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, 1998 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) 716-7000
Securities registered pursuant to:
Section 12(b) of the Act: None
Section 12(g) of the Act: Class A Common Stock, Par Value $1
Class B Common Stock, Par Value $1
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Based on last reported sales prices on March 22, 1999, the aggregate market
value of the Registrant's voting stock held by nonaffiliates of the Registrant
as of such date was $419,240,120.
On March 22, 1999, there were 8,900,114 outstanding shares of the Registrant's
Class A Common Stock and 1,720,460 outstanding shares of the Registrant's Class
B Common Stock.
Portions of the Registrant's definitive Proxy Statement dated March 22, 1999 are
incorporated in Part III of this report, as is information contained in the 1998
Annual Report.
<PAGE>
PART I
- --------------------------------------------------------------------------------
Item 1. Business
First Citizens BancShares, Inc. ("BancShares") was incorporated under the laws
of Delaware on August 7, 1986, to become the successor to First Citizens
Corporation ("FCC"), a North Carolina corporation that was the bank holding
company of First-Citizens Bank & Trust Company (the "Bank"), its banking
subsidiary. On October 21, 1986, FCC was merged into BancShares, and BancShares
became the sole shareholder of the Bank. The Bank was chartered on March 4,
1893, as the Bank of Smithfield, Smithfield, North Carolina and through a series
of mergers and name changes, it later became First-Citizens Bank & Trust
Company.
The Bank is the fifth largest commercial bank in North Carolina based upon total
deposits. Its growth has been generated principally by acquisitions and de novo
branching that have occurred under the leadership of the R.P. Holding family. As
of December 31, 1998, the Bank operated 354 offices in North Carolina, Virginia
and West Virginia.
On September 1, 1994, BancShares acquired Bank of Marlinton, a West
Virginia-chartered bank with headquarters in Marlinton, West Virginia. On June
1, 1995, BancShares acquired Bank of White Sulphur Spring ("WSS"), a West
Virginia-charted bank with headquarters in White Sulphur Springs, West Virginia.
On August 1, 1997, BancShares merged Marlinton into WSS to form First-Citizens
Bank & Trust Company, a West Virginia chartered bank. On October 16, 1999,
BancShares merged First-Citizens Bank & Trust Company, a West Virginia chartered
bank, with First-Citizens Bank & Trust Company, a North Carolina chartered bank.
On April 28, 1997, BancShares opened Atlantic States Bank ("ASB"), a
federally-chartered thrift institution, which has continued to open new branches
in the suburban Atlanta, Georgia area, and also opened its first office in Fort
Myers, Florida. ASB plans to expand its presence in southwestern Florida,
specifically in the Fort Myers area. At December 31, 1998, ASB had 20 offices
with total assets of $283.1 million.
BancShares' executive offices are located at 239 Fayetteville Street, Raleigh,
North Carolina, 27601, and its telephone number is (919) 716-7000. At December
31, 1998, BancShares and its subsidiaries employed a full-time staff of 4,046
and a part-time staff of 875 for a total of 4,921 employees.
BancShares' principal assets are its investment in and receivables from its
banking subsidiaries and its investment securities portfolio. Its primary
sources of income are dividends from the Bank and interest income on its
investment securities portfolio. Certain legal restrictions exist regarding the
ability of the Bank to transfer funds to BancShares in the form of cash
dividends or loans. For information regarding these restrictions, see Note P of
BancShares' consolidated financial statements, contained in this report.
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, small business 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 many of the facilities in which the Bank
operates branches. First Citizens Investor Services, Inc., provides various
investment products, including annuities, discount brokerage services and
third-party mutual funds to customers. First-Citizens Bank, A Virginia
Corporation ("FCB-AVC") is the issuing and processing bank for BancShares'
retail credit cards. Various other subsidiaries are either inactive or not
material to BancShares' consolidated financial position or to consolidated net
income.
As of December 31, 1998, BancShares had consolidated assets of $9.61 billion,
consolidated deposits of $8.11 billion and shareholders' equity of $660.7
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, 1998. 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.
<PAGE>
PART I (CONTINUED)
- --------------------------------------------------------------------------------
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 were permitted, beginning June 1, 1997, to merge across state lines,
subject to concentration, capital and Community Reinvestment Act requirements
and regulatory approval. Some states authorized mergers earlier than June 1,
1997, and states could 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. The banks operate under the jurisdiction of
the Federal Deposit Insurance Corporation and the respective state or Federal
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.
Item 2. Properties
As of December 31, 1998, BancShares owned land and/or office buildings in which
it operates offices at 238 locations. BancShares leases from Neuse 15 locations
that have office buildings located thereon in which the BancShares maintains
offices. In addition, BancShares leases 150 other locations. Additional
information relating to premises, equipment and lease commitments is set forth
in Note E of BancShares' consolidated financial statements.
Item 3. Legal Proceedings
BancShares, the banks and various Bank subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which damages in various amounts are claimed. Although the amount
of any ultimate liability with respect to such matters cannot be determined, in
the opinion of management, any such liability will not have a material effect on
BancShares' consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None
<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.
The per share cash dividends paid by BancShares during each quarterly period
during 1998 and 1997 are set forth in Table 17 of this report. A cash dividend
of 25 cents per share was declared by the Board of Directors on January 25,
1999, payable April 5, 1999, to holders of record as of March 15, 1999. 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.
Item 6. Selected Financial Data
Information is included in Table 1 on page 18 of Registrant's 1998 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 18 through 37 of Registrant's 1998 Annual
Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information is included on pages 27 and 28 of Registrant's 1998 Annual Report
Item 8. Financial Statements and Supplementary Data
Information is included on the indicated pages of Registrant's 1998 Annual
Report:
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report 38
Consolidated Balance Sheets at December 31, 1998 and 1997 39
Consolidated Statements of Income for each of the years
in the three-year period ended December 31, 1998 40
Consolidated Statements of Changes in Shareholders' Equity for each
of the years in the three-year period ended December 31, 1998 41
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1998 42
Notes to Consolidated Financial Statements 43-59
Quarterly Financial Summary for 1998 and 1997 34
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
<PAGE>
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 22, 1999, as follows:
Item 10. Directors and Executive Officers of the Registrant
Information found on pages 6-9 under the captions "Proposal 1: Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," and 11
under the caption "Executive Officers."
Item 11. Executive Compensation
Information found on pages 8-9 under the caption "Directors' Fees and
Compensation;" 9 under the caption "Compensation Committee Interlocks and
Insider Participation;" 12-13 under the captions "Executive Compensation" and
"Pension Plan and Other Post-Retirement Benefits."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information found on pages 2-5 under the captions "Principal Holders of Voting
Securities" and "Ownership of Securities by Management."
Item 13. Certain Relationships and Related Transactions
Information found on page 7 under footnote (4) to the table under the caption
"Proposal 1: Election of Directors" and page 14 under the caption "Transactions
with Management."
<PAGE>
PART IV
- --------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements. See Item 8
2. Financial Statement Schedules. All schedules are omitted as the
required information is either inapplicable or is presented in the consolidated
financial statements of the Registrant.
3. Exhibits. The following documents are attached hereto or incorporated
herein by reference as exhibits:
3.1 Certificate of Incorporation of the Registrant, as amended (incorporated
herein by reference to Exhibit 3.1 of the 1992 Annual Report to the SEC on Form
10-K)
3.2 Bylaws of the Registrant, as amended (incorporated herein by reference to
Exhibit 3.2 of the September 30, 1997 Report to the SEC on Form 10-Q)
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 (incorporated herein by reference
to Exhibit 10.1 of the 1987 Annual Report to the SEC on Form 10-K), as amended
by the Fourth Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Lewis R.
Holding (filed herewith)
*10.2 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986 (incorporated herein by reference
to exhibit 10.2 of the 1987 Annual Report to the SEC on Form 10-K), as amended
by the Fourth Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B.
Holding (filed herewith)
*10.3 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986 (incorporated herein by reference
to Exhibit 10.3 of the 1988 Annual Report to the SEC on Form 10-K), as amended
by the Fourth Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and James B.
Hyler, Jr. (filed herewith)
*10.4 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 23, 1995 (incorporated herein by reference
to Exhibit 10.4 of the 1994 Annual Report to the SEC on Form 10-K), as amended
by the First Amendment of Employee Death Benefit and Post-Retirement
Non-Competition and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and Frank B.
Holding, Jr.(filed herewith)
*10.5 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated August 23, 1989 (incorporated herein by reference
to Exhibit 10.8 of the 1992 Annual Report to the SEC on Form 10-K), as amended
by the Third Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated October 26, 1998, between
Registrant's subsidiary, First-Citizens Bank & Trust Company, and James M.
Parker (filed herewith)
*10.6 Second Death Benefit and Post-Retirement Non-Competition and Consultation
Agreement dated April 28, 1997, between Registrant's subsidiary, First-Citizens
Bank & Trust Company, and George H. Broadrick (incorporated herein by reference
to Exhibit 10.6 of Registrant's 1997 Annual Report to the SEC on Form 10-K)
<PAGE>
PART IV (CONTINUED)
- --------------------------------------------------------------------------------
*10.7 Consulting Agreement dated February 17, 1988, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H. Broadrick
(incorporated herein by reference to Exhibit 10.7 of the 1987 Annual Report to
the SEC on Form 10-K)
*10.9 Retirement Payment Agreement dated May 1, 1985, between First Federal
Savings and Loan Association, Hendersonville, North Carolina ("First Federal"),
and William McKay, which agreement was ratified by Registrant upon its
acquisition of First Federal (incorporated herein by reference to Exhibit 10.9
of the 1991 Annual Report to the SEC on Form 10-K)
*10.10 Retirement Payment Agreement dated August 1, 1987, between First Federal
and William McKay, which agreement was ratified by Registrant upon its
acquisition of First Federal (incorporated herein by reference to Exhibit 10.10
of the 1991 Annual Report to the SEC on Form 10-K)
*10.11 Employment Agreement dated August 4, 1995, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and Brent D. Nash (incorporated
herein by reference to Exhibit 10.11 of the 1994 Annual Report to the SEC on
Form 10-K)
*10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe
Homestead and Loan Assn., Inc. ("Edgecombe"), and Brent D. Nash, which agreement
was ratified by Registrant upon its acquisition of Edgecombe (incorporated
herein by reference to Exhibit 10.12 of the 1994 Annual Report to the SEC on
Form 10-K)
*10.13 Article IV Section 4.1.d of the Agreement and Plan of Reorganization and
Merger by and among First Investors Savings Bank, Inc., SSB, First-Citizens Bank
& Trust Company and First Citizens BancShares, Inc., dated October 25, 1995,
located at page II-38 of Registrant's S-4 Registration Statement filed with the
SEC on December 19, 1994 (Registration No. 33-84514)
*10.14 Article IV Section 4.1.e of the Agreement and Plan of Reorganization and
Merger by and among State Bank and First-Citizens Bank & Trust Company and First
Citizens BancShares, Inc., dated October 25, 1995, located at page I-36 of
Registrant's S-4 Registration Statement filed with the SEC on November
16, 1994 (Registration No.
33-86286)
*10.15 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 SEC on September 28, 1995
(Registration No. 33-63009)
10.16 Amended and Restated Trust Agreement of FCB/NC Capital Trust I
(incorporated herein by reference to Exhibit 4.1 of Registrant's Registration
Statement No. 333-59039 filed with the SEC on July 14, 1998)
10.17 Form of Guarantee Agreement (incorporated herein by reference to Exhibit
4.2 of Registrant's Registration Statement No. 333-59039 filed with the SEC on
July 14, 1998)
10.18 Junior Subordinated Indenture between Registrant and Bankers Trust
Company, as Debenture Trustee (incorporated herein by reference to Exhibit 4.3
of Registrant's Registration Statement No. 333-59039 filed with the SEC on July
14, 1998)
13 Registrant's Annual Report to Shareholders for the year ended
December 31, 1998 (filed herewith)
22 Subsidiaries of the Registrant (filed herewith)
27 Financial Data Schedule (filed herewith)
99 Registrant's definitive Proxy Statement dated March 22, 1999 (filed
pursuant to Rule 14a-6(c))
- -----------------------
* Denotes a management contract or compensation plan or arrangement in
which an executive officer or director of Registrant participates.
(b) Reports on Form 8-K. During the fourth quarter of 1998 the
Registrant filed no Form 8-K Current Reports.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: MARCH 22, 1999 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 22, 1999.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------------------------------------------------------
<S> <C> <C>
/s/Lewis R. Holding Chairman and Chief March 22, 1999
- ------------------------------------ Executive Officer
Lewis R. Holding (principal executive
officer)
/s/Frank B. Holding Executive Vice Chairman March 22, 1999
- ------------------------------------
Frank B. Holding
/s/James B. Hyler, Jr. Vice Chairman March 22, 1999
- ------------------------------------
James B. Hyler, Jr.
/s/Frank B. Holding, Jr. President March 22, 1999
- ------------------------------------
Frank B. Holding, Jr.
/s/Kenneth A. Black Vice President, March 22, 1999
- ------------------------------------ Treasurer, and Chief
Kenneth A. Black Financial Officer
(principal financial
and accounting officer)
<PAGE>
Signature Title Date
- -----------------------------------------------------------------------------------------------
/s/John M. Alexander, Jr. Director March 22, 1999
- ------------------------------------
John M. Alexander, Jr.
/s/ Ted L. Bissett Director March 22, 1999
- ------------------------------------
Ted L. Bissett
/s/ B. Irvin Boyle Director March 22, 1999
- ------------------------------------
B. Irvin Boyle
/s/George H. Broadrick Director March 22, 1999
- ------------------------------------
George H. Broadrick
/s/Betty M. Farnsworth Director March 22, 1999
- ------------------------------------
Betty M. Farnsworth
/s/Lewis M. Fetterman Director March 22, 1999
- ------------------------------------
Lewis M. Fetterman
/s/Carmen P. Holding Director March 22, 1999
- ------------------------------------
Carmen P. Holding
<PAGE>
Signature Title Date
- -----------------------------------------------------------------------------------------------
Director
- ------------------------------------
Charles B.C. Holt
/s/Edwin A. Hubbard Director March 22, 1999
- ------------------------------------
Edwin A. Hubbard
/s/Gale D. Johnson Director March 22, 1999
- ------------------------------------
Gale D. Johnson
/s/Freeman R. Jones Director March 22, 1999
- ------------------------------------
Freeman R. Jones
/s/Lucius S. Jones Director March 22, 1999
- ------------------------------------
Lucius S. Jones
/s/Joseph T. Maloney, Jr. Director March 22, 1999
- ------------------------------------
Joseph T. Maloney, Jr.
/s/J. Claude Mayo, Jr. Director March 22, 1999
- ------------------------------------
J. Claude Mayo, Jr.
<PAGE>
Signature Title Date
- -------------------------------------------------------------------------------------------------
/s/William McKay Director March 22, 1999
- ------------------------------------
William McKay
/s/Brent D. Nash Director March 22, 1999
- ------------------------------------
Brent D. Nash
/s/Lewis T. Nunnelee, II Director March 22, 1999
- ------------------------------------
Lewis T. Nunnelee, II
/s/Talbert O. Shaw Director March 22, 1999
- ------------------------------------
Talbert O. Shaw
/s/R. C. Soles, Jr. Director March 22, 1999
- ------------------------------------
R. C. Soles, Jr.
/s/David L. Ward, Jr. Director March 22, 1999
- ------------------------------------
David L. Ward, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
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 September 30, 1997 Report to the SEC on Form 10-Q) -
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 (incorporated herein by
reference to Exhibit 10.1 of the 1987 Annual Report to the SEC on Form
10-K), as amended by the Fourth Amendment of Employee Death Benefit
and Post-Retirement Non-Competition and Consultation Agreement, dated
October 26, 1998, between Registrant's subsidiary, First-Citizens Bank &
Trust Company, and Lewis R. Holding (filed herewith)
10.2 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986 (incorporated herein
by reference to Exhibit 10.2 of the 1987 Annual Report to the SEC on
Form 10-K), as amended by the Fourth Amendment of Employee Death
Benefit and Post-Retirement Non-Competition and Consultation
Agreement, dated October 26, 1998, between Registrant's subsidiary,
First-Citizens Bank & Trust Company, and Frank B. Holding (filed
herewith)
10.3 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 1, 1986 (incorporated herein by
reference to Exhibit 10.3 of the 1988 Annual Report to the SEC on Form
10-K), as amended by the Fourth Amendment of Employee Death Benefit
and Post-Retirement Non-Competition and Consultation Agreement, dated
October 26, 1998, between Registrant's subsidiary, First-Citizens Bank &
Trust Company, and James B. Hyler, Jr. (filed herewith)
10.4 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated January 23, 1995 (incorporated herein
by by reference to Exhibit 10.4 of the 1994 Annual Report to the SEC
on Form 10-K), as amended by the First Amendment of Employee Death
Benefit and Post-Retirement Non-Competition and Consultation
Agreement, dated October 26, 1998, between Registrant's subsidiary,
First-Citizens Bank & Trust Company, and Frank B. Holding, Jr.
(filed herewith)
<PAGE>
EXHIBIT INDEX (CONTINUED)
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------------------------------------------
10.5 Employee Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement, dated August 23, 1989 (incorporated herein
by reference to Exhibit 10.8 of the 1992 Annual Report to the SEC on
Form 10-K), as amended by the Third Amendment of Employee Death
Benefit and Post-Retirement Non-Competition and Consultation
Agreement, dated October 26, 1998, between Registrant's subsidiary,
First-Citizens Bank & Trust Company, and James M. Parker (filed herewith)
10.6 Second Death Benefit and Post-Retirement Non-Competition and
Consultation Agreement dated April 28, 1997, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H.
Broadrick (incorporated herein by reference to Exhibit 10.6 of the 1997
Annual Report to the SEC on Form 10-K)
10.7 Consulting Agreement dated February 17, 1988, between Registrant's
subsidiary, First-Citizens Bank & Trust Company, and George H.
Broadrick (incorporated herein by reference to Exhibit 10.7 of the
1987 Annual Report to the SEC on Form 10-K)
10.9 Retirement Payment Agreement dated May 1, 1985, between First
Federal Savings and Loan Association, Hendersonville, North Carolina
("First Federal"), and William McKay, which agreement was ratified by
Registrant upon its acquisition of First Federal Savings Bank
(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, First-Citizens Bank & Trust Company, and Brent D. Nash
(incorporated herein by reference to Exhibit 10.10 of the 1994
Annual Report to the SEC on Form 10-K)
10.12 Retirement Payment Agreement dated August 8, 1991, between Edgecombe
Homestead Savings Bank ("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 SEC on December 19, 1994
(Registration No. 33-84514)
<PAGE>
EXHIBIT INDEX (CONTINUED)
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------------------------------------------
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 SEC 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
SEC on September 28, 1995 (Registration No. 33-63009)
10.16 Amended and Restated Agreement of FCB/NC Capital Trust I
(incorporated herein by reference to Exhibit 4.1 of Registrant's
Registration Statement No. 333-59039 filed with the SEC on July 14,
1998).
10.17 Form of Guarantee Agreement (incorporated herein by reference to
Exhibit 4.2 of Registrant's Registration Statement No. 333-59039
filed with the SEC on July 14, 1998).
10.18 Junior Subordinated Indenture between Registrant and Bankers Trust
Company, as Debenture Trustee (incorporated herein by reference to
Exhibit 4.3 of Registrant's Registration Statement No. 333-59039
filed with the SEC on July 14, 1998).
13 Registrant's 1998 Annual Report for the year ended December 31, 1998
(filed herewith)
22 Subsidiaries of the Registrant (filed herewith)
27 Financial Data Schedule (filed herewith)
99 Registrant's definitive Proxy Statement dated March 22, 1999 (filed
pursuant to Rule 14a-6(c))
</TABLE>
<PAGE>
EXHIBIT 10.1
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FOURTH AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FOURTH AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Fourth Amendment"),
made and entered into and effective as of the 26th day of October, 1998, by and
between FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina banking
corporation with its principal place of business in Raleigh, Wake County, North
Carolina (hereinafter referred to as "Employer"); and LEWIS R. HOLDING
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of January 1, 1986, as
amended by a First Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of August 23, 1989, a Second
Amendment of Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement, dated as of April 27, 1992, and a Third Amendment of
Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement, dated as of January 24, 1994, all of which are incorporated herein by
reference (hereinafter referred to collectively as the "Agreement"), which
Agreement was executed pursuant to a benefit plan adopted by Employer as of
January 1, 1986, for a class of senior management employees of Employer; and,
<PAGE>
WHEREAS, Employer now desires to enter into Phase V of such
benefit plan, as part of which Employer desires to increase the benefits payable
to Employee as set forth in the Agreement by further amending said Agreement
pursuant to Paragraph 12 thereof, such increased benefits to be effective as of
the date of this Fourth Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises
and undertakings herein set forth, the parties hereto do agree as follows:
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay
the sum of Two Hundred Sixty-Seven Thousand Nine Hundred Three
and No/100 Dollars ($267,903.00) per year, payable in monthly
installments of Twenty-Two Thousand Three Hundred Twenty-Five and
25/100 Dollars ($22,325.25) for a period of ten (10) years, to
such individual or individuals as Employee shall have designated
in writing filed with Employer or, in the absence of such
designation, to the Estate of Employee. The first payment shall
be made not later than two (2) months following Employee's death.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for the payment of
all income and other taxes and assessments applicable on said
payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Five Thousand Five Hundred Eighty-One and
31/100 Dollars ($5,581.31) per month, beginning not later than
two (2) months after Employee's Retirement Date, for a period of
ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments
2
<PAGE>
shall be paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee
whether or not Employee's Consultation Services have been
utilized by Employer. Consultation Payments hereunder shall be
payable each month without deductions and Employee agrees to be
solely responsible for the payment of all income and other taxes
out of said funds and all Social Security, self-employment and
any other taxes or assessments, if any, applicable on said
compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Sixteen Thousand Seven Hundred Forty-Three
and 94/100 Dollars ($16,743.94) per month, beginning not later
than two (2) months after Employee's Retirement Date, for a
period of ten (10) years following Employee's Retirement Date or
until death, whichever first occurs. Such monthly payments shall
be paid for and in consideration of Employee's Covenant Not To
Compete as provided herein. Noncompetition Payments hereunder
shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments."
4. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said
ten (10) year period of payments hereunder, the sum of Twenty-Two
Thousand Three Hundred Twenty-Five and 25/100 Dollars
($22,325.25) per month shall be paid to Employee's designated
beneficiary or Employee's Estate, as applicable, beginning the
first calendar month following the date of Employee's death and
continuing thereafter until the expiration of said ten (10) year
period. Once the Consultation and/or Noncompetition Payments are
begun, whether paid by Employer or as otherwise provided herein,
the maximum payment
3
<PAGE>
period under this Agreement is ten (10) years. Payments hereunder
shall be payable each month without deductions and the recipient
shall be solely responsible for all income and other taxes and
assessments applicable on said payments."
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Fourth Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Fourth Amendment
to be executed in its corporate name by its Vice Chairman, attested by its
Secretary/Assistant Secretary and its corporate seal to be affixed hereto, all
within the authority duly given by its Board of Directors, and Employee has
hereunto set his hand and adopted as his seal the typewritten word "SEAL"
appearing beside his name, as of the day and year first above written.
FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ James B. Hyler, Jr.
-----------------------
James B. Hyler, Jr., Vice Chairman
Attest:
/s/ Alexander G. MacFadyen, Jr.
- -------------------------------
Secretary
/s/ Lewis R. Holding (SEAL)
--------------------------------
Lewis R. Holding
<PAGE>
EXHIBIT 10.2
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FOURTH AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FOURTH AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Fourth Amendment"),
made and entered into and effective as of the 26th day of October, 1998, by and
between FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina banking
corporation with its principal place of business in Raleigh, Wake County, North
Carolina (hereinafter referred to as "Employer"); and FRANK B. HOLDING
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of January 1, 1986, as
amended by a First Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of August 23, 1989, a Second
Amendment of Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement, dated as of April 27, 1992, and a Third Amendment of
Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement, dated as of January 24, 1994, all of which are incorporated herein by
reference (hereinafter referred to collectively as the "Agreement"), which
Agreement was executed pursuant to a benefit plan adopted by Employer as of
January 1, 1986, for a class of senior management employees of Employer; and,
WHEREAS, Employer now desires to enter into Phase V of such
benefit plan, as part of which Employer desires to increase the benefits payable
to Employee as set forth in the Agreement by
<PAGE>
further amending said Agreement pursuant to Paragraph 12 thereof, such increased
benefits to be effective as of the date of this Fourth Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises
and undertakings herein set forth, the parties hereto do agree as follows:
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while
employed by Employer prior to Employee's Retirement Date,
Employer will pay the sum of Two Hundred Sixty-Seven Thousand
Nine Hundred Three and No/100 Dollars ($267,903.00) per year,
payable in monthly installments of Twenty-Two Thousand Three
Hundred Twenty-Five and 25/100 Dollars ($22,325.25) for a period
of ten (10) years, to such individual or individuals as Employee
shall have designated in writing filed with Employer or, in the
absence of such designation, to the Estate of Employee. The first
payment shall be made not later than two (2) months following
Employee's death. Payments hereunder shall be payable each month
without deductions and the recipient shall be solely responsible
for the payment of all income and other taxes and assessments
applicable on said payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Five Thousand Five Hundred Eighty-One and
31/100 Dollars ($5,581.31) per month, beginning not later than
two (2) months after Employee's Retirement Date, for a period of
ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments shall be
paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee
whether or not Employee's Consultation Services have been
utilized by Employer. Consultation Payments hereunder shall be
payable each month without
2
<PAGE>
deductions and Employee agrees to be solely responsible for the
payment of all income and other taxes out of said funds and all
Social Security, self-employment and any other taxes or
assessments, if any, applicable on said compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Sixteen Thousand Seven Hundred Forty-Three
and 94/100 Dollars ($16,743.94) per month, beginning not later
than two (2) months after Employee's Retirement Date, for a
period of ten (10) years following Employee's Retirement Date or
until death, whichever first occurs. Such monthly payments shall
be paid for and in consideration of Employee's Covenant Not To
Compete as provided herein. Noncompetition Payments hereunder
shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments."
4. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said
ten (10) year period of payments hereunder, the sum of Twenty-Two
Thousand Three Hundred Twenty-Five and 25/100 Dollars
($22,325.25) per month shall be paid to Employee's designated
beneficiary or Employee's Estate, as applicable, beginning the
first calendar month following the date of Employee's death and
continuing thereafter until the expiration of said ten (10) year
period. Once the Consultation and/or Noncompetition Payments are
begun, whether paid by Employer or as otherwise provided herein,
the maximum payment period under this Agreement is ten (10)
years. Payments hereunder shall be payable each month without
deductions and the recipient shall be solely responsible for all
income and other taxes and assessments applicable on said
payments."
3
<PAGE>
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Fourth Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Fourth Amendment
to be executed in its corporate name by its Vice Chairman, attested by its
Secretary/Assistant Secretary and its corporate seal to be affixed hereto, all
within the authority duly given by its Board of Directors, and Employee has
hereunto set his hand and adopted as his seal the typewritten word "SEAL"
appearing beside his name, as of the day and year first above written.
FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ James B. Hyler, Jr.
----------------------------------
James B. Hyler, Jr., Vice Chairman
Attest:
/s/ Alexander G. MacFadyen, Jr.
- -------------------------------
Secretary
/s/ Frank B. Holding (SEAL)
---------------------------------
Frank B. Holding
4
<PAGE>
EXHIBIT 10.3
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FOURTH AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FOURTH AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Fourth Amendment"),
made and entered into and effective as of the 26th day of October, 1998, by and
between FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina banking
corporation with its principal place of business in Raleigh, Wake County, North
Carolina (hereinafter referred to as "Employer"); and JAMES B. HYLER, JR.
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of January 1, 1986, as
amended by a First Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of August 23, 1989, a Second
Amendment of Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement, dated as of April 27, 1992, and a Third Amendment of
Employee Death Benefit and Post-Retirement Noncompetition and Consultation
Agreement, dated as of January 24, 1994, all of which are incorporated herein by
reference (hereinafter referred to collectively as the "Agreement"), which
Agreement was executed pursuant to a benefit plan adopted by Employer as of
January 1, 1986, for a class of senior management employees of Employer; and,
WHEREAS, Employer now desires to enter into Phase V of such
benefit plan, as part of which Employer desires to increase the benefits payable
to Employee as set forth in the Agreement by
<PAGE>
further amending said Agreement pursuant to Paragraph 12 thereof, such increased
benefits to be effective as of the date of this Fourth Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises
and undertakings herein set forth, the parties hereto do agree as follows:
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay
the sum of Two Hundred Three Thousand Nine Hundred Ninety-Three
and No/100 Dollars ($203,993.00) per year, payable in monthly
installments of Sixteen Thousand Nine Hundred Ninety-Nine and
42/100 Dollars ($16,999.42) for a period of ten (10) years, to
such individual or individuals as Employee shall have designated
in writing filed with Employer or, in the absence of such
designation, to the Estate of Employee. The first payment shall
be made not later than two (2) months following Employee's death.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for the payment of
all income and other taxes and assessments applicable on said
payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Four Thousand Two Hundred Forty-Nine and
85/100 Dollars ($4,249.85) per month, beginning not later than
two (2) months after Employee's Retirement Date, for a period of
ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments shall be
paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee
whether or not Employee's Consultation Services have been
utilized by Employer. Consultation Payments hereunder shall be
payable each month without
2
<PAGE>
deductions and Employee agrees to be solely responsible for the
payment of all income and other taxes out of said funds and all
Social Security, self-employment and any other taxes or
assessments, if any, applicable on said compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Twelve Thousand Seven Hundred Forty-Nine
and 57/100 Dollars ($12,749.57) per month, beginning not later
than two (2) months after Employee's Retirement Date, for a
period of ten (10) years following Employee's Retirement Date or
until death, whichever first occurs. Such monthly payments shall
be paid for and in consideration of Employee's Covenant Not To
Compete as provided herein. Noncompetition Payments hereunder
shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments."
4. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said
ten (10) year period of payments hereunder, the sum of Sixteen
Thousand Nine Hundred Ninety-Nine and 42/100 Dollars ($16,999.42)
per month shall be paid to Employee's designated beneficiary or
Employee's Estate, as applicable, beginning the first calendar
month following the date of Employee's death and continuing
thereafter until the expiration of said ten (10) year period.
Once the Consultation and/or Noncompetition Payments are begun,
whether paid by Employer or as otherwise provided herein, the
maximum payment period under this Agreement is ten (10) years.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for all income and
other taxes and assessments applicable on said payments."
3
<PAGE>
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Fourth Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Fourth Amendment
to be executed in its corporate name by its Group Vice President, attested by
its Secretary/Assistant Secretary and its corporate seal to be affixed hereto,
all within the authority duly given by its Board of Directors, and Employee has
hereunto set his hand and adopted as his seal the typewritten word "SEAL"
appearing beside his name, as of the day and year first above written.
FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ Kenneth A. Black
------------------------
Kenneth A. Black
Group Vice President
Attest:
/s/ Alexander G. MacFadyen, Jr.
- -------------------------------
Secretary
/s/ James B. Hyler, Jr. (SEAL)
---------------------------------
James B. Hyler, Jr.
4
<PAGE>
EXHIBIT 10.4
STATE OF NORTH CAROLINA
COUNTY OF WAKE
FIRST AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS FIRST AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("First Amendment"),
made and entered into and effective as of the 26th day of October, 1998, by and
between FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina banking
corporation with its principal place of business in Raleigh, Wake County, North
Carolina (hereinafter referred to as "Employer"); and FRANK B. HOLDING, JR.
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of January 23, 1995, which
is incorporated herein by reference (hereinafter referred to as the
"Agreement"), which Agreement was executed pursuant to a benefit plan adopted by
Employer as of January 1, 1986, for a class of senior management employees of
Employer; and,
WHEREAS, Employer now desires to enter into Phase V of such
benefit plan, as part of which Employer desires to increase the benefits payable
to Employee as set forth in the Agreement by amending said Agreement pursuant to
Paragraph 12 thereof, such increased benefits to be effective as of the date of
this First Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises
and undertakings herein set forth, the parties hereto do agree as follows:
<PAGE>
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay
the sum of One Hundred Eighteen Thousand Seven Hundred Nine and
No/100 Dollars ($118,709.00) per year, payable in monthly
installments of Nine Thousand Eight Hundred Ninety-Two and 42/100
Dollars ($9,892.42) for a period of ten (10) years, to such
individual or individuals as Employee shall have designated in
writing filed with Employer or, in the absence of such
designation, to the Estate of Employee. The first payment shall
be made not later than two (2) months following Employee's death.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for the payment of
all income and other taxes and assessments applicable on said
payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Two Thousand Four Hundred Seventy-Three
and 10/100 Dollars ($2,473.10) per month, beginning not later
than two (2) months after Employee's Retirement Date, for a
period of ten (10) years following Employee's Retirement Date or
until death, whichever first occurs. Such monthly payments shall
be paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee
whether or not Employee's Consultation Services have been
utilized by Employer. Consultation Payments hereunder shall be
payable each month without deductions and Employee agrees to be
solely responsible for the payment of all income and other taxes
out of said funds and all Social Security, self-employment and
any other taxes or assessments, if any, applicable on said
compensation."
2
<PAGE>
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Seven Thousand Four Hundred Nineteen and
32/100 Dollars ($7,419.32) per month, beginning not later than
two (2) months after Employee's Retirement Date, for a period of
ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments shall be
paid for and in consideration of Employee's Covenant Not To
Compete as provided herein. Noncompetition Payments hereunder
shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments."
4. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said
ten (10) year period of payments hereunder, the sum of Nine
Thousand Eight Hundred Ninety-Two and 42/100 Dollars ($9,892.42)
per month shall be paid to Employee's designated beneficiary or
Employee's Estate, as applicable, beginning the first calendar
month following the date of Employee's death and continuing
thereafter until the expiration of said ten (10) year period.
Once the Consultation and/or Noncompetition Payments are begun,
whether paid by Employer or as otherwise provided herein, the
maximum payment period under this Agreement is ten (10) years.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for all income and
other taxes and assessments applicable on said payments."
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this First Amendment shall remain in full
force and effect.
3
<PAGE>
IN TESTIMONY WHEREOF, Employer has caused this First Amendment to
be executed in its corporate name by its Vice Chairman, attested by its
Secretary/Assistant Secretary and its corporate seal to be affixed hereto, all
within the authority duly given by its Board of Directors, and Employee has
hereunto set his hand and adopted as his seal the typewritten word "SEAL"
appearing beside his name, as of the day and year first above written.
FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ James B. Hyler, Jr.
----------------------------------
James B. Hyler, Jr., Vice Chairman
Attest:
/s/ Alexander G. MacFadyen, Jr.
- -------------------------------
Secretary
/s/ Frank B. Holding, Jr. (SEAL)
---------------------------------
Frank B. Holding, Jr.
4
<PAGE>
EXHIBIT 10.5
STATE OF NORTH CAROLINA
COUNTY OF WAKE
THIRD AMENDMENT OF EMPLOYEE DEATH
BENEFIT AND POST-RETIREMENT
NONCOMPETITION AND CONSULTATION AGREEMENT
THIS THIRD AMENDMENT OF EMPLOYEE DEATH BENEFIT AND
POST-RETIREMENT NONCOMPETITION AND CONSULTATION AGREEMENT ("Third Amendment"),
made and entered into and effective as of the 26th day of October, 1998, by and
between FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina banking
corporation with its principal place of business in Raleigh, Wake County, North
Carolina (hereinafter referred to as "Employer"); and JAMES M. PARKER
(hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, in recognition of Employee's contribution to the growth,
management and development of Employer and in order to limit Employee's
availability to other employers or entities in competition with Employer
following Employee's retirement from employment with Employer, Employer and
Employee entered into that certain Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of August 23, 1989, as
amended by a First Amendment of Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement, dated as of April 27, 1992, and a
Second Amendment of Employee Death Benefit and Post-Retirement Noncompetition
Agreement, dated as of January 24, 1994, all of which are incorporated herein by
reference (hereinafter referred to collectively as the "Agreement"), which
Agreement was executed pursuant to a benefit plan adopted by Employer as of
January 1, 1986, for a class of senior management employees of Employer; and,
WHEREAS, Employer now desires to enter into Phase V of such
benefit plan, as part of which Employer desires to increase the benefits payable
to Employee as set forth in the Agreement by further amending said Agreement
pursuant to Paragraph 12 thereof,
<PAGE>
such increased benefits to be effective as of the date of this Third Amendment.
NOW, THEREFORE, for and in consideration of the mutual promises
and undertakings herein set forth, the parties hereto do agree as follows:
1. Paragraph 2 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 2 is inserted in lieu thereof:
"2. DEATH BENEFITS. In the event Employee dies while employed by
Employer prior to Employee's Retirement Date, Employer will pay
the sum of Sixty-Three Thousand Five Hundred Ninety-Five and
No/100 Dollars ($63,595.00) per year, payable in monthly
installments of Five Thousand Two Hundred Ninety-Nine and 59/100
Dollars ($5,299.59) for a period of ten (10) years, to such
individual or individuals as Employee shall have designated in
writing filed with Employer or, in the absence of such
designation, to the Estate of Employee. The first payment shall
be made not later than two (2) months following Employee's death.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for the payment of
all income and other taxes and assessments applicable on said
payments."
2. The first paragraph of Paragraph 3 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 3 is inserted in lieu thereof:
"3. CONSULTATION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of One Thousand Three Hundred Twenty-Four and
90/100 Dollars ($1,324.90) per month, beginning not later than
two (2) months after Employee's Retirement Date, for a period of
ten (10) years following Employee's Retirement Date or until
death, whichever first occurs. Such monthly payments shall be
paid for and in consideration of Employee's Consultation
Services, as provided herein; such sum to be payable to Employee
whether or not Employee's Consultation Services have been
utilized by Employer. Consultation Payments hereunder shall be
payable each month without
2
<PAGE>
deductions and Employee agrees to be solely responsible for the
payment of all income and other taxes out of said funds and all
Social Security, self-employment and any other taxes or
assessments, if any, applicable on said compensation."
3. The first paragraph of Paragraph 4 of the Agreement hereby is
deleted in its entirety and the following replacement first paragraph of
Paragraph 4 is inserted in lieu thereof:
"4. NONCOMPETITION PAYMENTS. In the event Employee retires from
employment on Employee's Retirement Date, Employee shall be paid
by Employer the sum of Three Thousand Nine Hundred Seventy-Four
and 69/100 Dollars ($3,974.69) per month, beginning not later
than two (2) months after Employee's Retirement Date, for a
period of ten (10) years following Employee's Retirement Date or
until death, whichever first occurs. Such monthly payments shall
be paid for and in consideration of Employee's Covenant Not To
Compete as provided herein. Noncompetition Payments hereunder
shall be payable each month without deductions and Employee
agrees to be solely responsible for the payment of all income or
other taxes or assessments, if any, applicable on said payments."
4. Paragraph 5 of the Agreement hereby is deleted in its entirety
and the following replacement Paragraph 5 is inserted in lieu thereof:
"5. CONTINUATION OF PAYMENTS. Upon Employee's death during said
ten (10) year period of payments hereunder, the sum of Five
Thousand Two Hundred Ninety-Nine and 59/100 Dollars ($5,299.59)
per month shall be paid to Employee's designated beneficiary or
Employee's Estate, as applicable, beginning the first calendar
month following the date of Employee's death and continuing
thereafter until the expiration of said ten (10) year period.
Once the Consultation and/or Noncompetition Payments are begun,
whether paid by Employer or as otherwise provided herein, the
maximum payment period under this Agreement is ten (10) years.
Payments hereunder shall be payable each month without deductions
and the recipient shall be solely responsible for all income and
other taxes and assessments applicable on said payments."
3
<PAGE>
5. All of the remaining terms and conditions of the Agreement
which are not expressly amended by this Third Amendment shall remain in full
force and effect.
IN TESTIMONY WHEREOF, Employer has caused this Third Amendment to
be executed in its corporate name by its Vice Chairman, attested by its
Secretary/Assistant Secretary and its corporate seal to be affixed hereto, all
within the authority duly given by its Board of Directors, and Employee has
hereunto set his hand and adopted as his seal the typewritten word "SEAL"
appearing beside his name, as of the day and year first above written.
FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ James B. Hyler, Jr.
-----------------------------------
James B. Hyler, Jr., Vice Chairman
Attest:
/s/ Alexander G. MacFadyen, Jr.
- -------------------------------
Secretary
/s/ James M. Parker (SEAL)
---------------------------------
James M. Parker
4
EXHIBIT 13
REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
<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 1998, 1997 and 1996. BancShares is a bank holding company with two
wholly-owned banking subsidiaries -- First-Citizens Bank & Trust Company
("FCB"), a North Carolina-chartered bank, and Atlantic States Bank ("ASB"), a
federally chartered thrift institution.
This discussion and related financial data should be read in conjunction
with the audited consolidated financial statements and related footnotes
presented on pages 38 through 59 of this report.
Table 1
FINANCIAL SUMMARY AND SELECTED AVERAGE BALANCES AND RATIOS
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
(thousands, except share data
and ratios)
<S> <C> <C>
SUMMARY OF OPERATIONS
Interest income ............................................ $ 619,487 $ 572,276
Interest expense ........................................... 292,071 268,013
------------ ------------
Net interest income ........................................ 327,416 304,263
Provision for loan losses .................................. 19,879 8,726
------------ ------------
Net interest income after provision for loan losses ........ 307,537 295,537
Noninterest income ......................................... 146,138 115,307
Noninterest expense ........................................ 342,934 300,794
------------ ------------
Income before income taxes ................................. 110,741 110,050
Income taxes ............................................... 39,732 39,492
------------ ------------
Net income ................................................. $ 71,009 $ 70,558
============ ============
Net interest income, taxable equivalent .................... $ 329,764 $ 306,726
============ ============
SELECTED AVERAGE BALANCES
Total assets ............................................... $ 9,173,020 $ 8,304,412
Investment securities ...................................... 2,305,395 2,300,706
Loans ...................................................... 5,847,531 5,086,723
Interest-earning assets .................................... 8,281,072 7,569,075
Deposits ................................................... 7,759,315 7,088,018
Interest-bearing liabilities ............................... 7,249,290 6,521,818
Long-term obligations ...................................... 133,935 10,472
Shareholders' equity ....................................... $ 629,089 $ 638,825
Shares outstanding ......................................... 10,626,311 11,341,153
============ ============
SELECTED PERIOD-END BALANCES
Total assets ............................................... $ 9,605,787 $ 8,951,109
Investment securities ...................................... 2,160,329 2,483,294
Loans ...................................................... 6,195,591 5,445,772
Interest-earning assets .................................... 8,588,645 8,010,841
Deposits ................................................... 8,112,408 7,579,567
Interest-bearing liabilities ............................... 7,542,636 7,052,749
Long-term obligations ...................................... 158,801 10,856
Shareholders' equity ....................................... $ 660,749 $ 601,640
Shares outstanding ......................................... 10,625,559 10,627,453
============ ============
PROFITABILITY RATIOS (AVERAGES)
Rate of return on:
Total assets .............................................. 0.77% 0.85%
Shareholders' equity ...................................... 11.29 11.04
Dividend payout ratio ...................................... 15.11 16.08
============ ============
LIQUIDITY AND CAPITAL RATIOS (AVERAGES)
Loans to deposits .......................................... 75.36% 71.77%
Shareholders' equity to total assets ....................... 6.86 7.69
Time certificates of $100,000 or more to total deposits..... 9.21 9.62
============ ============
PER SHARE OF STOCK
Net income ................................................. $ 6.62 $ 6.22
Cash dividends ............................................. 1.00 1.00
Market price at December 31 (Class A) ...................... 90.00 104.03
Book value at December 31 .................................. 62.18 56.61
Tangible book value at December 31 ......................... 50.73 47.11
============ ============
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
(thousands, except share data and ratios)
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ............................................ $ 534,195 $ 471,109 $ 376,005
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 ......................................... 103,304 92,128 83,325
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
============ ============ ============
Net interest income, taxable equivalent .................... $ 288,251 $ 248,707 $ 229,732
============ ============ ============
SELECTED AVERAGE BALANCES
Total assets ............................................... $ 7,681,019 $ 6,846,959 $ 6,098,944
Investment securities ...................................... 1,998,059 1,611,549 1,599,565
Loans ...................................................... 4,842,266 4,433,517 3,800,318
Interest-earning assets .................................... 6,987,659 6,191,422 5,476,690
Deposits ................................................... 6,653,302 5,952,090 5,335,057
Interest-bearing liabilities ............................... 6,044,553 5,410,495 4,838,749
Long-term obligations ...................................... 13,483 26,307 52,499
Shareholders' equity ....................................... $ 576,988 $ 487,895 $ 416,983
Shares outstanding ......................................... 11,340,982 10,597,066 9,944,927
============ ============ ============
SELECTED PERIOD-END BALANCES
Total assets ............................................... $ 8,055,572 $ 7,383,950 $ 6,333,324
Investment securities ...................................... 2,161,236 1,983,148 1,458,969
Loans ...................................................... 4,930,508 4,580,719 4,148,133
Interest-earning assets .................................... 7,247,744 6,604,312 5,613,852
Deposits ................................................... 6,954,028 6,388,082 5,517,589
Interest-bearing liabilities ............................... 6,265,482 5,844,125 4,984,455
Long-term obligations ...................................... 6,922 22,957 34,542
Shareholders' equity ....................................... $ 615,507 $ 520,837 $ 449,411
Shares outstanding ......................................... 11,410,880 10,716,167 10,188,840
============ ============ ============
PROFITABILITY RATIOS (AVERAGES)
Rate of return on:
Total assets .............................................. 0.85% 0.83% 0.84%
Shareholders' equity ...................................... 11.35 11.66 12.22
Dividend payout ratio ...................................... 16.03 15.36 14.13
============ ============ ============
LIQUIDITY AND CAPITAL RATIOS (AVERAGES)
Loans to deposits .......................................... 72.78% 74.49% 71.23%
Shareholders' equity to total assets ....................... 7.51 7.13 6.84
Time certificates of $100,000 or more to total deposits..... 8.99 8.33 6.41
============ ============ ============
PER SHARE OF STOCK
Net income ................................................. $ 5.77 $ 5.37 $ 5.13
Cash dividends ............................................. 0.925 0.825 0.725
Market price at December 31 (Class A) ...................... 77.00 55.13 43.50
Book value at December 31 .................................. 53.94 48.60 44.11
Tangible book value at December 31 ......................... 45.42 41.75 39.97
============ ============ ============
</TABLE>
18
<PAGE>
SUMMARY
BancShares experienced a 0.6 percent increase in net income during 1998,
compared to 1997. The increase was the result of increased levels of net
interest income and noninterest income, offset by higher noninterest expense
and provision for loan losses. Consolidated net income amounted to $71.0
million during 1998, compared to $70.6 million during 1997 and $65.5 million
during 1996. The improvement in net income during 1997 over 1996 resulted from
growth in net interest income and noninterest income at levels that exceeded
the growth in noninterest expense. Net income per share for the year ended
December 31, 1998 totaled $6.62, compared to $6.22 and $5.77 for 1997 and 1996,
respectively. The improved net income per share during 1998 resulted from fewer
shares outstanding. Return on average assets totaled 0.77 percent during 1998
and 0.85 percent during 1997 and 1996, 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 significant acquisitions and
divestitures. All of the acquisitions were accounted for as purchases, with the
results of operations included with BancShares' Statements of Income since the
respective acquisition dates.
Table 2
SIGNIFICANT ACQUISITIONS AND DIVESTITURES
<TABLE>
<CAPTION>
Total Total
Date Institution and Location Assets Deposits
- ------------------ ------------------------------------------ ------------- -------------
(thousands)
<S> <C> <C> <C>
1998 Various branch purchases $ 23,472 $ 23,556
1998 Various branch sales (132,138) (138,390)
February 1998 Fifteen Signet Bank branches 262,020 296,852
September 1997 First Savings Financial Corp. 45,431 36,025
Reidsville, North Carolina
May 1997 Four Wachovia Bank branches 80,613 86,460
Western North Carolina
April 1997 Three First Union National Bank branches 42,171 45,179
Western North Carolina
February 1996 Allied Bank Capital, Inc. 248,998 208,394
Sanford, North Carolina
</TABLE>
INTEREST-EARNING ASSETS
Interest-earning assets averaged $8.28 billion during 1998, an increase of
$712.0 million or 9.4 percent over 1997 levels, compared to a $581.4 million or
8.3 percent increase in 1997 over 1996 levels. Growth among interest-earning
assets during 1998 was due to increases in loan balances. During 1997, growth
in investment securities and loans caused total interest-earning assets to
increase.
Loans. As of December 31, 1998, gross loans outstanding were $6.20
billion, a 13.8 percent increase over the December 31, 1997 balance of $5.45
billion. During 1998, divested loans exceeded acquired loans by $26.1 million.
Consequently, the $749.8 million increase in loan volume resulted from internal
growth. At December 31, 1996, gross loans totaled $4.93 billion. The $515.3
million increase during 1997 was primarily due to internal growth, as purchased
loans totaled $37.8 million. Loan balances for the last five years are provided
in Table 3.
During 1998, average loans were $5.85 billion, an increase of $760.8
million or 15.0 percent over 1997, compared to an increase of $244.5 million or
5.0 percent in 1997 when compared to 1996. Loans secured by real estate
averaged $3.55 billion during 1998, compared to $3.14 billion during 1997, an
increase of 13.3 percent. Much of the $418.3 million increase in average real
estate secured loans during 1998 was among commercial real estate loans and
retail home equity loans. Non-real estate commercial and industrial loans also
experienced strong growth during 1998, averaging $722.3 million during 1998
compared to $567.2 million in 1997, an increase of $155.2 million or 27.4
percent. Commercial and industrial loan growth during 1998 resulted from
BancShares' continued focus on small and mid-size commercial customers.
19
<PAGE>
Table 3
LOANS
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
Construction and land development ..... $ 157,603 $ 113,735 $ 109,806 $ 104,540 $ 100,708
Mortgage:
1-4 family residential ............... 1,299,508 1,411,279 1,542,836 1,438,655 1,296,713
Commercial ........................... 1,495,214 1,055,529 882,067 770,246 720,407
EquityLine ........................... 617,062 603,714 411,856 397,225 349,092
Other ................................ 160,289 136,639 132,954 129,292 109,069
Commercial and industrial ............... 845,068 633,580 514,535 466,462 373,947
Consumer ................................ 1,516,712 1,402,093 1,251,704 1,199,400 1,119,994
Lease financing ......................... 93,680 74,589 68,694 59,899 60,598
Other ................................... 10,455 14,614 16,056 15,000 17,605
---------- ---------- ---------- ---------- ----------
Total ................................ 6,195,591 5,445,772 4,930,508 4,580,719 4,148,133
Less reserve for loan losses ............ 96,115 84,360 81,439 78,495 72,017
---------- ---------- ---------- ---------- ----------
Net loans ............................ $6,099,476 $5,361,412 $4,849,069 $4,502,224 $4,076,116
========== ========== ========== ========== ==========
</TABLE>
- ---------
All information presented in this table relates to domestic loans as BancShares
makes no foreign loans.
Table 4
LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Within One to Five After
One Year Years Five Years Total
------------- ------------- ------------ -------------
(thousands)
<S> <C> <C> <C> <C>
Real estate:
Construction and land development ....... $ 72,271 $ 74,481 $ 10,851 $ 157,603
Mortgage:
1-4 family residential ................ 325,433 459,129 514,946 1,299,508
Commercial ............................ 714,561 681,380 99,273 1,495,214
EquityLine ............................ 43,194 154,266 419,602 617,062
Other ................................. 73,550 75,709 11,030 160,289
Commercial and industrial ................ 374,701 377,985 92,382 845,068
Consumer ................................. 523,658 944,853 48,201 1,516,712
Lease financing .......................... 23,420 70,260 -- 93,680
Other .................................... 4,821 4,889 745 10,455
---------- ---------- ---------- ----------
Total ................................. $2,155,609 $2,842,952 $1,197,030 $6,195,591
========== ========== ========== ==========
Loans maturing after one year with:
Fixed interest rates .................... $2,400,801 $ 856,571 $3,257,372
Floating or adjustable rates ............ 442,151 340,459 782,610
---------- ---------- ----------
Total ................................. $2,842,952 $1,197,030 $4,039,982
========== ========== ==========
</TABLE>
Consumer loans averaged $1.47 billion during 1998 compared to $1.30
billion during 1997. The $178.7 million increase during 1998 was primarily due
to indirect automobile lending, which averaged $1.02 billion during 1998, an
increase of 30.0 percent over 1997. Customer demand for direct installment
lending declined during 1998. Customers who have traditionally favored
closed-end installment lending are migrating to revolving lines of credit
secured by home equity.
During 1999, management anticipates continued growth among loans to
commercial borrowers. The demand among small and mid-size businesses remains
strong due to current economic conditions in BancShares' market areas. Although
the rate of growth during 1999 is not expected to reach that achieved during
1998, BancShares continues to focus on these
20
<PAGE>
customers. Demand among retail customers continues to shift to open-end credit
products such as EquityLine and credit cards. Growth in these areas is expected
during 1999, while traditional installment loans will likely see modest
reductions.
To minimize the potential adverse impact of interest rate fluctuations,
management continuously monitors the maturity and repricing distribution of the
loan portfolio. BancShares also offers variable rate loan products and fixed
rate callable loans to reduce the interest rate risk. Table 4 details the
maturity and repricing distribution as of December 31, 1998. Of the gross loans
outstanding on December 31, 1998, 34.8 percent have scheduled maturities within
one year, 45.9 percent have scheduled maturities between one and five years,
while the remaining 19.3 percent have scheduled maturities extending beyond
five years.
Investment Securities. At December 31, 1998, and 1997, the investment
portfolio totaled $2.16 billion and $2.48 billion, respectively. In each
period, U.S. Treasury and government agency securities represented
substantially all of the portfolio. Investment securities averaged $2.31
billion during 1998, $2.30 billion during 1997 and $2.00 billion during 1996.
The weighted-average maturity of the investment portfolio was 11 months at
December 31, 1998, compared to 14 months at December 31, 1997. Management
continues to maintain a portfolio of securities with short maturities and call
dates, consistent with BancShares' focus on liquidity. Investment securities
available for sale includes marketable equity securities that are recorded at
their fair value, with the unrealized gain included as a component of
shareholders' equity, net of deferred taxes. Table 5 presents detailed
information relating to the investment portfolio.
Table 5
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1998
------------------------------------------------------
Average Taxable
Fair Maturity Equivalent
Cost Value (Yrs./Mos.) Yield
------------- ------------- ------------- ------------
(thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U. S. Government:
Within one year ........... $1,337,371 $1,345,775 0/7 5.96%
One to five years ......... 791,026 794,805 1/5 5.37
Five to ten years ......... 122 127 7/3 8.38
Over ten years ............ 3,288 3,396 18/9 7.46
---------- ---------- ---- ----
Total .................... 2,131,807 2,144,103 0/11 5.74
---------- ---------- ---- ----
State, county and
municipal:
Within one year ........... 425 427 0/2 6.22
One to five years ......... 2,665 2,765 2/9 7.27
Five to ten years ......... -- -- --
Over ten years ............ 160 166 18/0 9.14
---------- ---------- ---- ----
Total .................... 3,250 3,358 3/2 7.23
---------- ---------- ---- ----
Other
Within one year ........... 10 10 0/7 5.47
One to five years ......... 55 55 3/2 5.47
Five to ten years ......... 250 250 9/7 6.00
---------- ---------- ---- ----
Total .................... 315 315 1/5 5.89
---------- ---------- ---- ----
Available for sale
securities ................. 10,264 24,957 -- --
---------- ---------- ---- ----
Total investment
securities ................. $2,145,636 $2,172,733 0/11 5.74%
========== ========== ==== ====
<CAPTION>
December 31
-------------------------------------------------------
1997 1996
--------------------------- ---------------------------
Fair Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
(thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U. S. Government:
Within one year ........... $1,055,289 $1,055,725 $ 778,908 $ 779,668
One to five years ......... 1,388,079 1,392,567 1,340,399 1,338,453
Five to ten years ......... 2,747 2,792 3,312 3,301
Over ten years ............ 4,519 4,629 7,418 7,501
---------- ---------- ---------- ----------
Total .................... 2,450,634 2,455,713 2,130,037 2,128,923
---------- ---------- ---------- ----------
State, county and
municipal:
Within one year ........... 1,549 1,761 1,128 1,135
One to five years ......... 3,197 3,298 3,717 3,997
Five to ten years ......... -- -- 1,456 1,493
Over ten years ............ 175 175 -- --
---------- ---------- ---------- ----------
Total .................... 4,921 5,234 6,301 6,625
---------- ---------- ---------- ----------
Other
Within one year ........... 1,102 1,099 1,300 1,299
One to five years ......... 55 55 1,158 1,149
Five to ten years ......... 10 10 35 35
---------- ---------- ---------- ----------
Total .................... 1,167 1,164 2,493 2,483
---------- ---------- ---------- ----------
Available for sale
securities ................. 10,817 26,572 11,238 22,405
---------- ---------- ---------- ----------
Total investment
securities ................. $2,467,539 $2,488,683 $2,150,069 $2,160,436
========== ========== ========== ==========
</TABLE>
- ---------
Yields are based on amortized cost; yields related to securities that are
exempt from federal and/or state income taxes are stated on a
taxable-equivalent basis assuming statutory rates of 35% for federal taxes for
all periods and 7.25%, 7.50% and 7.75% for state income taxes for 1998, 1997
and 1996, respectively.
Income on Interest-Earning Assets. Table 6 analyzes the interest-earning
assets and interest-bearing liabilities for the five years ending December 31,
1998. Table 9 identifies the causes for changes in interest income and interest
expense for 1998 and 1997. Interest income amounted to $619.5 million during
1998, a $47.2 million increase from 1997 levels, compared to a $38.1 million
increase from 1996 to 1997. Interest income growth during 1998 resulted from a
higher volume of earning assets, as the blended yield on all earning assets
declined during 1998. During 1997, volume growth was also the contributing
factor to the increase in interest income over 1996.
21
<PAGE>
Table 6
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------- ---------- ---------- ------------- ----------- ----------
(thousands, taxable equivalent)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:
Secured by real estate ................................. $3,554,303 $284,798 8.01% $3,136,005 $257,764 8.22%
Commercial and industrial .............................. 722,344 64,361 8.91 567,182 50,501 8.90
Consumer ............................................... 1,474,516 123,412 8.37 1,295,805 115,350 8.90
Lease financing ........................................ 83,680 7,348 8.78 72,585 6,256 8.62
Other .................................................. 12,688 822 6.48 15,146 1,062 7.01
---------- -------- ---- ---------- -------- ----
Total loans .......................................... 5,847,531 480,741 8.22 5,086,723 430,933 8.47
Investment securities:
U. S. Government ....................................... 2,273,579 133,535 5.87 2,267,652 133,007 5.87
State, county and municipal ............................ 4,340 318 7.33 5,560 421 7.57
Other .................................................. 27,476 507 1.85 27,494 481 1.75
---------- -------- ---- ---------- -------- ----
Total investment securities .......................... 2,305,395 134,360 5.83 2,300,706 133,909 5.82
Federal funds sold ...................................... 128,146 6,734 5.25 181,646 9,897 5.45
---------- -------- ---- ---------- -------- ----
Total interest-earning assets ........................ 8,281,072 $621,835 7.51% 7,569,075 $574,739 7.59%
Cash and due from banks ................................. 400,896 345,578
Premises and equipment .................................. 343,307 251,163
Other assets ............................................ 237,564 220,828
Reserve for loan losses ................................. (89,819) (82,232)
---------- ----------
Total assets ......................................... $9,173,020 $8,304,412
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Checking With Interest ................................. $1,035,761 $ 10,255 0.99% $ 928,122 $ 9,909 1.07%
Savings ................................................ 697,227 12,954 1.86 704,531 14,121 2.00
Money market accounts .................................. 1,117,286 39,135 3.50 919,049 34,062 3.71
Time deposits .......................................... 3,725,818 193,173 5.18 3,489,614 185,657 5.32
---------- -------- ---- ---------- -------- ----
Total interest-bearing deposits ...................... 6,576,092 255,517 3.89 6,041,316 243,749 4.03
Short-term borrowings ................................... 539,263 25,850 4.79 470,030 23,420 4.98
Long-term obligations ................................... 133,935 10,704 7.99 10,472 844 8.06
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities ................... 7,249,290 $292,071 4.03% 6,521,818 $268,013 4.11%
Demand deposits ......................................... 1,183,223 1,046,703
Other liabilities ....................................... 111,418 97,066
Shareholders' equity .................................... 629,089 638,825
---------- ----------
Total liabilities and shareholders' equity ........... $9,173,020 $8,304,412
========== ==========
Interest rate spread .................................... 3.48% 3.48%
==== ====
Net interest income and net yield on interest-earning
assets ................................................. $329,764 3.98% $306,726 4.05%
======== ==== ======== ====
</TABLE>
- ---------
Average loan balances include nonaccrual loans. Yields related to loans and
securities exempt from both federal and state income taxes, federal income
taxes only, or state income taxes only, are stated on a taxable-equivalent
basis assuming a statutory federal income tax rate of 35% for all periods, and
state income tax rates of 7.25%, 7.50% and 7.75%, for 1998, 1997 and 1996,
respectively.
Total interest-earning assets yielded 7.51 percent during 1998, an eight
basis point reduction from the 7.59 percent reported in 1997. The average
taxable-equivalent yield on the loan portfolio fell from 8.47 percent in 1997
to 8.22 percent in 1998. The lower loan yield during 1998 reflects general
market conditions and the competitive loan pricing that exists in BancShares'
market areas. Loan interest income increased $49.5 million or 11.5 percent from
1997, the result of loan growth that more than offset the impact of the lower
loan yields. This followed an increase of 4.5 percent in loan interest income
in 1997 over 1996.
22
<PAGE>
Table 6
AVERAGE BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------- --------------------------------------- ----------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- -------------- ---------- ---------- ------------- ---------- ---------- ------------- ----------- ----------
(thousands, taxable equivalent)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,037,689 $250,356 8.24% $2,752,463 $233,055 8.47% $2,265,054 $177,494 7.84%
500,313 44,911 8.98 437,970 41,099 9.38 440,566 34,165 7.75
1,221,063 110,838 9.08 1,167,923 102,666 8.79 1,012,359 85,523 8.45
66,557 5,398 8.11 58,332 4,499 7.71 51,160 3,861 7.55
16,644 1,329 7.98 16,829 1,402 8.33 31,179 1,741 5.58
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
4,842,266 412,832 8.53 4,433,517 382,721 8.63 3,800,318 302,784 7.97
1,988,518 114,831 5.77 1,600,713 81,219 5.07 1,597,051 71,573 4.48
6,607 507 7.67 8,016 622 7.76 2,192 176 8.03
2,934 172 5.86 2,820 184 6.52 322 28 8.70
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
1,998,059 115,510 5.78 1,611,549 82,025 5.09 1,599,565 71,777 4.49
147,334 8,159 5.54 146,356 8,625 5.89 76,807 3,297 4.29
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
6,987,659 $536,501 7.68% 6,191,422 $473,371 7.65% 5,476,690 $377,858 6.90%
324,353 349,998 354,875
218,434 200,674 189,421
231,140 180,675 148,932
(80,567) (75,810) (70,974)
---------- ---------- ----------
$7,681,019 $6,846,959 $6,098,944
========== ========== ==========
$ 878,878 $ 10,791 1.23% $ 816,391 $ 13,555 1.66% $ 788,673 $ 13,495 1.71%
719,962 15,059 2.09 693,187 15,728 2.27 687,322 15,390 2.24
825,139 29,217 3.54 742,537 25,167 3.39 788,063 19,280 2.45
3,258,713 175,838 5.40 2,824,074 152,784 5.41 2,279,639 89,127 3.91
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
5,682,692 230,905 4.06 5,076,189 207,234 4.08 4,543,697 137,292 3.02
348,378 16,388 4.70 307,999 15,773 5.12 242,553 8,314 3.43
13,483 957 7.10 26,307 1,657 6.30 52,499 2,520 4.80
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
6,044,553 $248,250 4.11% 5,410,495 $224,664 4.15% 4,838,749 $148,126 3.06%
970,610 875,901 791,360
88,868 72,668 51,852
576,988 487,895 416,983
---------- ---------- ----------
$7,681,019 $6,846,959 $6,098,944
========== ========== ==========
3.57% 3.50% 3.84%
==== ==== ====
$288,251 4.13% $248,707 4.02% $229,732 4.19%
======== ==== ======== ==== ======== ====
</TABLE>
Interest income earned on the investment portfolio amounted to $134.2
million, $133.4 million and $115.3 million during the years ended December 31,
1998, 1997 and 1996, respectively. The average taxable-equivalent yield on the
portfolio for these years was 5.83 percent, 5.82 percent and 5.78 percent,
respectively. The $867,000 increase in investment interest income during 1998
reflected the benefit of the portfolio growth as well as a slight yield
improvement. The $18.0 million increase in investment interest income from 1996
to 1997 was primarily the result of growth in the investment securities
portfolio during 1997.
23
<PAGE>
INTEREST-BEARING LIABILITIES
At December 31, 1998, and 1997 interest-bearing liabilities totaled $7.54
billion and $7.05 billion, respectively. Interest-bearing liabilities averaged
$7.25 billion during 1998, an increase of $727.5 million or 11.2 percent over
1997 levels. Interest-bearing deposits contributed $534.8 million to the
increase while long-term obligations contributed $123.5 million. During 1997,
interest-bearing liabilities averaged $6.52 billion, an increase of $477.3
million or 7.9 percent over 1996.
Deposits. At December 31, 1998, deposits totaled $8.11 billion, an
increase of $532.8 million or 7.0 percent from the $7.58 billion in deposits
recorded as of December 31, 1997. Deposits from acquisitions, net of deposits
divested, contributed $138.8 million during 1998. The remaining growth in
deposits came from the existing branch network. Total deposits averaged $7.76
billion in 1998, an increase of $671.3 million or 9.5 percent over 1997.
Average interest-bearing deposits were $6.58 billion during 1998, an increase
of $534.8 million or 8.9 percent. Time deposits averaged $3.73 billion during
1998, an increase of $236.2 million or 6.8 percent over 1997. Money market
accounts averaged $1.12 billion during 1998, compared to $919.0 million during
1997, an increase of $198.2 million or 21.6 percent. The growth resulted from
the expanding branch network, particularly growth in Virginia and Georgia.
During 1997, total deposits averaged $7.09 billion, an increase of $434.7
million or 6.5 percent over 1996. Average interest-bearing deposits were $6.04
billion during 1997, an increase of $358.6 million or 6.3 percent. Time
deposits averaged $3.49 billion during 1997, an increase of $230.9 million or
7.1 percent over 1996.
The average rate on time deposits decreased from 5.40 percent in 1996 to
5.32 percent in 1997 and 5.18 percent in 1998, the result of market rate
changes.
BancShares has historically avoided excessive reliance on high-dollar
deposits. During 1998, these funds averaged 9.21 percent of total average
deposits, compared to 9.62 percent in 1997. Table 7 provides a maturity
distribution for these deposits.
Table 7
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
December 31, 1998
------------------
(thousands)
<S> <C>
Less than three months ......... $192,387
Three to six months ............ 77,819
Six to 12 months ............... 355,356
More than 12 months ............ 91,178
--------
Total ................................ $716,740
========
</TABLE>
Short-Term Borrowings. BancShares has access to various short-term
borrowings, including the purchase of federal funds, overnight repurchase
obligations and credit lines with various correspondent banks. At December 31,
1998, short-term borrowings totaled $568.1 million, compared to $593.8 million
one year earlier. For the year ended December 31, 1998, short-term borrowings
averaged $539.3 million, compared to $470.0 million during 1997 and $348.4
million during 1996. The increase from 1997 to 1998 resulted from higher levels
of federal funds purchased and growth in overnight repurchase obligations. The
increase from 1996 to 1997 resulted from higher levels of short-term borrowings
by the holding company and by growth in overnight borrowings between BancShares
and commercial customers. Table 8 provides additional information regarding
short-term borrowed funds.
24
<PAGE>
Table 8
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
Amount Rate Amount Rate Amount Rate
----------- ---------- ----------- ---------- ----------- ----------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Master notes
At December 31 ....................... $326,603 3.63% $315,529 4.40% $295,428 4.23%
Average during year .................. 320,480 4.60 301,558 4.63 266,476 4.46
Maximum month-end balance during year 354,442 -- 332,055 -- 316,628 --
Federal funds purchased
At December 31 ....................... 84,345 4.68 45,380 5.72 45,075 6.27
Average during year .................. 62,758 5.24 28,752 5.30 32,948 6.24
Maximum month-end balance during year 104,675 -- 45,420 -- 57,740 --
Repurchase agreements
At December 31 ....................... 95,863 3.38 54,796 4.15 21,816 3.98
Average during year .................. 79,676 4.13 34,848 4.32 21,633 4.30
Maximum month-end balance during year 106,620 -- 56,942 -- 22,497 --
U. S. Treasury tax and loan accounts
At December 31 ....................... 12,662 4.51 19,989 4.92 20,356 4.38
Average during year .................. 16,690 5.13 12,374 7.56 15,318 5.09
Maximum month-end balance during year 20,824 -- 54,583 -- 27,248 --
Other
At December 31 ....................... 48,667 5.87 158,130 5.95 9,331 6.02
Average during year .................. 59,659 6.15 92,498 5.93 12,003 6.14
Maximum month-end balance during year 158,130 -- 158,764 -- 19,901 --
</TABLE>
Long-Term Obligations. At December 31, 1998 and 1997, long-term
obligations totaled $158.8 million and $10.9 million, respectively. During
1998, long-term obligations averaged $133.9 million, compared to $10.5 million
during 1997 and $13.5 million during 1996. The increase from 1997 to 1998
results from the issuance of $150 million in trust preferred capital
securities. The trust preferred capital securities are thirty year obligations
with interest paid semi-annually at a rate of 8.05 percent. BancShares issued
these obligations to provide capital to support its continued growth.
Management views these securities as an effective way to provide capital
resources without diluting current ownership. The decrease from 1996 to 1997
results from the reclassification of long-term obligations to short-term
borrowings once the scheduled maturity is within twelve months.
Expense of Interest-Bearing Liabilities. Interest expense amounted to
$292.1 million in 1998, a $24.1 million or 9.0 percent increase from 1997. This
followed an 8.0 percent increase in interest expense during 1997 compared to
1996. The increased interest expense during 1998 and 1997 was the result of
growth in interest-bearing liabilities as interest rates declined during both
periods.
The aggregate rate on interest-bearing deposits was 3.89 percent during
1998, compared to 4.03 percent during 1997 and 4.06 percent during 1996.
Despite these rate reductions, interest expense on total interest-bearing
deposits amounted to $255.5 million during 1998, an increase from the $243.7
million recorded during 1997 and $230.9 million recorded during 1996. The
growth in interest expense in each period resulted from deposit growth.
Interest expense on short-term borrowings amounted to $25.9 million in
1998, an increase of $2.4 million or 10.4 percent from 1997. Interest expense
related to short-term borrowings totaled $23.4 million and $16.4 million,
respectively, in 1997 and 1996. The increase during 1998 was attributable to
the growth in average short-term borrowings. During 1997, the growth in
interest expense resulted from growth in short-term borrowings and higher
interest rates when compared to 1996.
Interest expense associated with long-term obligations increased during
1998 to $10.7 million from $844,000 recorded during 1997. The increase results
from the issuance of the trust preferred capital securities during March 1998.
25
<PAGE>
Table 9
CHANGES IN CONSOLIDATED TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- -------------------------------------
Change from previous Change from previous
year due to: year due to:
-------------------------------------- -------------------------------------
Yield/ Total Yield/ Total
Volume Rate Change Volume Rate Change
------------- ------------ ----------- ----------- ------------- -----------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans:
Secured by real estate ................... $34,002 $ (6,968) $ 27,034 $ 8,058 $ (650) $ 7,408
Commercial and industrial ................ 13,806 54 13,860 5,998 (408) 5,590
Consumer ................................. 15,418 (7,356) 8,062 6,748 (2,236) 4,512
Lease financing .......................... 966 126 1,092 504 354 858
Other .................................... (166) (74) (240) (113) (154) (267)
-------- --------- -------- ------- ------- -------
Total loans ............................ 64,026 (14,218) 49,808 21,195 (3,094) 18,101
Investment securities:
U. S. Government ......................... 438 90 528 16,147 2,029 18,176
State, county and municipal .............. (91) (12) (103) (80) (6) (86)
Other .................................... (1) 27 26 934 (625) 309
---------- --------- -------- ------- --------- -------
Total investment securities ............ 346 105 451 17,001 1,398 18,399
Federal funds sold ........................ (2,858) (305) (3,163) 1,886 (148) 1,738
--------- --------- -------- ------- --------- -------
Total interest-earning assets .......... $61,514 $ (14,418) $ 47,096 $40,082 $(1,844) $38,238
========= ========= ======== ======= ========= =======
LIABILITIES:
Deposits:
Checking With Interest ................... $ 1,120 $ (774) $ 346 $ 565 $(1,447) $ (882)
Savings .................................. (163) (1,004) (1,167) (306) (632) (938)
Money market accounts .................... 7,144 (2,071) 5,073 3,383 1,462 4,845
Time ..................................... 12,484 (4,968) 7,516 12,447 (2,628) 9,819
--------- --------- -------- ------- --------- -------
Total interest-bearing deposits ........ 20,585 (8,817) 11,768 16,089 (3,245) 12,844
Short-term borrowings ..................... 2,847 (417) 2,430 5,887 1,145 7,032
Long-term obligations ..................... 9,909 (49) 9,860 (228) 115 (113)
--------- --------- -------- ------- --------- -------
Total interest-bearing liabilities ..... $33,341 $ (9,283) $ 24,058 $21,748 $(1,985) $19,763
========= ========= ======== ======= ========= =======
Change in net interest income .......... $28,173 $ (5,135) $ 23,038 $18,334 $ 141 $18,475
========= ========= ======== ======= ========= =======
</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 $2,347, $2,463, and
$2,306 for the years 1998, 1997 and 1996, respectively. Table 6 provides
detailed information on average balances, income/expense and yield/rate by
category. The rate/volume variance is allocated equally between the changes in
volume and rate.
NET INTEREST INCOME
Taxable-equivalent net interest income totaled $329.8 million during 1998,
an increase of 7.5 percent over 1997. This followed an increase of 6.4 percent
during 1997. 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.
26
<PAGE>
The interest rate spread was 3.48 percent during 1998, which equaled the
interest rate spread during 1997. The interest rate spread was 3.57 percent
during in 1996. The net yield on interest-earning assets was 3.98 percent in
1998, 4.05 percent during 1997, and 4.13 percent during 1996. The lower net
yields realized in 1998 compared to 1997, and 1997 compared to 1996, result
from growth in net interest income at lower rates than the growth in
interest-earning assets during the respective periods. While loan volume
increases continue to support growth in net interest income, interest expense
is increasing faster than interest income.
Rate Sensitivity. A principal objective of BancShares' asset/liability
function is to manage interest rate risk or the exposure to changes in interest
rates. Management maintains portfolios of interest-earning assets and
interest-bearing liabilities with maturities or repricing opportunities that
will protect against wide interest rate fluctuations, thereby limiting, to the
extent possible, the ultimate interest rate exposure. Table 10 provides
BancShares' interest-sensitivity position as of December 31, 1998, which
reflected a one year negative interest-sensitivity gap of $2.11 billion. As a
result of this one year negative gap, increases in interest rates could have an
unfavorable impact on net interest income.
Table 10
INTEREST-SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------
1-30 31-90 91-180
Days Days Days
Sensitive Sensitive Sensitive
---------------- -------------- --------------
(thousands)
<S> <C> <C> <C>
ASSETS:
Loans ........................ $ 1,479,703 $ 172,600 $ 272,133
Investment securities ........ 119,309 225,757 252,841
Federal funds sold ........... 232,725 -- --
------------ ---------- ----------
Total interest-
earning assets ........... $ 1,831,737 $ 398,357 $ 524,974
============ ========== ==========
LIABILITIES:
Interest-bearing deposits..... $ 2,918,032 $ 757,682 $ 985,658
Short-term borrowings ........ 550,498 15,564 564
Long-term obligations ........ -- -- --
------------ ---------- ----------
Total interest-
bearing liabilities ...... $ 3,468,530 $ 773,246 $ 986,222
============ ========== ==========
Interest-sensitivity gap ..... $ (1,636,793) $ (374,889) $ (461,248)
============ ========== ==========
<CAPTION>
December 31, 1998
-----------------------------------------------------------
181-365 Total
Days One Year Total
Sensitive Sensitive Nonsensitive Total
------------- ---------------- -------------- -------------
(thousands)
<S> <C> <C> <C> <C>
ASSETS:
Loans ........................ $ 480,965 $ 2,405,401 $3,790,190 $6,195,591
Investment securities ........ 739,899 1,337,806 822,523 2,160,329
Federal funds sold ........... -- 232,725 -- 232,725
---------- ------------ ---------- ----------
Total interest-
earning assets ........... $1,220,864 $ 3,975,932 $4,612,713 $8,588,645
========== ============ ========== ==========
LIABILITIES:
Interest-bearing deposits..... $ 855,019 $ 5,516,391 $1,299,304 $6,815,695
Short-term borrowings ........ 1,514 568,140 -- 568,140
Long-term obligations ........ -- -- 158,801 158,801
---------- ------------ ---------- ----------
Total interest-
bearing liabilities ...... $ 856,533 $ 6,084,531 $1,458,105 $7,542,636
========== ============ ========== ==========
Interest-sensitivity gap ..... $ 364,331 $ (2,108,599) $3,154,608 $1,046,009
========== ============ ========== ==========
</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, 1998, BancShares had $84.3 million in residential mortgage loans
available for sale that were reported at the lower of aggregate cost or market.
Additionally, BancShares attempts to avoid exposure resulting from changes in
market rates by entering into forward commitments to sell portions of its
current production of residential mortgage loans.
Table 11 provides information regarding the market risk profile of
BancShares at December 31, 1998 Market risk is the potential economic loss
resulting from changes in market prices and interest rates. This risk can
either result in diminished current fair values or reduced net interest income
in future periods.
ASSET QUALITY
Nonperforming Assets. Nonperforming asset balances for the past five years
are presented in Table 12. BancShares' nonperforming assets at December 31,
1998 included nonaccrual loans totaling $12.5 million and $1.5 million in
foreclosed property. Nonperforming assets as of December 31, 1998 represent
0.23 percent of loans outstanding. Nonperforming assets totaled $14.1 million
and $14.0 million, respectively, as of December 31, 1997, and 1996. Of the
$12.5 million in nonaccrual loans at December 31, 1998, $8.1 million were
classified as impaired. At December 31, 1997, BancShares reported $12.7 million
in nonaccrual loans, of which $9.1 million were impaired.
27
<PAGE>
Table 11
MARKET RISK
<TABLE>
<CAPTION>
Maturing in Years ended December 31,
-------------------------------------------------
1999 2000 2001 2002
------------- ----------- ----------- -----------
(thousands)
<S> <C> <C> <C> <C>
ASSETS:
Loans:
Fixed rate ................... 1,613,161 660,519 659,797 549,056
Average rate (%) ............. 7.88% 7.91% 7.85% 7.85%
Variable rate ................ 542,448 126,305 136,101 95,561
Average rate (%) ............. 9.31% 8.04% 8.04% 8.07%
Investment securities:
Fixed rate ................... 1,337,806 749,606 42,145 1,470
Average rate (%) ............. 5.96% 5.34% 6.02% 7.39%
LIABILITIES:
Savings and interest-bearing
checking .......................
Fixed rate ................... 3,081,825
Average rate (%) ............. 2.00%
Certificates of deposit:
Fixed rate ................... 3,161,266 294,534 126,319 74,175
Average rate (%) ............. 4.98% 5.90% 5.16% 5.78%
Variable rate ................ 33,504 14,292
Average rate (%) ............. 4.13% 4.76%
Long-term obligations:
Fixed rate ................... 160 575 1,696 412
Average rate (%) ............. 8.00% 7.38% 7.28% 7.36%
Variable rate ................ 2,255 564
Average rate (%) ............. 6.17% 6.17%
<CAPTION>
Maturing in Years ended December 31,
--------------------------------------------------
2003 Thereafter Total Fair value
----------- ------------ ------------- -----------
(thousands)
<S> <C> <C> <C> <C>
ASSETS:
Loans:
Fixed rate ................... 531,429 856,571 4,870,533 4,837,889
Average rate (%) ............. 7.89% 7.83% 7.87%
Variable rate ................ 84,184 340,459 1,325,058 1,325,058
Average rate (%) ............. 7.98% 8.08% 8.51%
Investment securities:
Fixed rate ................... 525 28,777 2,160,329 2,172,733
Average rate (%) ............. 6.53% 5.31% 5.74%
LIABILITIES:
Savings and interest-bearing
checking .......................
Fixed rate ................... 3,081,825 3,081,825
Average rate (%) ............. 2.00%
Certificates of deposit:
Fixed rate ................... 77,272 304 3,686,074 3,706,721
Average rate (%) ............. 5.80% 5.85% 5.09%
Variable rate ................ 47,796 47,796
Average rate (%) ............. 4.32%
Long-term obligations:
Fixed rate ................... 410 152,729 155,982 164,037
Average rate (%) ............. 7.47% 8.05% 8.04%
Variable rate ................ 2,819 2,819
Average rate (%) ............. 6.17%
</TABLE>
Table 12
RISK ELEMENTS
<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997
--------------- ---------------
(thousands, except ratios)
<S> <C> <C>
Nonaccrual loans .................................... $ 12,489 $ 12,681
Other real estate ................................... 1,529 1,462
----------- -----------
Total nonperforming assets ........................ $ 14,018 $ 14,143
=========== ===========
Accruing loans 90 days or more past due ............. $ 5,721 $ 3,953
Loans at December 31 ................................ $ 6,195,591 $ 5,445,772
Ratio of nonperforming assets to total loans plus
other real estate ................................. 0.23% 0.26%
----------- -----------
Interest income that would have been earned on
nonperforming loans had they been performing ...... $ 1,108 $ 1,156
Interest income earned on nonperforming loans ....... 409 349
=========== ===========
<CAPTION>
December 31
-----------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(thousands, except ratios)
<S> <C> <C> <C>
Nonaccrual loans .................................... $ 12,810 $ 13,208 $ 21,069
Other real estate ................................... 1,160 2,154 5,926
----------- ----------- -----------
Total nonperforming assets ........................ $ 13,970 $ 15,362 $ 26,995
=========== =========== ===========
Accruing loans 90 days or more past due ............. $ 4,983 $ 4,230 $ 5,326
Loans at December 31 ................................ $ 4,930,508 $ 4,580,719 $ 4,148,133
Ratio of nonperforming assets to total loans plus
other real estate ................................. 0.28% 0.34% 0.65%
----------- ----------- -----------
Interest income that would have been earned on
nonperforming loans had they been performing ...... $ 1,162 $ 1,556 $ 1,430
Interest income earned on nonperforming loans ....... 259 595 693
=========== =========== ===========
</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, 1998. 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 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.
28
<PAGE>
At December 31, 1998, BancShares' reserve for loan losses was $96.1
million or 1.55 percent of loans outstanding. This compares to $84.4 million or
1.55 percent at December 31, 1997, and $81.4 million or 1.65 percent at
December 31, 1996.
Table 13
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
(thousands, except ratios)
<S> <C> <C>
Balance at beginning of year ............................. $ 84,360 $ 81,439
Reserve of acquired institutions ......................... -- 481
Provision for loan losses ................................ 19,879 8,726
Charge-offs:
Real estate:
Construction and land development ..................... (2) (7)
Mortgage:
1-4 family residential ............................... (826) (1,350)
Commercial ........................................... (112) (245)
Equity Line .......................................... (134) (90)
Other ................................................ -- --
Commercial and industrial .............................. (2,001) (1,061)
Consumer ............................................... (10,789) (11,540)
Lease financing ........................................ (203) (38)
----------- -----------
Total charge-offs ..................................... (14,067) (14,331)
----------- -----------
Recoveries:
Real estate:
Construction and land development ..................... 93 1,723
Mortgage:
1-4 family residential ............................... 689 2,505
Commercial ........................................... 2,877 1,502
Equity Line .......................................... 10 3
Other ................................................ -- --
Commercial and industrial .............................. 512 698
Consumer ............................................... 1,762 1,614
Lease financing ........................................ -- --
----------- -----------
Total recoveries ...................................... 5,943 8,045
----------- -----------
Net charge-offs ....................................... (8,124) (6,286)
----------- -----------
Balance at end of year ................................... $ 96,115 $ 84,360
=========== ===========
HISTORICAL STATISTICS
Balances:
Average total loans .................................... $5,847,531 $5,086,723
Total loans at year-end ................................ 6,195,591 5,445,772
Ratios:
Net charge-offs to average total loans ................. 0.14% 0.12%
Reserve for loan losses to total loans at year-end ..... 1.55 1.55
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
(thousands, except ratios)
<S> <C> <C> <C>
Balance at beginning of year ............................. $ 78,495 $ 72,017 $ 70,049
Reserve of acquired institutions ......................... 1,387 3,231 1,009
Provision for loan losses ................................ 8,907 5,364 2,786
Charge-offs:
Real estate:
Construction and land development ..................... (40) (118) (334)
Mortgage:
1-4 family residential ............................... (1,604) (994) (1,048)
Commercial ........................................... (248) (255) (1,502)
Equity Line .......................................... (58) (47) (192)
Other ................................................ (52) (34) --
Commercial and industrial .............................. (1,076) (826) (1,302)
Consumer ............................................... (8,515) (4,988) (4,085)
Lease financing ........................................ (60) -- (17)
---------- ---------- ----------
Total charge-offs ..................................... (11,653) (7,262) (8,480)
---------- ---------- ----------
Recoveries:
Real estate:
Construction and land development ..................... 307 440 920
Mortgage:
1-4 family residential ............................... 1,534 1,160 834
Commercial ........................................... 530 1,476 2,765
Equity Line .......................................... 19 28 28
Other ................................................ -- -- --
Commercial and industrial .............................. 493 761 689
Consumer ............................................... 1,420 1,233 1,396
Lease financing ........................................ -- 47 21
---------- ---------- ----------
Total recoveries ...................................... 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
========== ========== ==========
HISTORICAL STATISTICS
Balances:
Average total loans .................................... $4,842,266 $4,433,517 $3,800,318
Total loans at year-end ................................ 4,930,508 4,580,719 4,148,133
Ratios:
Net charge-offs to average total loans ................. 0.15% 0.05% 0.05%
Reserve for loan losses to total loans at year-end ..... 1.65 1.71 1.74
</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 $19.9 million
during 1998 compared to $8.7 million during 1997 and $8.9 million during 1996.
During 1998, the $760.8 million increase in average loans outstanding required
additional reserves be established. In addition to the reserves established for
current loan growth, net charge-offs for 1998 totaled $8.1 million, compared to
$6.3 million during 1997 and $7.4 million during 1996. During 1998, the
increase in net charge-offs resulted from lower recoveries, as gross
charge-offs actually declined from 1997. Charge-offs for 1998 were $14.1
million, compared to $14.3 million in 1997 and $11.7 million in 1996. The
reduction in 1998 was primarily due to lower consumer charge-offs, largely the
result of lower direct installment charge-offs. The higher gross charge-offs in
1997 compared to 1996 primarily resulted from higher credit card charge-offs.
29
<PAGE>
During 1998, total recoveries were $5.9 million, compared to $8.0 million
during 1997 and $4.3 million during 1996. The increase in gross recoveries
during 1997 primarily resulted from higher recoveries for real estate
construction and development loans. Recoveries of 1-4 family residential loans
also increased significantly during 1997. Recoveries of construction and land
development and 1-4 family residential loans both returned to more normal
levels during 1998, although BancShares benefited from higher recoveries of
commercial mortgage loans.
The ratio of net charge-offs to average loans outstanding equaled 0.14
percent during 1998, 0.12 percent during 1997 and 0.15 percent during 1996.
These loss ratios reflect the quality of BancShares' balance sheet, as these
ratios remain low by industry standards. Table 13 provides details concerning
the reserve and provision for loan losses for the past five years.
Management considers the established reserve adequate to absorb losses
that relate to loans outstanding at December 31, 1998, although future
additions to the reserve may be necessary based on changes in economic
conditions and other factors. 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 14 details management's allocation of the reserve among the various
loan types. The process used to allocate the loan loss reserve considers, among
other factors, whether the borrower is a retail or commercial customer, whether
the loan is secured or unsecured, and whether the loan is an open or closed-end
agreement. Generally, loans to commercial customers are evaluated individually
and assigned a credit grade, while loans to retail customers are evaluated
among groups of loans with similar characteristics. Loans evaluated
individually are assigned a credit grade using such factors as the borrower's
cash flow, the value of any underlying collateral and the value of any
guarantee. The rating becomes the basis for the reserve allocation for that
individual loan. Groups of loans are aggregated over their remaining lives and
probable loss projections for each period become the basis for the reserve
allocation. The loss projections are based on prior experience and current
economic conditions. The amount of the reserve for loan losses not allocated
through these loss models becomes the unallocated reserve.
During 1998, as the composition of the loan portfolio shifted, so did the
allocation of the loan loss reserve. The strong growth among commercial loans
secured by real estate required a larger portion of the loan loss reserve.
Additionally, as BancShares recorded growth in commercial and industrial loans
and charge-offs among commercial and industrial loan products continued to
grow, BancShares allocated a larger portion of its reserve for loan losses to
the commercial and industrial portfolio. Partially offsetting these increases
was a reduction in the reserve allocated to 1-4 family residential mortgage
loans. The reduction in the reserve allocated to 1-4 family residential
mortgage loans results from the decrease in mortgage loans during 1998.
At December 31, 1998, BancShares had no foreign loans or any loans to
finance highly leveraged transactions. Further, management does not contemplate
originating or participating in such transactions in the future.
Table 14
ALLOCATION OF RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
Percent Percent Percent
of Loans of Loans of Loans
to Total to Total to Total
Reserve Loans Reserve Loans Reserve Loans
--------- ---------- --------- ---------- --------- ----------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Construction and land development ...... $ 3,027 2.54% $ 3,235 2.09% $ 3,234 2.23%
Mortgage:
1-4 family residential ................ 11,182 20.97 14,779 25.92 13,127 31.29
Commercial ............................ 26,835 24.13 16,388 19.38 16,514 17.89
Equity Line ........................... 3,338 9.96 4,257 11.09 2,898 8.35
Other ................................. 3,075 2.59 1,712 2.51 1,798 2.70
Commercial and industrial ............... 13,591 13.64 9,533 11.63 9,243 10.44
Consumer ................................ 32,099 24.49 31,025 25.74 24,890 25.38
Lease financing ......................... 1,123 1.51 992 1.37 985 1.39
Other ................................... 180 0.17 324 0.27 324 0.33
Unallocated ............................. 1,665 -- 2,115 -- 8,426 --
------- ------ ------- ------ ------- ------
Total ................................. $96,115 100.00% $84,360 100.00% $81,439 100.00%
======= ====== ======= ====== ======= ======
<CAPTION>
December 31
------------------------------------------
1995 1994
-------------------- ---------------------
Percent Percent
of Loans of Loans
to Total to Total
Reserve Loans Reserve Loans
--------- ---------- --------- -----------
(thousands)
<S> <C> <C> <C> <C>
Real estate:
Construction and land development ...... $ 3,090 2.28% $ 2,919 2.43%
Mortgage:
1-4 family residential ................ 13,125 31.42 13,459 31.26
Commercial ............................ 15,305 16.81 13,636 17.37
Equity Line ........................... 2,788 8.67 2,585 8.42
Other ................................. 1,318 2.82 1,581 2.63
Commercial and industrial ............... 8,384 10.18 10,029 9.01
Consumer ................................ 21,587 26.18 20,373 27.00
Lease financing ......................... 639 1.31 197 1.46
Other ................................... -- 0.33 -- 0.42
Unallocated ............................. 12,259 -- 7,238 --
------- ------ ------- ------
Total ................................. $78,495 100.00% $72,017 100.00%
======= ====== ======= ======
</TABLE>
30
<PAGE>
NONINTEREST INCOME
Total noninterest income was $146.1 million during 1998, an increase of
$30.8 million or 26.7 percent. This compares to $115.3 million during 1997 and
$103.3 million during 1996. Table 15 presents the major components of
noninterest income for the past five years. Trust income was $12.7 million in
1998, up 12.6 percent from 1997 principally due to growth in retirement plan
services. Growth in this area also contributed to the 12.7 percent increase
from 1996 to 1997. Income from service charges on deposit accounts was $47.1
million during 1998, an increase of 12.7 percent. This increase was the result
of higher fees collected for bad checks. Additionally, commercial service
charge income improved during 1998 due to higher volume and lower interest
rates, which resulted in a smaller earnings credit for commercial transaction
accounts. Service charge income amounted to $41.7 million and $40.7 million for
the years ended December 31, 1997 and 1996, respectively.
Table 15
NONINTEREST INCOME
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- --------- -----------
(thousands)
<S> <C> <C> <C> <C> <C>
Trust income .............................. $ 12,710 $ 11,284 $ 10,008 $ 8,886 $ 8,228
Service charges on deposit accounts ....... 47,055 41,748 40,710 39,909 38,567
Credit card income ........................ 25,558 20,053 16,147 13,561 12,390
Other service charges and fees ............ 36,029 27,788 23,878 21,227 16,672
ATM income ................................ 9,557 7,329 5,289 2,729 2,264
Gain (loss) on sale of mortgage loans ..... 6,183 219 502 809 (862)
Other ..................................... 9,046 6,886 6,770 5,007 6,066
-------- -------- -------- ------- -------
Total .................................... $146,138 $115,307 $103,304 $92,128 $83,325
======== ======== ======== ======= =======
</TABLE>
Credit card income was $25.6 million during 1998, a $5.5 million or 27.5
percent increase over 1997. The $20.1 million earned by the credit card
operation during 1997 represented an increase of $3.9 million or 24.2 percent
over 1996. Credit card income continues to grow due to the 1997 relocation of
the credit card function to Roanoke, Virginia. Virginia banking laws are less
restrictive to lenders and allow more favorable terms than North Carolina laws.
Although the number of cardholder accounts was off 2.4 percent from December
31, 1997 to December 31, 1998, cardholder purchase volume for 1998 increased
20.3 percent during 1998, generating higher interchange income. Additionally,
merchant volume increased 17 percent during 1998, with a 13.7 percent increase
in the number of merchant accounts.
Other service charge and fee income amounted to $36.0 million in 1998,
$27.8 million in 1997 and $23.9 million in 1996. Fees generated by First
Citizens Investor Services contributed $9.0 million during 1998, compared to
$6.4 million during 1997 and $4.5 million during 1996. These fees primarily
result from the sale of third-party mutual fund and annuity products. Fees
earned for data processing services also experienced growth during 1998,
contributing $11.7 million during 1998, $10.5 million during 1997 and $9.7
million during 1996. These services are primarily to various related parties of
BancShares.
Included in other income is income from ATM operations. During 1998,
BancShares collected $9.6 million in ATM income, primarily from ATM convenience
fees paid by non-customers who access their accounts at other banks through
BancShares' expanding ATM network. During 1997 and 1996, ATM income totaled
$7.3 million and $5.3 million, respectively. The ATM convenience fee was first
introduced during 1996.
During 1998, sales of mortgage loans generated $6.2 million in income,
which is included in other income. Mortgage loan sales generated income of
$219,000 during 1997 and $502,000 during 1996. During 1998, BancShares sold
$728.1 million in mortgage loans, compared to $334.5 million in 1997 and $136.8
million in 1996. The increase in the volume sold during 1998 primarily resulted
from greater customer demand for mortgage products and lower market rates, both
of which contributed to increased originations and higher gains.
Sales of branch offices generated gains of $3.1 million during 1998. No
such gains were recognized during 1997 or 1996.
NONINTEREST EXPENSE
Total noninterest expense for 1998 amounted to $342.9 million. This was a
14.0 percent increase over 1997, following a 7.9 percent increase in 1997
noninterest expenses over 1996. Table 16 presents the major components of
noninterest expense for the past five years.
31
<PAGE>
Salary expense was $142.0 million during 1998, compared to $126.5 million
during 1997, an increase of $15.5 million or 12.3 percent, following an $11.0
million or 9.5 percent increase in 1997 over 1996. Increases during each period
resulted from merit increases, acquisitions, and staffing requirements for new
branches. BancShares had 4,486 full time equivalent employees at December 31,
1998, compared to 4,129 at December 31, 1997 and 3,952 at December 31, 1996.
The growth during 1998 was primarily due to the purchase of 15 offices in
Virginia and the in-store facilities opened by FCB and ASB. The growth in
headcount during 1997 resulted from the expansion of FCDirect, the network of
alternative delivery channels that includes telephone banking and PC banking,
and growth in Virginia and Georgia.
Employee benefits expense was $27.4 million during 1998, an increase of
$3.7 million or 15.7 percent from 1997. The $23.7 million in benefits expense
recorded during 1997 represented an increase of $3.3 million or 16.1 percent
over 1996. During 1998, higher pension and FICA expenses contributed to the
increase in total employee benefits expense. During 1997, the increased
benefits expense primarily resulted from higher expenses related to BancShares'
employee health and life plans.
Table 16
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------
(thousands)
<S> <C> <C> <C> <C> <C>
Salaries and wages .................. $142,020 $126,474 $115,461 $106,607 $ 99,282
Employee benefits ................... 27,434 23,718 20,425 17,080 14,535
Occupancy expense ................... 28,112 23,338 22,023 20,446 18,691
Equipment expense ................... 36,545 32,035 27,068 24,504 23,839
Credit card expense ................. 12,658 11,722 10,097 9,106 8,587
Amortization of intangibles ......... 11,373 9,034 8,197 5,877 3,993
Telecommunication expense ........... 9,046 8,032 7,711 6,790 6,743
Consultant expense .................. 7,134 5,626 3,408 2,591 3,660
Postage ............................. 6,826 6,623 6,383 5,701 4,907
FDIC insurance ...................... 1,914 1,818 13,586 8,418 11,831
Other ............................... 59,872 52,374 44,309 38,760 34,514
-------- -------- -------- -------- --------
Total .............................. $342,934 $300,794 $278,668 $245,880 $230,582
======== ======== ======== ======== ========
</TABLE>
BancShares recorded occupancy expense of $28.1 million during 1998, an
increase of $4.8 million or 20.5 percent during 1998 due to higher depreciation
expense on newly constructed and recently renovated facilities. Occupancy
expense during 1997 was $23.3 million, an increase of $1.3 million or 6.0
percent over 1996.
Equipment expense for 1998 was $36.5 million, an increase of $4.5 million
or 14.1 percent over 1997, when total equipment expenses were $32.0 million.
The increase during 1998 resulted from higher levels of hardware and software
depreciation related to mainframe and branch automation applications and
depreciation expense on furnishings and equipment in newly constructed and
renovated branches. These increases were partially offset by lower rent expense
for equipment during 1998. During 1997, equipment expense was $5.0 million or
18.4 percent above the amount recorded during 1996.
Expenses related to the amortization of intangibles were $11.4 million
during 1998, an increase of $2.3 million or 25.9 percent over 1997. The
increase resulted from the intangible capitalized in the acquisition of 15
branches in early 1998. Intangible amortization totaled $9.0 million during
1997 and $8.2 million during 1996, the increase resulting from intervening
acquisitions.
Telecommunications expense was $9.0 million during 1998, an increase of
$1.0 million or 12.6 percent during 1998 due to the new branches and the
expansion of FCDirect. Telecommunications expense was $8.0 million during 1997
and $7.7 million during 1996. During 1998, BancShares recognized $7.1 million
in consultant expense, compared to $5.6 million during 1997. The $1.5 million
or 26.8 percent increase is primarily due to the expenses incurred related to
the year 2000 readiness project.
The cost of FDIC insurance was $1.9 million during 1998 and $1.8 million
during 1997. Total cost of FDIC insurance during 1997 decreased $11.8 million
from the $13.6 million reported in 1996. The higher 1996 expense was due to a
special one-time assessment on deposit liabilities insured by the FDIC's
Savings Association Insurance Fund ("SAIF"). The Bank paid $10 million for the
assessment, which was to establish sufficient reserves for the SAIF.
32
<PAGE>
INCOME TAXES
During 1998, BancShares recorded total income tax expense of $39.7
million, compared to $39.5 million in income tax expense during 1997.
BancShares' effective tax rate was 35.9 percent in 1998 and 1997, and 35.6
percent in 1996.
LIQUIDITY
Management places great importance on the maintenance of a highly liquid
investment portfolio with varying maturities to provide needed cash flows to
meet liquidity requirements. At December 31, 1998, the investment portfolio
totaled $2.16 billion or 22.5 percent of total assets. This compares to $2.48
billion or 27.7 percent in 1997. Despite the reduction in the investment
securities portfolio, the liquidity available by maturing securities, coupled
with other traditional sources, should meet liquidity needs.
The ability to generate retail deposits is an additional source of
liquidity. The rate of growth in average deposits was 9.5 percent during 1998,
6.5 percent during 1997 and 11.8 percent during 1996. The deposit growth
results from the branch network as well as deposit liability assumptions
associated with various business combinations.
These liquidity sources have enabled BancShares to place little dependence
on borrowed funds for its liquidity needs. However, there are readily available
sources for borrowed funds through the correspondent bank network. BancShares
has reviewed its access to external sources of funding and is strengthening its
ability to address possible liquidity shortages that may result from year 2000
issues.
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 11.2 percent, 9.6 percent and 11.5 percent, respectively, at December 31,
1998, 1997 and 1996. BancShares' Tier 1 capital ratios for December 31, 1998,
1997 and 1996 were 9.9 percent, 8.4 percent, and 10.2 percent respectively. The
minimum capital ratios established by Federal Reserve guidelines are 8 percent
for total capital and 4 percent for Tier 1 capital. At December 31, 1998,
BancShares' leverage capital ratio was 7.3 percent, compared to 5.8 percent and
6.4 percent at December 31, 1997 and 1996, 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 improved capital ratios during 1998 reflect the net impact of large
share repurchases and the issuance of $150 million in trust preferred capital
securities during March 1998. As of December 31, 1997, BancShares recorded a
reduction in capital of $73.7 million for two stock purchases that were funded
during 1998. In response to the reduction in shareholder's equity, management
elected to issue the trust preferred capital securities, which qualify as
capital for regulatory purposes.
The rate of return on average shareholders' equity during 1998, 1997 and
1996 amounted to 11.3 percent, 11.0 percent and 11.4 percent, respectively.
During the fourth quarter of 1998 the Board of Directors of BancShares
reauthorized the purchase of its Class A and Class B common stock. Management
views the purchase of its stock as a good investment and will continue to
repurchase shares when market conditions are favorable for such transactions
and excess capital exists to fund those purchases.
FOURTH QUARTER ANALYSIS
BancShares' net income for the fourth quarter of 1998 totaled $19.7
million, compared to $17.4 million during the same period of 1997, an increase
of $2.4 million or 13.5 percent. The increase in net income was primarily due
to a $10.7 million increase in noninterest income and a $7.6 million increase
in net interest income, partially offset by a $12.6 million increase in
noninterest expense and a $1.1 million increase in provision for loan losses.
As indicated in Table 17, total assets averaged $9.32 billion and $8.79 billion
during the fourth quarter of 1998 and 1997, respectively. Interest-earning
assets averaged $8.41 billion during the fourth quarter of 1998, an increase of
5.2 percent over the same period of 1997. Average loans outstanding during the
fourth quarter of 1998 were $6.20 billion, an increase of $845.3 million over
the same period of 1997. Loan growth was strongest among commercial loans
secured by real estate and commercial and industrial loans. Investment
securities averaged $2.09 billion during the fourth quarter of 1998, a $416.1
million reduction from the same period of 1997, the result of maturing
securities being used to fund current loan demand.
33
<PAGE>
Interest income increased $7.9 million or 5.24 percent in the fourth
quarter of 1998 when compared to the same period of 1997. The increase in
interest income during 1998 resulted from a $13.7 million increase in loan
interest income that was partially offset by a $6.4 million reduction in
investment securities interest income. The increases in loan interest income
resulted from loan growth. The decrease in investment securities interest
income resulted from decreases in average volume and a decrease in the yield
for investment securities. Interest-earning assets yielded 7.58 percent during
the fourth quarter of 1998, an increase from the 7.52 percent yield recorded
during the fourth quarter of 1997.
Table 17
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Fourth Third Second First
--------------- --------------- --------------- ---------------
(thousands, except per share data and ratios)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ......................................... $ 158,101 $ 157,381 $ 154,535 $ 149,470
Interest expense ........................................ 73,057 73,924 73,643 71,447
------------ ------------ ------------ ------------
Net interest income ..................................... 85,044 83,457 80,892 78,023
Provision for loan losses ............................... 4,893 5,324 5,267 4,395
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ..... 80,151 78,133 75,625 73,628
Noninterest income ...................................... 42,658 36,195 35,390 31,895
Noninterest expense ..................................... 91,445 86,309 84,161 81,019
------------ ------------ ------------ ------------
Income before income taxes .............................. 31,364 28,019 26,854 24,504
Income taxes ............................................ 11,648 9,931 9,309 8,844
------------ ------------ ------------ ------------
Net income .............................................. $ 19,716 $ 18,088 $ 17,545 $ 15,660
============ ============ ============ ============
Net interest income -- taxable equivalent ............... $ 85,838 $ 83,988 $ 81,397 $ 78,541
============ ============ ============ ============
SELECTED QUARTERLY AVERAGES
Total assets ............................................ $ 9,315,347 $ 9,183,571 $ 9,142,981 $ 8,927,355
Investment securities ................................... 2,087,308 2,244,014 2,461,590 2,442,962
Loans ................................................... 6,169,556 6,024,822 5,711,599 5,474,570
Interest-earning assets ................................. 8,413,435 8,305,482 8,269,008 8,067,590
Deposits ................................................ 7,914,649 7,744,217 7,755,945 7,619,330
Interest-bearing liabilities ............................ 7,410,007 7,244,949 7,241,686 7,096,124
Long-term obligations ................................... 159,196 158,353 159,984 55,814
Shareholders' equity .................................... $ 651,656 $ 635,521 $ 621,605 $ 607,608
Shares outstanding ...................................... 10,625,559 10,625,559 10,626,702 10,627,453
============ ============ ============ ============
SELECTED QUARTER-END BALANCES
Total assets ............................................ $ 9,605,787 $ 9,194,842 $ 9,224,848 $ 9,252,029
Investment securities ................................... 2,160,329 2,115,343 2,348,771 2,526,366
Loans ................................................... 6,195,591 6,132,422 5,886,315 5,562,831
Interest-earning assets ................................. 8,588,645 8,257,765 8,235,086 8,324,197
Deposits ................................................ 8,112,408 7,771,093 7,798,918 7,873,484
Interest-bearing liabilities ............................ 7,542,636 7,260,204 7,291,813 7,327,020
Long-term obligations ................................... 158,801 158,801 159,456 160,219
Shareholders' equity .................................... $ 660,749 $ 643,673 $ 628,702 $ 615,036
Shares outstanding ...................................... 10,625,559 10,625,559 10,625,559 10,627,453
============ ============ ============ ============
PROFITABILITY RATIOS (averages)
Rate of return(annualized) on:
Total assets ........................................... 0.84% 0.78% 0.77% 0.71%
Shareholders' equity ................................... 12.00 11.29 11.32 10.45
Dividend payout ratio ................................... 13.51 14.71 15.15 17.01
============ ============ ============ ============
LIQUIDITY AND CAPITAL RATIOS (averages)
Loans to deposits ....................................... 77.95% 77.80% 73.64% 71.85%
Shareholders' equity to total assets .................... 7.00 6.92 6.80 6.81
Time certificates of $100,000 or more to total
deposits ............................................... 8.88 8.85 9.15 9.77
============ ============ ============ ============
PER SHARE OF STOCK
Net income .............................................. $ 1.85 $ 1.70 $ 1.65 $ 1.47
Cash dividends .......................................... 0.25 0.25 0.25 0.25
Class A sales price
High ................................................... 92.94 102.00 118.00 122.00
Low .................................................... 78.00 79.50 99.13 103.00
Class B sales price
High ................................................... 87.00 101.60 114.00 118.50
Low .................................................... 83.00 84.00 100.00 100.00
============ ============ ============ ============
<CAPTION>
1997
---------------------------------------------------------------
Fourth Third Second First
--------------- --------------- --------------- ---------------
(thousands, except per share data and ratios)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ......................................... $ 150,225 $ 145,494 $ 140,118 $ 136,439
Interest expense ........................................ 72,818 68,947 64,542 61,706
------------ ------------ ------------ ------------
Net interest income ..................................... 77,407 76,547 75,576 74,733
Provision for loan losses ............................... 3,753 1,309 2,097 1,567
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ..... 73,654 75,238 73,479 73,166
Noninterest income ...................................... 31,912 31,087 28,894 23,414
Noninterest expense ..................................... 78,832 76,561 74,817 70,584
------------ ------------ ------------ ------------
Income before income taxes .............................. 26,734 29,764 27,556 25,996
Income taxes ............................................ 9,370 10,746 9,972 9,404
------------ ------------ ------------ ------------
Net income .............................................. $ 17,364 $ 19,018 $ 17,584 $ 16,592
============ ============ ============ ============
Net interest income -- taxable equivalent ............... $ 78,327 $ 77,052 $ 76,092 $ 75,255
============ ============ ============ ============
SELECTED QUARTERLY AVERAGES
Total assets ............................................ $ 8,794,596 $ 8,411,774 $ 8,099,236 $ 7,903,566
Investment securities ................................... 2,503,443 2,359,115 2,166,362 2,094,376
Loans ................................................... 5,324,286 5,073,404 5,023,409 4,921,346
Interest-earning assets ................................. 7,994,728 7,632,755 7,368,645 7,196,138
Deposits ................................................ 7,427,881 7,144,502 6,952,848 6,823,697
Interest-bearing liabilities ............................ 6,924,776 6,608,892 6,341,125 6,203,598
Long-term obligations ................................... 11,450 12,017 11,545 6,809
Shareholders' equity .................................... $ 649,214 $ 651,923 $ 635,680 $ 619,956
Shares outstanding ...................................... 11,378,368 11,389,472 11,394,965 11,398,246
============ ============ ============ ============
SELECTED QUARTER-END BALANCES
Total assets ............................................ $ 8,951,109 $ 8,595,591 $ 8,351,978 $ 7,975,617
Investment securities ................................... 2,483,294 2,432,424 2,271,282 2,063,526
Loans ................................................... 5,445,772 5,208,195 4,996,770 4,955,135
Interest-earning assets ................................. 8,010,841 7,710,619 7,467,252 7,225,661
Deposits ................................................ 7,579,567 7,297,884 7,127,282 6,911,806
Interest-bearing liabilities ............................ 7,052,749 6,744,133 6,501,771 6,217,905
Long-term obligations ................................... 10,856 11,482 12,150 6,827
Shareholders' equity .................................... $ 601,640 $ 662,490 $ 644,210 $ 629,265
Shares outstanding ...................................... 10,627,453 11,389,928 11,392,085 11,395,656
============ ============ ============ ============
PROFITABILITY RATIOS (averages)
Rate of return(annualized) on:
Total assets ........................................... 0.78% 0.90% 0.87% 0.85%
Shareholders' equity ................................... 10.61 11.57 11.10 10.85
Dividend payout ratio ................................... 16.13 14.97 16.23 17.12
============ ============ ============ ============
LIQUIDITY AND CAPITAL RATIOS (averages)
Loans to deposits ....................................... 71.68% 71.01% 72.25% 72.12%
Shareholders' equity to total assets .................... 7.38 7.75 7.85 7.84
Time certificates of $100,000 or more to total
deposits ............................................... 10.05 9.68 9.36 9.30
============ ============ ============ ============
PER SHARE OF STOCK
Net income .............................................. $ 1.55 $ 1.67 $ 1.54 $ 1.46
Cash dividends .......................................... 0.25 0.25 0.25 0.25
Class A sales price
High ................................................... 121.00 101.00 95.50 88.00
Low .................................................... 94.50 83.50 79.00 73.00
Class B sales price
High ................................................... 109.50 86.50 80.75 77.00
Low .................................................... 91.00 86.50 77.00 73.00
============ ============ ============ ============
</TABLE>
- ---------
Average loan balances include nonaccrual loans. Yields related to loans and
securities exempt from both federal and state income taxes, federal income
taxes only, or state income taxes only, are stated on a taxable-equivalent
basis assuming a statutory federal income tax rate of 35% for all periods, and
state income tax rates of 7.25%, 7.50% and 7.75% for 1998, 1997, and 1996,
respectively.
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, 1998, there were 3,546 holders of record of the Class A
common stock and 650 holders of record of the Class B common stock.
34
<PAGE>
Average interest-bearing liabilities experienced a $485.2 million increase
from the fourth quarter of 1997 to the same period of 1998, primarily the
result of increases in average deposits and long-term borrowings. The growth in
average deposits was strongest among money market accounts, while the increase
in long-term borrowings resulted from the issuance of the $150 million in trust
preferred capital securities in early 1998. The rate on total interest-bearing
liabilities decreased from 4.17 percent to 3.91 percent between the two
periods.
Net interest income increased $7.6 million from the fourth quarter of 1997
to the fourth quarter of 1998, the increase resulting from loan growth.
Noninterest income for the fourth quarter of 1998 was $42.7 million, an
increase of $10.7 million or 33.7 percent. Higher noninterest income primarily
resulted from a $3.1 million gain recognized on the sale of six branch offices.
No such gain was recognized in the fourth quarter of 1997. Additionally,
BancShares recognized a $2.4 million increase in income resulting from sales of
mortgage loans during the fourth quarter of 1998 over the same period of 1997.
Further increases were also recorded in service charge income, other service
charges and fees and credit card income.
Noninterest expense amounted to $91.4 million for the quarter ended
December 31, 1998, compared to $78.8 million for the quarter ended December 31,
1997. Most of the 16.0 percent increase was in salary expense, occupancy
expense, legal expense and consulting expense, much of which relates to year
2000 preparations. Tables 17 and 18 are useful when making quarterly
comparisons.
Table 18
CONSOLIDATED TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS -- Fourth Quarter
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------- ---------- ---------- ------------- ----------- ----------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:
Secured by real estate .................. $3,718,508 $ 75,060 8.03% $3,240,498 $ 66,119 8.12%
Commercial and industrial ............... 803,512 17,095 8.46 607,095 13,734 8.99
Consumer ................................ 1,543,949 31,340 8.39 1,386,990 30,074 8.66
Lease financing ......................... 92,041 2,062 8.96 74,812 1,640 8.77
Other ................................... 11,546 205 7.04 14,891 184 4.90
---------- -------- ---- ---------- -------- ----
Total loans ............................ 6,169,556 125,762 8.20 5,324,286 111,751 8.36
Investment securities:
U. S. Government ........................ 2,057,259 30,083 5.80 2,468,535 36,546 5.87
State, county and municipal ............. 3,858 69 7.10 4,920 109 8.79
Other ................................... 26,191 129 1.95 29,988 397 5.25
---------- -------- ---- ---------- -------- ----
Total investment securities ............ 2,087,308 30,281 5.76 2,503,443 37,052 5.87
Federal funds sold ....................... 156,571 2,852 7.23 166,999 2,342 5.56
---------- -------- ---- ---------- -------- ----
Total interest-earning assets .......... $8,413,435 $158,895 7.58% $7,994,728 $151,145 7.52%
========== ======== ==== ========== ======== ====
LIABILITIES
Deposits:
Checking With Interest .................. $1,064,972 $ 2,222 0.83% $ 968,305 $ 2,586 1.06%
Savings ................................. 687,551 3,079 1.78 689,246 3,246 1.87
Money market accounts ................... 1,190,474 10,018 3.34 974,343 9,187 3.74
Time deposits ........................... 3,713,302 47,996 5.13 3,697,101 49,952 5.36
---------- -------- ---- ---------- -------- ----
Total interest-bearing deposits ........ 6,656,299 63,315 3.77 6,328,995 64,971 4.07
Short-term borrowings .................... 594,512 6,563 4.38 584,331 7,614 5.17
Long-term obligations .................... 159,196 3,179 7.92 11,450 233 8.07
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities ..... $7,410,007 $ 73,057 3.91% $6,924,776 $ 72,818 4.17%
========== ======== ==== ========== ======== ====
Interest rate spread ..................... 3.67% 3.35%
==== ====
Net interest income and net yield on
interest-earning assets ................. $ 85,838 4.05% $ 78,327 3.89%
======== ==== ======== ====
<CAPTION>
Increase (decrease) due to:
--------------------------------------
Yield/ Total
Volume Rate Change
------------- ------------ -----------
(thousands)
<S> <C> <C> <C>
ASSETS
Loans:
Secured by real estate .................. $ 9,992 $ (1,051) $ 8,941
Commercial and industrial ............... 4,480 (1,119) 3,361
Consumer ................................ 2,930 (1,664) 1,266
Lease financing ......................... 382 40 422
Other ................................... (50) 71 21
------- -------- ---------
Total loans ............................ 17,734 (3,723) 14,011
Investment securities:
U. S. Government ........................ (6,056) (407) (6,463)
State, county and municipal ............. (21) (19) (40)
Other ................................... (34) (234) (268)
------- -------- ---------
Total investment securities ............ (6,111) (660) (6,771)
Federal funds sold ....................... (170) 680 510
------- -------- ---------
Total interest-earning assets .......... $11,453 $ (3,703) $ 7,750
======= ======== =========
LIABILITIES
Deposits:
Checking With Interest .................. 228 $ (592) $ (364)
Savings ................................. (9) (158) (167)
Money market accounts ................... 1,925 (1,094) 831
Time deposits ........................... 203 (2,159) (1,956)
--------- -------- ---------
Total interest-bearing deposits ........ 2,347 (4,003) (1,656)
Short-term borrowings .................... 123 (1,174) (1,051)
Long-term obligations .................... 2,978 (32) 2,946
--------- -------- ---------
Total interest-bearing liabilities ..... $ 5,448 $ (5,209) $ 239
========= ======== =========
Interest rate spread .....................
Net interest income and net yield on
interest-earning assets ................. $ 6,005 $ 1,506 $ 7,511
========= ======== =========
</TABLE>
- ---------
Average loan balances include nonaccrual loans.
35
<PAGE>
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.
YEAR 2000 PREPARATIONS
BancShares continues to devote significant resources to the efforts
related to preparation for the arrival of the year 2000 ("Y2K"). As is the case
with most financial institutions, BancShares is heavily dependent on
technologies that, in turn, are highly date sensitive.
During 1996, recognizing the significance of the Y2K problem, BancShares
retained a qualified consultant to plan and direct the process by which the Y2K
project would proceed. The consultant works under the supervision of a Y2K
Executive Steering Committee, which includes BancShares' Chief Financial
Officer and Chief Information Officer. This committee provides ongoing updates
to the Board of Directors.
BancShares has divided its Y2K efforts into four areas -- mainframe
computing, non-mainframe computing, non-information technology and business
continuity planning. The progress made to date in each of these areas is, in
management's opinion, appropriate.
State of Readiness -- With respect to mainframe computing, remediation and
testing have been completed on 91 percent of the applications, while
substantially all remaining applications will be complete before March 31,
1999.
With respect to non-mainframe computing, remediation and testing are
complete for all of the mission-critical applications. Remediation and testing
for remaining non-mission-critical applications are scheduled to be complete by
April 30, 1999. For certain applications that, in management's opinion, are at
risk of not achieving Y2K compliance by an acceptable date, contingency actions
are underway to identify suitable alternatives that are Y2K compliant and that
may be implemented in a timely manner.
With respect to non-information technology exposures, management has
identified those assets and services that, in management's opinion, will be
impacted by Y2K. Those assets and services are currently proceeding through a
validation process. This process is complete for 49% of the assets and services
that have been identified. Contingency plans are being developed for those
mission-critical assets and services that will not be compliant by March 31,
1999.
Business continuity planning efforts are well underway. Risk assessment
for business continuity is scheduled to be complete on March 31, 1999. Plans
will be developed by June 30, 1999, and those plans will be implemented and
validated by September 30, 1999.
Costs -- BancShares estimates that the total cost of the Y2K project will
be approximately $8.5 million. The cost of BancShares' Y2K efforts during 1998
was $4.4 million. BancShares expects to incur $1.7 million during 1999. All
costs related to the Y2K project are expensed as incurred.
Risks -- The implications of the Y2K problem, whether the result of
BancShares' own failure to achieve readiness or the failure of a material
customer or vendor to achieve readiness, could have a material adverse impact
on BancShares' operations and its results of operations. However, management
believes the efforts underway will minimize the likelihood of such a crisis.
BancShares believes its most reasonably likely worst case scenario will be
a failure by certain customers and vendors to achieve Y2K readiness. With
respect to its customers, BancShares has identified its material borrowers and
has requested disclosures from those borrowers as to their readiness and their
risks. Based on these findings, management has identified customers who, in
management's opinion, may experience some distress as a result of Y2K. The
assessments have been substantially completed for customers who exceeded the
established parameters. Management continues to monitor these customers' Y2K
readiness periodically.
For key vendors who provide goods and services, BancShares has requested
status reports that describe their efforts to achieve Y2K readiness. Most of
the requests have been honored, and, based on these responses, except for
exposures related to public utilities, there are no known risks among the
identified vendors.
36
<PAGE>
Regulatory agencies that have authority over BancShares and its
subsidiaries have determined that Y2K testing and certification are key safety
and soundness issues in conjunction with regulatory exams. Therefore, failure
to address the Y2K issue in an appropriate manner could result in supervisory
action, including the reduction of the supervisory rating, the denial of
applications for approval of mergers or acquisitions or the imposition of
penalties. BancShares has received no notice of any such action from its
regulators.
Contingency Plans -- Throughout the project, BancShares has developed
contingency plans whenever it is apparent that specific applications will not
achieve Y2K compliance. Based on the respective situation, the inclination to
replace the application or to assess the impact of the non-compliant asset or
service will determine how the matter will be resolved.
For BancShares' most reasonably likely worst case scenario, contingency
plans are already active. As previously described, BancShares has actively
evaluated the status of readiness efforts of key customers and vendors and made
necessary modifications, including downgrading of exposure to customers who are
believed to be at risk of Y2K non-compliance.
Management will continue to evaluate deficiencies that become apparent and
to establish contingency plans to protect BancShares and to minimize its
exposure to Y2K uncertainties.
CURRENT ACCOUNTING AND REGULATORY ISSUES
During 1998, BancShares adopted several provisions issued by the Financial
Accounting Standards Board ("FASB").
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" became effective and was adopted by BancShares during
1998 and modifies the disclosure of earnings to include net income, other
comprehensive income and total comprehensive income. The adoption of SFAS 130
is reflected in the accompanying consolidated financial statements.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that public business enterprises report certain
information about operating segments in complete sets of financial statements
and in condensed financial statements of interim periods issued to
shareholders, as well as information about products, services, geographic areas
in which they operate and their major customers. The provisions of SFAS 131 are
not intended to compel companies to establish new reporting segments but to
provide information about existing segments used by primary decision makers.
The information regularly reviewed by BancShares' primary decision makers is
prepared on a consolidated basis. Consistent with that perspective, BancShares
has no operating segments meeting the disclosure criteria of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
the disclosure requirements of pensions and other postretirement benefits and
does not change any measurement or recognition provisions. BancShares adopted
SFAS No. 132 during 1998, although adoption did not have a material impact on
BancShares consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. As a
result of BancShares' limited use of derivative instruments, the adoption of
SFAS No. 133 should not have a material impact on its consolidated financial
statements. SFAS No. 133 becomes effective for BancShares during 2000.
In October 1998, the FASB issued SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." BancShares does not retain
securitized loans. Therefore, SFAS No. 134, which becomes effective during
1999, will have no impact on BancShares' consolidated financial statements.
Management is not aware of any current recommendations by regulatory
authorities that, if implemented, would have or would be reasonably likely to
have a material effect on liquidity, capital ratios or results of operations.
FORWARD-LOOKING STATEMENTS
This discussion may contain statements that could be deemed
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations
or beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," "anticipate," or other statements concerning
opinions or judgment of BancShares and its management about future events.
Factors that could influence the accuracy of such forward-looking statements
include, but are not limited to, the financial success or changing strategies
of BancShares' customers, actions of government regulators, the level of market
interest rates, and general economic conditions.
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, 1998 and 1997,
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, 1998. 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, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Raleigh, North Carolina
January 25, 1999
38
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------------------
1998 1997
------------- -------------
(thousands, except
share data)
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................. $ 502,955 $ 506,771
Investment securities held to maturity (fair value of $2,147,776 in 1998
and $2,462,111 in 1997) ................................................................ 2,135,372 2,456,722
Investment securities available for sale (cost of $10,264 in 1998 and $10,817 in 1997) .. 24,957 26,572
Federal funds sold ...................................................................... 232,725 81,775
Loans ................................................................................... 6,195,591 5,445,772
Less reserve for loan losses ............................................................ 96,115 84,360
---------- ----------
Net loans ............................................................................ 6,099,476 5,361,412
Premises and equipment .................................................................. 367,076 303,775
Income earned not collected ............................................................. 61,652 66,631
Other assets ............................................................................ 181,574 147,451
---------- ----------
Total assets ......................................................................... $9,605,787 $8,951,109
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing .................................................................... $1,296,713 $1,131,498
Interest-bearing ....................................................................... 6,815,695 6,448,069
---------- ----------
Total deposits ....................................................................... 8,112,408 7,579,567
Short-term borrowings ................................................................... 568,140 593,824
Long-term obligations ................................................................... 158,801 10,856
Other liabilities ....................................................................... 105,689 165,222
---------- ----------
Total liabilities .................................................................... 8,945,038 8,349,469
SHAREHOLDERS' EQUITY
Common stock:
Class A -- $1 par value (11,000,000 shares authorized; 8,905,199 shares issued for 1998
and 1997) ............................................................................ 8,906 8,906
Class B -- $1 par value (2,000,000 shares authorized; 1,720,360 shares issued for 1998;
1,722,254 shares issued for 1997) .................................................... 1,720 1,722
Surplus ................................................................................. 143,760 143,760
Retained earnings ....................................................................... 497,316 437,794
Accumulated other comprehensive income .................................................. 9,047 9,458
---------- ----------
Total shareholders' equity ........................................................... 660,749 601,640
---------- ----------
Total liabilities and shareholders' equity ........................................... $9,605,787 $8,951,109
========== ==========
</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
------------------------------------------
1998 1997 1996
-------------- ------------- -------------
(thousands, except share
and per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans .................................................... $ 478,504 $ 428,997 $ 410,703
Investment securities:
U. S. Government ........................................ 133,535 133,007 114,831
State, county and municipal ............................. 207 273 330
Other ................................................... 507 102 172
----------- ----------- -----------
Total investment securities interest income ........... 134,249 133,382 115,333
Federal funds sold ....................................... 6,734 9,897 8,159
----------- ----------- -----------
Total interest income ................................. 619,487 572,276 534,195
INTEREST EXPENSE
Deposits ................................................. 255,517 243,749 230,905
Short-term borrowings .................................... 25,850 23,420 16,388
Long-term obligations .................................... 10,704 844 957
----------- ----------- -----------
Total interest expense ................................ 292,071 268,013 248,250
----------- ----------- -----------
Net interest income ................................... 327,416 304,263 285,945
Provision for loan losses ................................ 19,879 8,726 8,907
----------- ----------- -----------
Net interest income after provision for loan losses ... 307,537 295,537 277,038
NONINTEREST INCOME .......................................
Trust income ............................................. 12,710 11,284 10,008
Service charges on deposit accounts ...................... 47,055 41,748 40,710
Credit card income ....................................... 25,558 20,053 16,147
Other service charges and fees ........................... 36,029 27,788 23,878
Other .................................................... 24,786 14,434 12,561
----------- ----------- -----------
Total noninterest income .............................. 146,138 115,307 103,304
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and wages ....................................... 142,020 126,474 115,461
Employee benefits ........................................ 27,434 23,718 20,425
Occupancy expense ........................................ 28,112 23,338 22,023
Equipment expense ........................................ 36,545 32,035 27,068
Other .................................................... 108,823 95,229 93,691
----------- ----------- -----------
Total noninterest expense ............................. 342,934 300,794 278,668
----------- ----------- -----------
Income before income taxes ............................... 110,741 110,050 101,674
Income taxes ............................................. 39,732 39,492 36,207
----------- ----------- -----------
Net income ............................................ 71,009 70,558 65,467
----------- ----------- -----------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXES
Unrealized securities (losses) gains ..................... (411) 2,762 6,696
----------- ----------- -----------
Other comprehensive (loss) income ..................... (411) 2,762 6,696
----------- ----------- -----------
Comprehensive income .................................. $ 70,598 $ 73,320 $ 72,163
=========== =========== ===========
PER SHARE INFORMATION
Net income .............................................. $ 6.62 $ 6.22 $ 5.77
Cash dividends .......................................... 1.00 1.00 0.925
Weighted average shares outstanding ...................... 10,626,311 11,341,153 11,340,982
=========== =========== ============
</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>
Accumulated
Class A Class B Other Total
Common Common Retained Comprehensive Shareholders'
Stock Stock Surplus Earnings Income Equity
--------- ------------- ----------- ------------ --------------- --------------
(thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
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
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
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)
Net income ...................................... 65,467 65,467
Unrealized securities gains, net of $4,471 in
deferred 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
Redemption of 20,301 shares of Class A
common stock and 5,126 shares of
Class B common stock ........................... (20) (5) (2,086) (2,111)
Obligation to repurchase common stock ........... (726) (32) (72,934) (73,692)
Net income ...................................... 70,558 70,558
Unrealized securities gains, net of $1,826 in
deferred taxes ................................. 2,762 2,762
Cash dividends .................................. (11,384) (11,384)
------ ------- --------- --------- ------- ---------
Balance at December 31, 1997 .................... 8,906 1,722 143,760 437,794 9,458 601,640
Redemption of 1,894 shares of Class B
common stock ................................... (2) (202) (204)
Obligation to repurchase common stock ........... (624) (624)
Net income ...................................... 71,009 71,009
Unrealized securities losses, net of $338 in
deferred tax benefits .......................... (411) (411)
Cash dividends .................................. (10,661) (10,661)
------ ------- --------- --------- ------- ---------
Balance at December 31, 1998 .................... $8,906 $1,720 $143,760 $ 497,316 $9,047 $ 660,749
====== ====== ======== ========= ====== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- ---------------
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $ 71,009 $ 70,558 $ 65,467
Adjustments to reconcile net income to cash provided by operating activities:
Amortization of intangibles ................................................... 11,373 9,034 8,197
Provision for loan losses ..................................................... 19,879 8,726 8,907
Deferred tax expense (benefit) ................................................ (6,271) 1,475 (1,833)
Change in current taxes payable ............................................... 1,118 (71) (88)
Depreciation .................................................................. 27,205 19,273 16,932
Change in accrued interest payable ............................................ (1,731) 4,805 1,807
Change in income earned not collected ......................................... 4,979 (6,573) (862)
Origination of loans held for sale ............................................ (684,715) (434,471) (149,146)
Proceeds from sale of loans held for sale ..................................... 734,249 334,762 137,314
Gain on loans held for sale ................................................... (6,183) (219) (502)
Net amortization of premiums and discounts .................................... 10,157 8,277 11,658
Net change in other assets .................................................... (17,418) 19,102 (4,301)
Net change in other liabilities ............................................... 21,674 (3,100) (1,225)
---------- ---------- ------------
Net cash provided by operating activities ..................................... 185,325 31,578 92,325
---------- ---------- ------------
INVESTING ACTIVITIES
Net increase in loans outstanding ............................................. (827,353) (383,839) (139,670)
Purchases of investment securities held to maturity ........................... (740,404) (817,725) (1,039,460)
Proceeds from maturities of investment securities held to maturity ............ 1,052,463 476,114 890,363
Net change in federal funds sold .............................................. (150,950) 74,225 (115,555)
Dispositions of premises and equipment ........................................ 4,056 2,051 5,983
Additions to premises and equipment ........................................... (92,837) (69,011) (42,184)
Purchase of branches, net of cash received .................................... 177,688 106,016 7,584
---------- ---------- ------------
Net cash used by investing activities ......................................... (577,337) (612,169) (432,939)
---------- ---------- ------------
FINANCING ACTIVITIES
Net change in time deposits ................................................... (95,954) 299,926 99,448
Net change in demand and other interest-bearing deposits ...................... 447,070 158,150 258,104
Net change in short-term borrowings ........................................... (28,745) 205,752 (17,643)
Origination of long-term obligations .......................................... 151,006 -- --
Repurchases of common stock ................................................... (74,520) (2,111) (4,506)
Proceeds from issuance of common stock ........................................ -- -- 4,169
Cash dividends paid ........................................................... (10,661) (11,384) (10,559)
---------- ---------- ------------
Net cash provided by financing activities ..................................... 388,196 650,333 329,013
---------- ---------- ------------
Change in cash and due from banks ............................................. (3,816) 69,742 (11,601)
Cash and due from banks at beginning of period ................................ 506,771 437,029 448,630
---------- ---------- ------------
Cash and due from banks at end of period ...................................... $ 502,955 $ 506,771 $ 437,029
========== ========== ============
CASH PAYMENTS FOR:
Interest ...................................................................... $ 294,095 $ 263,722 $ 246,443
Income taxes .................................................................. 42,802 37,984 35,554
---------- ---------- ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions .......................................... $ -- $ -- $ 33,403
Long-term obligations issued for acquisitions ................................. -- -- 1,468
Unrealized securities gains (losses) .......................................... (749) 4,588 11,167
Change in obligation to repurchase common stock ............................... 624 73,692 --
========== ========== ============
</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 two banking subsidiaries -- First-Citizens Bank & Trust Company,
headquartered in Raleigh, North Carolina ("FCB"), which operates branches in
North Carolina, Virginia and West Virginia; and Atlantic States Bank ("ASB"), a
federally-chartered thrift institution with branch offices in the metropolitan
Atlanta, Georgia area and Southwest Florida. BancShares has no foreign
operations.
FCB and ASB offer full-service banking services designed to meet the needs
of both retail and commercial customers in the markets in which they serve. The
services offered include transaction and savings deposits, commercial and
consumer lending, a full service trust department, a full service securities
broker-dealer, insurance services and other activities incidental to commercial
banking.
FCB has eight subsidiaries. Neuse, Incorporated owns a number of the
facilities in which FCB operates branches. 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. FCB
Investor Services provides investment services, including sales of annuities
and third party mutual funds and discount brokerage services. First-Citizens
Bank, A Virginia Corporation, is the issuing and processing bank for
BancShares' retail credit cards. Other subsidiaries are either inactive or are
not material to the consolidated financial statements. Nontraditional banking
segments within BancShares' operations are not material to the consolidated
financial statements.
The accounting and reporting policies of BancShares and its subsidiaries
are in accordance with generally accepted accounting principles and, with
regard to the banking subsidiaries, conform to general industry practices. The
preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates made by BancShares in the preparation of its consolidated
financial statements are the determination of the reserve for loan losses, the
valuation allowance for deferred tax assets, and fair value estimates.
Intercompany accounts and transactions have been eliminated. Certain
amounts for prior years have been reclassified to conform with statement
presentations for 1998. However, the reclassifications have no effect on
shareholders' equity or net income as previously reported.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income and its components in
complete financial statements. BancShares adopted SFAS No. 130 in 1998,
reclassifying prior period financial statements for comparative purposes for
all periods presented. BancShares' only component of other comprehensive income
was unrealized securities gains or losses.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 requires
that public business enterprises report certain information about operating
segments in complete sets of financial statements issued to shareholders. It
also requires that public business enterprises report certain information about
their products and services, the geographic areas in which they operate and
their major customers. The provisions of SFAS No. 131 became effective for
BancShares during 1998. The information regularly reviewed by BancShares
primary decision makers is prepared on a consolidated basis. Therefore,
BancShares has no operating segments meeting the disclosure criteria of SFAS
No. 131.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and other Postretirement Benefits ("SFAS No. 132"). SFAS No. 132
standardizes the disclosure requirements of pensions and other postretirement
benefits. Adoption of SFAS No. 132 did not result in changes to BancShares'
measurement or recognition provisions, but has resulted in altered disclosures
relating to pension obligations.
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
Investment Securities
For investment securities classified as held to maturity, BancShares has
the ability and the positive intent to hold those investments until maturity.
These securities are stated at cost adjusted for amortization of premium and
accretion of discount. Accreted discounts and amortized premiums are included
in interest income on an effective yield basis. Marketable equity securities
classified as available for sale 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 accumulated other comprehensive income
within shareholders' equity. At December 31, 1998 and 1997, BancShares had no
investment securities classified as held for trading purposes.
Loans
Loans that are held for investment purposes are carried at the principal
amount outstanding. Loans that are classified as available for sale are carried
at the lower of aggregate cost or fair value. Interest on substantially all
loans is accrued and credited to interest income on a constant yield basis
based upon the daily principal amount outstanding.
Loan Fees
Fees collected and certain costs incurred related to loan originations are
deferred and amortized as an adjustment to interest income over the life of the
related loans. The deferred fees and costs are recorded as an adjustment to
loans outstanding using a method that approximates a constant yield.
Mortagage Servicing Rights
The estimated value of the right to service mortgage loans for others
("MSRs") is included in other assets on BancShares' consolidated balance sheet.
Capitalization of MSRs occurs when the underlying loans are sold. Capitalized
MSRs are amortized into income over the projected servicing life of the
underlying loans. Capitalized MSRs are periodically reviewed for impairment.
Reserve for Loan Losses
The reserve for loan losses is established by charges to operating
expense. To determine the reserve needed, management evaluates the risk
characteristics of the loan portfolio under current economic conditions and
considers such factors as the financial condition of the borrower, fair value
of collateral and other items that, in management's opinion, deserve current
recognition in estimating possible credit losses.
Management considers the established reserve adequate to absorb estimated
probable losses that relate to loans outstanding as of December 31, 1998,
although future additions to the reserve may be necessary based on changes in
economic and other conditions. Additionally, various regulatory agencies, as an
integral part of their examination process, periodically review BancShares'
reserve for loan losses. Such agencies may require the recognition of additions
to the reserve based on their judgments of information available to them at the
time of their examination.
Nonaccrual Loans, Impaired Loans and Other Real Estate
Accrual of interest on 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 using the loan's original
effective interest rate or the collateral value. When the ultimate
collectibility of an impaired loan's principal is doubtful, all cash receipts
are applied to principal. Once the recorded principal balance has been reduced
to zero, future cash receipts are applied to interest income, to the extent
that any interest has been foregone. 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
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
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 intangibles are amortized over various lives and
speeds. Intangible assets are subject to periodic review and are adjusted for
any impairment of value.
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 income before income taxes and
generally differs from income taxes paid due to deferred income taxes and
benefits arising from income and expenses being recognized in different periods
for financial and income tax reporting purposes. BancShares uses the asset and
liability method to account for deferred income taxes. The objective of the
asset and liability method is to establish deferred tax assets and liabilities
for the temporary differences between the financial reporting basis and the
income tax basis of BancShares' assets and liabilities at enacted rates
expected to be in effect when such amounts are realized or settled. BancShares
and its subsidiaries file a consolidated federal income tax return. 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 1998, 1997
and 1996 was 10,626,311; 11,341,153; and 11,340,982, respectively. BancShares
had no potential common stock in any period.
During 1998, the calculation of net income per share reflected the impact
of changes in the value of BancShares' obligation to repurchase shares of its
common stock that were previously owned by a company-sponsored pension plan.
The obligation to repurchase those shares was recorded at fair value as of
December 31, 1997. Increases in the fair value of that obligation, which
totaled $624 during 1998, were deducted from net income in calculating net
income per share during 1998.
Cash dividends per share apply to both Class A and Class B common stock.
Class A common stock carries one vote per share, while shares of Class B common
stock carry 16 votes per share.
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
Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Investment securities held to maturity at December 31
1998
U.S. Government ..................................... $2,131,807 $12,970 $ (674) $2,144,103
State, county and municipal ......................... 3,250 114 (6) 3,358
Other ............................................... 315 -- -- 315
---------- ------- --------- ----------
Total investment securities held to maturity ....... $2,135,372 $13,084 $ (680) $2,147,776
========== ======= ========= ==========
1997
U.S. Government ..................................... $2,450,634 $ 6,664 $(1,585) $2,455,713
State, county and municipal ......................... 4,921 313 -- 5,234
Other ............................................... 1,167 -- (3) 1,164
---------- ------- ---------- ----------
Total investment securities held to maturity ....... $2,456,722 $ 6,977 $(1,588) $2,462,111
========== ======= ========= ==========
Investment securities available for sale at December 31
1998
Marketable equity securities ........................ $ 10,264 $14,693 $ -- $ 24,957
========== ======= ========= ==========
1997
Marketable equity securities ........................ $ 10,817 $15,755 $ -- $ 26,572
========== ======= ========= ==========
</TABLE>
The maturities of investment securities held to maturity at December 31
are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Fair Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Within one year .............................. $1,337,806 $1,346,212 $1,057,940 $1,058,585
One through five years ....................... 793,746 797,625 1,391,331 1,395,920
Five to 10 years ............................. 372 377 2,932 2,977
Over 10 years ................................ 3,448 3,562 4,519 4,629
---------- ---------- ---------- ----------
Total investment securities held to maturity $2,135,372 $2,147,776 $2,456,722 $2,462,111
========== ========== ========== ==========
</TABLE>
Investment securities having an aggregate par value of $1,025,972 at
December 31, 1998 and $1,094,261 at December 31, 1997, were pledged as
collateral to secure public funds on deposit and for other purposes as required
by law.
46
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE C -- LOANS
Loans outstanding at December 31 include the following:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Loans secured by real estate:
Construction and land development ... $ 157,603 $ 113,735
Residential mortgage ................ 1,299,508 1,411,279
Other real estate mortgage loans .... 2,272,565 1,795,882
---------- -----------
Total loans secured by real estate ... 3,729,676 3,320,896
Commercial and industrial ............ 845,068 633,580
Consumer ............................. 1,516,712 1,402,093
Lease financing ...................... 93,680 74,589
All other loans ...................... 10,455 14,614
---------- -----------
Total loans ......................... $6,195,591 $ 5,445,772
========== ===========
</TABLE>
There were no foreign loans outstanding during either period, nor were
there any loans to finance highly leveraged transactions. There are no loan
concentrations exceeding ten percent of loans outstanding involving multiple
borrowers in similar activities or industries at December 31, 1998.
Substantially all loans are to customers domiciled within BancShares' principal
market areas.
At December 31, 1998 and 1997 nonperforming loans consisted of nonaccrual
loans and amounted to $12,489 and $12,681, respectively. Gross interest income
on nonperforming loans that would have been recorded had these loans been
performing was $1,108, $1,156, and $1,162, respectively, during 1998, 1997 and
1996. Interest income recognized on nonperforming loans was $409, $349 and $259
during the respective periods. As of December 31, 1998 and 1997, the balance of
other real estate acquired through foreclosure was $1,529 and $1,462. Loans
transferred to other real estate totaled $2,051, $1,683 and $1,649 during 1998,
1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Loans held for sale at December 31 .......... $ 84,299 $127,650 $ 27,722
For the year ended December 31:
Loans sold ................................ 728,066 334,543 136,812
Net gain on sale of loans ................. 6,183 219 502
</TABLE>
FCB services mortgage loans for itself and others. The carrying value of
loans serviced for others as of December 31, 1998 and 1997 was $1,366,416 and
$970,842, respectively.
The carrying value of the rights to service loans for others at December
31, 1998 and 1997 was $4,405 and $2,527, respectively.
NOTE D -- RESERVE FOR LOAN LOSSES
Activity in the reserve for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at the beginning of year ........... $ 84,360 $ 81,439 $ 78,495
Reserves of acquired institutions .......... -- 481 1,387
Provision for loan losses .................. 19,879 8,726 8,907
Loans charged off .......................... (14,067) (14,331) (11,653)
Loans recovered ............................ 5,943 8,045 4,303
--------- --------- ---------
Net charge-offs ............................ (8,124) (6,286) (7,350)
--------- --------- ---------
Balance at the end of year ................. $ 96,115 $ 84,360 $ 81,439
========= ========= =========
</TABLE>
47
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE D -- RESERVE FOR LOAN LOSSES -- Continued
At December 31, 1998 and 1997, impaired loans totaled $8,069 and $9,132,
respectively, all of which were classified as nonaccrual. Total reserves of
$1,155 and $1,033 have been established for impaired loans outstanding as
December 31, 1998 and 1997, respectively. The average recorded investment in
impaired loans during the years ended December 31, 1998, 1997 and 1996, was
$7,580, $6,779 and $11,463, respectively. For the years ended December 31,
1998, 1997 and 1996, BancShares recognized cash basis interest income on those
impaired loans of $194, $212 and $57, respectively.
NOTE E -- PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land ............................................ $ 83,637 $ 69,170
Premises and leasehold improvements ............. 245,805 190,536
Furniture and equipment ......................... 186,226 174,230
-------- --------
Total .......................................... 515,668 433,936
Less accumulated depreciation and amortization .. 148,592 130,161
-------- --------
Net book value ................................. $367,076 $303,775
======== ========
</TABLE>
Premises with at book value of $1,443 at December 31, 1998, and $4,600 at
December 31, 1997, 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, 1998:
<TABLE>
<CAPTION>
Year Ending December 31: Amount
- ------------------------------------------- ---------
<S> <C>
1999 ............................. $ 9,532
2000 ............................. 8,853
2001 ............................. 7,063
2002 ............................. 5,421
2003 ............................. 4,061
Thereafter ....................... 52,681
-------
Total minimum payments .................. $87,611
=======
</TABLE>
Total rent expense for all operating leases amounted to $13,687 in 1998,
$15,709 in 1997 and $13,572 in 1996.
48
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE F -- DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Demand .......................... $1,296,713 $1,131,498
Checking With Interest .......... 1,151,961 1,009,577
Money market accounts ........... 1,242,672 1,034,528
Savings ......................... 687,192 679,165
Time ............................ 3,733,870 3,724,799
---------- ----------
Total deposits ........................ $8,112,408 $7,579,567
========== ==========
</TABLE>
Total time deposits with a minimum denomination of $100 were $716,740 and
$751,051 at December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits were:
<TABLE>
<S> <C>
1999 ........................ $3,161,266
2000 ........................ 294,534
2001 ........................ 126,319
2002 ........................ 74,175
2003 ........................ 77,272
Thereafter .................. 304
----------
Total time deposits ......... $3,733,870
==========
</TABLE>
NOTE G -- SHORT-TERM BORROWINGS
Short-term borrowings at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Master notes ................... $326,603 $315,529
Repurchase agreements .......... 95,863 54,796
Federal funds purchased ........ 84,345 45,380
Notes payable .................. 48,667 158,130
U.S. Treasury tax and loan accounts 12,662 19,989
-------- --------
Total short-term borrowings ........... $568,140 $593,824
======== ========
</TABLE>
Master notes are overnight unsecured borrowings by BancShares from
customers. The rate on Master notes was 3.63 percent as of December 31, 1998.
During 1998, the weighted average rate on Master note borrowings was 4.60
percent, and the average amount outstanding was $320,480. The largest amount
outstanding at any month-end during 1998 was $354,442. During 1997, the average
rate on Master note borrowings was 4.63 percent, while the average amount
outstanding was $301,558. The rate at December 31, 1997 was 4.40 percent, and
the largest amount outstanding at any month-end was $332,055.
At December 31, 1998, repurchase agreements totaled $95,863, all of which
were overnight borrowings. During 1998, these borrowings averaged $79,676 and
the rate on these borrowings averaged 4.13 percent. The rate on these
borrowings at December 31, 1998 was 3.38 percent, and the largest amount
outstanding at any month end was $106,620. During 1997, the average rate for
repurchase obligations was 4.32 percent and the average amount outstanding was
$34,848. The largest amount outstanding at any month end during 1997 was
$56,942 and the rate on these borrowings at December 31, 1997 was 4.15 percent.
At December 31, 1997, notes payable represents various borrowings,
including $155,000 borrowed from other banks, with maturities extending to May
1998. During 1997, these borrowings averaged $92,498 and the rate on these
borrowings
49
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE G -- SHORT-TERM BORROWINGS -- Continued
averaged 5.93 percent. The weighted-average rate on these borrowings at
December 31, 1997 was 5.95 percent, and the largest amount outstanding at any
month end was $158,764.
At December 31, 1998, federal funds purchased totaled $84,345, all of
which were overnight borrowings. During 1998, these borrowings averaged $62,758
and the rate on these borrowings averaged 5.24 percent The weighted-average
rate on these borrowings at December 31, 1998 was 4.68 percent, and the largest
amount outstanding at any month end was $104,675. During 1997, the average rate
for federal funds purchased was 5.30 percent and the average amount outstanding
was $28,752. The largest amount outstanding at any month end during 1997 was
$45,420 and the weighted-average rate at December 31, 1997 was 5.72 percent.
NOTE H -- LONG-TERM OBLIGATIONS
Long-term obligations at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Trust preferred capital securities at 8.05 percent maturing March 5, 2028 .... $150,000 $ --
Unsecured fixed rate notes payable:
7.00 percent maturing February 22, 1999 ..................................... -- 135
7.50 percent maturing February 23, 2000 ..................................... 163 170
7.25 percent maturing February 23, 2001 ..................................... 1,284 1,332
8.00 percent maturing February 23, 2005 ..................................... 2,178 2,277
6.75 percent note due in annual installments maturing September 1, 2003 ..... 1,006 --
Unsecured variable rate note at 6.17 percent payable in quarterly installments 2,819 5,074
8.00 percent mortgage notes, due in periodic payments through 2004, secured
by premises ................................................................. 1,051 1,493
Other ........................................................................ 300 375
-------- --------
Total long-term obligations ................................................. $158,801 $ 10,856
======== ========
</TABLE>
The trust preferred capital securities were issued by a wholly-owned
subsidiary of BancShares, and BancShares has guaranteed the repayment of those
securities. The proceeds from the issuance of the trust preferred capital
securities were invested in BancShares and that investment became the sole
asset of the trust. BancShares then made a capital infusion into FCB. The trust
preferred capital securities qualify as Tier 1 capital for regulatory capital
adequacy requirements for BancShares and FCB.
Long-term obligations maturing in each of the five years subsequent to
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 ............... $ 160
2000 ............... 2,830
2001 ............... 2,260
2002 ............... 412
2003 ............... 410
Thereafter ......... 152,729
--------
$158,801
========
</TABLE>
NOTE I -- COMMON STOCK
On October 26, 1998, 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. During 1997 and 1996, the Board of Directors of BancShares had
made similar authorizations to repurchase shares of BancShares stock.
50
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE I -- COMMON STOCK -- Continued
On December 31, 1997, BancShares adjusted its equity balances to
reclassify 126,400 shares of Class A common stock and 31,600 shares of Class B
common stock that were owned by a related defined benefit pension plan. The
plan's interests for all purposes with respect to the shares were represented
by an independent investment manager, in accordance with an agreement with the
Department of Labor. BancShares had executed an agreement to purchase any or
all of the shares held by the plan if the investment manager determines that is
in the best interests of the plan. The estimated value of those shares at
December 31, 1997 was $15,615, and an obligation for that amount was recorded
in other liabilities. During April 1998, BancShares repurchased and retired the
shares previously owned by the pension plan. The purchase price, which was
determined by an independent appraisal, was $16,239.
On December 2, 1997, the Board of Directors of BancShares authorized the
purchase of 600,000 shares of BancShares Class A common stock from a related
party. The purchase price was established based on an independent valuation of
the shares. The shares were repurchased by BancShares and retired on January
27, 1998. In connection with this commitment, BancShares recorded a reduction
in shareholders' equity and an obligation of $58,077 in the consolidated
balance sheet as of December 31, 1997. The obligation was included in other
liabilities.
The following table sets forth information related to shares purchased
pursuant to authorizations for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Class A
Number of shares purchased ........ 726,400 20,301 63,195
Cash disbursed .................... $ 71,068 $ 1,642 $ 4,027
Class B
Number of shares purchased ........ 33,494 5,126 7,484
Cash disbursed .................... $ 3,452 $ 469 $ 479
</TABLE>
Stock purchases are retired by a charge to common stock for the par value
of the shares retired and to retained earnings for the cost in excess of par
value.
NOTE J -- ESTIMATED FAIR VALUES
Fair value estimates are made at a specific point in time based on
relevant market information and information about each financial instrument.
Where information regarding the fair value of a financial instrument is
available, those values are used, as is the case with investment securities and
residential mortgage loans. In these cases, an open market exists in which
those financial instruments are actively traded.
Because no market exists for many financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. For these financial instruments with a fixed interest rate, an
analysis of the related cash flows was the basis for estimating fair values.
The expected cash flows were then discounted to the valuation date using an
appropriate discount rate. The discount rates used represent the rates under
which similar transactions would be currently negotiated. Generally, the fair
value of variable rate financial instruments equals the book value.
51
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE J -- ESTIMATED FAIR VALUES -- Continued
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and due from banks ................. $ 502,955 $ 502,955 $ 506,771 $ 506,771
Investment securities held to maturity .. 2,135,372 2,147,776 2,456,722 2,462,111
Investment securities available for sale 24,957 24,957 26,572 26,572
Federal funds sold ...................... 232,725 232,725 81,775 81,775
Loans, net of reserve for loan losses ... 6,099,476 6,162,947 5,361,412 5,328,877
Income earned not collected ............. 61,652 61,652 66,631 66,631
Deposits ................................ 8,112,408 8,133,055 7,579,567 7,579,978
Short-term borrowings ................... 568,140 568,140 593,824 593,824
Long-term obligations ................... 158,801 166,856 10,856 11,491
Accrued interest payable ................ 51,795 51,795 53,819 53,819
</TABLE>
Forward commitments to sell loans as of December 31, 1998, and 1997 had no
carrying value and unrealized losses of $1,037 and $829, 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 that is deductible for federal income tax
purposes. No contributions were made during the three-year period ending
December 31, 1998. The plan's assets consist primarily of investments in FCB's
common trust funds, which include listed common stocks and fixed income
securities.
The following table sets forth the plan's funded status and other
information at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year .................. $ 125,293 $ 109,384
Service cost ................................................. 4,940 3,975
Interest cost ................................................ 9,334 8,131
Actuarial loss ............................................... 11,502 8,546
Gross benefits paid .......................................... (5,272) (4,743)
--------- ---------
Net benefit obligation at end of year ......................... $ 145,797 $ 125,293
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year ............... $ 159,197 $ 137,758
Actual return on plan assets ................................. 23,676 26,182
Gross benefits paid .......................................... (5,272) (4,743)
--------- ---------
Fair value of plan assets at end of year ..................... $ 177,601 $ 159,197
========= =========
Funded status at end of year ................................. $ 31,804 $ 33,903
Unrecognized net actuarial gain .............................. (32,563) (30,195)
Unrecognized prior service cost .............................. 1,044 1,198
Unrecognized net transition asset ............................ (4,848) (6,076)
--------- ---------
Net amount recognized in other liabilities at end of year ..... $ (4,563) $ (1,170)
========= =========
</TABLE>
52
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE K -- EMPLOYEE BENEFIT PLANS -- Continued
The net periodic benefit cost for the years ended December 31 included the
following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost ............................ $ 4,940 $ 3,975 $ 3,596
Interest cost ........................... 9,334 8,131 7,565
Expected return on plan assets .......... (9,807) (9,209) (8,941)
Amortization of:
Transition asset ....................... (1,228) (1,228) (1,228)
Prior service cost ..................... 154 154 154
-------- -------- --------
Total net periodic benefit cost ......... $ 3,393 $ 1,823 $ 1,146
======== ======== ========
</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, 1998, 1997 and 1996, the following
assumptions were used:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average discount rate .............. 6.75% 7.25% 7.25%
Rate of future compensation increases ....... 4.50 4.50 4.25
Long-term rate of return on plan assets ..... 8.25 8.25 8.25
</TABLE>
Employees are also eligible to participate in a 401(k) plan after 31 days
of service. The 401(k) plan allows associates to defer portions of their
salary. Based on the employee's contribution, BancShares will match up to 75%
of the employee contribution. During 1998 BancShares made participating
contributions to this plan of $4,134 compared to $3,758 in 1997 and $3,473
during 1996.
NOTE L -- OTHER NONINTEREST INCOME AND OTHER NONINTEREST EXPENSE
Other noninterest income for the years ended December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
ATM income ............................... $ 9,557 $ 7,329 $ 5,289
Gain on sale of mortgage loans ........... 6,183 219 502
Other .................................... 9,046 6,886 6,770
------- ------- -------
Total other noninterest income .......... $24,786 $14,434 $12,561
======= ======= =======
</TABLE>
Other noninterest expense for the years ended December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Credit card expense ........................ $ 12,658 $11,722 $10,097
Amortization of intangibles ................ 11,373 9,034 8,197
Telecommunications expense ................. 9,046 8,032 7,711
Consulting expense ......................... 7,134 5,626 3,408
Postage expense ............................ 6,826 6,623 6,383
FDIC insurance ............................. 1,914 1,818 13,586
Other ...................................... 59,872 52,374 44,309
-------- ------- -------
Total other noninterest expense .......... $108,823 $95,229 $93,691
======== ======= =======
</TABLE>
During 1996, FDIC insurance expense included a special assessment of
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense
Federal ....................................... $ 44,442 $37,937 $ 37,923
State ......................................... 1,561 80 117
-------- ------- --------
Total current tax expense .................... 46,003 38,017 38,040
-------- ------- --------
Deferred tax expense (benefit)
Federal ....................................... (5,252) 1,179 (1,255)
State ......................................... (1,019) 296 (578)
-------- ------- --------
Total deferred tax expense (benefit) ......... (6,271) 1,475 (1,833)
-------- ------- --------
Total tax expense ............................ $ 39,732 $39,492 $ 36,207
======== ======= ========
</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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income at statutory rates ............................................................... $ 38,759 $ 38,518 $ 35,586
Increase (reduction) in income taxes resulting from:
Amortization of goodwill .............................................................. 2,082 2,099 1,991
Nontaxable income on loans and investments, net of nondeductible expenses ............. (1,346) (1,295) (1,387)
State and local income taxes (benefit), including change in valuation allowance, net of
federal income tax benefit ........................................................... 352 244 (168)
Other, net ............................................................................ (115) (74) 185
-------- -------- --------
Total tax expense .................................................................... $ 39,732 $ 39,492 $ 36,207
======== ======== ========
</TABLE>
The net deferred tax asset included the following components at December
31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Reserve for loan losses .................................. $ 38,015 $ 32,930
Losses on other real estate .............................. 570 1,500
Net operating loss carryforwards ......................... 477 710
Net periodic pension asset ............................... 1,812 466
Other .................................................... 7,391 6,750
-------- --------
Gross deferred tax asset ................................ 48,265 42,356
Less: valuation allowance ................................ (2,628) (2,547)
-------- --------
Deferred tax asset ...................................... 45,637 39,809
-------- --------
Accelerated depreciation ................................. 3,440 4,386
Accretion of bond discount ............................... 1,955 2,015
Tax loan loss reserve reversal ........................... 376 797
Unrealized gain on marketable equity securities .......... 5,959 6,273
Net deferred loan fees and costs ......................... 2,342 502
Other .................................................... 6,043 5,649
-------- --------
Deferred tax liability .................................. 20,115 19,622
-------- --------
Net deferred tax asset .................................. $ 25,522 $ 20,187
======== ========
</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 $2,628 and $2,547 at December 31, 1998
and 1997, respectively, is the amount necessary to reduce BancShares' gross
state deferred tax asset to the amount which is more likely than not to be
realized.
NOTE N -- RELATED PARTY TRANSACTIONS
BancShares, FCB and ASB have had, and expect to have in the future,
banking transactions in the ordinary course of business with several directors,
officers and their associates ("related parties"), on substantially the same
terms, including interest rates and collateral , as those prevailing at the
time for comparable transactions with others. Those transactions neither
involve more than the normal risk of collectibility nor present any unfavorable
features.
An analysis of changes in the aggregate amounts of related party loans for
the year ended December 31, 1998 is as follows:
<TABLE>
<S> <C>
Balance at beginning of year ......... $24,030
New loans ............................ 8,584
Repayments ........................... 8,484
-------
Balance at end of year ............... $24,130
=======
</TABLE>
BancShares provides certain processing and operational services to other
financial institutions. Certain of these institutions are deemed to be related
parties since significant shareholders of BancShares are also deemed to be
significant shareholders of the other banks. During 1998, 1997 and 1996,
BancShares received $12,012, $10,558 and $9,953, 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.
During 1998, BancShares sold several of its branch offices to related
parties. Other noninterest income during 1998 includes gains of $3,067 on the
sale of these branches.
NOTE O -- ACQUISITIONS AND DIVESTITURES
BancShares and its subsidiaries have consummated numerous acquisitions in
recent years. All of the acquisitions have been accounted for as purchases,
with the results of operations not included in BancShares' Consolidated
Statements of Income until after the transaction date. The pro forma impact of
the acquisitions as though they had been made at the beginning of the periods
presented is not material to BancShares' consolidated financial statements.
During 1998, FCB also divested a total of nine branches.
As of December 31, 1998 and 1997, BancShares had intangibles resulting
from acquisitions that totaled $121,730 and $100,949, respectively.
55
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE O -- ACQUISITIONS AND DIVESTITURES -- Continued
The following table provides information regarding the acquisitions and
divestitures that have been consummated during the three-year period ended
December 31, 1998:
<TABLE>
<CAPTION>
Date Institution and Location Assets Deposits Intangible
- ---------------- ------------------------------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
1998 Various branch purchases $ 23,472 $ 23,556 $ 2,320
1998 Various branch sales (132,138) (138,390) (6,276)
February 1998 Fifteen Signet Bank branches 262,020 296,852 32,577
Virginia
September 1997 First Saving Financial Corp. 45,431 36,025 1,826
Reidsville, North Carolina
May 1997 Four Wachovia Bank branches 80,613 86,460 7,250
Western North Carolina
April 1997 Three First Union National Bank branches 42,171 45,179 3,010
Western North Carolina
February 1996 Allied Bank Capital, Inc. 248,998 208,394 29,031
Sanford, 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 $143,660
during 1998, of which $116,851 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 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.
First Citizens Bank's capital components ratios as of December 31, 1998
and 1997 are set forth below:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Risk-based capital:
Tier 1 capital ............................ $ 679,983 $ 526,411
Total capital ............................. 764,492 598,576
Risk-adjusted assets ...................... 6,691,729 5,762,939
Quarterly average tangible assets ......... 8,827,652 8,288,171
Tier 1 capital ratio ...................... 10.16% 9.13%
Total capital ratio ....................... 11.42 10.39
Leverage capital ratio .................... 7.70 6.35
</TABLE>
At December 31, 1998 and 1997, BancShares and ASB exceeded their
respective minimum capital requirements.
The Board of Directors of FCB 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 regulatory
approval. As of December 31, 1998, this amount was $440,725. Dividends declared
by FCB amounted to $68,606 in 1998, $24,727 in 1997 and $33,940 in 1996.
56
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
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, 1998 and 1997, BancShares has
unused commitments totaling $2,282,490 and $2,006,327 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, 1998 and 1997, BancShares had
standby letters of credit amounting to $15,327 and $12,885, 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 $160,000
and $60,000 at December 31, 1998 and 1997, respectively, were at fixed prices
and were scheduled to settle within 60 days of that date. At December 31, 1998
and 1997, these forward commitments had no carrying value and unrealized losses
of $1,037 and $829 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 market.
BancShares and various subsidiaries have been named as defendants in
various legal actions arising from their normal business activities in which
damages in various amounts are claimed. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion of
management, any such liability will not have a material effect on BancShares'
consolidated financial statements.
NOTE R -- FIRST CITIZENS BANCSHARES, INC. (PARENT ONLY)
First Citizens BancShares, Inc.'s principal assets are its investments in
and receivables from its subsidiaries. Its sources of income are dividends and
interest income on funds borrowed by the Bank. The Parent Company's condensed
balance sheets as of December 31, 1998 and 1997, and the related condensed
statements of income and cash flows for the years ended December 31, 1998, 1997
and 1996 are as follows:
57
<PAGE>
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(Dollars in thousands)
NOTE R -- FIRST CITIZENS BANCSHARES, INC. (PARENT ONLY) -- Continued
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash ................................................ $ 2,550 $ 7,290
Investment securities held to maturity .............. 211,967 204,126
Investment securities available for sale ............ 24,080 26,206
Investment in bank subsidiaries ..................... 785,384 615,416
Due from subsidiaries ............................... 124,033 111,108
Other assets ........................................ 64,087 67,001
---------- ----------
Total assets ....................................... $1,212,101 $1,031,147
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings ............................... $ 372,603 $ 345,529
Long-term obligations ............................... 154,640 --
Other liabilities ................................... 24,109 83,978
Common stock:
Class A ............................................ 8,906 8,906
Class B ............................................ 1,720 1,722
Surplus ............................................. 143,760 143,760
Retained earnings ................................... 497,316 437,794
Accumulated other comprehensive income .............. 9,047 9,458
---------- ----------
Total liabilities and shareholders' equity ......... $1,212,101 $1,031,147
========== ==========
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest income ................................................................. $ 18,015 $15,276 $12,445
Interest expense ................................................................ 27,521 14,484 12,164
-------- ------- -------
Net interest income (loss) ...................................................... (9,506) 792 281
Dividends from subsidiaries ..................................................... 68,606 32,814 33,940
Other income .................................................................... 95 437 1,487
Other operating expense ......................................................... 7,288 6,531 6,162
-------- ------- -------
Income before income tax (benefit) expense and equity in undistributed net income
of subsidiaries ................................................................ 51,907 27,512 29,546
Income tax (benefit) expense .................................................... (3,774) (37) 11
-------- ------- -------
Income before equity in undistributed income of subsidiaries .................... 55,681 27,549 29,535
Equity in undistributed net income of subsidiaries .............................. 15,328 43,009 35,932
-------- ------- -------
Net income ..................................................................... $ 71,009 $70,558 $65,467
======== ======= =======
</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 ONLY) -- Continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................... $ 71,009 $ 70,558 $ 65,467
Adjustments ..............................................................
Undistributed net income of subsidiaries ................................ (15,328) (43,009) (35,932)
Net amortization of premiums and discounts .............................. 3,536 585 --
Change in other assets .................................................. 2,628 (9,284) (9,447)
Change in other liabilities ............................................. 14,447 751 3,038
---------- ---------- ---------
Net cash provided by operating activities ................................ 76,292 19,601 23,126
---------- ---------- ---------
INVESTING ACTIVITIES
Net change in due from subsidiaries ..................................... (12,925) 202,407 (51,556)
Purchase of investment securities ....................................... (10,000) (204,126) (3,258)
Investment in subsidiaries .............................................. (154,640) (51,200) --
Purchase of institutions, net of cash received .......................... -- -- 7,584
---------- ---------- ---------
Net cash used by investing activities .................................... (177,565) (52,919) (47,230)
---------- ---------- ---------
FINANCING ACTIVITIES
Net change in short-term borrowings ..................................... 27,074 50,101 38,250
Originations of long-term obligations ................................... 154,640 -- --
Repurchase of common stock .............................................. (74,520) (2,111) (4,506)
Proceeds from issuance of common stock .................................. -- -- 4,169
Cash dividends paid ..................................................... (10,661) (11,384) (10,559)
---------- ---------- ---------
Net cash provided by financing activities ................................ 96,533 36,606 27,354
---------- ---------- ---------
Net change in cash ....................................................... (4,740) 3,288 3,250
Cash balance at beginning of year ........................................ 7,290 4,002 752
---------- ---------- ---------
Cash balance at end of year .............................................. $ 2,550 $ 7,290 $ 4,002
---------- ---------- ---------
Cash payments for
Interest ................................................................ $ 22,768 $ 14,484 $ 12,164
Income taxes ............................................................ 42,802 37,984 35,554
---------- ---------- ---------
Supplemental disclosure of noncash investing and financing activities:
Common stock issued for acquisitions .................................... -- -- $ 33,403
Unrealized (loss) gain on marketable equity securities .................. $ (749) 4,588 11,167
Obligation to repurchase common stock ................................... 624 73,692 --
</TABLE>
59
<TABLE>
<CAPTION>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Name State
<S> <C>
First-Citizens Bank & Trust Company Chartered in North Carolina
with branches in North
Carolina and Virginia
Atlantic States Bank Chartered under the laws of the
United States of America with
branches in Georgia, Florida and
North Carolina
FCB/NC Capital Trust I Statutory business trust created
under the laws of the State of
Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000798941
<NAME> FIRST CITIZENS BANCSHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 502,955
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 232,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,957
<INVESTMENTS-CARRYING> 2,135,372
<INVESTMENTS-MARKET> 2,147,776
<LOANS> 6,195,591
<ALLOWANCE> 96,115
<TOTAL-ASSETS> 9,605,787
<DEPOSITS> 8,112,408
<SHORT-TERM> 568,140
<LIABILITIES-OTHER> 105,689
<LONG-TERM> 158,801
0
0
<COMMON> 10,626
<OTHER-SE> 650,123
<TOTAL-LIABILITIES-AND-EQUITY> 9,605,787
<INTEREST-LOAN> 478,504
<INTEREST-INVEST> 134,249
<INTEREST-OTHER> 6,734
<INTEREST-TOTAL> 619,487
<INTEREST-DEPOSIT> 255,517
<INTEREST-EXPENSE> 36,554
<INTEREST-INCOME-NET> 327,416
<LOAN-LOSSES> 19,879
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 342,934
<INCOME-PRETAX> 110,741
<INCOME-PRE-EXTRAORDINARY> 71,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,009
<EPS-PRIMARY> 6.62
<EPS-DILUTED> 6.62
<YIELD-ACTUAL> 3.98
<LOANS-NON> 12,489
<LOANS-PAST> 5,721
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 84,360
<CHARGE-OFFS> 14,067
<RECOVERIES> 5,943
<ALLOWANCE-CLOSE> 96,115
<ALLOWANCE-DOMESTIC> 96,115
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
