... 224,664 148,126 137,934 170,558 245,684
Net interest income-taxable equivalent................. 248,707 229,732 228,445 221,110 177,684
Taxable equivalent adjustment.......................... 2,262 1,853 1,498 1,288 1,524
Net interest income.................................... 246,445 227,879 226,947 219,822 176,160
Provision for loan losses.............................. 5,364 2,786 15,245 17,506 15,626
Net interest income after provision
for loan losses...................................... 241,081 225,093 211,702 202,316 160,534
Noninterest income..................................... 92,128 83,325 85,737 74,303 70,270
Noninterest expense.................................... 245,880 230,582 213,213 199,199 187,596
Income before income taxes............................. 87,329 77,836 84,226 77,420 43,208
Income taxes........................................... 30,423 26,867 28,641 25,657 14,027
Net income............................................. $ 56,906 $ 50,969 $ 55,585 $ 51,763 $ 29,181
SELECTED AVERAGE BALANCES
Total assets........................................... $6,846,959 $6,098,944 $5,576,179 $5,308,165 $5,084,615
Investment securities.................................. 1,611,549 1,599,565 1,522,715 1,522,571 1,597,060
Loans.................................................. 4,433,517 3,800,318 3,401,093 3,173,285 2,866,834
Interest-earning assets................................ 6,191,422 5,476,690 5,002,144 4,762,846 4,557,240
Deposits............................................... 5,952,090 5,335,057 4,894,319 4,684,982 4,491,509
Interest-bearing liabilities........................... 5,410,495 4,838,749 4,445,120 4,299,143 4,156,635
Long-term obligations.................................. 26,307 52,499 29,318 18,245 29,960
Shareholders' equity................................... $ 487,895 $ 416,983 $ 362,733 $ 307,818 $ 264,512
Shares outstanding..................................... 10,597,066 9,944,927 9,701,389 9,494,118 9,360,904
PROFITABILITY RATIOS (AVERAGES)
Rate of return (annualized) on:
Total assets......................................... 0.83% 0.84% 1.00% 0.98% 0.57%
Shareholders' equity................................. 11.66 12.22 15.32 16.82 11.03
Dividend payout ratio.................................. 15.36 14.13 10.91 9.63 13.62
LIQUIDITY AND CAPITAL RATIOS (AVERAGES)
Loans to deposits...................................... 74.49% 71.23% 69.49% 67.73% 63.83%
Shareholders' equity to total assets................... 7.13 6.84 6.51 5.80 5.20
Time certificates of $100,000 or more to total
deposits............................................. 8.33 6.41 5.81 6.36 7.88
PER SHARE OF STOCK
Net income............................................. $ 5.37 $ 5.13 $ 5.73 $ 5.45 $ 3.12
Cash dividends......................................... 0.825 0.725 0.625 0.525 0.425
Market price at December 31 (Class A).................. 55.125 43.50 46.50 50.75 27.50
Book value at December 31.............................. 48.60 44.11 39.84 34.74 29.97
Tangible book value at December 31..................... 41.75 39.97 36.53 33.25 28.15
</TABLE>
20
<PAGE>
SUMMARY
BancShares experienced an 11.6 percent increase in earnings during 1995,
compared to 1994. The increase was due to increased levels of net interest
income and noninterest income. These increases offset the growth in noninterest
expense during 1995. Consolidated net income amounted to $56.9 million during
1995, compared to $51 million during 1994 and $55.6 million during 1993. Net
income per share for the year ended December 31, 1995 totaled $5.37, compared to
$5.13 and $5.73 for 1994 and 1993, respectively. Return on average assets
totaled 0.83 percent, 0.84 percent and 1.00 percent during 1995, 1994 and 1993,
respectively.
An analysis of BancShares' financial condition and growth can be made by
examining the changes and trends in interest-earning assets and interest-bearing
liabilities, and a discussion of these changes and trends follows. The
information presented in Table 6 is useful in making such an analysis. Much of
BancShares' growth in recent years has resulted from various business
combinations. Table 2 details the significant transactions, all of which were
accounted for as purchases, with the results of operations included with
BancShares' Statements of Income since the respective acquisition dates.
TABLE 2
SIGNIFICANT ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
DATE INSTITUTION AND LOCATION ASSETS DEPOSITS
<S> <C> <C> <C>
(THOUSANDS)
June 1995 Bank of White Sulphur Springs $ 64,589 $ 59,174
White Sulphur Springs, West Virginia
May 1995 9 NationsBank of Virginia branches 133,175 143,494
Southern Virginia
March 1995 State Bank 49,700 41,238
Fayetteville, North Carolina
February 1995 Pace American Bank 58,660 53,303
Lawrenceville, Virginia
February 1995 First Investors Savings Bank, Inc., SSB 44,426 40,846
Whiteville, North Carolina
December 1994 First Republic Savings Bank, FSB 53,661 42,998
Roanoke Rapids, North Carolina
September 1994 Bank of Marlinton 51,646 46,647
Marlinton, West Virginia
August 1994 Edgecombe Homestead Savings Bank 39,181 30,195
Tarboro, North Carolina
March 1994 Bank of Bladenboro 21,316 19,515
Bladenboro, North Carolina
</TABLE>
INTEREST-EARNING ASSETS
Interest-earning assets averaged $6.19 billion during 1995, an increase of
$714.7 million or 13.1 percent over 1994 levels, compared to a 9.5 percent
increase in 1994 over 1993 levels. The higher levels of interest-earning assets
during 1995 resulted primarily from loan growth.
LOANS. As of December 31, 1995, gross loans outstanding were $4.58 billion,
a 10.4 percent increase over the December 31, 1994, balance of $4.15 billion.
During 1995, loans resulting from acquisitions totaled $170.4 million. Loan
balances for the last five years are provided in Table 3.
During 1995, average loans were $4.43 billion, an increase of $633.2
million or 16.7 percent over 1994, compared to an increase of $399.2 million or
11.7 percent in 1994 when compared to 1993. Loans secured by real estate and
loans to individuals experienced the strongest growth during 1995, expanding at
rates of 21.5 percent and 15.4 percent, respectively over 1994.
Loans secured by real estate averaged $2.75 billion during 1995, compared
to $2.27 billion during 1994. Much of the growth in average real estate secured
loans during 1995 was among commercial borrowers. Non-real estate commercial and
industrial loans experienced little growth during 1995, averaging $438 million
during the current year compared to $440.6 million in 1994.
21
<PAGE>
TABLE 3
LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land development.................... $ 104,540 $ 100,708 $ 117,693 $ 149,847 $ 164,676
Mortgage:
1-4 family residential............................ 1,438,655 1,296,713 1,138,254 1,036,425 905,858
Commercial........................................ 770,246 720,407 614,018 565,735 579,593
Equity Line....................................... 397,225 349,092 293,200 283,331 283,565
Other............................................. 129,292 109,069 56,029 47,860 50,898
Commercial and industrial.............................. 466,462 373,947 408,565 371,656 420,251
Consumer............................................... 1,199,400 1,119,994 889,260 706,286 677,815
Lease financing........................................ 59,899 60,598 45,398 35,634 30,680
Other.................................................. 15,000 17,605 22,574 11,101 10,470
Total............................................. 4,580,719 4,148,133 3,584,991 3,207,875 3,123,806
Less reserve for loan losses........................... 78,495 72,017 70,049 58,380 53,730
Net loans......................................... $4,502,224 $4,076,116 $3,514,942 $3,149,495 $3,070,076
</TABLE>
TABLE 4
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
WITHIN ONE TO FIVE AFTER
ONE YEAR YEARS FIVE YEARS TOTAL
<S> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land development.................................. $ 34,013 $ 65,191 $ 5,336 $ 104,540
Mortgage:
1-4 family residential.......................................... 256,047 589,151 593,457 1,438,655
Commercial...................................................... 250,443 480,508 39,295 770,246
Equity Line..................................................... 27,806 99,306 270,113 397,225
Other........................................................... 42,020 80,679 6,593 129,292
Commercial and industrial............................................ 173,489 267,377 25,596 466,462
Consumer............................................................. 395,968 782,569 20,863 1,199,400
Lease financing...................................................... 14,975 44,924 -- 59,899
Other................................................................ 4,866 9,196 938 15,000
Total........................................................... $1,199,627 $ 2,418,901 $ 962,191 $4,580,719
Loans maturing after one year with:
Fixed interest rates............................................... $ 1,627,398 $ 481,882 $2,109,280
Floating or adjustable rates....................................... 791,503 480,309 1,271,812
Total........................................................... $ 2,418,901 $ 962,191 $3,381,092
</TABLE>
Loans to individuals averaged $1.17 billion during 1995 compared to $1
billion during 1994. The retail installment loan products continue to be
attractive to individual borrowers wishing to finance purchases of new and used
vehicles. Management anticipates sustained growth among commercial loans during
1996, with retail loans increasing at more modest levels.
The fair value of loans outstanding as of December 31, 1995, net of the
loan loss reserve, was $21.4 million above the book value. As of December 31,
1994, the book value exceeded fair value by $103 million. The improvement in the
fair value relative to book is due changing market rates between the measurement
dates. To minimize the potential adverse impact of interest rate fluctuations,
management continuously monitors the maturity and repricing distribution of the
loan portfolio. BancShares also offers variable rate loan products and fixed
rate callable loans to ease the interest rate risk. Table 4 details the maturity
and repricing distribution as of December 31, 1995. Of the gross loans
outstanding on
22
<PAGE>
December 31, 1995, 26.2 percent have scheduled maturities within one year, 52.8
percent have scheduled maturities between one and five years, while the
remaining 21 percent have scheduled maturities extending beyond five years.
INVESTMENT SECURITIES. At December 31, 1995 and 1994, the investment
portfolio totaled $1.98 billion and $1.46 billion, respectively. In each period,
U.S. Government securities represented substantially all of the portfolio.
Investment securities averaged $1.61 billion during 1995, and $1.60 billion
during 1994 and $1.52 billion during 1993. The average balance of the investment
portfolio remained near 1994 levels during 1995, as deposit growth was
sufficient to fund loan demand. The weighted-average maturity of the investment
portfolio at December 31, 1995, was 15 months, compared to 11 months at December
31, 1994. Management modestly extended the average maturity of the securities
portfolio during 1995 to capture higher yields. At December 31, 1995, the fair
value of the Bank's investment portfolio was $8.6 million above book value. The
unrealized loss existing as of December 31, 1994, was $35.3 million. The
investment portfolio's fair value recovery during 1995 resulted from the
maturity of lower-yielding securities and the reinvestment at higher market
rates. Table 5 presents detailed information relating to the investment
portfolio.
TABLE 5
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
AVERAGE TAXABLE-
BOOK MARKET MATURITY EQUIVALENT BOOK MARKET BOOK MARKET
VALUE VALUE (YRS./MOS.) YIELD VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
U.S. Government:
Within one year........... $ 927,931 $ 930,120 0/6 5.30% $ 849,279 $ 838,341 $ 589,666 $ 594,620
One to five years......... 1,034,722 1,040,954 1/10 5.78 599,147 575,193 1,223,348 1,223,384
Five to ten years......... 2,305 2,258 7/5 5.94 2,496 2,281 -- --
Over ten years............ 7,171 7,198 18/6 7.30 3,029 2,918 1,257 1,252
Total.................. 1,972,129 1,980,530 1/3 5.56 1,453,951 1,418,733 1,814,271 1,819,256
State, county and municipal:
Within one year........... 1,324 1,328 0/3 7.27 361 364 100 102
One to five years......... 4,287 4,355 2/9 6.64 1,872 1,871 101 105
Five to ten years......... 2,227 2,323 6/0 7.48 2,370 2,314 -- --
Over ten years............ 195 195 21/8 9.00 -- -- -- --
Total.................. 8,033 8,201 3/9 7.03 4,603 4,549 201 207
Other:
Within one year........... 506 506 0/11 5.48 100 100 -- --
One to five years......... 2,425 2,424 2/1 9.27 -- -- -- --
Five to ten years......... 55 55 6/2 8.00 315 315 315 315
Total.................. 2,986 2,985 1/11 8.60 415 415 315 315
Total investment
securities........... $1,983,148 $1,991,716 1/3 5.57% $1,458,969 $1,423,697 $1,814,787 $1,819,778
</TABLE>
INCOME ON INTEREST-EARNING ASSETS. Table 6 analyzes the Bank's
interest-earning assets and interest-bearing liabilities for the five years
ended December 31, 1995. Table 9 identifies the causes for changes in interest
income and interest expense for 1995 and 1994. Taxable-equivalent interest
income amounted to $473.4 million during 1995, a $95.5 million increase from
1994 levels, compared to an $11.5 million increase from 1993 to 1994. Volume
growth contributed to the increase in interest income during both periods, while
higher interest rates during 1995 boosted yields on earning assets and
contributed to an increase in net interest income compared to 1994.
23
<PAGE>
TABLE 6
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1994
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, TAXABLE EQUIVALENT)
ASSETS
Loans:
Secured by real estate.................................... $2,752,463 $233,055 8.47 % $2,265,054 $177,494 7.84 %
Commercial and industrial................................. 437,970 41,099 9.38 440,566 34,165 7.75
Consumer.................................................. 1,167,923 102,666 8.79 1,012,359 85,523 8.45
Lease financing........................................... 58,332 4,499 7.71 51,160 3,861 7.55
Other..................................................... 16,829 1,402 8.33 31,179 1,741 5.58
Total loans............................................. 4,433,517 382,721 8.63 3,800,318 302,784 7.97
Investment securities:
U.S. Government........................................... 1,600,713 81,219 5.07 1,597,051 71,573 4.48
State, county and municipal............................... 8,016 622 7.76 2,192 176 8.03
Other..................................................... 2,820 184 6.52 322 28 8.70
Total investment securities............................. 1,611,549 82,025 5.09 1,599,565 71,777 4.49
Federal funds sold.......................................... 146,356 8,625 5.89 76,807 3,297 4.29
Total interest-earning assets........................... 6,191,422 $473,371 7.65 % 5,476,690 $377,858 6.90 %
Cash and due from banks..................................... 349,998 354,875
Premises and equipment...................................... 200,674 189,421
Other assets................................................ 180,675 148,932
Reserve for loan losses..................................... (75,810) (70,974)
Total assets............................................ $6,846,959 $6,098,944
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Checking With Interest.................................... $ 816,391 $ 13,555 1.66 % $ 788,673 $ 13,495 1.71 %
Savings................................................... 693,187 15,728 2.27 687,322 15,390 2.24
Money market accounts..................................... 742,537 25,167 3.39 788,063 19,280 2.45
Time...................................................... 2,824,074 152,784 5.41 2,279,639 89,127 3.91
Total interest-bearing deposits......................... 5,076,189 207,234 4.08 4,543,697 137,292 3.02
Short-term borrowings....................................... 307,999 15,773 5.12 242,553 8,314 3.43
Long-term obligations....................................... 26,307 1,657 6.30 52,499 2,520 4.80
Total interest-bearing liabilities...................... 5,410,495 $224,664 4.15 % 4,838,749 $148,126 3.06 %
Demand deposits............................................. 875,901 791,360
Other liabilities........................................... 72,668 51,852
Shareholders' equity........................................ 487,895 416,983
Total liabilities and shareholders' equity.............. $6,846,959 $6,098,944
Interest rate spread........................................ 3.50 % 3.84 %
Net interest income and net yield on interest-earning
assets.................................................... $248,707 4.02 % $229,732 4.19 %
</TABLE>
Average loan balances include nonaccrual loans.
The average taxable-equivalent yield on the loan portfolio was 8.63 percent
in 1995, 7.97 percent in 1994 and 8.03 percent in 1993. The higher yield during
1995 reflects the continued upward repricing of loans due to higher market
rates. Taxable-equivalent loan income increased $79.9 million or 26.4 percent
from 1994, the result of loan growth and higher rates. This followed an increase
of 10.8 percent in taxable-equivalent loan income in 1994 from 1993.
24
<PAGE>
TABLE 6
AVERAGE BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS, TAXABLE EQUIVALENT)
$2,173,262 $170,150 7.83 % $2,075,604 $168,686 8.13 % $1,733,619 $168,056 9.69 %
381,722 27,596 7.23 390,132 34,241 8.78 423,003 40,233 9.51
789,374 71,112 9.01 664,924 70,158 10.55 672,694 79,488 11.82
40,576 3,433 8.46 31,911 3,108 9.74 27,502 2,876 10.46
16,159 985 6.10 10,714 650 6.07 10,016 813 8.12
3,401,093 273,276 8.03 3,173,285 276,843 8.72 2,866,834 291,466 10.17
1,521,949 90,655 5.96 1,521,154 112,447 7.39 1,585,307 125,391 7.91
451 43 9.53 1,102 102 9.26 11,569 1,049 9.07
315 20 6.35 315 16 5.08 184 13 7.07
1,522,715 90,718 5.96 1,522,571 112,565 7.39 1,597,060 126,453 7.92
78,336 2,385 3.04 66,990 2,260 3.37 93,346 5,449 5.84
5,002,144 $366,379 7.32 % 4,762,846 $391,668 8.22 % 4,557,240 $423,368 9.29 %
320,668 306,795 286,735
169,062 159,692 158,352
147,422 135,319 130,830
(63,117) (56,487) (48,542)
$5,576,179 $5,308,165 $5,084,615
$ 704,614 $ 13,271 1.88 % $ 596,399 $ 15,192 2.55 % $ 464,851 $ 18,852 4.06 %
571,559 14,413 2.52 475,554 14,889 3.13 386,745 18,278 4.73
797,260 19,017 2.39 816,059 25,120 3.08 728,508 36,478 5.01
2,116,104 83,653 3.95 2,163,094 107,113 4.95 2,329,607 158,427 6.80
4,189,537 130,354 3.11 4,051,106 162,314 4.01 3,909,711 232,035 5.93
226,265 6,118 2.70 229,792 7,167 3.12 216,964 11,303 5.21
29,318 1,462 4.99 18,245 1,077 5.90 29,960 2,346 7.83
4,445,120 $137,934 3.10 % 4,299,143 $170,558 3.97 % 4,156,635 $245,684 5.91 %
704,782 633,876 581,798
63,544 67,328 81,670
362,733 307,818 264,512
$5,576,179 $5,308,165 $5,084,615
4.22 % 4.25 % 3.38 %
$228,445 4.57 % $221,110 4.64 % $177,684 3.90 %
</TABLE>
Taxable-equivalent income earned on the investment portfolio amounted to $82
million, $71.8 million and $90.7 million during the years ended December 31,
1995, 1994 and 1993, respectively. The average taxable-equivalent yield on the
portfolio for these years was 5.09 percent, 4.49 percent and 5.96 percent,
respectively. The $10.2 million increase in taxable-equivalent investment income
during 1995 resulted from a 60 basis point yield increase. The $18.9 million
reduction in taxable-equivalent interest income from 1993 to 1994 was the result
of a 147 basis point yield reduction. Improved interest rates during 1995
allowed the portfolio yield to increase as securities purchased during 1993 and
1994 matured and were reinvested at higher rates. Recent reductions in interest
rates will likely result in lower investment securities yields during 1996.
25
<PAGE>
INTEREST-BEARING LIABILITIES
At December 31, 1995 and 1994, interest-bearing liabilities totaled $5.84
billion and $4.98 billion, respectively. Interest-bearing liabilities averaged
$5.41 billion during 1995, an increase of 11.8 percent over 1994 levels, with
most of the growth occurring in interest-bearing deposits. During 1994,
interest-bearing liabilities averaged $4.84 billion, an increase of 8.9 percent
over 1993.
DEPOSITS. At December 31, 1995, deposits totaled $6.39 billion, an increase
of $870.5 million or 15.8 percent from December 31, 1994. Acquisitions
contributed to $338.1 million of the increase, with the remaining growth coming
from the existing branch network. Total deposits averaged $5.95 billion in 1995,
an increase of 11.6 percent or $617 million over 1994. Average interest-bearing
deposits were $5.08 billion during 1995, an increase of $532.5 million or 11.8
percent. Average time deposits increased $544.4 million or 23.9 percent from
1994 to 1995. While acquisitions contributed to some of this increase, higher
interest rates during 1995 prompted greater interest in time deposits among both
retail and business customers.
BancShares avoids excessive reliance on high-cost volatile deposits, and
during 1995, these funds averaged 8.33 percent of total average deposits. Table
7 provides a maturity distribution for these deposits. The fair value of all
deposits was $163.7 million above book value as of December 31, 1995, compared
to December 31, 1994, when the fair value was $6.8 million below book value. The
increase in fair value relative to book value during 1995 resulted from changing
interest rates.
TABLE 7
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
<S> <C>
(THOUSANDS)
Less than three months........................................................... $ 294,159
Three to six months.............................................................. 177,077
Six to 12 months................................................................. 77,820
More than 12 months.............................................................. 51,560
Total.......................................................................... $ 600,616
</TABLE>
BORROWED FUNDS. BancShares has access to various short-term borrowings,
including the purchase of federal funds, overnight repurchase obligations and
lines of credit from correspondent banks. At December 31, 1995, short-term
borrowings totaled $376.5 million, compared to $290.9 million one year earlier.
For the year ended December 31, 1995, short-term borrowings averaged $308
million, compared to $242.6 million during 1994 and $226.3 million during 1993.
The increase from 1994 to 1995 and from 1993 to 1994 resulted from growth in the
Master note program, an overnight borrowing arrangement between BancShares and
bank customers. The fair value of short-term borrowings equals the book value,
as these financial instruments carry variable rates and adjust to current market
conditions. Table 8 provides additional information regarding short-term
borrowed funds.
26
<PAGE>
TABLE 8
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1995 1994 1993
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Master notes
At December 31............................................. $257,178 4.74 % $173,250 4.68 % $153,545 2.50 %
Average during year........................................ 203,114 4.96 168,725 3.24 146,131 2.63
Maximum month-end balance during year...................... 257,178 -- 197,942 -- 171,111 --
Federal funds purchased
At December 31............................................. 64,085 5.44 76,430 5.83 33,920 2.70
Average during year........................................ 49,226 5.83 21,079 4.09 29,323 2.90
Maximum month-end balance during year...................... 72,165 -- 76,430 -- 66,460 --
Repurchase agreements
At December 31............................................. 25,022 4.46 14,970 4.43 18,374 2.25
Average during year........................................ 23,784 4.86 20,991 3.17 21,325 2.42
Maximum month-end balance during year...................... 25,337 -- 20,961 -- 24,111 --
U.S. Treasury tax and loan accounts
At December 31............................................. 17,581 5.49 20,046 5.26 22,506 2.72
Average during year........................................ 17,070 5.71 24,195 3.78 26,273 2.79
Maximum month-end balance during year...................... 22,410 -- 30,117 -- 31,111 --
Other
At December 31............................................. 12,665 4.50 6,165 4.58 8,152 4.86
Average during year........................................ 14,805 4.69 7,563 5.38 3,213 5.70
Maximum month-end balance during year...................... 16,666 -- 10,164 -- 8,152 --
</TABLE>
At December 31, 1995 and 1994, long-term obligations totaled $23 million
and $34.5 million, respectively. The reduction during 1995 results from the
scheduled maturity of borrowings. The fair value of long-term obligations as of
December 31, 1995, was $552,000 above the book value, compared to December 31,
1994, when the fair value was $1.6 million below the book value. Interest rate
movements pushed the fair value of these obligations above their respective book
values as of December 31, 1995.
EXPENSE OF INTEREST-BEARING LIABILITIES. Interest expense amounted to
$224.7 million in 1995, a $76.5 million or 51.7 percent increase from 1994. This
followed a 7.4 percent increase in interest expense during 1994 compared to
1993. The increased interest expense during 1995 was the combined result of
higher interest rates and growth in interest-bearing liabilities.
Time deposits caused much of the increase in interest expense during 1995.
In addition to the $544.4 million increase in average time deposits, the rate on
these deposits experienced a 150 basis point rate increase, moving from 3.91
percent in 1994 to 5.41 percent in 1995.
The aggregate rate on interest-bearing deposits was 4.08 percent during
1995, compared to 3.02 percent during 1994 and 3.11 percent during 1993.
Interest expense on total interest-bearing deposits amounted to $207.2 million
during 1995, $137.3 million during 1994 and $130.4 million during 1993.
Interest expense on short-term borrowings amounted to $15.8 million in
1995, an increase of $7.5 million or 89.7 percent from 1994. The increase was
attributable to a 169 basis point rate increase when compared to 1994 and the
higher volume of short-term borrowings during 1995. Interest expense related to
short-term borrowings totaled $8.3 million and $6.1 million, respectively, in
1994 and 1993. Interest expense associated with long-term obligations decreased
during 1995 to $1.7 million from $2.5 million during 1994. The decrease results
from a reduction in average long-term obligations.
27
<PAGE>
TABLE 9
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
1995 1994
CHANGE FROM PREVIOUS YEAR CHANGE FROM PREVIOUS YEAR
DUE TO: DUE TO:
YIELD/ TOTAL YIELD/ TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
INTEREST INCOME
Loans:
Secured by real estate................................. $39,186 $ 16,375 $55,561 $ 7,157 $ 187 $ 7,344
Commercial and industrial.............................. (224) 7,158 6,934 4,419 2,150 6,569
Consumer............................................... 13,474 3,669 17,143 19,461 (5,050) 14,411
Lease financing........................................ 549 89 638 846 (418) 428
Other.................................................. (999) 660 (339) 878 (122) 756
Total loans......................................... 51,986 27,951 79,937 32,761 (3,253) 29,508
Investment securities:
U.S. Government........................................ 194 9,452 9,646 3,994 (23,076) (19,082)
State, county and municipal............................ 460 (14) 446 153 (20) 133
Other.................................................. 190 (34) 156 1 7 8
Total investment securities......................... 844 9,404 10,248 4,148 (23,089) (18,941)
Federal funds sold....................................... 3,541 1,787 5,328 (57) 969 912
Total interest-earning assets....................... $56,371 $ 39,142 $95,513 $36,852 ($25,373) $ 11,479
INTEREST EXPENSE
Deposits:
Checking With Interest................................. $ 464 $ (404) $ 60 $ 1,501 $ (1,277) $ 224
Savings................................................ 132 206 338 2,747 (1,770) 977
Money market accounts.................................. (1,318) 7,205 5,887 (210) 473 263
Time................................................... 25,375 38,282 63,657 6,390 (916) 5,474
Total interest-bearing deposits..................... 24,653 45,289 69,942 10,428 (3,490) 6,938
Short-term borrowings.................................... 2,802 4,657 7,459 492 1,704 2,196
Long-term obligations.................................... (1,454) 591 (863) 1,135 (77) 1,058
Total interest-bearing liabilities.................. $26,001 $ 50,537 $76,538 $12,055 $ (1,863) $ 10,192
Change in net interest income....................... $30,370 $(11,395) $18,975 $24,797 $(23,510) $ 1,287
</TABLE>
Changes in income relating to certain loans and investment securities are stated
on a fully tax-equivalent basis at a rate that approximates BancShares' marginal
tax rate. The taxable equivalent adjustment was $2,262, $1,853, and $1,498 for
the years 1995, 1994 and 1993, respectively. Table 6 provides detailed
information on average balances, income/expense and yield/rate by category. The
rate/volume variance is allocated equally between the changes in volume and
rate.
NET INTEREST INCOME
Taxable-equivalent net interest income totaled $248.7 million during 1995,
an increase of 8.3 percent over 1994. This followed a slight increase during
1994. Table 9 presents the annual changes in net interest income by components
due to changes in volume, yields and rates. This table is presented on a
taxable-equivalent basis to adjust for the tax-exempt status of income earned on
certain loans, leases and municipal securities. During 1995 and 1994, growth
among interest-earning assets was sufficient to offset the impact of a decline
in the interest rate spread from the prior year.
The interest rate spread decreased to 3.50 percent during 1995 compared to
3.84 percent during 1994 and 4.22 percent in 1993. The average net yield on
interest-earning assets decreased by 17 basis points to 4.02 percent in 1995
when compared to 1994. This followed a 38 basis point reduction in 1994 when
compared to 1993. Management believes the interest rate spread and the net yield
on interest-earning assets will stabilize during 1996 as improvements from the
1995 repricing of investment securities offset the impact of the lower interest
rates projected for 1996. Management projects the lower interest rates will
reduce the yields on interest-earning assets more rapidly than the accompanying
28
<PAGE>
reduction in the rates on interest-bearing liabilities. However, based on
projected asset growth, management anticipates net interest income will expand
during 1996.
RATE SENSITIVITY. A principal objective of BancShares' asset/liability
function is to manage interest rate risk or the exposure to changes in interest
rate. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure. Table 10 provides
BancShares' interest-sensitivity position as of December 31, 1995, which
reflected a one year interest-sensitivity gap of $676 million. The
liability-sensitive position is most acute in the first six months and results
from growth among time deposits during 1995. As a result of this one year
interest-sensitivity gap, movements in interest rates could have an unfavorable
impact on net interest income.
TABLE 10
INTEREST-SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
1-30 31-90 91-180 181-365 TOTAL
DAYS DAYS DAYS DAYS ONE YEAR TOTAL
SENSITIVE SENSITIVE SENSITIVE SENSITIVE SENSITIVE NONSENSITIVE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
ASSETS:
Loans......................... $1,358,843 $ 143,782 $ 227,225 $ 451,076 $2,180,926 $2,399,793 $4,580,719
Investment securities......... 114,735 154,630 249,198 411,196 929,759 1,053,389 1,983,148
Federal funds sold............ 40,445 -- -- -- 40,445 -- 40,445
Total interest-earning
assets................. $1,514,023 $ 298,412 $ 476,423 $ 862,272 $3,151,130 $3,453,182 $6,604,312
LIABILITIES:
Checking With Interest........ -- -- -- -- -- $ 874,431 $ 874,431
Savings and money market
accounts.................... $ 809,813 -- -- -- $ 809,813 691,894 1,501,707
Time deposits................. 666,599 $ 662,023 $ 839,114 $ 473,044 2,640,780 427,719 3,068,499
Short-term borrowings......... 363,891 10,285 285 2,070 376,531 -- 376,531
Long-term obligations......... -- -- -- -- -- 22,957 22,957
Total interest-bearing
liabilities............ $1,840,303 $ 672,308 $ 839,399 $ 475,114 $3,827,124 $2,017,001 $5,844,125
Interest-sensitivity gap...... $ (326,280) $(373,896) $(362,976) $ 387,158 $ (675,994) $1,436,181 $ 760,187
</TABLE>
Assets and liabilities with maturities of one year or less and those that may be
adjusted within this period are considered interest-sensitive. The
interest-sensitivity position has meaning only as of the date for which it was
prepared.
Management continuously monitors the interest-sensitivity position in order
to insure adequate liquidity, while maintaining an acceptable interest rate
spread. In addition to other asset/liability management strategies, BancShares
underwrites all long-term fixed-rate residential mortgage loans to secondary
market standards and generally sells such loans as they are originated. As of
December 31, 1995, BancShares had $15.4 million in residential mortgage loans
held for sale that were reported at the lower of aggregate cost or market.
Additionally, as a strategy to avoid exposure resulting from changes in market
rates after a commitment is made and before a loan is closed, forward
commitments to sell a percentage of residential mortgage loans are executed when
a commitment is made.
ASSET QUALITY
NONPERFORMING ASSETS. Nonperforming assets consist of nonaccrual loans,
restructured loans and foreclosed properties. The December 31 balances of these
assets for the past five years are presented in Table 11. BancShares'
nonperforming assets at December 31, 1995 included nonaccrual loans totaling
$13.2 million and $2.2 million in foreclosed property. Nonperforming assets as
of December 31, 1995 represent 0.34 percent of loans outstanding and total
foreclosed property. Total nonperforming assets totaled $27 million and $50.2
million, respectively, as of December 31, 1994 and 1993.
29
<PAGE>
TABLE 11
RISK ELEMENTS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT RATIOS)
Nonaccrual loans....................................... $ 13,208 $ 21,069 $ 33,726 $ 25,814 $ 17,821
Restructured loans..................................... -- -- 571 2,267 --
Other real estate...................................... 2,154 5,926 15,879 8,000 9,026
Total nonperforming assets........................... $ 15,362 $ 26,995 $ 50,176 $ 36,081 $ 26,847
Accruing loans 90 days or more past due................ $ 4,230 $ 5,326 $ 9,202 $ 6,960 $ 12,829
Loans at December 31................................... $4,580,719 $4,148,133 $3,584,991 $3,207,875 $3,123,806
Ratio of nonperforming assets to total loans plus other
real estate.......................................... 0.34% 0.65% 1.39% 1.12% 0.86%
Interest income that would have been earned on
nonperforming loans had they been performing......... $ 1,556 $ 1,430 $ 2,354 $ 2,413 $ 1,449
Interest income earned on nonperforming loans.......... 595 693 1,083 1,291 517
</TABLE>
There are no loan concentrations to any multiple number of borrowers engaged in
similar activities or industries in excess of 10 percent of total loans at
December 31, 1995. There were no foreign loans outstanding in any period.
Accrual of interest on loans is discontinued when management deems that
collection of additional interest is doubtful. Loans are returned to an accrual
status when both principal and interest are current, and the loan is determined
to be performing in accordance with the applicable loan terms.
Management continually monitors the loan portfolio to ensure that all loans
potentially having a material adverse impact on future operating results,
liquidity or capital resources have been classified as nonperforming. Should
economic conditions deteriorate, the inability of distressed customers to
service their existing debt could cause higher levels of nonperforming assets.
RESERVE FOR LOAN LOSSES. Management evaluates the risk characteristics of
the loan portfolio under current and projected economic conditions and considers
such factors as the financial condition of the borrower, fair market value of
collateral and other items that, in management's opinion, deserve current
recognition in estimating possible credit losses. Further, management strives to
maintain the reserve at a level sufficient to absorb both potential losses on
identified nonperforming assets as well as general losses at historical and
projected levels.
At December 31, 1995, BancShares' reserve for loan losses was $78.5 million
or 1.71 percent of loans outstanding. This compares to $72 million or 1.74
percent at December 31, 1994, and $70 million or 1.95 percent at December 31,
1993. The reduction in the reserve ratio over the two year period reflects the
reduced level of nonperforming assets.
30
<PAGE>
TABLE 12
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT RATIOS)
Balance at beginning of year........................... $ 72,017 $ 70,049 $ 58,380 $ 53,730 $ 44,539
Reserve of acquired institutions....................... 3,231 1,009 8,269 -- 7,191
Provision for loan losses.............................. 5,364 2,786 15,245 17,506 15,626
Charge-offs:
Real estate:
Construction and land development................. (118) (334) (786) (460) (871)
Mortgage:
1-4 family residential.......................... (994) (1,048) (1,349) (1,376) (2,292)
Commercial...................................... (255) (1,502) (2,013) (4,614) (1,949)
Equity Line..................................... (47) (192) (250) (293) (48)
Other........................................... (34) -- (3) (16) (24)
Commercial and industrial............................ (826) (1,302) (7,331) (3,809) (3,247)
Consumer............................................. (4,988) (4,085) (3,860) (4,965) (6,541)
Lease financing...................................... -- (17) (51) (39) (15)
Total charge-offs................................. (7,262) (8,480) (15,643) (15,572) (14,987)
Recoveries:
Real estate:
Construction and land development................. 440 920 230 106 19
Mortgage:
1-4 family residential.......................... 1,160 834 286 218 136
Commercial...................................... 1,476 2,765 856 578 63
Equity Line..................................... 28 28 85 1 1
Other........................................... -- -- 3 -- 46
Commercial and industrial............................ 761 689 1,240 697 230
Consumer............................................. 1,233 1,396 1,085 1,116 865
Lease financing...................................... 47 21 13 -- 1
Total recoveries.................................. 5,145 6,653 3,798 2,716 1,361
Net charge-offs................................... (2,117) (1,827) (11,845) (12,856) (13,626)
Balance at end of year................................. $ 78,495 $ 72,017 $ 70,049 $ 58,380 $ 53,730
HISTORICAL STATISTICS
Balances
Average total loans.................................. $4,433,517 $3,800,318 $3,401,093 $3,173,285 $2,866,834
Total loans at year-end.............................. 4,580,719 4,148,133 3,584,991 3,207,875 3,123,806
Ratios
Net charge-offs to average total loans............... 0.05% 0.05% 0.35% 0.41% 0.48%
Reserve for loan losses to total loans at
year-end.......................................... 1.71 1.74 1.95 1.82 1.72
</TABLE>
All information presented in this table relates to domestic loans as BancShares
makes no foreign loans.
The provision for loan losses charged to operations was $5.4 million during
1995 compared to $2.8 million during 1994 and $15.2 million during 1993. The
increase in the provision during 1995 was due to loan growth and slightly higher
net charge-offs. Net charge-offs for 1995 were $2.1 million, compared to $1.8
million during 1994 and $11.8 million during 1993. The ratio of net charge-offs
to average loans equaled 0.05 percent during 1995 and 1994, down 30 basis points
from 1993. Table 12 provides details concerning the reserve and provision for
loan losses over the past five years.
Management considers the established reserve adequate to absorb future
losses that relate to loans outstanding at December 31, 1995, although future
additions to the reserve may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the reserve
31
<PAGE>
for loan losses. Such agencies may require the recognition of additions to the
reserve based on their judgments of information available to them at the time of
their examination. Table 13 illustrates management's allocation of the reserve
among the various loan types.
TABLE 13
ALLOCATION OF RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993 1992 1991
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land
development.................... $3,090 2.28% $2,919 2.43% $3,135 3.28% $3,491 4.67% $1,976
Mortgage:
1-4 family residential......... 13,125 31.42 13,459 31.26 15,175 31.74 13,373 32.31 10,417
Commercial..................... 15,305 16.81 13,636 17.37 13,997 17.13 13,181 17.64 9,245
Equity Line.................... 2,788 8.67 2,585 8.42 2,112 8.18 2,042 8.83 3,743
Other.......................... 1,318 2.82 1,581 2.63 1,493 1.56 738 1.49 82
Commercial and industrial.......... 8,384 10.18 10,029 9.01 11,650 11.40 8,190 11.59 5,043
Consumer........................... 21,587 26.18 20,373 27.00 17,079 24.81 14,875 22.01 17,305
Lease financing.................... 639 1.31 197 1.46 454 1.27 356 1.11 306
Other.............................. -- 0.33 -- 0.42 -- 0.63 -- 0.35 --
Unallocated........................ 12,259 -- 7,238 -- 4,954 -- 2,134 -- 5,613
Total.......................... $78,495 100.00% $72,017 100.00% $70,049 100.00% $58,380 100.00% $53,730
<CAPTION>
PERCENT
OF LOANS
TO TOTAL
LOANS
<S> <<C>
Real estate:
Construction and land
development.................... 5.27%
Mortgage:
1-4 family residential......... 29.00
Commercial..................... 18.55
Equity Line.................... 9.08
Other.......................... 1.63
Commercial and industrial.......... 13.45
Consumer........................... 21.70
Lease financing.................... 0.98
Other.............................. 0.34
Unallocated........................ --
Total.......................... 100.00%
</TABLE>
At December 31, 1995, BancShares had no foreign loans or any material highly
leveraged transactions. Further, management does not contemplate originating or
participating in such transactions in the foreseeable future.
NONINTEREST INCOME
Total noninterest income increased 10.6 percent during 1995 to $92.1
million. This compares to $83.3 million during 1994 and $85.7 million during
1993. Table 14 presents the major components of noninterest income for the past
five years. Trust income was $8.9 million in 1995, up 8 percent from 1994 due to
higher commission income, particularly from growth in the number of accounts
managed by retirement plan services.
Income from service charges on deposit accounts was $39.9 million during
1995, an increase of 3.5 percent. This increase was the result of growth in
retail individual service charge income due to an increase in the number of
customer accounts. Income from deposit service charges amounted to $38.6 million
and $43.3 million for the years ended December 31, 1994 and 1993, respectively.
The reduction from 1993 to 1994 was primarily the result of higher interest
rates, which increased the earnings credit used to offset service charges on
certain commercial accounts.
TABLE 14
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Trust income........................................................... $ 8,886 $ 8,228 $ 7,197 $ 6,087 $ 4,902
Service charges on deposit accounts.................................... 39,909 38,567 43,277 42,130 38,451
Credit card income..................................................... 13,561 12,390 10,618 9,512 9,159
Other service charges and fees......................................... 21,227 16,672 8,564 8,078 6,049
Investment securities gains............................................ -- -- -- 2,363 --
Gain (loss) on sale of mortgage loans.................................. 809 (862) 8,010 1,345 --
Other.................................................................. 7,736 8,330 8,071 4,788 11,709
Total................................................................ $92,128 $83,325 $85,737 $74,303 $70,270
</TABLE>
32
<PAGE>
Credit card income was $13.6 million during 1995, a 9.5 percent increase
over 1994, primarily the result of expanding merchant service activity.
Management anticipates continued growth within the credit card function during
1996.
Income from other service charges and fees amounted to $21.2 million in
1995, $16.7 million in 1994 and $8.6 million in 1993. Growth in this area during
1995 resulted from higher fees for processing services provided to various bank
affiliates. These services resulted in an additional $1.7 million during 1995.
Additionally, fees generated from the sale of mutual fund and annuity products
by First Citizens Investor Services increased $1 million during 1995.
During 1995, BancShares recorded $809,000 in gains on the ongoing sale of
current fixed-rate mortgage loan production. The gains recorded during 1995
compare to an $862,000 loss recorded during 1994. During 1993, BancShares
recorded an $8 million gain on the sale of $276.2 million in residential
mortgage loans. Management intends to continue the sale of its long-term
fixed-rate residential mortgage loan production, so gains or losses may be
incurred due to interest rate volatility. However, management has elected to
enter into forward commitments to sell loans as a strategy of limiting exposure
to interest rate fluctuations.
NONINTEREST EXPENSE
Total noninterest expense for 1995 amounted to $245.9 million. This was a
6.6 percent increase over 1994, following an 8.1 percent increase of 1994
noninterest expenses over 1993. Table 15 presents the major components of
noninterest expense for the past five years.
Salary expense was $106.6 million during 1995, compared to $99.3 million
during 1994, an increase of $7.3 million or 7.4 percent, following a $6.7
million or 7.2 percent increase in 1994 over 1993. Increases during each period
resulted from merit increases as well as new positions established to centralize
certain operational functions. Employee benefits were $17.1 million during 1995,
an increase of $2.5 million from 1994.
TABLE 15
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Salaries and wages............................................... $106,607 $ 99,282 $ 92,579 $ 85,195 $ 80,412
Employee benefits................................................ 17,080 14,535 13,500 12,791 13,137
Occupancy expense................................................ 20,446 18,691 16,972 15,675 15,799
Equipment expense................................................ 24,504 23,839 21,231 19,808 18,271
Credit card expense.............................................. 9,106 8,587 6,814 6,416 5,975
FDIC insurance................................................... 8,418 11,831 10,496 10,739 9,618
Telecommunication expense........................................ 6,790 6,743 6,528 5,717 5,606
Amortization of intangibles...................................... 5,877 3,993 3,157 3,349 3,510
Postage.......................................................... 5,701 4,907 3,996 3,920 3,624
Other............................................................ 41,351 38,174 37,940 35,589 31,644
Total.......................................................... $245,880 $230,582 $213,213 $199,199 $187,596
</TABLE>
BancShares recorded occupancy expense of $20.4 million during 1995, an
increase of $1.8 million or 9.4 percent due to increased rent expense. Occupancy
expense was $18.7 million for 1994 and $17 million for 1993. Equipment expense
for 1995 was $24.5 million, an increase of 2.8 percent over 1994, when total
equipment expenses were $23.8 million. Costs related to deposit insurance fell
during 1995. During the third quarter, the Bank Insurance Fund ("BIF") of the
FDIC reached the reserve level mandated by Congress. At that time, premiums were
reduced and a refund for overpayment retroactive to the date the BIF was fully
capitalized was made to institutions for their BIF-insured deposits. However,
financial institutions with deposits that are insured under the Savings
Association Insurance Fund ("SAIF") continue to pay the higher premiums for
SAIF-insured deposits. Of BancShares' total deposits, approximately one-third
are SAIF-insured. Until the SAIF is fully capitalized, these deposits will
continue to be subject to higher insurance rates.
Various proposals are being considered by the United States Congress
concerning a possible merger of the BIF and the SAIF. Central to that discussion
is the recapitalization of the SAIF prior to such a merger, and most of the
proposals mandate a special one-time assessment of SAIF-insured deposits at
rates up to 85 basis points of the SAIF-insured deposits. As of December 31,
1995, BancShares had total SAIF deposits of $1.86 billion. A final assessment
rate is yet to be
33
<PAGE>
determined, and due to the uncertainty as to which, if any, of the various
proposals will be adopted and the ultimate amount of the assessment to be levied
on the SAIF-insured deposits, the impact of the proposals and the assessment is
impossible to predict with certainty at this time.
INCOME TAXES
During 1995, BancShares recorded total income tax expense of $30.4 million,
compared to $26.9 million in income tax expense during 1994, the increase
resulting from higher pre-tax income. BancShares' effective tax rate was 34.8
percent in 1995, 34.5 percent in 1994 and 34 percent in 1993. Total effective
tax rates were less than the statutory federal income tax rates primarily due to
small amounts of tax-exempt interest income.
LIQUIDITY
Management recognizes the importance of maintaining a highly liquid
investment portfolio with maturities designed to provide needed cash flows to
meet the liquidity requirements of the Bank. At December 31, 1995, the
investment portfolio totaled $1.98 billion or 26.9 percent of total assets. This
compares to $1.46 billion or 23 percent in 1994.
The Bank's ability to generate retail deposits is an additional source of
liquidity. The rate of growth in average deposits was 11.6 percent during 1995,
9 percent during 1994 and 4.5 percent during 1993. The deposit increase resulted
from the existing branch network as well as deposit liability assumptions
associated with various business combinations. Another significant liquidity
source is cash provided by operating activities. These operating activities
generated $100.8 million during 1995, $167.6 million during 1994 and $48 million
during 1993.
These liquidity sources have enabled BancShares to place little dependence
on short-term borrowed funds for its liquidity needs. However, there are readily
available sources for borrowed funds through the correspondent bank network.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
BancShares maintains an adequate capital position and exceeds all minimum
regulatory capital requirements. BancShares' total risk-based capital ratios
were 10.9 percent, 11.3 percent and 11.5 percent, respectively, at December 31,
1995, 1994 and 1993. BancShares' core capital ratios for December 31, 1995, 1994
and 1993 were 9.6 percent, 10.1 percent and 10.2 percent, respectively. The
minimum capital ratios established by Federal Reserve guidelines are 8 percent
for total capital and 4 percent for core capital. At December 31, 1995,
BancShares' leverage capital ratio was 6.1 percent, compared to 6.5 percent and
5.9 percent at December 31, 1994 and 1993, respectively. The minimum leverage
ratio is 3 percent. Failure to meet certain capital requirements may result in
certain actions by regulatory agencies that could have a direct material effect
on the consolidated financial statements.
The rate of return on average shareholders' equity during 1995, 1994 and
1993 amounted to 11.7 percent, 12.2 percent and 15.3 percent, respectively.
BancShares' internal capital generation rate was 9.9 percent in 1995, compared
with 10.5 percent in 1994 and 13.7 percent in 1993. These rates reflect the
ability to generate sufficient capital to support current levels of growth,
although significant expansion would likely require additional capital be
raised.
During the fourth quarter of 1995 the Board of Directors of BancShares
reauthorized the purchase of its Class A and Class B common stocks. Management
views the purchase of its stock as a good investment and will continue to
repurchase shares when market conditions are favorable for such transactions.
The repurchase of these shares should not impair capital adequacy because of
BancShares' high earnings retention percentage.
FOURTH QUARTER ANALYSIS
BancShares' net income for the fourth quarter of 1995 totaled $16.3
million, compared to $12.9 million during the same period of 1994. As shown in
Table 16, during the fourth quarter of 1995 and 1994, total assets averaged
$7.28 billion and $6.23 billion, respectively. Average interest-earning assets
increased 18 percent during the fourth quarter of 1995, compared to the same
period of 1994. Average loans outstanding during the fourth quarter increased
$552.6 million during 1995 over 1994, largely due to growth among loans to
individuals. Acquisition growth during 1995 contributed an additional $170.4
million in loans outstanding. Average investment securities increased $373.1
million between the two periods, the result of deposit growth at sufficient
levels to generate additional liquidity.
34
<PAGE>
Taxable-equivalent interest income on interest-earning assets increased
$26.3 million or 26.1 percent in the fourth quarter of 1995 when compared to the
same period of 1994. The improved interest income during 1995 resulted from a
$15.6 million increase in loan interest income and a $9.2 million increase in
investment securities interest income. Both of these increases resulted from
average volume growth and higher yields. Interest-earning assets yielded 7.65
percent during the fourth quarter of 1995, a 48 basis point increase from the
fourth quarter of 1994.
TABLE 16
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1995 1994
FOURTH THIRD SECOND FIRST FOURTH THIRD
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
SUMMARY OF OPERATIONS
Interest income....................... $ 126,372 $ 122,234 $ 116,282 $ 106,221 $ 100,203 $ 95,254
Interest income-taxable equivalent.... 126,950 122,801 116,845 106,774 100,693 95,731
Interest expense...................... 62,968 59,858 55,537 46,301 40,628 37,265
Net interest income-taxable
equivalent.......................... 63,982 62,943 61,308 60,473 60,065 58,466
Taxable equivalent adjustment......... 578 567 563 553 490 477
Net interest income................... 63,404 62,376 60,745 59,920 59,575 57,989
Provision for loan losses............. 1,654 1,716 1,460 534 1,486 1,159
Net interest income after provision
for loan losses..................... 61,750 60,660 59,285 59,386 58,089 56,830
Noninterest income.................... 23,856 23,560 23,057 21,655 21,080 21,354
Noninterest expense................... 60,925 59,716 62,876 62,363 59,444 57,361
Income before income taxes............ 24,681 24,504 19,466 18,678 19,725 20,823
Income taxes.......................... 8,395 8,686 6,842 6,500 6,796 7,138
Net income............................ $ 16,286 $ 15,818 $ 12,624 $ 12,178 $ 12,929 $ 13,685
SELECTED QUARTERLY AVERAGES
Total assets.......................... $7,280,893 $7,053,579 $6,702,692 $6,323,537 $6,227,704 $6,102,964
Investment securities................. 1,871,272 1,694,776 1,493,415 1,380,424 1,498,143 1,543,548
Loans................................. 4,552,018 4,500,192 4,424,724 4,253,117 3,999,377 3,854,738
Interest-earning assets............... 6,599,377 6,376,273 6,061,732 5,716,572 5,590,432 5,480,912
Deposits.............................. 6,282,111 6,124,360 5,858,280 5,533,654 5,422,018 5,338,095
Interest-bearing liabilities.......... 5,753,538 5,569,496 5,299,570 5,009,276 4,895,564 4,818,665
Long-term obligations................. 23,365 24,595 26,174 32,564 43,854 48,908
Shareholders' equity.................. $ 512,768 $ 498,108 $ 482,885 $ 460,695 $ 443,833 $ 423,982
Shares outstanding.................... 10,700,435 10,688,019 10,618,902 10,376,351 10,192,150 9,980,530
PROFITABILITY RATIOS (averages)
Rate of return (annualized) on:
Total assets........................ 0.89% 0.89% 0.76% 0.78% 0.82% 0.89%
Shareholders' equity................ 12.60 12.60 10.49 10.72 11.56 12.81
Dividend payout ratio................. 14.80 13.42 16.81 17.09 15.75 12.77
LIQUIDITY AND CAPITAL RATIOS
(averages)
Loans to deposits..................... 72.46% 73.48% 75.53% 76.86% 73.76% 72.21%
Shareholders' equity to total
assets.............................. 7.04 7.06 7.20 7.29 7.13 6.95
Time certificates of $100,000 or more
to total deposits................... 9.27 8.61 8.04 7.30 6.63 6.41
PER SHARE OF STOCK
Net income............................ $ 1.52 $ 1.49 $ 1.19 $ 1.17 $ 1.27 $ 1.37
Cash dividends........................ 0.225 0.20 0.20 0.20 0.20 0.175
Class A sales price
High................................ 551/2 533/4 50 46 461/2 451/2
Low................................. 521/2 481/2 44 42 411/2 41
Class B sales price
High................................ 541/2 531/4 491/2 45 451/2 441/2
Low................................. 521/2 49 45 44 42 41
<CAPTION>
SECOND FIRST
<S> <C<C> <C>
SUMMARY OF OPERATIONS
Interest income....................... $ 91,351 $ 89,197
Interest income-taxable equivalent.... 91,806 89,628
Interest expense...................... 35,307 34,926
Net interest income-taxable
equivalent.......................... 56,499 54,702
Taxable equivalent adjustment......... 455 431
Net interest income................... 56,044 54,271
Provision for loan losses............. (947) 1,088
Net interest income after provision
for loan losses..................... 56,991 53,183
Noninterest income.................... 20,517 20,374
Noninterest expense................... 57,022 56,755
Income before income taxes............ 20,486 16,802
Income taxes.......................... 7,128 5,805
Net income............................ $ 13,358 $ 10,997
SELECTED QUARTERLY AVERAGES
Total assets.......................... $6,061,930 $6,037,860
Investment securities................. 1,641,857 1,717,729
Loans................................. 3,712,429 3,618,555
Interest-earning assets............... 5,434,768 5,386,963
Deposits.............................. 5,303,041 5,275,596
Interest-bearing liabilities.......... 4,810,625 4,829,639
Long-term obligations................. 57,534 59,917
Shareholders' equity.................. $ 406,002 $ 394,388
Shares outstanding.................... 9,828,295 9,769,973
PROFITABILITY RATIOS (averages)
Rate of return (annualized) on:
Total assets........................ 0.88% 0.74%
Shareholders' equity................ 13.20 11.31
Dividend payout ratio................. 12.87 15.49
LIQUIDITY AND CAPITAL RATIOS
(averages)
Loans to deposits..................... 70.01% 68.59%
Shareholders' equity to total
assets.............................. 6.70 6.53
Time certificates of $100,000 or more
to total deposits................... 6.28 6.21
PER SHARE OF STOCK
Net income............................ $ 1.36 $ 1.13
Cash dividends........................ 0.175 0.175
Class A sales price
High................................ 441/2 45
Low................................. 40 40
Class B sales price
High................................ 43 441/2
Low................................. 401/2 401/2
</TABLE>
Stock information related to Class A common stock reflects the sales price,
as reported on the Nasdaq National Market System. Stock information for Class B
was obtained from a broker-dealer, reflecting the bid prices, prior to any
mark-ups, mark-downs or commissions.
35
<PAGE>
As of December 31, 1995, there were 3,926 holders of record of the Class A
common stock and 745 holders of record of the Class B common stock.
Average interest-bearing liabilities experienced an $858 million increase
from the fourth quarter of 1994 to the same period of 1995, largely the result
of acquisitions and internally generated deposit growth. The rate on these
interest-bearing liabilities increased from 3.29 percent to 4.34 percent between
the two periods.
Taxable-equivalent net interest income increased $3.9 million from the
fourth quarter of 1994 to the fourth quarter of 1995. The increase resulted from
growth among interest-earning assets, while higher interest rates had a net
adverse impact on net interest income.
Noninterest income for the fourth quarter of 1995 was $23.9 million, an
increase of 13.2 percent. Much of the increase resulted from higher fee income
generated from processing services. Noninterest expense amounted to $60.9
million for the quarter ended December 31, 1995, compared to $59.4 million for
the quarter ended December 31, 1994. Most of the 2.5 percent increase was in
salary expense and various other operating expenses. Tables 16 and 17 are useful
when making quarterly comparisons.
TABLE 17
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FOURTH QUARTER
<TABLE>
<CAPTION>
1995 1994 INCREASE
INTEREST INTEREST (DECREASE)
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ DUE TO:
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME
<S> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
ASSETS
Loans:
Secured by real estate.............. $2,826,705 $58,918 8.18 % $2,397,516 $48,548 7.99% $ 8,831
Commercial and industrial........... 461,955 12,771 10.51 425,484 8,459 7.83 1,182
Consumer............................ 1,189,310 25,330 8.45 1,097,205 24,364 8.87 2,038
Lease financing..................... 58,058 1,177 8.11 56,454 1,041 7.38 31
Other............................... 15,990 315 7.82 22,718 490 8.57 3,260
Total loans....................... 4,552,018 98,511 8.63 3,999,377 82,902 8.25 15,342
Investment securities:
U.S. Government..................... 1,860,076 25,652 5.47 1,492,930 16,507 4.39 4,572
State, county and municipal......... 8,208 157 7.59 4,898 98 7.94 64
Other............................... 2,988 44 5.84 315 5 6.30 0
Total investment securities....... 1,871,272 25,853 5.48 1,498,143 16,610 4.40 4,636
Federal funds sold.................... 176,087 2,586 5.83 92,912 1,182 5.05 1,139
Total interest-earning assets..... $6,599,377 $126,950 7.66 % $5,590,432 $100,694 7.17% $21,117
LIABILITIES
Deposits:
Checking With Interest.............. $ 852,002 $ 3,342 1.56 % $ 813,596 $ 3,526 1.72% $ 155
Savings............................. 701,528 4,030 2.28 703,405 3,988 2.25 (11)
Money market accounts............... 766,821 7,086 3.67 782,683 5,336 2.70 (133)
Time................................ 3,035,811 43,313 5.66 2,294,337 24,392 4.22 9,241
Total interest-bearing deposits... 5,356,162 57,771 4.28 4,594,021 37,242 3.22 9,252
Short-term borrowings................. 374,011 4,816 5.11 257,689 2,823 4.35 1,387
Long-term obligations................. 23,365 381 6.47 43,854 563 5.09 (298)
Total interest-bearing
liabilities..................... $5,753,538 $62,968 4.34 % $4,895,564 $40,628 3.29% $10,341
Interest rate spread.................. 3.32 % 3.88%
Net interest income and net yield on
interest-earning assets............. $63,982 3.85 % $60,066 4.26% $10,776
<CAPTION>
YIELD/ TOTAL
RATE CHANGE
<S> <C<C> <C>
ASSETS
Loans:
Secured by real estate.............. $ 1,539 $10,370
Commercial and industrial........... 3,130 4,312
Consumer............................ (1,072) 966
Lease financing..................... 105,136
Other............................... (3,435) (175 )
Total loans....................... 267 15,609
Investment securities:
U.S. Government..................... 4,573 9,145
State, county and municipal......... (5) 59
Other............................... 39 39
Total investment securities....... 4,607 9,243
Federal funds sold.................... 265 1,404
Total interest-earning assets..... $ 5,139 $26,256
LIABILITIES
Deposits:
Checking With Interest.............. $ (339) $ (184 )
Savings............................. 53 42
Money market accounts............... 1,883 1,750
Time................................ 9,680 18,921
Total interest-bearing deposits... 11,277 20,529
Short-term borrowings................. 606 1,993
Long-term obligations................. 116 (182 )
Total interest-bearing
liabilities..................... $ 11,999 $22,340
Interest rate spread..................
Net interest income and net yield on
interest-earning assets............. $ (6,860) $3,916
</TABLE>
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.
36
<PAGE>
CURRENT ACCOUNTING AND REGULATORY ISSUES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("Statement 121") which establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for those to be disposed of. Statement 121
requires that long-lived assets and certain intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. An impairment loss should be recognized
if the sum of the undiscounted future cash flows is less than the carrying
amount of the asset. Those assets to be disposed of are to be reported at the
lower of the carrying amount or fair value, less costs to sell. Adoption of
Statement 121 is required for fiscal years beginning after December 15, 1995.
Adoption of this statement should not have a material effect on BancShares'
consolidated financial statements at the date of adoption. However this
statement could have a material impact on BancShares' consolidated financial
statements for future periods should an event or changes in circumstances occur
in such future periods, requiring a review by management for impairment.
In October 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights, an amendment of SFAS No. 65 ("Statement 122"). Statement 122
amends SFAS No. 65, Accounting for Certain Mortgage Banking Activities, to
require that a mortgage banking enterprise, or an entity engaged in mortgage
banking activities, recognize as separate assets rights to service mortgage
loans for others, however those rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values if it is practicable to estimate
those fair values. Statement 122 also requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment based
on the fair values of these rights. Impairment should be recognized through a
valuation allowance for each impaired stratum. Statement 122 applies
prospectively in fiscal years beginning after December 31, 1995. BancShares will
adopt Statement 122 prospectively on January 1, 1996, and does not believe that
it will have a material effect on the consolidated financial statements upon
adoption. However, this statement could have a material impact on BancShares'
future consolidated financial statements in the event that changes in market
conditions result in an increased volume of mortgage banking activities or the
recognition of impairment valuation allowances.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation ("Statement 123"). Statement 123 defines a fair value method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. It also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"). Statement 123 requires that
an employer's financial statements include certain disclosures about stock-based
compensation arrangements regardless of the method used to account for them.
Entities electing to remain with the accounting in APB 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair
value based method of accounting defined in Statement 123 had been applied.
The accounting requirements of Statement 123 are effective for transactions
entered into in fiscal years that begin after December 31, 1995. The disclosure
requirements are effective for financial statements for fiscal years beginning
after December 15, 1995, or for an earlier fiscal year for which Statement 123
is initially adopted for recognizing compensation cost. Pro forma disclosures
required for entities that elect to continue to measure compensation cost using
APB 25 must include the effects of all awards granted in fiscal years that begin
after December 15, 1994. BancShares will continue to measure compensation cost
using APB 25, and therefore will make the appropriate disclosures in its
financial statements for the year ending December 31, 1996, of net income and
earnings per share as if the fair value based method of accounting defined in
Statement 123 had been applied. Management has not yet quantified these pro
forma disclosures.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as statements
of financial accounting standards. Management considers the effect of the
proposed statements on the consolidated financial statements of BancShares and
monitors the status of changes to issued exposure drafts and to proposed
effective dates.
Other than the SAIF assessment under consideration, management is not aware
of any current recommendations by the regulatory authorities that, if
implemented, would have or would be reasonably likely to have a material effect
on liquidity, capital ratios or results of operations.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
FIRST CITIZENS BANCSHARES, INC.
We have audited the accompanying consolidated balance sheets of First
Citizens BancShares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Citizens BancShares, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 22, 1996
38
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
<S> <C> <C>
(THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Cash and due from banks........................................................................... $ 448,630 $ 455,710
Investment securities (market value $1,991,716 in 1995; $1,423,697 in 1994)....................... 1,983,148 1,458,969
Federal funds sold................................................................................ 40,445 6,750
Loans............................................................................................. 4,580,719 4,148,133
Less reserve for loan losses...................................................................... 78,495 72,017
Net loans.................................................................................. 4,502,224 4,076,116
Premises and equipment............................................................................ 208,240 188,824
Income earned not collected....................................................................... 58,237 45,194
Other assets...................................................................................... 143,026 101,761
Total assets............................................................................... $7,383,950 $6,333,324
LIABILITIES
Deposits:
Noninterest-bearing............................................................................. $ 943,445 $ 858,537
Interest-bearing................................................................................ 5,444,637 4,659,052
Total deposits............................................................................. 6,388,082 5,517,589
Short-term borrowings............................................................................. 376,531 290,861
Long-term obligations............................................................................. 22,957 34,542
Other liabilities................................................................................. 75,543 40,921
Total liabilities.......................................................................... 6,863,113 5,883,913
SHAREHOLDERS' EQUITY
Common stock:
Class A -- $1 par value (11,000,000 shares authorized; 8,949,703 shares issued for 1995;
8,419,389 shares issued for 1994)............................................................ 8,950 8,419
Class B -- $1 par value (2,000,000 shares authorized; 1,766,464 shares issued for 1995;
1,769,451 shares issued for 1994)............................................................ 1,766 1,770
Surplus........................................................................................... 106,954 82,631
Retained earnings................................................................................. 403,167 356,591
Total shareholders' equity................................................................. 520,837 449,411
Total liabilities and shareholders' equity................................................. $7,383,950 $6,333,324
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
39
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
INTEREST INCOME
Loans............................................................................. $ 380,676 $ 300,993 $ 271,792
Investment securities:
U.S. Government................................................................. 81,219 71,514 90,610
State, county and municipal..................................................... 405 114 29
Other........................................................................... 184 87 65
Total investment securities interest income................................ 81,808 71,715 90,704
Federal funds sold................................................................ 8,625 3,297 2,385
Total interest income...................................................... 471,109 376,005 364,881
INTEREST EXPENSE
Deposits.......................................................................... 207,234 137,292 130,354
Short-term borrowings............................................................. 15,773 8,314 6,118
Long-term obligations............................................................. 1,657 2,520 1,462
Total interest expense..................................................... 224,664 148,126 137,934
Net interest income........................................................ 246,445 227,879 226,947
Provision for loan losses......................................................... 5,364 2,786 15,245
Net interest income after provision for loan losses........................ 241,081 225,093 211,702
NONINTEREST INCOME
Trust income...................................................................... 8,886 8,228 7,197
Service charges on deposit accounts............................................... 39,909 38,567 43,277
Credit card income................................................................ 13,561 12,390 10,618
Other service charges and fees.................................................... 21,227 16,672 8,564
Gain (loss) on sale of mortgage loans............................................. 809 (862) 8,010
Other............................................................................. 7,736 8,330 8,071
Total noninterest income................................................... 92,128 83,325 85,737
333,209 308,418 297,439
NONINTEREST EXPENSE
Salaries and wages................................................................ 106,607 99,282 92,579
Employee benefits................................................................. 17,080 14,535 13,500
Occupancy expense................................................................. 20,446 18,691 16,972
Equipment expense................................................................. 24,504 23,839 21,231
Other............................................................................. 77,243 74,235 68,931
Total noninterest expense.................................................. 245,880 230,582 213,213
Income before income taxes........................................................ 87,329 77,836 84,226
Income taxes...................................................................... 30,423 26,867 28,641
Net income................................................................. $ 56,906 $ 50,969 $ 55,585
Per share information
Net income...................................................................... $ 5.37 $ 5.13 $ 5.73
Cash dividends.................................................................. 0.825 0.725 0.625
Weighted average shares outstanding............................................... 10,597,066 9,944,927 9,701,389
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS CLASS
A B TOTAL
COMMON COMMON RETAINED SHAREHOLDERS'
STOCK STOCK SURPLUS EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE DATA)
Balance at December 31, 1992................................... $7,815 $1,793 $ 55,447 $268,732 $ 333,787
Issuance of 164,917 shares of Class A common stock pursuant to
employee stock purchase plans................................ 165 5,966 6,131
Redemption of 13,147 shares of Class B common stock............ (13 ) (687) (700)
Issuance of 6,134 shares of Class A common stock pursuant to
the Dividend Reinvestment Plan............................... 6 304 310
Net income..................................................... 55,585 55,585
Cash dividends................................................. (6,063) (6,063)
Balance at December 31, 1993................................... 7,986 1,780 61,717 317,567 389,050
Issuance of 79,408 shares of Class A common stock pursuant to
employee stock purchase plans................................ 79 2,586 2,665
Redemption of 85,850 shares of Class A common stock and 10,617
shares of Class B common stock............................... (86 ) (10 ) (4,132) (4,228)
Issuance of 6,694 shares of Class A common stock pursuant to
the Dividend Reinvestment Plan............................... 7 276 283
Issuance of 433,068 shares of Class A common stock in
connection with various acquisitions......................... 433 18,052 18,485
Net income..................................................... 50,969 50,969
Cash dividends................................................. (7,311) (7,311)
Other.......................................................... (502) (502)
Balance at December 31, 1994................................... 8,419 1,770 82,631 356,591 449,411
Issuance of 64,881 shares of Class A common stock pursuant to
employee stock purchase plans................................ 65 2,556 2,621
Redemption of 28,386 shares of Class A common stock and 2,987
shares of Class B common stock............................... (28 ) (4 ) (1,513) (1,545)
Issuance of 8,998 shares of Class A common stock pursuant to
the Dividend Reinvestment Plan............................... 9 406 415
Issuance of 484,821 shares of Class A common stock in
connection with various acquisitions......................... 485 21,361 21,846
Net income..................................................... 56,906 56,906
Cash dividends................................................. (8,817) (8,817)
Balance at December 31, 1995................................... $8,950 $1,766 $106,954 $403,167 $ 520,837
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
(THOUSANDS)
OPERATING ACTIVITIES
Net income......................................................................... $ 56,906 $ 50,969 $ 55,585
Adjustments:
Amortization of intangibles...................................................... 5,877 3,993 3,157
Provision for loan losses........................................................ 5,364 2,786 15,245
Deferred tax benefit............................................................. (1,454) (1,579) (4,807)
Change in current taxes payable.................................................. 3,241 (3,993) (3,540)
Depreciation..................................................................... 16,882 15,885 13,092
Change in accrued interest payable............................................... 26,696 3,242 (273)
Change in income earned not collected............................................ (11,746) 1,007 (2,173)
Origination of loans held for sale............................................... (85,148) (72,804) (315,517)
Proceeds from sale of loans...................................................... 75,964 116,125 284,216
(Gain) loss on sale of mortgage loans............................................ (809) 862 (8,010)
Net amortization of premiums and discounts....................................... 19,634 27,439 17,493
Net change in other assets....................................................... (15,383) 39,980 (8,396)
Net change in other liabilities.................................................. 4,798 (16,263) 1,944
Net cash provided by operating activities.......................................... 100,822 167,649 48,016
INVESTING ACTIVITIES
Dispositions of premises and equipment........................................... 3,445 2,364 910
Additions to premises and equipment.............................................. (31,147) (20,254) (34,390)
Net increase in loans outstanding................................................ (254,326) (498,396) (86,550)
Purchases of investment securities............................................... (1,328,178) (207,601) (1,045,662)
Proceeds from maturities of investment securities................................ 826,129 576,293 708,145
Proceeds from sale of investment securities...................................... -- -- 3,956
Net change in federal funds sold................................................. (25,023) 16,300 90,000
Purchases of institutions, net of cash acquired.................................. 106,092 (6,533) 128,041
Net cash used by investing activities.............................................. (703,008) (137,827) (235,550)
FINANCING ACTIVITIES
Repurchases of common stock...................................................... (1,545) (4,228) (700)
Proceeds from issuance of stock, net of related costs............................ 3,036 2,948 6,441
Cash dividends paid.............................................................. (8,817) (7,311) (6,063)
Net change in time deposits...................................................... 536,251 (4,854) 6,631
Net change in demand and other interest-bearing deposits......................... (3,811) 24,901 174,161
Net change in short-term borrowings.............................................. 70,188 38,874 34,122
Repayments of long-term obligations.............................................. (196) (17,294) (541)
Net cash provided by financing activities.......................................... 595,106 33,036 214,051
Change in cash and due from banks.................................................. (7,080) 62,858 26,517
Cash and due from banks at beginning of year....................................... 455,710 392,852 366,335
Cash and due from banks at end of year............................................. $ 448,630 $ 455,710 $ 392,852
Cash payments for:
Interest......................................................................... $ 197,334 $ 144,844 $ 137,812
Income taxes..................................................................... 27,454 27,667 34,021
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions............................................. $ 21,846 $ 18,485 --
Long-term obligations issued for acquisitions.................................... 2,494 -- $ 849
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
42
<PAGE>
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 bank holding company
with three banking subsidiaries -- First-Citizens Bank & Trust Company (the
"Bank"), Bank of Marlinton ("Marlinton"), and Bank of White Sulphur Springs
("WSS"). On January 1, 1996, a fourth banking subsidiary, based in Virginia, was
merged into the Bank. The accounting and reporting policies of BancShares and
its subsidiaries are in accordance with generally accepted accounting principles
and, with regard to the banking subsidiaries, conform to general industry
practices.
The Bank, Marlinton and WSS conduct a full-service banking business
designed to meet the needs of both consumers and commercial entities in the
markets in which they serve. These services include normal taking of deposits,
commercial and consumer lending, a full service trust department and other
activities incidental to commercial banking. The Bank also services residential
mortgages for other entities in exchange for a monthly servicing fee. The Bank's
primary market area includes North Carolina and Virginia, while Marlinton and
WSS both serve individual communities within West Virginia.
The Bank has ten wholly-owned subsidiaries. Neuse, Incorporated owns a
substantial number of the facilities in which the Bank operates branches and
also operates an insurance agency, which acts as agent for credit-related
insurance associated with various areas of the Bank's business. American
Guaranty Insurance Company is engaged in writing fire and casualty insurance.
Triangle Life Insurance Company writes credit life and credit accident and
health insurance. First Citizens Processing Services provides operating support
services for affiliate banks. First Citizens Investor Services provides
investment services, including sales of annuities and third party mutual funds,
to customers of the Bank. Other subsidiaries are either inactive or are not
material to the consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant estimates
made by BancShares in the preparation of its consolidated financial statements
are the determination of the reserve for loan losses, the valuation allowance
for deferred tax assets, and fair value estimates.
Intercompany accounts and transactions have been eliminated. Certain
amounts for prior years have been reclassified to conform with the presentations
for 1995. However, the reclassifications have no effect on shareholders' equity
or net income as previously reported.
INVESTMENT SECURITIES
BancShares adopted Statement of Financial Accounting Standards No. 115
("Statement 115") effective January 1, 1994. Statement 115 requires segregation
of the investment portfolio, with all securities classified as held to maturity,
available for sale, or held for trading purposes. As of December 31, 1995 and
1994, all investment securities are classified as held to maturity, as
BancShares has the ability and the positive intent to hold its investment
securities until maturity. These securities are stated at cost adjusted for
amortization of premium and accretion of discount. Accreted discounts and
amortized premiums are included in interest income on an effective yield basis.
At December 31, 1995 and 1994, BancShares had no investment securities
classified as either available for sale or held in a trading portfolio.
LOANS
Loans that are held for investment purposes are carried at their principal
amount outstanding. Those loans that are held for sale are carried at the lower
of aggregate cost or market. Interest on substantially all loans is accrued and
credited to interest income based upon the daily principal amount.
43
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
LOAN FEES
Fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of the
related loans, using a method that approximates a constant yield.
MORTGAGE SERVICING RIGHTS
BancShares adopted Statement of Financial Accounting Standards No. 122
("Statement 122") effective January 1, 1996. Statement 122 requires any entity
engaged in mortgage banking activities to recognize as separate assets any
rights to service mortgage loans for others. When mortgage servicing rights are
acquired or result from the sale of origination activity with servicing rights
retained, the servicer should assign a value to the servicing rights based on
the relative fair values if it is practicable to estimate those fair values.
Statement 122 also requires a servicer to assess its capitalized mortgage
servicing rights for impairment based on the fair values of those rights.
BancShares does not believe that the adoption of Statement 122 will have a
material impact on its consolidated financial statements upon adoption. However,
Statement 122 could have a material impact on BancShares' future consolidated
financial statements should market conditions result in an increased volume of
mortgage banking activities or the recognition of impairment valuation
allowances.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is established by charges to operating expense
and recognition of acquired institutions' previously established reserves. To
determine the reserve needed, management evaluates the risk characteristics of
the loan portfolio under current and projected economic conditions and considers
such factors as the financial condition of the borrower, fair market value of
collateral and other items that, in management's opinion, deserve current
recognition in estimating possible credit losses.
BancShares adopted Statements of Financial Accounting Standards No. 114 and
No. 118 (collectively, "Statement 114") effective January 1, 1995. The adoption
of Statement 114 did not have a material effect on BancShares' financial
condition or results of operations. Under Statement 114, the reserve for loan
losses related to loans that are identified as impaired is based on discounted
cash flows using the loans' initial interest rates or, if the loan is secured,
the fair value of the collateral. Residential mortgage loans, retail installment
loans and credit card loans are excluded from Statement 114 as they are
evaluated collectively for impairment since they are homogeneous and generally
carry smaller individual balances.
Management considers the established reserve adequate to absorb future
losses that relate to loans outstanding as of December 31, 1995, although future
additions to the reserve may be necessary based on changes in economic and other
conditions. Additionally, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's reserve for loan
losses. Such agencies may require the recognition of additions to the reserve
based on their judgments of information available to them at the time of their
examination.
NONACCRUAL LOANS AND OTHER REAL ESTATE
Accrual of interest on loans (including impaired loans) is discontinued
when management deems that collection of additional interest is doubtful. At
that time, any interest receivable that was accrued during the current period is
reversed and any interest accrued in prior periods is charged off. Any payments
received from the borrower while the loan is classified as nonaccrual are
generally applied to the outstanding principal balance. Loans are returned to an
accrual status when both principal and interest are current and the loan is
determined to be performing in accordance with the applicable loan terms.
Other real estate acquired through foreclosure is valued at the lower of
the loan balance at the time of foreclosure or estimated fair market value net
of selling costs and is included in other assets. Once acquired, other real
estate is periodically reviewed to ensure that the fair market value of the
property supports the carrying value, with writedowns recorded
44
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
when necessary. Gains and losses resulting from the sale or writedown of other
real estate and income and expenses related to the operation of other real
estate are recorded in other expense.
INTANGIBLE ASSETS
Goodwill arising from acquisitions in which the purchase price exceeds the
fair value of net assets acquired is amortized using the straight-line method
over a 15 year period. Deposit base intangibles are amortized over the expected
life of the specific deposit base using either the straight-line or an
accelerated method of amortization based on when the asset was recorded.
Intangible assets are subject to periodic review and are adjusted for any
impairment of value.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121 ("Statement 121") which
became effective January 1, 1996, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill.
Statement 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. Adoption
of Statement 121 should not have a material effect on BancShares' consolidated
financial statements at the date of adoption. However, Statement 121 could have
a material impact on BancShares' consolidated financial statements for future
periods should an event or changes in circumstances occur in such future
periods, requiring a review by management for impairment.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation and amortization
are computed by the straight-line method and are charged to operations over the
estimated useful lives of the assets, which range from 25 to 40 years for
premises and three to 10 years for furniture and equipment. Leasehold
improvements are amortized over the terms of the respective leases or the useful
lives of the improvements, whichever is shorter. Gains and losses on
dispositions are recorded in other income. Maintenance and repairs are charged
to occupancy expense or equipment expense as incurred.
INCOME TAXES
Income tax expense is based on consolidated net income and generally
differs from income taxes paid due to deferred income taxes and benefits arising
from income and expenses being recognized in different periods for financial and
income tax reporting purposes. BancShares and its subsidiaries file a
consolidated federal income tax return. Each subsidiary pays its allocation of
federal income taxes or receives a payment to the extent that tax benefits are
realized. BancShares and its subsidiaries each file separate state income tax
returns.
PER SHARE DATA
Net income per share has been computed by dividing net income by the
weighted average number of both classes of common shares outstanding during each
period. The weighted average number of shares outstanding for 1995, 1994 and
1993 was 10,597,066; 9,944,927 and 9,701,389, respectively. Outstanding options
to purchase shares of common stock were not materially dilutive to the
computation of net income per share in any period.
Cash dividends per share apply to both Class A and Class B common stock as
both classes share equally in dividends. Class A common stock carries one vote
per share, while shares of Class B common stock carry 16 votes per share.
45
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE B -- INVESTMENT SECURITIES
The aggregate values of investment securities at December 31 along with
gross unrealized gains and losses are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1995
U.S. Government....................................................... $ 1,972,129 $ 10,697 $ (2,296) $ 1,980,530
State, county and municipal........................................... 8,033 178 (10) 8,201
Other................................................................. 2,986 4 (5) 2,985
Total investment securities........................................ $ 1,983,148 $ 10,879 $ (2,311) $ 1,991,716
1994
U.S. Government....................................................... $ 1,453,951 $ 39 $(35,257) $ 1,418,733
State, county and municipal........................................... 4,603 10 (64) 4,549
Other................................................................. 415 0 0 415
Total investment securities........................................ $ 1,458,969 $ 49 $(35,321) $ 1,423,697
</TABLE>
The maturities of investment securities at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Within one year...................................................... $ 929,761 $ 931,954 $ 849,740 $ 838,804
One through five years............................................... 1,041,434 1,047,733 601,019 577,065
Five to 10 years..................................................... 4,587 4,636 5,181 4,910
More than 10 years................................................... 7,366 7,393 3,029 2,918
Total investment securities..................................... $ 1,983,148 $ 1,991,716 $ 1,458,969 $ 1,423,697
</TABLE>
Investment securities having an aggregate par value of $819,043 at December
31, 1995, and $730,195 at December 31, 1994, were pledged as collateral to
secure public funds on deposit and for other purposes as required by law.
NOTE C -- LOANS
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loans secured by real estate:
Construction and land development....................................... $ 104,540 $ 100,708
Mortgage................................................................ 2,735,418 2,475,281
Commercial and industrial................................................. 466,462 373,947
Consumer.................................................................. 1,199,400 1,119,994
Lease financing........................................................... 59,899 60,598
All other loans........................................................... 15,000 17,605
Total loans............................................................. $ 4,580,719 $ 4,148,133
</TABLE>
Included in total loans as of December 31, 1995 and 1994 is unearned income
of $4,913 and $4,316, respectively, substantially all of which relates to
deferred origination fees. There were no foreign loans outstanding during either
period, nor were there any material highly leveraged transactions. There are no
loan concentrations exceeding 10 percent of loans outstanding involving multiple
borrowers in similar activities or industries at December 31, 1995.
Substantially all loans are to customers domiciled within BancShares' principal
market areas.
46
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE C -- LOANS -- Continued
At December 31, 1995 and 1994 nonperforming loans consisted of nonaccrual
loans and amounted to $13,208 and $21,069, respectively. Gross interest income
on nonperforming loans that would have been recorded had these loans been
performing was $1,556, $1,430 and $2,354 during 1995, 1994 and 1993,
respectively. Interest income recognized on nonperforming loans was $595, $693
and $1,083 during the respective periods. As of December 31, 1995 and 1994, the
balance of other real estate acquired through foreclosure was $2,154 and $5,926,
respectively. Loans transferred to other real estate totaled $2,110, $1,894 and
$5,037 during 1995, 1994 and 1993, respectively.
Activity related to the sale of loans is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Loans held for sale at December 31....................................................... $ 15,388 $ 5,395 $ 49,578
For the year ended December 31:
Loans sold............................................................................. 75,155 116,987 276,206
Net gain (loss) on sale of loans....................................................... 809 (862) 8,010
</TABLE>
NOTE D -- RESERVE FOR LOAN LOSSES
Activity in the reserve for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year............................................................. $72,017 $70,049 $58,380
Reserve of acquired institutions......................................................... 3,231 1,009 8,269
Provision for loan losses................................................................ 5,364 2,786 15,245
Loans charged off........................................................................ (7,262 ) (8,480 ) (15,643 )
Loans recovered.......................................................................... 5,145 6,653 3,798
Net charge-offs.......................................................................... (2,117 ) (1,827 ) (11,845 )
Balance at end of year................................................................. $78,495 $72,017 $70,049
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 was $11,119, all of which were classified as
nonaccrual. Specific reserves of $865 have been established for these loans. The
average recorded investment in impaired loans during the year ended December 31,
1995, was approximately $14,326. For the year ended December 31, 1995,
BancShares recognized interest income on those impaired loans of approximately
$543. The amount of interest income recognized on a cash basis for impaired
loans was not material.
NOTE E -- PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Land..................................................................................... $ 46,200 $ 40,827 $ 34,921
Premises and leasehold improvements...................................................... 160,116 141,332 138,660
Furniture and equipment.................................................................. 112,070 106,482 101,082
Total.................................................................................. 318,386 288,641 274,663
Less accumulated depreciation and amortization........................................... 110,146 99,817 89,789
Net book value......................................................................... $ 208,240 $ 188,824 $ 184,874
Depreciation expense charged to operations............................................... $ 16,882 $ 15,885 $ 13,092
</TABLE>
Premises with a book value of $3,188 at December 31, 1995, and $3,142 at
December 31, 1994, were pledged to secure mortgage notes payable.
47
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE E -- PREMISES AND EQUIPMENT -- Continued
BancShares leases certain premises and equipment under various lease
agreements that provide for payment of property taxes, insurance and maintenance
costs. Generally, operating leases provide for one or more renewal options on
the same basis as current rental terms. However, certain leases require
increased rentals under cost of living escalation clauses. Certain of the leases
also provide purchase options.
Future minimum rental commitments for noncancellable operating leases with
initial or remaining terms of one or more years consisted of the following at
December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
<S> <C>
1996.......................................................................... $ 9,726
1997.......................................................................... 9,304
1998.......................................................................... 8,321
1999.......................................................................... 7,314
2000.......................................................................... 5,588
Thereafter.................................................................... 63,176
Total minimum payments...................................................... $ 103,429
</TABLE>
Total rent expense for all operating leases amounted to $11,998 in 1995,
$11,118 in 1994 and $10,449 in 1993.
NOTE F -- SHORT-TERM BORROWINGS
Short-term borrowings at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Master notes...................................................... $ 257,178 $ 173,250
Federal funds purchased........................................... 64,085 76,430
Repurchase agreements............................................. 25,022 14,970
U.S. Treasury tax and loan accounts............................... 17,581 20,046
Other............................................................. 12,665 6,165
Total short-term borrowings..................................... $ 376,531 $ 290,861
</TABLE>
Master notes are overnight unsecured borrowings by BancShares from Bank
customers. The rate on Master notes was 4.74 percent as of December 31, 1995.
During 1995, the weighted average rate on Master note borrowings was 4.96
percent, and the average amount outstanding was $203,114. The largest amount
outstanding at any month-end during 1995 was $257,178.
48
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE G -- LONG-TERM OBLIGATIONS
Long-term obligations at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Variable rate note at 6.77 percent and 6.25 percent at December 31, 1995 and 1994, respectively, payable
in quarterly installments with final payment of $9,305 due in April 1997, unsecured................... $ 9,305 $ 10,445
Federal Home Loan Bank advances with a weighted average rate of 5.21 percent at December 31, 1995, and
4.66 percent at December 31, 1994, with maturities extending to 1999, secured by U.S. Government
securities............................................................................................ 7,999 20,531
Mortgage notes payable at 8 percent, due in periodic payments through 2004, secured by premises......... 1,821 2,017
Note payable at 7.89 percent, maturing in 2009, secured by collateralized mortgage obligation........... 489 700
Subordinated notes payable at 7 percent maturing June 18, 1998.......................................... 849 849
Subordinated notes payable at 8 percent maturing February 23, 2000...................................... 170 --
Subordinated notes payable at 7.50 percent maturing February 23, 2005................................... 2,324 --
Total long-term obligations........................................................................... $ 22,957 $ 34,542
</TABLE>
Long-term obligations maturing in each of the five years subsequent to
December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996........................................................................... $ 176
1997........................................................................... 9,495
1998........................................................................... 1,055
1999........................................................................... 8,222
2000........................................................................... 411
Thereafter..................................................................... 3,598
$ 22,957
</TABLE>
NOTE H -- COMMON STOCK
On October 23, 1995, the Board of Directors of BancShares authorized the
corporation to purchase on the open market or in private transactions up to
300,000 shares of its outstanding Class A common stock and up to 100,000 shares
of its outstanding Class B common stock. The authorization is effective for a
period of 12 months. The following table sets forth information related to
shares purchased for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Class A
Number of shares purchased.............................. 28,386 85,850 --
Cash disbursed.......................................... $ 1,394 $ 3,769 --
Class B
Number of shares purchased.............................. 2,987 10,617 13,147
Cash disbursed.......................................... $ 151 $ 459 $ 700
</TABLE>
Shares purchased are retired by a charge to common stock for the par value
of the shares retired and to retained earnings for the cost in excess of par
value.
As of December 31, 1995, there were 226,329 shares reserved for issuance
under the Dividend Reinvestment and Stock Purchase Plan. Additionally, as of
December 31, 1995, a total of 923,917 shares that have been registered for
issuance under an employee stock purchase plan remain unissued.
49
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE I -- ESTIMATED FAIR VALUES
Fair value estimates for financial instruments are made at a discrete point
in time based on relevant market information and information about each
financial instrument. Where information regarding the market value of a
financial instrument is available, those values are used, as is the case with
investment securities and residential mortgage loans. In these cases, an open
market exists in which those financial instruments are actively traded.
Because no market exists for many financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. For those financial instruments with a fixed interest rate, an
analysis of the related cash flows was the basis for estimating fair values. The
expected cash flows were then discounted to the valuation date using an
appropriate discount rate. The discount rates used represent the rates under
which similar transactions would be currently negotiated. Generally, the fair
value of variable rate financial instruments equals the book value.
Estimated fair values for financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks............................................ $ 448,630 $ 448,630 $ 455,710 $ 455,710
Investment securities.............................................. 1,983,148 1,991,716 1,458,969 1,423,697
Federal funds sold................................................. 40,445 40,445 6,750 6,750
Loans, net of reserve for loan losses.............................. 4,502,224 4,523,601 4,076,116 3,973,097
Income earned not collected........................................ 58,237 58,237 45,194 45,194
Financial Liabilities:
Deposits........................................................... 6,388,082 6,551,761 5,517,589 5,510,810
Short-term borrowings.............................................. 376,531 376,531 290,861 290,861
Long-term obligations.............................................. 22,957 23,509 34,542 32,933
Accrued interest payable........................................... 47,721 47,721 20,391 20,391
</TABLE>
Forward commitments to sell loans as of December 31, 1995, and 1994 had no
carrying value and unrealized losses of $20 and $23, respectively. For other
off-balance sheet commitments and contingencies, carrying amounts are reasonable
estimates of the fair values for such financial instruments. Carrying amounts
include unamortized fee income and, in some cases, reserves for any projected
credit loss from those financial instruments. These amounts are not material to
BancShares' financial position.
NOTE J -- EMPLOYEE BENEFIT PLANS
Employees who qualify under length of service and other requirements
participate in a noncontributory defined benefit pension plan. Under the plan,
retirement benefits are based on years of service and average earnings. The
policy is to fund the maximum amount allowable for federal income tax purposes.
No contribution was made during the three-year period ending December 31, 1995.
The plan's assets consist primarily of investments in the Bank's common trust
funds, which include listed common stocks and fixed income securities.
At December 31, 1995, the plan's assets also included BancShares common
stock with a market value of $8,710. While applicable regulations would
generally prohibit the ownership of BancShares stock by the plan, the Bank has
received an exemption from the Department of Labor which allows the plan to
continue to hold the stock. However, the plan's interests for all purposes with
respect to the stock are now represented by an independent fiduciary. BancShares
has executed an agreement to purchase any or all of the shares held by the plan
if the fiduciary determines that it is in the best interest of the plan.
50
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE J -- EMPLOYEE BENEFIT PLANS -- Continued
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Pension benefit obligation:
Vested............................................................................................. $ (81,717) $(68,928)
Nonvested.......................................................................................... (1,564) (1,578)
Accumulated benefit obligation....................................................................... (83,281) (70,506)
Effect of projected future compensation levels....................................................... (19,800) (17,889)
Projected benefit obligation......................................................................... (103,081) (88,395)
Market value of plan assets.......................................................................... 128,911 105,376
Plan assets in excess of projected benefit obligation................................................ 25,830 16,981
Unrecognized net transition asset.................................................................... (8,530) (9,759)
Unrecognized net (gain) loss due to difference in past experience and assumptions.................... (17,006) (6,620)
Unrecognized prior service cost...................................................................... 1,505 1,659
Prepaid pension asset................................................................................ $ 1,799 $ 2,261
</TABLE>
The net periodic pension cost (credit) for the years ended December 31
included the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service costs....................................................... $ 3,139 $ 3,275 $ 2,686
Interest costs...................................................... 7,073 6,544 6,183
Actual return on plan assets........................................ (26,745) 2,101 (7,440)
Net amortization and deferral....................................... 16,842 (11,373) (1,474)
Net periodic pension cost (credit).................................. $ 309 $ 547 ($ 45)
</TABLE>
Prior service cost is being amortized on a straight-line basis over the
estimated average remaining service period of employees. In determining the
projected benefit obligation at December 31, 1995, 1994, and 1993, the following
assumptions were used:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted average discount rate............................................ 7.25% 7.75% 7.25%
Rate of future compensation increases..................................... 4.25 4.50 4.50
Long-term rate of return on plan assets................................... 8.25 8.50 8.25
</TABLE>
Employees are also eligible to participate in a matching savings plan after
one year of service. During 1995 BancShares made participating contributions to
this plan of $3,155 compared to $2,907 during 1994 and $2,709 during 1993.
51
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE J -- EMPLOYEE BENEFIT PLANS -- Continued
Certain employees have been granted options to purchase shares of
BancShares' Class A common stock through employee stock purchase plans. The
plans are qualified plans under the Internal Revenue Code. The number of options
granted was determined based on each eligible employee's salary as of the grant
date. The option price for each of the plans is fixed at 85 percent of the
market price on the grant date. As of December 31, 1995, options to purchase a
total of 146,800 shares remained, net of the 41,230 options that have been
forfeited. Additional information is as follows:
<TABLE>
<CAPTION>
1994 PLAN 1992 PLAN
<S> <C> <C>
Options granted.................................................... 264,113 474,768
Grant date......................................................... July 1, 1994 July 1, 1992
Option price per share............................................. $37.83 $29.96
Number of shares purchased during:
1995............................................................. 64,881 --
1994............................................................. 11,202 68,206
1993............................................................. -- 164,917
Plan termination date.............................................. June 30, 1996 June 30, 1994
</TABLE>
NOTE K -- OTHER INCOME AND OTHER EXPENSE
Included in other income for the year ended December 31, 1995, was net
premium income earned by the insurance subsidiaries, which amounted to $3,964.
Net premium income earned during 1994 and 1993 was $4,495 and $4,953,
respectively.
Other expense for the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Credit card expense.......................................................................... $ 9,106 $ 8,587 $ 6,814
FDIC insurance............................................................................... 8,418 11,831 10,496
Telecommunication............................................................................ 6,790 6,743 6,528
Amortization of intangibles.................................................................. 5,877 3,993 3,157
Postage...................................................................................... 5,701 4,907 3,996
Other........................................................................................ 41,351 38,174 37,940
Total other expense................................................................... $ 77,243 $ 74,235 $ 68,931
</TABLE>
NOTE L -- INCOME TAXES
At December 31, income tax expense consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current tax expense
Federal.................................................................................... $30,757 $28,446 $33,448
State...................................................................................... 1,120 -- --
Total current tax expense............................................................... 31,877 28,446 33,448
Deferred tax expense (benefit)
Federal.................................................................................... (111) (1,579) (4,807)
State...................................................................................... (1,343) -- --
Total deferred tax benefit.............................................................. (1,454) (1,579) (4,807)
Total tax expense....................................................................... $30,423 $26,867 $28,641
</TABLE>
52
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE L -- INCOME TAXES -- Continued
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income tax at statutory rates................................................................ $30,565 $27,243 $29,479
Increase (reduction) in income taxes resulting from:
Adjustment to deferred tax assets and liabilities for enacted changes in laws and rates.... -- -- (483)
Amortization of goodwill................................................................... 1,280 674 382
Nontaxable income on loans and investments, net of nondeductible expenses.................. (1,378) (1,346) (1,070)
State and local income taxes (benefit), including change in valuation allowance, net of
federal income tax...................................................................... (145) 73 40
Other, net................................................................................. 101 223 293
Total tax expense....................................................................... $30,423 $26,867 $28,641
</TABLE>
The net deferred tax asset included the following components at December
31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Loan loss reserve....................................................................................... $31,426 $27,780
Net deferred loan fees and costs........................................................................ 2,066 1,682
Losses on other real estate............................................................................. 1,286 1,198
Net operating loss carryforwards........................................................................ 978 1,024
Other................................................................................................... 6,068 6,190
Gross deferred tax asset.............................................................................. 41,824 37,874
Less: valuation allowance............................................................................... (2,620) (3,493)
Deferred tax asset.................................................................................... 39,204 34,381
Accelerated depreciation................................................................................ 4,654 3,344
Accretion of bond discount.............................................................................. 768 292
Net periodic pension credit............................................................................. 639 791
Tax loan loss reserve reversal.......................................................................... 1,295 1,071
Other................................................................................................... 5,449 4,276
Deferred tax liability................................................................................ 12,805 9,774
Net deferred tax asset................................................................................ $26,399 $24,607
</TABLE>
Due to changes in asset mix and the resulting composition of net interest
income, BancShares incurred income tax expense within its principal state
jurisdiction in 1995. Prior to 1995, BancShares incurred immaterial amounts of
state income tax expense and established a valuation allowance for the entire
amount of its net state deferred tax asset. During 1995, the valuation
allowance, which is recorded net of federal taxes, was reduced by $873, which
resulted in a deferred state tax benefit in 1995 of $1,343. At December 31,
1995, the state tax valuation allowance represents approximately 75% of the
gross state deferred tax asset. The net state deferred tax asset of $1,343 is
the amount which BancShares believes is more likely than not to be realized.
NOTE M -- RELATED PARTY TRANSACTIONS
The banks have had, and expect to have in the future, banking transactions
in the ordinary course of business with several directors, officers and their
associates ("related parties"), on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with others. Those transactions neither involve more than the
normal risk of collectibility nor present any unfavorable features.
53
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE M -- RELATED PARTY TRANSACTIONS -- Continued
An analysis of changes in aggregate amounts of related party loans for the
year ended December 31, 1995, which excludes aggregate loans totaling less than
$60 to any one related party, is as follows:
<TABLE>
<S> <C>
Balance at beginning of year....................................... $ 5,643
New loans.......................................................... 8,141
Repayments......................................................... 1,842
Balance at end of year............................................. $ 11,942
</TABLE>
BancShares provides certain processing and operational services to other
financial institutions. Certain of these institutions are deemed to be related
parties since certain control persons of BancShares are also deemed to be
control persons of the other banks. During 1995 and 1994, BancShares received
$9,031 and $7,976, respectively, for services rendered to related parties,
substantially all of which is included in fee income and relates to data
processing services provided. The amount earned by BancShares during 1993 was
not material.
NOTE N -- ACQUISITIONS
BancShares and the Bank have entered into and consummated numerous
acquisitions in recent years. All of the transactions have been accounted for as
purchases, with the results of operations not included in BancShares' Statements
of Income until after the transaction date. The pro forma impact of the
acquisitions as though they had been made at the beginning of the periods
presented is not material to BancShares' consolidated financial statements.
As of December 31, 1995 and 1994, BancShares had goodwill of $50,249 and
$31,274, respectively. Deposit intangibles totaled $23,140 and $10,842,
respectively.
The following table provides information regarding the significant
acquisitions that have been consummated during the three-year period ending
December 31, 1995:
<TABLE>
<CAPTION>
DEPOSIT
ASSETS LIABILITIES RESULTING
DATE INSTITUTION/LOCATION ACQUIRED ASSUMED INTANGIBLE
<S> <C> <C> <C> <C>
June 1995 Bank of White Sulphur Springs
White Sulphur Springs, West Virginia $ 64,589 $ 59,174 $ 5,691
May 1995 9 NationsBank of Virginia branches
Southern Virginia 133,175 143,494 10,801
March 1995 State Bank
Fayetteville, North Carolina 49,700 41,238 5,555
February 1995 First Investors Savings Bank, Inc., SSB
Whiteville, North Carolina 44,426 40,846 4,325
February 1995 Pace American Bank
Lawrenceville, Virginia 58,660 53,303 6,954
December 1994 First Republic Savings Bank, FSB
Roanoke Rapids, North Carolina 53,661 42,998 6,250
September 1994 Bank of Marlinton
Marlinton, West Virginia 51,646 46,647 4,605
August 1994 Edgecombe Homestead Savings Bank
Tarboro, North Carolina 39,181 30,195 4,547
March 1994 Bank of Bladenboro
Bladenboro, North Carolina 21,316 19,515 1,607
September 1993 Pioneer Bancorp, Inc.
Rocky Mount, North Carolina 268,845 216,226 8,114
June 1993 Caldwell Savings Bank, Inc. SSB
Lenoir, North Carolina 45,863 40,662 724
</TABLE>
54
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE N -- ACQUISITIONS -- Continued
During 1993, the Bank also assumed $105,662 in deposit liabilities from the
Resolution Trust Corporation ("RTC") in conjunction with the resolution of two
institutions by the RTC. The Bank paid a premium of $7,318 for these deposits.
During February 1996, BancShares acquired Sanford, North Carolina-based
Allied Bank Capital, Inc., and its two subsidiaries, Summit Savings Bank Inc.,
SSB and Peoples Savings Bank, Inc., SSB. The Bank acquired assets of
approximately $265,855 and assumed deposit liabilities of $213,960. The
approximate value of the intangible asset which will be recorded is $32,000.
NOTE O -- REGULATORY REQUIREMENTS
BancShares and its banking subsidiaries are subject to certain requirements
imposed by state and federal banking statutes and regulations. These regulations
establish guidelines for minimum capital levels, restrict certain dividend
payments and require the maintenance of noninterest-bearing reserve balances at
the Federal Reserve Bank. Such reserves averaged $159,417 during 1995, of which
$86,215 was satisified by vault cash and the remainder by amounts held in the
Federal Reserve Bank.
Various regulatory agencies have implemented guidelines that evaluate
capital based on risk adjusted assets. An additional capital computation
evaluates capital after adjusting for intangibles. Failure to meet minimum
capital requirements may result in certain actions by regulators that could have
a direct material effect on the financial statements.
BancShares' capital ratios as of December 31, 1995 and 1994, and the
minimum capital standards established by regulatory agencies are set forth
below:
<TABLE>
<CAPTION>
REGULATORY
1995 1994 MINIMUM
<S> <C> <C> <C>
Leverage capital.......................................... 6.1 % 6.5 % 3.0%
As a percentage of risk adjusted assets:
Core capital............................................ 9.6 % 10.1 % 4.0%
Total capital........................................... 10.9 % 11.3 % 8.0%
</TABLE>
The Board of Directors of the Bank may declare a dividend of a portion of
its undivided profits as it may deem appropriate, subject to the requirements of
the General Statutes of North Carolina, without prior approval from the
requisite regulatory authorities. As of December 31, 1995, this amount was
approximately $335,727. Dividends declared by the Bank amounted to $39,273 in
1995, $10,667 in 1994, and $970 in 1993.
Various proposals are being considered by the United States Congress
concerning a possible merger of the two deposit funds administered by the
Federal Deposit Insurance Corporation, the Bank Insurance Fund (the "BIF") and
the Savings Association Insurance Fund (the "SAIF"). Central to that discussion
is the recapitalization of the SAIF prior to such a merger, and most of the
proposals mandate a special one-time assessment of SAIF-insured deposits at
rates up to 85 basis points of the SAIF-insured deposits. A final assessment
rate has yet to be determined, and due to the uncertainty as to which, if any,
of the proposals will be adopted and the ultimate amount of the assessment to be
levied on the SAIF-insured deposits, the impact of the proposals and the
assessment is impossible to predict with certainty at this time. As of December
31, 1995, BancShares and its subsidiaries had $1,857,928 of SAIF-insured
deposits.
NOTE P -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, BancShares and its subsidiaries have
financial instruments with off-balance sheet risk in order to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit, standby letters of credit and forward commitments to sell loans. These
instruments involve, to varying degrees, elements of credit, interest rate or
liquidity risk.
55
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE P -- COMMITMENTS AND CONTINGENCIES -- Continued
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity requirements.
Established credit standards control the credit-risk exposure associated with
these commitments. In some cases, BancShares requires that collateral be pledged
to secure the commitment. At December 31, 1995 and 1994, BancShares had unused
commitments totaling $1,403,938 and $1,245,613, respectively.
Standby letters of credit are conditional commitments guaranteeing
performance of a customer to a third party. Those guarantees are issued
primarily to support public and private borrowing arrangements. In order to
minimize its exposure, the BancShares' credit policies also govern the issuance
of standby letters of credit. At December 31, 1995 and 1994, BancShares had
standby letters of credit amounting to $12,188 and $10,410, respectively.
Management has elected to enter into forward commitments to sell loans as a
hedge against fluctuations in market rates for the commitments to originate
residential mortgage loans. These forward commitments, which totaled $16,000 and
$1,453 at December 31, 1995 and 1994, respectively, were at fixed prices and
were scheduled to settle within 60 days of that date. At December 31, 1995 and
1994, these forward commitments had no carrying value and unrealized losses of
$20 and $23, respectively. These amounts are included with the carrying value of
loans held for sale and commitments to originate mortgage loans when determining
whether a valuation allowance is required to reduce the loans and commitments to
originate mortgage loans to the lower of cost or fair value.
BancShares and various subsidiaries have been named as defendants in
various legal actions arising from their normal business activities in which
damages in various amounts are claimed. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial position.
NOTE Q -- FIRST CITIZENS BANCSHARES, INC. ("PARENT COMPANY")
First Citizens BancShares, Inc.'s principal assets are its investments in
and receivables from its banking subsidiaries. Its sources of income are
dividends and interest income on funds borrowed by the Bank. The Parent
Company's condensed balance sheets as of December 31, 1995 and 1994, and the
related condensed statements of income and cash flows for the years ended
December 31, 1995, 1994, and 1993 are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
<S> <C> <C>
ASSETS
Cash.................................................................................................. $ 752 $ 725
Investment in bank subsidiaries....................................................................... 482,018 418,409
Due from bank subsidiaries............................................................................ 261,959 178,736
Other assets.......................................................................................... 39,783 27,901
Total assets.......................................................................................... $ 784,512 $ 625,771
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings................................................................................. $ 257,178 $ 173,250
Other liabilities..................................................................................... 6,497 3,110
Common stock:
Class A............................................................................................. 8,950 8,419
Class B............................................................................................. 1,766 1,770
Surplus............................................................................................... 106,954 82,631
Retained earnings..................................................................................... 403,167 356,591
Total liabilities and shareholders' equity.......................................................... $ 784,512 $ 625,771
</TABLE>
56
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE Q -- FIRST CITIZENS BANCSHARES, INC. ("PARENT COMPANY") -- Continued
CONDENSED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
Interest income.............................................................................. $ 10,562 $ 6,135 $ 4,136
Interest expense............................................................................. 10,081 5,470 3,836
Net interest income.......................................................................... 481 665 300
Dividends from bank subsidiary............................................................... 39,273 10,667 970
Other income................................................................................. 39 56 22
Other expense................................................................................ 3,472 2,559 1,737
Income (loss) before income tax benefit and equity in undistributed net income of
subsidiaries............................................................................... 36,321 8,829 (445)
Income tax benefit........................................................................... 75 14 118
Income (loss) before equity in undistributed income of subsidiaries.......................... 36,396 8,843 (327)
Equity in undistributed net income of subsidiaries........................................... 20,510 42,126 55,912
Net income................................................................................. $ 56,906 $ 50,969 $55,585
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 56,906 $50,969 $ 55,585
Adjustments:
Amortization of goodwill................................................................. 2,769 1,814 1,092
Undistributed net income of subsidiaries................................................. (20,510) (42,126) (55,912)
Change in other assets................................................................... (98,897) 4,795 --
Change in other liabilities.............................................................. 3,387 (3,739) (3,280)
Net cash (used) provided by operating activities........................................... (56,345) 11,713 (2,515)
INVESTING ACTIVITIES
Net change in due from subsidiaries...................................................... (83,223) (17,736) (22,960)
Investment in subsidiaries............................................................... (43,099) -- --
Purchase of institutions, net of cash acquired........................................... 106,092 (6,533) --
Net cash used by investing activities...................................................... (20,230) (24,269) (22,960)
FINANCING ACTIVITIES
Repurchase of common stock............................................................... (1,545) (4,228) (700)
Proceeds from stock issuance, net of related costs....................................... 3,036 2,948 6,441
Cash dividends paid...................................................................... (8,817) (7,311) (6,063)
Net change in short-term borrowings...................................................... 83,928 19,705 25,294
Net cash provided by financing activities.................................................. 76,602 11,114 24,972
Increase (decrease) in cash................................................................ 27 (1,442) (503)
Cash balance at beginning of year.......................................................... 725 2,167 2,670
Cash balance at end of year................................................................ $ 752 $ 725 $ 2,167
Cash payments for:
Interest................................................................................. $ 10,081 $ 5,470 $ 3,836
Income taxes............................................................................. 27,454 27,667 34,021
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions..................................................... $ 21,846 $18,485 --
</TABLE>
57
<PAGE>
*******************************************************************************
APPENDIX
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints Lewis R. Holding, Frank B. Holding, James B.
Hyler, Jr., Frank B. Holding, Jr., Lewis T. Nunnelee, II, and David L. Ward,
Jr., or any of them, attorneys and proxies, with power of substitution, to vote
all outstanding shares of Class A and/or Class B common stock of First Citizens
BancShares, Inc. ("BancShares") held of record by the undersigned on March 1,
1996, at the Annual Meeting of Shareholders of BancShares to be held in the
Second Floor Conference Room at the office of First-Citizens Bank & Trust
Company, 239 Fayetteville Street Mall, Raleigh, North Carolina, at 1 o'clock
p.m. on April 22, 1996, or any adjournments thereof, on the matters listed
below:
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as indicated otherwise). [ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
</TABLE>
Nominees: J. M. Alexander, Jr.; T. L. Bissett; B. I. Boyle; G. H. Broadrick;
H. M. Craig, Jr.; B. M. Farnsworth; L. M. Fetterman; F. B. Holding;
F. B. Holding, Jr.; L. R. Holding; C. B. C. Holt; E. A. Hubbard; J.
B. Hyler, Jr.; G. D. Johnson; F. R. Jones; L. S. Jones; I. B.
Julian; W. McKay; J. T. Maloney, Jr.; J. C. Mayo, Jr.; B. D. Nash;
L. T. Nunnelee, II; T. O. Shaw; R. C. Soles, Jr., D. L. Ward, Jr.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the line below.)
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS: Proposal to
ratify the appointment of KPMG Peat Marwick LLP as the independent public
accountants of BancShares for 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
3. OTHER BUSINESS: In their discretion, the persons named herein as attorneys
and proxies are authorized to vote upon such other matters as may properly
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AND THIS PROXY WILL BE
CARRIED OUT IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ABOVE. IN THE ABSENCE
OF INSTRUCTIONS, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED IN PROPOSAL 1 ABOVE AND "FOR" PROPOSAL 2 ABOVE. IF, AT OR BEFORE
THE TIME OF THE MEETING, ANY OF THE NOMINEES LISTED IN PROPOSAL 1 HAVE BECOME
UNAVAILABLE FOR ANY REASON, THE PROXYHOLDERS HAVE THE DISCRETION TO VOTE FOR A
SUBSTITUTE NOMINEE OR NOMINEES. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS EXERCISED BY FILING WITH THE SECRETARY AN INSTRUMENT REVOKING THE PROXY OR A
DULY EXECUTED PROXY BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING AND
REQUESTING THE RIGHT TO VOTE IN PERSON.
Please date and sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated
, 1996
(SEAL)
(Signature)
(SEAL)
(Signature if held jointly)
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE.
