First Citizens BancShares, Inc. Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
December 31, 1996 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. [ ]
Based on last reported sales prices on March 12, 1997, the aggregate market
value of the Registrant's voting stock held by nonaffiliates of the Registrant
as of such date was $427,758,000.
On March 12, 1997, there were 9,637,940 outstanding shares of the Registrant's
Class A Common Stock and 1,758,370 outstanding shares of the Registrant's Class
B Common Stock.
Portions of the Registrant's definitive Proxy Statement dated March 14, 1997 are
incorporated in Part III of this report, as is information contained in the 1996
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 ("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, 1996, the Bank operated 308 offices in North Carolina and
Virginia.
On September 1, 1994, BancShares acquired Bank of Marlinton, a West
Virginia-chartered bank with headquarters in Marlinton, West Virginia. Bank of
Marlinton operated two offices and had $60 million in assets as of December 31,
1996. On June 1, 1995, BancShares acquired Bank of White Sulphur Springs
("WSS"), a West Virginia-chartered bank with headquarters in White Sulphur
Springs, West Virginia. WSS operated two offices and had $68.6 million in assets
as of December 31, 1996.
BancShares' executive offices are located at 239 Fayetteville Street, Raleigh,
North Carolina, 27601, and its telephone number is (919) 716-7000. At December
31, 1996, BancShares and its subsidiaries employed a full-time staff of 3,457
and a part-time staff of 825 for a total of 4,282
employees.
BancShares' principal assets are its investment 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 P of BancShares' consolidated financial statements,
contained in this report.
The subsidiary banks seek to meet the needs of both consumers and commercial
entities in their respective market areas. These services, offered at most
offices, include normal taking of deposits, cashing of checks, and providing for
individual and commercial cash needs; numerous checking and savings plans;
commercial and consumer lending; a full-service trust department; and other
activities incidental to commercial banking. Bank subsidiaries American Guaranty
Insurance Company and Triangle Life Insurance Company underwrite and sell
various forms of credit-related insurance products. Neuse, Incorporated
("Neuse"), owns a substantial number of the facilities in which the Bank
operates branches. First Citizens Investor Services, Inc., provides various
investment products, including third-party mutual funds to customers. Various
other subsidiaries are either inactive or not material to BancShares'
consolidated financial position or to consolidated net income.
As of December 31, 1996, BancShares had consolidated assets of $8.1 billion,
consolidated deposits of $7 billion and shareholders' equity of $615.5 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, 1996. Rates of return on average assets and average equity and the
ratio of shareholders' equity to total assets for the last five years are
presented in Table 1 of this report.
The banking laws of North Carolina, West Virginia and Virginia allow for
statewide branching. Consequently, commercial banking in these states is highly
competitive. BancShares' subsidiaries compete with other financial institutions
throughout their market areas.
During 1994, Congress approved legislation that will allow adequately
capitalized and managed bank holding companies to acquire control of banks in
any state ("the Interstate Banking Law"). Acquisitions will be subject to
anti-trust provisions that limit the state and national deposits that may be
controlled by a single bank holding company. Under the Interstate Banking Law,
banks will be permitted, beginning June 1, 1997, to merge across state lines,
subject to concentration, capital and Community Reinvestment Act requirements
and regulatory approval. A state may authorize mergers earlier than June 1,
1997, or a state may enact restrictions on mergers prior to that date. The
Interstate Banking Law also allows states to permit out-of-state banks to open
new branches within their borders. Currently, in North Carolina, the Reciprocal
Interstate Banking Act and the Interstate Branch Banking Act allow a bank or
bank holding company based in other states to acquire banks or bank
2
<PAGE>
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 authorities 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.
3
<PAGE>
Part I (continued)
Item 2. Properties
As of December 31, 1996, the Bank owned land improved by office buildings in
which its operates offices at 212 locations. The Bank leases from Neuse 58
locations that have office buildings located thereon in which the Bank maintains
offices. In addition, the Bank leases 136 other locations from third parties.
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
None
4
<PAGE>
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, 1996, is presented in Table 16.
The per share cash dividends paid by BancShares during each quarterly period
during 1996 and 1995 are set forth in Table 16 of this report. A cash dividendof
25 cents per share was declared by the Board of Directors on January 27,
1997,payable April 7, 1997, to holders of record as of March 17, 1997. 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 36 of Registrant's 1996 Annual
Report.
Item 6. Selected Financial Data
Information is included on page 20 of Registrant's 1996 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 1996 Annual
Report
Item 8. Financial Statements and Supplementary Data
Information is included on the indicated pages of Registrant's 1996 Annual
Report:
Independent Auditors' Report 38
Consolidated Balance Sheets at December 31, 1996 and 1995 39
Consolidated Statements of Income for each of the years
in the three-year period ended December 31, 1996 40
Consolidated Statements of Changes in Shareholders' Equity for each of
the years in the three-year period ended December 31, 1996 41
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1996 42
Notes to Consolidated Financial Statements 43-59
Quarterly Financial Summary for 1996 and 1995 36
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 14, 1997, as follows:
Item 10. Directors and Executive Officers of the Registrant
Information found on pages 6-9 under the caption "Proposal 1: Election of
Directors" and 12 under the caption "Executive Officers."
Item 11. Executive Compensation
Information found on pages 9-10 under the caption "Directors' Fees and
Compensation;" 11 under the caption "Compensation Committee Interlocks and
Insider Participation;" 13-15 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", "Ownership of Securities by Management" and "Required Reports
of Beneficial Ownership."
Item 13. Certain Relationships and Related Transactions
Information found on pages 9 in footnote (4) to the table under the caption
"Proposal 1: Election of Directors" and 16 under the caption "Transactions with
Management."
5
<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 PostRetirement Non-Competition and Consultation
Agreement, dated January 24, 1994, between Registrant's subsidiary,
FirstCitizens 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 PostRetirement Non-Competition and Consultation
Agreement, dated January 24, 1994, between Registrant's subsidiary,
FirstCitizens 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 PostRetirement Non-Competition and Consultation
Agreement, dated January 24, 1994, between Registrant's subsidiary,
FirstCitizens 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, 1996, between Registrant's subsidiary,
FirstCitizens 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)
*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,
FirstCitizens 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,
FirstCitizens 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 10K)
6
<PAGE>
Part IV (continued)
*10.7 Consulting Agreement dated February 17, 1988, between Registrant's
subsidiary, FirstCitizens 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, 1995, between Registrant's
subsidiary, FirstCitizens 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, 1995,
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, 1995, 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 5.4.a of the Agreement and Plan of Reorganization and
Merger By and Between Allied Bank Capital, Inc. and First Citizens BancShares,
Inc., dated August 7, 1996, 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 Annual Report to Shareholders for the year ended
December 31, 1996 (filed herewith)
22 Subsidiaries of the Registrant (filed herewith)
99 Registrant's definitive Proxy Statement dated March 14, 1997
(filed pursuant to Rule 14a6(c))
- ------------------
* Denotes a management contract or compensation plan or arrangement in which an
executive officer or director of Registrant participates.
(b) Reports on Form 8K. During the fourth quarter of 1996 the
Registrant filed no Form 8K Current Reports.
7
<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 13, 1997 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 13, 1997
Lewis R. Holding Executive Officer
(principal executive
officer)
/s/Frank B. Holding Executive Vice Chairman March 13, 1997
Frank B. Holding
/s/James B. Hyler, Jr. Vice Chairman March 13, 1997
James B. Hyler, Jr.
/s/Frank B. Holding, Jr. President March 13, 1997
Frank B. Holding, Jr.
/s/Kenneth A. Black Vice President, March 13, 1997
Treasurer, and Chief
Kenneth A. Black Financial Officer
(principal financial
and accounting officer)
8
<PAGE>
Signature Title Date
John M. Alexander, Jr. Director March 13, 1997
/s/Ted L. Bissett Director March 13, 1997
Ted L. Bissett
Director March 13, 1997
B. Irvin Boyle
/s/George H. Broadrick Director March 13, 1997
George H. Broadrick
Director March 13, 1997
H. Max Craig, Jr.
/s/Betty M. Farnsworth Director March 13, 1997
Betty M. Farnsworth
Director March 13, 1997
Lewis M. Fetterman
9
<PAGE>
Signature Title Date
Director March 13, 1997
Carmen P. Holding
Director March 13, 1997
Charles B.C. Holt
Director March 13, 1997
Edwin A. Hubbard
/s/Gale D. Johnson Director March 13, 1997
Gale D. Johnson
/s/Freeman R. Jones Director March 13, 1997
Freeman R. Jones
Director March 13, 1997
Lucius S. Jones
/s/I. B. Julian Director March 13, 1997
I. B. Julian
10
<PAGE>
Signature Title Date
Director March 13, 1997
Joseph T. Maloney, Jr.
/s/J. Claude Mayo, Jr. Director March 13, 1997
J. Claude Mayo, Jr.
Director March 13, 1997
William McKay
/s/Brent D. Nash Director March 13, 1997
Brent D. Nash
/s/Lewis T. Nunnelee, II Director March 13, 1997
Lewis T. Nunnelee, II
Director March 13, 1997
Talbert O. Shaw
Director March 13, 1997
R. C. Soles, Jr.
/s/David L. Ward, Jr. Director March 13, 1997
David L. Ward, Jr.
11
<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 10K) -
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 PostRetirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, FirstCitizens 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 PostRetirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, FirstCitizens 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 PostRetirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, FirstCitizens 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, FirstCitizens 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 PostRetirement
Non-Competition and Consultation Agreement, dated January 24, 1994,
between Registrant's subsidiary, FirstCitizens 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) -
10.6 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated January 1, 1986, between
Registrant's subsidiary, FirstCitizens 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 10K) -
12
<PAGE>
EXHIBIT INDEX (continued)
Exhibit Sequential
Number Description of Exhibit Page Number
<S> <C> <C>
10.7 Consulting Agreement dated February 17, 1988, between
Registrant's subsidiary, FirstCitizens Bank & Trust Company, and
George H. Broadrick (incorporated herein by reference to
Exhibit10.7 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, FirstCitizens 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 5.4.a 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 1996 Annual Report for the year ended
December 31, 1996 (filed herewith) 13
22 Subsidiaries of the Registrant (filed herewith) 78
99 Registrant's definitive Proxy Statement dated March 14, 1997
(filed pursuant to Rule 14a6(c)) -
</TABLE>
13
<PAGE>
<PAGE>
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 28, 1997
NOTICE is hereby given that the Annual Meeting of Shareholders of First
Citizens BancShares, Inc. ("BancShares") will be held as follows:
<TABLE>
<S> <C>
Place: Conference Room A
Raleigh Civic Center (Raleigh Convention
and Conference Center Complex)
500 Fayetteville Street Mall
Raleigh, North Carolina
Date: Monday, April 28, 1997
Time: 1:00 p.m.
</TABLE>
The purposes of the meeting are:
1. To elect a 26-member Board of Directors, each member to hold office for
a term of one year or until his or her respective successor is duly
elected and qualified.
2. To ratify the appointment of KPMG Peat Marwick LLP as BancShares'
independent public accountants for 1997.
3. To consider the adoption of an amendment to the bylaws of BancShares to
increase the maximum authorized number of directors from 26 to 30.
4. To transact any other business that may properly come before the Annual
Meeting.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ENSURE THE PRESENCE OF A QUORUM, ALL SHAREHOLDERS, EVEN THOUGH THEY
PLAN TO ATTEND, ARE URGED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE PROVIDED FOR THAT PURPOSE.
THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT AND VOTE IN
PERSON IF YOU ATTEND THE MEETING.
By Order of the Board of Directors
[sig. appears here]
ALEXANDER G. MACFADYEN, JR., Secretary
March 14, 1997
<PAGE>
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 28, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Citizens BancShares, Inc.
("BancShares") for use at the Annual Meeting of Shareholders of BancShares to be
held in Conference Room A, Raleigh Civic Center (Raleigh Convention and
Conference Center Complex), 500 Fayetteville Street Mall, Raleigh, North
Carolina, at 1 o'clock p.m. on April 28, 1997, or any adjournments thereof. In
addition to solicitation by mail, proxies may be solicited personally or by
telephone by directors, officers or employees of BancShares and its subsidiary,
First-Citizens Bank & Trust Company ("Bank"). Expenses of such proxy
solicitation will be paid by BancShares. Persons named in the proxy to represent
shareholders at the meeting are: George H. Broadrick, Lewis R. Holding, Frank B.
Holding, James B. Hyler, Jr., Frank B. Holding, Jr., Carmen P. Holding, Lewis T.
Nunnelee, II, and David L. Ward, Jr. This Proxy Statement is first being mailed
to shareholders on March 14, 1997.
A proxy form that is properly executed and returned, and not revoked, will
be voted in accordance with the instructions contained in the proxy. If no
instructions are given, the proxy will be voted FOR the slate of 26 nominees
named herein for election to the Board of Directors, FOR ratification of the
appointment of KPMG Peat Marwick LLP as BancShares' independent public
accountants for 1997, and FOR amendment of the Bylaws of BancShares to increase
the maximum authorized number of directors from 26 to 30. On such other matters
as may properly come before the meeting, the proxy will be voted in accordance
with the best judgment of the persons named in the proxy to represent the
shareholders. If any nominee is unable to serve, the proxy may be voted for a
person designated by the Board of Directors to replace such nominee. A
shareholder who executes a proxy has the right to revoke it at any time before
it is voted by filing with the Secretary of BancShares either an instrument
revoking the proxy or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and requesting the right to vote in person.
RECORD DATE; VOTING SECURITIES
March 6, 1997, is the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. At the Annual Meeting
shareholders will be entitled to cast the number of votes to which they are
entitled based on the shares of BancShares' voting securities standing of record
in their respective names at the close of business on that date.
As of March 6, 1997, BancShares' voting securities consisted of 9,637,940
shares of Class A Common Stock, $1 par value per share, each share being
entitled to one vote on each matter submitted for voting and on each director to
be elected, and 1,758,370 shares of Class B Common Stock, $1 par value per
share, each share being entitled to 16 votes on each matter submitted for voting
and on each director to be elected.
In the voting on each proposal described in this Proxy Statement (other
than the election of directors) abstentions will have the same effect as votes
against the proposal, but broker non-votes will have no effect.
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
As of March 6, 1997, the shareholders identified in the following table
beneficially owned more than 5% of one or both classes of BancShares' voting
securities:
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES*
<S> <C> <C> <C>
Claire Holding Bristow 50,995(1) 100,812(1) 4.41%
Summerville, SC (.53%) (5.73%)
George H. Broadrick 1,265,048(2) 325,916(2) 17.15%
Charlotte, NC (13.13%) (18.54%)
Hope Holding Connell 39,569(3) 109,197(3) 4.73%
Raleigh, NC (.41%) (6.21%)
Elizabeth C. Holding 51,153(4) 100,885(4) 4.41%
Chapel Hill, NC (.53%) (5.74%)
Frank B. Holding 2,567,982(5) 632,021(5) 33.57%
Smithfield, NC (26.64%) (35.94%)
Frank B. Holding, Jr. 55,475(6) 105,943(6) 4.63%
Raleigh, NC (.58%) (6.03%)
Lewis R. Holding 1,195,046(7) 324,094(7) 16.89%
Lyford Cay, Bahamas (12.40%) (18.43%)
Olivia B. Holding 48,656(8) 104,015(8) 4.53%
Raleigh, NC (.50%) (5.92%)
</TABLE>
* This column reflects the aggregate votes attributable to the combined shares
of Class A and Class B beneficially owned by each principal shareholder
listed above, as a percentage of the aggregate votes that may be cast by the
holders of all shares of BancShares' outstanding voting securities.
(1) Claire H. Bristow exercises sole voting and investment power as to 45,995
shares of Class A and 83,562 shares of Class B held individually. She
disclaims beneficial ownership as to 16,000 shares of Class B held by her
spouse as custodian for their minor children. She exercises shared voting
and investment power as to 5,000 shares of Class A and 1,250 shares of Class
B held in a trust for her benefit in a nominee name by the Bank's Trust
Department. All of such shares also are included in the beneficial ownership
shown above for her father, Frank B. Holding, who disclaims beneficial
ownership as to such shares.
(2) George H. Broadrick exercises sole voting and investment power as to 55,742
shares of Class A held individually and as to 953,806 shares of Class A and
262,041 shares of Class B held by him as sole trustee of two irrevocable
trusts for the benefit of the adult daughters of Lewis R. Holding. He
exercises shared voting and investment power as to 245,500 shares of Class A
and 61,375 shares of Class B held by him and Carolyn S. Holding as
co-trustees of four irrevocable trusts for the benefit of Lewis R. Holding's
adult daughters, which shares also are included in the beneficial ownership
of Lewis R. Holding. Mr. Broadrick disclaims beneficial ownership as to
10,000 shares of Class A and 2,500 shares of Class B included above and
owned by his spouse. Pursuant to a notice of change of control filed with
the Federal Reserve Bank of Richmond, Virginia during January 1997, it is
anticipated that Mr. Broadrick, as sole trustee of two trusts for the
benefit of the daughters of Lewis R. Holding, will exchange certain shares
of Class A currently held by the trusts for an equal number of shares of
Class B currently held by Lewis R. Holding, resulting in a significant
increase in the percentage of Class B shown as beneficially owned by Mr.
Broadrick and a significant decrease in the Class B beneficial ownership
shown for Mr. Holding. Such share exchange will not take place until after
the transaction has been approved by the Federal Reserve Bank of Richmond.
(3) Hope H. Connell exercises sole voting and investment power as to 33,069
shares of Class A and 96,722 shares of Class B held individually. She
disclaims beneficial ownership as to 1,600 shares of Class A and 11,250
shares of Class B held by her spouse individually and/or as custodian for
their minor sons. She exercises shared voting and investment power as to an
additional 4,900 shares of Class A and 1,225 shares of Class B held in a
trust for her benefit in a nominee name by the Bank's Trust Department. All
of such shares also are included in the beneficial ownership shown above for
her father, Frank B. Holding, who disclaims beneficial ownership as to such
shares.
2
<PAGE>
(4) Elizabeth C. Holding exercises sole voting and investment power as to 46,153
shares of Class A and 99,635 shares of Class B held individually. She
exercises shared voting and investment power as to an additional 5,000
shares of Class A and 1,250 shares of Class B held in a trust for her
benefit in a nominee name by the Bank's Trust Department. All of such shares
also are included in the beneficial ownership shown above for her father,
Frank B. Holding, who disclaims beneficial ownership as to such shares.
(5) Frank B. Holding exercises sole voting and investment power as to 1,637,834
shares of Class A held individually. He disclaims beneficial ownership as to
320,396 shares of Class A and 514,677 shares of Class B held by his spouse,
adult son and daughters and their spouses, and 24,700 shares of Class A and
6,175 shares of Class B held in a nominee name by the Bank's Trust
Department for the benefit of his adult son and daughters, all of which
shares are included above. He exercises shared voting and investment power
as to an aggregate of 585,052 shares of Class A and 111,169 shares of Class
B held by the following corporations and other entities which, for
beneficial ownership purposes, are deemed controlled by Mr. Holding: First
Citizens Bancorporation of South Carolina, Inc. (167,600 shares of Class A
and 45,900 shares of Class B); Fidelity BancShares (N.C.), Inc. (100,000
shares of Class A); Southern BancShares (N.C.), Inc. (24,584 shares of Class
A and 22,219 shares of Class B); Southern Bank and Trust Company (46,000
shares of Class A); Goshen, Inc. (54,000 shares of Class A); The Heritage
Bank (23,628 shares of Class A); Yadkin Valley Company (18,845 shares of
Class A and 1,725 shares of Class B); Yadkin Valley Life Insurance Company
(700 shares of Class A and 175 shares of Class B); Twin States Farming, Inc.
(6,320 shares of Class A and 1,225 shares of Class B); The Robert P. Holding
Foundation, Inc., a charitable foundation of which Mr. Holding is a director
(126,896 shares of Class A and 36,525 shares of Class B); and in a nominee
name by the Bank's Trust Department (16,479 shares of Class A and 3,400
shares of Class B held in a fiduciary capacity for the benefit of various
third parties). Included in Frank B. Holding's beneficial ownership are
262,920 shares of Class A and 41,825 shares of Class B also shown as
beneficially owned by his brother, Lewis R. Holding, of which 16,479 shares
of Class A and 3,400 shares of Class B also are included in the beneficial
ownership of James B. Hyler, Jr. (See "OWNERSHIP OF SECURITIES BY
MANAGEMENT"), and 345,096 shares of Class A and 520,852 shares of Class B
also are included in the ownership of his adult son and daughters, each of
whom is listed individually in the table above.
(6) Frank B. Holding, Jr. exercises sole voting and investment power as to
40,095 shares of Class A and 85,318 shares of Class B held individually and
6,780 shares of Class A and 18,750 shares of Class B held by him as
custodian for his minor children. He exercises shared voting and investment
power as to an additional 4,900 shares of Class A and 1,225 shares of Class
B held in a trust for his benefit in a nominee name by the Bank's Trust
Department, and he disclaims beneficial ownership as to 3,700 shares of
Class A and 650 shares of Class B included above and held by his spouse. All
of such shares also are included in the beneficial ownership shown above for
his father, Frank B. Holding, who disclaims beneficial ownership as to such
shares.
(7) Lewis R. Holding exercises sole voting and investment power as to 610,935
shares of Class A and 207,706 shares of Class B held individually. He
disclaims beneficial ownership as to certain shares included above and held
by his spouse individually (48,963 shares of Class A and 12,025 shares of
Class B), by his spouse and George H. Broadrick as co-trustees of four
irrevocable trusts for the benefit of his adult daughters (245,500 shares of
Class A and 61,375 shares of Class B) and by his adult daughters (26,728
shares of Class A and 1,163 shares of Class B). He exercises shared voting
and investment power as to an aggregate of 262,920 shares of Class A and
41,825 shares of Class B held by the following corporations and other
entities which, for beneficial ownership purposes, are deemed controlled by
Mr. Holding: Fidelity BancShares (N.C.), Inc. (100,000 shares of Class A);
Yadkin Valley Company (18,845 shares of Class A and 1,725 shares of Class
B); Yadkin Valley Life Insurance Company (700 shares of Class A and 175
shares of Class B); The Robert P. Holding Foundation, Inc., a charitable
foundation of which Mr. Holding is a director (126,896 shares of Class A and
36,525 shares of Class B); and in a nominee name by the Bank's Trust
Department (16,479 shares of Class A and 3,400 shares of Class B held in a
fiduciary capacity for the benefit of various third parties). Included in
Lewis R. Holding's beneficial ownership are 262,920 shares of Class A and
41,825 shares of Class B also shown as beneficially owned by his brother,
Frank B. Holding, of which 16,479 shares of Class A and 3,400 shares of
Class B also are included in the beneficial ownership of James B. Hyler, Jr.
(See "OWNERSHIP OF SECURITIES BY MANAGEMENT").
(8) Olivia B. Holding exercises sole voting and investment power as to 43,756
shares of Class A and 102,790 shares of Class B held individually. She
exercises shared voting and investment power as to an additional 4,900
shares of Class A and 1,225 shares of Class B held in a trust for her
benefit in a nominee name by the Bank's Trust Department. All of such shares
also are included in the beneficial ownership shown above for her father,
Frank B. Holding, who disclaims beneficial ownership as to such shares.
3
<PAGE>
OWNERSHIP OF SECURITIES BY MANAGEMENT
As of March 6, 1997, the beneficial ownership of BancShares' voting
securities by the directors, certain named executive officers, and by all
directors and executive officers as a group, of BancShares and the Bank was as
follows:
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP* CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES**
<S> <C> <C> <C>
John M. Alexander, Jr. 1,434 (1) 225 (1) .01%
Raleigh, NC (.01%) (.01%)
Ted L. Bissett 7,265 (2) 1,375 (2) .08%
Spring Hope, NC (.08%) (.08%)
B. Irvin Boyle 700 175 .01%
Charlotte, NC (.01%) (.01%)
George H. Broadrick 1,265,048 (3) 325,916 (3) 17.15%
Charlotte, NC (13.13%) (18.54%)
H. Max Craig, Jr. 12,299 (4) 3,550 (4) .18%
Stanley, NC (.13%) (.20%)
Betty M. Farnsworth 1,561 (5) 250 .01%
Pilot Mountain, NC (.02%) (.01%)
Lewis M. Fetterman 12,955 (6) 2,750 (6) .15%
Clinton, NC (.13%) (.16%)
Carmen P. Holding 147,929 (7) 31,281 (7) 1.72%
Atlanta, GA (1.53%) (1.78%)
Frank B. Holding 2,567,982 (8) 632,021 (8) 33.57%
Smithfield, NC (26.64%) (35.94%)
Frank B. Holding, Jr. 55,475 (9) 105,943 (9) 4.63%
Raleigh, NC (.58%) (6.03%)
Lewis R. Holding 1,195,046 (10) 324,094 (10) 16.89%
Lyford Cay, Bahamas (12.40%) (18.43%)
Charles B. C. Holt 2,570 (11) -0- .01%
Fayetteville, NC (.03%)
Edwin A. Hubbard 14,578 (12) -0- .04%
Sanford, NC (.15%)
James B. Hyler, Jr. 21,845 (13) 3,500 (13) .21%
Raleigh, NC (.23%) (.20%)
Gale D. Johnson 481 50 .01%
Dunn, NC (.01%) (.01%)
Freeman R. Jones 4,100 250 .02%
Midland, NC (.04%) (.01%)
Lucius S. Jones 1,000 -0- .01%
Wendell, NC (.01%)
I. B. Julian 12,000 3,500 .18%
Fayetteville, NC (.12%) (.20%)
Joseph T. Maloney, Jr. 22,452 5,400 .29%
Fayetteville, NC (.23%) (.31%)
J. Claude Mayo, Jr. 1,000 -0- .01%
Rocky Mount, NC (.01%)
William McKay 1,072 (14) -0- .01%
Flat Rock, NC (.01%)
Brent D. Nash 12,373 (15) -0- .03%
Tarboro, NC (.13%)
Lewis T. Nunnelee, II 600 450 .02%
Wilmington, NC (.01%) (.03%)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMBINED
BENEFICIAL OWNERSHIP* CLASS A AND
CLASS A COMMON CLASS B COMMON CLASS B COMMON
NAME AND ADDRESS AND PERCENTAGE AND PERCENTAGE PERCENTAGE OF
OF BENEFICIAL OWNER OF CLASS OF CLASS TOTAL VOTES**
<S> <C> <C> <C>
James M. Parker 842 -0- .01%
Raleigh, NC (.01%)
Talbert O. Shaw 119 -0- .01%
Raleigh, NC (.01%)
R. C. Soles, Jr. 15,138 -0- .04%
Tabor City, NC (.16%)
David L. Ward, Jr. 27,100 (16) 8,638 (16) .44%
New Bern, NC (.28%) (.49%)
All directors and executive 4,685,501 (17) 1,209,094 (17) 63.62%(17)
officers as a group (37 (48.62%) (68.76%)
persons)
</TABLE>
* Except as otherwise stated in the footnotes following this table, shares
shown as beneficially owned, to the best of BancShares' management's
knowledge, are owned individually by the persons named and such persons
exercise sole voting and investment power with respect to those shares.
** This column reflects the aggregate votes attributable to the combined shares
of Class A and Class B beneficially owned by each director and executive
officer, and by the group, as a percentage of the aggregate votes that may
be cast by the holders of all shares of BancShares' outstanding voting
securities.
(1) John M. Alexander, Jr. exercises sole voting and investment power as to 534
shares of Class A held individually. He exercises shared voting and
investment power as to 900 shares of Class A and 225 shares of Class B held
of record by Raleigh Tractor & Truck Company, of which he is President.
(2) Ted L. Bissett exercises sole voting and investment power as to 5,581
shares of Class A and 1,075 shares of Class B held individually. He
exercises shared voting and investment power as to 1,684 shares of Class A
and 300 shares of Class B held by his children.
(3) For an explanation of the nature of the beneficial ownership of George H.
Broadrick, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (2).
(4) H. Max Craig, Jr. exercises sole voting and investment power as to 699
shares of Class A and 400 shares of Class B held individually. He exercises
shared voting and investment power as to 11,600 shares of Class A and 3,150
shares of Class B held by Gaston County Dyeing Machine Company, of which he
is President and Chairman of the Board.
(5) Betty M. Farnsworth exercises sole voting and investment power as to 1,461
shares of Class A and 250 shares of Class B held individually. She
disclaims beneficial ownership as to 100 shares of Class A held by an adult
son.
(6) Lewis M. Fetterman exercises sole voting and investment power as to 10,146
shares of Class A and 2,200 shares of Class B held individually. He
disclaims beneficial ownership as to 2,849 shares of Class A and 550 shares
of Class B included above and held in trust for his spouse.
(7) Carmen P. Holding exercises sole voting and investment power as to 25,129
shares of Class A and 581 shares of Class B held individually. An
additional 122,800 shares of Class A and 30,700 shares of Class B are held
in various family trusts for her benefit, as to which shares she has shared
voting and investment power, which shares also are included in the
beneficial ownership shown above for George H. Broadrick and Lewis R.
Holding.
(8) For an explanation of the nature of the beneficial ownership of Frank B.
Holding, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (5).
(9) For an explanation of the nature of the beneficial ownership of Frank B.
Holding, Jr., see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (6).
(10) For an explanation of the nature of the beneficial ownership of Lewis R.
Holding, see "PRINCIPAL HOLDERS OF VOTING SECURITIES," footnote (7).
(11) Charles B. C. Holt exercises sole voting and investment power as to 1,966
shares of Class A held individually. He exercises shared voting and
investment power as to 139 shares of Class A held by him as Trustee of the
Holt Oil Company, Inc. Retirement Plan, and disclaims beneficial ownership
as to 465 shares of Class A held by his spouse.
5
<PAGE>
(12) Edwin A. Hubbard exercises sole voting and investment power as to 8,251
shares of Class A held individually. He disclaims beneficial ownership as
to 6,327 shares of Class A held by his spouse.
(13) James B. Hyler, Jr. exercises sole voting and investment power as to 5,366
shares of Class A and 100 shares of Class B held individually. He exercises
shared voting and investment power as to certain shares held in a nominee
name by the Trust Department of the Bank, which shares, for beneficial
ownership purposes, are deemed controlled by Mr. Hyler (16,479 shares of
Class A and 3,400 shares of Class B held in a fiduciary capacity for the
benefit of various third parties); such shares also are included in the
beneficial ownership shown above for Lewis R. Holding and Frank B. Holding.
(14) William McKay exercises sole voting and investment power as to 928 shares
of Class A held individually and shared voting and investment power as to
144 shares of Class A held jointly with his spouse.
(15) Brent D. Nash exercises sole voting and investment power as to 5,645 shares
of Class A held individually and disclaims beneficial ownership as to 5,642
shares of Class A owned by his spouse and 1,086 shares of Class A owned by
his daughter.
(16) David L. Ward, Jr. exercises sole voting and investment power as to 24,100
shares of Class A and 7,513 shares of Class B held individually. He
exercises shared voting and investment power as to 1,000 shares of Class A
and 250 shares of Class B held by him and J. Troy Smith, Jr. as Co-Trustees
of the Ward and Smith, P.A. Profit-Sharing Trust. He disclaims beneficial
ownership as to 3,500 shares of Class A and 875 shares of Class B owned by
his spouse.
(17) Certain numbers of shares included in the beneficial ownership of George H.
Broadrick, Carmen P. Holding, Frank B. Holding, Frank B. Holding, Jr.,
Lewis R. Holding, and James B. Hyler, Jr. are reflected separately in the
beneficial ownership of each of such individuals, but are included only
once in the beneficial ownership shown for the group.
REQUIRED REPORTS OF BENEFICIAL OWNERSHIP
BancShares' directors and executive officers are required to file certain
reports with the Securities and Exchange Commission regarding the amount of and
changes in their beneficial ownership of BancShares' Class A and Class B common
stock. Based on its review of copies of those reports, BancShares' proxy
materials are required to disclose failures to report shares beneficially owned
or changes in such beneficial ownership or to timely file required reports. It
has come to BancShares' attention that James B. Hyler, Jr. (two reports) and
James M. Parker (one report) inadvertently filed untimely reports of changes in
their beneficial ownership of BancShares' stock. However, each of the required
reports was filed prior to the end of 1996.
PROPOSAL 1: ELECTION OF DIRECTORS
BancShares' Bylaws currently provide for not less than five nor more than
26 directors. Within those limits, the Board of Directors has the authority to
establish the number of directors to be elected each year and has set the number
of directors at 26 for election at the Annual Meeting. No more than 26 directors
may be elected at this meeting and the 26 nominees receiving the highest numbers
of votes will be deemed to have been elected.
The persons named below have been nominated by the Board of Directors for
election as directors of BancShares. Each nominee currently serves as a director
of BancShares and has been nominated to be reelected for a term of one year or
until resignation, retirement, death, or until his or her respective successor
has been duly elected and qualified:
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
John M. Alexander, Jr.(2) Director 1990 President, General Manager and Chief
47 Operating Officer, Cardinal
International Trucks, Inc. (truck
dealer)
Ted L. Bissett Director 1970 President, F.D. Bissett & Son, Inc. (farm
60 supplies)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
B. Irvin Boyle Director 1980 Attorney, of Counsel to Johnston, Taylor,
85 Allison & Hord; former Senior Partner
of Boyle & Alexander (attorneys)
George H. Broadrick(2) Director; Chairman of 1975 Retired President and Consultant,
74 Executive First-Citizens Bank & Trust Company and
Committee; First Citizens BancShares, Inc.
Consultant
H. Max Craig, Jr.(2) Director 1981 President, CEO and Chairman of the Board,
66 Gaston County Dyeing Machine Company
(textile machinery manufacturing)
Betty M. Farnsworth Director 1985 Homemaker and former Director, Farmers
70 Bank, Pilot Mountain, NC
Lewis M. Fetterman Director 1980 President and Owner, LMF Consulting &
75 Marketing Co.; Assistant to President,
Heartland Pork Enterprises, Inc.;
Director, Lundy Packing Co.; former
Chief Executive Officer, Fetterman
Farms, Ltd. (agribusiness)
Carmen P. Holding(2)(3) Director 1996 Director, First-Citizens Bank and Trust
28 Company of South Carolina and First
Citizens Bancorporation of South
Carolina, Inc.; former Office Manager,
Interweb, Inc. (web site designer and
provider); prior to that, showroom
salesperson, Scalamandre, Inc.
(decorative fabrics manufacturer and
wholesaler)
Frank B. Holding(2)(3) Executive Vice 1962 Executive Vice Chairman of the Board,
68 Chairman of the First-Citizens Bank & Trust Company and
Board First Citizens BancShares, Inc.; Vice
Chairman of the Board, First-Citizens
Bank and Trust Company of South
Carolina and First Citizens
Bancorporation of South Carolina, Inc.
Frank B. Holding, Jr.(2)(3) President and 1993 President, First Citizens BancShares,
35 Director Inc. and First-Citizens Bank & Trust
Company; Director, Exchange Bank of
Kingstree, SC
Lewis R. Holding(3) Chairman of the Board 1957 Chairman of the Board, First-Citizens
69 Bank & Trust Company and First Citizens
BancShares, Inc.
Charles B. C. Holt Director 1995 Secretary/Treasurer (former President),
64 Holt Oil Company, Inc. (wholesale
petroleum products distributor); former
Chairman of the Board, State Bank,
Fayetteville, NC
Edwin A. Hubbard Director 1996 Retired; former Chairman of the Board,
78 Stroud-Hubbard Company, Inc. (retail
shoe company); former Chairman of the
Board, Allied Bank Capital, Inc. and
Summit Savings Bank, Inc., SSB,
Sanford, NC
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR PRINCIPAL OCCUPATION AND
POSITIONS WITH FIRST BUSINESS EXPERIENCE FOR
NAME AND AGE BANCSHARES AND BANK ELECTED (1) PAST FIVE YEARS
<S> <C> <C> <C>
James B. Hyler, Jr. Vice Chairman of the 1988 Vice Chairman of the Board and Chief
49 Board Operating Officer, First-Citizens Bank
& Trust Company and First Citizens
BancShares, Inc.
Gale D. Johnson, M.D. Director 1974 Retired Surgeon; Director, Health
77 Affairs, Campbell University
Freeman R. Jones Director; Chairman of 1974 Retired; President, EFC Corporation (real
70 Salary Committee estate investment)
Lucius S. Jones Director 1994 President and Owner, United Realty &
54 Construction Company, Inc. (residential
construction, sales and development);
former Vice Chairman of the Board,
Pioneer Bancorp, Inc. and Pioneer
Savings Bank, Inc., Rocky Mount, NC
I. B. Julian Director 1977 Retired Executive, First-Citizens Bank &
89 Trust Company
Joseph T. Maloney, Jr. Director 1976 Private Investor
67
J. Claude Mayo, Jr. Director 1994 Retired; former Owner, Mayo Insurance
69 Agency; former Chairman of the Board,
Pioneer Bancorp, Inc. and Pioneer
Savings Bank, Inc., Rocky Mount, NC
William McKay Director 1991 Retired; former President and CEO, First
71 Federal Savings Bank, Hendersonville,
NC
Brent D. Nash Director 1995 Senior Vice President, First-Citizens
61 Bank & Trust Company; former President
and CEO, Edgecombe Homestead Savings
Bank, Inc., SSB, Tarboro, NC
Lewis T. Nunnelee, II Director 1979 Chairman of the Board, Coastal Beverage
71 Company, Inc. (wholesale beer
distributor)
Talbert O. Shaw, Ph.D. Director 1993 President, Shaw University (educator)
69
R. C. Soles, Jr. Director 1995 Attorney and Senior Partner, Soles,
62 Phipps, Ray, Prince & Williford
(attorneys); Senator, North Carolina
Senate; former Chairman of the Board,
First Investors Savings Bank, Inc.,
SSB, Whiteville, NC
David L. Ward, Jr.(2)(4) Director; Chairman of 1971 Senior Attorney and President, Ward and
61 Audit Committee Smith, P.A. (attorneys)
</TABLE>
(1) The term "Year First Elected" refers to the year in which a director first
took office as a director of BancShares or its predecessor, First Citizens
Corporation, or, if elected prior to the formation of First Citizens
Corporation in 1982, of the Bank.
(2) The following directors of BancShares also serve as directors of other
publicly held companies or their subsidiaries, as follows: John M.
Alexander, Jr. serves as a director of North Carolina Railroad Company,
Raleigh, N.C.; George H. Broadrick, Carmen P. Holding, and Frank B. Holding
serve as directors of First Citizens Bancorporation of South
8
<PAGE>
Carolina, Inc., Columbia, S.C.; H. Max Craig, Jr. serves as a director of
Public Service Company of North Carolina, Inc., Gastonia, N.C.; Frank B.
Holding serves as a director of Southern BancShares (N.C.), Inc., Mount
Olive, N.C.; and Frank B. Holding, Jr. serves as a director of North
Carolina Natural Gas Corporation, Fayetteville, N.C.
(3) Lewis R. Holding and Frank B. Holding are brothers. Carmen P. Holding is the
daughter of Lewis R. Holding and the niece of Frank B. Holding. Frank B.
Holding, Jr. is the son of Frank B. Holding and the nephew of Lewis R.
Holding. Frank B. Holding, Jr. and Carmen P. Holding are first cousins.
(4) The law firm of Ward and Smith, P.A., New Bern, N.C., of which David L.
Ward, Jr. is Senior Attorney and President, served as General Counsel for
BancShares and the Bank during 1996, which relationship is expected to
continue through 1997. BancShares and the Bank paid $2,411,248 in legal fees
to Ward and Smith, P.A. during 1996.
DIRECTORS' FEES AND COMPENSATION
For their services as directors, each member of the Board of Directors
(except Messrs. L. Holding, F. Holding, J. Hyler, Jr., F. Holding, Jr. and E.
Hubbard) receives an annual retainer of $10,000, plus $500 for attendance at
each meeting of the Board and $500 for attendance at each meeting of a committee
that is held on a day other than in conjunction with a meeting of the Board.
In addition to, or in lieu of, such director's fees, certain BancShares'
directors receive other compensation from BancShares or the Bank, as follows:
William McKay receives compensation in addition to the regular director's
fees described above pursuant to various arrangements related to the Bank's 1991
acquisition of First Federal Savings Bank, Hendersonville, N.C. ("First
Federal"), of which Mr. McKay served as a director and President. At the time of
the acquisition, Mr. McKay (as well as certain other directors of First Federal)
was a party to two agreements (entered into during 1985 and 1987) with First
Federal providing for retirement benefits. Pursuant to the 1985 agreement, Mr.
McKay deferred $300 per month of his directors' fees paid by First Federal for a
period of five years and became entitled to a monthly retirement benefit of
$1,249 for a period of ten years, commencing during 1990. Pursuant to the 1987
agreement, Mr. McKay began receiving a monthly retirement benefit of $835 during
August 1992, which benefits will continue for a period of ten years. The Bank
assumed First Federal's obligations for these payments as part of the
acquisition.
Brent D. Nash receives compensation in addition to the regular director's
fees described above pursuant to various arrangements related to the 1994 merger
of Edgecombe Homestead Savings Bank, Inc., SSB, Tarboro, N.C. ("Edgecombe") into
the Bank. The merger was effected pursuant to an agreement providing that Mr.
Nash, the former President, Chief Executive Officer and a director of Edgecombe,
would be appointed to the Board of Directors of BancShares. Pursuant to the
written agreement pertaining to the merger, as of the effective date of the
merger the Bank and Mr. Nash also entered into an employment agreement providing
for his employment as a Senior Vice President in the Bank's Tarboro office at a
salary of $113,000 per year. The employment agreement also includes various
noncompetition and nonsolicitation covenants by Mr. Nash, provides normal
employee benefits and has a term continuing to January 12, 2001, when Mr. Nash
will reach age 65. Following that date, Mr. Nash will begin receiving retirement
benefits pursuant to the Bank's Pension Plan. In addition, he will receive
retirement payments pursuant to an agreement with Edgecombe, whereby he deferred
his director's fees of $300 per month over a five year period in return for
payments of $1,300 per month for a period of 120 months after age 65. The Bank
assumed Edgecombe's responsibilities for such retirement payments as part of the
merger.
R. C. Soles, Jr. became a director of BancShares and the Bank in connection
with the 1995 merger of First Investors Savings Bank, Inc., SSB, Whiteville,
N.C. ("First Investors") into the Bank. Mr. Soles served as Chairman of the
Board of First Investors prior to the merger. The written agreement pertaining
to the merger provided that Mr. Soles would be appointed to the Board of
Directors of BancShares and that the former directors of First Investors,
including Mr. Soles, would become local advisory directors for the Bank and
receive for such services a fee of $835 per quarter until February 23, 2000. Mr.
Soles receives such fees for serving as a local advisory director in addition to
the normal director's fees described above.
Charles B. C. Holt became a director of BancShares and the Bank in
connection with the 1995 merger of State Bank, Fayetteville, N.C. ("State Bank")
into the Bank. Mr. Holt served as Chairman of the Board of State Bank prior to
the merger. The written agreement pertaining to the merger provided that Mr.
Holt would be appointed to the Board of Directors of BancShares and that the
former directors of State Bank, including Mr. Holt, would become local advisory
9
<PAGE>
directors for the Bank and receive for such services a monthly fee of $250 until
March 2, 1998. Mr. Holt receives such fees for serving as a local advisory
director in addition to the normal director's fees described above.
Edwin A. Hubbard receives special compensation, in lieu of the standard
BancShares' director's fees described above, pursuant to an arrangement related
to BancShares' February 14, 1996 acquisition of Allied Bank Capital, Inc.,
Sanford, N.C. ("Allied"). Mr. Hubbard served as Chairman of the Board of Allied.
Pursuant to the Allied acquisition agreement, Mr. Hubbard was selected by
BancShares to serve as a member of the Boards of BancShares and the Bank and
receives a monthly fee of $3,250 (which is equal to the directors' fees
previously paid by Allied) until the end of his fourth elected term as a
director of BancShares. Also, Mr. Hubbard (as well as certain other directors of
Allied) was a participant in Allied's Independent Directors' Retirement Plan,
which provides for monthly retirement benefits. Pursuant to the Plan, Mr.
Hubbard will receive $1,200 per month for a period of ten years following
BancShares' acquisition of Allied. The Bank assumed Allied's obligations for
these retirement payments as part of the merger.
George H. Broadrick, since his retirement as President of the Bank in 1987,
has received additional compensation of $50 per hour, plus expenses, for
services rendered pursuant to a consulting agreement with the Bank. In addition,
Mr. Broadrick receives benefits under the Bank's Pension Plan and (for a period
of 10 years following his retirement) payments of $4,778 per month pursuant to a
separate agreement with the Bank under which he has agreed to provide the Bank
with certain consultation services and that he will not "compete" (as defined in
the agreement) against the Bank during the period following his retirement.
Betty M. Farnsworth, Lucius S. Jones, I. B. Julian, Joseph T. Maloney, J.
Claude Mayo, and Lewis T. Nunnelee, II, also serve on the local advisory boards
of the Bank in their respective communities, and each receives quarterly fees of
$125 for attendance at advisory board meetings in addition to the fees described
above for their services as members of the Boards of Directors of BancShares and
the Bank.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of BancShares held four meetings in 1996. All
directors attended at least 75% of the aggregate number of meetings of
BancShares' Board of Directors and any committees on which they served during
their terms.
BancShares' Board of Directors and the Bank's Board of Directors have the
same members. The Boards of Directors have several standing committees,
including a Salary Committee and an Audit Committee. BancShares' Board of
Directors does not have a standing nominating committee or any other committee
performing an equivalent function.
The Audit Committee of BancShares and the Bank consists of David L. Ward,
Jr. -- Chairman, John M. Alexander, Jr., H. Max Craig, Jr., Betty M. Farnsworth,
and J. Claude Mayo, Jr. The Audit Committee oversees the establishment of the
scope and detail of the continuous audit program conducted by the Bank's
internal audit staff. The General Auditor of the Bank reports directly to the
Audit Committee and, at least quarterly, the Committee reviews reports on the
work of the internal audit staff, the Corporate Finance Department and the
Commercial Credit Administration Department. Subject to the approval of
BancShares' Board of Directors and ratification by the shareholders, the Audit
Committee engages a qualified firm of independent certified public accountants
to conduct an annual audit of BancShares' consolidated financial statements. It
receives written reports, supplemented by such oral reports as it deems
necessary, from such firm and reviews non-audit services proposed by management
to be provided by the accounting firm. During 1996, the Audit Committee held
four meetings.
The members of the Salary Committee of the Bank's Board of Directors are
listed below. The Salary Committee provides overall guidance for the officer
compensation programs, including salaries and other forms of compensation. At
least annually, the Salary Committee reviews the officer compensation programs,
including salary, pension and such other employee benefit matters as it deems
appropriate. In conjunction with management, it makes recommendations to the
entire Board of Directors with regard to proposed salaries and other forms of
compensation, which recommendations are subject to approval by the Board. During
1996, the Salary Committee held one meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Salary Committee are Freeman R.
Jones -- Chairman, Lewis M. Fetterman and Lewis T. Nunnelee, II. After receipt
of the recommendations of the Salary Committee, the Board of Directors makes all
final decisions regarding executive compensation matters. Members of the Board
of Directors who are executive officers abstain from participation in both the
discussion of and the voting on such matters.
10
<PAGE>
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Bank's goal is to provide an executive compensation program that will
enable it to attract and retain qualified and motivated individuals as executive
officers. Currently, the Bank's executive compensation program includes: (a)
base salary, and (b) contributions to the individual accounts of all
participating employees (including executive officers) under the Bank's Section
401(k) salary deferral plan. In addition, the Bank provides other employee
benefit and welfare plans customary for companies of its size.
Effective as of January 1996, the Salary Committee made recommendations to
the Board of Directors (and the Board of Directors made final decisions)
regarding the amounts of the 1996 salaries of Lewis R. Holding, Frank B.
Holding, James B. Hyler, Jr., and Frank B. Holding, Jr., and the maximum
aggregate amount for 1996 merit increases in the salaries of the Bank's other
officers and employees. With respect to Messrs. L. Holding, F. Holding, J.
Hyler, and F. Holding, Jr., the Committee's recommendations were based on its
evaluation of their individual levels of responsibility and performance and, in
the case of Mr. L. Holding in particular, his current leadership and direction
and his historical importance in the development and growth of both the Bank and
BancShares. With respect to the salaries of other executive officers, the Vice
Chairman, with the consent of the Chairman, was directed by the Board of
Directors to set 1996 salaries on an individual merit basis. In connection with
the Bank's normal annual performance review system, the performance of each such
other executive officer is graded by the person to whom that officer reports.
Based on the results of each individual officer's performance appraisal, for
1996 the officer could be awarded an annual merit increase of up to 8% of 1995
base salary. However, the performance review process and, thus, the setting of
salaries largely are subjective and, except as described above, there are no
specific formulae, objective criteria or other such mechanism by which
adjustments to the salary of each executive officer (including Messrs. L.
Holding, F. Holding, J. Hyler and F. Holding, Jr.) are tied empirically to his
individual performance or to BancShares' financial performance. The amounts of
contributions to the separate accounts of executive officers under the Bank's
401(k) salary deferral plan were determined solely by the terms of that plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
deductibility of annual compensation in excess of $1,000,000 paid to certain
executive officers of public corporations. As none of BancShares' executive
officers receive annual compensation approaching that amount, BancShares' Board
of Directors has not yet adopted a policy with respect to Section 162(m).
Salary Committee:
FREEMAN R. JONES
LEWIS M. FETTERMAN
LEWIS T. NUNNELEE, II
11
<PAGE>
EXECUTIVE OFFICERS
The following individuals have been designated by the Boards of Directors
of BancShares and the Bank as "executive officers." All executive officers serve
at the pleasure of the Board of Directors and each has served for the past five
years in the capacities indicated, with the exceptions noted below:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lewis R. Holding 69 Chairman of the Board of BancShares and Bank (Chief Executive Officer)
Frank B. Holding 68 Executive Vice Chairman of the Board of BancShares and Bank; formerly Vice
Chairman
James B. Hyler, Jr. 49 Vice Chairman of the Board of BancShares and Bank (Chief Operating Officer);
formerly President
Frank B. Holding, Jr. 35 President of BancShares and Bank (Chief Administrative Officer); formerly
Area Vice President and Regional Vice President of Bank
Kenneth A. Black 44 Vice President and Treasurer of BancShares; Group Vice President and
Treasurer of Bank (Chief Financial Officer)
Alexander G. MacFadyen, Jr. 55 Secretary of BancShares; Group Vice President and Secretary of Bank
Wayne D. Duncan 55 Executive Vice President of Bank (Retail Lending)
John R. Francis, Jr. 43 Executive Vice President of Bank (Virginia and West Virginia Regional
Executive); formerly President, Community Bank Group, First Union National
Bank, Roanoke, VA (successor by merger to Dominion Bank, Roanoke, VA, of
which he served as Vice President, Blue Ridge Group)
William C. Orr 54 Executive Vice President of Bank (Commercial Credit Administration)
James M. Parker 54 Executive Vice President of Bank (Eastern Regional Executive)
Edward L. Willingham, IV 42 Executive Vice President of Bank (Central Regional Executive); formerly
Regional Vice President of Bank
J. Allen Woodward 46 Executive Vice President of Bank (Western Regional Executive); formerly Vice
President and Area Executive, First Union National Bank of North Carolina,
Durham, NC
William J. Cathcart 57 Group Vice President of Bank (Trust Department)
Joseph A. Cooper, Jr. 43 Group Vice President and Chief Information Officer of Bank; formerly
Associate Partner, Andersen Consulting, Dallas, Texas, and Chief Technology
Officer, NationsBank of NC, Charlotte, NC
Richard H. Lane 52 Senior Vice President of Bank (General Auditor)
</TABLE>
12
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the years ending December 31, 1996, 1995,
and 1994, the cash and certain other compensation paid to or received or
deferred by each of the five named executive officers of BancShares and the
Bank.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED
NAME AND ANNUAL STOCK OPTIONS/ LTIP
PRINCIPAL SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS
POSITION (1) YEAR ($)(2)(3) ($)(4) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis R. Holding 1996 570,979 -0- -0- -0- -0- -0-
Chairman of the Board 1995 528,971 -0- -0- -0- -0- -0-
1994 504,247 29,669 -0- -0- -0- -0-
Frank B. Holding 1996 571,086 -0- -0- -0- -0- -0-
Executive Vice Chairman 1995 528,971 -0- -0- -0- -0- -0-
of the Board 1994 504,247 29,669 -0- -0- -0- -0-
James B. Hyler, Jr. 1996 422,329 -0- -0- -0- -0- -0-
Vice Chairman of the Board 1995 384,204 -0- -0- -0- -0- -0-
and Chief Operating Officer 1994 365,474 21,546 -0- -0- 1,197 -0-
Frank B. Holding, Jr. 1996 250,552 -0- -0- -0- -0- -0-
President and Chief 1995 230,125 -0- -0- -0- -0- -0-
Administrative Officer 1994 210,333 12,900 -0- -0- -0- -0-
James M. Parker, 1996 199,371 -0- -0- -0- -0- -0-
Executive Vice President of the 1995 179,856 -0- -0- -0- -0- -0-
Bank and Eastern Regional Executive 1994 169,014 9,922 -0- -0- 551 -0-
<CAPTION>
ALL
NAME AND OTHER
PRINCIPAL COMPENSATION
POSITION (1) ($)(5)
<S> <C>
Lewis R. Holding 9,500
Chairman of the Board 9,240
9,240
Frank B. Holding 9,500
Executive Vice Chairman 9,240
of the Board 9,240
James B. Hyler, Jr. 9,500
Vice Chairman of the Board 9,240
and Chief Operating Officer 9,240
Frank B. Holding, Jr. 8,312
President and Chief 7,406
Administrative Officer 5,214
James M. Parker, 6,108
Executive Vice President of the 5,940
Bank and Eastern Regional Executive 5,940
</TABLE>
(1) Positions listed are the named executive officers' current positions with
BancShares and the Bank. See "Executive Officers" above for a listing of
each individual's previous positions.
(2) Includes amounts deferred at the election of each named executive officer
pursuant to the Bank's Section 401(k) salary deferral plan.
(3) Of the salary shown above as paid to Frank B. Holding during 1996, 1995, and
1994, the Bank was reimbursed certain amounts by two of its affiliates as
follows: First-Citizens Bank and Trust Company of South Carolina -- $90,525,
$86,214, and $82,109, respectively; and Southern Bank and Trust
Company -- $72,231, $68,791, and $65,512, respectively. These payments were
made pursuant to agreements between the Bank and its affiliates whereby Mr.
Holding provides certain management services to the affiliates in return for
their reimbursement to the Bank of a portion of his salary.
(4) Consists entirely of awards paid under BancShares' annual cash incentive
plan, which was discontinued by the Board of Directors in January 1996.
(5) Consists entirely of the Bank's matching contributions on behalf of each
named executive officer under the Bank's Section 401(k) salary deferral
plan.
EMPLOYEE STOCK PURCHASE PLAN
During 1994 options to purchase shares of BancShares Class A Common Stock
were granted to substantially all employees of BancShares and its subsidiaries
pursuant to the 1994 Employee Stock Purchase Plan (the "1994 Stock Plan"), which
was approved by shareholders at the 1994 Annual Meeting. No additional options
have been granted since 1994, and all options remaining unexercised as of June
15, 1996, expired on that date.
13
<PAGE>
The following table contains information with respect to the exercise of
stock options during 1996:
AGGREGATED OPTION EXERCISES IN 1996
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS
SHARES OPTIONS AT AT DECEMBER
ACQUIRED VALUE DECEMBER 31, 1996 31, 1996
ON EXERCISE REALIZED (#) ($)
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C> <C>
Lewis R. Holding (2) -0- $ -0- -0- -0- $ -0-
Frank B. Holding (2) -0- -0- -0- -0- -0-
James B. Hyler, Jr. 561 12,437 -0- -0- -0-
Frank B. Holding, Jr. (2) -0- -0- -0- -0- -0-
James M. Parker 551 13,869 -0- -0- -0-
<CAPTION>
NAME UNEXERCISABLE
<S> <C>
Lewis R. Holding (2) $ -0-
Frank B. Holding (2) -0-
James B. Hyler, Jr. -0-
Frank B. Holding, Jr. (2) -0-
James M. Parker -0-
</TABLE>
(1) Represents the aggregate fair market value of shares acquired on the dates
options were exercised, minus the aggregate exercise or purchase price paid
for those shares (at $37.83 per share).
(2) Under the terms of the 1994 Stock Plan, Messrs. L. Holding, F. Holding and
F. Holding, Jr. were excluded from participation and were not granted any
options.
PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS
The following table shows the estimated benefits payable to a covered
participant at normal retirement age under the Bank's qualified defined benefit
pension plan (the "Pension Plan") based on various specified numbers of years of
service and various levels of covered compensation.
<TABLE>
<CAPTION>
FINAL
AVERAGE YEARS OF SERVICE
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 16,708 $ 25,061 $ 33,415 $ 41,769 $ 50,123 $ 58,476 $ 64,476
125,000 21,333 31,999 42,665 53,331 63,998 74,664 82,164
150,000 25,958 38,936 52,915 64,894 77,873 90,851 99,851
175,000 30,583 45,874 61,165 76,456 91,748 107,039 117,539
200,000 35,208 52,811 70,415 88,019 105,623 120,000 120,000
225,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
250,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
300,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
400,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
450,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
500,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
550,000 38,764 58,146 77,528 96,910 116,292 120,000 120,000
</TABLE>
Benefits shown in the table are computed as straight life annuities
beginning at age 65 and are not subject to a deduction for Social Security
benefits or any other offset amount. A participant's compensation covered by the
Pension Plan includes base salary (including amounts deferred pursuant to the
Bank's Section 401(k) salary deferral plan) and bonuses, and the participant's
benefits are based on his "final average compensation" which is the
participant's highest average annual covered compensation for any five
consecutive years during his last ten complete calendar years as a plan
participant. However, under current tax laws, $150,000 is the maximum amount of
compensation for 1996 that can be included for purposes of calculating a
participant's "final average compensation". The estimated years of service and
"final average compensation", respectively, as of January 1, 1997, for each of
the named executive officers are as follows: Mr. L. Holding -- 43 years and
$237,904; Mr. F. Holding -- 40 years and $237,372; Mr. Hyler -- 17 years and
$216,942; Mr. F. Holding, Jr. -- 13 years and $128,212; Mr. Parker -- 30 years
and $154,146. During 1996, the maximum annual benefit permitted by tax laws for
a retiring participant was $120,000 and the maximum eligible final average
compensation was $219,224.
In addition to benefits under the Pension Plan, each of certain senior
officers of BancShares and the Bank is party to a separate agreement with the
Bank under which the Bank has agreed to pay a specified monthly amount to the
officer for
14
<PAGE>
a period of ten years following his retirement at age 65 (or at such other age
as is agreed upon between the Bank and the officer). In return for such
payments, each officer has agreed that he will provide certain limited
consultation services to, and will not "compete" (as defined in the agreement)
against, the Bank during the period following his retirement. If the officer
dies during the period payments are being made under the agreement, the
remaining balance of payments due under the agreement will be paid to the
officer's designated beneficiary or his estate. The amounts of monthly payments
provided for in agreements currently in effect between the Bank and each of the
named executive officers are as follows: Mr. L. Holding -- $18,544; Mr. F.
Holding -- $18,544; Mr. Hyler -- $13,358; Mr. F. Holding, Jr. -- $8,466; and Mr.
Parker -- $4,134.
PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
(the "CTSR") on BancShares' Class A Common Stock during the previous five fiscal
years, with the CTSR over the same measurement period of the Nasdaq-U.S. index
and the Nasdaq Banks index. Each line graph assumes $100 invested on January 1,
1992, and that dividends were reinvested in additional shares.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG
FIRST CITIZENS BANCSHARES, INC., NASDAQ BANKS AND
NASDAQ-US COMPANIES INDICES
[CHART APPEARS HERE]
YEAR + BANCSHARES [ ] NASDAQ BANKS * NASDAQ-US
1991 $100 $100 $100
1992 186 146 116
1993 172 166 134
1994 164 165 131
1995 210 246 185
1996 296 326 227
15
<PAGE>
TRANSACTIONS WITH MANAGEMENT
The Bank has banking transactions in the ordinary course of business with
certain of its directors, executive officers, principal shareholders and their
associates. All extensions of credit included in such transactions have been
approved by the Board of Directors and were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
Lewis R. Holding, Chairman and Chief Executive Officer of BancShares, and
Frank B. Holding, Executive Vice Chairman of BancShares, and George H.
Broadrick, a director and Chairman of the Executive Committee, also are
principal shareholders of First Citizens Bancorporation of South Carolina, Inc.
("Bancorp"). BancShares' directors George H. Broadrick, Carmen P. Holding, and
Frank B. Holding also serve as directors of Bancorp. During 1996, BancShares
purchased from Bancorp 16,000 shares of the Class A common stock of BancShares
at the then current market value of $66 per share, for an aggregate purchase
price of $1,056,000. The transaction was pre-approved by the Boards of Directors
of both BancShares and Bancorp.
Certain specific relationships or transactions with directors are described
above in the footnotes to the table listing directors under the caption
"PROPOSAL 1: ELECTION OF DIRECTORS".
PROPOSAL 2: RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the shareholders, the Board of Directors has
approved the engagement of KPMG Peat Marwick LLP ("Peat Marwick"), certified
public accountants, as BancShares' independent public accountants for 1997, and
a proposal to ratify that appointment will be submitted at the Annual Meeting.
Representatives of Peat Marwick are expected to be present at the Annual
Meeting and available to respond to appropriate questions and will have the
opportunity to make a statement if they so desire.
THE AUDIT COMMITTEE AND BOARD OF DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1997. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES
REPRESENTED, IN PERSON AND BY PROXY, AND ENTITLED TO BE CAST AT THE ANNUAL
MEETING IS REQUIRED FOR APPROVAL OF PROPOSAL 2.
PROPOSAL 3: AMENDMENT OF BYLAWS
TO INCREASE MAXIMUM AUTHORIZED NUMBER OF DIRECTORS
On January 27, 1997, BancShares' Board of Directors approved, and
recommended for shareholder consideration and adoption, an amendment to
BancShares' Bylaws increasing the maximum number of BancShares' directors from
26 to 30. Under the current Bylaws, the Board of Directors has reached its
maximum membership of 26 directors, and no additional directors can be elected
without shareholder approval of the proposed bylaw amendment.
The Board of Directors recommends that shareholders vote to adopt the
proposed bylaw amendment to increase the authorized number of directorships of
BancShares. The Board believes that an increase in the authorized number of
directors will benefit BancShares by providing flexibility to expand its Board
if and when such expansion is deemed appropriate and advisable by the Board, and
if qualified candidates for such directorships have been identified.
If this proposal is approved by shareholders at the Annual Meeting, Article
III, Section 2 of BancShares' Bylaws would be amended to read as follows:
Section 2. NUMBER, TERM AND QUALIFICATIONS: The number of
directors of the corporation shall be not less than five nor more than
thirty. The directors, by a majority vote of the remaining directors,
though less than a quorum, or by the sole remaining director, shall
determine the exact number of directors, which shall not be less than
five nor more than thirty without a Bylaw modification. Each director
shall hold office until his death, resignation, retirement, removal,
disqualification, or until his successor is elected and qualified.
Directors need not be residents of the State of Delaware nor
shareholders of the corporation; provided, however, that not less than
three-fourths ( 3/4) of the directors shall be residents of the State
of North Carolina and stock ownership for qualification shall be
subject to North Carolina law.
16
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSED
AMENDMENT OF THE BYLAWS TO INCREASE THE MAXIMUM AUTHORIZED NUMBER OF DIRECTORS
OF THE CORPORATION TO THIRTY. THE AFFIRMATIVE VOTE OF A MAJORITY OF VOTES
REPRESENTED, IN PERSON AND BY PROXY, AND ENTITLED TO BE CAST AT THE ANNUAL
MEETING IS REQUIRED FOR APPROVAL OF PROPOSAL 3.
PROPOSALS OF SHAREHOLDERS
Any proposal of a shareholder intended to be presented at the 1998 Annual
Meeting must be received by BancShares at its principal office in Raleigh, North
Carolina no later than November 30, 1997, in order that any such proposal be
timely received for inclusion in the proxy solicitation materials to be issued
in connection with that meeting. It is anticipated that the 1998 Annual Meeting
will be held on a date during April 1998.
ANNUAL REPORT ON FORM 10-K
BancShares is required to file with the Securities and Exchange Commission
an Annual Report on Form 10-K within 90 days following the end of each fiscal
year. ON OR AFTER MARCH 31, 1997, UPON WRITTEN REQUEST TO KENNETH A. BLACK,
CHIEF FINANCIAL OFFICER, CORPORATE FINANCE DEPARTMENT, FIRST-CITIZENS BANK &
TRUST COMPANY, POST OFFICE BOX 27131, RALEIGH, NORTH CAROLINA 27611-7131, BY A
SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING, A COPY OF BANCSHARES' ANNUAL
REPORT ON FORM 10-K FOR 1996, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES
THERETO, WILL BE FORWARDED WITHOUT CHARGE TO THE SHAREHOLDER MAKING SUCH
REQUEST.
OTHER MATTERS
Management knows of no other business that will be brought before the
Annual Meeting or any adjournments thereof. Should other matters properly come
before the meeting, the persons named in the proxy to represent the shareholders
will vote in accordance with their best judgment on such matters.
By Order of the Board of Directors
[sig. appears here]
ALEXANDER G. MACFADYEN, JR., SECRETARY
March 14, 1997
17
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
18
<PAGE>
1996 ANNUAL REPORT
19
<PAGE>
INTRODUCTION
Management's discussion and analysis of earnings and related financial data
are presented to assist in understanding the financial condition and results of
operations of First Citizens BancShares, Inc. ("BancShares"), for the years
1996, 1995 and 1994. BancShares is a bank holding company with three
wholly-owned banking subsidiaries -- First-Citizens Bank & Trust Company (the
"Bank"), a North Carolina-chartered bank (with branches in North Carolina and
Virginia), Bank of Marlinton ("Marlinton") and Bank of White Sulphur Springs
("WSS"), both of which are West Virginia-chartered banks. Marlinton was acquired
by BancShares in September 1994, while WSS was acquired during June 1995.
This discussion and related financial data should be read in conjunction
with the audited consolidated financial statements and related footnotes
presented on pages 39 through 59 of this report.
TABLE 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
SUMMARY OF OPERATIONS
Interest income........................................ $ 534,195 $ 471,109 $ 376,005 $ 364,881 $ 390,380
Interest income-taxable equivalent..................... 536,501 $ 473,371 $ 377,858 $ 366,379 $ 391,668
Interest expense....................................... 248,250 224,664 148,126 137,934 170,558
Net interest income-taxable equivalent................. 288,251 248,707 229,732 228,445 221,110
Taxable equivalent adjustment.......................... 2,306 2,262 1,853 1,498 1,288
Net interest income.................................... 285,945 246,445 227,879 226,947 219,822
Provision for loan losses.............................. 8,907 5,364 2,786 15,245 17,506
Net interest income after provision
for loan losses...................................... 277,038 241,081 225,093 211,702 202,316
Noninterest income..................................... 103,304 92,128 83,325 85,737 74,303
Noninterest expense.................................... 278,668 245,880 230,582 213,213 199,199
Income before income taxes............................. 101,674 87,329 77,836 84,226 77,420
Income taxes........................................... 36,207 30,423 26,867 28,641 25,657
Net income............................................. $ 65,467 $ 56,906 $ 50,969 $ 55,585 $ 51,763
SELECTED AVERAGE BALANCES
Total assets........................................... $7,681,019 $6,846,959 $6,098,944 $5,576,179 $5,308,165
Investment securities.................................. 1,998,059 1,611,549 1,599,565 1,522,715 1,522,571
Loans.................................................. 4,842,266 4,433,517 3,800,318 3,401,093 3,173,285
Interest-earning assets................................ 6,987,659 6,191,422 5,476,690 5,002,144 4,762,846
Deposits............................................... 6,653,302 5,952,090 5,335,057 4,894,319 4,684,982
Interest-bearing liabilities........................... 6,044,553 5,410,495 4,838,749 4,445,120 4,299,143
Long-term obligations.................................. 13,483 26,307 52,499 29,318 18,245
Shareholders' equity................................... $ 576,988 $ 487,895 $ 416,983 $ 362,733 $ 307,818
Shares outstanding..................................... 11,340,982 10,597,066 9,944,927 9,701,389 9,494,118
PROFITABILITY RATIOS (AVERAGES)
Rate of return on:
Total assets......................................... 0.85% 0.83% 0.84% 1.00% 0.98%
Shareholders' equity................................. 11.35 11.66 12.22 15.32 16.82
Dividend payout ratio.................................. 16.03 15.36 14.13 10.91 9.63
LIQUIDITY AND CAPITAL RATIOS (AVERAGES)
Loans to deposits...................................... 72.78% 74.49% 71.23% 69.49% 67.73%
Shareholders' equity to total assets................... 7.51 7.13 6.84 6.51 5.80
Time certificates of $100,000 or more to total
deposits............................................. 8.99 8.33 6.41 5.81 6.36
PER SHARE OF STOCK
Net income............................................. $ 5.77 $ 5.37 $ 5.13 $ 5.73 $ 5.45
Cash dividends......................................... 0.925 0.825 0.725 0.625 0.525
Market price at December 31 (Class A).................. 77.00 55.125 43.50 46.50 50.75
Book value at December 31.............................. 53.94 48.60 44.11 39.84 34.74
Tangible book value at December 31..................... 45.42 41.75 39.97 36.53 33.25
</TABLE>
20
<PAGE>
SUMMARY
BancShares experienced a 15 percent increase in earnings during 1996,
compared to 1995. The increase was due to increased levels of net interest
income and noninterest income. These increases offset the growth in noninterest
expense and provision for loan losses that was experienced during 1996.
Consolidated net income amounted to $65.5 million during 1996, compared to $56.9
million during 1995 and $51 million during 1994. Net income per share for the
year ended December 31, 1996 totaled $5.77, compared to $5.37 and $5.13 for 1995
and 1994, respectively. Return on average assets totaled 0.85 percent, 0.83
percent and 0.84 percent during 1996, 1995 and 1994, respectively.
An analysis of BancShares' financial condition and growth can be made by
examining the changes and trends in interest-earning assets and interest-bearing
liabilities, and a discussion of these changes and trends follows. The
information presented in Table 6 is useful in making such an analysis.
BancShares' growth in recent years has resulted partially from various business
combinations. Table 2 details the significant transactions for 1995 and 1996,
all of which were accounted for as purchases, with the results of operations
included with BancShares' Consolidated Statements of Income since the respective
acquisition date.
TABLE 2
SIGNIFICANT ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
DATE INSTITUTION AND LOCATION ASSETS DEPOSITS
<S> <C> <C> <C>
(THOUSANDS)
February 1996 Allied Bank Capital, Inc. $248,998 $208,394
Sanford, North Carolina
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
</TABLE>
INTEREST-EARNING ASSETS
Interest-earning assets averaged $6.99 billion during 1996, an increase of
$796.2 million or 12.9 percent over 1995 levels, compared to a 13.1 percent
increase in 1995 over 1994 levels. Growth among interest-earning assets during
1996 was divided among loans and investment securities.
LOANS. As of December 31, 1996, gross loans outstanding were $4.93 billion,
a 7.6 percent increase over the December 31, 1995 balance of $4.58 billion.
During 1996, loans resulting from acquisitions totaled $205.1 million. Loan
balances for the last five years are provided in Table 3.
During 1996, average loans were $4.84 billion, an increase of $408.7
million or 9.2 percent over 1995, compared to an increase of $633.2 million or
16.7 percent in 1995 when compared to 1994. Loans secured by real estate
averaged $3.04 billion during 1996, compared to $2.75 billion during 1995. Much
of the growth in average real estate secured loans during 1996 was among
commercial borrowers. Non-real estate commercial and industrial loans also
experienced strong growth during 1996, averaging $500.3 million during the
current year compared to $438 million in 1995, an increase of $62.3 million or
14.2 percent. Commercial and industrial growth during 1996 was especially strong
among small business customers, as BancShares targeted its product array and
sales efforts toward these customers.
21
<PAGE>
TABLE 3
LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land development.................... $ 109,806 $ 104,540 $ 100,708 $ 117,693 $ 149,847
Mortgage:
1-4 family residential............................ 1,542,836 1,438,655 1,296,713 1,138,254 1,036,425
Commercial........................................ 882,067 770,246 720,407 614,018 565,735
Equity Line....................................... 411,856 397,225 349,092 293,200 283,331
Other............................................. 132,954 129,292 109,069 56,029 47,860
Commercial and industrial.............................. 514,535 466,462 373,947 408,565 371,656
Consumer............................................... 1,251,704 1,199,400 1,119,994 889,260 706,286
Lease financing........................................ 68,694 59,899 60,598 45,398 35,634
Other.................................................. 16,056 15,000 17,605 22,574 11,101
Total............................................. 4,930,508 4,580,719 4,148,133 3,584,991 3,207,875
Less reserve for loan losses........................... 81,439 78,495 72,017 70,049 58,380
Net loans......................................... $4,849,069 $4,502,224 $4,076,116 $3,514,942 $3,149,495
</TABLE>
TABLE 4
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
WITHIN ONE TO FIVE AFTER
ONE YEAR YEARS FIVE YEARS TOTAL
<S> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land development.................................. $ 39,205 $ 63,878 $ 6,723 $ 109,806
Mortgage:
1-4 family residential.......................................... 273,156 578,660 691,020 1,542,836
Commercial...................................................... 315,033 513,015 54,019 882,067
Equity Line..................................................... 28,830 102,964 280,062 411,856
Other........................................................... 47,506 77,302 8,146 132,954
Commercial and industrial............................................ 200,906 281,616 32,013 514,535
Consumer............................................................. 416,955 809,611 25,138 1,251,704
Lease financing...................................................... 17,174 51,520 -- 68,694
Other................................................................ 5,860 9,046 1,150 16,056
Total........................................................... $1,344,625 $ 2,487,612 $1,098,271 $4,930,508
Loans maturing after one year with:
Fixed interest rates............................................... $ 1,758,174 $ 611,179 $2,369,353
Floating or adjustable rates....................................... 729,438 487,092 1,216,530
Total........................................................... $ 2,487,612 $1,098,271 $3,585,883
</TABLE>
Consumer loans averaged $1.22 billion during 1996 compared to $1.17 billion
during 1995. Demand for retail installment financing continued to languish
during 1996. However, the credit card products were in high demand during 1996,
the result of a heavy promotion of these products within existing markets early
in the year. During 1996, credit card loans averaged $141.8 million, compared to
$105.2 million during 1995, an increase of 34.8 percent. During 1997, management
anticipates continued growth among commercial loans as the focus on small
business and commercial customers continues. Retail loan demand is projected to
remain at very modest levels, except for credit card loans, which are expected
to continue their expansion through growth within existing markets.
The fair value of loans outstanding as of December 31, 1996, net of the
loan loss reserve, was $3.5 million above the book value. As of December 31,
1995, the fair value exceeded book value by $21.4 million. The decline in the
fair value relative to book is due to changing market rates between the
measurement dates. To minimize the potential adverse
22
<PAGE>
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, 1996. Of the gross loans outstanding on December 31, 1996, 27.3
percent have scheduled maturities within one year, 50.5 percent have scheduled
maturities between one and five years, while the remaining 22.2 percent have
scheduled maturities extending beyond five years.
INVESTMENT SECURITIES. At December 31, 1996, and 1995, the investment
portfolio totaled $2.14 billion and $1.98 billion, respectively. In each period,
U.S. Treasury securities represented substantially all of the portfolio.
Investment securities averaged $2 billion during 1996, $1.61 billion during 1995
and $1.60 billion during 1994. The $386.5 million or 24 percent increase in the
average investment security portfolio during 1996 was the result of enhanced
liquidity resulting from sustained deposit growth. The weighted-average maturity
of the investment portfolio was 17 months at December 31, 1996, compared to 15
months at December 31, 1995. Management continues to maintain a portfolio of
securities with short maturities, an indication of BancShares' strong focus on
liquidity. At December 31, 1996, the fair value of the investment portfolio was
$800,000 below book value. The unrealized gain existing as of December 31, 1995,
was $8.6 million. The investment portfolio's decline in fair value at December
31, 1996 resulted from the maturity of higher-yielding securities and the
reinvestment at lower market rates during late 1996. Table 5 presents detailed
information relating to the investment portfolio.
TABLE 5
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31
1996
AVERAGE TAXABLE- 1995 1994
BOOK FAIR MATURITY EQUIVALENT BOOK FAIR BOOK FAIR
VALUE VALUE (YRS./MOS.) YIELD VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
U.S. Government:
Within one year........... $ 778,908 $ 779,668 0/6 5.83% $ 927,931 $ 930,120 $ 849,279 $ 838,341
One to five years......... 1,340,399 1,338,453 1/10 5.78 1,034,722 1,040,954 599,147 575,193
Five to ten years......... 3,312 3,301 6/9 5.82 2,305 2,258 2,496 2,281
Over ten years............ 7,418 7,501 18/6 7.42 7,171 7,198 3,029 2,918
Total.................. 2,130,037 2,128,923 1/5 5.80 1,972,129 1,980,530 1,453,951 1,418,733
State, county and municipal:
Within one year........... 1,128 1,135 0/7 6.38 1,324 1,328 361 364
One to five years......... 3,717 3,997 2/10 7.00 4,287 4,355 1,872 1,871
Five to ten years......... 1,456 1,493 7/6 7.45 2,227 2,323 2,370 2,314
Over ten years............ -- -- -- -- 195 195 -- --
Total.................. 6,301 6,625 3/7 6.99 8,033 8,201 4,603 4,549
Other:
Within one year........... 1,300 1,299 0/5 6.73 506 506 100 100
One to five years......... 1,158 1,149 1/10 11.56 2,425 2,424 -- --
Five to ten years......... 35 35 5/7 6.96 55 55 315 315
Total.................. 2,493 2,483 11/9 8.62 2,986 2,985 415 415
Total investment
securities........... $2,138,831 $2,138,031 1/5 5.81% $1,983,148 $1,991,716 $1,458,969 $1,423,697
</TABLE>
At December 31, 1996, BancShares had marketable equity securities with a
fair value of $22.1 million classified as available for sale that were included
in other assets. These securities are recorded at their fair value, and the
unrealized gain is recorded as a component of shareholders' equity.
INCOME ON INTEREST-EARNING ASSETS. Table 6 analyzes the Bank's
interest-earning assets and interest-bearing liabilities for the five years
ending December 31, 1996. Table 9 identifies the causes for changes in interest
income and interest expense for 1996 and 1995. Taxable-equivalent interest
income amounted to $536.5 million during 1996, a $63.1 million increase from
1995 levels, compared to a $95.5 million increase from 1994 to 1995. Volume
growth and higher yields contributed to the increase in interest income during
both periods.
23
<PAGE>
TABLE 6
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, TAXABLE EQUIVALENT)
ASSETS
Loans:
Secured by real estate.................................... $3,037,689 $250,356 8.24 % $2,752,463 $233,055 8.47 %
Commercial and industrial................................. 500,313 44,911 8.98 437,970 41,099 9.38
Consumer.................................................. 1,221,063 110,838 9.08 1,167,923 102,666 8.79
Lease financing........................................... 66,557 5,398 8.11 58,332 4,499 7.71
Other..................................................... 16,644 1,329 7.98 16,829 1,402 8.33
Total loans............................................. 4,842,266 412,832 8.53 4,433,517 382,721 8.63
Investment securities:
U.S. Government........................................... 1,988,518 114,831 5.77 1,600,713 81,219 5.07
State, county and municipal............................... 6,607 507 7.67 8,016 622 7.76
Other..................................................... 2,934 172 5.86 2,820 184 6.52
Total investment securities............................. 1,998,059 115,510 5.78 1,611,549 82,025 5.09
Federal funds sold.......................................... 147,334 8,159 5.54 146,356 8,625 5.89
Total interest-earning assets........................... 6,987,659 $536,501 7.68 % 6,191,422 $473,371 7.65 %
Cash and due from banks..................................... 324,353 349,998
Premises and equipment...................................... 218,434 200,674
Other assets................................................ 231,140 180,675
Reserve for loan losses..................................... (80,567) (75,810)
Total assets............................................ $7,681,019 $6,846,959
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Checking With Interest.................................... $ 878,878 $ 10,791 1.23 % $ 816,391 $ 13,555 1.66 %
Savings................................................... 719,962 15,059 2.09 693,187 15,728 2.27
Money market accounts..................................... 825,139 29,217 3.54 742,537 25,167 3.39
Time...................................................... 3,258,713 175,838 5.40 2,824,074 152,784 5.41
Total interest-bearing deposits......................... 5,682,692 230,905 4.06 5,076,189 207,234 4.08
Short-term borrowings....................................... 348,378 16,388 4.70 307,999 15,773 5.12
Long-term obligations....................................... 13,483 957 7.10 26,307 1,657 6.30
Total interest-bearing liabilities...................... 6,044,553 $248,250 4.11 % 5,410,495 $224,664 4.15 %
Demand deposits............................................. 970,610 875,901
Other liabilities........................................... 88,868 72,668
Shareholders' equity........................................ 576,988 487,895
Total liabilities and shareholders' equity.............. $7,681,019 $6,846,959
Interest rate spread........................................ 3.57 % 3.50 %
Net interest income and net yield on interest-earning
assets.................................................... $288,251 4.13 % $248,707 4.02 %
</TABLE>
Average loan balances include nonaccrual loans.
While total interest-earning assets yielded 7.68 percent during 1996, a
slight increase over the 7.65 percent reported in 1995, the average
taxable-equivalent yield on the loan portfolio fell from 8.63 percent in 1995 to
8.53 percent in 1996. The lower loan yield during 1996 reflects the competitive
pricing that exists in BancShares' market areas. Taxable-equivalent loan
interest income increased $30.1 million or 7.9 percent from 1995, the result of
loan growth. This followed an increase of 26.4 percent in taxable-equivalent
loan income in 1995 from 1994.
24
<PAGE>
TABLE 6
AVERAGE BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS, TAXABLE EQUIVALENT)
$2,265,054 $177,494 7.84 % $2,173,262 $170,150 7.83 % $2,075,604 $168,686 8.13 %
440,566 34,165 7.75 381,722 27,596 7.23 390,132 34,241 8.78
1,012,359 85,523 8.45 789,374 71,112 9.01 664,924 70,158 10.55
51,160 3,861 7.55 40,576 3,433 8.46 31,911 3,108 9.74
31,179 1,741 5.58 16,159 985 6.10 10,714 650 6.07
3,800,318 302,784 7.97 3,401,093 273,276 8.03 3,173,285 276,843 8.72
1,597,051 71,573 4.48 1,521,949 90,655 5.96 1,521,154 112,447 7.39
2,192 176 8.03 451 43 9.53 1,102 102 9.26
322 28 8.70 315 20 6.35 315 16 5.08
1,599,565 71,777 4.49 1,522,715 90,718 5.96 1,522,571 112,565 7.39
76,807 3,297 4.29 78,336 2,385 3.04 66,990 2,260 3.37
5,476,690 $377,858 6.90 % 5,002,144 $366,379 7.32 % 4,762,846 $391,668 8.22 %
354,875 320,668 306,795
189,421 169,062 159,692
148,932 147,422 135,319
(70,974) (63,117) (56,487)
$6,098,944 $5,576,179 $5,308,165
$ 788,673 $ 13,495 1.71 % $ 704,614 $ 13,271 1.88 % $ 596,399 $ 15,192 2.55 %
687,322 15,390 2.24 571,559 14,413 2.52 475,554 14,889 3.13
788,063 19,280 2.45 797,260 19,017 2.39 816,059 25,120 3.08
2,279,639 89,127 3.91 2,116,104 83,653 3.95 2,163,094 107,113 4.95
4,543,697 137,292 3.02 4,189,537 130,354 3.11 4,051,106 162,314 4.01
242,553 8,314 3.43 226,265 6,118 2.70 229,792 7,167 3.12
52,499 2,520 4.80 29,318 1,462 4.99 18,245 1,077 5.90
4,838,749 $148,126 3.06 % 4,445,120 $137,934 3.10 % 4,299,143 $170,558 3.97 %
791,360 704,782 633,876
51,852 63,544 67,328
416,983 362,733 307,818
$6,098,944 $5,576,179 $5,308,165
3.84 % 4.22 % 4.25 %
$229,732 4.19 % $228,445 4.57 % $221,110 4.64 %
</TABLE>
Taxable-equivalent interest income earned on the investment portfolio
amounted to $115.5 million, $82 million and $71.8 million during the years ended
December 31, 1996, 1995 and 1994, respectively. The average taxable-equivalent
yield on the portfolio for these years was 5.78 percent, 5.09 percent and 4.49
percent, respectively. The $33.5 million increase in taxable-equivalent
investment interest income during 1996 reflected the benefit of the portfolio
growth as well as a 69 basis point yield increase. The $10.2 million increase in
taxable-equivalent interest income from 1994 to 1995 was the result of a 60
basis point yield increase. During 1996, securities purchased during 1994
matured and were reinvested at higher rates, allowing the portfolio yield to
increase.
25
<PAGE>
INTEREST-BEARING LIABILITIES
At December 31, 1996 and 1995, interest-bearing liabilities totaled $6.27
billion and $5.84 billion, respectively. Interest-bearing liabilities averaged
$6.04 billion during 1996, an increase of 11.7 percent over 1995 levels, with
most of the growth occurring in interest-bearing deposits. During 1995,
interest-bearing liabilities averaged $5.41 billion, an increase of 11.8 percent
over 1994.
DEPOSITS. At December 31, 1996, deposits totaled $6.95 billion, an increase
of $565.9 million or 8.9 percent from December 31, 1995. Acquisitions
contributed to $208.4 million of the increase, with the remaining growth coming
from the existing branch network. Total deposits averaged $6.65 billion in 1996,
an increase of 11.8 percent or $701.2 million over 1995. Average
interest-bearing deposits were $5.68 billion during 1996, an increase of $606.5
million or 11.9 percent over 1995. Time deposits averaged $3.26 billion during
1996, an increase of $434.6 million or 15.4 percent over 1995. Average time
deposits increased $544.4 million or 23.9 percent from 1994 to 1995. Various
acquisitions contributed to some of these increases, as did higher demand for
time certificates as rates increased slightly during 1995 and early 1996. The
average rate on time deposits increased from 3.91 percent in 1994 to 5.41
percent in 1995 and 5.40 percent in 1996.
BancShares avoids excessive reliance on large denomination deposits. During
1996, these funds averaged 8.99 percent of total average deposits, compared to
8.33 percent in 1995. Table 7 provides a maturity distribution for these
deposits.
TABLE 7
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
(THOUSANDS)
Less than three months........................................................... $ 297,213
Three to six months.............................................................. 173,205
Six to 12 months................................................................. 98,990
More than 12 months.............................................................. 47,668
Total.......................................................................... $ 617,076
</TABLE>
BORROWED FUNDS. BancShares has access to various short-term borrowings,
including the purchase of federal funds, overnight repurchase obligations and
credit lines with various correspondent banks. At December 31, 1996, short-term
borrowings totaled $392 million, compared to $376.5 million one year earlier.
For the year ended December 31, 1996, short-term borrowings averaged $348.4
million, compared to $308 million during 1995 and $242.6 million during 1994.
The increase from 1995 to 1996 and from 1994 to 1995 resulted from growth in
First Citizens' Master Note program, an overnight borrowing arrangement between
BancShares and bank customers. Table 8 provides additional information regarding
short-term borrowed funds.
26
<PAGE>
TABLE 8
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1996 1995 1994
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Master notes
At December 31............................................. $295,428 4.23 % $257,178 4.74 % $173,250 4.68 %
Average during year........................................ 266,476 4.46 203,114 4.96 168,725 3.24
Maximum month-end balance during year...................... 316,628 -- 257,178 -- 197,942 --
Federal funds purchased
At December 31............................................. 45,075 6.27 64,085 5.44 76,430 5.83
Average during year........................................ 32,948 6.24 49,226 5.83 21,079 4.09
Maximum month-end balance during year...................... 57,740 -- 72,165 -- 76,430 --
Repurchase agreements
At December 31............................................. 21,816 3.98 25,022 4.46 14,970 4.43
Average during year........................................ 21,633 4.30 23,784 4.86 20,991 3.17
Maximum month-end balance during year...................... 22,497 -- 25,337 -- 20,961 --
U.S. Treasury tax and loan accounts
At December 31............................................. 20,356 4.38 17,581 5.49 20,046 5.26
Average during year........................................ 15,318 5.09 17,070 5.71 24,195 3.78
Maximum month-end balance during year...................... 27,248 -- 22,410 -- 30,117 --
Other
At December 31............................................. 9,331 6.02 12,665 4.50 6,165 4.58
Average during year........................................ 12,003 6.14 14,805 4.69 7,563 5.38
Maximum month-end balance during year...................... 19,901 -- 16,666 -- 10,164 --
</TABLE>
At December 31, 1996 and 1995, long-term obligations totaled $6.9 million
and $23 million, respectively. During 1996, long-term obligations averaged $13.5
million, compared to $26.3 million during 1995 and $52.5 million during 1994.
The reduction from 1994 to 1995 and from 1995 to 1996 results from the
reclassification of long-term obligations to short-term borrowings once the
scheduled maturity is within twelve months. The larger balances in prior years
primarily related to liabilities assumed from acquired institutions.
EXPENSE OF INTEREST-BEARING LIABILITIES. Interest expense amounted to
$248.3 million in 1996, a $23.6 million or 10.5 percent increase from 1995. This
followed a 51.7 percent increase in interest expense during 1995 compared to
1994. The increased interest expense during 1996 was the result of growth in
interest-bearing liabilities, while the increase from 1994 to 1995 was the
combined result of higher market rates and growth in deposit liabilities.
The aggregate rate on interest-bearing deposits was 4.06 percent during
1996, compared to 4.08 percent during 1995 and 3.02 percent during 1994.
Interest expense on total interest-bearing deposits amounted to $230.9 million
during 1996, $207.2 million during 1995 and $137.3 million during 1994.
Interest expense on short-term borrowings amounted to $16.4 million in
1996, an increase of $615,000 or 3.9 percent from 1995. The increase was
attributable to the growth in short-term borrowings during 1996. Interest
expense related to short-term borrowings totaled $15.8 million and $8.3 million,
respectively, in 1995 and 1994. Interest expense associated with long-term
obligations decreased during 1996 to $957,000 from $1.7 million recorded during
1995. The decrease results from a reduction in average long-term obligations.
27
<PAGE>
TABLE 9
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
1996 1995
CHANGE FROM PREVIOUS YEAR CHANGE FROM PREVIOUS YEAR
DUE TO: DUE TO:
YIELD/ TOTAL YIELD/ TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
INTEREST INCOME
Loans:
Secured by real estate.................................. $23,895 $(6,594) $17,301 $39,186 $ 16,375 $ 55,561
Commercial and industrial............................... 5,706 (1,894) 3,812 (224) 7,158 6,934
Consumer................................................ 4,484 3,688 8,172 13,474 3,669 17,143
Lease financing......................................... 650 249 899 549 89 638
Other................................................... (15) (58) (73) (999) 660 (339)
Total loans.......................................... 34,720 (4,609) 30,111 51,986 27,951 79,937
Investment securities:
U.S. Government......................................... 21,034 12,578 33,612 194 9,452 9,646
State, county and municipal............................. (109) (6) (115) 460 (14) 446
Other................................................... 7 (19) (12) 190 (34) 156
Total investment securities.......................... 20,932 12,553 33,485 844 9,404 10,248
Federal funds sold........................................ 52 (518) (466) 3,541 1,787 5,328
Total interest-earning assets........................ $55,704 $ 7,426 $63,130 $56,371 $ 39,142 $ 95,513
INTEREST EXPENSE
Deposits:
Checking With Interest.................................. $ 892 $(3,656) $(2,764) $ 464 $ (404) $ 60
Savings................................................. 593 (1,262) (669) 132 206 338
Money market accounts................................... 2,868 1,182 4,050 (1,318) 7,205 5,887
Time.................................................... 23,425 (371) 23,054 25,375 38,282 63,657
Total interest-bearing deposits...................... 27,778 (4,107) 23,671 24,653 45,289 69,942
Short-term borrowings..................................... 1,988 (1,373) 615 2,802 4,657 7,459
Long-term obligations..................................... (859) 159 (700) (1,454) 591 (863)
Total interest-bearing liabilities................... $28,907 $(5,321) $23,586 $26,001 $ 50,537 $ 76,538
Change in net interest income........................ $26,797 $12,747 $39,544 $30,370 $(11,395) $ 18,975
</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 $2,306, $2,262, and $1,853 for
the years 1996, 1995 and 1994, respectively. Table 6 provides detailed
information on average balances, income/expense and yield/rate by category. The
unallocated variance is divided equally between the changes in volume and rate.
NET INTEREST INCOME
Taxable-equivalent net interest income totaled $288.3 million during 1996,
an increase of 15.9 percent over 1995. This followed an increase of 8.3 percent
during 1995. 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.
The interest rate spread increased to 3.57 percent during 1996 compared to
3.50 percent during 1995 but was less than the 3.84 percent achieved in 1994.
The average net yield on interest-earning assets increased by 11 basis points to
4.13 percent in 1996 when compared to 1995. This followed a 17 basis point
reduction in 1995 when compared to 1994.
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
28
<PAGE>
December 31, 1996, which reflected a one year interest-sensitivity gap of $913
million. The liability-sensitive position is most acute in the first six months.
As a result of this one year interest-sensitivity gap, increases in interest
rates could have an unfavorable impact on net interest income.
TABLE 10
INTEREST-SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
1-30 31-90 91-180 181-365 TOTAL
DAYS DAYS DAYS DAYS ONE YEAR TOTAL
SENSITIVE SENSITIVE SENSITIVE SENSITIVE SENSITIVE NONSENSITIVE TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
ASSETS:
Loans......................... $1,310,186 $ 150,803 $ 235,709 $ 471,141 $2,167,839 $2,762,669 $4,930,508
Investment securities......... 99,228 125,832 159,241 399,638 783,939 1,354,892 2,138,831
Federal funds sold............ 156,000 -- -- -- 156,000 -- 156,000
Total interest-earning
assets................. $1,565,414 $ 276,635 $ 394,950 $ 870,779 $3,107,778 $4,117,561 $7,225,339
LIABILITIES:
Checking With Interest........ -- -- -- -- -- $ 943,900 $ 943,900
Savings and money market
accounts.................... $ 892,953 -- -- -- $ 892,953 712,525 1,605,478
Time deposits................. 598,393 $ 748,147 $ 855,057 $ 534,394 2,735,991 581,185 3,317,176
Short-term borrowings......... 382,701 -- 9,305 -- 392,006 -- 392,006
Long-term obligations......... -- -- -- -- -- 6,922 6,922
Total interest-bearing
liabilities............ $1,874,047 $ 748,147 $ 864,362 $ 534,394 $4,020,950 $2,244,532 $6,265,482
Interest-sensitivity gap...... $ (308,633) $(471,512) $(469,412) $ 336,385 $ (913,172) $1,873,029 $ 959,857
</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.
In addition to other asset/liability management strategies, BancShares
generally underwrites long-term fixed-rate residential mortgage loans to
secondary market standards and sells such loans as they are originated. As of
December 31, 1996, BancShares had $27.7 million in residential mortgage loans
available 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 asset balances for the past five years
are presented in Table 11. BancShares' nonperforming assets at December 31, 1996
included nonaccrual loans totaling $12.8 million and $1.2 million in foreclosed
property. Nonperforming assets as of December 31, 1996 represent 0.28 percent of
loans outstanding. Total nonperforming assets totaled $15.4 million and $27
million, respectively, as of December 31, 1995, and 1994. Of the $12.8 million
in nonaccrual loans at December 31, 1996, $9.9 million was classified as
impaired. Of the $13.2 million in nonaccrual loans at December 31, 1995, $11.1
million was classified as impaired.
29
<PAGE>
TABLE 11
RISK ELEMENTS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT RATIOS)
Nonaccrual loans....................................... $ 12,810 $ 13,208 $ 21,069 $ 33,726 $ 25,814
Restructured loans..................................... -- -- -- 571 2,267
Other real estate...................................... 1,160 2,154 5,926 15,879 8,000
Total nonperforming assets........................... $ 13,970 $ 15,362 $ 26,995 $ 50,176 $ 36,081
Accruing loans 90 days or more past due................ $ 4,983 $ 4,230 $ 5,326 $ 9,202 $ 6,960
Loans at December 31................................... $4,930,508 $4,580,719 $4,148,133 $3,584,991 $3,207,875
Ratio of nonperforming assets to total loans plus other
real estate.......................................... 0.28% 0.34% 0.65% 1.39% 1.12%
Interest income that would have been earned on
nonperforming loans had they been performing......... $ 1,162 $ 1,556 $ 1,430 $ 2,354 $ 2,413
Interest income earned on nonperforming loans.......... 259 595 693 1,083 1,291
</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, 1996. There were no foreign loans outstanding in any period.
Accrual of interest on loans is discontinued when management deems that
collection of additional interest is doubtful. Loans are returned to an accrual
status when both principal and interest are current, and the loan is determined
to be performing in accordance with the applicable loan terms.
Management continually monitors the loan portfolio to ensure that all loans
potentially having a material adverse impact on future operating results,
liquidity or capital resources have been classified as nonperforming. Should
economic conditions deteriorate, the inability of distressed customers to
service their existing debt could cause higher levels of nonperforming assets.
RESERVE FOR LOAN LOSSES. Management evaluates the risk characteristics of
the loan portfolio under current and projected economic conditions and considers
such factors as the financial condition of the borrower, fair market value of
collateral and other items that, in management's opinion, deserve current
recognition in estimating possible credit losses. Further, management strives to
maintain the reserve at a level sufficient to absorb both potential losses on
identified nonperforming assets as well as general losses at historical and
projected levels.
At December 31, 1996, BancShares' reserve for loan losses was $81.4 million
or 1.65 percent of loans outstanding. This compares to $78.5 million or 1.71
percent at December 31, 1995, and $72 million or 1.74 percent at December 31,
1994. The reduction in the reserve ratio over the two year period reflects the
reduced level of nonperforming assets.
30
<PAGE>
TABLE 12
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT RATIOS)
Balance at beginning of year........................... $ 78,495 $ 72,017 $ 70,049 $ 58,380 $ 53,730
Reserve of acquired institutions....................... 1,387 3,231 1,009 8,269 --
Provision for loan losses.............................. 8,907 5,364 2,786 15,245 17,506
Charge-offs:
Real estate:
Construction and land development................. (40) (118) (334) (786) (460)
Mortgage:
1-4 family residential.......................... (1,604) (994) (1,048) (1,349) (1,376)
Commercial...................................... (248) (255) (1,502) (2,013) (4,614)
Equity Line..................................... (58) (47) (192) (250) (293)
Other........................................... (52) (34) -- (3) (16)
Commercial and industrial............................ (1,076) (826) (1,302) (7,331) (3,809)
Consumer............................................. (8,515) (4,988) (4,085) (3,860) (4,965)
Lease financing...................................... (60) -- (17) (51) (39)
Total charge-offs................................. (11,653) (7,262) (8,480) (15,643) (15,572)
Recoveries:
Real estate:
Construction and land development................. 307 440 920 230 106
Mortgage:
1-4 family residential.......................... 1,534 1,160 834 286 218
Commercial...................................... 530 1,476 2,765 856 578
Equity Line..................................... 19 28 28 85 1
Other........................................... -- -- -- 3 --
Commercial and industrial............................ 493 761 689 1,240 697
Consumer............................................. 1,420 1,233 1,396 1,085 1,116
Lease financing...................................... -- 47 21 13 --
Total recoveries.................................. 4,303 5,145 6,653 3,798 2,716
Net charge-offs................................... (7,350) (2,117) (1,827) (11,845) (12,856)
Balance at end of year................................. $ 81,439 $ 78,495 $ 72,017 $ 70,049 $ 58,380
HISTORICAL STATISTICS
Balances
Average total loans.................................. $4,842,266 $4,433,517 $3,800,318 $3,401,093 $3,173,285
Total loans at year-end.............................. 4,930,508 4,580,719 4,148,133 3,584,991 3,207,875
Ratios
Net charge-offs to average total loans............... 0.15% 0.05% 0.05% 0.35% 0.41%
Reserve for loan losses to total loans at
year-end.......................................... 1.65 1.71 1.74 1.95 1.82
</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 $8.9 million during
1996 compared to $5.4 million during 1995 and $2.8 million during 1994. The
increase in the provision during 1996 was primarily due to higher net
charge-offs and growth in unsecured credit card loans. Net charge-offs for 1996
totaled $7.4 million, compared to $2.1 million during 1995 and $1.8 million
during 1994. The rise in net charge-offs during 1996 can be attributed to an
increase in charge-offs among consumer loans. Net charge-offs of consumer loans
during 1996 were $7.1 million, compared to $3.8 million during 1995 and $2.7
million during 1994, as higher losses were sustained within the retail
installment and credit card portfolios. Net charge-offs of credit card loans
during 1996 was $2.7 million, compared to $1.2 million during 1995 and $1
million during 1994. Management believes that during 1997, total charge-offs, as
a percentage of loans, will approximate the losses sustained during 1996. As a
result of the higher level of personal bankruptcies, retail charge-offs will
continue to be closely monitored. Continued strong credit quality should result
in very modest commercial charge-offs.
31
<PAGE>
During 1996, loans secured by real estate experienced net recoveries of
$382,000. During 1995 and 1994, net recoveries on these loans were $1.7 million
and $1.5 million, respectively. Commercial and industrial loans experienced net
charge-offs of $583,000 during 1996, compared to net charge-offs of $65,000 in
1995. Stringent underwriting standards continue to result in minimal losses
among the commercial and real-estate secured portfolios.
The ratio of net charge-offs to average loans equaled 0.15 percent during
1996, up 10 basis points from the 0.05 percent levels of 1995 and 1994. Despite
the increase in net charge-offs during 1996, the loss ratios reflect the quality
of BancShares' balance sheet, as these ratios are low by industry standards.
Table 12 provides details concerning the reserve and provision for loan losses
over the past five years.
Management considers the established reserve adequate to absorb future
losses that relate to loans outstanding at December 31, 1996, 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 details management's allocation of the reserve among the various loan
types. At December 31, 1996, 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.
TABLE 13
ALLOCATION OF RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994 1993 1992
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE LOANS RESERVE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Real estate:
Construction and land
development.................... $3,234 2.23% $3,090 2.28% $2,919 2.43% $3,135 3.28% $3,491
Mortgage:
1-4 family residential......... 13,127 31.29 13,125 31.42 13,459 31.26 15,175 31.74 13,373
Commercial..................... 16,514 17.89 15,305 16.81 13,636 17.37 13,997 17.13 13,181
Equity Line.................... 2,898 8.35 2,788 8.67 2,585 8.42 2,112 8.18 2,042
Other.......................... 1,798 2.70 1,318 2.82 1,581 2.63 1,493 1.56 738
Commercial and industrial.......... 9,243 10.44 8,384 10.18 10,029 9.01 11,650 11.40 8,190
Consumer........................... 24,890 25.38 21,587 26.18 20,373 27.00 17,079 24.81 14,875
Lease financing.................... 985 1.39 639 1.31 197 1.46 454 1.27 356
Other.............................. 324 0.33 -- 0.33 -- 0.42 -- 0.63 --
Unallocated........................ 8,426 -- 12,259 -- 7,238 -- 4,954 -- 2,134
Total.......................... $81,439 100.00% $78,495 100.00% $72,017 100.00% $70,049 100.00% $58,380
<CAPTION>
PERCENT
OF LOANS
TO TOTAL
LOANS
<S> <C>
Real estate:
Construction and land
development.................... 4.67%
Mortgage:
1-4 family residential......... 32.31
Commercial..................... 17.64
Equity Line.................... 8.83
Other.......................... 1.49
Commercial and industrial.......... 11.59
Consumer........................... 22.01
Lease financing.................... 1.11
Other.............................. 0.35
Unallocated........................ --
Total.......................... 100.00%
</TABLE>
NONINTEREST INCOME
Total noninterest income was $103.3 million during 1996, an increase of
12.1 percent. This compares to $92.1 million during 1995 and $83.3 million
during 1994. Table 14 presents the major components of noninterest income for
the past five years. Trust income was $10 million in 1996, up 12.6 percent from
1995 principally due to growth in retirement plan services. Income from service
charges on deposit accounts was $40.7 million during 1996, an increase of 2
percent. This increase was the result of growth in retail individual service
charge income due to an increase in the number of customer accounts. Service
charge income amounted to $39.9 million and $38.6 million for the years ended
December 31, 1995 and 1994, respectively.
32
<PAGE>
TABLE 14
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Trust income.......................................................... $ 10,008 $ 8,886 $ 8,228 $ 7,197 $ 6,087
Service charges on deposit accounts................................... 40,710 39,909 38,567 43,277 42,130
Credit card income.................................................... 16,147 13,561 12,390 10,618 9,512
Other service charges and fees........................................ 23,878 21,227 16,672 8,564 8,078
Investment securities gains........................................... -- -- -- -- 2,363
Gain (loss) on sale of mortgage loans................................. 502 809 (862) 8,010 1,345
Other................................................................. 12,059 7,736 8,330 8,071 4,788
Total............................................................... $103,304 $92,128 $83,325 $85,737 $74,303
</TABLE>
Credit card income was $16.1 million during 1996, a $2.6 million or 19.1
percent increase over 1995, primarily the result of increased bankcard
interchange income. The $13.6 million earned by the credit card operation during
1995 represented an increase of $1.2 million or 9.5 percent over 1994. During
1996, BancShares conducted a successful promotion of various credit card
products, including a new feature that allows cardholders to accumulate mileage
toward discounted or free airline travel. The program was well-received by both
existing customers and new customers, and approximately 26,000 new accounts were
opened during 1996.
Management believes there is significant growth potential in the credit
card function within existing markets. In an effort to maximize the
profitability of the operation, BancShares plans to relocate the credit card
function to the Roanoke, Virginia area. Virginia banking laws offer greater
flexibility in rates and fees and will allow more competitive credit card terms.
Subject to regulatory approval, the move is scheduled for mid-1997. Management
anticipates continued growth within the credit card function during 1997.
Fee-based income amounted to $23.9 million in 1996, $21.2 million in 1995
and $16.7 million in 1994. Growth in this area during 1996 resulted from fees
generated from the sale of mutual fund and annuity products by First Citizens
Investor Services.
During 1996, BancShares collected $2.8 million from ATM convenience fees, a
fee paid by non-customers who access their accounts at other banks through
BancShares' ATM network. No such fees were collected during 1995. Sales of
portions of the current production of residential mortgage loan portfolio
resulted in net gains of $502,000 during 1996. During 1995, BancShares recorded
net gains of $809,000. Despite an increase in the gross proceeds from the sale
of mortgage loans, market rate changes reduced the net gains that were recorded.
During 1996, as a result of these loan sales, BancShares capitalized an
originated mortgage servicing asset of $606,000. As of December 31, 1996,
management is not aware of any impairment issues related to that asset.
NONINTEREST EXPENSE
Total noninterest expense for 1996 amounted to $278.7 million. This was a
13.3 percent increase over 1995, following an 6.6 percent increase of 1995
noninterest expenses over 1994. Table 15 presents the major components of
noninterest expense for the past five years.
Salary expense was $115.5 million during 1996, compared to $106.6 million
during 1995, an increase of $8.9 million or 8.3 percent, following a $7.3
million or 7.4 percent increase in 1995 over 1994. Increases during each period
resulted from merit increases and acquisitions, as well as new positions
established for certain operational functions. During 1995, BancShares
centralized the credit underwriting process for various loan products. During
1996, BancShares established FCDirect, a significant expansion of the
alternative delivery network. This resulted in new positions for telephone
banking, home banking, and financial service center banking.
Employee benefits were $20.4 million during 1996, an increase of $3.3
million or 19.6 percent from 1995. The $17.1 million in benefits expense
recorded during 1995 represented an increase of $2.5 million or 17.5 percent
over 1994. During 1996, BancShares' health and life plans cost $7.2 million,
compared to $5.8 million during 1995, as health costs continue to increase.
Higher pension and FICA expenses also contributed to the increase in total
employee benefits expense.
33
<PAGE>
TABLE 15
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(THOUSANDS)
Salaries and wages............................................... $115,461 $106,607 $ 99,282 $ 92,579 $ 85,195
Employee benefits................................................ 20,425 17,080 14,535 13,500 12,791
Occupancy expense................................................ 22,023 20,446 18,691 16,972 15,675
Equipment expense................................................ 27,068 24,504 23,839 21,231 19,808
FDIC insurance................................................... 13,586 8,418 11,831 10,496 10,739
Credit card expense.............................................. 10,097 9,106 8,587 6,814 6,416
Amortization of intangibles...................................... 8,197 5,877 3,993 3,157 3,349
Telecommunication expense........................................ 7,711 6,790 6,743 6,528 5,717
Postage.......................................................... 6,383 5,701 4,907 3,996 3,920
Other............................................................ 47,717 41,351 38,174 37,940 35,589
Total.......................................................... $278,668 $245,880 $230,582 $213,213 $199,199
</TABLE>
BancShares recorded occupancy expense of $22 million during 1996, an
increase of $1.6 million or 7.7 percent during 1996 due to increased local
property tax expense and higher depreciation expense on new and renovated
facilities. Occupancy expense during 1995 was $20.4 million, an increase of $1.8
million or 9.4 percent over 1994.
Equipment expense for 1996 was $27.1 million, an increase of $2.6 million
or 10.5 percent over 1995, when total equipment expenses were $24.5 million. The
increase during 1996 resulted from the replacement of much of the computer
equipment in the branch network during late 1995 and early 1996. This upgrade
was necessary to improve the efficiency of the product delivery systems.
The cost of FDIC insurance was $13.6 million during 1996, an increase of
$5.2 million or 61.4 percent. The increase was due to a special one-time
assessment on deposit liabilities insured by the FDIC's Savings Association
Insurance Fund ("SAIF"). First Citizens paid $10 million for the assessment,
which was to establish sufficient reserves for the SAIF. Following the September
30, 1996 assessment, the SAIF was adequately capitalized, and excess prepaid
premiums were refunded, resulting in a reduction in the impact of the
assessment. Total cost of FDIC insurance was $8.4 million in 1995 and $11.8
million during 1994. The reduction from 1994 to 1995 occurred as a result of the
earlier recapitalization of the FDIC's Bank Insurance Fund.
Expenses related to the amortization of intangibles were $8.2 million
during 1996, an increase of $2.3 million or 39.5 percent. The increase resulted
from the goodwill capitalized in the acquisition of Allied Bank Capital, Inc.
Intangible amortization totaled $5.9 million during 1995 and $4 million during
1994, the increase resulting from intervening acquisitions.
Telecommunications expense increased $921,000 during 1996 due to the
introduction of FCDirect, the network of alternative delivery channels that
includes telephone banking and PC banking. Telecommunications expense was $7.7
million during 1996, $6.8 million during 1995 and $6.7 million during 1994.
INCOME TAXES
During 1996, BancShares recorded total income tax expense of $36.2 million,
compared to $30.4 million in income tax expense during 1995, the increase
resulting from higher pre-tax income. BancShares' effective tax rate was 35.6
percent in 1996, 34.8 in 1995 and 34.5 percent in 1994. 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, 1996, the
investment portfolio totaled $2.14 billion or 26.6 percent of total assets. This
compares to $1.98 billion or 26.9 percent in 1995.
34
<PAGE>
The Bank's ability to generate retail deposits is an additional source of
liquidity. The rate of growth in average deposits was 11.8 percent during 1996,
11.6 percent during 1995 and 9 percent during 1994. The deposit increase results
from the existing branch network as well as deposit liability assumptions
associated with various business combinations.
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 11.5 percent, 10.9 percent and 11.3 percent, respectively, at December 31,
1996, 1995 and 1994. BancShares' core capital ratios for December 31, 1996, 1995
and 1994 were 10.2 percent, 9.6 percent, and 10.1 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, 1996,
BancShares' leverage capital ratio was 6.4 percent, compared to 6.1 percent and
6.5 percent at December 31, 1995 and 1994, 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 financial statements.
The rate of return on average shareholders' equity during 1996, 1995 and
1994 amounted to 11.4 percent, 11.7 percent and 12.2 percent, respectively.
During the fourth quarter of 1996 the Board of Directors of BancShares
reauthorized the purchase of its Class A and Class B common stocks. Management
views the purchase of its stock as a good investment and will continue to
repurchase shares when market conditions are favorable for such transactions.
The repurchase of these shares should not impair capital adequacy because of
BancShares' high earnings retention percentage.
FOURTH QUARTER ANALYSIS
BancShares' net income for the fourth quarter of 1996 totaled $19.8
million, compared to $16.3 million during the same period of 1995. As shown in
Table 16, during the fourth quarter of 1996 and 1995, total assets averaged
$7.94 billion and $7.28 billion, respectively. Average interest-earning assets
increased 9.3 percent during the fourth quarter of 1996, compared to the same
period of 1995. Average loans outstanding during the fourth quarter increased
$343.8 million during 1996 over 1995. Average investment securities increased
$226.4 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
$11.3 million or 8.9 percent in the fourth quarter of 1996 when compared to the
same period of 1995. The improved interest income during 1996 resulted from a
$5.9 million increase in loan interest income and a $5.0 million increase in
investment securities interest income. These increases resulted from average
volume growth among loans and investments. Interest-earning assets yielded 7.63
percent during the fourth quarter of 1996, a 3 basis point decrease from the
fourth quarter of 1995.
35
<PAGE>
TABLE 16
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1996 1995
FOURTH THIRD SECOND FIRST FOURTH THIRD
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
SUMMARY OF OPERATIONS
Interest income....................... $ 137,655 $ 134,270 $ 132,270 $ 129,568 $ 126,372 $ 122,234
Interest income-taxable equivalent.... 138,222 134,837 133,283 130,159 126,950 122,801
Interest expense...................... 62,964 61,378 61,484 62,424 62,968 59,858
Net interest income-taxable
equivalent.......................... 75,258 73,459 71,799 67,735 63,982 62,943
Taxable equivalent adjustment......... 567 567 581 591 578 567
Net interest income................... 74,691 72,892 71,218 67,144 63,404 62,376
Provision for loan losses............. 3,321 1,787 2,255 1,544 1,654 1,716
Net interest income after provision
for loan losses..................... 71,370 71,105 68,963 65,600 61,750 60,660
Noninterest income.................... 28,082 26,077 25,260 23,885 23,856 23,560
Noninterest expense................... 69,023 78,097 68,263 63,285 60,925 59,716
Income before income taxes............ 30,429 19,085 25,960 26,200 24,681 24,504
Income taxes.......................... 10,611 6,647 9,575 9,374 8,395 8,686
Net income............................ $ 19,818 $ 12,438 $ 16,385 $ 16,826 $ 16,286 $ 15,818
SELECTED QUARTERLY AVERAGES
Total assets.......................... $7,935,197 $7,670,538 7,658,682 $7,462,756 $7,280,893 $7,053,579
Investment securities................. 2,097,690 1,919,935 1,990,346 1,984,027 1,871,272 1,694,776
Loans................................. 4,895,815 4,907,435 4,884,818 4,679,692 4,552,018 4,500,192
Interest-earning assets............... 7,209,982 6,989,109 6,975,341 6,779,461 6,599,377 6,376,273
Deposits.............................. 6,831,926 6,641,427 6,660,204 6,477,795 6,282,111 6,124,360
Interest-bearing liabilities.......... 6,185,161 6,017,476 6,043,119 5,934,180 5,753,538 5,569,496
Long-term obligations................. 6,866 7,762 15,676 23,763 23,365 24,595
Shareholders' equity.................. $ 599,953 $ 589,618 $ 576,742 $ 546,603 $ 512,768 $ 498,108
Shares outstanding.................... 11,415,943 11,441,007 11,432,661 11,072,395 10,700,435 10,688,019
PROFITABILITY RATIOS (averages)
Rate of return (annualized) on:
Total assets........................ 0.99% 0.65% 0.86% 0.91% 0.89% 0.89%
Shareholders' equity................ 13.14 8.39 11.43 12.38 12.60 12.60
Dividend payout ratio................. 14.37 19.57 15.73 14.80 14.80 13.42
LIQUIDITY AND CAPITAL RATIOS
(averages)
Loans to deposits..................... 71.66% 73.89% 73.34% 72.24% 72.46% 73.48%
Shareholders' equity to total
assets.............................. 7.56 7.69 7.53 7.32 7.04 7.06
Time certificates of $100,000 or more
to total deposits................... 8.79 8.56 9.23 9.59 9.27 8.61
PER SHARE OF STOCK
Net income............................ $ 1.74 $ 1.15 $ 1.43 $ 1.52 $ 1.52 $ 1.49
Cash dividends........................ 0.250 0.225 0.225 0.225 0.225 0.20
Class A sales price
High................................ 83.00 67.00 67.00 66.25 55.50 53.75
Low................................. 64.50 59.50 59.00 53.75 52.50 48.50
Class B sales price
High................................ 71.00 63.50 64.25 55.00 54.25 53.25
Low................................. 71.00 60.00 55.00 48.06 52.50 49.00
<CAPTION>
SECOND FIRST
<S> <C> <C>
SUMMARY OF OPERATIONS
Interest income....................... $ 116,282 $ 106,221
Interest income-taxable equivalent.... 116,845 106,774
Interest expense...................... 55,537 46,301
Net interest income-taxable
equivalent.......................... 61,308 60,473
Taxable equivalent adjustment......... 563 553
Net interest income................... 60,745 59,920
Provision for loan losses............. 1,460 534
Net interest income after provision
for loan losses..................... 59,285 59,386
Noninterest income.................... 23,057 21,655
Noninterest expense................... 62,876 62,363
Income before income taxes............ 19,466 18,678
Income taxes.......................... 6,842 6,500
Net income............................ $ 12,624 $ 12,178
SELECTED QUARTERLY AVERAGES
Total assets.......................... $6,702,692 $6,323,537
Investment securities................. 1,493,415 1,380,424
Loans................................. 4,424,724 4,253,117
Interest-earning assets............... 6,061,732 5,716,572
Deposits.............................. 5,858,280 5,533,654
Interest-bearing liabilities.......... 5,299,570 5,009,276
Long-term obligations................. 26,174 32,564
Shareholders' equity.................. $ 482,885 $ 460,695
Shares outstanding.................... 10,618,902 10,376,351
PROFITABILITY RATIOS (averages)
Rate of return (annualized) on:
Total assets........................ 0.76% 0.78%
Shareholders' equity................ 10.49 10.72
Dividend payout ratio................. 16.81 17.09
LIQUIDITY AND CAPITAL RATIOS
(averages)
Loans to deposits..................... 75.53% 76.86%
Shareholders' equity to total
assets.............................. 7.20 7.29
Time certificates of $100,000 or more
to total deposits................... 8.04 7.30
PER SHARE OF STOCK
Net income............................ $ 1.19 $ 1.17
Cash dividends........................ 0.20 0.20
Class A sales price
High................................ 50.00 46.00
Low................................. 44.00 42.00
Class B sales price
High................................ 49.50 45.00
Low................................. 45.00 44.00
</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, 1996, there were 3,991 holders of record of the Class A
common stock and 725 holders of record of the Class B common stock.
Average interest-bearing liabilities experienced a $431.6 million increase
from the fourth quarter of 1995 to the same period of 1996, largely the result
of acquisitions and internally generated deposit growth. The rate on these
interest-bearing liabilities decreased from 4.34 percent to 4.04 percent between
the two periods.
36
<PAGE>
Taxable-equivalent net interest income increased $11.3 million from the
fourth quarter of 1995 to the fourth quarter of 1996. The increase resulted from
growth among interest-earning assets.
Noninterest income for the fourth quarter of 1996 was $28.1 million, an
increase of 17.7 percent. Much of the increase resulted from ATM convenience
fees. Noninterest expense amounted to $69 million for the quarter ended December
31, 1996, compared to $60.9 million for the quarter ended December 31, 1995.
Most of the 13.3 increase was in salary expense and various other operating
expenses. Tables 16 and 17 are useful when making quarterly comparisons.
TABLE 17
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- FOURTH QUARTER
<TABLE>
<CAPTION>
1996 1995 INCREASE
INTEREST INTEREST (DECREASE)
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ DUE TO:
BALANCE EXPENSE RATE BALANCE EXPENSE RATE VOLUME
<S> <C> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
ASSETS
Loans:
Secured by real estate.............. $3,056,155 $63,112 8.22 % $2,826,705 $58,918 8.18 % $ 4,757
Commercial and industrial........... 514,554 11,205 8.65 461,955 12,771 10.51 1,086
Consumer............................ 1,238,383 28,325 9.13 1,189,310 25,330 8.45 1,719
Lease financing..................... 70,192 1,492 8.50 58,058 1,177 8.11 252
Other............................... 16,531 316 7.58 15,990 315 7.82 11
Total loans....................... 4,895,815 104,450 8.50 4,552,018 98,511 8.63 7,825
Investment securities:
U.S. Government..................... 2,088,697 30,647 5.82 1,860,076 25,652 5.47 3,247
State, county and municipal......... 6,188 119 7.63 8,208 157 7.59 (39 )
Other............................... 2,805 41 5.80 2,988 44 5.84 0
Total investment securities....... 2,097,690 30,807 5.83 1,871,272 25,853 5.48 3,208
Federal funds sold.................... 216,477 2,965 5.43 176,087 2,586 5.83 574
Total interest-earning assets..... $7,209,982 $138,222 7.63 % $6,599,377 $126,950 7.66 % $11,607
LIABILITIES
Deposits:
Checking With Interest.............. $ 917,915 $ 2,584 1.12 % $ 852,002 $ 3,342 1.56 % $ 221
Savings............................. 722,281 3,750 2.06 701,528 4,030 2.28 113
Money market accounts............... 855,950 7,693 3.57 766,821 7,086 3.67 811
Time................................ 3,293,064 44,166 5.32 3,035,811 43,313 5.66 3,554
Total interest-bearing deposits... 5,789,210 58,193 3.99 5,356,162 57,771 4.28 4,699
Short-term borrowings................. 389,085 4,627 4.72 374,011 4,816 5.11 186
Long-term obligations................. 6,866 144 8.32 23,365 381 6.47 (307 )
Total interest-bearing
liabilities..................... $6,185,161 $62,964 4.04 % $5,753,538 $62,968 4.34 % $ 4,578
Interest rate spread.................. 3.59 % 3.32 %
Net interest income and net yield on
interest-earning assets............. $75,258 4.14 % $63,982 3.85 % $ 7,029
<CAPTION>
YIELD/ TOTAL
RATE CHANGE
<S> <C> <C>
ASSETS
Loans:
Secured by real estate.............. $ (563) $4,194
Commercial and industrial........... (2,652) (1,566 )
Consumer............................ 1,276 2,995
Lease financing..................... 63 315
Other............................... (10) 1
Total loans....................... (1,886) 5,939
Investment securities:
U.S. Government..................... 1,748 4,995
State, county and municipal......... 1 (38 )
Other............................... (3) (3 )
Total investment securities....... 1,746 4,954
Federal funds sold.................... (195) 379
Total interest-earning assets..... $ (335) $11,272
LIABILITIES
Deposits:
Checking With Interest.............. $ (979) $ (758 )
Savings............................. (393) (280 )
Money market accounts............... (204) 607
Time................................ (2,701) 853
Total interest-bearing deposits... (4,277) 422
Short-term borrowings................. (375) (189 )
Long-term obligations................. 70 (237 )
Total interest-bearing
liabilities..................... $ (4,582) $ (4 )
Interest rate spread..................
Net interest income and net yield on
interest-earning assets............. $ 4,247 $11,276
</TABLE>
LEGAL PROCEEDINGS
BancShares and various subsidiaries have been named as defendants in
various legal actions arising from their normal business activities in which
damages in various amounts are claimed. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial position.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
FIRST CITIZENS BANCSHARES, INC.
We have audited the accompanying consolidated balance sheets of First
Citizens BancShares, Inc. and Subsidiaries as of December 31, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and
the results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 27, 1997
38
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
<S> <C> <C>
(THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Cash and due from banks........................................................................... $ 437,029 $ 448,630
Investment securities held to maturity (fair value $2,138,031 in 1996;
$1,991,716 in 1995)............................................................................. 2,138,831 1,983,148
Federal funds sold................................................................................ 156,000 40,445
Loans............................................................................................. 4,930,508 4,580,719
Less reserve for loan losses...................................................................... 81,439 78,495
Net loans.................................................................................. 4,849,069 4,502,224
Premises and equipment............................................................................ 229,496 208,240
Income earned not collected....................................................................... 60,175 58,237
Other assets...................................................................................... 184,972 143,026
Total assets............................................................................... $8,055,572 $7,383,950
LIABILITIES
Deposits:
Noninterest-bearing............................................................................. $1,087,474 $ 943,445
Interest-bearing................................................................................ 5,866,554 5,444,637
Total deposits............................................................................. 6,954,028 6,388,082
Short-term borrowings............................................................................. 392,006 376,531
Long-term obligations............................................................................. 6,922 22,957
Other liabilities................................................................................. 87,109 75,543
Total liabilities.......................................................................... 7,440,065 6,863,113
SHAREHOLDERS' EQUITY
Common stock:
Class A -- $1 par value (11,000,000 shares authorized; 9,651,900 shares issued for 1996;
8,949,703 shares issued for 1995)............................................................ 9,652 8,950
Class B -- $1 par value (2,000,000 shares authorized; 1,758,980 shares issued for 1996;
1,766,464 shares issued for 1995)............................................................ 1,759 1,766
Surplus........................................................................................... 143,760 106,954
Retained earnings................................................................................. 453,640 403,167
Unrealized gains on marketable equity securities, net of taxes.................................... 6,696 --
Total shareholders' equity................................................................. 615,507 520,837
Total liabilities and shareholders' equity................................................. $8,055,572 $7,383,950
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
39
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
INTEREST INCOME
Loans............................................................................ $ 410,703 $ 380,676 $ 300,993
Investment securities:
U. S. Government............................................................... 114,831 81,219 71,514
State, county and municipal.................................................... 330 405 114
Other.......................................................................... 172 184 87
Total investment securities interest income............................... 115,333 81,808 71,715
Federal funds sold............................................................... 8,159 8,625 3,297
Total interest income..................................................... 534,195 471,109 376,005
INTEREST EXPENSE
Deposits......................................................................... 230,905 207,234 137,292
Short-term borrowings............................................................ 16,388 15,773 8,314
Long-term obligations............................................................ 957........ 1,657...... 2,520
Total interest expense.................................................... 248,250 224,664 148,126
Net interest income....................................................... 285,945 246,445 227,879
Provision for loan losses........................................................ 8,907 5,364 2,786
Net interest income after provision for loan losses....................... 277,038 241,081 225,093
NONINTEREST INCOME
Trust income..................................................................... 10,008 8,886 8,228
Service charges on deposit accounts.............................................. 40,710 39,909 38,567
Credit card income............................................................... 16,147 13,561 12,390
Other service charges and fees................................................... 23,878 21,227 16,672
Other............................................................................ 12,561 8,545 7,468
Total noninterest income.................................................. 103,304 92,128 83,325
380,342 333,209 308,418
NONINTEREST EXPENSE
Salaries and wages............................................................... 115,461 106,607 99,282
Employee benefits................................................................ 20,425 17,080 14,535
Occupancy expense................................................................ 22,023 20,446 18,691
Equipment expense................................................................ 27,068 24,504 23,839
Other............................................................................ 93,691 77,243 74,235
Total noninterest expense................................................. 278,668 245,880 230,582
Income before income taxes....................................................... 101,674 87,329 77,836
Income taxes..................................................................... 36,207 30,423 26,867
Net income................................................................ $ 65,467 $ 56,906 $ 50,969
PER SHARE INFORMATION
Net income..................................................................... $ 5.77 $ 5.37 $ 5.13
Cash dividends................................................................. 0.925 0.825 0.725
Weighted average shares outstanding.............................................. 11,340,982 10,597,066 9,944,927
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
40
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
CLASS CLASS GAIN ON
A B MARKETABLE TOTAL
COMMON COMMON RETAINED EQUITY SHAREHOLDERS'
STOCK STOCK SURPLUS EARNINGS SECURITIES EQUITY
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS, EXCEPT SHARE DATA)
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
Issuance of 87,992 shares of Class A common stock
pursuant to employee stock purchase plans....... 88 3,958 4,046
Redemption of 63,195 shares of Class A common
stock and 7,484 shares of Class B common
stock........................................... (64 ) (7 ) (4,435) (4,506)
Issuance of 8,746 shares of Class A common stock
pursuant to the Dividend Reinvestment Plan...... 9 114 123
Issuance of 668,654 shares of Class A common stock
in connection with various acquisitions......... 669 32,734 33,403
Net income........................................ 65,467 65,467
Unrealized gain on marketable equity securities,
net of taxes.................................... 6,696 6,696
Cash dividends.................................... (10,559) (10,559)
Balance at December 31, 1996...................... $9,652 $1,759 $143,760 $453,640 $6,696 $ 615,507
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
(THOUSANDS)
OPERATING ACTIVITIES
Net income......................................................................... $ 65,467 $ 56,906 $ 50,969
Adjustments:
Amortization of intangibles...................................................... 8,197 5,877 3,993
Provision for loan losses........................................................ 8,907 5,364 2,786
Deferred tax benefit............................................................. (1,833) (1,454) (1,579)
Change in current taxes payable.................................................. (88) 3,241 (3,993)
Depreciation..................................................................... 16,932 16,882 15,885
Change in accrued interest payable............................................... 1,807 26,696 3,242
Change in income earned not collected............................................ (862) (11,746) 1,007
Origination of loans held for sale............................................... (149,146) (85,148) (72,804)
Proceeds from sale of loans...................................................... 137,314 75,964 116,125
(Gain) loss on sale of mortgage loans............................................ (502) (809) 862
Net amortization of premiums and discounts....................................... 11,658 19,634 27,439
Net change in other assets....................................................... (4,301) (15,383) 39,980
Net change in other liabilities.................................................. (1,225) 4,798 (16,263)
Net cash provided by operating activities........................................ 92,325 100,822 167,649
INVESTING ACTIVITIES
Net increase in loans outstanding................................................ (139,670) (254,326) (498,396)
Purchases of investment securities............................................... (1,039,460) (1,328,178) (207,601)
Proceeds from maturities of investment securities................................ 890,363 826,129 576,293
Net change in federal funds sold................................................. (115,555) (25,023) 16,300
Dispositions of premises and equipment........................................... 5,983 3,445 2,364
Additions to premises and equipment.............................................. (42,184) (31,147) (20,254)
Purchase of institutions, net of cash acquired................................... 7,584 106,092 (6,533)
Net cash used by investing activities............................................ (432,939) (703,008) (137,827)
FINANCING ACTIVITIES
Net change in time deposits...................................................... 99,448 536,251 (4,854)
Net change in demand and other interest-bearing deposits......................... 258,104 (3,811) 24,901
Net change in short-term borrowings.............................................. (17,643) 69,992 21,580
Repurchases of common stock...................................................... (4,506) (1,545) (4,228)
Proceeds from issuance of stock.................................................. 4,169 3,036 2,948
Cash dividends paid.............................................................. (10,559) (8,817) (7,311)
Net cash provided by financing activities........................................ 329,013 595,106 33,036
Change in cash and due from banks................................................ (11,601) (7,080) 62,858
Cash and due from banks at beginning of period................................... 448,630 455,710 392,852
Cash and due from banks at end of period......................................... $ 437,029 $ 448,630 $ 455,710
CASH PAYMENTS FOR:
Interest......................................................................... $ 246,443 $ 197,334 $ 144,844
Income taxes..................................................................... 35,554 27,454 27,667
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions............................................. $ 33,403 $ 21,846 $ 18,485
Long-term obligations issued for acquisitions.................................... 1,468 2,494 --
Unrealized gain on marketable equity securities.................................. 11,167 -- --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
42
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
First Citizens BancShares, Inc. ("BancShares") is a bank holding company
with three banking subsidiaries -- First-Citizens Bank & Trust Company (the
"Bank"), Bank of Marlinton ("Marlinton"), and Bank of White Sulphur Springs
("WSS"). On January 1, 1996, a Virginia banking subsidiary was merged into the
Bank. The Bank's primary market area includes North Carolina and Virginia, while
Marlinton and WSS both serve individual communities within West Virginia.
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 has nine 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 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 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
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 statement
presentations for 1996. However, the reclassifications have no effect on
shareholders' equity or net income as previously reported.
INVESTMENT SECURITIES
As of December 31, 1996 and 1995, 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.
Included in other assets at December 31, 1996 are marketable equity
securities classified as available for sale with a cost basis of $10,916 and a
fair value of $22,083. These securities are carried at their fair value, and the
difference between the cost basis and the fair value, net of deferred income
taxes, is recorded as a component of shareholders' equity.
At December 31, 1996 and 1995, BancShares had no investment securities
classified as either available for sale or held in a trading portfolio, other
than the aforementioned marketable equity securities.
LOANS
Loans that are held for investment purposes are carried at their principal
amount outstanding. Those loans that are available for sale are carried at the
lower of aggregate cost or market. Interest on substantially all loans is
accrued and credited to interest income on a constant yield basis based upon the
daily principal amount outstanding.
43
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
LOAN FEES
Fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of the
related loans. The deferred fees and costs are recorded as an adjustment to
loans outstanding 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 entities to
recognize as separate assets any rights to service mortgage loans for others.
Mortgage servicing rights that are acquired or result from the sale of a loan
with servicing rights retained should carry a value based on the relative fair
values of the mortgage servicing rights and the related loans. Statement 122
also requires a servicer to assess its capitalized mortgage servicing rights for
impairment based on the fair values of those rights.
The adoption of Statement 122 did not have a material effect on BancShares'
financial condition or results of operations. However, changes in circumstances
in future periods could result in the recognition of significant mortgage
servicing rights or an impairment of the recorded asset.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is established by charges to operating expense.
To determine the reserve needed, management evaluates the risk characteristics
of the loan portfolio under current 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.
Management considers the established reserve adequate to absorb future
losses that relate to loans outstanding as of December 31, 1996, 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, IMPAIRED LOANS AND OTHER REAL ESTATE
Accrual of interest on loans is discontinued when management deems that
collection of additional interest is doubtful. Loans are returned to an accrual
status when both principal and interest are current and the loan is determined
to be performing in accordance with the applicable loan terms.
Management considers a loan to be impaired when based on current
information and events, it is probable that a borrower will be unable to pay all
amounts due according to contractual terms of the loan agreement. Impaired loans
are valued using either the discounted expected cash flow method or the
collateral value. When the ultimate collectibility of an impaired loan's
principal is doubtful, all cash receipts are applied to principal. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent that any interest has been foregone.
Future cash receipts are recorded as recoveries of any amounts previously
charged off.
Other real estate acquired through foreclosure is valued at the lower of
the loan balance at the time of foreclosure or estimated fair value net of
selling costs and is included in other assets. Once acquired, other real estate
is periodically reviewed to ensure that the fair value of the property supports
the carrying value, with writedowns recorded when necessary. Gains and losses
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
44
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
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") was
adopted January 1, 1996 and had no material impact on BancShares' financial
position or results of operations. Statement 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill, by requiring that such assets 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. 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 uses the asset and liability method to
account for deferred income taxes. The objective of the asset and liability
method is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the income tax basis of
BancShares' assets and liabilities at enacted rates expected to be in effect
when such amounts are realized or settled. BancShares and its subsidiaries file
a consolidated federal income tax return. 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 1996, 1995 and
1994 was 11,340,982; 10,597,066 and 9,944,927, 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 carrries one vote
per share, while shares of Class B common stock carry 16 votes per share.
45
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE B -- INVESTMENT SECURITIES
The aggregate values of investment securities at December 31 along with
gains and losses determined on an individual security basis are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1996
U. S. Government...................................................... $ 2,130,037 $ 855 $ (1,969) $ 2,128,923
State, county and municipal........................................... 6,301 324 0 6,625
Other................................................................. 2,493 0 (10) 2,483
Total investment securities........................................ $ 2,138,831 $ 1,179 $ (1,979) $ 2,138,031
1995
U. S. Government...................................................... $ 1,972,129 $ 10,697 $ (2,296) $ 1,980,530
State, county and municipal........................................... 8,033 178 (10) 8,201
Other................................................................. 2,986 4 (5) 2,985
Total investment securities........................................ $ 1,983,148 $ 10,879 $ (2,311) $ 1,991,716
</TABLE>
The maturities of investment securities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Within one year...................................................... $ 781,336 $ 782,102 $ 929,761 $ 931,954
One through five years............................................... 1,345,274 1,343,599 1,041,434 1,047,733
Five to 10 years..................................................... 4,803 4,829 4,587 4,636
Over 10 years........................................................ 7,418 7,501 7,366 7,393
Total investment securities..................................... $ 2,138,831 $ 2,138,031 $ 1,983,148 $ 1,991,716
</TABLE>
Investment securities having an aggregate par value of $1,025,145 at
December 31, 1996, and $819,043 at December 31, 1995, were pledged as collateral
to secure public funds on deposit and for other purposes as required by law.
NOTE C -- LOANS
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loans secured by real estate:
Construction and land development loans................................. $ 109,806 $ 104,540
Residential mortgage loans.............................................. 1,954,692 1,835,880
Other real estate mortgage loans........................................ 1,015,021 899,538
Total loans secured by real estate........................................ 3,079,519 2,839,958
Commercial and industrial................................................. 514,535 466,462
Consumer.................................................................. 1,251,704 1,199,400
Lease financing........................................................... 68,694 59,899
All other loans........................................................... 16,056 15,000
Total loans............................................................. $ 4,930,508 $ 4,580,719
</TABLE>
Included in total loans as of December 31, 1996 and 1995 is unearned income
of $6,412 and $4,913, respectively, substantially all of which relates to
deferred origination fees. There were no foreign loans outstanding during either
period, nor were there any highly leveraged transactions. There are no loan
concentrations exceeding 10 percent of loans
46
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE C -- LOANS -- Continued
outstanding involving multiple borrowers in similar activities or industries at
December 31, 1996. Substantially all loans are to customers domiciled within
BancShares' principal market areas.
At December 31, 1996 and 1995 nonperforming loans consisted of nonaccrual
loans and amounted to $12,810 and $13,208, respectively. Gross interest income
on nonperforming loans that would have been recorded had these loans been
performing was $1,162, $1,556 and $1,430 during 1996, 1995 and 1994,
respectively. Interest income recognized on nonperforming loans was $259, $595
and $693 during the respective periods. As of December 31, 1996 and 1995, the
balance of other real estate acquired through foreclosure was $1,160 and $2,154.
Loans transferred to other real estate totaled $1,649, $2,110 and $1,894 during
1996, 1995 and 1994.
Activity related to the sale of loans is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Loans held for sale at December 31....................................................... $ 27,722 $ 15,388 $ 5,395
For the year ended December 31:
Loans sold............................................................................. 136,812 75,155 116,987
Net gain (loss) on sale of loans....................................................... 502 809 (862)
</TABLE>
The Bank services mortgage loans for itself and others. The carrying value
of loans serviced for others as of December 31, 1996 and 1995, was $657,520 and
$543,488, respectively.
NOTE D -- RESERVE FOR LOAN LOSSES
Activity in the reserve for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year............................................................. $78,495 $72,017 $70,049
Reserves of acquired institutions........................................................ 1,387 3,231 1,009
Provision for loan loses................................................................. 8,907 5,364 2,786
Loans charged off........................................................................ (11,653 ) (7,262 ) (8,480 )
Loans recovered.......................................................................... 4,303 5,145 6,653
Net charge-offs.......................................................................... (7,350 ) (2,117 ) (1,827 )
Balance at end of year................................................................... $81,439 $78,495 $72,017
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $9,880 and $11,119,
respectively, all of which were classified as nonaccrual. Specific reserves of
$833 and $865 have been established for impaired loans outstanding at December
31, 1996 and 1995, respectively. The average recorded investment in impaired
loans during the years ended December 31, 1996 and 1995, was $11,463 and
$14,326, respectively. For the years ended December 31, 1996 and 1995,
BancShares recognized interest income on those impaired loans of approximately
$57 and $543, respectively. The amount of interest income recognized on a cash
basis for impaired loans was not material in any period.
47
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE E -- PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Land..................................................................................... $ 44,254 $ 46,200 $ 40,827
Premises and leasehold improvements...................................................... 184,970 160,116 141,332
Furniture and equipment.................................................................. 116,643 112,070 106,482
Total.................................................................................. 345,867 318,386 288,641
Less accumulated depreciation and amortization........................................... 116,371 110,146 99,817
Net book value......................................................................... $ 229,496 $ 208,240 $ 188,824
Depreciation and amortization charged to operations...................................... $ 16,932 $ 16,882 $ 15,885
</TABLE>
Premises with a book value of $2,887 at December 31, 1996, and $3,188 at
December 31, 1995, 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, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31: AMOUNT
<S> <C>
1997........................................................................... $ 11,703
1998........................................................................... 8,490
1999........................................................................... 6,141
2000........................................................................... 3,321
2001........................................................................... 2,684
Thereafter..................................................................... 44,854
Total minimum payments....................................................... $ 77,193
</TABLE>
Total rent expense for all operating leases amounted to $13,501 in 1996,
$11,998 in 1995 and $11,118 in 1994.
NOTE F -- DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Demand........................................................ $ 1,087,474 $ 943,445
Checking With Interest........................................ 943,900 874,431
Savings....................................................... 712,525 691,894
Money market accounts......................................... 892,953 809,813
Time.......................................................... 3,317,176 3,068,499
Total deposits.............................................. $ 6,954,028 $ 6,388,082
</TABLE>
Total time deposits with a minimum denomination of $100 were $617,076 and
$600,616 at December 31, 1996 and 1995, respectively.
48
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE F -- DEPOSITS -- Continued
At December 31, 1996, the scheduled maturities of time deposits were:
<TABLE>
<S> <C>
1997........................................................................ $ 2,735,991
1998........................................................................ 258,081
1999........................................................................ 91,494
2000........................................................................ 151,146
2001 and thereafter......................................................... 80,463
Total time deposits....................................................... $ 3,317,175
</TABLE>
NOTE G -- SHORT-TERM BORROWINGS
Short-term borrowings at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Master notes...................................................... $ 295,428 $ 257,178
Federal funds purchased........................................... 45,075 64,085
Repurchase agreements............................................. 21,816 25,022
U. S. Treasury tax and loan accounts.............................. 20,356 17,581
Other............................................................. 9,331 12,665
Total short-term borrowings..................................... $ 392,006 $ 376,531
</TABLE>
Master notes are overnight unsecured borrowings by BancShares from Bank
customers. The rate on Master notes was 4.23 percent as of December 31, 1996.
During 1996, the weighted average rate on Master note borrowings was 4.46
percent, and the average amount outstanding was $266,476. The largest amount
outstanding at any month-end during 1996 was $316,628.
NOTE H -- LONG-TERM OBLIGATIONS
Long-term obligations at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Subordinated notes payable:
7 percent maturing June 18, 1998....................................................................... $ 849 $ 849
7 percent maturing February 22, 1999................................................................... 135 --
7.5 percent maturing February 23, 2000................................................................. 170 170
7.25 percent maturing February 22, 2001................................................................ 1,332 --
8 percent maturing February 23, 2005................................................................... 2,278 2,324
Unsecured variable rate note at 6.77 percent payable in quarterly installments........................... -- 9,305
Federal Home Loan Bank advances with a weighted average rate of 2.60 percent at December 31, 1996, and
5.21 percent at December 31, 1995 with maturities extending to 2012, secured by U.S. Government
securities............................................................................................. 232 7,999
8 percent mortgage notes, due in periodic payments through 2004, secured by premises..................... 1,659 1,821
Note payable at 7.89 percent, maturing in 2009, secured by collateralized mortgage obligation............ 267 489
Total long-term obligations............................................................................ $ 6,922 $ 22,957
</TABLE>
49
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE H -- LONG-TERM OBLIGATIONS -- Continued
Long-term obligations maturing in each of the five years subsequent to
December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997............................................................................. $ 175
1998............................................................................. 1,039
1999............................................................................. 340
2000............................................................................. 393
2001............................................................................. 1,573
Thereafter....................................................................... 3,402
$ 6,922
</TABLE>
NOTE I -- COMMON STOCK
On October 28, 1996, the Board of Directors of BancShares authorized the
purchase in the open market or in private transactions up to 300,000 shares of
its outstanding Class A common stock and up to 100,000 shares of its outstanding
Class B common stock. The authorization is effective for a period of 12 months.
The following table sets forth information related to shares purchased for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Class A
Number of shares purchased.............................. 63,195 28,386 85,850
Cash disbursed.......................................... $ 4,027 $ 1,394 $ 3,769
Class B
Number of shares purchased.............................. 7,484 2,987 10,617
Cash disbursed.......................................... $ 479 $ 151 $ 459
</TABLE>
Shares purchased are retired by a charge to common stock for the par value
of the shares retired and to retained earnings for the cost in excess of par
value.
NOTE J -- ESTIMATED FAIR VALUES
Fair value estimates are made at a specific point in time based on relevant
market information and information about each financial instrument. Where
information regarding the 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 these financial instruments with a fixed interest rate, an
analysis of the related cash flows was the basis for estimating fair values. The
expected cash flows were then discounted to the valuation date using an
appropriate discount rate. The discount rates used represent the rates under
which similar transactions would be currently negotiated. Generally, the fair
value of variable rate financial instruments equals the book value.
50
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE J -- ESTIMATED FAIR VALUES -- Continued
Estimated fair values for financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks............................................ $ 437,029 $ 437,029 $ 448,630 $ 448,630
Investment securities.............................................. 2,138,831 2,138,031 1,983,148 1,991,716
Federal funds sold................................................. 156,000 156,000 40,445 40,445
Loans, net of reserve for loan losses.............................. 4,849,069 4,852,568 4,502,224 4,523,601
Income earned not collected........................................ 60,175 60,175 58,237 58,237
Financial Liabilities:
Deposits........................................................... 6,954,028 6,957,475 6,388,082 6,551,761
Short-term borrowings.............................................. 392,006 392,006 376,531 376,531
Long-term obligations.............................................. 6,922 7,267 22,957 23,509
Accrued interest payable........................................... 49,528 49,528 47,721 47,721
</TABLE>
Forward commitments to sell loans as of December 31, 1996, and 1995 had no
carrying value and unrealized losses of $39 and $20, respectively. For other
off-balance sheet commitments and contingencies, carrying amounts are reasonable
estimates of the fair values for such financial instruments. Carrying amounts
include unamortized fee income and, in some cases, reserves for any projected
credit loss from those financial instruments. These amounts are not material to
BancShares' financial position.
NOTE K -- EMPLOYEE BENEFIT PLANS
Employees who qualify under length of service and other requirements
participate in a noncontributory defined benefit pension plan. Under the plan,
retirement benefits are based on years of service and average earnings. The
policy is to fund the maximum amount allowable for federal income tax purposes.
No contribution was made during the three-year period ending December 31, 1996.
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, 1996, the plan's assets also included BancShares common
stock with a market value of $12,166. 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.
51
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE K -- EMPLOYEE BENEFIT PLANS -- Continued
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Pension benefit obligation:
Vested............................................................................................ $ (86,838) $ (81,717)
Nonvested......................................................................................... (1,653) (1,564)
Accumulated benefit obligation...................................................................... (88,491) (83,281)
Effect of projected future compensation levels...................................................... (20,893) (19,800)
Projected benefit obligation........................................................................ (109,384) (103,081)
Market value of plan assets......................................................................... 137,758 128,911
Plan's assets in excess of projected benefit obligation............................................. 28,374 25,830
Unrecognized net transition asset................................................................... (7,303) (8,530)
Unrecognized net gain due to difference in past experience and assumptions.......................... (21,769) (17,006)
Unrecognized prior service cost..................................................................... 1,352 1,505
Prepaid pension asset............................................................................... $ 654 $ 1,799
</TABLE>
The net periodic pension cost for the years ended December 31 included the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service costs....................................................... $ 3,596 $ 3,139 $ 3,275
Interest costs...................................................... 7,565 7,073 6,544
Actual return on plan assets........................................ (13,491) (26,745) 2,101
Net amortization and deferral....................................... 3,475 16,842 (11,373)
Net periodic pension cost........................................... $ 1,145 $ 309 $ 547
</TABLE>
Prior service cost is being amortized on a straight-line basis over the
estimated average remaining service period of employees. In determining the
projected benefit obligation at December 31, 1996, 1995, and 1994, the following
assumptions were used:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate............................................ 7.25% 7.25% 7.75
Rate of future compensation increases..................................... 4.25 4.25 4.50
Long-term rate of return on plan assets................................... 8.25 8.25 8.50
</TABLE>
Employees are also eligible to participate in a matching savings plan after
one year of service. During 1996 BancShares made participating contributions to
this plan of $3,473 compared to $3,155 during 1995 and $2,907 during 1994.
52
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE K -- EMPLOYEE BENEFIT PLANS -- Continued
Prior to 1995, certain employees had received options to purchase shares of
BancShares' Class A common stock through employee stock purchase plans. The
number of options granted was determined based on each eligible employee's
salary as of the grant date. The option prices were fixed at 85 percent of the
market price on the respective grant date. All unexercised options expired on
June 30, 1996. Additional information is as follows:
<TABLE>
<CAPTION>
1994 PLAN 1992 PLAN
<S> <C> <C>
Options granted.................................................... 264,113 474,768
Grant date......................................................... July 1, 1994 July 1, 1992
Option price per share............................................. $37.83 $29.96
Number of shares purchased during:
1996............................................................. 87,992 --
1995............................................................. 64,881 --
1994............................................................. 11,202 68,206
Option expiration date............................................. June 30, 1996 June 30, 1994
</TABLE>
BancShares adopted Statement of Financial Accounting Standards No. 123
("Statement 123") on January 1, 1996. During the years ended December 31, 1996
and 1995, BancShares made no grants of stock awards or stock options, so the
adoption of Statement 123 had no impact on BancShares.
NOTE L -- OTHER INCOME AND OTHER EXPENSE
Other income for the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
ATM income...................................................................................... $ 5,289 $ 2,729 $ 2,264
Net premium income.............................................................................. 3,364 3,964 4,495
Other........................................................................................... 3,908 1,852 709
Total other income....................................................................... $ 12,561 $ 8,545 $ 7,468
</TABLE>
Other expense for the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
FDIC insurance............................................................................... $ 13,586 $ 8,418 $ 11,831
Credit card expense.......................................................................... 10,097 9,106 8,587
Amortization of intangibles.................................................................. 8,197 5,877 3,993
Telecommunication............................................................................ 7,711 6,790 6,743
Postage...................................................................................... 6,383 5,701 4,907
Other........................................................................................ 47,717 41,351 38,174
Total other expense................................................................... $ 93,691 $ 77,243 $ 74,235
</TABLE>
During 1996, FDIC insurance expense included a special assessment on
deposit liabilities insured by the FDIC's Savings Association Insurance Fund.
The gross amount of the assessment was $10,007.
53
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE M -- INCOME TAXES
At December 31, income tax expense consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current tax expense
Federal.................................................................................... $37,923 $30,757 $28,446
State...................................................................................... 117 1,120 --
Total current tax expense............................................................... 38,040 31,877 28,446
Deferred tax benefit
Federal.................................................................................... (1,255) (111) (1,579)
State...................................................................................... (578) (1,343) --
Total deferred tax benefit.............................................................. (1,833) (1,454) (1,579)
Total tax expense....................................................................... $36,207 $30,423 $26,867
</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>
1996 1995 1994
<S> <C> <C> <C>
Income tax at statutory rates................................................................ $35,586 $30,565 $27,243
Increase (reduction) in income taxes resulting from:
Amortization of goodwill................................................................... 1,991 1,280 674
Nontaxable income on loans and investments, net of nondeductible expenses.................. (1,387) (1,378) (1,346)
State and local income taxes (benefit), including change in valuation allowance, net of
federal income tax benefit.............................................................. (168) (145) 73
Other, net................................................................................. 185 101 223
Total tax expense....................................................................... $36,207 $30,423 $26,867
</TABLE>
The net deferred tax asset included the following components at December
31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loan loss reserve....................................................................................... $32,553 $31,426
Net deferred loan fees and costs........................................................................ 2,292 2,066
Losses on other real estate............................................................................. 1,512 1,286
Net operating loss carryforwards........................................................................ 871 978
Other................................................................................................... 6,580 6,068
Gross deferred tax asset.............................................................................. 43,808 41,824
Less: valuation allowance............................................................................... (2,617) (2,620)
Deferred tax asset.................................................................................... 41,191 39,204
Accelerated depreciation................................................................................ 4,692 4,654
Accretion of bond discount.............................................................................. 1,094 768
Net periodic pension credit............................................................................. 160 639
Tax loan loss reserve reversal.......................................................................... 1,424 1,295
Unrealized gain on marketable equity securities......................................................... 4,471 --
Other................................................................................................... 6,089 5,449
Deferred tax liability................................................................................ 17,930 12,805
Net deferred tax asset................................................................................ $23,261 $26,399
</TABLE>
54
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE M -- INCOME TAXES -- Continued
BancShares has historically incurred immaterial amounts of state income tax
expense. The valuation allowance of $2,617 and $2,620 at December 31, 1996 and
1995, respectively, is the amount necessary to reduce BancShares' gross state
deferred tax asset to the amount which is more likely than not to be realized.
NOTE N -- RELATED PARTY TRANSACTIONS
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, 1996, which excludes aggregate loans totaling less than
$60 to any one related party, is as follows:
<TABLE>
<S> <C>
Balance at beginning of year....................................... $ 11,942
New loans.......................................................... 5,529
Repayments......................................................... 4,975
Balance at end of year............................................. $ 12,496
</TABLE>
BancShares provides certain processing and operational services to other
financial institutions. Certain of these institutions are deemed to be related
parties since certain control persons of BancShares are also deemed to be
control persons of the other banks. During 1996, 1995 and 1994, BancShares'
received $9,953, $9,031 and $7,976 respectively, for services rendered to these
related parties, substantially all of which is included in other service charges
and fees and relates to data processing services provided.
NOTE O -- ACQUISITIONS
BancShares and the Bank have 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' Consolidated Statements of
Income until after the transaction date. The pro forma impact of the
acquisitions as though they had been made at the beginning of the periods
presented is not material to BancShares' consolidated financial statements.
As of December 31, 1996 and 1995, BancShares had goodwill of $72,910 and
$50,249, respectively. Deposit intangibles totaled $24,344 and $23,140,
respectively.
55
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE O -- ACQUISITIONS -- Continued
The following table provides information regarding the acquisitions that
have been consummated during the three-year period ending December 31, 1996:
<TABLE>
<CAPTION>
DEPOSIT
ASSETS LIABILITIES RESULTING
DATE INSTITUTION/LOCATION ACQUIRED ASSUMED INTANGIBLE
<S> <C> <C> <C> <C>
February 1996 Allied Bank Capital, Inc. $248,998 $ 208,394 $ 29,031
Sanford, North Carolina
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
</TABLE>
NOTE P -- 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 $128,441 during 1996, of which
$95,931 was satisfied 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 tangible capital based on tangible assets. Minimum capital
requirements set forth by the regulators require a Tier 1 capital ratio of no
less than 4 percent, a total capital ratio of no less than 8 percent of risk-
adjusted assets, and a leverage capital ratio of no less than 4 percent of
tangible assets. To meet the FDIC's well capitalized standards, the Tier 1 and
total capital ratios must be at least 6 percent and 10 percent, respectively.
Failure to meet minimum capital requirements may result in certain actions by
regulators that could have a direct material effect on the consolidated
financial statements.
56
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE P -- REGULATORY REQUIREMENTS -- Continued
The Bank's capital components ratios as of December 31, 1996 and 1995 are
set forth below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Risk-based capital:
Tier 1 capital.................................................................................... $ 476,580 $ 417,927
Total capital..................................................................................... 539,308 477,489
Risk-adjusted assets.............................................................................. 5,018,215 4,540,995
Tier 1 capital ratio.............................................................................. 9.50% 9.20%
Total capital ratio............................................................................... 10.75 10.52
Leverage capital ratio............................................................................ 6.09 6.02
</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 FDIC and the General Statutes of North Carolina, without prior approval from
the requisite regulatory authorities. As of December 31, 1996, this amount was
approximately $371,749. Dividends declared by the Bank amounted to $33,940 in
1996, $39,273 in 1995 and $10,667 in 1994.
NOTE Q -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, BancShares and its subsidiaries have
financial instruments with off-balance sheet risk in order to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit, standby letters of credit and forward commitments to sell loans. These
instruments involve, to varying degrees, elements of credit, interest rate or
liquidity risk.
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity requirements.
Established credit standards control the credit-risk exposure associated with
these commitments. In some cases, BancShares requires that collateral be pledged
to secure the commitment. At December 31, 1996 and 1995, BancShares had unused
commitments totaling $1,596,468 and $1,403,938, 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, BancShares' credit policies also govern the issuance of
standby letters of credit. At December 31, 1996 and 1995, BancShares had standby
letters of credit amounting to $14,178 and $12,188, 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 $18,000 and
$16,000 at December 31, 1996 and 1995, respectively, were at fixed prices and
were scheduled to settle within 60 days of that date. At December 31, 1996 and
1995, these forward commitments had no carrying value and unrealized losses of
$39 and $20 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.
57
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE R -- 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, 1996 and 1995, and the
related condensed statements of income and cash flows for the years ended
December 31, 1996, 1995, and 1994 are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
<S> <C> <C>
ASSETS
Cash.................................................................................................. $ 4,002 $ 752
Investment in bank subsidiaries....................................................................... 521,208 482,018
Due from bank subsidiaries............................................................................ 313,515 261,959
Other assets.......................................................................................... 81,745 39,783
Total assets.......................................................................................... $ 920,470 $ 784,512
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings................................................................................. $ 295,428 $ 257,178
Other liabilities..................................................................................... 9,535 6,497
Common stock:
Class A............................................................................................. 9,652 8,950
Class B............................................................................................. 1,759 1,766
Surplus............................................................................................... 143,760 106,954
Retained earnings..................................................................................... 453,640 403,167
Unrealized gains on marketable equity securities, net of taxes........................................ 6,696 --
Total liabilities and shareholders' equity.......................................................... $ 920,470 $ 784,512
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Interest income.............................................................................. $ 12,445 $ 10,562 $ 6,135
Interest expense............................................................................. 12,164 10,081 5,470
Net interest income.......................................................................... 281 481 665
Dividends from bank subsidiary............................................................... 33,940 39,273 10,667
Other income................................................................................. 1,487 39 56
Other operating expense...................................................................... 6,162 3,472 2,559
Income before income tax benefit and equity in undistributed net income of subsidiaries...... 29,546 36,321 8,829
Income tax expense (benefit)................................................................. 11 (75) (14)
Income before equity in undistributed income of subsidiaries................................. 29,535 36,396 8,843
Equity in undistributed net income of subsidiaries........................................... 35,932 20,510 42,126
Net income................................................................................. $ 65,467 $ 56,906 $50,969
</TABLE>
58
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE R -- FIRST CITIZENS BANCSHARES, INC. (PARENT COMPANY) -- Continued
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income................................................................................. $ 65,467 $56,906 $ 50,969
Adjustments:
Undistributed net income of subsidiaries................................................. (35,932) (20,510) (42,126)
Change in other assets................................................................... (9,447) (96,128) 6,609
Change in other liabilities.............................................................. 3,038 3,387 (3,739)
Net cash provided (used) by operating activities........................................... 23,126 (56,345) 11,713
INVESTING ACTIVITIES:
Net change in due from subsidiaries...................................................... (51,556) (83,223) (17,736)
Investment in subsidiaries............................................................... (3,258) (43,099) --
Purchase of institutions, net of cash acquired........................................... 7,584 106,092 (6,533)
Net cash used by investing activities...................................................... (47,230) (20,230) (24,269)
FINANCING ACTIVITIES:
Net change in short-term borrowings...................................................... 38,250 83,928 19,705
Repurchase of common stock............................................................... (4,506) (1,545) (4,228)
Proceeds from stock issuance, net of related costs....................................... 4,169 3,036 2,948
Cash dividends paid...................................................................... (10,559) (8,817) (7,311)
Net cash provided by financing activities.................................................. 27,354 76,602 11,114
Increase (decrease) in cash................................................................ 3,250 27 (1,442)
Cash balance at beginning of year.......................................................... 752 725 2,167
Cash balance at end of year................................................................ $ 4,002 $ 752 $ 725
Cash payments for:
Interest................................................................................. $ 12,164 $10,081 $ 5,470
Income taxes............................................................................. 35,554 27,454 27,667
Supplemental disclosure of noncash investing and financing activities
Common stock issued for acquisitions..................................................... $ 33,403 $21,846 $ 18,485
Unrealized gain on marketable equity securities.......................................... 11,167 -- --
</TABLE>
59
<PAGE>
*******************************************************************************
APPENDIX
FIRST CITIZENS BANCSHARES, INC.
POST OFFICE BOX 27131
RALEIGH, NORTH CAROLINA 27611-7131
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby appoints George H. Broadrick, Lewis R. Holding, Frank
B. Holding, James B. Hyler, Jr., Frank B. Holding, Jr., Carmen P. Holding, Lewis
T. Nunnelee, II, and David L. Ward, Jr., or any of them, attorneys and proxies,
with power of substitution, to vote all outstanding shares of Class A and/or
Class B common stock of First Citizens BancShares, Inc. ("BancShares") held of
record by the undersigned on March 6, 1997, at the Annual Meeting of
Shareholders of BancShares to be held in Conference Room A at the Raleigh Civic
Center (Raleigh Convention and Conference Center Complex), 500 Fayetteville
Street Mall, Raleigh, North Carolina, at 1 o'clock p.m. on April 28, 1997, or
any adjournments thereof, on the matters listed below:
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as indicated otherwise). [ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
</TABLE>
Nominees: J.M. Alexander, Jr.; T.L. Bissett; B.I. Boyle; G.H. Broadrick; H.M.
Craig, Jr.; B.M. Farnsworth; L.M. Fetterman; C.P. Holding; F.B.
Holding; F.B. Holding, Jr.; L.R. Holding; C.B.C. Holt; E.A. Hubbard;
J.B. Hyler, Jr.; G.D. Johnson; F.R. Jones; L.S. Jones; I.B. Julian;
W. McKay; J.T. Maloney, Jr.; J.C. Mayo, Jr.; B.D. Nash; L.T.
Nunnelee, II; T.O. Shaw; R.C. Soles, Jr.; and D.L. Ward, Jr.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the line below.)
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS: Proposal to
ratify the appointment of KPMG Peat Marwick LLP as the independent public
accountants of BancShares for 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. CONSIDERATION OF AMENDMENT TO THE BYLAWS OF BANCSHARES TO INCREASE THE
MAXIMUM AUTHORIZED NUMBER OF DIRECTORS: Proposal to amend the Bylaws of
BancShares to increase the maximum authorized number of directors from 26 to
30.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
4. OTHER BUSINESS: In their discretion, the persons named herein as attorneys
and proxies are authorized to vote upon such other matters as may properly
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AND THIS PROXY WILL BE
CARRIED OUT IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ABOVE. IN THE ABSENCE
OF INSTRUCTIONS, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED IN PROPOSAL 1 ABOVE AND "FOR" PROPOSALS 2 AND 3 ABOVE. IF, AT OR
BEFORE THE TIME OF THE MEETING, ANY OF THE NOMINEES LISTED IN PROPOSAL 1 HAVE
BECOME UNAVAILABLE FOR ANY REASON, THE PROXYHOLDERS HAVE THE DISCRETION TO VOTE
FOR A SUBSTITUTE NOMINEE OR NOMINEES. THIS PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS EXERCISED BY FILING WITH THE SECRETARY AN INSTRUMENT REVOKING THE
PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE OR BY ATTENDING THE ANNUAL
MEETING AND REQUESTING THE RIGHT TO VOTE IN PERSON.
Please date and sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated , 1997
(Signature) (SEAL)
(Signature if held jointly) (SEAL)
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE.
Exhibit 22
Subsidiaries of the Registrant
Name State
First-Citizens Bank & Trust Company Chartered in North Carolina
with branches is North
Carolina and Virginia
Bank of Marlinton West Virginia
Bank of White Sulphur Springs West Virginia
(Atlantic States Bank North Carolina
in the charter)
Delaware 56-1528994
(State or other jurisdiction (I.R.S. Employer)
of incorporation)
