<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
December 31, 1995 0-16471
For the fiscal year ended Commission File Number
FIRST CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in the charter)
Delaware 56-1528994
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
239 Fayetteville Street Mall
Raleigh, North Carolina 27601
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (919) 755-7000
Securities registered pursuant to:
Section 12(b) of the Act None
Section 12(g) of the Act: Class A Common Stock, Par Value $1
Class B Common Stock, Par Value $1
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on last reported sales prices on March 20, 1996, the aggregate market
value of the Registrant's voting stock held by nonaffiliates of the Registrant
as of such date was $329,759,700.
On March 20, 1995, there were 9,638,929 outstanding shares of the Registrant's
Class A Common Stock and 1,766,464 outstanding shares of the Registrant's Class
B Common Stock.
Portions of the Registrant's definitive Proxy Statement dated March 13, 1996 are
incorporated in Part III of this report, as is information contained in the 1995
Annual Report.
<PAGE>
Part I
Item 1. Business
First Citizens BancShares, Inc ("BancShares") was incorporated under
the laws of Delaware on August 7, 1986, to become the successor to First
Citizens Corporation ("FCC"), a North Carolina corporation that was the bank
holding company of First-Citizens Bank & Trust Company ("the Bank"), its banking
subsidiary. On October 21, 1986, FCC was merged into BancShares, and BancShares
became the sole shareholder of the Bank. The Bank was chartered on March 4,
1893, as the Bank of Smithfield, Smithfield, North Carolina and through a series
of mergers and name changes, it later became First-Citizens Bank & Trust
Company. The Bank is the fifth largest commercial bank in North Carolina based
upon total deposits. Its growth has been generated principally by acquisitions
and de novo branching that have occurred under the leadership of the R.P.
Holding family. As of December 31, 1995, the Bank operated 309 offices in 187
towns and cities. On February 2, 1995, BancShares acquired Pace American Bank
("Pace"), a Virginia-chartered bank with headquarters in Lawrenceville,
Virginia. Pace subsequently acquired nine offices from another bank. On
January 1, 1996, the Virginia bank was merged into the North Carolina bank. On
June 1, 1995, BancShares acquired Bank of White Sulphur Spring ("WSS"), a
West Virginia-chartered bank with headquarters in White Sulphur Springs, West
Virginia. WSS operated two offices and had $70.8 million in assets as of
December 31, 1995.
BancShares' executive offices are located at 239 Fayetteville Street,
Raleigh, North Carolina, 27601, and its telephone number is 919/755/7000. At
December 31, 1995, BancShares and its subsidiaries
<PAGE>
employed a full-time staff of 3350 and a part-time staff of 804 for a total of
4154 employees.
BancShares' principal assets are its investment subsidiary in and
receivables from its banking subsidiaries. Its primary sources of income are
dividends from the Bank and interest income on funds loaned by BancShares to the
Bank. Certain legal restrictions exist regarding the ability of the Bank to
transfer funds to BancShares in the form of cash dividends or loans. For
information regarding these restrictions, see Note O of BancShares'
consolidated financial statements, contained in this report.
The subsidiary banks seek to meet the needs of both consumers
and commercial entities in their respective market areas. These
services, offered at most offices, include normal taking of deposits,
cashing of checks, and providing for individual and commercial cash
needs; numerous checking and savings plans; commercial and consumer
lending; a full-service trust department; and other activities
incidental to commercial banking. Bank subsidiaries American Guaranty
Insurance Company and Triangle Life Insurance Company underwrite and
sell various forms of credit-related insurance products. Neuse,
Incorporated ("Neuse"), owns a substantial number of the facilities
in which the Bank operates branches. First Citizens Investor
Services, Inc., provides various investment products, including
third-party mutual funds to customers. Various other subsidiaries are
either inactive or not material to BancShares' consolidated
financial position or to consolidated net income.
<PAGE>
As of December 31, 1995, BancShares had consolidated assets of $7.4
billion, consolidated deposits of $6.4 billion and shareholders' equity of
$520.8 million. Table 6 includes information such as average assets, deposits,
shareholders' equity and interest-earning assets of BancShares for the five
years ended December 31, 1995. Rates of return on average assets and average
equity and the ratio of shareholders' equity to total assets for the last five
years are presented in Table 1 of this report.
The banking laws of North Carolina, West Virginia and Virginia allow
for statewide branching. Consequently, commercial banking in these states is
highly competitive. BancShares' subsidiaries compete with other financial
institutions throughout their market areas.
During 1994, Congress approved legislation that will allow adequately
capitalized and managed bank holding companies to acquire control of banks in
any state ("the Interstate Banking Law"). Acquisitions will be subject to
anti-trust provisions that limit the state and national deposits that may be
controlled by a single bank holding company.
Under the Interstate Banking Law, banks will be permitted, beginning
June 1, 1997, to merge across state lines, subject to concentration, capital and
Community Reinvestment Act requirements and regulatory approval. A state may
authorize mergers earlier than June 1, 1997, or a state may enact restrictions
on mergers prior to
<PAGE>
that date. The Interstate Banking Law also allows states to permit out-of-state
banks to open new branches within their borders. Currently, in North Carolina,
the Reciprocal Interstate Banking Act and the Interstate Branch Banking Act
allow a bank or bank holding company based in other states to acquire banks or
bank holding companies or establish branches within the State of North
Carolina, provided similar laws exist in the other state.
The banks operate under the jurisdiction of the Federal Deposit
Insurance Corporation and the respective state banking authority and are subject
to the laws administered by those authorities and the rules and regulations
thereunder. As a registered bank holding company, BancShares is subject to the
jurisdiction of the Board of Governors of the Federal Reserve System. BancShares
also is registered as a bank holding company with the North Carolina
Commissioner of Banks and is subject to the regulations promulgated by the
Commissioner. The internal affairs of BancShares, including the rights of its
shareholders, are governed by Delaware law and by its Certificate of
Incorporation and Bylaws. BancShares files periodic reports under the Securities
Exchange Act of 1934 and is subject to the jurisdiction of the Securities and
Exchange Commission.
Item 2. Properties
As of December 31, 1995, the Bank owned land improved by office
buildings in which its operates offices at 166 locations. The Bank leases from
Neuse 64 locations that have office buildings located
<PAGE>
thereon in which the Bank maintains offices. In addition, the Bank leases 134
other locations. Additional information relating to premises, equipment and
lease commitments is set forth in Note E of BancShares' consolidated financial
statements.
Item 3. Legal Proceedings
BancShares, the banks and various Bank subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which damages in various amounts are claimed. Although the amount
of any ultimate liability with respect to such matters cannot be determined, in
the opinion of management, any such liability will not have a material effect on
BancShares' consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
BancShares' Class A and Class B common stock is traded in the
over-the-counter market, and the Class A common stock is listed on the National
Association of Securities Dealers Automated Quotation National Market System
under the symbol FCNCA. Stock information for the two-year period ending
December 31, 1995, is presented in Table 16.
The per share cash dividends paid by BancShares during each quarterly
period during 1995 and 1994 are set forth in Table 16 of this report. A cash
dividend of 22.5 cents per share was declared by the Board of Directors on
January 22, 1996, payable April 1, 1996, to holders of record as of March 18,
1996. Payment of dividends is made at the discretion of the Board of Directors
and is contingent upon satisfactory earnings as well as projected future capital
needs. Subject to the foregoing, it is currently management's expectation that
comparable cash dividends will continue to be paid in the future.
Additional information is included on page 35 of Registrant's 1995 Annual
Report.
Item 6. Selected Financial Data
Information is included on page 20 of Registrant's 1995 Annual Report in the
table 'Financial Summary and Selected Average Balances and Ratios'.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information is included on pages 20 through 37 of Registrant's 1995 Annual
Report
Item 8. Financial Statements and Supplementary Data
Information is included on the indicated pages of Registrant's 1995 Annual
Report:
Independent Auditors' Report 38
Consolidated Balance Sheets at December 31, 1995 and 1994 39
Consolidated Statements of Income for each of the years
in the three-year period ended December 31, 1995 40
Consolidated Statements of Changes in Shareholders' Equity
for each of the years in the three-year period ended
December 31, 1995 41
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 1995 42
Notes to Consolidated Financial Statements 43-57
Quarterly Financial Summary for 1995 and 1994 35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
Part III
Information required by Part III of this Report on Form 10-K is incorporated
herein by reference from the indicated pages of Registrant's definitive Proxy
Statement dated March 13, 1996, as follows:
Item 10. Directors and Executive Officers of the Registrant
Information found on pages 7-9 under the caption "Proposal 1: Election of
Directors" and 13 under the caption "Executive Officers."
Item 11. Executive Compensation
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Information found on pages 9 under the caption "Directors' Fees and
Compensation;" 11 under the caption "Compensation Committee Interlocks and
Insider Participation;" 14-16 under the captions "Executive Compensation,"
"Employee Stock Purchase Plan," and "Pension Plan and Other Post-Retirement
Benefits."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information found on pages 2-6 under the captions "Principal Holders of Voting
Securities" and "Ownership of Securities by Management."
Item 13. Certain Relationships and Related Transactions
Information found on pages 9 under footnote (4) to the table under the caption
"Proposal 1:: Election of Directors" and 17 under the caption "Transactions with
Management."
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements. See Item 8
2. Financial Statement Schedules. All schedules are omitted as the
required information is either inapplicable or is presented in
the consolidated financial statements of the Registrant.
3. Exhibits. The following documents are attached hereto or
incorporated herein by reference as exhibits:
3.1 Certificate of Incorporation of the Registrant, as amended
(incorporated herein by reference to Exhibit 3.1 of the 1992
Annual Report to the SEC on Form 10-K)
3.2 Bylaws of the Registrant, as amended (incorporated herein by
reference to Exhibit 3.2 of the 1993 Annual Report to the SEC on
Form 10-K)
4.1 Specimen of Registrant's Class A Common Stock certificate
(incorporated herein by reference to Exhibit 4.1 of the 1993
Annual Report to the SEC on Form 10-K)
4.2 Specimen of Registrant's Class B Common Stock certificate
(incorporated herein by reference to Exhibit 4.2 of the 1993
Annual Report to the SEC on Form 10-K)
*10.1 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the
Third Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24,
1994, between Registrant's subsidiary, First-Citizens Bank & Trust
Company, and Lewis R. Holding (incorporated herein by reference to
Exhibit 10.1 of Registrant's 1993 Annual Report to the SEC on Form
10-K)
*10.2 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the
Third Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24,
1994, between Registrant's subsidiary, First-Citizens Bank & Trust
Company, and Frank B. Holding (incorporated herein by reference to
Exhibit 10.2 of Registrant's 1993 Annual Report to the SEC on Form
10-K)
*10.3 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the
Third Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24,
1994, between Registrant's subsidiary, First-Citizens Bank & Trust
Company, and James B. Hyler, Jr. (incorporated herein by reference
to Exhibit 10.3 of Registrant's 1993 Annual Report to the SEC on
Form 10-K)
*10.4 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 23, 1995, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and
Frank B. Holding, Jr.(incorporated herein by reference to Exhibit
10.4 of Registrant's 1994 Annual Report to the SEC on Form 10-K)
<PAGE>
INCORPORATION BY REFERENCE
CROSS REFERENCE SHEET
(continued)
*10.5 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated August 23, 1989, as amended by the
Second Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, First-Citizens Bank & Trust
Company, and James M. Parker (incorporated herein by reference to
Exhibit 10.8 of Registrant's 1993 Annual Report to the SEC on Form
10-K)
*10.6 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated January 1, 1986, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H.
Broadrick (incorporated herein by reference to Exhibit 10.6 of the
1987 Annual Report to the SEC on Form 10-K)
*10.7 Consulting Agreement dated February 17, 1988, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and
George H. Broadrick (incorporated herein by reference to Exhibit
10.7 of the 1987 Annual Report to the SEC on Form 10-K)
*10.9 Retirement Payment Agreement dated May 1, 1985, between First
Federal Savings and Loan Association, Hendersonville, North
Carolina ("First Federal"), and William McKay, which agreement was
ratified by Registrant upon its acquisition of First Federal
(incorporated herein by reference to Exhibit 10.9 of the 1991
Annual Report to the SEC on Form 10-K)
*10.10 Retirement Payment Agreement dated August 1, 1987, between First
Federal and William McKay, which agreement was ratified by
Registrant upon its acquisition of First Federal (incorporated
herein by reference to Exhibit 10.10 of the 1991 Annual Report to
the SEC on Form 10-K)
*10.11 Employment Agreement dated August 4, 1994, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash
(incorporated herein by reference to Exhibit 10.11 of the 1994
Annual Report to the SEC on Form 10-K)
*10.12 Retirement Payment Agreement dated August 8, 1991, between
Edgecombe Homestead and Loan Assn., Inc. ("Edgecombe"), and Brent
D. Nash, which agreement was ratified by Registrant upon its
acquisition of Edgecombe (incorporated herein by reference to
Exhibit 10.12 of the 1994 Annual Report to the SEC on Form 10-K)
*10.13 Article IV Section 4.1.d of the Agreement and Plan of
Reorganization and Merger by and among First Investors Savings
Bank, Inc., SSB, First-Citizens Bank & Trust Company and First
Citizens BancShares, Inc., dated October 25, 1994, located at page
II-38 of Registrant's S-4 Registration Statement filed with the
Commission on December 19, 1994 (Registration No. 33-84514)
*10.14 Article IV Section 4.1.e of the Agreement and Plan of
Reorganization and Merger by and among State Bank and
First-Citizens Bank & Trust Company and First Citizens BancShares,
Inc., dated October 25, 1994, located at page I-36 of Registrant's
S-4 Registration Statement filed with the Commission on November
16, 1994 (Registration No. 33-86286)
*10.15 Article V Section 5.4a of the Agreement and Plan of Reorganization
and Merger By and Between Allied Bank Capital, Inc. and First
Citizens BancShares, Inc., dated August 7, 1995, located at page
1-47 of Registrant's S-4 Registration Statement filed with the
Commission on September 28, 1995 (Registration No. 33-63009)
13 Registrant's Annual Report to Shareholders for the year ended
December 31, 1995 (filed herewith)
22 Subsidiaries of the Registrant (filed herewith)
23 Consent of KPMG Peat Marwick LLP (filed herewith)
99 Registrant's definitive Proxy Statement dated March 13, 1996
(filed pursuant to Rule 14aA6(c))
- ------------------
* Denotes a management contract or compensation plan or arrangement in which an
executive officer or director of Registrant participates.
(b) Reports on Form 8-K. During the fourth quarter of 1995 the
Registrant filed no Form 8-K Current Reports.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 1996 FIRST CITIZENS BANCSHARES, INC. (Registrant)
/s/ James B. Hyler, Jr.
James B. Hyler, Jr.
Vice Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, on behalf of the Registrant and
in the capacities indicated on March 18, 1996.
Signature Title Date
/s/Lewis R. Holding Chairman and Chief March 28, 1996
Lewis R. Holding Executive Officer
(principal executive
officer)
/s/Frank B. Holding Executive Vice Chairman March 28, 1996
Frank B. Holding
/s/James B. Hyler, Jr. Vice Chairman March 28, 1996
James B. Hyler, Jr.
/s/Frank B. Holding, Jr. President March 28, 1996
Frank B. Holding, Jr.
/s/Kenneth A. Black Vice President, March 28, 1996
Kenneth A. Black Treasurer, and Chief
Financial Officer
(principal financial
and accounting officer)
<PAGE>
Signature Title Date
/s/John M. Alexander, Jr. Director March 28, 1996
John M. Alexander, Jr.
/s/Ted L. Bissett Director March 28, 1996
Ted L. Bissett
/s/B. Irvin Boyle Director March 28, 1996
B. Irvin Boyle
Director March 28, 1996
George H. Broadrick
/s/H. Max Craig, Jr. Director March 28, 1996
H. Max Craig, Jr.
/s/Betty M. Farnsworth Director March 28, 1996
Betty M. Farnsworth
/s/Lewis M. Fetterman Director March 28, 1996
Lewis M. Fetterman
/s/Charles B.C. Holt Director March 28, 1996
Charles B.C. Holt
<PAGE>
Signature Title Date
/s/Gale D. Johnson Director March 28, 1996
Gale D. Johnson
/s/Freeman R. Jones Director March 28, 1996
Freeman R. Jones
/s/Lucius S. Jones Director March 28, 1996
Lucius S. Jones
/s/I. B. Julian Director March 28, 1996
I. B. Julian
/s/Joseph T. Maloney, Jr. Director March 28, 1996
Joseph T. Maloney, Jr.
/s/J. Claude Mayo, Jr. Director March 28, 1996
J. Claude Mayo, Jr.
/s/William McKay Director March 28, 1996
William McKay
<PAGE>
Signature Title Date
/s/Brent D. Nash Director March 28, 1996
Brent D. Nash
/s/Lewis T. Nunnelee, II Director March 28, 1996
Lewis T. Nunnelee, II
/s/Talbert O. Shaw Director March 28, 1996
Talbert O. Shaw
Director March 28, 1996
R. C. Soles, Jr.
/s/David L. Ward, Jr. Director March 28, 1996
David L. Ward, Jr.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page Number
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant, as amended (incorporated
herein by reference to Exhibit 3.1 of the 1992 Annual Report to the SEC
on Form 10-K) -
3.2 Bylaws of the Registrant, as amended (incorporated herein by reference
to Exhibit 3.2 of the 1993 Annual Report to the SEC on Form 10-K) -
4.1 Specimen of Registrant's Class A Common Stock certificate
(incorporated herein by reference to Exhibit 4.1 of the 1993
Annual Report to the SEC on Form 10-K) -
4.2 Specimen of Registrant's Class B Common Stock certificate
(incorporated herein by reference to Exhibit 4.2 of the 1993
Annual Report to the SEC on Form 10-K) -
10.1 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the
Third Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, First-Citizens Bank & Trust Company,
and Lewis R. Holding (incorporated herein by reference to Exhibit 10.1
of the 1993 Annual Report to the SEC on Form 10-K) -
10.2 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by the
Third Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, First-Citizens Bank & Trust Company,
and Frank B. Holding (incorporated herein by reference to Exhibit 10.2
of the 1993 Annual Report to the SEC on Form 10-K) -
10.3 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986, as amended by
the Third Amendment of Employee Death Benefit and
Post-Retirement Non-Competition and Consultation Agreement,
dated January 24, 1994, between Registrant's subsidiary,
First-Citizens Bank & Trust Company, and James B. Hyler, Jr.
(incorporated herein by reference to Exhibit 10.3 of the 1993
Annual Report to the SEC on Form 10-K) -
10.4 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 23, 1995, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and
Frank B. Holding, Jr. (incorporated herein by reference to Exhibit 10.4
of the 1994 Annual Report to the SEC on Form 10-K) -
10.5 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated August 23, 1989, as amended by the
Second Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, First-Citizens Bank & Trust Company,
and James M. Parker (incorporated herein by reference to Exhibit 10.8
of the 1993 Annual Report to the SEC on Form 10-K) -
</TABLE>
<PAGE>
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page Number
<S> <C> <C>
10.6 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated January 1, 1986, between
Registrant's subsidiary, First-Citizens Bank & Trust Company,
and George H. Broadrick (incorporated herein by reference to
Exhibit 10.6 of the 1987 Annual Report to the SEC on Form
10-K) -
10.7 Consulting Agreement dated February 17, 1988, between
Registrant's subsidiary, First-Citizens Bank & Trust Company,
and George H. Broadrick (incorporated herein by reference to
ExhibitE10.7 of the 1987 Annual Report to the SEC on Form
10-K) -
10.9 Retirement Payment Agreement dated May 1, 1985, between First Federal
and William McKay, which agreement was ratified by Registrant
upon its acquisition of First Federal (incorporated herein by reference
to Exhibit 10.9 of the 1991 Annual Report to the SEC on Form 10-K) -
10.10 Retirement Payment Agreement dated August 1, 1987, between
First Federal Savings Bank and William McKay, which agreement
was ratified by Registrant upon its acquisition of First
Federal (incorporated herein by reference to Exhibit 10.10 of
the 1991 Annual Report to the SEC on Form 10-K) -
10.11 Employment Agreement dated August 4, 1995, between
Registrant's subsidiary, First-Citizens Bank & Trust Company,
and Brent D. Nash (incorporated herein by reference to Exhibit
10.10 of the 1994 Annual Report to the SEC on Form 10-K) -
10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe
Homestead and Loan Assn., Inc. ("Edgecombe"), and Brent D. Nash, which
agreement was ratified by Registrant upon its acquisition of Edgecombe
(incorporated herein by reference to Exhibit 10.10 of the
1994 Annual Report to the SEC on Form 10-K) -
10.13 Article IV Section 4.1.d of the Agreement and Plan of
Reorganization and Merger by and among First Investors Savings
Bank, Inc., SSB, First-Citizens Bank & Trust Company and First
Citizens BancShares, Inc., dated October 25, 1994, located at page
II-38 of Registrant's S-4 Registration Statement filed with the
Commission on December 19, 1994 (Registration No. 33-84514) -
10.14 Article IV Section 4.1.e of the Agreement and Plan of
Reorganization and Merger by and among State Bank and
First-Citizens Bank & Trust Company and First Citizens BancShares,
Inc., dated October 25, 1994, located at page I-36 of Registrant's
S-4 Registration Statement filed with the Commission on November
16, 1994 (Registration No. 33-86286) -
10.15 Article V Section 5.4a of the Agreement and Plan of Reorganization
and Merger By and Between Allied Bank Capital, Inc. and First
Citizens BancShares, Inc., dated August 7, 1995, located at page
I-47 of Registrant's S-4 Registration Statement filed with the
Commission on September 28, 1995 (Registration No. 33-63009)
13 Registrant's 1995 Annual Report for the year ended
December 31, 1995 (filed herewith)
22 Subsidiaries of the Registrant (filed herewith)
23 Consent of KPMG Peat Marwick LLP (filed herewith)
99 Registrant's definitive Proxy Statement dated March 13, 1996
(filed pursuant to Rule 14aA6(c)) -
</TABLE>
<PAGE>
EXHIBIT 13
1995 ANNUAL REPORT
INTRODUCTION
Management's discussion and analysis of earnings and related financial
data are presented to assist in understanding the financial condition and
results of operations of First Citizens BancShares, Inc. ("BancShares"), for the
years 1995, 1994 and 1993. BancShares is a bank holding company with three
wholly-owned banking subsidiaries - First-Citizens Bank & Trust Company (the
"Bank"), a North Carolina-chartered bank (with branches in North Carolina and
Virginia), Bank of Marlinton ("Marlinton") and Bank of White Sulphur Springs
("WSS"), both of which are West Virginia-chartered banks. Marlinton was acquired
by BancShares in September 1994, while WSS was acquired during June 1995.
This discussion and related financial data should be read in conjunction
with the audited consolidated financial statements and related footnotes
presented in this report.
SUMMARY
BancShares experienced an 11.6 percent increase in earnings during 1995,
compared to 1994. The increase was due to increased levels of net interest
income and noninterest income. These increases offset the growth in noninterest
expense during 1995. Consolidated net income amounted to $56.9 million during
1995, compared to $51 million during 1994 and $55.6 million during 1993. Net
income per share for the year ended December 31, 1995 totaled $5.37, compared to
$5.13 and $5.73 for 1994 and 1993, respectively. Return on average assets
totaled 0.83 percent, 0.84 percent and 1.00 percent during 1995, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS Table 1
(thousands, except share data and ratios) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
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>
An analysis of BancShares' financial condition and growth can be made by
examining the changes and trends in interest-earning assets and interest-bearing
liabilities, and a discussion of these changes and trends follows. The
information presented in Table 6 is useful in making such an analysis. Much of
BancShares' growth in recent years has resulted from various business
combinations. Table 2 details the significant transactions, all of which were
accounted for as purchases, with the results of operations included with
BancShares' Statements of Income since the respective acquisition dates.
Significant Acquisitions Table 2
(thousands)
<TABLE>
<CAPTION>
Total Total
Date Institution and Location Assets Deposits
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
LOANS Table 3
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------
(thousands) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
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
<PAGE>
adverse impact of interest rate fluctuations, management continuously monitors
the maturity and repricing distribution of the loan portfolio. BancShares also
offers variable rate loan products and fixed rate callable loans to ease the
interest rate risk. Table 4 details the maturity and repricing distribution as
of December 31, 1995. Of the gross loans outstanding on December 31, 1995, 26.2
percent have scheduled maturities within one year, 52.8 percent have scheduled
maturities between one and five years, while the remaining 21 percent have
scheduled maturities extending beyond five years.
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY Table 4
<TABLE>
<CAPTION>
December 31, 1995 Within One to Five After
(thousands) One Year Years Five Years Total
<S> <C> <C> <C> <C>
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>
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>
<CAPTION>
Investment Securities Table 5
December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Taxable-
Book Market Maturity Equivalent Book Market Book Market
(thousands) Value Value (Yrs./Mos.) Yield Value Value Value Value
- ------------------------------------------------------------------------------------------------------------------------------
U. S. Government:
Within one year $927,931 $930,120 0/6 5.30 % $849,279 $838,341 $589,666 $594,620
One to five years 1,034,722 1,040,954 1/10 5.78 599,147 575,193 1,223,348 1,223,384
Five to ten years 2,305 2,258 7/5 5.94 2,496 2,281 - -
Over ten years 7,171 7,198 18/6 7.30 3,029 2,918 1,257 1,252
- ------------------------------------------------------------------------------------------------------------------------------
Total 1,972,129 1,980,530 1/3 5.56 1,453,951 1,418,733 1,814,271 1,819,256
State, county and municipal:
Within one year 1,324 1,328 0/3 7.27 361 364 100 102
One to five years 4,287 4,355 2/9 6.64 1,872 1,871 101 105
Five to ten years 2,227 2,323 6/0 7.48 2,370 2,314 - -
Over ten years 195 195 21/8 9.00 - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Total 8,033 8,201 3/9 7.03 4,603 4,549 201 207
Other
Within one year 506 506 0/11 5.48 100 100 - -
One to five years 2,425 2,424 2/1 9.27 - - - -
Five to ten years 55 55 6/2 8.00 315 315 315 315
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,986 2,985 1/11 8.60 415 415 315 315
==============================================================================================================================
Total investment securities $1,983,148 $1,991,716 1/3 5.57 % $1,458,969 $1,423,697 $1,814,787 $1,819,778
==============================================================================================================================
</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.
<PAGE>
AVERAGE BALANCE SHEETS Table 6
<TABLE>
<CAPTION>
1995 1994 1993
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(thousands, taxable equivalent) Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Secured by real estate $2,752,463 $233,055 8.47 % $2,265,054 $177,494 7.84 % $2,173,262 $170,150 7.83 %
Commercial and industrial 437,970 41,099 9.38 440,566 34,165 7.75 381,722 27,596 7.23
Consumer 1,167,923 102,666 8.79 1,012,359 85,523 8.45 789,374 71,112 9.01
Lease financing 58,332 4,499 7.71 51,160 3,861 7.55 40,576 3,433 8.46
Other 16,829 1,402 8.33 31,179 1,741 5.58 16,159 985 6.10
Total loans 4,433,517 382,721 8.63 3,800,318 302,784 7.97 3,401,093 273,276 8.03
Investment securities:
U. S. Government 1,600,713 81,219 5.07 1,597,051 71,573 4.48 1,521,949 90,655 5.96
State, county and municipal 8,016 622 7.76 2,192 176 8.03 451 43 9.53
Other 2,820 184 6.52 322 28 8.70 315 20 6.35
Total investment securities 1,611,549 82,025 5.09 1,599,565 71,777 4.49 1,522,715 90,718 5.96
Federal funds sold 146,356 8,625 5.89 76,807 3,297 4.29 78,336 2,385 3.04
Total interest-earning assets 6,191,422 $473,371 7.65 % 5,476,690 $377,858 6.90 % 5,002,144 $366,379 7.32 %
Cash and due from banks 349,998 354,875 320,668
Premises and equipment 200,674 189,421 169,062
Other assets 180,675 148,932 147,422
Reserve for loan losses (75,810) (70,974) (63,117)
Total assets $6,846,959 $6,098,944 $5,576,179
Liabilities and shareholders' equity
Deposits:
Checking With Interest $816,391 $13,555 1.66 % $788,673 $13,495 1.71 % $704,614 $13,271 1.88 %
Savings 693,187 15,728 2.27 687,322 15,390 2.24 571,559 14,413 2.52
Money market accounts 742,537 25,167 3.39 788,063 19,280 2.45 797,260 19,017 2.39
Time 2,824,074 152,784 5.41 2,279,639 89,127 3.91 2,116,104 83,653 3.95
Total interest-bearing deposits 5,076,189 207,234 4.08 4,543,697 137,292 3.02 4,189,537 130,354 3.11
Short-term borrowings 307,999 15,773 5.12 242,553 8,314 3.43 226,265 6,118 2.70
Long-term obligations 26,307 1,657 6.30 52,499 2,520 4.80 29,318 1,462 4.99
Total interest-bearing liabilities 5,410,495 $224,664 4.15 % 4,838,749 $148,126 3.06 % 4,445,120 $137,934 3.10 %
Demand deposits 875,901 791,360 704,782
Other liabilities 72,668 51,852 63,544
Shareholders' equity 487,895 416,983 362,733
Total liabilities and $6,846,959 $6,098,944 $5,576,179
shareholders' equity
Interest rate spread 3.50 % 3.84 % 4.22 %
Net interest income and net yield
on interest-earning assets $248,707 4.02 % $229,732 4.19 % $228,445 4.57 %
</TABLE>
Average loan balances include nonaccrual loans.
<PAGE>
Table 6
1992 1991
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
$2,075,604 $168,686 8.13 % $1,733,619 $168,056 9.69 %
390,132 34,241 8.78 423,003 40,233 9.51
664,924 70,158 10.55 672,694 79,488 11.82
31,911 3,108 9.74 27,502 2,876 10.46
10,714 650 6.07 10,016 813 8.12
3,173,285 276,843 8.72 2,866,834 291,466 10.17
1,521,154 112,447 7.39 1,585,307 125,391 7.91
1,102 102 9.26 11,569 1,049 9.07
315 16 5.08 184 13 7.07
1,522,571 112,565 7.39 1,597,060 126,453 7.92
66,990 2,260 3.37 93,346 5,449 5.84
4,762,846 $391,668 8.22 % 4,557,240 $423,368 9.29 %
306,795 286,735
159,692 158,352
135,319 130,830
(56,487) (48,542)
$5,308,165 $5,084,615
$596,399 $15,192 2.55 % $464,851 $18,852 4.06 %
475,554 14,889 3.13 386,745 18,278 4.73
816,059 25,120 3.08 728,508 36,478 5.01
2,163,094 107,113 4.95 2,329,607 158,427 6.80
4,051,106 162,314 4.01 3,909,711 232,035 5.93
229,792 7,167 3.12 216,964 11,303 5.21
18,245 1,077 5.90 29,960 2,346 7.83
4,299,143 $170,558 3.97 % 4,156,635 $245,684 5.91 %
633,876 581,798
67,328 81,670
307,818 264,512
$5,308,165 $5,084,615
4.25 % 3.38 %
$221,110 4.64 % $177,684 3.90 %
The average taxable-equivalent yield on the loan portfolio was 8.63
percent in 1995, 7.97 percent in 1994 and 8.03 percent in 1993. The higher yield
during 1995 reflects the continued upward repricing of loans due to higher
market rates. Taxable-equivalent loan income increased $79.9 million or 26.4
percent from 1994, the result of loan growth and higher rates. This followed an
increase of 10.8 percent in taxable-equivalent loan income in 1994 from 1993.
Taxable-equivalent income earned on the investment portfolio amounted to
$82 million, $71.8 million and $90.7 million during the years ended December 31,
1995, 1994 and 1993, respectively. The average taxable-equivalent yield on the
portfolio for these years was 5.09 percent, 4.49 percent and 5.96 percent,
respectively. The $10.2 million increase in taxable-equivalent investment income
during 1995 resulted from a 60 basis point yield increase. The $18.9 million
reduction in taxable-equivalent interest income from 1993 to 1994 was the result
of a 147 basis point yield reduction. Improved interest rates during 1995
allowed the portfolio yield to increase as securities purchased during 1993 and
1994 matured and were reinvested at higher rates. Recent reductions in interest
rates will likely result in lower investment securities yields during 1996.
INTEREST-BEARING LIABILITIES
At December 31, 1995 and 1994, interest-bearing liabilities totaled
$5.84 billion and $4.98 billion, respectively. Interest-bearing liabilities
averaged $5.41 billion during 1995, an increase of 11.8 percent over 1994
levels, with most of the growth occurring in interest-bearing deposits. During
1994, interest-bearing liabilities averaged $4.84 billion, an increase of 8.9
percent over 1993.
Deposits. At December 31, 1995, deposits totaled $6.39 billion, an
increase of $870.5 million or 15.8 percent from December 31, 1994. Acquisitions
contributed to $338.1 million of the increase, with the remaining growth coming
from the existing branch network. Total deposits averaged $5.95 billion in 1995,
an increase of 11.6 percent or $617 million over 1994. Average interest-bearing
deposits were $5.08 billion during 1995, an increase of $532.5 million or 11.8
percent. Average time deposits increased $544.4 million or 23.9 percent from
1994 to
<PAGE>
1995. While acquisitions contributed to some of this increase, higher interest
rates during 1995 prompted greater interest in time deposits among both retail
and business customers.
BancShares avoids excessive reliance on high-cost volatile deposits, and
during 1995, these funds averaged 8.33 percent of total average deposits. Table
7 provides a maturity distribution for these deposits. The fair value of all
deposits was $163.7 million above book value as of December 31, 1995, compared
to December 31, 1994, when the fair value was $6.8 million below book value. The
increase in fair value relative to book value during 1995 resulted from changing
interest rates.
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE Table 7
December 31, 1995
(thousands)
Less than three months $294,159
Three to six months 177,077
Six to 12 months 77,820
More than 12 months 51,560
Total $600,616
Borrowed Funds. BancShares has access to various short-term borrowings,
including the purchase of federal funds, overnight repurchase obligations
and lines of credit from correspondent banks. At December 31, 1995, short-term
borrowings totaled $376.5 million, compared to $290.9 million one year
earlier. For the year ended December 31, 1995, short-term borrowings
averaged $308 million, compared to $242.6 million during 1994 and $226.3
million during 1993. The increase from 1994 to 1995 and from 1993 to 1994
resulted from growth in the Master note program, an overnight borrowing
arrangement between BancShares and bank customers. The fair value of short-term
borrowings equals the book value, as these financial instruments carry
variable rates and adjust to current market conditions. Table 8 provides
additional information regarding short-term borrowed funds.
SHORT-TERM BORROWINGS Table 8
<TABLE>
<CAPTION>
(thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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.
<PAGE>
Time deposits caused much of the increase in interest expense during
1995. In addition to the $544.4 million increase in average time deposits, the
rate on these deposits experienced a 150 basis point rate increase, moving from
3.91 percent in 1994 to 5.41 percent in 1995.
The aggregate rate on interest-bearing deposits was 4.08 percent during
1995, compared to 3.02 percent during 1994 and 3.11 percent during 1993.
Interest expense on total interest-bearing deposits amounted to $207.2
million during 1995, $137.3 million during 1994 and $130.4 million during 1993.
Interest expense on short-term borrowings amounted to $15.8 million in
1995, an increase of $7.5 million or 89.7 percent from 1994. The increase was
attributable to a 169 basis point rate increase when compared to 1994 and the
higher volume of short-term borrowings during 1995. Interest expense related to
short-term borrowings totaled $8.3 million and $6.1 million, respectively, in
1994 and 1993. Interest expense associated with long-term obligations decreased
during 1995 to $1.7 million from $2.5 million during 1994. The decrease results
from a reduction in average long-term obligations.
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET Table 9
INTEREST INCOME
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Change from previous year due to: Change from previous year due to:
- -----------------------------------------------------------------------------------------------------------------------------------
Yield/ Total Yield/ Total
(thousands) Volume Rate Change Volume Rate Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
<PAGE>
improvements from the 1995 repricing of investment securities offset the impact
of the lower interest rates projected for 1996. Management projects the lower
interest rates will reduce the yields on interest-earning assets more rapidly
than the accompanying reduction in the rates on interest-bearing liabilities .
However, based on projected asset growth, management anticipates net interest
income will expand during 1996.
Rate Sensitivity. A principal objective of BancShares' asset/liability
function is to manage interest rate risk or the exposure to changes in interest
rate. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure. Table 10 provides
BancShares' interest-sensitivity position as of December 31, 1995, which
reflected a one year interest-sensitivity gap of $676 million. The
liability-sensitive position is most acute in the first six months and results
from growth among time deposits during 1995. As a result of this one year
interest-sensitivity gap, movements in interest rates could have an unfavorable
impact on net interest income.
INTEREST-SENSITIVITY ANALYSIS Table 10
<TABLE>
<CAPTION>
1-30 31-90 91-180 181-365 Total
December 31, 1995 Days Days Days Days One Year Total
(thousands) Sensitive Sensitive Sensitive Sensitive Sensitive Nonsensitive Total
<S> <C> <C> <C> <C> <C> <C> <C>
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*
RISK ELEMENTS Table 11
<TABLE>
<CAPTION>
December 31 (thousands, except ratios) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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.
<PAGE>
*31, 1995 included nonaccrual loans totaling $13.2 million and $2.2 million in
foreclosed property. Nonperforming assets as of December 31, 1995 represent 0.34
percent of loans outstanding and total foreclosed property. Total nonperforming
assets totaled $27 million and $50.2 million, respectively, as of December 31,
1994 and 1993.
Management continually monitors the loan portfolio to ensure that all
loans potentially having a material adverse impact on future operating results,
liquidity or capital resources have been classified as nonperforming. Should
economic conditions deteriorate, the inability of distressed customers to
service their existing debt could cause higher levels of nonperforming assets.
Reserve for Loan Losses. Management evaluates the risk characteristics
of the loan portfolio under current and projected economic conditions and
considers such factors as the financial condition of the borrower, fair market
value of collateral and other items that, in management's opinion, deserve
current recognition in estimating possible credit losses. Further, management
strives to maintain the reserve at a level sufficient to absorb both potential
losses on identified nonperforming assets as well as general losses at
historical and projected levels.
At December 31, 1995, BancShares' reserve for loan losses was $78.5
million or 1.71 percent of loans outstanding. This compares to $72 million or
1.74 percent at December 31, 1994, and $70 million or 1.95 percent at December
31, 1993. The reduction in the reserve ratio over the two year period reflects
the reduced level of nonperforming assets.
SUMMARY OF LOAN LOSS EXPERIENCE Table 12
(thousands, except ratios)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
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.
<PAGE>
Management considers the established reserve adequate to absorb future
losses that relate to loans outstanding at December 31, 1995, although future
additions to the reserve may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the reserve for loan losses. Such
agencies may require the recognition of additions to the reserve based on their
judgments of information available to them at the time of their examination.
Table 13 illustrates management's allocation of the reserve among the various
loan types.
ALLOCATION OF RESERVE for LOAN LOSSES Table 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
(thousands) Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
Construction and
land development $3,090 2.28 % $2,919 2.43 % $3,135 3.28 % $3,491 4.67 % $1,976 5.27%
Mortgage:
1-4 family residential 13,125 31.42 13,459 31.26 15,175 31.74 13,373 32.31 10,417 29.00
Commercial 15,305 16.81 13,636 17.37 13,997 17.13 13,181 17.64 9,245 18.55
Equity Line 2,788 8.67 2,585 8.42 2,112 8.18 2,042 8.83 3,743 9.08
Other 1,318 2.82 1,581 2.63 1,493 1.56 738 1.49 82 1.63
Commercial and
industrial 8,384 10.18 10,029 9.01 11,650 11.40 8,190 11.59 5,043 13.45
Consumer 21,587 26.18 20,373 27.00 17,079 24.81 14,875 22.01 17,305 21.70
Lease financing 639 1.31 197 1.46 454 1.27 356 1.11 306 0.98
Other - 0.33 - 0.42 - 0.63 - 0.35 - 0.34
Unallocated 12,259 - 7,238 - 4,954 - 2,134 - 5,613 -
===================================================================================================================================
Total $78,495 100.00 % $72,017 100.00 % $70,049 100.00 % $58,380 100.00 % $53,730 100.00%
===================================================================================================================================
</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.
NONINTEREST INCOME Table 14
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------------
(thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
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
<PAGE>
fees for processing services provided to various bank affiliates. These services
resulted in an additional $1.7 million during 1995. Additionally, fees generated
from the sale of mutual fund and annuity products by First Citizens Investor
Services increased $1 million during 1995.
During 1995, BancShares recorded $809,000 in gains on the ongoing sale
of current fixed-rate mortgage loan production. The gains recorded during 1995
compare to an $862,000 loss recorded during 1994. During 1993, BancShares
recorded an $8 million gain on the sale of $276.2 million in residential
mortgage loans. Management intends to continue the sale of its long-term
fixed-rate residential mortgage loan production, so gains or losses may be
incurred due to interest rate volatility. However, management has elected to
enter into forward commitments to sell loans as a strategy of limiting exposure
to interest rate fluctuations.
NONINTEREST EXPENSE
Total noninterest expense for 1995 amounted to $245.9 million. This was a
6.6 percent increase over 1994, following an 8.1 percent increase of 1994
noninterest expenses over 1993. Table 15 presents the major components of
noninterest expense for the past five years.
Salary expense was $106.6 million during 1995, compared to $99.3 million
during 1994, an increase of $7.3 million or 7.4 percent, following a $6.7
million or 7.2 percent increase in 1994 over 1993. Increases during each period
resulted from merit increases as well as new positions established to centralize
certain operational functions. Employee benefits were $17.1 million during 1995,
an increase of $2.5 million from 1994.
NONINTEREST EXPENSE Table 15
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------------
(thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 during 1995 due to increased rent
expense. Occupancy expense was $18.7 million for 1994 and $17 million for 1993.
Equipment expense for 1995 was $24.5 million, an increase of 2.8 percent over
1994, when total equipment expenses were $23.8 million. Costs related to deposit
insurance fell during 1995. During the third quarter, the Bank Insurance Fund
("BIF") of the FDIC reached the reserve level mandated by Congress. At that
time, premiums were reduced and a refund for overpayment retroactive to the date
the
<PAGE>
BIF was fully capitalized was made to institutions for their BIF-insured
deposits. However, financial institutions with deposits that are insured under
the Savings Association Insurance Fund ("SAIF") continue to pay the higher
premiums for SAIF-insured deposits. BancShares' total deposits, approximately
one-third are SAIF-insured. Until the SAIF is fully capitalized, these
deposits will continue to be subject to higher insurance rates.
Various proposals are being considered by the United States Congress
concerning a possible merger of the BIF and the SAIF. Central to that discussion
is the recapitalization of the SAIF prior to such a merger, and most of the
proposals mandate a special one-time assessment of SAIF-insured deposits at
rates up to 85 basis points of the SAIF-insured deposits . As of December 31,
1995. BancShares had total SAIF deposits of $1.86 billion. A final assessment
rate is yet to be determined, and due to the uncertainty as to which, if any,
of the various proposals will be adopted and the ultimate amount of the
assessment to be levied on the SAIF-insured deposits, the impact of the
proposals and the assessment is impossible to predict with certainty at this
time.
INCOME TAXES
During 1995, BancShares recorded total income tax expense of $30.4 million,
compared to $26.9 million in income tax expense during 1994, the increase
resulting from higher pre-tax income. BancShares' effective tax rate was 34.8
percent in 1995, 34.5 percent in 1994 and 34 percent in 1993. Total effective
tax rates were less than the statutory federal income tax rates primarily
due to small amounts of tax-exempt interest income.
LIQUIDITY
Management recognizes the importance of maintaining a highly liquid
investment portfolio with maturities designed to provide needed cash flows to
meet the liquidity requirements of the Bank. At December 31, 1995, the
investment portfolio totaled $1.98 billion or 26.9 percent of total assets. This
compares to $1.46 billion or 23 percent in 1994.
The Bank's ability to generate retail deposits is an additional source
of liquidity. The rate of growth in average deposits was 11.6 percent during
1995, 9 percent during 1994 and
<PAGE>
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
<PAGE>
are favorable for such transactions. The repurchase of these shares should not
impair capital adequacy because of BancShares' high earnings retention
percentage.
FOURTH QUARTER ANALYSIS
BancShares' net income for the fourth quarter of 1995 totaled $16.3
million, compared to $12.9 million during the same period of 1994. As shown in
Table 16, during the fourth quarter of 1995 and 1994, total assets averaged
$7.28 billion and $6.23 billion, respectively. Average interest-earning assets
increased 18 percent during the fourth quarter of 1995, compared to the same
period of 1994. Average loans outstanding during the fourth quarter increased
$552.6 million during 1995 over 1994, largely due to growth among loans to
individuals. Acquisition growth during 1995 contributed an additional $170.4
million in loans outstanding. Average investment securities increased $373.1
million between the two periods, the result of deposit growth at sufficient
levels to generate additional liquidity.
Taxable-equivalent interest income on interest-earning assets increased
$26.3 million or 26.1 percent in the fourth quarter of 1995 when compared to the
same period of 1994. The improved interest income during 1995 resulted from a
$15.6 million increase in loan interest income and a $9.2 million increase in
investment securities interest income. Both of these increases resulted from
average volume growth and higher yields. Interest-earning assets yielded 7.65
percent during the fourth quarter of 1995, a 48 basis point increase from the
fourth quarter of 1994.
SELECTED QUARTERLY DATA Table 16
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(thousands, except per share data and ratios) Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $126,372 $122,234 $116,282 $106,221 $100,203 $95,254 $91,351 $89,197
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income - taxable equivalent 126,950 122,801 116,845 106,774 100,693 95,731 91,806 89,628
Interest expense 62,968 59,858 55,537 46,301 40,628 37,265 35,307 34,926
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income - taxable equivalent 63,982 62,943 61,308 60,473 60,065 58,466 56,499 54,702
Taxable equivalent adjustment 578 567 563 553 490 477 455 431
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 63,404 62,376 60,745 59,920 59,575 57,989 56,044 54,271
Provision for loan losses 1,654 1,716 1,460 534 1,486 1,159 (947) 1,088
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 61,750 60,660 59,285 59,386 58,089 56,830 56,991 53,183
Noninterest income 23,856 23,560 23,057 21,655 21,080 21,354 20,517 20,374
Noninterest expense 60,925 59,716 62,876 62,363 59,444 57,361 57,022 56,755
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 24,681 24,504 19,466 18,678 19,725 20,823 20,486 16,802
Income taxes 8,395 8,686 6,842 6,500 6,796 7,138 7,128 5,805
====================================================================================================================================
Net income $16,286 $15,818 $12,624 $12,178 $12,929 $13,685 $13,358 $10,997
====================================================================================================================================
SELECTED QUARTERLY AVERAGES
Total assets $7,280,893 $7,053,579 $6,702,692 $6,323,537 $6,227,704 $6,102,964 $6,061,930 $6,037,860
Investment securities 1,871,272 1,694,776 1,493,415 1,380,424 1,498,143 1,543,548 1,641,857 1,717,729
Loans 4,552,018 4,500,192 4,424,724 4,253,117 3,999,377 3,854,738 3,712,429 3,618,555
Interest-earning assets 6,599,377 6,376,273 6,061,732 5,716,572 5,590,432 5,480,912 5,434,768 5,386,963
Deposits 6,282,111 6,124,360 5,858,280 5,533,654 5,422,018 5,338,095 5,303,041 5,275,596
Interest-bearing liabilities 5,753,538 5,569,496 5,299,570 5,009,276 4,895,564 4,818,665 4,810,625 4,829,639
Long-term obligations 23,365 24,595 26,174 32,564 43,854 48,908 57,534 59,917
Shareholders' equity $512,768 $498,108 $482,885 $460,695 $443,833 $423,982 $406,002 $394,388
Shares outstanding 10,700,435 10,688,019 10,618,902 10,376,351 10,192,150 9,980,530 9,828,295 9,769,973
====================================================================================================================================
PROFITABILITY RATIOS (averages)
Rate of return(annualized) on:
Total assets 0.89% 0.89% 0.76% 0.78% 0.82% 0.89% 0.88% 0.74%
Shareholders' equity 12.60 12.60 10.49 10.72 11.56 12.81 13.20 11.31
Dividend payout ratio 14.80 13.42 16.81 17.09 15.75 12.77 12.87 15.49
====================================================================================================================================
LIQUIDITY AND CAPITAL RATIOS (averages)
Loans to deposits 72.46% 73.48% 75.53% 76.86% 73.76 % 72.21% 70.01% 68.59%
Shareholders' equity to total assets 7.04 7.06 7.20 7.29 7.13 6.95 6.70 6.53
Time certificates of $100,000 or more
to total deposits 9.27 8.61 8.04 7.30 6.63 6.41 6.28 6.21
====================================================================================================================================
PER SHARE OF STOCK
Net income $1.52 $1.49 $1.19 $1.17 $1.27 $1.37 $1.36 $1.13
Cash dividends 0.225 0.20 0.20 0.20 0.20 0.175 0.175 0.175
Class A sales price
High 55 1/2 53 3/4 50 46 46 1/2 45 1/2 44 1/2 45
Low 52 1/2 48 1/2 44 42 41 1/2 41 40 40
Class B sales price
High 54 1/2 53 1/4 49 1/2 45 45 1/2 44 1/2 43 44 1/2
Low 52 1/2 49 45 44 42 41 40 1/2 40 1/2
====================================================================================================================================
</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.
As of December 31, 1995, there were 3,926 holders of record of the Class A
common stock and 745 holders of record of the Class B common stock.
Average interest-bearing liabilities experienced an $858 million increase
from the fourth quarter of 1994 to the same period of 1995, largely the result
of acquisitions and internally generated deposit growth. The rate on these
interest-bearing liabilities increased from 3.29 percent to 4.34 percent between
the two periods.
Taxable-equivalent net interest income increased $3.9 million from the
fourth quarter of 1994 to the fourth quarter of 1995. The increase resulted from
growth among interest-earning assets, while higher interest rates had a net
adverse impact on net interest income.
Noninterest income for the fourth quarter of 1995 was $23.9 million, an
increase of 13.2 percent. Much of the increase resulted from higher fee income
generated from processing
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME Table 17
VARIANCE ANALYSIS - Fourth Quarter
<TABLE>
<CAPTION>
1995 1994
Interest Interest Increase (decrease) due to:
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
(thousands) Balance Expense Rate Balance Expense Rate Volume Rate Change
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Secured by real estate $2,826,705 $58,918 8.18 % $2,397,516 $48,548 7.99 % $8,831 $1,539 $10,370
Commercial and industrial 461,955 12,771 10.51 425,484 8,459 7.83 1,182 3,130 4,312
Consumer 1,189,310 25,330 8.45 1,097,205 24,364 8.87 2,038 (1,072) 966
Lease financing 58,058 1,177 8.11 56,454 1,041 7.38 31 105 136
Other 15,990 315 7.82 22,718 490 8.57 3,260 (3,435) (175)
Total loans 4,552,018 98,511 8.63 3,999,377 82,902 8.25 15,342 267 15,609
Investment securities:
U. S. Government 1,860,076 25,652 5.47 1,492,930 16,507 4.39 4,572 4,573 9,145
State, county and municipal 8,208 157 7.59 4,898 98 7.94 64 (5) 59
Other 2,988 44 5.84 315 5 6.30 0 39 39
Total investment securities 1,871,272 25,853 5.48 1,498,143 16,610 4.40 4,636 4,607 9,243
Federal funds sold 176,087 2,586 5.83 92,912 1,182 5.05 1,139 265 1,404
Total interest-earning assets $6,599,377 $126,950 7.66 % $5,590,432 $100,694 7.17 % $21,117 $5,139 $26,256
Liabilities
Deposits:
Checking With Interest $852,002 $3,342 1.56 % $813,596 $3,526 1.72 % $155 ($339) ($184)
Savings 701,528 4,030 2.28 703,405 3,988 2.25 (11) 53 42
Money market accounts 766,821 7,086 3.67 782,683 5,336 2.70 (133) 1,883 1,750
Time 3,035,811 43,313 5.66 2,294,337 24,392 4.22 9,241 9,680 18,921
Total interest-bearing deposits 5,356,162 57,771 4.28 4,594,021 37,242 3.22 9,252 11,277 20,529
Short-term borrowings 374,011 4,816 5.11 257,689 2,823 4.35 1,387 606 1,993
Long-term obligations 23,365 381 6.47 43,854 563 5.09 (298) 116 (182)
Total interest-bearing liabilities $5,753,538 $62,968 4.34 % $4,895,564 $40,628 3.29 % $10,341 $11,999 $22,340
Interest rate spread 3.32 % 3.88 %
Net interest income and net yield
on interest-earning assets $63,982 3.85 % $60,066 4.26 % $10,776 ($6,860) $3,916
</TABLE>
<PAGE>
services. Noninterest expense amounted to $60.9 million for the quarter ended
December 31, 1995, compared to $59.4 million for the quarter ended December 31,
1994. Most of the 2.5 percent increase was in salary expense and various other
operating expenses. Tables 16 and 17 are useful when making quarterly
comparisons.
LEGAL PROCEEDINGS
BancShares and various subsidiaries have been named as defendants in
various legal actions arising from their normal business activities in which
damages in various amounts are claimed. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial position.
<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
<PAGE>
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.
<PAGE>
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.
<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.
(Signature of KPMG Peat Marwick LLP)
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 22, 1996
<PAGE>
CONSOLIDATED BALANCE SHEETS
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
(thousands, except share data) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 448,630 $ 455,710
Investment securities (market value $1,991,716 in 1995;
$1,423,697 in 1994) 1,983,148 1,458,969
Federal funds sold 40,445 6,750
Loans 4,580,719 4,148,133
Less reserve for loan losses 78,495 72,017
- ---------------------------------------------------------------------------------------------------------------------
Net loans 4,502,224 4,076,116
Premises and equipment 208,240 188,824
Income earned not collected 58,237 45,194
Other assets 143,026 101,761
- ---------------------------------------------------------------------------------------------------------------------
Total assets $7,383,950 $6,333,324
=====================================================================================================================
Liabilities
Deposits:
Noninterest-bearing $ 943,445 $ 858,537
Interest-bearing 5,444,637 4,659,052
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 6,388,082 5,517,589
Short-term borrowings 376,531 290,861
Long-term obligations 22,957 34,542
Other liabilities 75,543 40,921
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 6,863,113 5,883,913
Shareholders' Equity
Common stock:
Class A - $1 par value (11,000,000 shares authorized; 8,949,703 shares issued
for 1995; 8,419,389 shares
issued for 1994) 8,950 8,419
Class B - $1 par value (2,000,000 shares authorized;
1,766,464 shares issued for 1995; 1,769,451 shares
issued for 1994) 1,766 1,770
Surplus 106,954 82,631
Retained earnings 403,167 356,591
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 520,837 449,411
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $7,383,950 $6,333,324
=====================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------
(thousands, except share and per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Loans $380,676 $300,993 $271,792
Investment securities:
U. S. Government 81,219 71,514 90,610
State, county and municipal 405 114 29
Other 184 87 65
- -------------------------------------------------------------------------------------------------------------------------
Total investment securities interest income 81,808 71,715 90,704
Federal funds sold 8,625 3,297 2,385
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 471,109 376,005 364,881
Interest expense
Deposits 207,234 137,292 130,354
Short-term borrowings 15,773 8,314 6,118
Long-term obligations 1,657 2,520 1,462
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 224,664 148,126 137,934
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 246,445 227,879 226,947
Provision for loan losses 5,364 2,786 15,245
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 241,081 225,093 211,702
Noninterest income
Trust income 8,886 8,228 7,197
Service charges on deposit accounts 39,909 38,567 43,277
Credit card income 13,561 12,390 10,618
Other service charges and fees 21,227 16,672 8,564
Gain (loss) on sale of mortgage loans 809 (862) 8,010
Other 7,736 8,330 8,071
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest income 92,128 83,325 85,737
- -------------------------------------------------------------------------------------------------------------------------
333,209 308,418 297,439
Noninterest expense
Salaries and wages 106,607 99,282 92,579
Employee benefits 17,080 14,535 13,500
Occupancy expense 20,446 18,691 16,972
Equipment expense 24,504 23,839 21,231
Other 77,243 74,235 68,931
- -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 245,880 230,582 213,213
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 87,329 77,836 84,226
Income taxes 30,423 26,867 28,641
- -------------------------------------------------------------------------------------------------------------------------
Net income $56,906 $50,969 $55,585
- -------------------------------------------------------------------------------------------------------------------------
Per share information
Net income $ 5.37 $ 5.13 $ 5.73
Cash dividends 0.825 0.725 0.625
Weighted average shares outstanding 10,597,066 9,944,927 9,701,389
=========================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Class A Class B Total
Common Common Retained Shareholders'
(thousands, except share data) Stock Stock Surplus Earnings Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $7,815 $1,793 $55,447 $268,732 $333,787
Issuance of 164,917 shares of Class A common
stock pursuant to employee stock purchase
plans 165 5,966 6,131
Redemption of 13,147 shares of Class B common
stock (13) (687) (700)
Issuance of 6,134 shares of Class A common
stock pursuant to the Dividend Reinvestment Plan 6 304 310
Net income 55,585 55,585
Cash dividends (6,063) (6,063)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 7,986 1,780 61,717 317,567 389,050
Issuance of 79,408 shares of Class A common
stock pursuant to employee stock purchase
plans 79 2,586 2,665
Redemption of 85,850 shares of Class A common
stock and 10,617 shares of Class B common
stock (86) (10) (4,132) (4,228)
Issuance of 6,694 shares of Class A common
stock pursuant to the Dividend Reinvestment Plan 7 276 283
Issuance of 433,068 shares of Class A common
stock in connection with various acquisitions 433 18,052 18,485
Net income 50,969 50,969
Cash dividends (7,311) (7,311)
Other (502) (502)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 8,419 1,770 82,631 356,591 449,411
Issuance of 64,881 shares of Class A common
stock pursuant to employee stock purchase
plans 65 2,556 2,621
Redemption of 28,386 shares of Class A common
stock and 2,987 shares of Class B common
stock (28) (4) (1,513) (1,545)
Issuance of 8,998 shares of Class A common
stock pursuant to the Dividend Reinvestment Plan 9 406 415
Issuance of 484,821 shares of Class A common
stock in connection with various acquisitions 485 21,361 21,846
Net income 56,906 56,906
Cash dividends (8,817) (8,817)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $8,950 $1,766 $106,954 $403,167 $520,837
================================================================================================================================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Citizens BancShares, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
(thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 56,906 $ 50,969 $ 55,585
Adjustments:
Amortization of intangibles 5,877 3,993 3,157
Provision for loan losses 5,364 2,786 15,245
Deferred tax benefit (1,454) (1,579) (4,807)
Change in current taxes payable 3,241 (3,993) (3,540)
Depreciation 16,882 15,885 13,092
Change in accrued interest payable 26,696 3,242 (273)
Change in income earned not collected (11,746) 1,007 (2,173)
Origination of loans held for sale (85,148) (72,804) (315,517)
Proceeds from sale of loans 75,964 116,125 284,216
(Gain) loss on sale of mortgage loans (809) 862 (8,010)
Net amortization of premiums and discounts 19,634 27,439 17,493
Net change in other assets (15,383) 39,980 (8,396)
Net change in other liabilities 4,798 (16,263) 1,944
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 100,822 167,649 48,016
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities
Dispositions of premises and equipment 3,445 2,364 910
Additions to premises and equipment (31,147) (20,254) (34,390)
Net increase in loans outstanding (254,326) (498,396) (86,550)
Purchases of investment securities (1,328,178) (207,601) (1,045,662)
Proceeds from maturities of investment securities 826,129 576,293 708,145
Proceeds from sale of investment securities - - 3,956
Net change in federal funds sold (25,023) 16,300 90,000
Purchases of institutions, net of cash acquired 106,092 (6,533) 128,041
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (703,008) (137,827) (235,550)
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities
Repurchases of common stock (1,545) (4,228) (700)
Proceeds from issuance of stock, net of related costs 3,036 2,948 6,441
Cash dividends paid (8,817) (7,311) (6,063)
Net change in time deposits 536,251 (4,854) 6,631
Net change in demand and other interest-bearing deposits (3,811) 24,901 174,161
Net change in short-term borrowings 70,188 38,874 34,122
Repayments of long-term obligations (196) (17,294) (541)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 595,106 33,036 214,051
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Change in cash and due from banks (7,080) 62,858 26,517
Cash and due from banks at beginning of year 455,710 392,852 366,335
- ---------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 448,630 $455,710 $ 392,852
- ---------------------------------------------------------------------------------------------------------------------------
Cash payments for:
Interest $ 197,334 $144,844 $ 137,812
Income taxes 27,454 27,667 34,021
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions $ 21,846 $ 18,485 -
Long-term obligations issued for acquisitions 2,494 - $849
===========================================================================================================================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation and Consolidation
First Citizens BancShares, Inc. ("BancShares") is a bank holding company with
three banking subsidiaries - First-Citizens Bank & Trust Company (the "Bank"),
Bank of Marlinton ("Marlinton"), and Bank of White Sulphur Springs ("WSS"). On
January 1, 1996, a fourth banking subsidiary, based in Virginia, was merged into
the Bank. The accounting and reporting policies of BancShares and its
subsidiaries are in accordance with generally accepted accounting principles
and, with regard to the banking subsidiaries, conform to general industry
practices.
The Bank, Marlinton and WSS conduct a full-service banking business designed
to meet the needs of both consumers and commercial entities in the markets in
which they serve. These services include normal taking of deposits, commercial
and consumer lending, a full service trust department and other activities
incidental to commercial banking. The Bank also services residential mortgages
for other entities in exchange for a monthly servicing fee. The Bank's primary
market area includes North Carolina and Virginia, while Marlinton and WSS both
serve individual communities within West Virginia.
The Bank has ten wholly-owned subsidiaries. Neuse, Incorporated owns a
substantial number of the facilities in which the Bank operates branches and
also operates an insurance agency, which acts as agent for credit-related
insurance associated with various areas of the Bank's business. American
Guaranty Insurance Company is engaged in writing fire and casualty insurance.
Triangle Life Insurance Company writes credit life and credit accident and
health insurance. First Citizens Processing Services provides operating support
services for affiliate banks. First Citizens Investor Services provides
investment services, including sales of annuities and third party mutual funds,
to customers of the Bank. Other subsidiaries are either inactive or are not
material to the consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant estimates
made by BancShares in the preparation of its consolidated financial statements
are the determination of the reserve for loan losses, the valuation
allowance for deferred tax assets, and fair value estimates.
Intercompany accounts and transactions have been eliminated. Certain amounts
for prior years have been reclassified to conform with the presentations
for 1995. However, the reclassifications have no effect on shareholders' equity
or net income as previously reported.
Investment Securities
BancShares adopted Statement of Financial Accounting Standards No. 115
("Statement 115") effective January 1, 1994. Statement 115 requires segregation
of the investment portfolio, with all securities classified as held to maturity,
available for sale, or held for trading purposes. As of December 31, 1995 and
1994, all investment securities are classified as held to maturity, as
BancShares has the ability and the positive intent to hold its investment
securities until maturity. These securities are stated at cost adjusted for
amortization of premium and accretion of discount. Accreted discounts and
amortized premiums are included in interest income on an effective yield basis.
At December 31, 1995 and 1994, BancShares had no investment securities
classified as either available for sale or held in a trading portfolio.
Loans
Loans that are held for investment purposes are carried at their principal
amount outstanding. Those loans that are held for sale are carried at the lower
of aggregate cost or market. Interest on substantially all loans is accrued and
credited to interest income based upon the daily principal amount.
Loan Fees
Fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of the
related loans using a method that approximates a constant yield.
Mortgage Servicing Rights
BancShares adopted Statement of Financial Accounting Standards No. 122
("Statement 122") effective January 1, 1996. Statement 122 requires any entity
engaged in mortgage banking activities to recognize as separate assets any
rights to service mortgage loans for others. When mortgage servicing rights are
acquired or result from the sale of origination activity with servicing rights
retained, the servicer should assign a value to the servicing rights based on
the relative fair values if it is practicable to estimate those fair values.
Statement 122 also requires a servicer to assess its capitalized mortgage
servicing rights for impairment based on the fair values of those rights.
BancShares does not believe that the adoption of Statement 122 will have a
material impact on its consolidated financial statements upon adoption. However,
Statement 122 could have a material impact on BancShares' future consolidated
financial statements should market conditions result in an increased volume of
mortgage banking activities or the recognition of impairment valuation
allowances.
Reserve for Loan Losses
The reserve for loan losses is established by charges to operating expense and
recognition of acquired institutions' previously established reserves. To
determine the reserve needed, management evaluates the risk characteristics of
the loan portfolio under current and projected economic conditions and considers
such factors as the financial condition of the borrower, fair market value of
collateral and other items that, in management's opinion, deserve current
recognition in estimating possible credit losses.
BancShares adopted Statements of Financial Accounting Standards No. 114 and
No. 118 (collectively, "Statement 114") effective January 1, 1995. The adoption
of Statement 114 did not have a material effect on BancShares' financial
condition or results of operations. Under Statement 114, the reserve for loan
losses related to loans that are identified as impaired is based on discounted
cash flows using the loans' initial interest rates or, if the loan is secured,
the fair value of the collateral. Residential mortgage loans, retail installment
loans and credit card loans are excluded from Statement 114 as they are
evaluated collectively for impairment since they are homogeneous and generally
carry smaller individual balances.
Management considers the established reserve adequate to absorb
future losses that relate to loans outstanding as of December 31, 1995,
although future additions to the reserve may be necessary based on
changes in economic and other conditions. Additionally, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's reserve for loan losses. Such agencies may require the
recognition of additions to the reserve based on their judgments of
information available to them at the time of their examination.
Nonaccrual Loans and Other Real Estate
Accrual of interest on loans (including impaired loans) is discontinued when
management deems that collection of additional interest is doubtful. At that
time, any interest receivable that was accrued during the current period is
reversed and any interest accrued in prior periods is charged off. Any payments
received from the borrower while the loan is classified as nonaccrual are
generally applied to the outstanding principal balance. Loans are returned to an
accrual status when both principal and interest are current and the loan is
determined to be performing in accordance with the applicable loan terms.
Other real estate acquired through foreclosure is valued at the lower of the
loan balance at the time of foreclosure or estimated fair market value net of
selling costs and is included in other assets. Once acquired, other real estate
is periodically reviewed to ensure that the fair market value of the property
supports the carrying value, with writedowns recorded when necessary. Gains and
losses resulting from the sale or writedown of other real estate and income and
expenses related to the operation of other real estate are recorded in other
expense.
Intangible Assets
Goodwill arising from acquisitions in which the purchase price exceeds the fair
value of net assets acquired is amortized using the straight-line method over a
15 year period. Deposit base intangibles are amortized over the expected life of
the specific deposit base using either the straight-line or an accelerated
method of amortization based on when the asset was recorded. Intangible assets
are subject to periodic review and are adjusted for any impairment of value.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 ("Statement 121") which
became effective January 1, 1996, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill.
Statement 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. Adoption
of Statement 121 should not have a material effect on BancShares' consolidated
financial statements at the date of adoption. However, Statement 121 could have
a material impact on BancShares' consolidated financial statements for future
periods should an event or changes in circumstances occur in such future
periods, requiring a review by management for impairment.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation and amortization
are computed by the straight-line method and are charged to operations over the
estimated useful lives of the assets, which range from 25 to 40 years for
premises and three to 10 years for furniture and equipment. Leasehold
improvements are amortized over the terms of the respective leases or the useful
lives of the improvements, whichever is shorter.
Gains and losses on dispositions are recorded in other income. Maintenance
and repairs are charged to occupancy expense or equipment expense as incurred.
Income Taxes
Income tax expense is based on consolidated net income and generally differs
from income taxes paid due to deferred income taxes and benefits arising from
income and expenses being recognized in different periods for financial and
income tax reporting purposes.
BancShares and its subsidiaries file a consolidated federal income tax
return. Each subsidiary pays its allocation of federal income taxes or receives
a payment to the extent that tax benefits are realized. BancShares and its
subsidiaries each file separate state income tax returns.
Per Share Data
Net income per share has been computed by dividing net income by the weighted
average number of both classes of common shares outstanding during each period.
The weighted average number of shares outstanding for 1995, 1994 and 1993 was
10,597,066; 9,944,927 and 9,701,389, respectively. Outstanding options to
purchase shares of common stock were not materially dilutive to the
computation of net income per share in any period.
Cash dividends per share apply to both Class A and Class B common stock
as both classes share equally in dividends. Class A common stock carries one
vote per share, while shares of Class B common stock carry 16 votes per share.
<PAGE>
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
1995
<S> <C> <C> <C> <C>
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.
<PAGE>
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.
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>
<PAGE>
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.
<PAGE>
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.
BancShares leases certain premises and equipment
under various lease agreements that provide for
payment of property taxes, insurance and maintenance
costs. Generally, operating leases provide for one or
more renewal options on the same basis as current
rental terms. However, certain leases require
increased rentals under cost of living escalation
clauses. Certain of the leases also provide purchase
options.
Future minimum rental commitments for
noncancellable operating leases with initial or
remaining terms of one or more years consisted of the
following at December 31, 1995:
Year Ending December 31: Amount
1996 $ 9,726
1997 9,304
1998 8,321
1999 7,314
2000 5,588
Thereafter 63,176
-
Total minimum payments $103,429
Total rent expense for all operating leases amounted
to $11,998 in 1995, $11,118 in 1994 and $10,449 in
1993.
<PAGE>
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.
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:
1996 $ 176
1997 9,495
1998 1,055
1999 8,222
2000 411
Thereafter 3,598
$22,957
<PAGE>
NOTE H
COMMON STOCK
On October 23, 1995, the Board of Directors of
BancShares authorized the corporation to purchase on
the open market or in private transactions up to
300,000 shares of its outstanding Class A common stock
and up to 100,000 shares of its outstanding Class B
common stock. The authorization is effective for a
period of 12 months. The following table sets forth
information related to shares purchased for the years
ended December 31:
1995 1994 1993
Class A
Number of shares
purchased 28,386 85,850 -
Cash disbursed $1,394 $ 3,769 -
Class B
Number of shares
purchased 2,987 10,617 13,147
Cash disbursed $ 151 $ 459 $700
Shares purchased are retired by a charge to common
stock for the par value of the shares retired and to
retained earnings for the cost in excess of par value.
As of December 31, 1995, there were 226,329
shares reserved for issuance under the Dividend
Reinvestment and Stock Purchase Plan. Additionally, as
of December 31, 1995, a total of 923,917 shares that
have been registered for issuance under an employee
stock purchase plan remain unissued.
<PAGE>
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.
<PAGE>
NOTE J
EMPLOYEE BENEFIT PLANS
Employees who qualify under length of service and
other requirements participate in a noncontributory
defined benefit pension plan. Under the plan,
retirement benefits are based on years of service and
average earnings. The policy is to fund the maximum
amount allowable for federal income tax purposes. No
contribution was made during the three-year period
ending December 31, 1995. The plan's assets consist
primarily of investments in the Bank's common trust
funds, which include listed common stocks and fixed
income securities.
At December 31, 1995, the plan's assets also
included BancShares common stock with a market value
of $8,710. While applicable regulations would
generally prohibit the ownership of BancShares stock
by the plan, the Bank has received an exemption from
the Department of Labor which allows the plan to
continue to hold the stock. However, the plan's
interests for all purposes with respect to the stock
are now represented by an independent fiduciary.
BancShares has executed an agreement to purchase any
or all of the shares held by the plan if the fiduciary
determines that it is in the best interest of the
plan.
The following table sets forth the plan's funded
status at December 31:
<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>
<PAGE>
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
Employees are also eligible to participate in a
matching savings plan after one year of service.
During 1995 BancShares made participating
contributions to this plan of $3,155 compared to
$2,907 during 1994 and $2,709 during 1993.
Certain employees have been granted options to
purchase shares of BancShares' Class A common stock
through employee stock purchase plans. The plans are
qualified plans under the Internal Revenue Code. The
number of options granted was determined based on each
eligible employee's salary as of the grant date. The
option price for each of the plans is fixed at 85
percent of the market price on the grant date. As of
December 31, 1995, options to purchase a total of
146,800 shares remained, net of the 41,230 options
that have been forfeited. Additional information is as
follows:
</TABLE>
<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>
<PAGE>
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>
<PAGE>
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) - -
(1,454) (1,579) (4,807)
Total deferred tax benefit
Total tax expense $30,423 $26,867 $28,641
</TABLE>
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:
1995 1994
Loan loss reserve $31,426 $27,780
Net deferred loan fees and costs 2,066 1,682
Losses on other real estate 1,286 1,198
Net operating loss carryforwards 978 1,024
Other 6,068 6,190
Gross deferred tax asset 41,824 37,874
Less: valuation allowance (2,620) (3,493)
Deferred tax asset 39,204 34,381
Accelerated depreciation 4,654 3,344
Accretion of bond discount 768 292
Net periodic pension credit 639 791
Tax loan loss reserve reversal 1,295 1,071
Other 5,449 4,276
Deferred tax liability 12,805 9,774
Net deferred tax asset $26,399 $24,607
Due to changes in asset mix and the resulting composition of net interest
income, BancShares incurred income tax expense within its principal state
jurisdiction in 1995. Prior to 1995, BancShares incurred immaterial amounts of
state income tax expense and established a valuation allowance for the entire
amount of its net state deferred tax asset. During 1995, the valuation
allowance, which is recorded net of federal taxes, was reduced by $873, which
resulted in a deferred state tax benefit in 1995 of $1,343. At December 31,
1995, the state tax valuation allowance represents approximately 75% of the
gross state deferred tax asset. The net state deferred tax asset of $1,343
is the amount which BancShares believes is more likely than not to be realized.
<PAGE>
NOTE M
RELATED PARTY
TRANSACTIONS
The banks have had, and expect to have in the future,
banking transactions in the ordinary course of
business with several directors, officers and their
associates ("related parties"), on substantially the
same terms, including interest rates and collateral,
as those prevailing at the time for comparable
transactions with others. Those transactions neither
involve more than the normal risk of collectibility
nor present any unfavorable features.
An analysis of changes in aggregate amounts of
related party loans for the year ended December 31,
1995, which excludes aggregate loans totaling less
than $60 to any one related party, is as follows:
Balance at beginning of year $ 5,643
New loans 8,141
Repayments 1,842
Balance at end of year $11,942
BancShares provides certain processing and operational
services to other financial institutions. Certain of
these institutions are deemed to be related parties
since certain control persons of BancShares are also
deemed to be control persons of the other banks.
During 1995 and 1994, BancShares received $9,031 and
$7,976, respectively, for services rendered to related
parties, substantially all of which is included in fee
income and relates to data processing services
provided. The amount earned by BancShares during 1993
was not material.
<PAGE>
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 $64,589 $59,174 $5,691
White Sulphur Springs, West Virginia
May 1995 9 NationsBank of Virginia branches 133,175 143,494 10,801
Southern Virginia
March 1995 State Bank 49,700 41,238 5,555
Fayetteville, North Carolina
February 1995 First Investors Savings Bank, Inc., SSB 44,426 40,846 4,325
Whiteville, North Carolina
February 1995 Pace American Bank 58,660 53,303 6,954
Lawrenceville, Virginia
December 1994 First Republic Savings Bank, FSB 53,661 42,998 6,250
Roanoke Rapids, North Carolina
September 1994 Bank of Marlinton 51,646 46,647 4,605
Marlinton, West Virginia
August 1994 Edgecombe Homestead Savings Bank 39,181 30,195 4,547
Tarboro, North Carolina
March 1994 Bank of Bladenboro 21,316 19,515 1,607
Bladenboro, North Carolina
September 1993 Pioneer Bancorp, Inc. 268,845 216,226 8,114
Rocky Mount, North Carolina
June 1993 Caldwell Savings Bank, Inc. SSB 45,863 40,662 724
Lenoir, North Carolina
</TABLE>
During 1993, the Bank also assumed $105,662 in deposit liabilities from the
Resolution Trust Corporation ("RTC") in conjunction with the resolution of two
institutions by the RTC. The Bank paid a premium of $7,318 for these deposits.
During February 1996, BancShares acquired Sanford, North Carolina-based
Allied Bank Capital, Inc., and its two subsidiaries, Summit Savings Bank
Inc., SSB and Peoples Federal Savings Bank, Inc., SSB. The Bank acquired assets
of approximately $265,855 and assumed deposit liabilities of $213,960. The
approximate value of the intangible asset which will be recorded is $32,000.
<PAGE>
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.
<PAGE>
NOTE P
COMMITMENTS AND
CONTINGENCIES
In the normal course of business, BancShares and its
subsidiaries have financial instruments with
off-balance sheet risk in order to meet the financing
needs of its customers and to reduce its own exposure
to fluctuations in interest rates. These financial
instruments include commitments to extend credit,
standby letters of credit and forward commitments to
sell loans. These instruments involve, to varying
degrees, elements of credit, interest rate or
liquidity risk.
Commitments to extend credit are legally binding
agreements to lend to customers. Commitments generally
have fixed expiration dates or other termination
clauses and may require payment of fees. Since many of
the commitments are expected to expire without being
drawn upon, the total commitment amounts do not
necessarily represent future liquidity requirements.
Established credit standards control the credit-risk
exposure associated with these commitments. In some
cases, BancShares requires that collateral be pledged
to secure the commitment. At December 31, 1995 and
1994, BancShares had unused commitments totaling
$1,403,938 and $1,245,613, respectively.
Standby letters of credit are conditional
commitments guaranteeing performance of a customer to
a third party. Those guarantees are issued primarily
to support public and private borrowing arrangements.
In order to minimize its exposure, the BancShares'
credit policies also govern the issuance of standby
letters of credit. At December 31, 1995 and 1994,
BancShares had standby letters of credit amounting to
$12,188 and $10,410, respectively.
Management has elected to enter into forward
commitments to sell loans as a hedge against
fluctuations in market rates for the commitments to
originate residential mortgage loans. These forward
commitments, which totaled $16,000 and $1,453 at
December 31, 1995 and 1994, respectively, were at
fixed prices and were scheduled to settle within 60
days of that date. At December 31, 1995 and 1994,
these forward commitments had no carrying value and
unrealized losses of $20 and $23, respectively. These
amounts are included with the carrying value of loans
held for sale and commitments to originate mortgage
loans when determining whether a valuation allowance
is required to reduce the loans and commitments to
originate mortgage loans to the lower of cost or fair
value.
BancShares and various subsidiaries have been
named as defendants in various legal actions arising
from their normal business activities in which damages
in various amounts are claimed. Although the amount of
any ultimate liability with respect to such matters
cannot be determined, in the opinion of management,
any such liability will not have a material effect on
BancShares' consolidated financial position.
<PAGE>
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:
<TABLE>
<CAPTION>
Condensed Balance Sheets
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>
<TABLE>
<CAPTION>
Condensed Income Statements 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>
<TABLE>
<CAPTION>
NOTE Q
FIRST CITIZENS
BANCSHARES, INC.
("Parent Company") Continued
Condensed Statements of Cash Flows 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
activites (56,345) 11,713 (2,515)
Investing Activities
Net change in due from subsidiaries (83,223) (17,736) (22,960)
Investment in subsidiaries (43,099) - -
Purchase of institutions, net of
cash acquired 106,092 (6,533) -
Net cash used by investing activities (20,230) (24,269) (22,960)
Financing Activities:
Repurchase of common stock (1,545) (4,228) (700)
Proceeds from stock issuance,
net of related costs 3,036 2,948 6,441
Cash dividends paid (8,817) (7,311) (6,063)
Net change in short-term borrowings 83,928 19,705 25,294
Net cash provided by financing activities 76,602 11,114 24,972
Increase (decrease) in cash 27 (1,442) (503)
Cash balance at beginning of year 725 2,167 2,670
Cash balance at end of year $ 752 $ 725 $2,167
Cash payments for:
Interest $10,081 $5,470 $3,836
Income taxes 27,454 27,667 34,021
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions $21,846 $18,485 -
</TABLE>
<PAGE>
Exhibit 22
Subsidiaries of the Registrant
Name State
First-Citizens Bank & Trust Company Chartered in North Carolina
with branches in North
Carolina and Virginia
Bank of Marlinton West Virginia
Bank of White Sulphur Springs West Virginia
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Citizens BancShares, Inc:
We consent to incorporation by reference in the registration statement on Form
S-8 (No. 33-82052) dated July 28, 1994, and the registration statement on Form
S-3 (No. 33-54634) dated November 16, 1992, of First Citizens BancShares, Inc,
of our report dated January 22, 1996, relating to the consolidated balance
sheets of First Citizens BancShares, Inc. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, changes
in shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which report is incorporated by reference in
the December 31, 1995 Annual Report on Form 10-K of First Citizens BancShares,
Inc.
(Signature of KPMG Peat Marwick LLP)
KPMG Peat Marwick LLP
Raleigh, North Carolina
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 448,630
<SECURITIES> 1,983,148
<RECEIVABLES> 1,922
<ALLOWANCES> 78,495
<INVENTORY> 0
<CURRENT-ASSETS> 2,472,223
<PP&E> 318,386
<DEPRECIATION> 110,147
<TOTAL-ASSETS> 7,383,950
<CURRENT-LIABILITIES> 6,764,613
<BONDS> 0
0
0
<COMMON> 10,716
<OTHER-SE> 403,167
<TOTAL-LIABILITY-AND-EQUITY> 520,837
<SALES> 471,109
<TOTAL-REVENUES> 563,237
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 245,880
<LOSS-PROVISION> 5,364
<INTEREST-EXPENSE> 224,664
<INCOME-PRETAX> 87,329
<INCOME-TAX> 30,423
<INCOME-CONTINUING> 56,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,906
<EPS-PRIMARY> 5.37
<EPS-DILUTED> 5.37
</TABLE>
