UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the year ended December 31, 2000
Commission File Number: 001-15089
Fidelity BancShares (N.C.), Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 56-1586543
-------- ----------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 South Main Street, Fuquay-Varina, North Carolina 27526
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(919) 552-2242
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
8.50% Capital Securities issued by FIDBANK Capital Trust I
8.50% Junior Subordinated Debentures, issued by Registrant
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 29, 2001: The Registrant's voting stock has no readily
ascertainable market value as of any date within the last sixty days or
otherwise for the reason that such stock is not regularly traded and has no
quoted prices. Therefore, the aggregate market value of the voting stock held by
non-affiliates is not determinable.
Common Stock - $25 Par Value, - 28,070 shares
- --------------------------------------------------------------------------------
(Number of shares outstanding, by class, as of March 29, 2001)
PART I
ITEM 1 - BUSINESS
General. Fidelity BancShares (N.C.), Inc. ("BancShares"), headquartered in
Fuquay-Varina, North Carolina, was organized under the laws of Delaware on
November 13, 1987 as a registered bank holding company for The Fidelity Bank
(the "Bank"). BancShares operates through the Bank, which provides a variety of
retail and commercial banking products and services to individuals and small- to
medium-sized businesses in the communities it serves. BancShares currently is
engaged in an expansion program, which involves acquisitions of other financial
institutions, or offices and/or deposits of other institutions, and the opening
of de novo branches. Certain statistical information with respect to BancShares'
business required by Guide 3 is contained in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Item 8.
Financial Statements and Supplementary Data" which appears elsewhere in this
filing.
BancShares also is the parent company of FIDBANK Capital Trust I ("FIDBANK"), a
Delaware business trust that was organized for the sole purpose of issuing and
selling $23.0 aggregate liquidation amount of 8.50% capital securities (the
"Capital Securities"). The net proceeds from that sale, together with the
proceeds from FIDBANK's issuance of its common securities to BancShares, were
invested in a like aggregate face amount of BancShares' 8.50% junior deferrable
interest subordinated debentures which mature during 2029. The capital
securities and the junior subordinated debentures are subject to optional
redemption at any time on or after June 30, 2004. BancShares has entered into a
guaranty agreement which, when taken together with its obligations under the
trust agreement under which FIDBANK exists, the junior subordinated debentures,
and the indenture under which the debentures were issued, provides a full and
unconditional guarantee on a subordinated basis by BancShares of FIDBANK's
payment of distributions and other payments on the Capital Securities.
Members of the Holding family, including Lewis R. Holding, have been actively
involved in the management of BancShares. As a result, BancShares has been
managed from a long-term perspective with primary emphasis being placed on
balance sheet liquidity, loan quality, and earnings stability. Consistent with
its management philosophy, BancShares has emphasized a low-risk loan portfolio
derived from its local markets. (See "Item 12. Security Ownership of Certain
Beneficial Owners and Management" and "Item 13. Certain Relationships and
Related Transactions.")
All significant activities of BancShares and its subsidiaries are banking
related so that BancShares operates within one industry. Neither BancShares nor
its subsidiary has any foreign operations.
The Bank is a state-chartered commercial bank. Its predecessor bank, Bank of
Fuquay, was organized during 1909 and merged with Bank of Biscoe during 1970, at
which time the continuing bank's name was changed to The Fidelity Bank. The Bank
currently operates 62 banking offices in 44 separate central North Carolina
communities, 20 of which have been opened or acquired from other institutions
within the past five fiscal years. Most recently, during 1998 the Bank purchased
an aggregate of $35.7 million in assets and assumed an aggregate of $75.1
million in deposit liabilities, associated with five branch offices of a related
financial institution, First-Citizens Bank & Trust Company, Raleigh, North
Carolina ("FCB"), and during 1999, it purchased an aggregate of $29.1 million in
assets and assumed an aggregate of $99.6 million in deposit liabilities,
associated with seven additional branch offices of FCB. (See "Item 13. Certain
Relationships and Related Transactions" and note 15 to BancShares' consolidated
financial statements.) Additionally, during 1998, 1999, and 2000, the Bank
opened 15 de novo branch offices.
The Bank has two wholly-owned subsidiaries, Fidelity Properties, Inc. and TFB
Financial Services. TFB Financial Services, Inc. ("TFB Financial Services"),
formerly Servco Service Corporation, was acquired on September 1, 1996 in the
acquisition of Perpetual State Bank and provides non-deposit investment
products, including mutual funds, annuities, stocks, and bonds. Fidelity
Properties currently is inactive.
BancShares' principal executive offices are located at 100 South Main Street,
Fuquay-Varina, North Carolina 27526 and its telephone number is (919) 552-2242.
Description of Business. The Bank is a community-oriented bank which is engaged
in a general commercial and consumer banking business. Its operations are
primarily retail oriented and directed towards individuals and small- to medium-
sized businesses in its market area. While the Bank provides most traditional
commercial and consumer banking services, its principal activities are the
taking of demand and time deposits and the making of secured and unsecured
loans. The Bank's deposits are insured by the FDIC to the maximum amount
permitted by law.
The Bank is focused on community-oriented banking via (i) localized lending,
(ii) core deposit funding, (iii) conservative balance sheet management, and (iv)
stable growth. The Bank's franchise is well diversified, serving both large
cities and small rural towns in North Carolina. By outsourcing its core data
processing requirements to FCB (see "Item 13. Certain Relationships and Related
Transactions"), the Bank can offer a complete array of financial services while
maintaining its community banking orientation. The Bank's focus on diverse
markets and its emphasis on customer service provide it with a stable source of
core funding.
The Bank's primary source of revenue is interest income from its lending
activities. Since it commenced business, the Bank has pursued a strategy of
growth through internal expansion by establishing branch offices in communities
in its geographic market and by acquiring smaller institutions or offices of
other institutions in its existing markets or in new markets.
2
Competition. Commercial banking in North Carolina is highly competitive. In its
market areas, the Bank competes directly with a number of local, regional and
superregional banking organizations. Competition among financial institutions
for loans and deposits is based, to a large extent, on interest rates charged or
paid. Fees and charges for other services, office location, the quality of
customer services, community reputation and continuity of personnel, and, in the
case of loans to large commercial borrowers, relative lending limits, also are
important competitive factors. Many of the Bank's competitors have greater
resources, broader geographic markets and higher lending limits and offer more
services than the Bank, and they can better afford and make more effective use
of media advertising, support services and electronic technology than can the
Bank. The Bank depends on its reputation in its local community, direct customer
contact, its ability to make credit and other business decisions locally, and
personalized service to counter these competitive disadvantages.
In recent years, federal and state legislation has heightened the competitive
environment in which all financial institutions must conduct their business, and
the potential for competition among financial institutions of all types has
increased significantly. Additionally, with the elimination of restrictions on
interstate banking, a North Carolina commercial bank may be required to compete
not only with other North Carolina financial institutions, but also with out-of-
state financial institutions which may acquire North Carolina institutions and
are able to provide certain financial services across state lines, thereby
adding to the competitive atmosphere of the industry in general.
Employees. At December 31, 2000, the Bank employed 371 full-time employees and
29 part-time employees. The Bank is not a party to any collective bargaining
agreements and considers relations with its employees to be good. BancShares
does not have any separate employees.
Supervision and Regulation. BancShares is subject to the jurisdiction of the
Board of Governors of the Federal Reserve System (the "FRB") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Under the BHC Act,
BancShares is subject to supervision and examination by, and the regulations and
reporting requirements of, the FRB, and its activities are limited to those
permitted to bank holding companies. BancShares is required to obtain the prior
approval of the FRB before it may acquire direct or indirect control of more
than 5% of the outstanding voting stock, or substantially all of the assets of,
any other bank or bank holding company. Additionally, the BHC Act prohibits
BancShares from acquiring ownership or control of more than 5% of the
outstanding voting stock of any company engaged in an activity that is not
permitted for bank holding companies.
Bank holding companies are required to serve as a source of financial strength
for their depository institution subsidiaries, and, if their depository
institution subsidiaries become undercapitalized, bank holding companies may be
required, subject to certain limits, to guarantee compliance by those
subsidiaries with capital restoration plans filed with their regulators.
The federal Gramm-Leach-Bliley Act enacted in 1999 (the "GLB Act") dramatically
changed various federal laws governing the banking, securities, and insurance
industries. The economic effects of the GLB Act on the banking industry, and
competitive conditions in the financial services industry generally, may be
profound. The GLB Act may expand opportunities for BancShares and the Bank to
provide other services and obtain other revenues in the future, and also may
present new competitive challenges.
The internal affairs of BancShares, including the rights of its shareholders,
are governed by Delaware law and by its Articles 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.
As an insured, state-chartered bank that is not a member of the Federal Reserve
System, the Bank is subject to supervision and examination by, and the
regulations and reporting requirements of, the North Carolina Commissioner of
Banks (the "Commissioner") and the Federal Deposit Insurance Corporation. Absent
approval of the FDIC, the Bank is prohibited from engaging as principal in
activities that are not permitted for national banks, and it is prohibited from
acquiring or retaining any equity investment of a types not permitted for
national banks.
As a subsidiary of BancShares, the Bank is subject to restrictions under federal
law on the amount of, and its ability to enter into, transactions with, or
investments in the securities of, BancShares and certain other affiliated
entities. Though it is not a member of the Federal Reserve System, the Bank is
subject to the FRB's reserve requirements applicable to all banks, and its
business is significantly influenced by the fiscal policies of the FRB. The
actions and policy directives of the FRB determine to a significant degree the
Bank's cost and the availability of funds and the rates of interest charged on
its loans and paid on its deposits.
The FDIC, Commissioner and FRB have broad powers to enforce laws and regulations
applicable to BancShares and the Bank, and to require corrective action of
conditions affecting the safety and soundness of the Bank. Among others, these
powers include cease and desist orders, the imposition of civil penalties and
the removal of officers and directors.
ITEM 2 - PROPERTIES
At December 31, 2000 the Bank maintained 62 banking offices in 44 central North
Carolina communities. BancShares owns the majority of the buildings and leases
other facilities from third parties. Statistical information with respect to
BancShares' property and equipment is contained in this filing under "Item 8.
Financial Statements and Supplementary Data."
ITEM 3 - LEGAL PROCEEDINGS
The Bank is a party to various legal proceedings in the ordinary course of its
business. However, based on information presently available, and after
consultation with legal counsel, BancShares' management believes that the
ultimate outcome in such proceedings, in the aggregate, will not have any
material adverse effect on BancShares' financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
3
PART II
ITEM 5 - MARKET FOR BANCSHARES' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
BancShares' common stock is not traded in an established public trading market.
On March 15, 2001, there were 122 record holders of BancShares' common stock.
The per share cash dividends paid by BancShares during each quarterly period
during 2000 and 1999 are set forth in Table XI, under Management's Discussion
and Analysis of Financial Condition and Results of Operations in Item 7 of this
report. A cash dividend of $8.00 per share was declared by the Board of
Directors on January 29, 2001, payable March 30, 2001, to holders of record as
of March 1, 2001. BancShares' sole source of funds for the payment of dividends
to its shareholders is dividends it receives from the Bank. Payments of
dividends by BancShares and the Bank are made at the discretion of their Boards
of Directors and are 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.
4
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information for BancShares as of and for the years ended December 31, 2000,
1999, 1998, 1997, and 1996. The data has been derived from BancShares' audited
consolidated financial statements. The consolidated financial statements as of
December 31, 2000 and 1999 and for each of the years in the three year period
ended December 31, 2000, and the independent auditors' report thereon, are
included elsewhere in this filing. The following should also be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
As of and for the year ended December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
Summary of Operations
Interest income ................................... $ 67,047 $ 55,379 $ 46,570 $ 43,249 $ 37,238
Interest expense .................................. 30,474 23,213 19,892 19,016 16,245
-------- -------- -------- -------- --------
Net interest income ............................... 36,573 32,166 26,678 24,233 20,993
Provision for loan losses ......................... 2,625 1,200 630 360 360
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 33,948 30,966 26,048 23,873 20,633
Noninterest income ................................ 7,166 5,183 5,476 3,974 3,348
Noninterest expense ............................... 28,396 24,044 19,418 15,878 14,191
-------- -------- -------- -------- --------
Net income before income. taxes ................... 12,718 12,105 12,106 11,969 9,790
Income taxes ...................................... 4,617 4,468 4,457 4,581 3,487
-------- -------- -------- -------- --------
Net income ........................................ $ 8,101 $ 7,637 $ 7,649 $ 7,388 $ 6,303
======== ======== ======== ======== ========
Selected Period-End Balances
Total assets ...................................... $907,670 $839,088 $694,134 $582,995 $542,138
Investment securities and federal funds sold ...... 180,554 165,356 186,804 177,240 161,429
Loans, gross ...................................... 614,817 551,148 439,208 358,250 334,880
Interest earning assets ........................... 817,422 759,311 627,874 537,293 497,963
Deposits .......................................... 772,520 716,014 609,646 505,237 479,140
Interest bearing liabilities ...................... 711,971 658,212 533,380 448,832 429,649
Shareholders' equity .............................. 77,513 69,895 64,808 59,117 51,242
Common shares outstanding ......................... 28,070 28,170 28,410 28,410 28,410
-------- -------- -------- -------- --------
Selected Average Balances
Total assets ...................................... $853,293 $753,286 $610,306 $558,119 $476,559
Investment securities and federal funds sold ...... 171,074 166,835 156,254 163,113 139,262
Loans, gross ...................................... 587,468 493,023 390,162 349,526 297,229
Interest earning assets ........................... 774,422 686,557 559,348 514,410 437,880
Deposits .......................................... 726,126 647,566 528,672 487,985 414,829
Interest bearing liabilities ...................... 664,215 584,675 465,999 433,979 370,876
Shareholders' equity .............................. 73,577 66,804 61,870 54,840 46,824
Common shares outstanding ......................... 28,132 28,279 28,410 28,410 28,570
-------- -------- -------- -------- --------
Profitability Ratios
Return on average total assets .................... 0.95% 1.01% 1.25% 1.32% 1.32%
Return on average shareholders' equity ............ 11.01 11.43 12.36 13.47 13.46
Dividend payout ratio (1) ......................... 11.11 11.85 11.88 12.31 14.51
-------- -------- -------- -------- --------
Liquidity and Capital Ratios
Average loans to average deposits ................. 80.90% 76.13% 73.8% 71.63% 71.65%
Average shareholders' equity to average total
assets........................................ 8.62 8.87 10.14 9.83 9.83
Tier 1 capital ratio (2) .......................... 11.87 12.06 12.96 13.24 10.30
Total capital ratio (2) ........................... 13.29 13.34 11.87 14.09 14.49
Leverage capital ratio (2) ........................ 9.72 9.12 7.65 8.28 8.63
-------- -------- -------- -------- --------
Per Share of Common Stock
Net income (3) .................................... $ 287.97 $ 270.05 $ 269.25 $ 260.04 $ 220.63
Cash dividends .................................... 32 32 32 32 32
Book value (4) .................................... 2,761.41 2,481.17 2,281.17 2,080.86 1,803.66
-------- -------- -------- -------- ---------
Asset Quality Ratios
Nonperforming assets to total gross loans and other
real estate owned ............................ 0.01% 0.02% 0.03% 0.02% 0.02%
Net charge-offs to average loans .................. 0.08 0.19 0.04 0.1 0.14
Total allowance for loan losses to total loans .... 1.19 0.93 1.05 1.16 1.24
-------- -------- -------- -------- --------
__________
(1) For each indicated period, total common dividends declared divided by
net income.
(2) See "Supervision and Regulation - Capital Adequacy" for a more detailed
description of these ratios.
(3) For each indicated period, net income divided by the average number of
common shares outstanding. BancShares has no potentially dilutive
securities.
(4) At the end of each indicated period, shareholders' equity divided by
the number of common shares outstanding.
5
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Fidelity BancShares (N.C.), Inc. and Subsidiaries ("BancShares"),
for the years 2000, 1999 and 1998. This discussion and analysis should be read
in conjunction with the audited Consolidated Financial Statements and related
notes presented under "Item 8. Financial Statements and Supplementary Data."
BancShares is a bank holding company with two wholly-owned subsidiaries - The
Fidelity Bank (the "Bank"), a North Carolina-chartered bank, and FIDBANK Capital
Trust I (the "Trust") - a statutory business trust created under the laws of the
State of Delaware.
Acquisitions.
2000 Acquisitions. BancShares made no acquisitions during 2000.
1999 Acquisitions. In August 1999, BancShares acquired the deposits of
seven North Carolina branches of First-Citizens Bank & Trust Company ("FCB")
(see notes 2 and 15 to BancShares' consolidated financial statements). These
acquisitions were accounted for as a purchase and, therefore, the results of
operations prior to the purchase are not included in BancShares' consolidated
financial statements. These acquisitions were as follows:
Transaction Loans Deposits
Date Acquired Acquired
---- -------- --------
(Dollars in thousands)
Gibsonville branch .................. Aug-99 $ 4,496 $ 11,465
Kings Mountain branch ............... Aug-99 6,021 22,910
Polkville branch .................... Aug-99 1,811 8,749
Shelby branch ....................... Aug-99 7,094 20,649
Stokesdale branch ................... Aug-99 2,467 6,040
Stoneville branch ................... Aug-99 2,366 19,475
Wentworth branch .................... Aug-99 3,783 10,285
------- --------
1999 acquisition totals......... $28,038 $ 99,573
======= ========
1998 Acquisitions. In October 1998, BancShares acquired the deposits of
five North Carolina branches of FCB. These acquisitions were accounted for as a
purchase and, therefore, the results of operations prior to the purchase are not
included in BancShares' consolidated financial statements. These acquisitions
were as follows:
Transaction Loans Deposits
Date Acquired Acquired
---- -------- --------
(Dollars in thousands)
Siler City branch ................... Oct-98 $ 6,754 $ 14,202
Salisbury branch .................... Oct-98 11,754 20,310
Gastonia Main branch ................ Oct-98 5,933 33,544
Gastonia Union Road branch .......... Oct-98 3,419 3,518
Gastonia Cox Road branch ............ Oct-98 5,834 3,519
------- --------
1998 acquisition totals......... $33,694 $ 75,093
======= ========
Results of Operations.
Net Income. For 2000, net income of $8.1 million represented a 6.1%
increase from 1999 net income of $7.6 million. BancShares experienced a strong
increase in net interest income as well as noninterest income during 2000,
slightly offset by an increase in the provision for loan losses due to strong
loan growth and industry conditions.
1999 net income of $7.6 million represented a 0.17% decrease from 1998 net
income of $7.6 million. While BancShares' experienced a strong increase in net
interest income during 1999, this growth was hampered by an increase in
provision for loan losses due to strong loan growth and an increase in operating
expenses due to the acquisition of seven branches during the third quarter.
BancShares also experienced a decrease in noninterest income during 1999 due to
a one time gain recorded in 1998 on the sale of rights to service mortgage loans
which was not present in 1999.
Net income per share for 2000 was $287.97 compared to $270.05 for 1999; the
increase is attributable to increased earnings and decreased shares outstanding
due to the repurchase by BancShares of 100 shares of common stock.
1999 net income per share was $0.80 more than the $269.25 recognized for
1998. The increase in net income per share during 1999 was attributable to a
decrease in shares outstanding with BancShares' repurchase of 240 shares of
common stock during the second quarter of 1999.
Net Interest Income. The greatest portion of BancShares' earnings is from
net interest income, which is the difference between interest income on earning
assets and interest paid on deposits and other interest bearing liabilities. The
primary factors affecting net interest income are changes in the volume and
yields/rates on earning assets and interest bearing liabilities and the ability
to respond to changes in interest rates through asset/liability management.
Table I sets forth the average balances on interest earning assets and interest
bearing liabilities, as well as the average yields earned and average rates paid
for 2000, 1999 and 1998. The average prime rate, as set by the Federal Reserve,
was 9.23%, 8.00%, and 8.35% for the years ended December 31, 2000, 1999, and
1998, respectively.
In 2000, net interest income was $36.6 million compared to $32.2 million in
1999, an increase of $4.4 million or 13.7%. 1999 net interest income was $5.5
million (20.57%) greater than 1998 net interest income of $26.7 million. The
increase in net interest income in 2000 and 1999 was attributable to increased
interest income from loans that occurred due to increased loan balances in both
years. Interest income grew $11.7 million or 21.1% during 2000 and $8.8 million
or 18.92% in 1999 compared to the respective previous year. Interest income
totaled $67.0 million in 2000, $55.4 million in 1999, and
6
$46.6 million in 1998. Interest expense increased $7.3 million, or 31.3%, in
2000 and $3.3 million, or 16.70%, in 1999 compared to previous year. Interest
expense was $30.5 million in 2000, $23.2 million in 1999, and $19.9 million in
1998. The increase in 2000 was due to higher volumes of interest bearing
liabilities and the increasing interest rate environment; in 1999 the increase
was attributable to higher volumes of interest bearings liabilities. The rates
paid on interest bearing liabilities were 4.59%, 3.97%, and 4.27% in 2000, 1999,
and 1998, respectively.
Loans produced the largest component of interest income, amounting to $56.4
million in 2000, $45.3 million in 1999, and $37.6 million in 1998. This
represented an increase of $11.2 million or 24.7% in 2000 and $7.6 million or
20.34% in 1999. During 2000 and 1999, average loans outstanding increased $94.4
million or 19.2% and $102.9 million or 26.36%, respectively. In both years, loan
growth within the existing branches and de novo branch openings contributed to
the increases. In addition, in 1999, the overall growth was partially
attributable to the acquisition of seven branches, in which $28.0 million of
loans were acquired. Average yields on loans during 2000, 1999 and 1998 were
9.63%, 9.20%, and 9.66%, respectively. The increase in the 2000 average yield
was due to the increase in average prime rate during 2000 compared to 1999.
Likewise, the decline in the 1999 average yield on loans was due to the decline
in the average prime rate during 1999 compared to 1998.
Earnings from investments and federal funds sold provided the remainder of
interest income, contributing $10.6 million in 2000, $10.1 million in 1999, and
$9.0 million in 1998. Average balances and yields on these securities are shown
in Table I. Included in 1999's $10.1 million earned on investments and federal
funds sold is $1.0 million earned on interest bearing cash balances attributable
to the deposit of proceeds from the $23.0 million Capital Trust Securities
issuance during 1999 (see note 8 to BancShares' consolidated financial
statements). Average interest bearing cash balances during 2000 and 1999 were
$13.7 million and $17.0 million, which earned an average rate of 6.20% and
5.22%, respectively. There were no interest bearing cash balances during 1998.
As noted above, total 2000 interest expense increased 31.3% above that of
1999, which increased 16.7% compared to 1998. The principal component of
BancShares' interest expense is interest paid on deposits, which totaled $27.5
million in 2000, $21.5 million in 1999, and $19.5 million in 1998. Average
interest bearing deposit balances for 2000, 1999, and 1998 were $618.6 million,
$553.9 million, and $456.1 million, respectively. This represents an increase of
11.7% in 2000 and 21.4% in 1999 over the prior years due to de novo branch
openings and growth within the existing branch network. Additionally, the growth
during 1999 was partially attributable to the acquisition of branches. Included
in the $23.2 of million interest expense in 1999, is interest expense of $1.1
million resulting from the $23.0 million Capital Trust Securities issued by the
Trust during 1999 (see note 8 to BancShares' consolidated financial statements).
These long-term obligations, which qualify as Tier 1 Capital for BancShares,
bear interest at 8.50%, are callable in 2004, and mature in 2029. The average
balance on the long-term obligations during 2000 and 1999 was $23 million and
$12.6 million, respectively; the average rate paid on the obligations was 8.50%
in 2000 and 8.44% in 1999. There were no long-term obligations outstanding in
1998. See Table I and Table II.
BancShares' interest rate spread was 4.09%, 4.11%, and 4.08% on a tax
equivalent basis in 2000, 1999, and 1998, respectively. BancShares' ability to
maintain a favorable spread between interest income and interest expense is a
major factor in generating earnings. Therefore, it is necessary for BancShares
to effectively manage earning assets and interest bearing liabilities.
Provision for Loan Losses. BancShares' provision for loan losses charged
against earnings was $2,625,000, $1,200,000, and $630,000 in 2000, 1999, and
1998, respectively. The provision for loan losses increased primarily due to
increased loan balances, de novo branch openings and growth within the existing
branch network. As noted above, average loans grew $94.4 million or 19.2% in
2000 compared to $102.9 million or 26.34% in 1999. BancShares' also experienced
an increase in net charge-offs during 2000 and 1999 compared to previous years,
as discussed herein under `Asset Quality', which influenced the provision for
loan losses in those years. BancShares' provision for loan losses was also
impacted in 2000 by a slight softening of the economy during the year.
Noninterest Income. Noninterest income, which consists primarily of service
charges, commissions and fees, increased $1,983,000 in 2000 over 1999 and
decreased $293,000 in 1999 compared to 1998. Total noninterest income was $7.2
million in 2000, $5.2 million in 1999, and $5.5 million in 1998. The increase in
2000 in noninterest income is attributable to growth in fee-earning transaction
accounts, increase in fees charged, and improved fee collection on accounts. The
primary increase is due to increased deposit accounts, a new overdraft checking
product, and increased NSF fees. The 1999 decrease in noninterest income
compared to 1998 is primarily attributable to the sale of the Bank's rights to
service $51 million in mortgage loans to Southern Bank and Trust Company for
$522,000, resulting in a gain of $507,456 in 1998 (see notes 4 and 15 to
BancShares' consolidated financial statements). Also affecting the 1999 decrease
in noninterest income was BancShares' contribution of one of the Bank's banking
facilities to the North Carolina Community Foundation in 1998. BancShares
recorded the market value of the land and building, $448,000, as a contribution
expense and, after writing off the value of the land of $40,000, recognized a
gain of $408,000 in 1998. The remaining components of other income, service
7
charges on deposit accounts and other service charges and fees, increased during
1999 by $441,000 and $233,000, respectively, over 1998. These increases in 1999
and 1998 were attributable to acquired branches, de novo branch openings and
deposit growth within the existing branch network.
Noninterest Expense. Noninterest expense includes expenses attributable to
personnel, occupancy, furniture and equipment, data processing, FDIC
assessments, printing, supplies, legal and professional fees, postage,
amortization of intangibles, and other miscellaneous operating expenses.
Noninterest expense was $28.4 million in 2000, $24.0 million in 1999, and $19.4
million in 1998. Control of noninterest expense is an important aspect in
managing net income. Acquisition of branches during 1999 and 1998 should enhance
future operating results of BancShares; however, for the following fifteen
years, earnings will be reduced as BancShares amortizes intangibles resulting
from the acquisitions.
The most significant element of BancShares' noninterest expense is
personnel costs. Salaries and benefits represented 53.7%, 52.22%, and 48.78% of
total noninterest expense during 2000, 1999, and 1998, respectively. Salaries
and benefits increased by $2.7 million or 21.4% in 2000 and $3.1 million or
32.57% in 1999. The primary causes of these increases are the acquisition of
seven branches in 1999 (for which costs have been incurred for an entire year
during 2000) and the opening of three de novo branches in 2000 and six in 1999.
Occupancy and equipment expenses increased from $3.7 million in 1998 to
$4.4 million in 1999 to $4.8 million in 2000. These increases of $362,000 in
2000 and $706,000 in 1999 were attributable to acquired branches and de novo
branch openings noted above.
Data processing costs represent charges by vendors that perform data
processing services for the Bank. Data processing fees are primarily based upon
per item or per account charges. Data processing costs were $2.5 million, $1.9
million, and $1.4 million in 2000, 1999, and 1998, respectively. These increases
were due to the addition of acquired and de novo branches as well as growth in
the loan and deposit base in the existing branch network, as noted above.
Amortization of intangibles during 2000 increased $197,000 to $1,121,000
compared to $924,000 for 1999. Amortization of intangibles was $599,000 in 1998.
The increase in amortization of intangibles during 2000 and 1999 was
attributable to the acquisition of seven branches in the third quarter of 1999.
Intangibles from these acquisitions amounted to $4.1 million (see note 2 and 15
to BancShares' consolidated financial statements). Also impacting intangibles
amortization in 2000 and 1999 was the effect of a full year of amortization on
intangible assets arising from the 1998 acquisitions. These intangibles are
amortized over 15 years (see note 1 to BancShares' consolidated financial
statements).
Other miscellaneous operating expenses were $4.7 million, $4.2 million, and
$4.2 million in 2000, 1999, and 1998, respectively. Other miscellaneous
operating expense during 1998 included BancShares' contribution expense of a
building at fair market value to a non-profit agency and the recognition of
$448,000 in contribution expense on this donation. Without the contribution
expense in 1998, 1999 other miscellaneous operating expenses increased $452,000
over 1998. These increases, as well as the $481,000 current year increase, were
the result of increases in costs across all categories of other operating
expenses due to the increased customer base and account activity resulting from
acquired branches, de novo branch openings and growth within the existing branch
network.
Income Taxes. In 2000, 1999, and 1998, BancShares had taxable income for
book purposes that resulted in income tax expense of $4.6 million, $4.5 million,
and $4.5 million, respectively. The resulting effective income tax rates for the
years ended December 31, 2000, 1999, and 1998 were 36.30%, 36.91%, and 36.82%,
respectively.
Financial Condition.
Earning and Noninterest Earning Assets. Earning assets consist of loans,
investment securities, and short-term investments that earn interest. Average
earning assets during 2000 were $774.4 million, an increase of $87.9 million or
12.8% over 1999's interest earning assets of $686.6 million. During 1999,
average interest earning assets increased $127.2 million or 22.74% from the 1998
average of $559.3 million. Increases during both years resulted from de novo
branch openings and growth within the existing branch network. Further, in 1999,
growth was partially attributable to the acquisition of branches noted above.
Cash received from the $23.0 million Capital Trust Securities issuance and
acquisition of branches in 1999 was invested in loans and short-term
investments, including federal funds and interest bearing cash deposits.
Average noninterest earning assets during 2000 were $78.9 million compared
to $66.7 million in 1999, an increase of 18.2%. During 1999, an increase of
$15.8 million or 30.95% occurred compared to the 1998 average of $51.0 million.
The 2000 and 1999 increases were primarily due to increases in cash, fixed
assets and intangible assets resulting from the acquired branches or de novo
branch openings. The average balances of noninterest earning assets are shown in
Table I.
8
Return on average total assets for 2000 was 0.95%, compared to 1.01% and
1.25% in 1999 and 1998, respectively. The decline for 2000 was the result of
increased total average assets, primarily attributable to de novo branch
openings in 2000 and a full year's impact of branches that opened in 1999, that
was proportionately greater than the increase in earnings. The decline in return
on average total assets for 1999 was caused by increases in average total assets
primarily attributable to the acquired branches and de novo branch openings
during 1999. Changes in the composition of average balances are shown in Table I
and Table II.
Return on average equity for 2000 was 11.01%, compared to 11.43% and 12.36%
in 1999 and 1998, respectively. In 2000, the decline was due to increased
average equity due to earnings and unrealized gains on securities available for
sale. The decline in the 1999 return on average equity was due to a slight
decline in net income and an increase in average equity driven by earnings.
Interest Bearing and Noninterest Bearing Liabilities. Interest bearing
liabilities consist of deposits, short-term borrowed funds and long-term
borrowed funds. Average interest bearing liabilities during 2000 were $664.2
million, an increase of 13.6% from the 1999 average of $584.7 million, which was
25.47% higher than that of 1998, $466.0 million. BancShares' principal interest
bearing liabilities are interest bearing deposits. Interest bearing deposits
represented $618.6 million, $553.9 million, and $456.1 million of average
interest bearing liabilities in 2000, 1999, and 1998, respectively. Short-term
borrowings and long-term borrowings represent the remaining balances. The 1999
increase in long-term borrowings is due to the $23.0 million Capital Trust
Securities issuance (see note 8 to BancShares' consolidated financial
statements). The cost of total interest bearing liabilities was 4.59%, 3.97%,
and 4.27% in 2000, 1999, and 1998, respectively.
Average noninterest bearing liabilities during 2000 were $115.5 million, an
increase of $13.7 million or 13.5% over 1999's average, $101.8 million. During
1999, the average noninterest bearing liabilities increased $19.4 million or
23.50% over the 1998 average of $82.4 million. Noninterest bearing demand
deposits are the principal noninterest bearing liability. Increases in
noninterest bearing demand deposit balances are attributable to acquired
branches, de novo branch openings and expansion within the existing branch
network. See Table I.
Loans. As of December 31, 2000, loans, net of the allowance for loan
losses, totaled $607.5 million compared to $546.0 million and $434.6 million at
year-end 1999 and 1998, respectively. The increase was attributable to normal
loan growth, from the existing branch network and de novo branch openings in
2000 and 1999. Also in 1999, growth was due to acquired loans of $28.0 million
from the acquisition of seven branches in third quarter 1999. The composition of
the loan portfolio for each of the years in the five year period ended December
31, 2000 is listed in Table IV. During 2000, BancShares experienced strong
growth in construction and land development loans and commercial and industrial
loans. This growth was generally consistent with the prior year.
Rate sensitivity and liquidity in the loan portfolio are achieved by making
loans with adjustable interest rates and shorter maturities. This allows the
Bank to adjust its pricing structure with changes in interest rates. At the end
of 2000, 38.0% of the loan portfolio was due to mature or would be available for
interest rate repricing in 2001. See Table IV.
Investments. Management's asset/liability strategies include maintaining an
investment securities portfolio with appropriate maturities to preclude the
necessity of selling investment securities for purposes of liquidity.
Traditionally, BancShares has maintained a larger investment portfolio than its
peers.
BancShares accounts for investment securities under the provisions of
Statement of Financial Accounting Standards No. 115 ("Statement 115"),
"Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt and equity securities be classified in three
categories and accounted for as follows: debt securities that BancShares has the
positive intent and ability to hold to maturity are classified as held-to-
maturity and reported at amortized cost; debt and equity securities that are
bought and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings; and debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as available for sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity. Securities available for sale consist of
securities which may be sold in response to changes in interest rates,
prepayment risk, regulatory capital requirements and liquidity needs.
At December 31, 2000, the fair value of available for sale securities
exceeded the carrying value by $6.2 million, deferred taxes related to these
available for sale securities were $2.5 million, and shareholders' equity
included $3.7 million for the net unrealized gain related to these available for
sale securities. At December 31, 1999, the fair value of available for sale
securities exceeded the carrying value by $5.1 million, deferred taxes related
to these available for sale securities were $2.1 million, and shareholders'
equity included $3.0 million for the net unrealized gain related to these
available for sale securities. BancShares does not maintain a trading account.
9
Asset Quality.
Provision and Allowance for Loan Losses. Because BancShares' loan portfolio
represents its largest earning asset, BancShares continually monitors the
quality of its loan portfolio. The Bank operates in a diversified economic
environment and, in the opinion of management, is not unduly exposed to any one
particular industry. In 2000, BancShares charged-off loans net of recoveries of
$469,000. This represents a decrease of $470,000 from 1999 net charge-offs of
$939,000. This decrease is primarily the result of increased recoveries in 2000.
The 1999 net charge-offs of $939,000 were an increase of $765,000 from 1998 net
charge-offs of $174,000. This increase is primarily the result of reduced
recoveries in 1999. The percentage of charge-offs (net of recoveries) to average
outstanding loans was 0.08% in 2000, 0.19% in 1999, and 0.04% in 1998. See Table
V.
The ratio of total non-performing assets to total loans plus other real
estate was 0.01% and 0.02% at December 31, 2000 and 1999, respectively. Assets
classified as other real estate were $75,000 and $117,000 at December 31, 2000
and 1999, respectively.
Accrual of interest is discontinued on a loan when management believes the
borrower's financial condition is such that the collection of principal or
interest is doubtful. Loans are returned to accrual status when the factors
indicating doubtful collectibility cease to exist.
Management considers a loan to be impaired when, based on current
information or events, it is probable that a borrower will be unable to pay all
amounts due according to the contractual terms of the loan agreement. Impaired
loans are valued using either the discounted expected cash flow method or the
value of the collateral.
While a loan (including an impaired loan) is classified as nonaccrual and
the future collectibility of the recorded loan balance is doubtful, collections
of interest and principal are generally applied as a reduction to the principal
outstanding. When the future collectibility of the recorded loan balance is not
in doubt, interest income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of interest on a
cash basis is limited to that which would have been recognized on the recorded
loan balance at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior charge-
offs have been fully recovered.
At December 31, 2000 and 1999, the Bank did not have any nonaccrual loans,
nor did the Bank have any restructured or impaired loans. At December 31, 2000
and 1999, the Bank did not have any accruing loans 90 days or more past due.
The allowance for loan losses represented 1.19% and 0.93% of loans
outstanding at year-end 2000 and 1999, respectively. The Bank's provision for
loan losses charged against earnings was $2,625,000, $1,200,000, and $630,000,
in 2000, 1999, and 1998, respectively. The increase in the provision for loan
losses in 2000 and 1999 was primarily attributable to loan growth from de novo
branch openings and expansion in the existing branch network in both years, as
well the addition of loans from acquired branched during 1999 discussed above.
BancShare's also experienced an increase in net charge-offs during 2000 and 1999
compared to previous years, which influenced the provision for loan losses in
those years. BancShares' provision for loan losses was also impacted in 2000 by
a slight softening in the economy during the year.
Management considers the December 31, 2000 allowance for loan losses
adequate to cover probable losses inherent in the loan portfolio. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's experience, the estimated value of any
underlying collateral, current economic conditions, analysis of peer bank
trends, and other risk factors. Management believes it has established the
allowance in accordance with generally accepted accounting principles and in
consideration of the current economic environment. While management uses the
best information available to make evaluations, future adjustments may be
necessary if economic or other conditions differ substantially from the
assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses
and losses on other real estate owned. Such agencies may require the Bank to
recognize adjustments to the allowances based on the examiners' judgements about
information available to them at the time of their examinations.
Liquidity, Market Risk and Interest Sensitivity.
Liquidity. Liquidity refers to the ability of BancShares to generate
sufficient funds to meet its financial obligations and commitments at a
reasonable cost. Maintaining liquidity ensures that funds will be available for
reserve requirements, customer demand for loans, withdrawal of deposit balances
and maturities of other deposits and liabilities. Past experience
10
helps management anticipate cyclical demands and amounts of cash required. These
obligations can be met by existing cash reserves or funds from maturing loans
and investments, but in the normal course of business are met by deposit growth.
In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentration, competition and BancShares' overall financial condition.
BancShares' liquid assets include all investment securities, federal funds sold,
and cash and due from banks. These assets represented 31.51% of deposits at
December 31, 2000, a decrease from 33.19% at December 31, 1999.
BancShares' liquidity ratio, which is defined as cash plus short-term and
marketable securities divided by deposits and short-term liabilities, was 30.22%
at December 31, 2000, compared to 31.95% at December 31, 1999. In addition, the
Bank has a $108 million line of credit with the Federal Home Loan Bank to meet
liquidity needs.
BancShares has traditionally maintained a high level of liquidity,
characteristic of the high ratio of investment securities to total assets that
it maintains. Although loans have increased in each of the recent fiscal
periods, BancShares' ability to manage its liquidity is enhanced by the mortgage
loan department's ability to sell mortgage loans originated for liquidity or
other asset/liability management requirements.
Funds received from any maturing investments that are not immediately
necessary to sustain BancShares' liquidity are invested in similar instruments
or used to fund any increased loan demand. Investments scheduled to mature
within the one year time frame, without consideration of marketable equity
securities, represented 84.32% and 23.70% of the total investment securities
portfolio at December 31, 2000 and 1999, respectively.
In addition, BancShares held marketable equity securities with fair values
of $8.8 million and $7.7 million at December 31, 2000 and 1999, respectively.
These investments are classified as available for sale and could be sold at
management's discretion.
BancShares' consolidated statements of cash flows disclose the principal
sources and uses of cash from operating, investing, and financing activities for
2000, 1999, and 1998. In 2000, BancShares' operating activities provided cash
flows of $14.3 million. Net income of $8.1 million, adjusted for non-cash
operating activities, provided the majority of cash generated from operations.
Investing activities, including lending, used $76.5 million of BancShares' cash
flow. Loans originated, net, of principal collected, used $64.3 million.
Securities purchases, net of maturities, used $7.7 million, and expenditures for
premises and equipment utilized $4.4 million of BancShares' cash flow. Net
additional cash inflows of $59.0 million resulted from financing activities,
principally from deposit inflows of $56.5 million.
In 1999, BancShares' operating activities provided cash flows of $9.8
million. Net income of $7.6 million, adjusted for non-cash operating activities,
provided the majority of cash generated from operations. Investing activities,
including lending, used $72.9 million of BancShares' cash flow. Loans
originated, net, of principal collected, used $84.8 million. Cash received in
connection with the acquisition of branches provided $66.3 million of BancShares
cash flow. Securities maturities, net of purchases, used $45.0 million, and
expenditures for premises and equipment utilized $9.1 million of BancShares'
cash flow. Net additional cash inflows of $39.8 million resulted from financing
activities, principally from short-term and long-term borrowing inflows of $11.3
million and $23.0 million, respectively.
In 1998, BancShares' operating activities provided cash flows of $12.6
million. Net income of $7.6 million, adjusted for non-cash operating activities,
provided the majority of cash generated from operations. Investing activities,
including lending, provided $26.2 million of BancShares' cash flow. Loans
originated, net, of principal collected, used $47.4 million. Cash received in
connection with the acquisition of branches provided $35.4 million of BancShares
cash flow. Securities maturities, net of purchases, provided $42.0 million, and
expenditures for premises and equipment utilized $4.1 million of BancShares'
cash flow. Net additional cash inflows of $28.9 million resulted from financing
activities, principally from deposit inflows of $29.3 million.
The Bank has no brokered funds. Jumbo certificates of deposit ("CD's") are
considered to include all CD's of $100,000 or more. The Bank does not and has
never aggressively bid on these deposits, and it does not seek nor does it
accept deposits from outside of its general trade area. Almost all of the Bank's
jumbo CD customers have other relationships with the Bank, including savings,
demand and other time deposits and, in some cases, loans. At December 31, 2000
and 1999, jumbo CD's represented 10.47% and 9.26% of total deposits,
respectively.
In the opinion of management, BancShares has the ability to generate
sufficient amounts of cash to cover normal funding requirements and any
additional needs which may arise, within realistic limitations, during the next
twelve months, and management is not aware of any known demands, commitments or
uncertainties that will affect liquidity in a material way.
11
Market Risk. Market risk reflects the risk of economic loss resulting from
adverse changes in market price and interest rates. The risk of loss can be
reflected in either diminished current market values or reduced potential net
interest income in future periods.
BancShares' market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities. Management seeks to manage this
risk through the use of shorter term maturities. The composition and size of the
investment portfolio is managed so as to reduce the interest rate risk in the
deposit and loan portfolios while at the same time maximizing the yield
generated by the portfolio.
The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of December 31, 2000. The expected maturity categories take into
consideration historical prepayment experience as well as management's
expectations based on the interest rate environment as of December 31, 2000. For
core deposits without contractual maturity (i.e., interest bearing checking,
savings and money market accounts), the table presents principal cash flows as
maturing in 2000 since they are subject to immediate repricing.
Maturing in year ended December 31,
-------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
-------- -------- -------- -------- -------- ---------- ----- ----------
(Dollars in thousands)
Assets
Loans:
Fixed rate .................... $ 95,246 $ 84,828 $ 89,359 $ 38,034 $ 15,278 $ 29,121 $351,866 $ 350,866
Average rate (%) .............. 9.36% 9.00% 8.82% 8.11% 8.29% 7.74% 8.82%
Variable rate ................. $135,687 $ 15,642 $ 13,683 $ 4,242 $ 5,538 $ 88,159 $262,951 $ 262,951
Average rate (%) .............. 10.26% 10.31% 10.30% 10.16% 9.95% 10.03% 10.18%
Investment securities (1):
Fixed rate .................... $127,911 $ 14,986 - - - $ 8 $142,905 $ 142,797
Average rate (%) .............. 5.68% 6.34% - - - 10.86% 5.75%
Liabilities
Savings and interest bearing
Checking:
Fixed rate .................... $288,375 - - - - - $288,375 $ 288,375
Average rate (%) .............. 2.79% - - - - - 2.79%
Certificates of deposit:
Fixed rate .................... $275,846 $ 57,664 $ 26,718 $ 13,726 - - $373,954 $ 375,154
Average rate (%) .............. 5.91% 6.24% 6.54% 6.17% - - 6.02%
Short-term obligations:
Variable rate ................. $ 26,641 - - - - - $ 26,641 $ 26,642
Average rate (%) .............. 4.66% - - - - - 4.66%
Long-term obligations:
Fixed rate .................... - - - - - $ 23,000 $ 23,000 $ 19,849
Average rate (%) .............. - - - - - 8.50% 8.50%
_________
(1) Marketable equity securities with a book value of approximately $2,645,000
and a fair value of approximately $8,799,000 have been excluded from this
table.
12
Interest Sensitivity. Deregulation of interest rates and short-term,
interest earning deposits which are more volatile, has created a need for
shorter maturities of interest earning assets. As a result, an increasing
percentage of commercial, installment, and mortgage loans are being made with
variable rates or shorter maturities to increase liquidity and interest rate
sensitivity.
The difference between interest sensitive asset and interest sensitive
liability repricing within time periods is referred to as the interest rate
sensitivity gap. Gaps are identified as either positive (interest sensitive
assets in excess of interest sensitive liabilities) or negative (interest
sensitive liabilities in excess of interest sensitive assets).
As of December 31, 2000, BancShares had a positive one year cumulative gap
position of 12.49% and a positive total cumulative gap position of 13.72%.
BancShares has interest earning assets of $511.1 million maturing or repricing
within one year and interest bearing liabilities of $408.0 million repricing
within one year. BancShares experienced growth in loans and investments with
maturities of one year or less which were outpaced by the growth in deposits and
short-term borrowings which also had maturities of one year or less. A positive
gap position implies that interest earning assets (loans and investments) will
reprice at a faster rate than interest bearing liabilities (deposits). In a
falling rate environment, this position will generally have a negative effect on
earnings, while in a rising rate environment this position will generally have a
positive effect on earnings.
Inflation. The effect of inflation on financial institutions differs from
the impact on other types of businesses. Since assets and liabilities of banks
are primarily monetary in nature, they are more affected by changes in interest
rates than by the rate of inflation.
Inflation generates increased credit demands and fluctuations in interest
rates. Although credit demand and interest rates are not directly tied to
inflation, each can significantly impact net interest income. As in any business
and industry, expenses such as salaries, equipment, occupancy, and other
operating expenses are also subject to upward pressures created by inflation.
Since the rate of inflation has been relatively stable during the last
several years, the impact of inflation of the earnings presented in this report
is insignificant.
Capital Resources.
Shareholders' Equity and Capital Adequacy. Sufficient levels of capital are
necessary to sustain growth and absorb losses. To this end, the Federal Reserve,
which regulates BancShares, and the FDIC, which regulates the Bank, have
established risk based capital ("RBC") adequacy guidelines.
As of December 31, 2000, BancShares' Leverage Capital Ratio (as defined
herein) was 9.72%, as compared to 9.12% and 7.65%, respectively, at year-end
1999 and 1998. Within RBC calculations, BancShares' assets, including
commitments to lend and other off-balance sheet items, are weighted according to
Federal regulatory guidelines for the risk considered inherent in the assets.
BancShares' Tier 1 Capital Ratio (as defined herein) as of December 31, 2000 was
11.87% compared to ratios of 12.06% and 10.30% for 1999 and 1998, respectively.
The increase in the Tier 1 Capital ratio in 1999 is attributed to the issuance
of the $23.0 million of Capital Trust Securities which qualify as Tier 1
Capital. The calculation of Total Capital Ratio (as defined herein) allows, in
BancShares' circumstances, the inclusion of BancShares' allowance for loan
losses in capital, but only to a maximum of 1.25% of risk weighted assets. As of
December 31, 2000, BancShares' Total Capital Ratio was 13.29%. The Total Capital
Ratios for 1999 and 1998 were 13.34% and 11.87%, respectively. The increase in
the Total Capital ratio in 1999 compared to 1998 is attributable to the issuance
of the $23.0 million of Capital Trust Securities.
As of December 31, 2000, the Bank's Leverage Capital Ratio (as defined
above) was 9.17%, which, along with 8.67% and 7.29% as of December 31, 1999 and
1998, respectively, represents a well-capitalized institution under FDIC
standards (one whose ratio exceeds 5%). The Bank's Tier 1 Capital ratio (as
defined above) as of December 31, 2000 was 11.26%, which, along with 12.28% and
9.86% as of December 31, 1999 and 1998, respectively, represents a well-
capitalized institution under FDIC standards (one whose ratio exceeds 6%). As of
December 31, 2000, the Bank's Total Capital Ratio (as defined above) was 12.31%.
The Total Capital ratios for 1999 and 1998 were 13.17% and 10.81%, respectively.
Total Capital Ratio in all three years represented well-capitalized institutions
under FDIC standards (the ratio exceeds 10%).
These ratios will improve if BancShares' capital increases at a rate
proportionately faster than liabilities. Management is aware that growth must be
controlled. BancShares' recent expansion plans discussed elsewhere herein may
appear to be contrary to this policy but management is also aware that the
process of expanding market share by normal business processes can be very
difficult and expensive. Management believes that improvement in its overall
market share
13
within an existing trade area is valuable in the long run and should be pursued
by BancShares, when it can be done prudently.
BancShares' primary source of new capital is earnings. In 2000, equity
capital increased through retention of earnings by $7.2 million, compared to
$6.7 million in 1999 and 1998. BancShares' internal capital generation rate was
11.01% in 2000, 10.08% in 1999, and 10.89% in 1998. At December 31, 2000,
shareholders' equity totaled $77.5 million, compared to $69.9 million in 1999.
Shareholders' equity for 2000 and 1999 included, as discussed above, $3.7
million and $3.0 million, respectively, of net unrealized securities gains on
available for sale securities.
The ratio of average shareholders' equity to average total assets was 8.62%
in 2000, 8.87% in 1999, and 10.14% in 1998.
Retention of sufficient earnings to maintain an adequate capital position
that provides BancShares with expansion capabilities is an important factor in
determining dividends. During 2000, BancShares paid $900,000 in dividends,
versus $905,000 and $909,000 in 1999 and 1998. As a percentage of net income,
dividends were 11.11% in 2000, 11.85% in 1999, and 11.88% in 1998. The decrease
in dividends paid in 2000 compared to 1999 and 1999 compared to 1998 is
attributable to a decrease in the number of shares outstanding each year.
Accounting and Other Matters.
In June, 1998, the Financial Accounting Standard Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
BancShares adopted the provisions of SFAS No. 133 on January 1, 2001, but since
BancShares does not utilize derivatives, adoption of this pronouncement did not
have an effect on BancShares' consolidated financial statements.
The FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which
replaced SFAS No. 125. SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. This statement is effective for recognition and classification
of collateral and disclosures relating to securitization transactions and
collateral for fiscal years beginning after December 15, 2000. This statement is
not expected to materially impact BancShares.
Management is not aware of any other trends, events, uncertainties, or
current recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on BancShares' liquidity, capital
resources or other operations.
14
Statistical Information.
The following tables contain certain additional information regarding
BancShares' business operations.
Table I.
Average Balance Sheet Items and Net Interest Differential
Average Balances and Average Rates Earned and Paid
Year ended December 31,
-------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- -------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
(Dollars in thousands, taxable-equivalent)
Assets
Interest earning assets:
Loans (1) (2)................ $ 587,468 $56,561 9.63% 493,023 $45,412 9.21% $ 390,162 $37,732 9.67%
Taxable investment
securities.................. 156,614 8,569 5.47 131,509 7,168 5.45 105,157 6,009 5.71
Non taxable investment
securities (2)............. 1,322 84 6.35 137 8 5.84 570 36 6.32
Federal funds sold........... 13,138 834 6.35 35,189 1,764 5.01 50,527 2,664 5.27
Other investments............ 2,143 294 13.72 10,003 306 3.06 12,932 260 2.01
Interest bearing deposits
in other banks............. 13,737 851 6.19 16,696 872 5.22 -- -- --
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total interest earning assets.... $ 774,422 $67,193 8.68% $ 686,557 $55,530 8.09% 559,348 $46,701 8.35%
--------- ------- ----- --------- ------- ----- --------- ------- -----
Noninterest earning assets:
Interest bearing deposits
in other banks............... 29,928 24,948 19,602
Premises and equipment....... 34,629 28,454 22,860
Other assets................. 20,386 18,266 12,502
Reserve for loan losses...... (6,072) (4,939) (4,006)
--------- --------- ---------
Total assets..................... $ 853,293 $ 753,286 $ 610,306
--------- --------- ---------
Liabilities & Equity
Interest bearing liabilities:
Demand deposits.............. $ 102,117 $ 1,594 1.56% $ 97,987 $ 1,475 1.51% $ 70,854 $1,176 1.66%
Savings deposits............. 158,504 5,682 3.58 137,276 4,050 2.95 114,163 3,826 3.35
Time deposits................ 357,997 20,223 5.65 318,608 15,960 5.01 271,068 14,477 5.34
Short-term borrowings (3).... 22,597 1,019 4.51 18,201 664 3.65 9,914 413 4.17
Long-term borrowings......... 23,000 1,955 8.50 12,603 1,064 8.44 -- -- --
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total interest bearing
liabilities................... 664,215 $30,473 4.59% $ 584,675 $23,213 3.97% 465,999 $19,892 4.27%
--------- ------- ----- --------- ------- ----- --------- ------- -----
Noninterest bearing liabilities:
Demand deposits.............. 107,508 93,695 72,587
Other liabilities............ 7,993 8,112 9,850
Shareholders' equity............. 73,577 66,804 61,870
--------- --------- ---------
Total liabilities and equity..... $ 853,293 $ 753,286 $ 610,306
========= ========= =========
Interest rate spread (4)......... 4.09% 4.12% 4.08%
===== ===== =====
Net interest income and net
interest margin (5).......... $36,720 4.74% $32,317 4.71% $26,809 4.79%
======= ===== ======= ===== ======= =====
- ----------
(1) Average balances include non-accrual loans.
(2) The average rate on nontaxable loans and investment securities has been
adjusted to a tax equivalent yield using a 36.5% tax rate for 2000 and
34% tax rate for 1999 and 1998.
(3) See Table X.
(4) Interest rate spread is the difference between earning asset yield and
interest bearing liability rate.
(5) Net interest margin is net interest income divided by average earning
assets.
15
Table II.
Average Balance Sheet Items and Net Interest Differential
Analysis of Changes in Interest Differential
2000 1999
------------------------------------ ------------------------------------
Change from previous Change from previous
year due to: year due to:
Yield/ Total Yield/ Total
Volume Rate Change Volume Rate Change
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Assets
Interest earning assets:
Loans .................................. $ 9,054 $ 2,095 $ 11,149 $ 590,566 $(582,886) $ 7,680
Taxable investment securities .......... 999 402 1,401 89,738 (88,579) 1,159
Non taxable investment securities....... 74 2 76 (1,283) 1,255 (28)
Federal funds sold ..................... (1,252) 322 (930) (34,328) 33,428 (900)
Other investments ...................... (3) (9) (12) (9,701) 9,747 46
Interest bearing balances in other
banks ................................. (169) 148 (21) 436 436 872
--------- --------- --------- --------- --------- ---------
Total interest earning assets .............. 8,702 2,960 11,663 635,428 (626,599) 8,829
--------- --------- --------- --------- --------- ---------
Liabilities & Equity
Interest bearing liabilities:
Demand deposits ........................ 25 94 119 78,051 (77,752) 299
Savings deposits ....................... 809 823 1,632 25,020 (24,796) 224
Time deposits .......................... 2,099 2,164 4,263 172,611 (171,128) 1,483
Short-term borrowings .................. 173 182 355 19,953 (19,702) 251
Long-term borrowings ................... 881 10 891 532 532 1,064
--------- --------- --------- --------- --------- ---------
Total interest bearing liabilities ......... 3,987 3,273 7,260 296,167 (292,846) 3,321
--------- --------- --------- --------- --------- ---------
Change in net interest income .............. $ 4,715 $ (313) $ 4,403 $ 339,258 $(333,753) $ 5,508
========= ========= ========= ========= ========= =========
____________
Average loan balances include nonaccrual loans. BancShares earns tax-
exempt interest on certain loans and investment securities due to the borrower
or issuer being either a governmental agency or a quasi-governmental agency.
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 blended statutory income tax rate of 36.5%
for 2000 and 34% for 1999 and 1998. The taxable equivalent adjustment was
approximately $145,000, $151,000, and $131,000 for the years 2000, 1999 and
1998, respectively. The variance due to rate and volume is allocated equally
between the changes in volume and rate.
16
Table III. Investment Portfolio
The following table sets forth the carrying amount of investment
securities:
December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)
U.S. Treasury and U.S. Government agencies...... $142,905 $133,006 $ 90,146
States and political subdivisions .............. -- 2,000 --
Marketable equity securities ................... 8,799 7,749 9,608
-------- -------- --------
Total .................................. $151,704 $142,755 $ 99,754
======== ======== ========
The following table sets forth the maturities of investment securities at
December 31, 2000 and the weighted average yields of such securities. (Note that
nontaxable investment securities have not been adjusted to a tax equivalent
basis and unrealized gain (loss) on available for sale securities is not
included.)
Maturing After One
------------------------------------------------------------------------
Within One Year But Within Five Years After Ten Years
Amount Yield Amount Yield Amount Yield
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
U.S. Treasury and other U.S. Government agencies (1)... $127,911 5.68% $ 14,986 6.34% $ 8 10.86%
Other (2).............................................. 2,645 5.80 -- -- -- --
-------- ----- -------- ----- ----- ------
Total.......................................... $130,556 5.68% $ 14,986 6.34% $ 8 10.86%
======== ====== ======== ===== ===== ======
(1) Mortgage-backed securities are included in the obligations of U.S.
Government agencies and spread within the columns according to their
anticipated repayment schedules.
(2) The "Within One Year" column of the "Other" category includes marketable
equity securities held by BancShares. Accordingly, the yield on these
securities represents anticipated dividend income rather than interest
income.
Table IV. Loan Portfolio
Analysis of Loans by Type and Maturity
The table below classifies loans by major category:
December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
Real estate:
Construction and land development...... $ 100,727 $ 79,576 $ 51,499 $ 33,851 $ 28,787
Mortgage:
One to four family residential...... 150,164 141,937 134,681 141,301 144,331
Commercial ......................... 89,657 74,320 65,339 57,222 51,629
Equity lines of credit ............. 80,766 75,015 62,205 44,915 35,971
Farmland ........................... 4,950 5,502 4,983 4,579 5,839
Commercial and industrial .................. 139,599 124,858 79,724 41,851 36,330
Consumer ................................... 39,124 37,675 33,849 28,630 26,934
Agricultural ............................... 4,697 3,957 4,523 3,335 2,669
Other ...................................... 5,133 8,308 2,405 2,566 2,390
--------- --------- --------- --------- ---------
Total .............................. 614,817 551,148 439,208 358,250 334,880
Less allowance for loan losses.............. (7,298) (5,142) (4,601) (4,145) (4,139)
--------- --------- --------- --------- ---------
Net loans .......................... $ 607,519 $ 546,006 $ 434,607 $ 354,105 $ 330,741
========= ========= ========= ========= =========
17
The following table identifies the maturities of all loans as of
December 31, 2000, and addresses the sensitivity of these loans to changes in
interest rates.
Loan Sensitivity
December 31, 2000
------------------------------------------------
Within One to Five After Five
One Year Years Years Total
---------- ------------- ------------ -------
(Dollars in thousands)
Real estate - construction and land development ............................ $ 100,727 $ -- $ -- $ 100,727
Commercial and industrial .................................................. 52,435 60,535 26,629 139,599
Other ...................................................................... 77,771 206,071 90,649 374,491
--------- --------- --------- ---------
$ 230,933 $ 266,606 $ 117,278 $ 614,817
========= ========= ========= =========
Loans maturing after one year with:
Fixed interest rates ............................................. $ 227,500 $ 29,119 $ 256,619
Floating or adjustable rates ..................................... 39,106 88,159 127,265
--------- --------- ---------
$ 266,606 $ 117,278 $ 383,884
========= ========= =========
Nonperforming Assets
The following analysis identifies other real estate owned and loans that
were either non-accruing, past-due or restructured:
December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands)
Nonaccrual loans ............................ $ -- $ -- $ -- $ -- $ --
Restructured loans .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans ............... -- -- -- -- --
Other real estate ........................... 75 117 111 57 57
-------- -------- -------- -------- --------
Total nonperforming assets .............. $ 75 $ 117 $ 111 $ 57 $ 57
======== ======== ======== ======== ========
Accruing loans 90 days or more
past due ................................ $ -- $ -- $ -- $ 85 $ 10
Loans at December 31 ........................ $614,817 $551,148 $439,208 $358,250 $334,880
Ratio of nonperforming assets to total
loans plus other real estate ............ 0.01% 0.02% 0.03% 0.02% 0.02%
Interest income that would have been
earned on nonperforming loans
had they been performing ................ $ -- $ -- $ -- $ -- $ --
Interest income earned on nonperforming
nonperforming loans ..................... $ -- $ -- $ -- $ -- $ --
18
Table V. Summary of Loan Loss Experience
Analysis of the Allowance for Loan Losses
The table presented below summarizes activity in the allowance for loan
losses for each of the years in the five year period ended December 31, 2000:
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands)
Allowance for loan losses -beginning of year .............. $ 5,142 $ 4,601 $ 4,145 $ 4,139 $ 4,078
Charge-offs:
Commercial and industrial ............................. 442 430 96 196 32
Real estate:
Construction and land development .................. -- -- -- -- --
Mortgage:
One to four family .............................. 581 994 1,192 273 283
Commercial ...................................... -- -- -- -- --
Equity lines of credit .......................... -- -- -- -- 19
Farmland ........................................ 301 4 -- -- --
Consumer .............................................. 165 206 253 379 262
-------- -------- -------- -------- --------
Total charge-offs ......................................... 1,489 1,634 1,541 848 596
-------- -------- -------- -------- --------
Recoveries:
Commercial and industrial ............................. 178 208 36 63 3
Real estate:
Construction and land development .................. -- -- -- -- --
Mortgage:
One to four family .............................. 692 291 1,193 308 90
Commercial ...................................... -- -- -- -- --
Equity lines of credit .......................... -- -- -- -- 19
Farmland ........................................ 96 4 -- -- --
Consumer .............................................. 54 192 138 123 68
-------- -------- -------- -------- --------
Total recoveries .......................................... 1,020 695 1,367 494 180
-------- -------- -------- -------- --------
Net charge-offs ........................................... 469 939 174 354 416
Provision for loan losses ................................. 2,625 1,200 630 360 360
Addition due to acquired branches ......................... -- 280 -- -- --
-------- -------- -------- -------- --------
Allowance for loan losses - end of year ................... $ 7,298 $ 5,142 $ 4,601 $ 4,145 $ 4,022
======== ======== ======== ======== ========
Average loans outstanding during the year ................. $587,468 $493,023 $390,162 $349,526 $297,229
======== ======== ======== ======== ========
Ratio of net charge-offs to average loans outstanding...... 0.08% 0.19% 0.04% 0.10% 0.14%
======== ======== ======== ======== ========
Allocation of the Allowance for Loan Losses
The composition of the allowance by loan category shown in the table
below is based upon management's evaluation of the loan portfolio, past history,
and prevailing economic conditions:
December 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------ ------------------ ------------------ ------------------ ------------------
% of % of % of % of % of
loans loans loans loans loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
Real estate:
Construction and
land development ...... $ 201 16% $ 159 14% $ 154 12% $ 102 10% $ 86 9%
Mortgage:
One to four family
residential ......... 660 24 286 26 456 31 617 39 659 43
Commercial ............ 998 16 166 14 328 15 620 16 681 15
Equity lines of credit. 162 13 150 14 187 14 135 13 108 11
Commercial,
Industrial and
agricultural ............ 3,217 24 2,712 23 2,132 19 1,227 12 1,088 11
Consumer .................... 1,329 6 851 7 911 8 958 8 956 8
Other ....................... 141 1 228 2 72 1 77 2 72 3
Unallocated ................. 590 - 590 -- 361 -- 409 -- 489 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total ................... $7,298 100% $5,142 100% $4,601 100% $4,145 100% $4,139 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
19
Table VI. Deposits
The average monthly volume of deposits and the average rates paid on such
deposits are presented below:
2000 1999 1998
---------------------- ---------------------- ----------------------
Average Average Average Average Average Average
Balance Rates Balance Rates Balance Rates
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Non-interest bearing demand......... $107,508 -- % $ 93,695 -- % $ 72,587 -- %
Interest bearing demand ............ 102,117 1.56 97,987 1.51 70,854 1.66
Savings ............................ 158,504 3.58 137,276 2.95 114,163 3.35
Time deposits ...................... 357,997 5.65 318,608 5.01 271,068 5.34
-------- -------- --------
Total deposits .......... $726,126 $647,566 $528,672
Maturities of time certificates of deposit of $100,000 or more at December
31, 2000 are summarized as follows (dollars in thousands):
Maturity category:
Three months or less ..................... $ 18,808
Over three through six months ............ 14,929
Over six months through twelve months 22,740
Over one year ............................ 24,442
--------
$ 80,919
========
Table VII. Return on Equity and Assets
The following table presents certain ratios of BancShares:
Year ended December 31,
2000 1999 1998
-------- -------- --------
Return on average assets ................. 0.95 % 1.01 % 1.25 %
Return on average equity ................. 11.01 11.43 12.36
Dividend payout ratio .................... 11.11 11.85 11.88
Equity to assets ratio ................... 8.62 8.87 10.14
Table VIII. Capital Adequacy
The following table presents certain calculations of BancShares' capital
and related ratios:
December 31,
-------------------------------
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Total shareholders' equity ................ $ 77,513 $ 69,895 $ 64,808
Leverage capital .......................... 84,047 75,601 50,656
Tier I capital ............................ 84,047 75,601 50,656
Total capital ............................. 94,114 83,665 58,381
Leverage capital ratio (1) ................ 9.72 % 9.12 % 7.65 %
Tier I capital ratio ...................... 11.87 12.06 10.3
Total capital ratio (2) ................... 13.29 13.34 11.87
_____________
(1) Bank holding companies operating at the 3% minimum are expected to have
well diversified risk profiles, including no undue interest rate risk,
excellent asset quality, high liquidity and strong earnings. Bank holding
companies not meeting these requirements are expected to maintain a
leverage ratio somewhat higher than the 3% minimum applicable to the
highest rated companies.
(2) The minimum ratio of qualifying total capital to risk weighted assets is
8%, of which 4% must be Tier 1 capital, which is common equity, retained
earnings, and a limited amount of perpetual preferred stock, capital trust
certificates, less certain intangibles.
20
Table IX. Interest Rate Sensitivity Analysis
December 31, 2000
----------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 Total Total
Days Days Days Days One-Year Non-
Sensitive Sensitive Sensitive Sensitive Sensitive sensitive Total
--------- ---------- ---------- ---------- ---------- ----------- --------
(Dollars in thousands)
Assets:
Loans...................... $ 254,700 $ 28,300 $ 14,706 $ 29,411 $ 327,117 $287,700 $ 614,817
Investment securities...... 9,986 64,999 38,000 14,926 127,911 23,793 151,704
Federal funds sold......... 28,850 -- -- -- 28,850 -- 28,850
Other...................... -- -- -- -- -- 2,645 2,645
Interest bearing deposits
in other banks.......... 27,178 -- -- -- 27,178 -- 27,178
--------- --------- --------- --------- --------- -------- ---------
Total interest earning
assets............... $ 320,714 $ 93,299 $ 52,706 $ 44,337 $ 511,056 $314,138 $ 825,194
========= ========= ========= ========= ========= ======== =========
Liabilities:
Savings and checking
with interest........... $ -- $ -- $ -- $ -- $ -- $182,832 $ 182,832
Money market saving........ 105,543 -- -- -- 105,543 -- 105,543
Time deposits.............. 37,062 56,944 85,106 96,733 275,845 98,109 373,954
Short-term borrowings...... 26,642 -- -- -- 26,642 -- 26,642
Long-term borrowings....... -- -- -- -- -- 23,000 23,000
--------- --------- --------- --------- --------- -------- ---------
Total interest bearing
liabilities.......... $ 169,247 $ 56,944 $ 85,106 $ 96,733 $ 408,030 $303,941 $ 711,971
========= ========= ========= ========= ========= ======== =========
Interest sensitivity gap... $ 151,467 $ 36,355 $ (32,400) $ (52,396) $ 103,026 $ 10,197 $ 113,223
========= ========= ========= ========= ========= ======== =========
Cumulative interest
sensitivity gap.......... $ 151,467 $ 187,822 $ 155,422 $ 103,026 $ 103,026 $113,223 $ 113,223
Cumulative interest
sensitivity gap to total
interest earning assets.. 18.36 % 22.76 % 18.83 % 12.49 % 12.49 % 13.72 % 13.72 %
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.
21
Table X. Short-Term Borrowings
2000 1999 1998
---------------------- ------------------- ------------------
Amount Rate Amount Rate Amount Rate
---------- -------- --------- -------- --------- -------
(Dollars in thousands)
Federal funds purchased:
At December 31...................................... $ -- -- % -- -- % -- -- %
Average during year................................. 41 3.01 $ 45 5.28 $ -- --
Maximum month end balance during year............... -- -- --
Repurchase agreements:
At December 31...................................... $ 23,066 4.50 % $ 19,753 4.52 % $ 11,467 3.21 %
Average during year................................. 20,430 4.34 16,079 3.50 8,251 3.87
Maximum month end balance during year............... 23,205 23,145 11,467
US Treasury tax and loan accounts:
At December 31...................................... $ 3,576 5.72 % $ 3,220 3.66 % $ 150 4.11 %
Average during year................................. 2,126 6.15 2,078 4.79 1,661 5.55
Maximum month end balance during year............... 3,614 4,396 3,591
Table XI. Selected Quarterly Data
2000 1999
-------------------------------------- ------------------------------------
Fourth Third Second First Fourth Third Second First
------- ------ -------- ------ ------- ------- -------- ------
(Dollars in thousands, except per share data)
SUMMARY OF OPERATIONS
Interest income ............................ $17,748 $17,039 $16,536 $15,724 $15,586 $14,348 $13,059 $12,386
Interest expense ........................... 8,304 7,873 7,339 6,958 6,729 6,126 5,220 5,138
------- ------- -------- ------- ------- ------- ------- -------
Net interest income ........................ 9,444 9,166 9,197 8,766 8,857 8,222 7,839 7,248
Provision for loan losses .................. 750 750 750 375 300 300 300 300
------- ------- -------- ------- ------- ------- ------- -------
Net interest income after provision for loan
losses ............................... 8,694 8,416 8,447 8,391 8,557 7,922 7,539 6,948
Noninterest income ......................... 1,905 1,970 1,888 1,403 1,420 1,251 1,251 1,261
Noninterest expense ........................ 7,376 7,332 7,015 6,673 6,694 6,258 5,563 5,529
------- ------- -------- ------- ------- ------- ------- -------
Net income before income taxes ............. 3,223 3,054 3,320 3,121 3,283 2,915 3,227 2,680
Income taxes ............................... 1,167 1,110 1,211 1,129 1,087 962 1,358 1,061
------- ------- -------- ------- ------- ------- ------- -------
Net income ................................. $ 2,056 $ 1,944 $ 2,109 $ 1,992 $ 2,196 $ 1,953 $ 1,869 $ 1,619
======= ======= ======== ======= ======= ======= ======= =======
PER SHARE OF STOCK
Net income per common share ................ $ 73.24 $ 69.14 $ 74.88 $ 70.71 $ 77.89 $ 69.28 $ 65.90 $ 56.98
Cash dividends - per common share .......... 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00
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 the
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," "anticipate," or other statements concerning
opinions or judgements 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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included in Item 7 in the text of BancShares' Management's
Discussion and Analysis of Financial Condition and Results of Operations (under
the caption "Liquidity, Market Risk and Interest Sensitivity") and is
incorporated herein by reference.
22
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors
Fidelity BancShares (N.C.), Inc.:
We have audited the accompanying consolidated balance sheets of Fidelity
BancShares (N.C.), Inc. and subsidiaries (the "Company") as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fidelity BancShares
(N.C.), Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
February 16, 2001
23
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
---------------- ----------------
Cash and due from banks $ 35,657,872 $ 31,510,348
Interest bearing deposits in other banks 27,178,095 40,747,611
Federal funds sold 28,850,000 22,600,000
---------------- ----------------
Total cash and cash equivalents 91,685,967 94,857,959
Investment securities:
Held to maturity (estimated fair value of $142,796,950
in 2000 and $132,844,174 in 1999) 142,904,792 135,006,444
Available for sale (cost of $2,644,600 in 2000 and 1999) 8,799,080 7,749,252
---------------- ----------------
Total investment securities 151,703,872 142,755,696
Loans 614,817,472 551,148,143
Allowance for loan losses (7,297,833) (5,141,647)
---------------- ----------------
Loans, net 607,519,639 546,006,496
Federal Home Loan Bank of Atlanta stock, at cost 2,169,700 2,059,300
Premises and equipment, net 34,749,653 32,834,942
Accrued interest receivable 5,961,767 4,824,267
Intangible assets 12,777,041 13,898,119
Other assets 1,102,807 1,850,852
---------------- ----------------
Total assets $ 907,670,446 $ 839,087,631
================ ================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand deposits $ 110,191,311 $ 103,774,405
Savings and interest-bearing demand deposits 288,374,723 266,549,100
Time deposits 373,953,911 345,690,121
---------------- ----------------
Total deposits 772,519,945 716,013,626
Short-term borrowings 26,641,586 22,972,551
Long-term borrowings 23,000,000 23,000,000
Accrued interest payable 6,306,181 4,729,785
Other liabilities 1,689,965 2,476,970
---------------- ----------------
Total liabilities 830,157,677 769,192,932
---------------- ----------------
Shareholders' equity:
Common stock ($25 par value; 29,200 shares authorized;
28,070 and 28,170 shares issued and outstanding in 2000
and 1999, respectively) 701,750 704,250
Surplus 6,176,362 6,198,366
Accumulated other comprehensive income 3,688,615 3,021,971
Retained earnings 66,946,042 59,970,112
---------------- ----------------
Total shareholders' equity 77,512,769 69,894,699
---------------- ----------------
$ 907,670,446 $ 839,087,631
================ ================
See accompanying notes to consolidated financial statements.
24
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
-------------- -------------- --------------
Interest income:
Interest and fees on loans $ 56,448,614 $ 45,264,188 $ 37,614,925
Interest and dividends on investment securities:
Non taxable interest income 50,588 5,080 21,840
Taxable interest 9,420,583 8,039,638 6,008,666
Dividend income 293,792 305,726 259,928
Interest on federal funds sold 833,781 1,764,036 2,664,161
-------------- -------------- --------------
Total interest income 67,047,358 55,378,668 46,569,520
-------------- -------------- --------------
Interest expense:
Deposits 27,499,766 21,484,771 19,478,840
Short-term borrowings 1,019,244 664,136 412,516
Long-term borrowings 1,955,000 1,064,389 --
-------------- -------------- --------------
Total interest expense 30,474,010 23,213,296 19,891,356
-------------- -------------- --------------
Net interest income 36,573,348 32,165,372 26,678,164
Provision for loan losses 2,625,000 1,200,000 630,000
-------------- -------------- --------------
Net interest income after provision for
loan losses 33,948,348 30,965,372 26,048,164
-------------- -------------- --------------
Noninterest income:
Service charges on deposit accounts 4,202,024 2,999,046 2,557,659
Other service charges and fees 2,478,240 2,091,139 1,857,945
Gain on sale of mortgage servicing rights -- -- 507,456
Other income 485,743 92,966 553,561
-------------- -------------- --------------
Total noninterest income 7,166,007 5,183,151 5,476,621
-------------- -------------- --------------
Noninterest expenses:
Salaries and employee benefits 15,245,959 12,556,789 9,471,641
Occupancy and equipment 4,767,258 4,405,599 3,699,708
Data processing 2,549,314 1,924,771 1,420,359
Amortization of intangibles 1,121,078 924,312 598,709
Other expense 4,712,929 4,232,231 4,227,997
-------------- -------------- --------------
Total noninterest expense 28,396,538 24,043,702 19,418,414
-------------- -------------- --------------
Net income before income taxes 12,717,817 12,104,821 12,106,371
Income tax expense 4,616,567 4,468,172 4,457,000
-------------- -------------- --------------
Net Income $ 8,101,250 $ 7,636,649 $ 7,649,371
============== ============== ==============
Per share information:
Net income $ 287.97 $ 270.05 $ 269.25
Cash dividends declared $ 32.00 $ 32.00 $ 32.00
Weighted average shares outstanding 28,132 28,279 28,410
See accompanying notes to consolidated financial statements.
25
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 2000, 1999 and 1998
Accumulated
other
Common stock comprehensive Retained
----------------------
Shares Amount Surplus income earnings
--------- --------- ----------- ------------- -------------
Balance December 31, 1997 28,410 710,250 $ 6,251,174 5,235,996 $ 46,919,683
Net income for 1998 -- -- -- -- 7,649,371
Cash dividends ($32.00 per share) -- -- -- -- (909,120)
Unrealized loss on securities available for sale,
net of deferred taxes of $695,947 -- -- -- (1,049,178) --
--------- --------- ----------- ------------- -------------
Comprehensive income
Balance December 31, 1998 28,410 710,250 6,251,174 4,186,818 53,659,934
--------- --------- ----------- ------------- -------------
Net income for 1999 -- -- -- -- 7,636,649
Cash dividends ($32.00 per share) -- -- -- -- (905,280)
Purchase and retirement of common stock (240) (6,000) (52,808) -- (421,191)
Unrealized loss on securities available for sale,
net of deferred taxes of $693,901 -- -- -- (1,164,847) --
--------- --------- ----------- ------------- -------------
Comprehensive income
Balance December 31, 1999 28,170 704,250 6,198,366 3,021,971 59,970,112
--------- --------- ----------- ------------- -------------
Net income for 2000 -- -- -- -- 8,101,250
Cash dividends ($32.00 per share) -- -- -- -- (899,824)
Purchase and retirement of common stock (100) (2,500) (22,004) -- (225,496)
Unrealized gain on securities, available for
sale, net of deferred taxes of $383,184 -- -- -- 666,644 --
--------- --------- ----------- ------------- -------------
Comprehensive income
Balance December 31, 2000 28,070 701,750 $6,176,362 3,688,615 $ 66,946,042
========= ========= =========== ============= =============
Total
Comprehensive shareholders'
income equity
------------- --------------
Balance December 31, 1997 $ 59,117,103
Net income for 1998 $ 7,649,371 7,649,371
Cash dividends ($32.00 per share) -- (909,120)
Unrealized loss on securities available for sale,
net of deferred taxes of $695,947 (1,049,178) (1,049,178)
------------- --------------
Comprehensive income 6,600,193
=============
Balance December 31, 1998 64,808,176
--------------
Net income for 1999 7,636,649 7,636,649
Cash dividends ($32.00 per share) -- (905,280)
Purchase and retirement of common stock -- (479,999)
Unrealized loss on securities available for sale,
net of deferred taxes of $693,901 (1,164,847) (1,164,847)
-------------
Comprehensive income 6,471,802
=============
Balance December 31, 1999 69,894,699
--------------
Net income for 2000 8,101,250 8,101,250
Cash dividends ($32.00 per share) -- (899,824)
Purchase and retirement of common stock -- (250,000)
Unrealized gain on securities, available for
sale, net of deferred taxes of $383,184 666,644 666,644
------------- --------------
Comprehensive income $ 8,767,894
=============
Balance December 31, 2000 $ 77,512,769
==============
See accompanying notes to consolidated financial statements.
26
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------------- ----------------- -----------------
Cash flows from operating activities:
Net income $ 8,101,250 $ 7,636,649 $ 7,649,371
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,658,864 3,216,484 2,560,884
Amortization (accretion) on investment securities (246,358) 132,266 23,475
Loss (gain) on disposition or abandonment of premises
and equipment (16,260) 1,637 97,994
Provision for loan losses 2,625,000 1,200,000 630,000
Origination of loans held for sale (3,508,450) (12,818,050) (18,860,150)
Proceeds from sales of loans held for sale 3,555,810 12,860,521 18,920,919
Gain on sales of loans held for sale (47,360) (42,471) (60,769)
Loss on other real estate 138,235 -- --
Deferred income taxes (1,015,704) (581,537) (523,835)
Decrease (increase) in accrued interest receivable (1,137,500) (1,172,612) 417,389
Decrease (increase) in other assets, net 748,045 (1,052,154) 516,341
Increase (decrease) in other liabilities, net (154,486) (186,536) 399,183
Increase in accrued interest payable 1,576,396 606,321 820,017
--------------- -------------- --------------
Net cash provided by operating activities 14,277,482 9,800,518 12,590,819
--------------- -------------- --------------
Cash flows from investing activities:
Purchase of securities held to maturity (39,653,069) (104,996,900) (75,256,467)
Return of capital on securities available for sale -- -- 456,000
Proceeds from maturities and issuer calls of
securities held to maturity 32,001,079 60,004,666 117,217,555
Purchase of FHLB of Atlanta stock (110,400) (196,898) (59,102)
Net increase in loans (64,276,382) (84,841,466) (47,437,432)
Purchases of premises and equipment (4,436,232) (9,171,037) (4,077,361)
Proceeds from sales of premises and equipment -- 2,000 18,671
Net cash received on purchases of branches -- 66,305,756 35,375,611
--------------- -------------- --------------
Net cash provided (used) by investing activities (76,475,004) (72,893,879) 26,237,475
--------------- -------------- --------------
Cash flows from financing activities:
Net increase in deposits 56,506,319 6,794,010 29,276,749
Net increase in short-term borrowings 3,669,035 11,355,207 566,029
Net increase in long-term borrowings -- 23,000,000 --
Cash dividends paid (899,824) (905,280) (909,120)
Purchase and retirement of common stock (250,000) (479,999) --
--------------- -------------- --------------
Net cash provided by financing activities 59,025,530 39,763,938 28,933,658
--------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (3,171,992) (23,329,423) 67,761,952
Cash and cash equivalents at beginning of year 94,857,959 118,187,382 50,425,430
--------------- -------------- --------------
Cash and cash equivalents at end of year $ 91,685,967 $ 94,857,959 $ 118,187,382
=============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 28,897,614 $ 22,606,975 $ 19,071,339
=============== ============== ==============
Cash paid during the year for income taxes $ 5,823,064 $ 4,524,559 $ 4,959,400
=============== ============== ==============
Supplemental disclosure of noncash financing and
investing activities:
Unrealized gains (losses) on available-for-sale
securities, net of deferred tax effects of $383,184,
$693,901 and $695,947, respectively $ 666,644 $ (1,164,847) $ (1,049,178)
=============== ============== ==============
See accompanying notes to consolidated financial statements.
27
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting and Reporting Policies
(a) Nature of Operations
Fidelity BancShares (N.C.), Inc. (the "Company") is a bank holding
company incorporated under the General Corporation Law of the State of
Delaware. The principal activity of the Company is ownership of The
Fidelity Bank (the "Bank"), which operates sixty-two offices primarily
in central North Carolina, and FIDBANK Capital Trust I (the "Trust"),
a statutory business trust created under the laws of the State of
Delaware that issued $23.0 million of 8.50% Capital Securities (the
"Capital Securities") in June 1999 maturing in 2029.
The Bank's primary source of revenue is derived from interest income
on loans to customers and from its investment securities portfolio.
The loan portfolio is comprised mainly of real estate, commercial,
consumer, and equity line of credit loans. These loans are primarily
collateralized by residential and commercial properties, commercial
equipment, and personal property.
(b) Consolidation
The accompanying consolidated financial statements of the Company
include the accounts of the Bank and the Trust, the Company's wholly-
owned subsidiaries. The Bank also has two wholly-owned subsidiaries,
Fidelity Properties, Inc. and TFB Financial Services. There have been
no transactions by Fidelity Properties, Inc. other than the initial
capitalization. TFB Financial Services, Inc., provides depositors
alternative non-deposit investment products. All significant
intercompany transactions have been eliminated in consolidation.
(c) Basis of Financial Statement Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
reporting date and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from
banks, and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
28
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(e) Investment Securities
The Company accounts for investment securities under Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". This statement
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. These investments are to be classified
into three categories and accounted for as follows: (1) debt
securities that the entity has the positive intent and the ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost; (2) debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings; and (3) debt and
equity securities not classified as either securities held to maturity
or trading securities are classified as available for sale and consist
of securities which may be sold in response to changes in interest
rates, prepayment risk, regulatory capital requirements and liquidity
needs. Such securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate
component of shareholders' equity. The classification of securities is
determined by management at the date of purchase. The Company does not
hold any trading securities.
Amortization of premiums and accretion of discounts are recognized as
adjustments to interest income using the interest method. Gains and
losses on sales of securities, computed based on specific
identification of the amortized cost of each security, are included in
other income at the time of the sale.
(f) Loans
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Interest on loans is recorded as earned on
an accrual basis.
Loans, including impaired loans, are generally classified as
nonaccrual if they are past due as to maturity or payment of principal
or interest for a period of more than 90 days, unless such loans are
well-secured and in the process of collection. Loans that are current
or past due less than 90 days may also be classified as nonaccrual if
repayment in full of principal and/or interest is in doubt. Loans may
be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a
sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms.
29
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
While a loan (including an impaired loan) is classified as nonaccrual
and the future collectibility of the recorded loan balance is
doubtful, collections of interest and principal are generally applied
as a reduction to the principal outstanding. When the future
collectibility of the recorded loan balance is not in doubt, interest
income may be recognized on a cash basis. In the case where a
nonaccrual loan had been partially charged-off, recognition of
interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest
rate. Receipts in excess of that amount are recorded as recoveries to
the allowance for loan losses until prior charge-offs have been fully
recovered.
(g) Allowance and Provision for Loan Losses
The Company provides for loan losses on the allowance method.
Additions to the allowance for loan losses are provided by charges to
operations based on various factors which, in management's judgment,
deserve current recognition in estimating probable losses inherent in
the loan portfolio. Such factors considered by management include the
market value of the underlying collateral, growth and composition of
the loan portfolio, the relationship of the allowance for loan losses
to outstanding loans, delinquency trends, and economic conditions.
Allowances for loan losses related to loans that are identified as
impaired are based on discounted cash flows using the loan's initial
interest rate or the fair value of the collateral if the loan is
collateral dependent. Larger groups of smaller balance homogeneous
loans that are collectively evaluated for impairment (such as credit
card, residential mortgage and consumer installment loans) are
excluded from this impairment evaluation and their allowance for loan
losses is calculated in accordance with the allowance for loan losses
policy discussed above.
Management evaluates the carrying value of loans periodically and the
allowance is adjusted accordingly. While management uses the best
information available to make evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
30
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(h) Assets Acquired in Settlement of Loans
Assets acquired in settlement of loans consist primarily of property
acquired through a foreclosure proceeding or acceptance of a deed-in-
lieu of foreclosure. Assets acquired in settlement of loans are
recorded initially at the lower of the loan balance plus unpaid
accrued interest or estimated fair value of the property less
estimated selling costs at the date of foreclosure. The initial
recorded value may be subsequently reduced by additional allowances,
which are charged to earnings, if the estimated fair value of the
property, less estimated selling costs, declines below the initial
recorded value. Costs related to the improvement of the property are
capitalized, whereas those related to holding the property are
expensed.
(i) Membership/Investment in Federal Home Loan Bank of Atlanta Stock
The Company is a member of the Federal Home Loan Bank of Atlanta
("FHLB"). Membership provides the Company with the ability to draw
$108 million of advances from the FHLB, subject to a signed blanket
collateral agreement. No advances were drawn by the Company in 2000 or
1999.
As a requirement for membership, the Company invests in stock of the
FHLB in the amount of 1% of its outstanding residential loans or 5% of
its outstanding advances from the FHLB, whichever is greater. Such
stock is pledged as collateral for any FHLB advances drawn by the
Company. At December 31, 2000 and 1999, the Company owned 21,697 and
20,593 shares of the FHLB's $100 par value capital stock,
respectively. No ready market exists for such stock, which is carried
at cost.
(j) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using an accelerated method
based on the estimated useful lives of assets. Useful lives range from
10 to 31.5 years for premises and from 5 to 10 years for equipment and
fixtures. Expenditures for repairs and maintenance are charged to
expense as incurred. Upon retirement or other disposition of the
assets, the cost and the related accumulated depreciation are removed
from the accounts and any gains or losses are included in income.
31
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(k) Intangible Assets
Intangible assets are composed primarily of goodwill and core deposit
premiums. Amortization of goodwill and core deposit premiums is
computed using the straight-line method based on the estimated useful
lives of the assets (current useful lives range from 8 - 15 years).
The lives of the assets are estimated by management at the time the
assets are acquired using information available at that time and are
subject to re-evaluation as new information becomes available.
(l) Income Taxes
Income tax expense is based on consolidated net income and generally
differs from income taxes paid due to deferred income taxes and
benefits arising from income and expenses being recognized in
different periods for financial and income tax reporting. The Company
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 the
Company's assets and liabilities at enacted rates expected to be in
effect when such amounts are recovered or settled. The Bank and its
subsidiaries are included in the consolidated federal return filed by
the Company. Each subsidiary pays its allocation of federal income
taxes or receives a payment to the extent that tax benefits are
realized. The Company and its subsidiaries each file separate state
income tax returns.
(m) Net Income Per Share
Net income per share is computed based on the weighted average number
of common shares outstanding during the year. The Company currently
has no potentially dilutive securities.
(n) Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. The Company adopted this statement in 1998. The Company's
only component of accumulated other comprehensive income is unrealized
gain/loss on securities available for sale.
32
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(o) Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
requires that public business enterprises report certain information
about operating segments in a complete set 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. Adoption of this statement by the Company in 1998 had no
effect on the Company's consolidated financial statements as the
Company's only operating segment is commercial banking.
(p) Reclassifications
Certain amounts in the 1999 and 1998 consolidated financial statements
of the Company have been reclassified to conform with the 2000
presentation.
(2) Acquisitions of Branches
On August 22, 1999, the Company purchased seven branches from First-
Citizens Bank & Trust Company ("FCB"), a related party (see note 15). Loans
and deposits acquired were $28,038,000 and $99,573,000, respectively. An
intangible asset of approximately $4,147,000 resulted from this purchase.
On October 23, 1998, the Company purchased five branches from FCB (see note
15). Loans and deposits acquired were approximately $33,694,000 and
$75,093,000, respectively. An intangible asset of approximately $4,090,000
resulted from this purchase.
33
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(3) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31, 2000 and 1999 are as follows:
2000
---------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------- ------------- -------------- --------------
Available for sale:
Marketable equity securities $ 2,644,600 $ 6,154,480 $ -- $ 8,799,080
============== ============= ============== ==============
Held to maturity:
U.S. Agency 92,939,755 98,656 (288,336) 92,750,075
U.S. Treasury 49,965,037 137,084 (55,246) 50,046,875
-------------- ------------- -------------- --------------
$ 142,904,792 $ 235,740 $ (343,582) $ 142,796,950
============== ============= ============== ==============
1999
---------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
-------------- ------------- -------------- --------------
Available for sale:
Marketable equity securities $ 2,644,600 $ 5,104,652 $ -- $ 7,749,252
============== ============= ============== ==============
Held to maturity:
U.S. Agency 78,042,300 1,038 (1,833,538) 76,209,800
U.S. Treasury 54,964,144 9,375 (339,145) 54,634,374
Obligations of state and
political subdivisions 2,000,000 -- -- 2,000,000
-------------- ------------- -------------- --------------
$ 135,006,444 $ 10,413 $ (2,172,683) $ 132,844,174
============== ============= ============== ==============
The amortized cost and estimated fair value of debt securities at December
31, 2000 by contractual maturities are as follows:
Amortized Estimated
cost fair value
-------------- --------------
Due in one year or less:
U.S. Treasury $ 34,978,961 $ 34,925,000
U. S. Agency 92,931,447 54,954,688
Due after one year through five years:
U.S. Treasury 14,986,076 15,121,875
Due after ten years:
U.S. Agency 8,308 9,137
-------------- --------------
$ 142,904,792 $ 142,796,950
============== ==============
There were no sales of investment securities during 2000, 1999 or 1998.
Investment securities with an amortized cost of approximately $85,281,000 and
$120,950,000 were pledged to secure public deposits at December 31, 2000 and
1999, respectively.
34
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 2000 and 1999 are
summarized as follows:
2000 1999
--------------- ---------------
Loans secured by real estate:
Construction and land development $ 100,727,225 $ 79,576,126
Single-family residential 230,929,619 216,951,839
Farmland 4,950,429 5,502,464
Commercial 89,657,350 74,320,018
Commercial and industrial 139,598,634 124,858,443
Consumer 39,123,853 37,674,743
Agricultural 4,697,313 3,956,957
Other 5,133,049 8,307,553
--------------- ---------------
614,817,472 551,148,143
Allowance for loan losses (7,297,833) (5,141,647)
--------------- ---------------
$ 607,519,639 $ 546,006,496
=============== ===============
There were no loans designated as held for sale at December 31, 2000 and
1999.
The Company offers loans to its officers, directors, and employees for the
financing of their personal residences and for other personal purposes. These
loans are made in the ordinary course of business and are made on
substantially the same terms prevailing at the time as comparable
transactions with other persons. Management does not believe these loans
involve more than the normal risk of collectibility or present other
unfavorable features.
The following is a reconciliation of aggregate loans outstanding to executive
officers, directors, and their immediate families for the years ended
December 31, 2000 and 1999:
2000 1999
-------------- -------------
Balance at beginning of year $ 5,504,778 $ 494,383
New loans 774,890 5,504,778
Principal repayments (616,919) (494,383)
-------------- -------------
Balance at end of year $ 5,662,749 $ 5,504,778
============== =============
35
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
A summary of the allowance for loan losses for the years ended December 31,
2000, 1999 and 1998 is as follows:
2000 1999 1998
--------------- --------------- ---------------
Balance at beginning of year $ 5,141,647 $ 4,601,000 $ 4,144,752
Provision for loan losses 2,625,000 1,200,000 630,000
Charge-offs (1,488,940) (1,633,754) (1,540,681)
Recoveries 1,020,126 694,401 1,366,929
Allowance for loan losses on purchased loans -- 280,000 --
--------------- --------------- ---------------
Balance at end of year $ 7,297,833 $ 5,141,647 $ 4,601,000
=============== =============== ===============
At December 31, 2000 and 1999, the Company had no nonaccrual loans and no
accruing loans ninety days or more past due. In addition, at and during the
years ended December 31, 2000 and 1999, the Company had no impaired loans.
As of December 31, 2000 and 1999, the balance of other real estate acquired
through foreclosure was $75,000 and $117,000, respectively.
In January 1998, the Company sold rights to service $51 million in mortgage
loans to Southern Bank and Trust Company ("SBT"), Mount Olive, North
Carolina, for $522,000 (including accrued interest), resulting in a gain of
$507,456. The two significant shareholders of the Company also are
significant shareholders of Southern BancShares (N.C.), Inc., the parent
holding company for SBT (see note 15). The Company no longer services loans
for others.
(5) Premises and Equipment
Premises and equipment at December 31, 2000 and 1999 are as follows:
2000 1999
---------------- ----------------
Land $ 10,826,463 $ 10,202,696
Building and improvements 28,154,397 25,511,153
Furniture and equipment 9,358,994 8,380,341
---------------- ----------------
48,339,854 44,094,190
Less accumulated depreciation (13,590,201) (11,259,248)
---------------- ----------------
Premises and equipment, net $ 34,749,653 $ 32,834,942
================ ================
36
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(6) Deposits
At December 31, 2000 and 1999, time deposits of $100,000 or more amounted
to approximately $80,919,000 and $66,297,000, respectively. For the years
ended December 31, 2000, 1999 and 1998, interest expense on time deposits
of $100,000 or more amounted to approximately $4,491,000, $3,401,000 and
$2,750,000, respectively.
Time deposit accounts as of December 31, 2000, mature in the following
years and approximate amounts: 2001 - $275,845,000; 2002 - $57,664,000;
2003 -$26,718,000; and thereafter - $13,726,000.
(7) Short-Term Borrowings
Short-term borrowings at December 31, 2000 and 1999 consist of the
following:
2000 1999
---------------- -----------------
Securities sold under agreements to repurchase $ 23,066,000 $ 19,753,000
Treasury tax and loan deposits 3,575,586 3,219,551
---------------- -----------------
$ 26,641,586 $ 22,972,551
================ =================
Information concerning securities sold under agreements to repurchase is
summarized as follows:
2000 1999
---- ----
Average rate during year 4.34% 3.50%
Average balance during year $20,429,842 $16,079,058
Maximum month-end balance during year $23,205,000 $23,145,000
These borrowings have maturities of less than 90 days. Securities sold
under agreements to repurchase represent transactions whereby the Bank
sells investment securities to certain of its commercial customers on an
overnight basis and repurchases such securities the next day. At December
31, 2000, $28,489,130 of investment securities were pledged for repurchase
agreements. The securities collateralizing the repurchase agreements have
been delivered to a third party custodian for safekeeping.
(8) Long-Term Borrowings
The $23.0 million long-term obligations at December 31, 2000 are Capital
Trust Securities of the Trust which were issued during 1999. These long-
term obligations, which qualify as Tier 1 Capital for BancShares, bear
interest at 8.50% and mature in 2029. BancShares may redeem the long-term
obligations in whole or in part on or after June 30, 2004. The sole asset
of the Trust is $23.0 million of 8.50% Junior Subordinated Debentures of
BancShares due 2029. Considered together, the undertakings constitute a
full and unconditional guarantee by BancShares of the Trust's obligations
under the Capital Securities.
37
FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(9) Income Taxes
The components of income taxes for the years ended December 31, 2000, 1999
and 1998 are as follows:
2000 1999 1998
--------------- --------------- ---------------
Current:
Federal $ 5,012,050 $ 4,531,557 $ 4,440,197
State 620,221 518,152 540,638
--------------- --------------- ---------------
5,632,271 5,049,709 4,980,835
--------------- --------------- ---------------
Deferred:
Federal (850,184) (489,703) (442,637)
State (165,520) (91,834) (81,198)
--------------- --------------- ---------------
(1,015,704) (581,537) (523,835)
--------------- --------------- ---------------
$ 4,616,567 $ 4,468,172 $ 4,457,000
=============== =============== ===============
The reconciliation of expected income tax expense at the statutory federal
rate with income tax expense for the years ended December 31, 2000, 1999
and 1998 is as follows:
2000 1999 1998
--------------- --------------- ---------------
Expected income tax expense at statutory
rate (35%) $ 4,451,236 $ 4,236,687 $ 4,237,230
Increase (decrease) in income tax expense
resulting from:
State taxes, net 295,555 277,107 298,636
Tax exempt income (14,592) (1,494) (6,320)
Other, net (115,632) (44,128) (72,546)
--------------- --------------- ---------------
$ 4,616,567 $ 4,468,172 $ 4,457,000
=============== =============== ===============
The deferred tax components at December 31, 2000 and 1999 are as follows:
2000 1999
---------------- -----------------
Deferred tax assets:
Allowance for loan losses $ 2,881,549 $ 1,944,267
Deferred compensation 382,982 367,683
Depreciation 524,757 360,948
Pension costs 171,734 85,880
Other -- 71,036
---------------- -----------------
Total gross deferred tax assets 3,961,022 2,829,814
---------------- -----------------
Deferred tax liabilities:
Premises and equipment (195,832) (196,154)
Bond accretion (146,710) (38,810)
Amortization of intangibles (28,863) (25,484)
Unrealized gains on available for sale securities (2,465,865) (2,082,681)
Other (4,547) --
---------------- -----------------
Total gross deferred tax liabilities (2,841,817) (2,343,129)
---------------- -----------------
Net deferred tax asset $ 1,119,205 $ 486,696
================ =================
38
FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
No valuation allowance for deferred tax assets was required at December 31,
2000 or 1999 as management has determined that it is more likely than not
that the net deferred tax asset can be realized.
(10) Employee Benefit Plans
Capital Accumulation Plan
The Company has a profit sharing 401(k) plan (the "Plan") for all full time
employees with at least one year of service, which covers substantially all
employees. Under the Plan, employees may contribute up to an annual maximum
as determined under the Internal Revenue Code, not to exceed 16% of the
participant's compensation. The Company matches 100% of such contributions
for the first three percent of the participant's contributions and 50% of
the next three percent. Further, the Company may make additional
contributions on a discretionary basis. The Plan provides that employees'
contributions are 100% vested at all times and the Company's contributions
are 100% vested after five years of service. The Company incurred $327,201,
$282,848 and $245,166 of expense related to the Plan for the years ended
December 31, 2000, 1999 and 1998, respectively. The majority of the Plan's
assets are held by a related party as trustee. See note 15 for additional
information.
Pension Plan
The Company has a noncontributory, defined benefit pension plan
("Retirement Plan") which covers substantially all full-time employees. The
Company's funding policy is based on actuarially calculated amounts to fund
normal pension cost and any unfunded accrued liability. The Retirement Plan
utilizes the projected unit credit actuarial cost method.
The following table reconciles the beginning and ending balance of the
Retirement Plan's benefit obligation, as computed by the Company's
independent actuarial consultants as of December 31, 2000, 1999 and 1998:
2000 1999 1998
-------------- --------------- ---------------
Net benefit obligation at beginning of year $ 6,519,278 $ 6,655,456 $ 5,338,120
Service cost 303,114 264,659 221,431
Interest cost 531,945 459,402 423,837
Actuarial loss (gain) 687,186 (642,010) 844,420
Gross benefits paid (251,880) (218,229) (172,352)
-------------- --------------- ---------------
Net benefit obligation at end of year $ 7,789,643 $ 6,519,278 $ 6,655,456
============== =============== ===============
39
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The following table reconciles the beginning of the Retirement Plan's plan
assets as of December 31, 2000, 1999 and 1998:
2000 1999 1998
-------------- --------------- ---------------
Fair value of plan assets at beginning of year $ 8,718,547 $ 8,415,415 $ 7,296,169
Actual return (loss) on plan assets (108,652) 521,361 1,291,598
Benefits paid (251,880) (218,229) (172,352)
-------------- --------------- --------------
Fair value of plan assets at end of year $ 8,358,015 $ 8,718,547 $ 8,415,415
============== =============== ===============
The following table presents information regarding the funded status of the
Retirement Plan as of December 31, 2000 and 1999:
2000 1999
---------------- -----------------
Funded status at the end of year $ 568,372 $ 2,199,269
Unrecognized net actuarial gain (790,908) (2,158,294)
Unrecognized prior service cost 47,908 57,468
Unrecognized transition obligation (91,972) (147,145)
---------------- -----------------
Net asset (liability) recognized at end of year $ (266,600) $ (48,702)
================ =================
The following table presents the components of net periodic benefit cost for the
years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
-------------- --------------- ---------------
Service cost $ 303,114 $ 264,659 $ 221,431
Interest cost 531,945 459,402 423,837
Expected return on assets (571,548) (495,008) (441,093)
Amortization of:
Transition obligation (55,173) (55,173) (55,173)
Prior service cost 9,560 9,560 9,560
Actuarial loss -- 11,219 14,754
------------ ------------- -------------
Net periodic benefit cost $ 217,898 $ 194,659 $ 173,316
============ ============= =============
Actuarial assumptions used to determine the Retirement Plan's funded status were
as follows:
2000 1999 1998
---- ---- ----
Discount rate 7.25% 7.50% 6.75%
Rate of increase in compensation levels 4.75% 4.75% 4.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.00%
The Retirement Plan's investment portfolio consists of approximately 50% equity
securities, and 50% fixed income and other investments at December 31, 2000. The
majority of the Retirement Plan's assets are held by a related party who serves
as trustee. See note 15 for additional information.
40
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Employee Death Benefit and Post-Retirement Non-Competition and Consultation
Agreements
The Company has in place Employee Death Benefit and Post-Retirement Non-
Competition and Consultation Agreements (the "Agreements") covering two of
its executive officers. The Agreements provide for certain benefits to be
paid to the executive officers upon either their retirement (as defined in
the Agreements) or their death. The Company's accrual (included in other
liabilities) for these future benefits was approximately $970,000 and
$930,000 at December 31, 2000 and 1999, respectively.
(11) Regulatory Restrictions
The Company is regulated by the Board of Governors of the Federal Reserve
System ("FRB"). The Bank is regulated by the Federal Deposit Insurance
Corporation ("FDIC") and the State of North Carolina Office of the
Commissioner of Banks.
Subject to applicable law, the Boards of Directors of the Company and the
Bank may each provide for the payment of dividends. Future declarations of
cash dividends, if any, by the Company may depend upon dividend payments by
the Bank to the Company. The Bank, as a North Carolina banking corporation,
may pay dividends only out of undivided profits as determined pursuant to
North Carolina General Statutes Section 53-87. However, regulatory
authorities may limit payment of dividends by any bank when it is
determined that such a limitation is in the public interest and is
necessary to ensure the financial soundness of the bank.
Under regulations of the Federal Reserve, banking affiliates are required
to maintain certain average reserve balances which include both cash on
hand and deposits with the Federal Reserve. These deposits are included in
cash and cash equivalents in the accompanying balance sheets. At December
31, 2000 and 1999 the Bank was required to maintain such balances at
$12,039,000 and $12,896,000, respectively.
The Company and the Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Quantitative measures established by
regulation to ensure capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios, as set forth in the table below.
Management believes, as of December 31, 2000, that the Company and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 2000, the Bank was considered to be "well capitalized"
under FDIC standards. To be categorized as well capitalized the Bank must
maintain minimum amounts and ratios, as set forth in the tables below.
There are no conditions or events since December 31, 2000 that management
believes have changed the category of the Bank.
41
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The actual capital amounts and ratios for the Company are presented in the
table below (dollars in thousands):
For
Capital
Adequacy
Amount Ratio Purposes
----------- ------------ -------------
As of December 31, 2000:
- ------------------------
Total Capital (to Risk Weighted Assets) $ 94,114 13.29% *8.00%
Tier 1 Capital (to Risk Weighted Assets) 84,047 11.87% *4.00%
Tier 1 Capital (to Average Assets) 84,047 9.72% *3.00%
As of December 31, 1999:
- ------------------------
Total Capital (to Risk Weighted Assets) $ 83,665 13.34% *8.00%
Tier 1 Capital (to Risk Weighted Assets) 75,601 12.06% *4.00%
Tier 1 Capital (to Average Assets) 75,601 9.12% *3.00%
The actual capital amounts and ratios for the Bank are presented in the
table below (dollars in thousands):
For To Be Well
Capital Capitalized Under
Adequacy Prompt Corrective
Amount Ratio Purposes Action Provisions
----------- ----------- ------------- -------------------
As of December 31, 2000:
- ------------------------
Total Capital (to Risk Weighted Assets) $ 85,944 12.31% *8.00% *10.00%
Tier 1 Capital (to Risk Weighted Assets) 78,646 11.26% *4.00% * 6.00%
Tier 1 Capital (to Average Assets) 78,646 9.17% *3.00% * 5.00%
As of December 31, 1999:
- ------------------------
Total Capital (to Risk Weighted Assets) $ 76,386 13.17% *8.00% *10.00%
Tier 1 Capital (to Risk Weighted Assets) 71,244 12.28% *4.00% * 6.00%
Tier 1 Capital (to Average Assets) 71,244 8.67% *3.00% * 5.00%
(12) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, lines of credit and standby letters of credit. These instruments
involve elements of credit risk in excess of amounts recognized in the
accompanying consolidated financial statements.
* means greater than or equal to
42
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The Company's risk of loss in the event of nonperformance by the other
party to the commitment to extend credit, line of credit or standby letter
of credit is represented by the contractual amount of these instruments.
The Company uses the same credit policies on the borrower in making
commitments under such instruments as it does for on-balance sheet
instruments. The amount of collateral obtained, if any, is based on
management's credit evaluation of the borrower. Collateral held varies, but
may include accounts receivable, inventory, real estate and time deposits
with financial institutions. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
As of December 31, 2000 and 1999, outstanding financial instruments whose
contract amounts represent credit risk were as follows:
2000 1999
----------------- -----------------
Outstanding commitments to lend, unfunded loans
and lines of credit $ 213,329,957 $ 196,480,149
================= =================
Standby and commercial letters of credit $ 2,142,718 $ 2,887,793
================= =================
The Company's lending is concentrated primarily in central North Carolina
and the surrounding communities in which it operates. Credit has been
extended to certain of the Company's customers through multiple lending
transactions; however, there is no concentration to any single customer or
industry.
(13) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS
No. 107), requires the disclosure of estimated fair values for financial
instruments. Quoted market prices, if available, are utilized as an
estimate of the fair value of financial instruments. Because no quoted
market prices exist for a significant part of the Company's financial
instruments, the fair value of such instruments has been derived based on
management's assumptions with respect to future economic conditions, the
amount and timing of future cash flows and estimated discount rates.
Different assumptions could significantly affect these estimates.
Accordingly, the net realizable value could be materially different from
the estimates presented below. In addition, the estimates are only
indicative of individual financial instruments' values and should not be
considered an indication of the fair value of the Company taken as a whole.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and Due From Banks, Interest Bearing Deposits in Other Banks, and
Federal Funds Sold
The carrying amounts of cash and due from banks, interest bearing deposits
in other banks and federal funds sold are equal to the fair value due to
the liquid nature of these financial instruments.
43
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Investment Securities
Fair values of investment securities are based on quoted market prices. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar investment securities.
Loans Receivable
For variable-rate loans that reprice frequently and with no significant
credit risk, fair values are based on carrying values. The fair values of
fixed rate loans are estimated by discounting the future cash flows using the
current rates at which loans with similar terms would be made to borrowers
with similar credit ratings and for the same remaining maturities. The
Company has assigned no fair value to off-balance sheet financial instruments
since they are short term in nature and subject to immediate repricing.
Deposits
The fair value of demand deposits, savings accounts and money market deposits
is the amount payable on demand at year end. Fair value of certificates of
deposit is estimated by discounting the future cash flows using the current
rate offered for similar deposits with the same maturities.
Short-Term Borrowings
The carrying amounts of short-term borrowings approximate fair values due to
the fact these borrowings mature within 90 days.
Long-Term Borrowings
The fair value of long-term borrowings is the fair value at the last trade
date of the respective years.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest approximates fair value due to its
short-term nature.
44
FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The following table presents information for financial assets and
liabilities as of December 31, 2000 and 1999 (in thousands):
2000 1999
------------------------------ -----------------------------
Estimated Estimated
Carrying fair Carrying fair
value value value value
------------ -------------- ------------ -------------
Financial assets:
Cash and due from banks
and interest bearing deposits
in other banks $ 62,836 $ 62,836 $ 72,258 $ 72,258
Federal funds sold 28,850 28,850 22,600 22,600
Investment securities
available for sale 8,799 8,799 7,749 7,749
Investment securities held
to maturity 142,905 142,797 135,006 132,844
Federal Home Loan Bank of
Atlanta stock 2,170 2,170 2,059 2,059
Accrued interest receivable 5,962 5,962 4,824 4,824
Loans, net 607,520 606,519 546,006 546,198
Financial liabilities:
Deposits $ 772,520 $ 773,721 $ 716,014 $ 716,375
Short-term borrowings 26,642 26,642 22,973 22,973
Long-term borrowings 23,000 19,849 23,000 19,550
Accrued interest payable 6,306 6,306 4,730 4,730
(14) Parent Company Financial Data
The Company's principal assets are its investments in the Bank and
the Trust. Condensed financial statements for the parent company
as of December 31, 2000 and 1999 are as follows (in thousands):
CONDENSED BALANCE SHEETS 2000 1999
------------- -------------
Assets
Cash $ 1,033 $ 835
Investments 8,799 7,749
Investment in subsidiaries 92,228 85,635
Other assets 1,630 1,470
------------ ------------
Total assets $ 103,690 $ 95,689
============ ============
Liabilities and Shareholders' Equity
Long-term borrowings $ 23,711 $ 23,711
Deferred tax liability 2,466 2,083
Shareholders' equity 77,513 69,895
------------ ------------
Total liabilities and shareholders' equity $ 103,690 $ 95,689
============ ===========
45
FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
CONDENSED STATEMENTS OF INCOME 2000 1999 1998
------------- ------------- ------------
Dividends from bank subsidiary $ 2,875 $ 920 $ 920
Other dividends 126 153 123
Interest expense on long-term borrowings (2,015) (1,097) --
Miscellaneous expenses (169) (109) (296)
Income tax benefit (expense) 691 353 --
------------- ------------- ------------
Income before equity in undistributed earnings
of subsidiaries 1,508 220 747
Equity in undistributed earnings of subsidiaries 6,593 7,417 6,902
------------- ------------- ------------
Net income $ 8,101 $ 7,637 $ 7,649
============= ============= ============
CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1998
------------- ------------- ------------
Cash flows from operating activities:
Net income $ 8,101 $ 7,637 $ 7,649
Equity in undistributed earnings subsidiaries (6,593) (7,417) (6,902)
Increase in other liabilities 457 -- --
Increase in other assets (617) (1,428) (7)
------------- ------------- ------------
Net cash provided (used) by operating activities 1,348 (1,208) 740
------------- ------------- ------------
Cash flows from investing activities:
Capital investment in subsidiary (Trust) -- (711) --
Capital investment in subsidiary (Bank) -- (20,000) --
Return of capital on investment securities -- -- 456
------------- ------------- ------------
Net cash provided (used) by investing activities -- (20,711) 456
------------- ------------- ------------
Cash flows from financing activities:
Increase in long-term borrowings -- 23,711 --
Dividends paid (900) (905) (909)
Purchase and retirement of common stock (250) (480) --
------------- ------------- ------------
Net cash provided (used) in financing activities (1,150) 22,326 (909)
------------- ------------- ------------
Net increase in cash and cash equivalents 198 407 287
Cash and cash equivalents at beginning of year 835 428 141
------------- ------------- ------------
Cash and cash equivalents at end of year $ 1,033 $ 835 $ 428
============= ============= ============
46
FIDELITY BANCSHARES (N.C), INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(15) Related Parties
The Company has entered into various service contracts with another bank
holding company and its subsidiary (the "Corporation"). The Corporation has
two significant shareholders, who are also significant shareholders of the
Company. At December 31, 2000, the first significant shareholder
beneficially owned 11,155 shares, or 39.74 percent, of the Company's
outstanding common stock. At the same date, the second significant
shareholder beneficially owned 3,123 shares, or 11.13 percent, of the
Company's outstanding common stock.
These two significant shareholders are directors and executive officers of
the Corporation and at December 31, 2000, beneficially owned 2,524,468
shares, or 28.64 percent, and 1,477,495 shares, or 16.76 percent,
respectively, of the Corporation's outstanding Class A common stock, and
649,188 shares, or 37.86 percent, and 199,052 shares, or 11.61 percent,
respectively, of the Corporation's outstanding Class B common stock. The
above totals include 487,557 Class A common shares, or 5.43 percent, and
104,644 Class B common shares, or 6.10 percent, that are considered to be
beneficially owned by both of the shareholders and, therefore, are included
in each of their totals. A subsidiary of the Corporation is FCB.
The following are expenses paid by the Company to the Corporation:
2000 1999 1998
---------------- ---------------- -----------------
Data and items processing $ 2,549,000 $ 1,925,000 $ 1,420,000
Trustee fees 40,000 48,000 40,000
Other 447,000 1,027,000 587,000
---------------- ---------------- -----------------
$ 3,036,000 $ 3,000,000 $ 2,047,000
================ ================ =================
The Company also has a correspondent relationship with the Corporation.
Correspondent account balances with the Corporation included in cash and
due from banks and federal funds sold totaled $50,450,392 and $35,777,835
at December 31, 2000 and 1999, respectively.
During January 1998, the Bank sold rights to service mortgage loans to SBT.
See note 4.
During October 1998 and August 1999, the Company purchased five and seven
branches, respectively, from FCB. See note 2.
47
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table lists BancShares' current directors.
Position(s)
with BancShares First Business experience for
Name and age and the Bank elected (1) past five years
- --------------------------- -------------------- ------------ --------------------------------------------------------------
F. Ray Allen Director 1992 President, Uwharrie Lumber Company, Troy, NC
(41) (hardwood lumber manufacturer)
Haywood A. Lane, Jr. President and 1979 Officer and Director of BancShares and the Bank
(64) Director
D. Gary McRae Director 1999 President & CEO, McRae Industries, Inc., Mt. Gilead, NC (boot
(50) manufacture); President, New South Realty, Mt. Gilead, NC (real
estate)
Wallace H. Mitchell Director 1968 Retired; Partner, Mitchell Farms; former Secretary-Treasurer
(73) and General Manager, Mitchell Chevrolet Company,
Fuquay-Varina, NC (automobile dealership)
Sam C. Riddle, Jr. Director 1979 Owner and former President, Riddle Equipment Company,
(73) Inc., Carthage, NC (farm equipment dealer)
Billy T. Woodard Chief Executive 1970 Officer and Director of BancShares and the Bank
(70) Officer and
Chairman of the
Board of Directors
- ----------
(1) Each individual currently serves as a director of both BancShares and
the Bank. "First elected" indicates the year in which each individual
first became a director of BancShares or, if before Fidelity's
organization in 1987, a director of the Bank.
48
The following table lists BancShares' current executive officers.
Position(s)
with BancShares First Business experience for
Name and age and the Bank elected past five years
- --------------------------- --------------------------- -------------- --------------------------------------------------
Billy T. Woodard Chief Executive Officer 1970 Officer and Director of BancShares and the Bank
(70) and Chairman of the
Board of Directors
Haywood A. Lane, Jr. President and Director 1979 Officer and Director of BancShares and the Bank
(64)
ITEM 11 - EXECUTIVE COMPENSATION
Officer Compensation. The following table shows the cash and certain other
compensation paid to or deferred by certain executive officers of BancShares for
the years indicated. BancShares' executive officers also serve, and are
compensated, as officers of the Bank, and they receive no salaries or other
separate or additional compensation from BancShares for their services as
executive officers of BancShares.
SUMMARY COMPENSATION TABLE
--------------------------
Annual compensation
-----------------------------------------------------------------
Other annual All other
Name and Salary Bonus compensation compensation
principal position Year (1) ($) (2) (3)
- ----------------------------------------- -------- --------------- ----------- -------------- ---------------
Billy T. Woodard 2000 $ 247,000 $ - $ -- $ 10,428
Chairman and Chief Executive Officer 1999 233,000 - -- 9,973
of BancShares and the Bank 1998 220,817 50,000 -- 9,194
Haywood A. Lane, Jr. 2000 $ 204,000 $ - $ -- $ 10,350
President 1999 190,000 - -- 9,525
of BancShares and the Bank 1998 174,075 40,000 -- 8,622
- ----------
(1) Includes amounts deferred at the election of each named officer
pursuant to the Bank's Section 401(k) plan.
(2) In addition to compensation paid in cash, BancShares' executive
officers receive certain personal benefits from the Bank. The value of
non-cash benefits received each year by each named officer did not
exceed 10% of his cash compensation for that year.
(3) For 2000, consists of the Bank's contribution to the Section 401(k)
plan for the account of each named officer ($8,028 for Mr. Woodard and
$7,950 for Mr. Lane) and fees received for services as directors of the
Bank ($2,400 for Mr. Woodard and $2,400 for Mr. Lane).
Post-Retirement Noncompetition and Consultation Agreements. During 1986, the
Bank entered into Post-Retirement Noncompetition and Consultation Agreements
with Billy T. Woodard and Haywood A. Lane, Jr. Each Agreement, as amended on
January 1, 1999, provides that upon the officer's retirement from full time
employment with the Bank, he will serve as a consultant to the Bank and will
receive monthly payments ($8,738 for Mr. Woodard and $7,125 for Mr. Lane) for a
period of ten years. In the event of the officer's death prior to the expiration
of the ten-year period, any remaining monthly payments will be paid to the
officer's designated beneficiary or estate. If the officer dies prior to
retirement, his designated beneficiary or estate will receive those payments for
a period of ten years following his death.
49
Pension Plan. The following table shows, for various numbers of years of service
and levels of compensation, the estimated benefits payable to a participant at
normal retirement age under the Bank's qualified defined benefit pension plan
(the "Pension Plan") based on federal tax laws in effect on January 1, 2000.
Years of service
-------------------------------------------------------------
Final average
compensation 10 years 20 years 30 years 40 years
----------------- ------------ ------------ ------------- -------------
$ 50,000 $ 6,969 $ 13,937 $ 20,906 $ 27,390
75,000 11,594 23,187 34,781 45,077
100,000 16,219 32,437 48,656 62,765
125,000 20,844 41,687 62,531 80,452
150,000 25,469 50,936 76,406 98,140
175,000 30,094 60,187 90,281 115,827
200,000 34,235 68,469 102,704 131,664
225,000 34,235 68,469 102,704 131,664
250,000 34,235 68,469 102,704 131,664
Benefits shown in the table are computed as straight life annuities beginning at
age 65 and are not subject to a deduction for Social Security benefits or any
other offset amounts. A participant's compensation covered by the pension plan
includes base salary, bonuses, overtime pay, and earnings deferred by the
participant's own contribution pursuant to the Bank's Section 401(k) plan (but
excluding any special bonuses, any directors' fees, the Bank's matching
contributions to the Section 401(k) plan, or any other incidental compensation).
Benefits are calculated based on each participant's "final average
compensation," which is defined as the participant's average earnings during the
five highest consecutive earning years of the last ten complete calendar years
as a participant. However, under current tax laws, $170,000 is the maximum
amount of annual compensation for 2000 that can be included for purposes of
calculating a participant's final average compensation, and the maximum annual
benefit that may be paid to a retiring participant is $135,000. The maximum
years of credited service which may be counted in calculating benefits under the
Pension Plan is 40 years. The estimated years of service and the estimated final
average compensation, respectively, as of December 31, 2000, for each of the
executive officers named in the Summary Compensation Table above are as follows:
Billy T. Woodard -- 40 years and $160,000; and Haywood A. Lane, Jr. -- 38 years
and $156,095.
Compensation of Directors. Each director of BancShares and the Bank (including
directors who also are employees) currently receives a fee of $600 for
attendance at each meeting of BancShares' or the Bank's Board of Directors, and
members of the Executive Committee of the Board of Directors (with the exception
of Billy T. Woodard and Haywood A. Lane, Jr.) receive a fee of $500 for
attendance at each meeting of the Committee. No fees are paid to any directors
for attendance at any other committee meetings.
Directors are reimbursed for expenses of travel to and from all meetings. Only
one fee is paid for joint meetings of the Boards of BancShares and the Bank and
for any committee meetings held on the same day as a meeting of one of the
Boards.
50
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders. As of March 15, 2001, persons known to BancShares to own
beneficially or of record more than 5% of BancShares' voting securities were as
follows:
Amount and
nature of
Name and address beneficial Percentage
of beneficial owner ownership (1) of class
--------------------------------------------- ----------------- -------------
Frank B. Holding 11,155 (2) 39.74%
Smithfield, North Carolina
Lewis R. Holding 3,023 (3) 10.77%
Lyford Cay, Bahamas
North State Trustees (4) 8,480 (4) 30.21%
Charlotte, North Carolina
- ----------
(1) Except as otherwise noted, each named individual exercises sole voting
and investment power with respect to all shares.
(2) Includes 3,978 shares held by Mr. F. Holding's adult children and with
respect to which shares he disclaims beneficial ownership.
(3) Includes an aggregate of 1,696 shares held by or in trust for Mr. L.
Holding's adult daughter and with respect to which shares he disclaims
beneficial ownership. Of the listed shares, an aggregate of 1,645
shares also are shown as beneficially owned by North State Trustees.
(4) Consists of shares held by two irrevocable grantor trusts (the "1976
Trust," the "1979 Trust," and the "1990 Trust") with respect to which
Carmen P. Holding Ames currently is the sole beneficiary. Ms. Ames has
sole power to direct the voting, and shared power (with the six
trustees) to direct the disposition, of 345 shares held by the 1976
Trust and 1,000shares held by the 1979 Trust. The written agreement
pertaining to the 1990 Trust provides that, in connection with their
voting of 6,735 shares held by the trust, the trustees will consult
with the then current beneficiaries who are at least 40 years of age,
but that the trustees will not be bound by the voting preference of any
such beneficiary. Of the listed shares, an aggregate of 1,345 shares
also are shown as beneficially owned by Mr. L. Holding.
Management Ownership. The beneficial ownership of BancShares' voting securities
as of March 15, 2001, by its current directors individually, and by all current
directors and executive officers as a group, was as follows:
Amount and
nature of
Name of beneficial Percentage
beneficial owner ownership (1) of class
--------------------------------------------- ----------------- -------------
F. Ray Allen 102 (2) .36%
Biscoe, NC
Haywood A. Lane, Jr. 143 .51%
Raleigh, NC
D. Gary McRae 10 .04%
Mount Gilead, NC
Wallace H. Mitchell 100 .36%
Fuquay-Varina, NC
Sam C. Riddle, Jr. 87 (3) .31%
Carthage, NC
Billy T. Woodard 720 (4) 2.57%
Fuquay-Varina, NC
All directors and executive officers 1,162 4.15%
as a group (7 persons, all of whom
are named above)
51
- ----------
(1) Except as otherwise noted, each named individual, and individuals
included in the group, exercise sole voting and investment power with
respect to all shares.
(2) Includes 40 shares held by Mr. Allen jointly with his spouse, and 40
shares held by a corporation of which he may be deemed to be a control
person, and with respect to which shares Mr. Allen exercises shared
voting and investment power.
(3) Includes 22 shares held by Mr. Riddle jointly with his spouse and with
respect to which shares he exercises shared voting and investment
power.
(4) Includes 391 shares held by Mr. Woodard's spouse and adult children and
with respect to which shares he may be deemed to exercise shared voting
and investment power.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking transactions in the
ordinary course of business with certain of the directors, executive officers,
principal shareholders of BancShares and the Bank, and their associates. Loans
included in those transactions during 2000 were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and such loans did not involve
more than the normal risk of collectibility or present other unfavorable
features. See note 4 of notes to consolidated financial statements included in
Item 8.
The Bank is party to a contract with FCB, pursuant to which FCB provides to the
Bank and BancShares various data and item processing services, securities
portfolio management services, management consulting services and trustee
services for the Bank's pension plan and Section 401(k) plan. The Bank also
purchases business forms, equipment and supplies, together with certain other
services, through FCB. Aggregate fees paid by the Bank to FCB for all such
services during 2000 totaled approximately $3.0 million. The following are fees
paid by the Company to FCB:
2000 1999 1998
--------------- --------------- -----------------
Data and items processing $ 2,549,000 1,925,000 1,420,000
Trustee fees 40,000 48,000 40,000
Other 447,000 1,027,000 587,000
--------------- --------------- -----------------
$ 3,036,000 3,000,000 2,047,000
=============== =============== =================
The Company also has a correspondent relationship with the FCB. Correspondent
account balances with FCB included in cash and due from banks and federal funds
sold totaled $50,450,392 and $35,777,835 at December 31, 2000 and 1999,
respectively.
The Bank's relationship with FCB under the agreement will continue during 2001.
Frank B. Holding and Lewis R. Holding, principal shareholders of BancShares, are
directors, executive officers and principal shareholders of First Citizens
BancShares, Inc., the bank holding company for FCB.
The Bank's contract with FCB was negotiated at arms-length and was approved by
BancShares' Board of Directors. Based on its comparison in previous years of the
terms of the contract with terms available to it from other providers of the
services being obtained from FCB, management of the Bank believes the terms of
its contract with FCB, including prices, are no less favorable to the Bank than
could be obtained from an unrelated provider.
52
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
(a)
1. The following consolidated financial statements of Fidelity BancShares
(N.C.), Inc. and subsidiaries, and Independent Auditors' Report
thereon, are included in Item 8 of this Report.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for each of the years
in the three year period ended December 31, 2000
Consolidated Statements of Changes in Shareholders' Equity for each
of the years in the three year period ended December 31, 2000
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 2000
Notes to Consolidated Financial Statements
2. Financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required
information is contained in the consolidated financial statements or
related notes thereto which are included in Item 8 of this Report.
3. Exhibits
The following exhibits are filed or incorporated herewith as part of
this report on Form 10-K:
3.1 BancShares' Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of BancShares' Registration Statement No.
333-62225 filed with the SEC on August 26, 1998)
3.2 BancShares' By-laws (incorporated herein by reference to Exhibit 3.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
4.1 Initial Trust Agreement of FIDBANK Capital Trust I, as amended
(incorporated herein by reference to Exhibit 4.1 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
4.2 Certificate of Trust of FIDBANK Capital Trust I (incorporated herein by
reference to Exhibit 4.2 of BancShares' Registration Statement No.
333-62225 filed with the SEC on August 26, 1998)
4.3 Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.3 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.4 Form of Capital Security Certificate for FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.4 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.5 Form of Guarantee Agreement (incorporated herein by reference to
Exhibit 4.5 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
4.6 Form of Junior Subordinated Indenture between BancShares and Bankers
Trust Company, as Debenture Trustee (incorporated herein by reference
to Exhibit 4.6 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
4.7 Form of Junior Subordinated Debenture (incorporated herein by reference
to Exhibit 4.7 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
*10.1 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Billy T. Woodard and The Fidelity Bank
(incorporated by reference to Exhibit 10.1 of BancShares' Registration
Statement No. 333-62225 filed with the SEC on August 26, 1998)
*10.2 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.3 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity
Bank (incorporated by reference to Exhibit 10.3 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
*10.4 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
and The Fidelity Bank (incorporated by reference to Exhibit 10.4 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.6 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.6 of
BancShares' Amendment No. 2 to Registration Statement No. 333-62225
filed with the SEC on April 23, 1999)
*10.7 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation
53
Agreement between Haywood A. Lane, Jr., and The Fidelity Bank
(incorporated by reference to Exhibit 10.7 of BancShares' Amendment No.
2 to Registration Statement No. 333-62225 filed with the SEC on April
23, 1999)
21.1 List of subsidiaries (incorporated herein by reference to Exhibit 21.1
of BancShares' Registration Statement No. 333-62225 filed with the SEC
on August 26, 1998)
- ----------
* Denotes a management contract or compensatory contract or arrangement.
(b) Reports on Form 8-K. During the fourth quarter of 2000 BancShares filed no
Form 8-K Current Reports.
- ----------
54
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant' has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIDELITY BANCSHARES (N.C.), INC.
Dated: March 29, 2001 By: __________________________________
Billy T. Woodard
Chairman and Chief Executive Officer
In accordance with Section 13 or 15(d) 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 and on the dates indicated.
Signature Title Date
- ----------------------------- ------------------------------- -------------
_____________________________ Chairman and Chief Executive Officer March ___, 2001
Billy T. Woodard (principal executive officer)
_____________________________ Chief Financial Officer and Treasurer March ___, 2001
Mary A. Woodard (principal financial and accounting
Officer)
_____________________________ President and Director March ___, 2001
Haywood A. Lane, Jr.
_____________________________ Director March ___, 2001
F. Ray Allen
_____________________________ Director March ___, 2001
D. Gary McRae
_____________________________ Director March ___, 2001
Wallace H. Mitchell
_____________________________ Director March ___, 2001
Sam C. Riddle, Jr.
55
EXHIBIT INDEX
3.1 BancShares' Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of BancShares' Registration Statement No.
333-62225 filed with the SEC on August 26, 1998)
3.2 BancShares' By-laws (incorporated herein by reference to Exhibit 3.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
4.1 Initial Trust Agreement of FIDBANK Capital Trust I, as amended
(incorporated herein by reference to Exhibit 4.1 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
4.2 Certificate of Trust of FIDBANK Capital Trust I (incorporated herein by
reference to Exhibit 4.2 of BancShares' Registration Statement No.
333-62225 filed with the SEC on August 26, 1998)
4.3 Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.3 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.4 Form of Capital Security Certificate for FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.4 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.5 Form of Guarantee Agreement (incorporated herein by reference to
Exhibit 4.5 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
4.6 Form of Junior Subordinated Indenture between BancShares and Bankers
Trust Company, as Debenture Trustee (incorporated herein by reference
to Exhibit 4.6 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
4.7 Form of Junior Subordinated Debenture (incorporated herein by reference
to Exhibit 4.7 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
*10.1 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Billy T. Woodard and The Fidelity Bank
(incorporated by reference to Exhibit 10.1 of BancShares' Registration
Statement No. 333-62225 filed with the SEC on August 26, 1998)
*10.2 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.3 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity
Bank (incorporated by reference to Exhibit 10.3 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
*10.4 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
and The Fidelity Bank (incorporated by reference to Exhibit 10.4 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.6 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.6 of
BancShares' Amendment No. 2 to Registration Statement No. 333-62225
filed with the SEC on April 23, 1999)
*10.7 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
and The Fidelity Bank (incorporated by reference to Exhibit 10.7 of
BancShares' Amendment No. 2 to Registration Statement No. 333-62225
filed with the SEC on April 23, 1999)
21.1 List of subsidiaries (incorporated herein by reference to Exhibit 21.1
of BancShares' Registration Statement No. 333-62225 filed with the SEC
on August 26, 1998)
- ----------
* Denotes a management contract or compensatory contract or arrangement.
- ----------
56