Exhibit 13
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC.
AND SUBSIDIARIES
2001 ANNUAL REPORT
Nature of Business
First Citizens Bancorporation of South Carolina, Inc. ("Bancorporation"), is
a two-bank financial holding company headquartered in Columbia, South Carolina,
with assets of $3.57 billion at December 31, 2001. Its primary subsidiaries are
First-Citizens Bank and Trust Company of South Carolina ("Bank") and The
Exchange Bank of South Carolina, Inc. ("Exchange"). The Bank provides a broad
range of banking services through 145 offices in 94 communities throughout the
state, and Exchange provides banking services through four branches in
Williamsburg and Georgetown counties. The Bank's subsidiary is Wateree Life
Insurance Company of South Carolina, a credit life insurance company. "First
Citizens Bank" is used in marketing the Bank.
First Citizens Bancorporation of South Carolina, Inc.
P. O. Box 29
1230 Main Street
Columbia, South Carolina 29202
Annual Meeting
The Annual Meeting of Stockholders of Bancorporation will be held at 2:30
p.m. on Wednesday, April 24, 2002 at 1314 Park Street, Columbia, South Carolina.
Contents
Market and Dividend Information Regarding Common and Preferred Stock 1
Financial Highlights................................................ 3
To Our Stockholders................................................. 4
Management's Discussion and Analysis................................ 5
Report of Management................................................ 27
Report of Independent Accountants................................... 28
Consolidated Financial Statements................................... 29
Official Organization Section....................................... 51
Market and Dividend Information Regarding Common and Preferred Stock
There is a limited over-the-counter market for Bancorporation's voting
common stock. The stock is not listed on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). Quotations are published in
South Carolina newspapers circulated in Bancorporation's major metropolitan
markets and may be obtained through securities brokers having offices in South
Carolina. Local broker-dealers effect agency transactions in Bancorporation's
voting common stock from time to time.
There is no trading market for any class of Bancorporation's preferred stock
or its non-voting common stock. All trading activity for those classes of
Bancorporation's stock is in privately negotiated transactions.
The following ranges of high and low bid prices for Bancorporation's voting
common stock were supplied by one of the broker-dealers making a market in the
stock. The prices represent quotations between broker-dealers, which do not
include markups, markdowns or commissions, and may not represent actual
transactions.
2001 2000
-------------------------------- --------------------------------
High Low Close Dividend High Low Close Dividend
------- ------- ------- -------- ------- ------- ------- --------
1st quarter $280.00 $275.00 $278.00 $0.25 $270.00 $220.00 $227.00 $ --
2nd quarter 280.00 280.00 280.00 0.25 255.00 205.00 215.00 0.25
3rd quarter 285.00 285.00 285.00 0.25 255.00 200.00 229.50 0.25
4th quarter 285.00 285.00 285.00 0.25 260.00 226.00 245.00 0.25
1
The approximate number of record holders of Bancorporation's voting common
stock and non-voting common stock at December 31, 2001 were 1,031 and 4,
respectively.
Holders of the voting and non-voting common stock of Bancorporation are
entitled to such dividends as may be declared from time to time by the Board of
Directors from funds legally available. Bancorporation's Board of Directors
approved a $.25 quarterly dividend on its voting common stock for all four
quarters of 2001. Bancorporation was able to maintain its risk-based capital
ratios through the retention of earnings, adjusted for the aforementioned
dividends. Certain regulatory requirements restrict the payment of dividends
and extensions of credit from banking subsidiaries to bank holding companies.
These restrictions have not historically affected Bancorporation's ability to
meet its obligations. Restrictions relating to capital requirements and
dividends are discussed on page 20 of "Management's Discussion and Analysis"
and in Note 12 of "Notes to Consolidated Financial Statements."
2
TO OUR STOCKHOLDERS:
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Percent
2001 2000 Change
---------- ---------- -------
Earnings (dollars in thousands):
Net income....................................................... $ 33,876 $ 27,589 22.79%
Net income per common share...................................... 36.11 29.56 22.16
Book value per common share...................................... 289.12 246.17 17.45
Preferred dividends paid......................................... 166 169 (1.78)
Common dividends paid............................................ 898 675 33.04
Year-end Balances (dollars in thousands):
Total assets..................................................... $3,574,680 $3,240,510 10.31
Investment securities............................................ 899,755 740,519 21.50
Loans............................................................ 2,262,283 2,081,871 8.67
Deposits......................................................... 3,014,954 2,555,229 17.99
Stockholders' equity............................................. 270,915 233,693 15.93
Average balances (dollars in thousands):
Total assets..................................................... $3,459,909 $2,929,158 18.12
Investment securities............................................ 819,334 680,042 20.48
Loans............................................................ 2,160,604 1,960,547 10.21
Deposits......................................................... 2,875,976 2,308,705 24.57
Stockholders' equity............................................. 255,836 213,105 20.05
Financial ratios:
Return on average assets......................................... .98 .94 4.26
Return on average stockholders' equity........................... 13.24 12.95 2.24
Average stockholders' equity to average total assets at year-end. 7.39 7.28 1.51
Share data (year-end):
Common shares outstanding........................................ 925,949 936,288 (1.10)
Weighted average common shares outstanding....................... 933,480 927,717 .62
Preferred shares outstanding..................................... 66,132 66,450 (.48)
3
TO OUR SHAREHOLDERS:
We are pleased to report that First Citizens Bancorporation achieved
outstanding financial results in the year 2001. While doing so, we were able to
grow and expand our franchise.
Net income increased 23% to $33.9 million, representing an increase in net
income per share from $29.56 in 2000 to $36.11 in 2001. The improvement in net
income was primarily due to strong earning asset growth fueled by growth in
deposits.
Loans grew 9% to $2.26 billion, while deposits grew 18% to $3.01 billion or
10% after adjusting for an accounting reclassification. Total assets grew 10%
to $3.57 billion. This growth stemmed from the continued success of our sales
culture.
Our strategy of statewide expansion continued via new acquisitions and new
construction. We acquired four offices in the South Carolina communities of
Bennettsville, Liberty, Lugoff, and McColl. De novo offices were opened in
Blythewood, Georgetown, and Hilton Head. Our York office was relocated, and our
three Dillon offices were consolidated into a new facility.
Our three-year strategic plan, implemented in the year 2000, continues to
provide a course by which we can gauge our progress. The objectives of this
plan focus on providing a high level of customer service, greater market
segmentation, human resources development, and technology improvements. We made
significant strides in 2001 toward meeting each of these objectives.
The evolution of our sales culture continued as a company-wide strategic
alignment effort gained momentum focusing the entire company in one direction:
toward the customer. In 2001, a leadership development program for department
heads and several customer service training programs for associates in
operations and support services strengthened our commitment to the customer.
Enhancements to our leadership team represented another accomplishment this
year. The reorganization of responsibilities for our geographic division
executives allowed our sales environment to prosper while still maintaining our
goal of product segmentation. The addition of a chief information officer gives
more focused leadership to our Operational Services and Support Group.
Planning for two major initiatives--ProfitVision and our new point of
contact system--was completed this year. Both of these systems will foster
better customer service. Both of these projects will provide more information
about our customers so that we can effectively manage our relationships with
them. It is our goal to provide urgent delivery of personal and competent
customer service in our branches, and these projects support that vision in
tomorrow's banking environment.
We believe that First Citizens Bancorporation is a unique company because of
our distinct corporate culture, built around a long-term perspective benefiting
our customers, communities, employee associates, and shareholders. As we look
to the future, we remain enthusiastic about opportunities for the continued
growth and success of First Citizens. Thank you for your support.
/s/ Jim B. Apple
Jim B. Apple
Chairman and Chief Executive Officer
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and other data presented below analyze major factors and
trends regarding the financial condition and results of operations of First
Citizens Bancorporation of South Carolina, Inc. ("Bancorporation") and its
principal subsidiaries, First-Citizens Bank and Trust Company of South Carolina
(the "Bank") and The Exchange Bank of South Carolina, Inc. ("Exchange").
Bancorporation is a two-bank financial holding company headquartered in
Columbia, South Carolina. The Bank provides commercial banking and related
financial products and services throughout South Carolina. Exchange provides
banking services principally in Williamsburg and Georgetown counties in South
Carolina.
On August 20, 1999, Bancorporation acquired Exchange to form a two-bank
financial holding company. The transaction was accounted for under the purchase
method of accounting.
The following discussion and analysis should be read in conjunction with the
financial information and the consolidated financial statements of
Bancorporation (including the notes thereto) contained in this document. To the
extent that any statement in this Management's Discussion and Analysis is not a
statement of historical fact and could be considered a forward-looking
statement, actual results could differ materially from those in the
forward-looking statement.
The Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") to the extent permitted by law. The FDIC and the South Carolina State
Board of Financial Institutions have regulatory responsibilities for the Bank
and Exchange. Bancorporation is subject to regulation as a financial holding
company by the Board of Governors of the Federal Reserve System and its voting
common stock is registered with the Securities and Exchange Commission.
Reference should also be made to the accompanying detailed historical
information presented elsewhere in this report.
RESULTS OF OPERATIONS
Summary (Dollars in thousands)
Net income for the year ended December 31, 2001, totaled $33,876, or $36.11
per common share. Net income for 2000 was $27,589, or $29.56 per common share.
The primary factors affecting the increase in net income were a $19,924 or
17.90% increase in net interest income, and a $12,605 or 33.27% increase in
noninterest income. These favorable changes were partially offset by a $976 or
12.80% increase in the provision for loan losses, a $23,593 or 23.70% increase
in noninterest expense, and a $1,673 or 11.58% increase in the provision for
income taxes.
The increase in earnings from 1999 to 2000 was primarily due to a $11,771 or
11.82% increase in net interest income, and a $4,963 or 15.07% increase in
noninterest income. These favorable changes were partially offset by an $10,206
or 11.42% increase in noninterest expense.
Return on average stockholders' equity and average assets are key measures
of earnings performance. Return on average stockholders' equity was 13.24%,
12.95% and 13.13% in 2001, 2000, and 1999, respectively. Return on average
assets was .98%, .94%, and .95% in 2001, 2000 and 1999, respectively.
Table 1 provides a summary of the statements of income, financial condition
and selected ratios for the last five years. A more detailed analysis of each
component of Bancorporation's net income is included under the appropriate
captions which follow.
5
TABLE 1: SUMMARY OF OPERATIONS
(Dollars in thousands--except for per share data)
Five Year
Compound
2001 2000 1999 1998 1997 Growth Rate
---------- ---------- ---------- ---------- ---------- -----------
Income statement data:
Interest income.......................................... $ 232,161 $ 209,820 $ 175,414 $ 165,371 $ 151,137 11.58%
Interest expense......................................... 100,908 98,491 75,856 73,032 65,474 11.89
---------- ---------- ---------- ---------- ----------
Net interest income...................................... 131,253 111,329 99,558 92,339 85,663 11.35
Provision for loan losses................................ 8,599 7,623 5,546 4,303 4,241 13.46
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses...... 122,654 103,706 94,012 88,036 81,422 11.21
---------- ---------- ---------- ---------- ----------
Service charges and fees................................. 45,548 37,859 32,919 28,871 24,730 16.24
Investment securities gains.............................. 4,947 31 8 36 51
---------- ---------- ---------- ---------- ----------
Total noninterest income................................. 50,495 37,890 32,927 28,907 24,781 17.80
---------- ---------- ---------- ---------- ----------
Salaries and employee benefits........................... 54,804 46,601 41,396 36,674 32,752 13.81
Other expense............................................ 68,343 52,953 47,952 43,935 39,906 13.44
---------- ---------- ---------- ---------- ----------
Total noninterest expense................................ 123,147 99,554 89,348 80,609 72,658 13.61
---------- ---------- ---------- ---------- ----------
Income before income taxes............................... 50,002 42,042 37,591 36,334 33,545 11.30
Income tax expense....................................... 16,126 14,453 12,945 12,716 11,775 9.34
---------- ---------- ---------- ---------- ----------
Net income............................................... $ 33,876 $ 27,589 $ 24,646 $ 23,618 $ 21,770 12.32
========== ========== ========== ========== ==========
Net income per common share.............................. $ 36.11 $ 29.56 $ 26.35 $ 25.30 $ 23.24 12.52
========== ========== ========== ========== ==========
Book value per common share.............................. $ 289.12 $ 246.17 $ 208.77 $ 185.41 $ 166.95 15.74
========== ========== ========== ========== ==========
Weighted average common shares Outstanding............... 933,480 927,717 928,792 926,744 929,222 (.10)
========== ========== ========== ========== ==========
Selected ratios:
Return on average assets................................. .98% .94% .95% 1.01% 1.05%
Return on average stockholders' equity................... 13.24 12.95 13.13 13.94 15.02
Return on average common stockholders' equity............ 13.41 13.14 13.36 14.22 15.37
Yield on average interest-earning assets (tax equivalent) 4.19 4.20 4.23 4.36 4.54
Average loans to average deposits........................ 75.13 84.92 80.59 78.35 76.68
Net loan losses to average loans......................... .25 .21 .12 .14 .12
Nonperforming loans to total loans....................... .23 .25 .16 .14 .19
Allowance for loan losses to total loans................. 1.78 1.78 1.78 1.80 1.83
Allowance for loan losses to nonperforming loans......... 783.55 699.72 1,092.87 1,259.16 956.98
Average stockholders' equity to average total assets..... 7.39 7.28 7.21 7.26 6.96
Common stockholders' equity to total assets.............. 7.07 6.48 6.77 7.12 6.80
Total risk-based capital ratio........................... 12.59 12.09 13.79 14.27 10.49
Tier 1 risk-based capital ratio.......................... 11.33 10.53 12.47 13.01 9.13
Tier 1 leverage ratio.................................... 7.34 7.46 8.49 8.43 6.21
Dividends per common share............................... $ 1.00 $ 0.75 $ -- $ -- $ --
Selected average balances:
Total assets............................................. $3,459,909 $2,929,158 $2,605,572 $2,332,634 $2,082,086 13.57%
Interest-earning assets.................................. 3,166,389 2,683,993 2,385,884 2,148,348 1,918,921 13.37
Investment securities.................................... 819,334 680,042 635,128 599,704 538,086 11.73
Loans.................................................... 2,160,604 1,960,547 1,690,504 1,495,930 1,343,256 12.64
Deposits................................................. 2,875,976 2,308,705 2,097,678 1,909,183 1,751,791 12.87
Noninterest-bearing deposits............................. 477,592 420,016 374,992 331,466 294,929 12.96
Interest-bearing deposits................................ 2,398,384 1,888,689 1,722,686 1,577,717 1,456,862 12.77
Interest-bearing liabilities............................. 2,695,037 2,271,342 2,029,000 1,815,346 1,627,301 13.35
Stockholders' equity..................................... 255,836 213,105 187,744 169,422 144,961 15.94
Selected year-end actual balances:
Total assets............................................. $3,574,680 $3,240,510 $2,726,585 $2,483,768 $2,250,477
Interest-earnings assets................................. 3,259,938 2,919,090 2,454,912 2,260,897 2,036,446
Investment securities.................................... 899,755 740,519 562,992 623,828 588,409
Loans.................................................... 2,262,283 2,081,871 1,854,520 1,573,069 1,428,437
Deposits................................................. 3,014,954 2,555,229 2,222,033 2,037,487 1,879,420
Noninterest-bearing deposits............................. 507,930 467,155 396,781 354,239 346,934
Interest-bearing deposits................................ 2,507,024 2,088,074 1,825,252 1,683,248 1,532,486
Interest-bearing liabilities............................. 2,772,010 2,508,255 2,107,119 1,937,950 1,731,137
Stockholders' equity..................................... 270,915 233,693 200,073 174,175 158,418
6
Net interest income (Dollars in thousands)
Net interest income represents the principal source of earnings for
Bancorporation. Net interest income is the amount by which interest income
exceeds interest expense and is the primary measure used to evaluate the
efficiency of management of interest-earning assets and interest-bearing
liabilities.
Table 2 compares average balance sheet items and analyzes net interest
income on a tax equivalent basis for the years ended December 31, 2001, 2000
and 1999.
TABLE 2: COMPARATIVE AVERAGE BALANCE SHEETS
(Dollars in thousands)
Year Ended December 31,
-------------------------------------------------------------------------------------
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp(1) Rate Balance Inc/Exp(1) Rate Balance Inc/Exp(1) Rate
---------- ---------- ------ ---------- ---------- ------ ---------- ---------- ------
Interest-earning assets:
Loans (2)............................... $2,160,604 $181,761 8.41% $1,960,547 $169,352 8.64% $1,690,504 $140,729 8.32%
Investment securities:
Taxable............................... 800,854 42,425 5.30 653,901 37,052 5.67 609,374 30,918 5.07
Non-taxable........................... 18,480 1,483 8.02 26,141 2,168 8.29 25,754 2,190 8.50
Federal funds sold.................... 186,451 7,768 4.17 43,404 2,692 6.20 60,252 2,953 4.90
Other earning assets.................. -- -- -- -- -- -- -- -- --
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-earning assets......... 3,166,389 233,437 7.37 2,683,993 211,264 7.87 2,385,884 176,790 7.41
---------- -------- ---------- -------- ---------- --------
Noninterest-earning assets:
Cash and due from banks................. 135,224 114,517 110,369
Premises and equipment.................. 96,335 86,984 81,751
Other, less allowance for loan losses... 61,961 43,664 27,568
---------- ---------- ----------
Total noninterest-earning Assets...... 293,520 245,165 219,688
---------- ---------- ----------
Total assets............................ $3,459,909 $2,929,158 $2,605,572
========== ========== ==========
Interest-bearing liabilities:
Deposits................................ $2,398,384 $ 88,169 3.68 $1,888,689 $ 74,972 3.97 $1,722,686 $ 59,825 3.47
Short-term borrowings................... 245,690 8,540 3.48 331,690 19,320 5.82 255,960 11,882 4.64
Long-term debt.......................... 50,963 4,199 8.24 50,963 4,199 8.24 50,354 4,149 8.24
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities.... 2,695,037 100,908 3.74 2,271,342 98,491 4.34 2,029,000 75,856 3.74
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Net interest spread..................... 3.63% 3.53% 3.67%
==== ==== ====
Noninterest-bearing liabilities:
Demand deposits......................... 477,592 420,016 374,992
Other liabilities....................... 31,444 24,695 13,836
---------- ---------- ----------
Total noninterest-bearing liabilities. 509,036 444,711 388,828
Stockholders' equity.................... 255,836 213,105 187,744
---------- ---------- ----------
Total liabilities and stockholders'
equity................................. $3,459,909 $2,929,158 $2,605,572
========== ========== ==========
Net interest income..................... $132,529 $112,773 $100,934
======== ======== ========
Interest income to average earning
assets................................. 7.37% 7.87% 7.41%
Interest expense to average earning
assets................................. 3.19 3.67 3.18
==== ==== ====
Net interest income to average earning
assets................................. 4.19% 4.20% 4.23%
==== ==== ====
- --------
(1) Non-taxable interest income has been adjusted to a taxable equivalent rate
using the federal income tax rate of 35%.
(2) Nonaccrual loans are included in the average loan balances. Income on such
loans is generally recognized on a cash basis.
7
Net interest income on a tax equivalent basis increased $19,756 or 17.52%
from $112,773 in 2000 to $132,529 in 2001. The increase was primarily
attributable to the increased volume of average earning assets, since the net
interest margin to average earning assets decreased from 4.20% in 2000 to 4.19%
in 2001. Interest income on a tax equivalent basis increased $22,173 or 10.50%
in 2001 primarily due to the increased volume of average earning assets.
Average earning assets increased 17.97% to $3,166,389 or 91.52% of average
assets in 2001, compared with $2,683,993 or 91.63% of average assets in 2000.
Interest expense increased $2,417 or 2.45% in 2001 primarily due to an 18.65%
increase in the volume of average interest-bearing liabilities from $2,271,342
in 2000 to $2,695,037 in 2001.
The net interest position to average interest earning assets declined from
15.37% in 2000 to 14.89% in 2001. This resulted in a decrease in the gain from
the net interest position (calculated by multiplying the cost of average
interest bearing liabilities by the net interest position to average interest
earning assets) from .67% in 2000 to .56% in 2001. This .11% decline offset the
.10% increase in the net interest spread, resulting in a .01% decline in the
net interest margin.
The net interest position is the difference between average interest earning
assets and average interest bearing liabilities. When expressed as a dollar
amount, it represents the amount of average interest earning assets funded at a
0% cost of funds. When expressed as a percentage, it represents the percent of
average interest earning assets funded at a 0% cost of funds.
The net interest spread increased by .10% due to a decrease in the cost of
average interest bearing liabilities from 4.34% in 2000 to 3.74% in 2001, or
.60%. The .60% decrease in the cost of average interest bearing liabilities was
offset by a .50% decrease in the yield on earning assets. The yield on earning
assets decreased from 7.87% in 2000 to 7.37% in 2001.
The yield on average interest earning assets decreased due to the following
factors: (1) decrease in the yield on average loans of .23%, from 8.64% in 2000
to 8.41% in 2001, (2) decrease in the mix of average loans to average interest
earning assets from 73.04% in 2000 to 68.24% in 2001 (primarily attributable to
deposit growth exceeding loan growth), and (3) decrease in the yields on
average investment securities and federal funds sold. The most significant
factor to the decrease in the yield on earning assets was the declining rate
environment experienced in 2001
The cost of average interest bearing liabilities decreased due to the
following factors: (1) decrease in the rate paid on average interest bearing
deposits of 29 basis points, from 3.97% in 2000 to 3.68% in 2001; partially
offset by an increase in the mix of average interest bearing deposits to
average interest bearing liabilities from 83.15% in 2000 to 88.99% in 2001, and
(2) decrease in the rate paid on short-term borrowings (primarily repurchase
agreements) from 5.82% in 2000 to 3.48% in 2001.
Decreases in rates paid on interest bearing deposits were in response to the
overall declining interest rate environment. Short-term borrowings are mostly
comprised of repurchase agreements tied to a floating index. The index
decreased during a majority of 2001, causing the rate paid on average
short-term borrowings to decrease. Table 3 shows the impact of balance sheet
changes which occurred during 2001 and 2000, and the changes in yields and
rates.
Net interest income on a tax equivalent basis for 2000 increased $11,839 or
11.73% from 1999. The increase was primarily attributable to an increase in the
volume of interest-earning assets which was offset by a decrease in net
interest margin. The net interest margin decreased 3 basis points from 4.23% in
1999 to 4.20% in 2000. Average earning assets increased 12.49% to $2,683,993 or
91.63% of average total assets in 2000, compared with $2,385,884 or 91.57% in
1999. Interest expense increased $22,635 or 29.84% in 2000 primarily due to an
$242,342 or 11.94% increase in interest-bearing liabilities.
8
TABLE 3: TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS (Dollars in
thousands)
2001 compared to 2000 2000 compared to 1999
---------------------------- --------------------------
Change due to(1) Change due to(1)
----------------- Net --------------- Net
Yield/ Increase Yield/ Increase
2001 2000 1999 Rate Volume (Decrease) Rate Volume (Decrease)
-------- -------- -------- -------- ------- ---------- ------ ------- ----------
Interest income (2):
Loans (3)......................... $181,761 $169,352 $140,729 $ (4,416) $16,825 $ 12,409 $5,291 $23,332 $28,623
Investment securities:
Taxable......................... 42,425 37,052 30,918 (2,416) 7,789 5,373 3,612 2,522 6,134
Non-taxable..................... 1,483 2,168 2,190 (71) (614) (685) (54) 32 (22)
-------- -------- -------- -------- ------- -------- ------ ------- -------
Total investment securities..... 43,908 39,220 33,108 (2,487) 7,175 4,688 3,558 2,554 6,112
Other earning assets.............. -- -- -- -- -- -- -- -- --
Federal funds sold................ 7,768 2,692 2,953 (889) 5,965 5,076 784 (1,045) (261)
-------- -------- -------- -------- ------- -------- ------ ------- -------
Total interest-earning assets..... $233,437 $211,264 $176,790 $ (7,792) $29,965 $ 22,173 $9,633 $24,841 $34,474
-------- -------- -------- -------- ------- -------- ------ ------- -------
Interest expense:
NOW accounts.................... $ 16,559 $ 9,924 $ 9,536 $ 1,286 $ 5,350 $ 6,636 $ (145) $ 533 $ 388
Market rate savings............. 6,900 9,331 10,076 (2,518) 87 (2,431) (273) (472) (745)
Other accounts.................. 223 305 372 (64) (18) (82) (33) (34) (67)
Time deposits in excess of
$100 thousand.................. 9,173 9,348 6,353 (2,990) 2,814 (176) 1,774 1,221 2,995
Other time deposits............. 55,314 46,064 33,488 398 8,852 9,250 5,292 7,284 12,576
-------- -------- -------- -------- ------- -------- ------ ------- -------
Total deposits.................. $ 88,169 $ 74,972 $ 59,825 $ (3,888) $17,085 $ 13,197 $6,615 $ 8,532 $15,147
Short-term borrowings............. 8,540 19,320 11,882 (7,787) (2,993) (10,780) 3,024 4,414 7,438
Long-term debt.................... 4,199 4,199 4,149 -- -- -- -- 50 50
-------- -------- -------- -------- ------- -------- ------ ------- -------
Total interest-bearing liabilities $100,908 $ 98,491 $ 75,856 $(11,675) $14,092 $ 2,417 $9,639 $12,996 $22,635
-------- -------- -------- -------- ------- -------- ------ ------- -------
Net interest income............... $132,529 $112,773 $100,934 $ 3,883 $15,873 $ 19,756 $ (6) $11,845 $11,839
======== ======== ======== ======== ======= ======== ====== ======= =======
- --------
(1) Rate-volume changes have been allocated to each category based on the
percentage of each to the total change.
(2) Non-taxable interest income has been adjusted to a taxable equivalent rate
using the federal income tax rate of 35%.
(3) Balances of nonaccrual loans and related cash basis income have been
included for computational purposes.
9
Noninterest income (Dollars in thousands)
Noninterest income for Bancorporation primarily consists of service charges
on deposit accounts, credit card processing fees, trust fees, mortgage
servicing fees and fees generated from other bank-related activities. Table 4
provides a comparison for the various components of noninterest income for the
years ended December 31, 2001, 2000 and 1999.
TABLE 4: NONINTEREST INCOME
(Dollars in thousands)
Year Ended December 31,
----------------------------------------
Percent Percent
2001 Change 2000 Change 1999
------- ------- ------- ------- -------
Service charges on deposit accounts.......... $26,300 21.42% $21,661 14.02% $18,998
Commission and fees from fiduciary activities 2,782 7.62 2,585 27.84 2,022
Fees for other customer services............. 2,451 2.64 2,388 3.78 2,301
Mortgage servicing........................... 2,329 4.67 2,225 1.46 2,193
Bankcard..................................... 5,440 14.57 4,748 17.18 4,052
Insurance premiums earned.................... 2,115 3.32 2,047 12.78 1,815
Gain on sale of investment securities........ 4,947 15858.1 31 287.50 8
Other........................................ 4,131 87.35 2,205 43.37 1,538
------- ------- ------- ------ -------
Total..................................... $50,495 33.27% $37,890 15.07% $32,927
======= ======= ======= ====== =======
The 33.27% increase in noninterest income in 2001 compared to 2000 is
primarily attributed to increases in gains on the sale of investment securities
and service charges on deposit accounts, comprising 39% and 37% of the total
increase respectively.
Service charges on deposit accounts increased due to strong core deposit
growth during the year and due to the acquisition of seven and four branches
from unrelated financial institutions in December 2000 and July 2001,
respectively. These branches contributed to $1,085 of the $4,639 increase in
service charges. Adjusted for these branches, service charges on deposit
accounts were up 16.41%. Adjusted for the service charges on deposit accounts
for the acquired branches and the gains on investment securities, noninterest
income was up by $6,573 or 17.35%.
The 15.07% increase in noninterest income in 2000 compared to 1999 is
primarily attributed to increases in service charges, bankcard processing fees
and trust fees comprising 54%, 14% and 11% of the total increase in noninterest
income, respectively. Exchange contributed $737 in noninterest income in 2000,
compared to $78 in 1999.
10
Noninterest expense (Dollars in thousands)
Noninterest expense for Bancorporation primarily consists of salaries and
employee benefits, net occupancy expense, furniture and equipment expense, data
processing fees and amortization of intangibles. Table 5 provides a comparison
of the various components of noninterest expense for the years ended December
31, 2001, 2000 and 1999.
TABLE 5: NONINTEREST EXPENSE
(Dollars in thousands)
Year Ended December 31,
----------------------------------------
Percent Percent
2001 Change 2000 Change 1999
-------- ------- ------- ------- -------
Salaries and employee benefits... $ 54,804 17.60 $46,601 12.57% 41,396
Net occupancy expense of premises 8,245 26.92 6,496 6.95 6,074
Furniture and equipment expense.. 6,248 (5.93) 6,642 (3.52) 6,884
Amortization of intangibles...... 10,560 58.82 6,649 22.61 5,423
Bankcard processing fees......... 5,484 13.00 4,853 10.95 4,374
Data processing fees............. 8,425 5.22 8,007 13.03 7,084
Professional services............ 2,064 (.29) 2,070 (8.53) 2,263
Donations........................ 4,497 464.24 797 87.09 426
Other............................ 22,820 30.86 17,439 13.06 15,424
-------- ------ ------- ----- -------
Total......................... $123,147 23.70% $99,554 11.42% $89,348
======== ====== ======= ===== =======
The 23.70% increase in noninterest expense in 2001 compared to 2000 is
primarily attributable to increases in net occupancy expense of premises,
amortization of intangibles, donations and other expenses. Together these
increases represent approximately 62.48% of the total increase of $23,593 from
2000 to 2001. The increases are the result of the on-going growth of
Bancorporation and the aforementioned addition of 11 branches in late 2000 and
2001. Noninterest expense, excluding noninterest expense related to these
branches (exclusion includes $4,022 in amortization), would have been $15,790,
or an increase of 15.86%.
The increase in donations in 2001 compared to 2000 is due to increased
contributions made by Bancorporation in 2001 to First Citizens Foundation.
The 11.42% increase in noninterest expense in 2000 compared to 1999 was
primarily due to increases in salaries and employee benefit expense,
amortization of intangibles, data processing fees and other expense. Salary and
employee benefits increased primarily due to an investment in new personnel in
2000. Amortization on intangibles increased due to the acquisition of 11
branches during 2000. Data processing fees and other expense categories
increased due to the on-going growth realized by Bancorporation.
Income taxes (Dollars in thousands)
Total income tax expense included in the Consolidated Statements of Income
was $16,126, $14,453 and $12,945 for the years ended December 31, 2001, 2000
and 1999, respectively. The effective tax rate in those years were 32.3%, 34.4%
and 34.4%, respectively.
Income taxes computed at the statutory rate are reduced primarily by the
interest earned on state and municipal debt securities and obligations (which
are exempt from federal taxes) and other items permanently included or excluded
from taxable income.
11
FINANCIAL CONDITION
Investment securities (Dollars in thousands)
As of December 31, 2001, the investment portfolio totaled $899,755, compared
to $740,519 as of December 31, 2000. Bancorporation continues to invest
primarily in short-term U.S. Government obligations, thereby minimizing credit,
interest rate and liquidity risk. The portfolio was comprised of 95.13% and
92.59% U.S. Government obligations at December 31, 2001 and 2000, respectively.
The remainder of the investment portfolio principally consists of municipal
notes, bonds and equity securities.
Average investment securities as a percentage of average earning assets
increased from 25.34% as of December 31, 2000, to 25.88% as of December 31,
2001, with the increase occurring primarily in investments in U.S. Government
obligations. Investment securities remain the second largest component of
interest-earning assets.
The weighted average maturity of U.S. Government obligations held in the
portfolio was 15.6 months at December 31, 2001, as compared to 11.4 months at
December 31, 2000. The weighted average maturity of State and Political
obligations held in the portfolio was 31.6 months at December 31, 2001, as
compared to 52.7 months at December 31, 2000. The amortized cost and estimated
fair value of debt securities at December 31, 2001 and 2000, are shown in Table
6.
Investment securities available-for-sale are held for expected liquidity
requirements and asset/liability management. Such securities, recorded at fair
value, were $876,446 or 97.41% of the total investment portfolio at December
31, 2001, compared with $707,000 or 95.47% at December 31, 2000. The unrealized
gain on investment securities available-for-sale was $30,170 and $18,793 at
December 31, 2001 and 2000, respectively. The increase in available-for-sale
securities as a percentage of the total investment portfolio is due to the
increase in U.S. Government obligations and the unrealized gain on investment
securities available for sale.
Investment securities held-to-maturity recorded at amortized cost totaled
$23,309 or 2.59% of the total investment portfolio at December 31, 2001,
compared to $33,519 or 4.53% at December 31, 2000. The estimated fair value of
such securities exceeded their amortized cost by $420 or 1.8% at December 31,
2001. The estimated fair value of such securities exceeded their amortized cost
by $119 or .36% at December 31, 2000.
12
TABLE 6: INVESTMENT SECURITIES
(Dollars in thousands)
2001 2000 1999
------------------------------ -------------------- --------------------
Taxable
Amortized Estimated Equivalent Amortized Estimated Amortized Estimated
Cost Fair Value Yield* Cost Fair Value Cost Fair Value
--------- ---------- ---------- --------- ---------- --------- ----------
Held-To-Maturity:
U. S. government obligations:
Within one year............. $ 1,750 $ 1,775 6.16% $ 5,999 $ 5,989 $ 1,750 $ 1,751
One to five years........... 6,200 6,327 4.54 3,953 3,950 8,497 8,311
Five to ten years........... -- -- -- 500 492 500 468
-------- -------- ---- -------- -------- -------- --------
Total..................... 7,950 8,102 4.90 10,452 10,431 10,747 10,530
-------- -------- ---- -------- -------- -------- --------
Obligations of states and
political subdivisions:
Within one year............. 2,405 2,418 4.53 2,921 2,928 2,513 2,519
One to five years........... 10,550 10,771 4.92 11,438 11,498 13,048 13,089
Five to ten years........... 609 635 5.13 3,755 3,820 8,925 8,875
Over ten years.............. -- -- -- 4,709 4,709 5,022 5,023
-------- -------- ---- -------- -------- -------- --------
Total..................... 13,564 13,824 4.86 22,823 22,955 29,508 29,506
-------- -------- ---- -------- -------- -------- --------
Other securities:
Within one year............. 2 -- 7.61 5 1 120 121
One to five years........... 50 49 5.95 5 3 29 24
Five to ten years........... -- -- -- 50 48 50 45
Over ten years.............. 1,743 1,754 5.47 184 200 212 229
-------- -------- ---- -------- -------- -------- --------
Total..................... 1,795 1,803 5.49 244 252 411 419
-------- -------- ---- -------- -------- -------- --------
Total Held-To-Maturity....... 23,309 23,729 4.92 33,519 33,638 40,666 40,455
======== ======== ==== ======== ======== ======== ========
Available-for-Sale:
U. S. government obligations:
Within one year............. 302,220 308,646 5.90 332,693 333,293 267,388 265,845
One to five years........... 532,563 539,334 4.16 339,236 341,926 233,441 231,562
-------- -------- ---- -------- -------- -------- --------
Total..................... 834,783 847,980 4.79 671,929 675,219 500,829 497,407
-------- -------- ---- -------- -------- -------- --------
Obligations of states and
political subdivisions:
Five to ten years........... -- -- -- -- -- 5 5
-------- -------- ---- -------- -------- -------- --------
Other securities:
Five to ten years........... 3,292 3,339 6.20 465 488 -- --
Over ten years.............. 2,428 2,417 6.19 -- -- -- --
-------- -------- ---- -------- -------- -------- --------
Total..................... 5,720 5,756 6.20 465 488 -- --
-------- -------- ---- -------- -------- -------- --------
Marketable equity securities. 5,773 22,710 NM 15,813 31,293 15,844 24,914
-------- -------- ---- -------- -------- -------- --------
Total Available-For-Sale..... 846,276 876,446 4.76 688,207 707,000 516,678 522,326
======== ======== ==== ======== ======== ======== ========
Total portfolio........... $869,585 $900,175 4.76 $721,726 $740,638 $557,344 $562,781
======== ======== ==== ======== ======== ======== ========
- --------
* Taxable equivalent yield was calculated using the incremental statutory
federal income tax rate of 35%.
NM--Not meaningful
13
Loans (Dollars in thousands)
Loans comprise the largest portion of earning assets of Bancorporation, with
average loans accounting for 68.24% and 73.05% of average earning assets as of
December 31, 2001 and 2000, respectively. The decline in this percentage is due
to average deposit growth exceeding average loan growth. This is due to an
acquisition of seven branches in December 2000 and four branches in July 2001.
See the Deposits section of the Management's Discussion and Analysis for
details. Adjusted for these acquisitions, average loans grew by 8.03%.
Bancorporation desires to make business loans for productive purposes where
the business has adequate capital and management expertise to succeed. Consumer
loans are granted for many purposes, provided that underwriting criteria are
met. The ability and willingness of the borrower to repay debt are the primary
factors considered in granting credit. Repayment ability is established by
review of past and future cash flow coverage for businesses and debt-to-income
ratio for consumers. The willingness of the borrower to repay debt is reviewed
through trade credit for businesses and credit bureau reports and other
traditional methods for consumers. Collateral guarantees, loan-to-value ratios
and loan terms are based on industry and/or regulatory standards depending on
loan purpose and the composition of collateral provided. Gross loans increased
$180,412 or 8.67% to $2,262,283 as of December 31, 2001, from $2,081,871 as of
December 31, 2000. Most of the increase in loans was attributable to an
increase in loans secured by 1-4 family residential properties, which increased
$83,389 or 9.30%, followed by construction loans which increased $56,311 or
125.39%. The composition of the loan portfolio at December 31 for the last five
years is presented in Table 7.
TABLE 7: LOAN PORTFOLIO COMPOSITION
(Dollars in thousands)
December 31,
---------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------------- ----------------- ----------------- ----------------- -----------------
% of % of % of % of % of
Amount Gross Amount Gross Amount Gross Amount Gross Amount Gross
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Real estate--construction.... $ 101,221 4.47% $ 44,910 2.16% $ 49,254 2.66% $ 38,138 2.42% $ 23,837 1.67%
Real estate--mortgage........ 979,797 43.31 896,408 43.06 818,807 44.15 720,887 45.83 617,117 43.20
Real estate-commercial....... 408,143 18.04 409,563 19.67 345,116 18.61 297,918 18.94 272,520 19.08
Loans for purchasing and
Carrying securities......... 716 .03 309 .01 1,283 .07 643 .04 817 .06
Loans to farmers............. 9,975 .44 11,341 .54 8,643 .47 8,984 .57 7,917 .55
Commercial and
Industrial loans............ 205,577 9.09 196,041 9.42 174,556 9.41 140,541 8.93 128,584 9.00
Loans to individuals for
household, family and other
personal expenditures....... 504,141 22.29 474,848 22.81 417,603 22.52 337,051 21.43 356,612 24.97
Other loans.................. 52,713 2.33 48,451 2.33 39,258 2.11 28,907 1.84 21,033 1.47
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total loans.................. $2,262,283 100.00% $2,081,871 100.00% $1,854,520 100.00% $1,573,069 100.00% $1,428,437 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
14
TABLE 8: SELECTED LOAN MATURITIES AND INTEREST RATE SENSITIVITY--DECEMBER 31,
2001
(Dollars in thousands)
Over 1 Over
1 year through 5
Total or less 5 years Years
---------- -------- ---------- --------
Type of Loan:
Real estate-construction.................. $ 101,221 $ 46,875 $ 46,012 $ 8,334
Commercial, financial and agricultural.... 677,124 182,121 428,077 66,926
Real estate, individual and other......... 1,483,938 195,873 1,029,656 258,409
---------- -------- ---------- --------
Total................................... $2,262,283 $424,869 $1,503,745 $333,669
========== ======== ========== ========
Rate Sensitivity for Loans (over one year):
Fixed interest rates...................... $1,737,980 $1,427,427 $310,553
Floating or adjustable interest rates..... 99,434 76,318 23,116
---------- ---------- --------
Total................................... $1,837,414 $1,503,745 $333,669
========== ========== ========
Allowance for loan losses (Dollars in thousands)
An analysis of activity in the allowance for loan losses as of December 31
for the past five years is presented in Table 9. The allowance for loan losses
is maintained through charges to the provision for loan losses. Loan
charge-offs and recoveries are charged or credited directly to the allowance
for loan losses.
It is the policy of Bancorporation to maintain an allowance for loan losses
which is adequate to absorb probable losses inherent in the loan portfolio.
Management believes that the provision taken in 2001 was appropriate to provide
an allowance for loan losses which considers the past experience of
charge-offs, the level of past due and nonaccrual loans, the size and mix of
the loan portfolio, credit classifications and general economic conditions in
Bancorporation's market areas.
TABLE 9: ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Beginning allowance for loan losses.............. $37,001 $32,972 $28,306 $26,135 $23,483
Charge-offs:
Commercial, financial and agricultural......... 1,337 1,302 689 1,080 685
Real estate--mortgage.......................... 447 967 398 698 563
Installment loans to individuals............... 4,052 3,239 2,288 2,078 2,037
All other loans................................ 804 66 8 13 6
------- ------- ------- ------- -------
Total charge-offs............................. 6,640 5,574 3,383 3,869 3,291
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and agricultural......... 241 240 170 728 384
Real estate--mortgage.......................... 386 451 538 621 920
Installment loans to individuals............... 671 690 675 388 398
All other loans................................ 1 30 7 -- --
------- ------- ------- ------- -------
Total recoveries.............................. 1,299 1,411 1,390 1,737 1,702
------- ------- ------- ------- -------
Net charge-offs............................... 5,341 4,163 1,993 2,132 1,589
Provision for loan losses........................ 8,599 7,623 5,546 4,303 4,241
Reserves related to acquisitions................. -- 569 1,113 -- --
------- ------- ------- ------- -------
Ending allowance for loan losses................. $40,259 $37,001 $32,972 $28,306 $26,135
======= ======= ======= ======= =======
15
Bancorporation manages credit risk through a variety of methods including
credit scoring, establishing loan type parameters and underwriting standards.
In addition, credit management is centralized using a standardized system of
controls and subjecting the portfolio to detailed credit reviews by individuals
independent of the lending function.
The allowance for loan losses as a percent of gross loans at December 31,
2001 was consistent with December 31, 2000 at 1.78%.
Net charge-offs for the year ended December 31, 2001, totaled $5,341, or
.25% of average loans, an increase of $1,178 from $4,163 or .21% of average
loans in 2000. Recoveries represented .06% of average loans for the year ended
December 31, 2001, versus .07% for the year ended December 31, 2000.
The increase in the provision for loan losses during 2001 was primarily
attributable to loan growth during the year. The provision for loan losses was
made to reflect potential losses inherent in the loan portfolio and was not
attributable to individual loans for which management believed specific
accruals were necessary at December 31, 2001.
In its allowance methodology, Bancorporation considers a range of potential
losses inherent in the loan portfolio. The range is established by estimating
the allowance for loan losses under several different methods including peer
analysis, historical loss analysis, collateral stratification, industry
stratification, industry standards and geographic stratification. In
determining the relevance of the range, qualitative factors such as micro and
macro economic conditions and trends in portfolio composition are considered.
At December 31, 2001, Bancorporation's allowance for loan losses of $40,259
fell within the range indicated by the methods listed above.
Table 10 presents an allocation of the allowance for loan losses by
different loan categories. Bancorporation adopted the methodology mentioned
above for estimating the allowance for loan losses in 1999. As a result of this
methodology, the allocation of the allowance to the different loan categories
was changed. The allocation is based on a number of qualitative factors (e.g.
perceived level of risk associated with the related industry, collateral,
geographic and economic conditions), and the amounts presented are not
necessarily indicative of actual amounts which will be charged to any
particular category. The total allowance is available to absorb potential
losses in any category of loans. Prior year allocations were not restated to
conform to the allowance analysis adopted during 1999.
TABLE 10: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
December 31
-----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
Amount of loans Amount of loans Amount of loans Amount of loans Amount of loans
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
Real estate--construction....... $ 1,687 4.48% $ 746 2.16% $ 837 2.66% $ 100 2.42% $ 100 1.67%
Real estate--mortgage........... 23,132 61.35 21,679 62.73 14,222 62.76 8,426 64.77 8,402 62.28
Installment loans to Individuals 8,402 22.28 7,882 22.81 10,526 22.52 7,617 21.43 6,595 24.97
Commercial, financial and
agricultural................... 4,483 11.89 4,252 12.30 5,571 12.06 2,131 11.38 2,124 11.08
Unallocated..................... 2,555 -- 2,442 -- 1,816 -- 10,032 -- 8,914 --
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total......................... $40,259 100.00% $37,001 100.00% $32,972 100.00% $28,306 100.00% $26,135 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
16
TABLE 11: ANALYSIS OF ASSET QUALITY
(Dollars in thousands)
2001 2000 1999 1998 1997
------------- ------------- --------------- --------------- -------------
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------ ------ ------ ------ -------- ------ -------- ------ ------
Nonperforming assets:
Nonaccrual loans............... $5,138 .23 $5,288 .25 $3,017 .16 $2,248 .14 $2,653 .18
Restructured loans............. -- -- -- -- -- -- -- -- 78 .01
------ ------ ------ ------ ------ -------- ------ -------- ------ ------
Total nonperforming loans.... 5,138 .23 5,288 .25 3,017 .16 2,248 .14 2,731 .19
Other real estate owned........ 720 .03 223 .01 151 .01 402 .03 572 .04
------ ------ ------ ------ ------ -------- ------ -------- ------ ------
Total nonperforming assets... $5,858 .26 $5,511 .26 $3,168 .17 $2,650 .17 $3,303 .23
====== ====== ====== ====== ====== ======== ====== ======== ====== ======
Accruing loans 90 days past due $3,935 .17 $3,613 .17 $2,330 .13 $1,522 .10 $1,497 .10
====== ====== ====== ====== ====== ======== ====== ======== ====== ======
Nonperforming assets by type:
Commercial, financial and
agricultural.................. $1,388 .06 $ 867 .04 $ 982 .05 $ 391 .02 $ 463 .03
Consumer....................... 117 .01 45 .00 19 .00 85 .01 26 .00
Real estate.................... 3,496 .15 4,349 .21 2,016 .11 1,772 .11 2,242 .16
Other.......................... 137 .01 27 -- -- -- -- -- -- --
------ ------ ------ ------ ------ -------- ------ -------- ------ ------
Total nonperforming loans.... 5,138 .23 5,288 .25 3,017 .16 2,248 .14 2,731 .19
Other real estate owned........ 720 .03 223 .01 151 .01 402 .03 572 .04
------ ------ ------ ------ ------ -------- ------ -------- ------ ------
Total........................ $5,858 .26 $5,511 .26 $3,168 .17 $2,650 .17 $3,303 .23
====== ====== ====== ====== ====== ======== ====== ======== ====== ======
Asset quality ratios:
Reserve to year-end loans...... 1.78% 1.78% 1.78% 1.80% 1.83%
Net chargeoffs to average loans .25 .21 .12 .14 .12
Coverage ratio................. 783.55 699.72 1,092.87 1,259.16 956.98
Any loans classified by the Bank or regulatory examiners as loss, doubtful,
substandard, or special mention that have not been disclosed hereunder or under
the "Loans" or "Asset Quality" narrative discussions do not (1) represent or
result from trends or uncertainties that management expects will materially
impact future operating results, liquidity, or capital resources, or (2)
represent material credits as to which management is aware of any information
that causes serious doubt as to the ability of such borrowers to comply with
the loan repayment terms.
Interest income related to nonaccrual and restructured loans that would have
been recognized if such loans were current in accordance with their original
contractual terms did not differ materially from the amounts actually
recognized.
Based upon an ongoing assessment of risk elements in the portfolio and
factors affecting credit quality, it is management's opinion that there are
currently no significant unidentified potential credit problems. However,
factors affecting a borrower's repayment ability may vary due to changing
economic conditions and other factors that may affect loan quality.
Intangible assets (Dollars in thousands)
As of December 31, 2001, intangible assets totaled $48,110, representing a
$4,108 net decrease from $52,218 as of December 31, 2000. For the year ended
December 31, 2001 amortization expense related to intangible assets increased
by $3,911 (or 58.82%).
The increase in amortization was due to intangible assets related to the
acquisition of seven branches in December 2000 and four branches in July 2001
where $30,360 and $3,786 was recorded as intangible assets, respectively.
17
Funding sources (Dollars in thousands)
Bancorporation's primary source of funds is its deposit base. Average
deposits increased 24.57% to $2,875,976 as of December 31, 2001, from
$2,308,705 as of December 31, 2000. The increase in average deposits is due to
three factors: (1) internal deposit growth, (2) the acquisition of seven and
four branches in December 2000 and July 2001, respectively, where total
deposits of $186,101 and $45,330 were acquired, and (3) the reclassification in
February 2001 of $226,096 of securities sold under agreements to repurchase to
deposits. As of December 31, 2001, total deposits increased $459,725 to
$3,014,954, or 17.99%. Acquisitions during 2001 accounted for $45,330 or 9.86%
of the deposit growth. Adjusted for acquisitions and the reclassification
described above, deposits increased by 1%.
Core deposits finance loan and investment activity. Core deposits are
defined as demand deposits, savings, NOW, money market accounts and
certificates of deposit under $100 thousand. As of December 31, 2001,
$2,782,268 or 92.28% of total deposits of $3,014,954 were considered core
deposits. As of December 31, 2000, $2,361,906 or 92.43% of total deposits of
$2,555,229 were considered core deposits.
Purchased funds, which consist of time deposits over $100 thousand and
short-term borrowings, are another source of funds. As of December 31, 2001,
time deposits over $100 thousand increased $39,363 or by 20.36% to $232,686
compared to $193,323 as of December 31, 2000. Short-term borrowings, which
consist primarily of federal funds purchased and securities sold under
agreements to repurchase, averaged $245,690 in 2001 compared to $331,690 in
2000, a decrease of 25.93%. Adjusted for the reclassification described above,
securities sold under agreements to repurchase would have been $440,119, an
increase of 19.20%.
On March 24, 1998, Bancorporation, through FCB/SC Capital Trust I issued
$50,000 of 8.25% capital securities due on March 15, 2028. The balance of the
securities can be prepaid, subject to possible regulatory approval, in whole or
part at any time on or after March 15, 2008. The capital securities qualify for
inclusion in Tier I capital for regulatory capital adequacy purposes.
Tables 12-15 provide additional information regarding major funding sources.
18
TABLE 12: SOURCES AND USES OF FUNDS
(Dollars in thousands)
December 31,
------------------------------------
2001 2000
----------------- -----------------
Average Average
Balance Percent Balance Percent
---------- ------- ---------- -------
Composition of sources:
Demand deposits........................ $ 477,592 13.80% $ 420,016 14.34%
NOW accounts........................... 879,931 25.43 600,838 20.51
Money Market accounts.................. 307,516 8.89 303,637 10.37
Time deposits.......................... 1,210,937 35.00 984,214 33.60
Short-term borrowings.................. 245,690 7.10 331,690 11.33
Long-term borrowings................... 963 .03 963 .03
Trust preferred........................ 50,000 1.45 50,000 1.70
Other liabilities...................... 31,444 .91 24,695 .84
Stockholders' equity................... 255,836 7.39 213,105 7.28
---------- ------ ---------- ------
Total sources........................ $3,459,909 100.00% $2,929,158 100.00%
========== ====== ========== ======
Composition of uses:
Loans.................................. $2,160,604 62.45% $1,960,547 66.93%
Investment securities.................. 819,334 23.68 680,042 23.22
Other earning assets................... 186,451 5.39 43,404 1.48
---------- ------ ---------- ------
Total interest-earning assets........ 3,166,389 91.52 2,683,993 91.63
Noninterest-earning assets............. 293,520 8.48 245,165 8.37
---------- ------ ---------- ------
Total uses........................... $3,459,909 100.00% $2,929,158 100.00%
========== ====== ========== ======
TABLE 13: TIME DEPOSITS OF $100 THOUSAND AND OVER
(Dollars in thousands)
December 31,
----------------------------
2001 2000 1999
-------- -------- --------
3 months or less................................. $ 95,279 $ 72,412 $ 22,553
Over 3 months through 6 months................... 42,658 35,809 55,326
Over 6 months through 12 months.................. 69,951 36,365 52,181
Over 12 months................................... 24,798 48,737 10,131
-------- -------- --------
Total.......................................... $232,686 $193,323 $140,191
======== ======== ========
Percent of total deposits........................ 7.72% 7.57% 6.31%
19
TABLE 14: DEPOSIT ANALYSIS
(Dollars in thousands)
Year ended December 31,
-------------------------------------------------------
2001 2000 1999
----------------- ----------------- -----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ------- ---------- ------- ---------- -------
Demand deposits...................... $ 477,592 -- $ 420,016 -- $ 374,991 --
NOW accounts......................... 867,140 1.91% 586,998 1.69% 555,479 1.72%
Market rate savings.................. 307,516 2.24 303,637 3.07 318,980 3.16
Regular and premium savings.......... 12,791 1.74 13,840 2.20 15,395 2.42
Time deposits of $100 thousand & over 224,385 4.09 155,542 6.01 135,203 4.70
Other time deposits.................. 986,552 5.61 828,672 5.56 697,630 4.80
---------- ---- ---------- ---- ---------- ----
Total............................... $2,875,976 3.68% $2,308,705 3.97% $2,097,678 3.47%
========== ========== ==========
TABLE 15: FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE ANALYSIS
(Dollars in thousands)
2001 2000 1999
--------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
At year-end*:
Securities sold under agreements to repurchase $214,023 1.46% $369,218 5.45% $230,904 5.05%
======== ======== ========
Average for the year:
Federal funds purchased....................... $ -- NA $ 5,282 7.00 $ 2,032 5.59
Securities sold under agreements to repurchase 244,368 3.48 322,979 5.80 250,835 4.63
-------- -------- --------
Total....................................... $244,368 3.48 $328,261 5.83 $252,867 4.64
======== ======== ========
Maximum month-end balance:
Federal funds purchased....................... $ -- $ 33,000 $ 11,700
Securities sold under agreements to repurchase 494,733** 363,288 283,220
- --------
* There were no federal funds purchased at year end in the reported years.
** In February 2001, $226,096 of securities sold under agreements to repurchase
were reclassified to deposits.
Capital resources (Dollars in thousands)
The Federal Reserve Board and the Federal Deposit Insurance Corporation have
issued risk-based capital guidelines for United States banking corporations.
The objective of these guidelines is to provide a uniform capital measurement
that is more sensitive to variations in risk profiles of banking corporations.
Regulatory agencies define capital as Tier I, consisting of stockholders'
equity less ineligible intangible assets, and Tier II, consisting of Tier I
capital plus the allowable portion of the allowance for loan losses and certain
long-term debt. Capital adequacy is measured by comparing both capital levels
to Bancorporation's risk-adjusted assets and off-balance sheet items.
Regulatory requirements presently specify that Tier I capital should exclude
the market appreciation or depreciation of securities available-for-sale
arising from valuation adjustments. In addition to these capital ratios,
regulatory agencies have established a Tier I leverage ratio which measures
Tier I capital to average assets less ineligible intangible assets.
20
Regulatory guidelines require a minimum of total capital to risk-adjusted
assets ratio of 8 percent with at least 50 percent consisting of tangible
common stockholders' equity and a minimum Tier I leverage ratio of 3 percent.
Banks which meet or exceed a Tier I ratio of 6 percent, a total capital ratio
of 10 percent and a Tier I leverage ratio of 5 percent are considered
well-capitalized by regulatory standards.
Bancorporation maintains a strong level of capital as a margin of safety for
its depositors and stockholders, as well as to provide for future growth. At
December 31, 2001, stockholders' equity was $270,915 versus $233,693 at
December 31, 2000, an increase of 15.93%.
Bancorporation's Tier 1 capital ratio at year-end was 11.33% compared to
10.53% in 2000. The total risk-based capital ratio was 12.59% compared to
12.09% in 2000. Both of these measures exceed the regulatory minimums of 4.00%
for Tier 1 and 8.00% for total risk-based capital. Based on the guidelines
above, Bancorporation is well-capitalized. Refer to Note 17 "Capital Matters"
in the Notes to the Consolidated Financial Statements for further analysis of
risk-based requirements.
TABLE 16: CAPITAL ADEQUACY
(Dollars in thousands--except per share data)
December 31,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Stockholders' equity:
Year-end......................... $270,915 $233,693 $200,073 $174,175 $158,418
Average.......................... 255,836 213,105 187,744 169,422 144,961
Book value per common share...... 289.12 246.17 208.77 185.41 166.95
Average stockholders' equity to:
Average assets................... 7.39% 7.28% 7.21% 7.26% 6.96%
Average deposits................. 8.90 9.23 8.95 8.87 8.28
Average loans.................... 11.84 10.87 11.11 11.33 10.79
Capital ratios:
Tier 1 capital ratio............. 11.33% 10.53% 12.47% 13.01% 9.13%
Total risk-based capital ratio... 12.59 12.09 13.79 14.27 10.49
Tier 1 leverage ratio............ 7.34 7.46 8.49 8.43 6.21
Internal capital generation:
Return on average equity......... 13.24% 12.95% 13.13% 13.94% 15.02%
Earnings retention rate.......... 96.95 97.03 99.31 99.28 99.21
Dividend payout ratio............ 3.05 2.97 .69 .72 .79
Internal capital generation rate* 12.84 12.57 13.03 13.84 14.90
- --------
* Return on Average Equity X Earnings Retention Rate
ASSET/LIABILITY MANAGEMENT
The role of Bancorporation's Asset/Liability Management Committee ("ALCO")
is to monitor Bancorporation's liquidity position and exposure to interest rate
risk. Asset/liability management is the process by which Bancorporation
monitors and attempts to control the mix and maturities of its assets and
liabilities in order to maximize net interest income. The functions of
asset/liability management are to ensure adequate liquidity and to maintain an
appropriate balance between interest-sensitive assets and liabilities.
21
Liquidity (Dollars in thousands)
Liquidity involves the ability to meet cash flow requirements which arise
primarily from withdrawal of deposits, extensions of credit, payment of
operating expenses and repayment of purchased funds. Funds are provided
primarily through earnings from operations, expansion of the deposit base,
borrowing funds in the money market, the maturity of investment assets and
repayment of loans.
Bancorporation has historically maintained strong liquidity through
increases in core deposits and management of investment maturities. Core
deposits were $2,782,268, or 92.28% of total deposits as of December 31, 2001,
up from $2,361,906, or 92.43% of total deposits as of December 31, 2000. The
weighted average maturity of U.S. Government obligations, which make up 95.13%
of the investment portfolio as of December 31, 2001, was 15.6 months as
compared to 11.4 months at December 31, 2000.
Interest rate risk (Dollars in thousands)
Management of interest rate risk involves maintaining an appropriate balance
between interest-sensitive assets and interest-sensitive liabilities (interest
rate sensitivity gap) and reducing Bancorporation's risk of major changes in
net interest income in periods of rapidly changing interest rates. A negative
gap (interest-sensitive liabilities greater than interest-sensitive assets) in
periods when interest rates are declining will tend to increase net interest
income. Conversely, a negative gap in periods when interest rates are rising
will tend to reduce net interest income. The net cumulative gap position
reflects Bancorporation's sensitivity to interest rate changes over time. This
calculation is a static measure and is not a prediction of net interest income.
Gap analysis is the simplest representation of Bancorporation's interest rate
sensitivity. It does not reveal the impact of factors such as administered
rates (e.g., the prime lending rate), pricing strategies on its consumer and
business deposits, and changes in the balance sheet mix.
The objective of the asset/liability management process is to manage and
control the sensitivity of Bancorporation's income to changes in market
interest rates. This process is under the direction of the ALCO, comprised of
senior bank executives. The ALCO seeks to maximize earnings while ensuring that
the risks to those earnings from adverse movements in interest rates are kept
within specified limits deemed acceptable by Bancorporation. Accordingly, the
ALCO conducts comprehensive simulations of net interest income under a variety
of market interest rate scenarios. These simulations provide the ALCO with an
estimate of earnings at risk given changes in interest rates. While the ALCO
sees the opportunities and benefits of utilizing derivative financial
instruments such as interest rate swaps and caps and floors to improve net
interest income, the ALCO has elected not to use such instruments given their
risk.
As indicated in Table 17, the twelve-month cumulative gap, representing the
total net assets and liabilities that are projected to reprice over the next
twelve months, was liability sensitive in the amount of $ 135.8 million at
December 31, 2001. However, this negative position remained within the
acceptable parameters of plus or minus 20% at 360 days, as listed in
Bancorporation's Statement of Funds Policy. This Statement is guided by asset
quality, liquidity and earnings, and describes Bancorporation's policy with
respect to sources and uses of funds, dividends and limitations on interbank
liabilities. The responsibility for funds management resides with the Chief
Financial Officer with overall guidance provided by the Chairman and President.
Management continues to seek ways to balance the gap position and reduce
exposure to interest rate fluctuations.
22
TABLE 17: INTEREST RATE-SENSITIVITY ANALYSIS AS OF DECEMBER 31, 2001
(Dollars in thousands)
0-3 4-6 7-12 Total
Months Months Months Within Over One
Sensitive Sensitive Sensitive One Year Year Total
--------- --------- --------- ---------- ---------- ----------
Interest-earning assets:
Loans....................... $598,849 $ 137,551 $ 209,710 $ 946,110 $1,316,173 $2,262,283
Federal funds sold.......... 97,900 -- -- 97,900 -- 97,900
Investment securities....... 102,283 124,656 194,043 420,982 478,773 899,755
-------- --------- --------- ---------- ---------- ----------
Total interest-earning
assets................... $799,032 $ 262,207 $ 403,753 $1,464,992 $1,794,946 $3,259,938
======== ========= ========= ========== ========== ==========
Interest-bearing liabilities:
Savings and core time
deposits................... $317,671 $ 321,463 $ 539,782 $1,178,916 $1,095,422 $2,274,338
Time deposits of $100
thousand and over.......... 95,279 42,658 69,951 207,888 24,798 232,686
Short-term debt............. 214,023 -- -- 214,023 -- 214,023
Long-term debt.............. -- -- -- -- 50,963 50,963
-------- --------- --------- ---------- ---------- ----------
Total interest-bearing
liabilities.............. 626,973 364,121 609,733 1,600,827 1,171,183 2,772,010
======== ========= ========= ========== ========== ==========
Percent of total
interest-earning assets..... 5.28% (3.13)% (6.32)% (4.17)% 19.13%
Interest-sensitivity gap...... 172,059 (101,914) (205,980) (135,835) 623,763 --
-------- --------- --------- ---------- ----------
Cumulative interest-sensitive
gap......................... $172,059 $ 70,145 $(135,835) -- -- --
======== ========= =========
Percent of total
interest-earning assets..... 5.28% 2.15% (4.17)%
MARKET RATE RISK
In January 1997, the Securities and Exchange Commission adopted new rules
that require more comprehensive disclosures of accounting policies for
derivatives as well as enhanced quantitative and qualitative disclosures of
market risk. The market risk disclosures must be presented for most financial
instruments, which must be classified into two portfolios: financial
instruments entered into for trading purposes and all other financial
instruments (non-trading purposes). Bancorporation holds no derivative
financial instruments and does not maintain a trading portfolio.
Table 18 summarizes the expected maturities and weighted average effective
yields and interest rates associated with Bancorporation's financial
instruments. Cash and cash equivalents, federal funds sold, federal funds
purchased and securities sold under agreements to repurchase are excluded from
Table 18 as their respective carrying values approximate their fair values.
These financial instruments generally expose Bancorporation to insignificant
market risk as they have either no stated maturities or an average maturity of
less than 30 days and carry interest rates that approximate market rates. For
further information on the fair value of financial instruments, see Note 16 to
the consolidated financial statements.
23
TABLE 18: MARKET RISK DISCLOSURE (Dollars in thousands)
Expected Maturities Estimated
------------------------------------------------------------------------- Fair Value
2002 2003 2004 2005 2006 Thereafter Total Year-end 2001
---------- -------- -------- -------- -------- ---------- ---------- -------------
Financial Assets:
Loans
Fixed Rate:
Book value................. $ 516,885 $322,708 $281,695 $219,215 $277,904 $135,070 $1,753,477 $1,804,666
Weighted average effective
yield..................... 8.13% 7.81% 7.67% 7.80% 7.49% 7.49% 7.80% --
Variable Rate:
Book value................. $ 144,782 $ 69,626 $ 45,845 $ 34,329 $ 39,961 $174,263 $ 508,806 $ 443,340
Weighted average effective
yield..................... 5.86% 6.42% 6.70% 6.89% 6.30% 7.16% -- --
Securities held-to-maturity:
Book value................. $ 4,157 $ 8,837 $ 2,138 $ 2,691 $ 2,233 $ 3,253 $ 23,309 $ 23,729
Weighted average effective
yield..................... 5.22% 4.59% 5.14% 4.57% 5.07% 7.07% 4.92% --
Securities available-for-sale:
Book value................. $ 308,646 $443,275 $ 84,465 $ 11,594 $ -- $ 28,466 $ 876,446 $ 876,446
Weighted average effective
yield..................... 5.90% 3.91% 5.08% 7.12% -- % 6.24% 4.76% --
Financial Liabilities:
NOW Accounts:
Book value................. $ 231,888 $180,371 $180,371 $180,371 $180,369 $ -- $ 953,370 $ 955,139
Weighted average effective
yield..................... 1.25% 1.25% 1.25% 1.25% 1.25% -- 1.25% --
Market rate savings:
Book Value................. $ 109,440 $ 50,811 $ 50,811 $ 50,811 $ 50,810 $ -- $ 312,683 $ 313,125
Weighted average effective
yield..................... 2.24% 2.24% 2.24% 2.24% 2.24% -- 2.24% --
Regular and premium savings:
Book value................. $ 4,404 $ 2,044 $ 2,044 $ 2,044 $ 2,045 $507,930 $ 520,511 $ 520,500
Weighted average effective
yield..................... 1.75% 1.75% 1.75% 1.75% 1.75% -- 1.75% --
Time deposits:
Book value................. $1,041,556 $ 65,183 $ 48,584 $ 41,440 $ 31,627 $ -- $1,228,390 $1,238,462
Weighted average effective
yield..................... 5.33% 3.55% 3.86% 3.98% 3.98 -- 3.98% --
Long-term debt:
Book value................. $ -- $ -- $ -- $ -- $ -- $ 50,963 $ 50,963 $ 50,276
Weighted average effective
yield..................... -- -- -- -- -- 8.24% 8.24% --
24
ACCOUNTING AND REGULATORY MATTERS
(Dollars in thousands)
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." It revises the standard
for accounting for securitizations and other transfers of financial assets
(including loan sales) and collateral and requires certain disclosures, but it
carries over most of the provisions of SFAS No. 125 without reconsideration.
Adoption of this statement did not have a material impact on the consolidated
financial statements of Bancorporation. Bancorporation adopted this statement
on January 1, 2001.
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations SFAS No. 141 and
No. 142, Goodwill and Other Intangible Assets SFAS No. 142. SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Under SFAS No. 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or
more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinites lives will continue
to be amortized over their useful lives (but with no maximum life). The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, Bancorporation is required to adopt SFAS No.
142 effective January 1, 2002. Bancorporation does not expect SFAS No. 142 to
have a material affect.
In June 2001. The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses the financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This Statement requires that obligations
associated with the retirement of a tangible long-lived asset to be recorded as
a liability initially measured at fair value. Upon initially recognizing a
liability for an asset retirement obligation, an entity must capitalize the
cost by recognizing an increase in the carrying amount of the related long-live
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
The new Standard is effective for fiscal years beginning after June 15, 2002
and earlier application is encouraged. Bancorporation does not expect SFAS No.
143 to have a material impact on its consolidated financial statements.
In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of. This Statement develops one accounting model (based on the model in SFAS
No. 121) for long-lived assets that are to be disposed of by sale, as well as
principal implementation issues. SFAS No. 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. That requirement eliminated APB 30's requirement
that discontinued operations be measured at net realizable value, or that
entities include under 'discontinued operations" in the financial statements
amounts for operating losses that have not yet occurred. Additionally, SFAS No.
144 expands the scope of discontinued operations to include all components of
an entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. This Statement also amends ARB No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The provisions of this
Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early adoption encouraged. The provisions of this Statement
generally are to be applied prospectively. Bancorporation does not expect SFAS
No. 144 to have a material impact on its consolidated financial statements.
25
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
(Dollars in thousands--except per share data)
First Quarter Second Quarter
---------------------------- ----------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Interest income and fees... $ 58,538 $ 48,365 $ 41,884 $ 58,599 $ 52,232 $ 42,817
Interest expense........... (28,905) (22,191) (18,428) (27,137) (24,126) (18,190)
-------- -------- -------- -------- -------- --------
Net interest income........ 29,633 26,174 23,456 31,462 28,106 24,627
Provision for loan losses.. (624) (1,559) (663) (1,979) (1,994) (1,817)
Noninterest income......... 11,888 8,426 7,509 11,743 9,462 7,929
Noninterest expense........ (28,259) (23,331) (21,913) (29,960) (24,715) (21,462)
-------- -------- -------- -------- -------- --------
Income before income taxes. 12,638 9,710 8,389 11,266 10,859 9,277
Income tax expense......... (4,234) (3,350) (2,924) (3,774) (3,746) (3,214)
-------- -------- -------- -------- -------- --------
Net income................. $ 8,404 $ 6,360 $ 5,465 $ 7,492 $ 7,113 $ 6,063
======== ======== ======== ======== ======== ========
Net income per common share $ 8.93 $ 6.73 $ 5.89 $ 7.97 $ 7.54 $ 6.55
======== ======== ======== ======== ======== ========
Third Quarter Fourth Quarter
---------------------------- ----------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Interest income and fees... $ 58,156 $ 53,626 $ 44,302 $ 56,868 $ 55,597 $ 46,411
Interest expense........... (24,888) (25,324) (18,888) (19,978) (26,850) (20,350)
-------- -------- -------- -------- -------- --------
Net interest income........ 33,268 28,302 25,414 36,890 28,747 26,061
Provision for loan losses.. (2,583) (1,477) (1,630) (3,414) (2,593) (1,436)
Noninterest income......... 12,428 10,164 8,519 14,436 9,838 8,970
Noninterest expense........ (30,786) (25,574) (22,175) (34,143) (25,934) (23,798)
-------- -------- -------- -------- -------- --------
Income before income taxes. 12,327 11,415 10,128 13,769 10,058 9,797
Income tax expense......... (3,791) (3,936) (3,505) (4,327) (3,421) (3,302)
-------- -------- -------- -------- -------- --------
Net income................. $ 8,536 $ 7,479 $ 6,623 $ 9,442 $ 6,637 $ 6,495
======== ======== ======== ======== ======== ========
Net income per common share $ 9.10 $ 7.94 $ 7.07 $ 10.11 $ 7.09 $ 6.84
======== ======== ======== ======== ======== ========
26
Report of Management
Management of First-Citizens Bank and Trust Company of South Carolina (the
"Bank") is responsible for establishing and maintaining effective internal
control over financial reporting presented in conformity with both accounting
principles generally accepted in the United States ("GAAP") and Federal
Financial Institution Examination Council instructions for Consolidated Reports
of Condition and Income ("Call Report Instructions"). The Bank's internal
control contains monitoring mechanisms, and actions are taken to correct
deficiencies identified.
There are inherent limitations in the effectiveness of any internal control,
including the possibility of human error and the circumvention or overriding of
control. Accordingly, even effective internal control can provide only
reasonable assurance with respect to consolidated financial statement
preparation. Further, because of changes in conditions, the effectiveness of
internal control may vary over time.
Management assessed the Bank's internal control over financial reporting
presented in conformity with both GAAP and Call Report Instructions as of
December 31, 2001. This assessment was based on criteria for effective internal
control over financial reporting described in "Internal Control-Integrated
Framework" issued by the Committee of Sponsoring Organizations of Treadway
Commission. Based on this assessment, management believes that as of December
31, 2001, the Bank maintained effective internal control over financial
reporting presented in conformity with both GAAP and Call Report Instructions.
Management is also responsible for compliance with federal and state laws
and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders designated by FDIC as safety and
soundness laws and regulations.
Management assessed its compliance with designated laws and regulations
relating to safety and soundness. Based on the assessment, management believes
that the Bank complied, in all significant respects, with the designated laws
and regulations relating to safety and soundness for year ended December 31,
2001.
Management of the Bank is responsible for preparing its annual financial
statements. These financial results are included by management of First
Citizens Bancorporation of South Carolina, Inc. in the audited financial
statements of the consolidated holding company as of December 31, 2001 and the
year then ended.
Management is responsible for the preparation, integrity and fair
presentation of its published consolidated financial statements as of December
31, 2001, and the year then ended. The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and,
as such, include amounts, some of which are based on judgements and estimates
of management.
27
Report of Independent Accountants
[LOGO] PriceWaterHouseCooper PWC
To the Board of Directors and Stockholders of
First Citizens Bancorporation of South Carolina, Inc.
In our opinion, the accompanying consolidated statements of condition and
the related consolidated statements of income, of changes in stockholders'
equity and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of First Citizens Bancorporation of
South Carolina and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of Bancorporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PriceWaterHouseCooper LLP
Memphis, Tennessee
January 29, 2002
28
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands--except par value)
December 31,
----------------------
2001 2000
---------- ----------
ASSETS
Cash and due from banks.......................................................... $ 157,998 $ 156,425
Federal funds sold............................................................... 97,900 96,700
Investment securities:
Held-to-maturity, at amortized cost (fair value of $23,729 in 2001 and $33,638
in 2000)..................................................................... 23,309 33,519
Available-for-sale, at fair value.............................................. 876,446 707,000
---------- ----------
Total investment securities.................................................... 899,755 740,519
---------- ----------
Gross loans...................................................................... 2,262,283 2,081,871
Less: Allowance for loan losses................................................ (40,259) (37,001)
---------- ----------
Net loans........................................................................ 2,222,024 2,044,870
---------- ----------
Premises and equipment, net...................................................... 97,497 93,278
Interest receivable.............................................................. 20,011 24,113
Intangible assets................................................................ 48,110 52,218
Other assets..................................................................... 31,385 32,387
---------- ----------
Total assets..................................................................... $3,574,680 $3,240,510
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand......................................................................... $ 507,930 $ 467,155
Time and savings............................................................... 2,507,024 2,088,074
---------- ----------
Total deposits................................................................... 3,014,954 2,555,229
Securities sold under agreements to repurchase................................... 214,023 369,218
Long-term debt................................................................... 50,963 50,963
Other liabilities................................................................ 23,825 31,407
---------- ----------
Total liabilities................................................................ 3,303,765 3,006,817
========== ==========
Commitments and contingencies (Note 14 )......................................... -- --
Stockholders' equity
Preferred stock.................................................................. 3,201 3,219
Non-voting common stock--$5.00 par value, authorized 1,000,000; issued and
outstanding in 2001 and 2000--36,409........................................... 182 182
Voting common stock--$5.00 par value, authorized 2,000,000; issued and
outstanding 2001--889,540 and 2000--899,879.................................... 4,448 4,499
Surplus.......................................................................... 65,081 65,081
Undivided profits................................................................ 178,399 148,502
Accumulated other comprehensive income, net of taxes............................. 19,604 12,210
---------- ----------
Total stockholders' equity....................................................... 270,915 233,693
---------- ----------
Total liabilities and stockholders' equity....................................... $3,574,680 $3,240,510
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
29
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands--except per share data)
Year ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------
Interest income:
Interest and fees on loans.................................. $181,004 $168,667 $140,120
Interest on investment securities:
Taxable................................................... 42,425 37,052 30,918
Non-taxable............................................... 964 1,409 1,423
Federal funds sold.......................................... 7,768 2,692 2,953
-------- -------- --------
Total interest income........................................ 232,161 209,820 175,414
-------- -------- --------
Interest expense:
Interest on deposits........................................ 88,169 74,972 59,825
Interest on short-term borrowings........................... 8,540 19,320 11,882
Interest on long-term debt.................................. 4,199 4,199 4,149
-------- -------- --------
Total interest expense....................................... 100,908 98,491 75,856
-------- -------- --------
Net interest income.......................................... 131,253 111,329 99,558
Provision for loan losses.................................... 8,599 7,623 5,546
-------- -------- --------
Net interest income after provision for loan losses.......... 122,654 103,706 94,012
-------- -------- --------
Noninterest income:
Service charges on deposits................................. 26,300 21,661 18,998
Commissions and fees from fiduciary activities.............. 2,782 2,585 2,022
Fees for other customer services............................ 2,451 2,388 2,301
Mortgage servicing.......................................... 2,329 2,225 2,193
Bankcard discount and fees.................................. 5,440 4,748 4,052
Insurance premiums.......................................... 2,115 2,047 1,815
Gain on sale of investment securities....................... 4,947 31 8
Other....................................................... 4,131 2,205 1,538
-------- -------- --------
Total noninterest income..................................... 50,495 37,890 32,927
-------- -------- --------
Noninterest expense:
Salaries and employee benefits.............................. 54,804 46,601 41,396
Net occupancy expense....................................... 8,245 6,496 6,074
Furniture and equipment expense............................. 6,248 6,642 6,884
Amortization of intangibles................................. 10,560 6,649 5,423
Bankcard processing fees.................................... 5,484 4,853 4,374
Data processing fees........................................ 8,425 8,007 7,084
Professional services....................................... 2,064 2,070 2,263
Donations................................................... 4,497 797 426
Other....................................................... 22,820 17,439 15,424
-------- -------- --------
Total noninterest expense.................................... 123,147 99,554 89,348
-------- -------- --------
Income before income taxes................................... 50,002 42,042 37,591
Income tax expense........................................... 16,126 14,453 12,945
-------- -------- --------
Net income................................................... $ 33,876 $ 27,589 $ 24,646
======== ======== ========
Net income per common share--basic and diluted............... $ 36.11 $ 29.56 $ 26.35
======== ======== ========
Weighted average common shares outstanding--basic and diluted 933,480 927,717 928,792
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
(Dollars in thousands)
Non- Accumulated Total
Voting Voting Other Stock-
Preferred Common Common Undivided Comprehensive holders'
Stock Stock Stock Surplus Profits Income(Loss) Equity
--------- ------ ------ ------- --------- ------------- --------
Balance at December 31, 1998................. $3,282 $182 $4,426 $55,000 $102,888 $ 8,397 174,175
Comprehensive income:........................
Net income................................... 24,646
Change in unrealized gain on investment
securities available-for-sale, net of
benefit of $2,542.......................... (4,728)
Total comprehensive income................... 19,918
Stock issued in acquisition.................. 171 10,081 10,252
Reacquired voting common stock............... (66) (4,035) (4,101)
Preferred stock dividends.................... (171) (171)
------ ---- ------ ------- -------- ------- --------
Balance at December 31, 1999................. 3,282 182 4,531 65,081 123,328 3,669 200,073
Comprehensive income:........................
Net income................................... 27,589
Change in unrealized gain on investment
securities available-for-sale, net of
taxes of $4,599............................ 8,541
Total comprehensive income................... 36,130
Reacquired preferred stock................... (63) (10) (73)
Reacquired voting common stock............... (32) (1,561) (1,593)
Common stock dividends....................... (675) (675)
Preferred stock dividends.................... (169) (169)
------ ---- ------ ------- -------- ------- --------
Balance at December 31, 2000................. 3,219 182 4,499 65,081 148,502 12,210 233,693
Comprehensive income:........................
Net income................................... 33,876
Change in unrealized gain on investment
securities available-for-sale, net of taxes
of $3,981.................................. 7,394
Total comprehensive income................... 41,270
Reacquired preferred stock................... (18) (1) (19)
Reacquired voting common stock............... (51) (2,914) (2,965)
Common stock dividends....................... (898) (898)
Preferred stock dividends.................... (166) (166)
------ ---- ------ ------- -------- ------- --------
Balance at December 31, 2001................. $3,201 $182 $4,448 $65,081 $178,399 $19,604 $270,915
====== ==== ====== ======= ======== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net income................................................. $ 33,876 $ 27,589 $ 24,646
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 8,599 7,623 5,546
Depreciation and amortization............................. 17,961 14,510 13,159
(Accretion) amortization of investment securities......... 1,263 (1,666) 662
Deferred income tax benefit............................... (2,637) (2,051) (2,435)
Gains on sales of premises and equipment.................. (487) (91) (261)
(Increase) decrease in interest receivable................ 4,102 (8,978) 649
Increase (decrease) in interest payable................... (3,345) 5,672 1,606
Origination of mortgage loans held-for-sale............... (307,248) (113,187) (141,118)
Proceeds from sales of mortgage loans held-for-sale....... 267,857 110,528 149,860
Gains on sales of mortgage loans held-for-sale............ (1,048) (857) (667)
Gain on call or sale of investment securities............. (4,947) (31) (8)
(Increase) decrease in other assets....................... 155 (893) (4,247)
(Decrease) increase in other liabilities.................. (4,237) 3,113 2,973
--------- --------- ---------
Net cash provided by operating activities.................. 9,864 41,281 50,365
Cash flows from investing activities:
Net increase in loans..................................... (145,314) (161,390) (228,276)
Calls, maturities and prepayments of investment securities
held-to-maturity........................................ 13,941 9,049 400,946
Purchases of investment securities held-to-maturity....... (4,994) (205) (332,083)
Calls, maturities and prepayments of investment securities
available-for-sale...................................... 461,460 282,085 7,684
Purchases of securities available-for-sale................ (614,584) (453,619) (1,060)
Proceeds from sales of premises and equipment............. 4,643 121 4,373
Purchases of premises and equipment....................... (14,696) (11,409) (15,685)
(Increase) decrease in other real estate owned............ (497) (72) 327
Increase in intangible assets............................. (2,666) (840) (1,098)
Purchase of institutions, net of cash acquired............ 40,464 146,256 8,345
--------- --------- ---------
Net cash used by investing activities...................... (262,243) (190,024) (156,527)
Cash flows from financing activities:
Net increase in deposits.................................. 414,395 76,767 93,734
Increase in federal funds purchased and securities sold
under agreements to repurchase.......................... (155,195) 138,314 26,202
Cash dividends paid....................................... (1,064) (844) (171)
Cash paid to reacquire preferred stock.................... (19) (73) --
Cash paid to reacquire common stock....................... (2,965) (1,593) (4,101)
--------- --------- ---------
Net cash provided by financing activities.................. 255,152 212,571 115,664
Net Increase in cash and due from banks.................... 2,773 63,828 9,502
Cash and cash equivalents due from banks at beginning of
year...................................................... 253,125 189,297 179,795
--------- --------- ---------
Cash and cash equivalents due from banks at end of year.... $ 255,898 $ 253,125 $ 189,297
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 104,125 $ 92,690 $ 77,251
========= ========= =========
Income taxes paid......................................... $ 18,612 $ 14,949 $ 17,316
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
32
FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC. AND SUBSIDIARIES
("Bancorporation") FIRST CITIZENS BANCORPORATION OF SOUTH CAROLINA, INC.
("Parent")
FIRST-CITIZENS BANK AND TRUST COMPANY OF SOUTH CAROLINA AND SUBSIDIARY ("Bank")
THE EXCHANGE BANK OF SOUTH CAROLINA ("Exchange")
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations:
First Citizens Bancorporation of South Carolina, Inc. ("Bancorporation") is
a two-bank financial holding company whose principal subsidiaries are
First-Citizens Bank and Trust Company of South Carolina ("First Citizens" or
"the Bank") and The Exchange Bank of South Carolina, Inc. ("Exchange"). First
Citizens is chartered under the laws of South Carolina to engage in general
banking business.
Founded in 1964, First Citizens offers a complete array of services in
commercial and retail banking through its 145 offices in 94 communities in
South Carolina. The Bank provides a full range of financial services including
accepting deposits, corporate cash management, discount brokerage, IRA plans,
trust services and secured and unsecured loans. Trust services provide estate
planning, estate and trust administration, IRA trust and personal investment,
and pension and profit sharing administration. The Bank also originates and
services mortgage loans and provides financing for small businesses.
Founded in 1932, Exchange is a community-oriented financial institution
which offers a variety of financial services through its four branches in
Williamsburg and Georgetown counties in South Carolina. Exchange provides many
traditional commercial and consumer banking services with its principal
activities taking demand and time deposits and making secured and unsecured
loans.
The accounting and reporting policies of Bancorporation conform to generally
accepted accounting principles in all material respects.
Note 1--Summary of significant accounting policies (Dollars in thousands)
Principles of consolidation and basis of presentation:
The consolidated financial statements include the accounts of First Citizens
Bancorporation of South Carolina, Inc., its wholly-owned subsidiaries,
First-Citizens Bank and Trust Company of South Carolina (and its wholly-owned
subsidiary, Wateree Enterprises, Inc.), Exchange and FCB/SC Capital Trust I,
(collectively "Bancorporation"). All significant intercompany accounts and
transactions have been eliminated.
Assets held by the Bank in trust or in other fiduciary capacities are not
assets of the Bank and are not included in the accompanying consolidated
financial statements. Certain amounts in prior years have been reclassified to
conform to the 2001 presentation.
Use of estimates:
In preparing the consolidated financial statements, management is required
to make estimates based on available information which can affect the reported
amounts of assets and liabilities as of the balance sheet date and revenues and
expenses for the related periods. Due to the inherent uncertainties associated
with any estimation process and due to possible future changes in market and
economic conditions, it is possible that actual future results could differ
from the amounts reflected in the consolidated financial statements.
Acquisitions and Intangible Assets:
Bancorporation accounts for its acquisitions using the purchase method of
accounting. When applying purchase accounting, net assets of entities acquired
in purchase transactions are recorded at fair value at the date
33
of acquisition. The reported income of Bancorporation includes the operations
of the acquired company after acquisition. Identified intangibles from
acquisitions are amortized on straight-line basis over the period benefited,
primarily five years. Goodwill is amortized on a straight-line basis over a
period not to exceed 15 years. The recoverability of goodwill and other
intangibles is evaluated if events or circumstances indicated a possible
impairment. Such evaluation is based on various analyses, including
undiscounted cash flow projections. Amortization of intangible assets was
$9,852 and $5,925 for the year ended December 31, 2001 and 2000, respectively.
Investment securities:
Bancorporation defines held-to-maturity securities as debt securities, which
management has the positive intent and ability to hold to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts. Available-for-sale securities are defined
as equity securities and debt securities not classified as trading securities
or held-to-maturity securities. Available-for-sale securities are recorded at
fair value with unrealized holding gains and losses, net of deferred taxes, and
are reported as a separate component of shareholders' equity as accumulated
other comprehensive income. Bancorporation determines the appropriate
classification of debt securities at the time of purchase. The cost of
securities is based on the specific identification method.
Loans and the allowance for loan losses:
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," requires
loans to be measured for impairment when it is probable that all amounts,
including principal and interest, will not be collected in accordance with the
contractual terms of the loan agreement. Bancorporation measures impairment
based on discounted expected cash flows on a loan by loan basis.
Loans are recorded at their principal amount outstanding. Interest is
accrued and recognized in operating income based upon the principal amount
outstanding. Loan origination fees and direct loan origination costs are
deferred and amortized over the estimated lives of the related loans as an
adjustment to yield.
In many lending transactions, collateral is obtained to provide an
additional measure of security. Generally, the cash flow and earning power of
the borrower represent the primary source of repayment and collateral is
considered as an additional safeguard on an acceptable risk. The need for
collateral is determined on a case-by-case basis after considering the current
and prospective credit worthiness of the borrower, terms of the lending
transaction and economic conditions.
The accrual of interest is generally discontinued, except for installment
and credit card loans, when substantial doubt exists as to the collectibility
of principal and interest or when a loan is 90 days past due as to interest or
principal. Generally, accrual of income on installment and credit card loans is
discontinued and the loans are charged off after a delinquency of 120 days for
unsecured loans and 180 days for secured loans and credit card loans.
All, or portions of loans considered uncollectable are charged to the
allowance for loan losses. The allowance for loan losses is maintained at a
level which is considered adequate to provide for losses inherent in the loan
portfolio based upon management's evaluation of known and inherent risk
characteristics, the fair value of underlying collateral, recent loan loss
experience, current economic conditions and other pertinent factors. A
provision for loan losses is charged to operations based on management's
periodic evaluation of these risks.
Mortgage banking activities:
Mortgage loans held-for-sale are stated at the lower of aggregate cost or
market, net of discounts and deferred loan fees and are included in loans in
the Consolidated Statements of Condition. Nonrefundable deferred
34
origination fees and costs and discount points collected at loan closing, net
of commitment fees paid, are deferred and recognized at the time of sale of the
mortgage loans. Gain or loss on sales of mortgage loans is recognized based
upon the difference between the selling price and the carrying amount of the
mortgage loans sold. Other fees earned during the loan origination process are
also included in net gain or loss on sales of mortgage loans.
After a transfer of loans held-for-sale to a third party under a sale
contract, in accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
Bancorporation recognizes the Mortgage Servicing Rights ("MSRs") it controls
and derecognizes the loans held-for-sale when control has been surrendered. Any
other related financial assets and liabilities would be recognized at that
point as well. Currently, all transfers of loans held-for-sale are accounted
for as sales of those assets as control is surrendered to a third party.
MSRs are included in intangible assets in the Consolidated Statements of
Condition. The amount capitalized is determined by allocating the carrying
amount between the loans and MSRs based on their relative fair value.
Amortization of the capitalized MSRs is based on a method which approximates
the proportion of current net servicing income to the total estimated net
servicing income expected to be recognized over the average remaining lives of
the underlying loans. Capitalized MSRs are assessed for impairment based on
their fair values.
Premises and equipment:
Bank premises and equipment are reported at cost less accumulated
depreciation. Depreciation is included in noninterest expense over the
estimated useful lives of the assets (generally twenty to thirty-nine years for
buildings and improvements, and three to ten years for furniture and
equipment). Leasehold improvements are capitalized and amortized to noninterest
expense over the terms of the leases or the estimated useful lives of the
improvements, whichever is shorter. Depreciation and amortization are
calculated using straight-line methods. Maintenance, repairs and minor
improvements are included in noninterest expense as incurred. Major
improvements are capitalized. Gains or losses upon retirement or other
dispositions are included in the results of operations.
Other real estate owned:
Other real estate owned consists of real property acquired through
foreclosure and is carried at the lower of (1) the recorded amount of the loan
for which the foreclosed property previously served as collateral, or (2) the
current fair value of the property, minus estimated selling costs. Subsequent
to foreclosure, gains or losses on the sales or the periodic revaluation of
other real estate owned are credited or charged to expense. Net costs of
maintaining and operating foreclosed properties are expensed as incurred.
Securities sold under agreements to repurchase:
Securities sold under agreements to repurchase represent overnight
borrowings with the Bank's customers and are secured by investment securities.
Income taxes:
Bancorporation recognizes deferred tax assets and liabilities for the
expected future tax consequences of the temporary differences between the
carrying amounts and tax bases of assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be realized or settled.
Statement of cash flows:
For purposes of the Consolidated Statements of Cash Flows, Bancorporation
has defined cash on hand, amounts due from banks and federal funds sold as cash
and cash equivalents.
35
Earnings per share:
Earnings per share are computed by dividing net income less preferred
dividends by the weighted average number of voting and non-voting common shares
outstanding. As Bancorporation has no dilutive securities, there is no
difference between diluted and basic EPS.
Segment information:
During the year ended December 31, 1998, Bancorporation adopted SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information". SFAS
No. 131 requires that public entities report certain information about
operating segments in their annual financial statements and in condensed
financial statements of interim periods issued to shareholders. It also
requires that public entities disclose information about products and services
provided by significant segments, geographic areas and major customers,
differences between the measurements used in reporting segment information and
those used in the entity's general-purpose financial statements, and changes in
the measurement of segment amounts from period to period.
Operating segments are components of an entity about which separate
financial information is available and is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources in evaluating
performance. Bancorporation has determined that its one operating segment is
providing general financial services to customers located in South Carolina.
The various products are those generally offered by community banks and the
allocation of resources is based on the overall performance of the institution,
versus individual branches or products.
Note 2--Acquisitions (Dollars in thousands)
Four branch locations were acquired during 2001 from other South Carolina
financial institutions. Bancorporation acquired deposits of $45,330, loans of
$209 and intangible assets of $3,786 in connection with this acquisition. In
2000, eleven branch locations were acquired in three separate transactions from
other South Carolina financial institutions. Bancorporation acquired deposits
of $256,429, loans of $66,039 and intangible assets of $38,771 in connection
with these acquisitions. These acquisitions were accounted for under the
purchase method of accounting.
Note 3--Cash and due from banks (Dollars in thousands)
The Bank is required to maintain reserve balances with the Federal Reserve,
or in vault cash. As of December 31, 2001, the average required reserve balance
was $39,197, compared to $35,318 as of December 31, 2000. Of this amount,
$33,551 and $30,702 was met by vault cash and $5,646 and $4,616 was held with
the Federal Reserve at December 31, 2001 and 2000, respectively. As of December
31, 2001 and 2000 approximately $6,595 in cash and due from bank balances was
restricted in use as compensating balances with other financial institutions.
Note 4--Investment securities (Dollars in thousands)
The amortized cost and the estimated fair value of investment securities
held-to-maturity and available-for-sale and their respective contractual
maturities at December 31, 2001 and 2000 are presented below. Actual maturities
may differ from contractual maturities or maturities shown below.
36
Note 4--Investment securities (continued)
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
Held-To-Maturity At December 31, 2001:
U. S. Government obligations:
Within 1 year........................................ $ 1,750 $ 25 $ -- $ 1,775
After 1 year but within 5 years...................... 6,200 127 -- 6,327
After 5 years but within 10 years.................... -- -- -- --
-------- ------- ---- --------
Total............................................. 7,950 152 -- 8,102
State and political subdivisions:
Within 1 year........................................ 2,405 13 -- 2,418
After 1 year but within 5 years...................... 10,550 221 -- 10,771
After 5 years but within 10 years.................... 609 26 -- 635
After 10 years....................................... -- -- -- --
-------- ------- ---- --------
Total............................................. 13,564 260 -- 13,824
Other securities:
Within 1 year........................................ 2 -- 2 --
After 1 year but within 5 years...................... 50 -- 1 49
After 5 years but within 10 years.................... -- -- -- --
After 10 years....................................... 1,743 18 7 1,754
-------- ------- ---- --------
Total............................................. 1,795 18 10 1,803
-------- ------- ---- --------
Total Held-To-Maturity At December 31, 2001....... $ 23,309 $ 430 $ 10 $ 23,729
======== ======= ==== ========
Available-for-Sale at December 31, 2001:
U. S. Government obligations:
Within 1 year........................................ $302,220 $ 6,426 $ -- $308,646
After 1 year but within 5 years...................... 532,563 7,056 285 539,334
-------- ------- ---- --------
Total............................................. 834,783 13,482 285 847,980
Other securities:.....................................
After 5 years but within 10 years.................... 3,292 51 4 3,339
After 10 years....................................... 2,428 -- 11 2,417
-------- ------- ---- --------
Total............................................. 5,720 51 15 5,756
-------- ------- ---- --------
Marketable equity securities......................... $ 5,773 $17,366 $429 $ 22,710
-------- ------- ---- --------
Total Available-for-Sale At December 31, 2001..... $846,276 $30,899 $729 $876,446
======== ======= ==== ========
Held-To-Maturity At December 31, 2000:
U. S. Government obligations:
Within 1 year........................................ $ 5,999 $ -- $ 10 $ 5,989
After 1 year but within 5 years...................... 3,953 23 26 3,950
After 5 years but within 10 years.................... 500 -- 8 492
-------- ------- ---- --------
Total............................................. 10,452 23 44 10,431
State and political subdivisions:
Within 1 year........................................ 2,921 7 -- 2,928
After 1 year but within 5 years...................... 11,438 69 9 11,498
After 5 years but within 10 years.................... 3,755 70 5 3,820
After 10 years....................................... 4,709 -- -- 4,709
-------- ------- ---- --------
Total............................................. 22,823 146 14 22,955
Other securities:
Within 1 year........................................ 5 -- 4 1
After 1 year but within 5 years...................... 5 -- 2 3
After 5 years but within 10 years.................... 50 -- 2 48
After 10 years....................................... 184 16 -- 200
-------- ------- ---- --------
Total............................................. 244 16 8 252
-------- ------- ---- --------
Total Held-To-Maturity At December 31, 2000....... $ 33,519 $ 185 $ 66 $ 33,638
======== ======= ==== ========
37
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
Available-for-Sale at December 31, 2000:
U. S. Government obligations:
Within 1 year........................................ $332,693 $ 795 $ 195 $333,293
After 1 year but within 5 years...................... 339,236 2,737 47 341,926
-------- ------- ------ --------
Total............................................. 671,929 3,532 242 675,219
State and political subdivisions:
After 5 years but within 10 years..................... 465 23 -- 488
Marketable equity securities......................... $ 15,813 $16,606 $1,126 $ 31,293
-------- ------- ------ --------
Total Available-for-Sale At December 31, 2000..... $688,207 $20,161 $1,368 $707,000
======== ======= ====== ========
Investment securities with an amortized cost of $704,166 and $579,551 at
December 31, 2001 and 2000, respectively, were pledged to secure public
deposits as collateral for securities sold under agreements to repurchase, and
for other purposes as required by law.
The components of other comprehensive income or loss are summarized below
for the years ended December 31:
Before 2001 Tax After Before 2000 Tax After Before 1999 Tax After
Tax (Expense) Tax Tax (Expense) Tax Tax (Expense) Tax
Amount or Benefit Amount Amount or Benefit Amount Amount Benefit Amount
------- ---------- ------- ------- ---------- ------ ------- --------- -------
Unrealized gains (losses) arising during
period.................................... $16,322 $(5,712) $10,610 $13,148 $(4,602) $8,546 $(7,262) $2,543 $(4,719)
Less: reclassification adjustment for gains
realized in net income.................... (4,947) 1,731 (3,216) (8) 3 (5) (8) (1) (9)
------- ------- ------- ------- ------- ------ ------- ------ -------
Other comprehensive income................. $11,375 $(3,981) $ 7,394 $13,140 $(4,599) $8,541 $(7,270) $2,542 $(4,728)
======= ======= ======= ======= ======= ====== ======= ====== =======
Note 5--Loans (Dollars in thousands)
Gross loans are composed of the following:
As of December 31,
---------------------
2001 2000
---------- ----------
Real estate--construction........................ $ 101,221 $ 44,910
Real estate--mortgage............................ 1,387,940 1,305,971
Installment loans to individuals................. 504,141 474,848
Commercial, financial and agricultural........... 268,981 256,142
---------- ----------
Total..................................... $2,262,283 $2,081,871
========== ==========
Note 6--Allowance for loan losses (Dollars in thousands)
Activity in the allowance for loan losses is summarized as follows:
As of December 31,
-------------------------
2001 2000 1999
------- ------- -------
Balance at beginning of year.............. $37,001 $32,972 $28,306
Loans charged off......................... (6,640) (5,574) (3,383)
Recoveries on loans previously charged off 1,299 1,411 1,390
Provision for loan losses................. 8,599 7,623 5,546
Addition related to acquisition........... -- 569 1,113
------- ------- -------
Balance at end of year.................... $40,259 $37,001 $32,972
======= ======= =======
38
Impaired loans are loans for which it is probable that all amounts,
including principal and interest, will not be collected in accordance with the
contractual terms of the loan agreement. Loans that were considered impaired
under SFAS No. 114 at December 31, 2001 and 2000 held by Bancorporation, are
summarized below:
December 31,
-------------
2001 2000
------ ------
Nonaccrual loans................................. $5,138 $5,288
Other real estate owned.......................... 720 223
------ ------
Total nonperforming assets....................... $5,858 $5,511
====== ======
Loans past due 90 days or more................... $3,935 $3,613
------ ------
Average investment in impaired loans............. $5,189 $4,272
====== ======
At December 31, 2001 and 2000, Bancorporation did not have any loans for
which terms had been modified in troubled debt restructurings. Interest income,
which would have been recorded pursuant to the original terms of nonaccrual
loans was minimal.
Note 7--Premises and equipment (Dollars in thousands)
Premises and equipment are summarized as follows:
As of December 31,
------------------
2001 2000
-------- --------
Land........................................... $ 32,818 $ 31,339
Buildings and improvements..................... 63,709 65,200
Furniture and equipment........................ 37,379 60,601
Leasehold improvements......................... 1,344 1,434
Construction in progress....................... 11,083 8,431
-------- --------
Total................................... 146,333 167,005
Less: Accumulated depreciation and amortization (48,836) (73,727)
-------- --------
Total premises and equipment............ $ 97,497 $ 93,278
======== ========
Provisions for depreciation included in noninterest expense were $7,401,
$7,861 and $7,736 for the year ended December 31, 2001, 2000 and 1999,
respectively, and are included in noninterest expense.
Bancorporation has entered into various noncancellable operating leases for
land and buildings used in its operations. The leases expire over the next 25
years, and most contain renewal options from 1 to 25 years. Certain leases
provide for periodic rate negotiation or escalation. The leases generally
provide for payment of property taxes, insurance and maintenance costs by
Bancorporation. Rental expense, including month-to-month leases, reported in
noninterest expense was $906, $761, and $697 for the years ended December 31,
2001, 2000, 1999, respectively. There are no contingent rentals, and the
expense was offset by sublease rental income of $1,015, $1,266, and $1,138 for
the years ended December 31, 2001, 2000, and 1999, respectively.
At December 31, 2001 future minimum rental commitments under noncancellable
operating leases that have a remaining life in excess of one year are
summarized as follows:
2002....................................................... $ 746
2003....................................................... 644
2004....................................................... 333
2005....................................................... 191
2006....................................................... 119
2007 and thereafter........................................ 166
------
Total minimum obligation............................ $2,199
======
39
Note 8--Deposits (Dollars in thousands)
Deposits and related interest expense are summarized as follows:
Interest Expense
Deposits December 31, Year Ended December 31,
---------------------- -----------------------
2001 2000 2001 2000 1999
---------- ---------- ------- ------- -------
Demand.................................... $ 507,930 $ 467,155 $ -- $ -- $ --
Savings:
NOW accounts............................. 953,369* 655,217 16,559 9,924 9,536
Market Rate accounts..................... 312,684 300,166 6,900 9,331 10,076
Other.................................... 12,581 12,892 223 305 372
Time:
Certificates of deposit in excess of $100
thousand............................... 232,686 193,323 9,173 9,348 6,353
Other certificates of deposit............ 995,704 926,476 55,314 46,064 33,488
---------- ---------- ------- ------- -------
Total.................................. $3,014,954 $2,555,229 $88,169 $74,972 $59,825
========== ========== ======= ======= =======
- --------
* $226,096 formerly classified as securities sold under agreements to
repurchase were reclassified to deposits at the beginning of February 2001.
Note 9--Income taxes (Dollars in thousands)
The components of consolidated income tax expense (benefit) are as follows:
For the Year Ended December 31,
------------------------------
2001 2000 1999
------- ------- -------
Taxes currently payable:
Federal............................................ $17,316 $15,265 $14,311
State.............................................. 1,447 1,239 1,069
------- ------- -------
18,763 16,504 15,380
------- ------- -------
Deferred income taxes:
Federal............................................ (2,637) (2,051) (2,435)
State.............................................. -- -- --
------- ------- -------
(2,637) (2,051) (2,435)
------- ------- -------
Total Income Tax Expense............................. $16,126 $14,453 $12,945
======= ======= =======
40
The significant components of Bancorporation's deferred tax liabilities and
assets recorded pursuant to SFAS No. 109, which are included in "Other assets"
in the Consolidated Balance Sheet, are as follows:
As of December 31,
-----------------------
2001 2000 1999
------- ------- -------
Deferred tax liabilities:
Deferred loan fees and costs........................ $ -- $ 209 $ 929
Accretion........................................... 115 382 293
Pension costs....................................... 2,984 2,417 2,055
Mark-to-market of equity securities................. 10,556 6,576 1,870
Other, net.......................................... 838 725 200
------- ------- -------
Total deferred tax liabilities..................... 14,493 10,309 5,347
Deferred tax assets:
Book depreciation over tax.......................... 351 543 1,107
Allowance for loan losses........................... 14,327 12,923 11,380
Net operating loss carryforwards.................... 119 197 275
Employee benefits................................... 1,261 908 921
Amortization........................................ 8,609 7,160 6,047
Other, net.......................................... 1,044 1,139 833
------- ------- -------
Total deferred tax assets........................... 25,711 22,870 20,563
------- ------- -------
Net deferred tax asset.............................. $11,218 $12,561 $15,216
======= ======= =======
Bancorporation has no valuation allowance for deferred tax assets based on
management's belief that it is more likely than not that the deferred tax
assets will be realized. Total income tax expense differs from the amount of
income tax determined by applying the U. S. statutory federal income tax rate
(35%) to pretax income as a result of the following differences:
For the Year Ended December 31,
------------------------------
2001 2000 1999
------- ------- -------
Tax expense at statutory rate................ $17,501 $14,715 $13,157
Increase (decrease) in taxes resulting from:
Non-taxable income on investments.......... (1,473) (942) (894)
State income taxes, net of federal income
tax benefit............................... 941 805 695
Other, net................................. (843) (125) (13)
------- ------- -------
$16,126 $14,453 $12,945
======= ======= =======
Note 10--Mortgage servicing activity (Dollars in thousands)
Bancorporation's mortgage servicing portfolio approximated $780,268 and
$688,799 at December 31, 2001 and 2000, respectively. Loans serviced for
unrelated third parties are not included in the accompanying consolidated
financial statements.
Bancorporation has issued mortgage-backed securities guaranteed by GNMA
under the provisions of the National Housing Act. The issuance of these
securities, and the simultaneous placement of the related mortgages in trust,
have been accounted for as sales of the related mortgages. The outstanding
balances of the securities and the related mortgages held in trust of, $5,281
and $6,717 at December 31, 2001 and 2000, respectively, are not considered to
be assets or liabilities of the Bancorporation and, accordingly, are not
included in the consolidated financial statements.
41
Note 11--Long-term debt (Dollars in thousands, except par value)
Components of long-term debt as of December 31 were as follows:
2001 2000
------- -------
Guaranteed Preferred Beneficial Interest in
Bancorporation's Junior Subordinated Deferrable
Interest Debenture 8.25%, due March 15, 2028... $50,000 $50,000
7.50% maturing August 20, 2004.................. 90 90
7.75% maturing August 20, 2009.................. 873 873
A committed unsecured revolving line of credit was established in 1997 with
an unrelated financial institution and provides an interest rate indexed to the
London Interbank Offered Rate ("LIBOR") plus 70 basis points. This line of
credit contains certain restrictive covenants including limits on indebtedness,
encumbrances, dividends and minimum net worth. Bancorporation was in compliance
with the covenants at December 31, 2001 and 2000, respectively. The line of
credit outstanding was not in use as of December 31, 2001 and 2000,
respectively. The line of credit expires on December 19, 2003.
FCB/SC Capital Trust I, a statutory business trust (the "Trust") created by
Bancorporation, had outstanding at December 31, 2001, $50,000 (par value
$50,000) of 8.25% Capital Securities which will mature on March 15, 2028 (the
"Capital Securities"). The principal assets of the Trust are $51,547 of
Bancorporation's 8.25% Junior Subordinated Deferrable Interest Debentures which
will mature on March 15, 2028. The balance of the securities can be prepaid,
subject to possible regulatory approval, in whole or part at any time on or
after march 15, 2008. Additionally, the Trust has issued $1,547 of Common
Securities to Bancorporation.
The Capital Securities and the Common Securities may be included in Tier 1
capital for regulatory capital adequacy purposes. The obligations of
Bancorporation with respect to the issuance of the Capital Securities and the
Common Securities constitute a full and unconditional guarantee by
Bancorporation of the Trust's obligations with respect to the Capital
Securities and Common Securities. Subject to certain exceptions and
limitations, Bancorporation may elect from time to time to defer subordinated
debenture interest payments, which would result in a deferral of distribution
payments on the related Capital Securities or Common Securities.
Note 12--Stockholders' equity (Dollars in thousands, except per share data)
Each share of voting common and preferred stock is entitled to one vote on
all matters on which stockholders vote. In certain cases, South Carolina law
provides for class voting of shares and for voting rights for non-voting
shares. Dividend rights of each series of preferred stock are cumulative, and
upon liquidation, each preferred stockholder is entitled to payment of par
value for each share owned before any distribution to holders of common stock.
Each series of preferred stock may be redeemed by Bancorporation (all or any
part thereof), at its option, at par or stated value. Par value, number of
shares authorized and outstanding and dividends paid for each series of
redeemable preferred stock at December 31, 2001 and 2000 follows:
Authorized Authorized Cash
Par And Outstanding And Outstanding Dividend
Series Share 2001 Amount 2000 Amount Per Share
- ------ ----- --------------- ------ --------------- ------ ---------
A $ 50 8,305 $ 415 8,305 $ 415 $ 2.50
B 50 11,810 591 11,810 591 2.50
C 20 6,021 120 6,062 121 2.00
E 200 498 100 525 105 10.00
F 50 31,385 1,569 31,565 1,578 2.50
G 50 8,113 406 8,183 409 2.50
------ ------
$3,201 $3,219
====== ======
42
The Bank must obtain written approval from the South Carolina State Board of
Financial Institutions prior to payment of dividends. Bancorporation's
dividends may be restricted by the requirements of the term loan agreement
described in Note 11 which requires that the Bank maintain a regulatory
leverage capital ratio of 4.00%. At December 31, 2001 the Bank's leverage
capital ratio was 6.76%.
Note 13--Employee Benefits (Dollars in thousands)
The Bank has a noncontributory defined benefit pension plan ("the plan")
which covers substantially all of its employees. Retirement benefits under the
plan are based on an employee's length of service and highest average annual
compensation for five consecutive years during the last ten years of
employment. Contributions to the plan are based upon the projected unit credit
actuarial funding method and are limited to the amounts that are currently
deductible for tax reporting purposes.
The following table sets forth the plan's status at:
December 31,
----------------
2001 2000
------- -------
Change in benefit obligation
Benefit obligation at beginning of year...................... $31,285 $30,225
Service cost................................................. 1,397 1,282
Interest cost................................................ 2,482 2,216
Actuarial loss/(gain)........................................ 4,269 (1,137)
Acquisition.................................................. -- --
Benefits paid................................................ (1,238) (1,301)
------- -------
Benefit obligation at end of year............................ 38,195 31,285
Change in plan assets
Fair value of plan assets at beginning of year............... 39,146 35,103
Actual return on plan assets................................. 920 3,647
Employer contribution........................................ 2,364 1,697
Acquisition.................................................. -- --
Benefit paid................................................. (1,238) (1,301)
------- -------
Fair value of plan assets at end of year..................... 41,192 39,146
------- -------
Funded status................................................ 2,997 7,861
Unrecognized prior service cost.............................. 266 449
Unrecognized (gain)/loss..................................... 5,301 (1,412)
------- -------
Net amount recognized........................................ $ 8,564 $ 6,898
======= =======
Weighted-averge assumptions:
Discount rate................................................ 7.75% 7.75%
Expected return on plan assets............................... 8.50% 8.50%
Rate of compensation increase................................ 4.00% 4.00%
43
The following table details the components of pension expense recognized in
Bancorporation's Consolidated Statements of Income:
2001 2000 1999
------- ------- -------
Service costs....................................... $ 1,397 $ 1,282 $ 1,595
Interest costs...................................... 2,482 2,216 2,074
Expected return on plan assets...................... (3,366) (3,011) (2,808)
Amortization of prior service cost.................. 183 183 185
Recognized net actuarial loss....................... -- -- --
------- ------- -------
Net pension expense................................. $ 696 $ 670 $ 1,046
======= ======= =======
Bancorporation has a contributory savings plan covering full-time employees who
elect to participate. Bancorporation matches 100% of the employees'
contribution of up to 3% of compensation and 50% of the employees' contribution
of 4% to 6% of compensation. The matching funds contributed by Bancorporation
are immediately 100% vested. Matching contributions provided by Bancorporation
were $1,309 in 2001, $1,201 in 2000 and $1,054 in 1999 and are included in
salaries and employee benefits expense in the Consolidated Statements of
Income. The Bank and Exchange contributory savings plan merged in 2001.
Effective January 1, 1998, Bancorporation approved a supplemental retirement
plan (the "Plan") for certain members of management. Benefits under the Plan
are based on a percentage of the participant's 1998 salary and will be paid
evenly over a ten-year period after retirement. The present value of the
payments at retirement was determined using a discount rate of 7%, and the
present value of the obligation at retirement totals $3,253.
According to the Plan, if a participant dies before retirement, death
benefits will be paid to the participant's estate for a ten-year period. In the
event of death following retirement, but before the ten-year period payout is
complete, the beneficiary will receive the remaining payments due at the same
monthly rate. If employment is terminated, Bancorporation has no obligation
under the Plan. Bancorporation has the right to terminate the plan at any time.
Costs recognized under the Plan during the year ended December 31, 2001,
2000 and 1999 totaled $537, $522, and $300, respectively, and are included in
salaries and employee benefits in the Consolidated Statements of Income.
Note 14--Commitments, contingencies and financial instruments with off-balance
sheet risk (Dollars in thousands)
Bancorporation does not hold any derivative financial instruments. Financial
instruments with off-balance sheet risk include commitments to extend credit,
standby letters of credit and commitments on mortgage loans held for resale.
Generally, Bancorporation charges a fee to the customer to extend these
commitments as part of its normal banking activities. These fees are initially
deferred and included in loans in the Consolidated Statements of Condition.
Ultimately, such fees are recorded as an adjustment to yield over the related
life of the loan or, if the commitment expires unexercised, recognized in
income upon expiration of the commitment.
A summary of the significant financial instruments with off-balance sheet
risk follows:
Contract Amount at
December 31,
------------------
2001 2000
-------- --------
Commitments to extend credit..................... $530,976 $461,701
Letters of credit and financial guarantees....... 4,894 4,299
-------- --------
Total.......................................... $535,870 $466,000
======== ========
44
Commitments to extend credit are agreements to lend to a borrower as long as
there are no violations of any conditions established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitments do not necessarily
represent future cash requirements. Bancorporation evaluates each borrower's
credit worthiness on a case-by-case basis using the same credit policies for
on-balance sheet financial instruments. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on management's credit
evaluation of the borrower. The type of collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, and income
producing property.
Letters of credit and financial guarantees are conditional commitments
issued by Bancorporation to guarantee the performance of a borrower to a third
party. The evaluations of credit worthiness, consideration of need for
collateral, and credit risk involved in issuing letters of credit are
essentially the same as that involved in extending loans to borrowers.
Most of Bancorporation's business activity is with customers located in
South Carolina. A significant economic downturn in South Carolina could have a
material adverse impact on the operations of Bancorporation. As of December 31,
2001, Bancorporation had no other significant concentrations of credit risk in
the loan portfolio.
Bancorporation is a defendant in litigation arising out of normal banking
activities. In the opinion of management and Bancorporation's counsel, the
ultimate resolution of these matters will not have a material effect on
Bancorporation's financial condition or results of operations.
Note 15--Related Party Transactions (Dollars in thousands)
Bancorporation has, and expects to have in the future, transactions in the
ordinary course of business with its directors, officers, principal
stockholders and their associates on substantially the same terms (including
interest rates and collateral on loans) as those prevailing for comparable
transactions with others. However, subject to the completion of length of
service requirements and credit approval, all employees (except executive
officers) are eligible to receive reduced interest rates on extensions of
credit. The transactions do not involve more than the normal risk of
collectability.
Aggregate balances and activity related to extensions of credit to officers,
directors and their associates were as follows:
December 31,
2001
------------
Balance at beginning of year.................................... $ 5,092
New loans and additions......................................... 125
Payments and other deductions................................... (2,163)
-------
Balance at end of year.......................................... $ 3,054
=======
Bancorporation has a contract with First-Citizens Bank & Trust Company,
Raleigh, North Carolina ("FCBNC") for the purpose of outsourcing data
processing and other services to include item processing, deposits, loans,
general ledger and statement rendering functions. Total expenses incurred under
this contract totaled $10,406, $8,007 and $6,174 for the years ended December
31, 2001, 2000 and 1999, respectively. The contract expired December 31, 2000
and was renewed on January 1, 2001. Bancorporation also has a correspondent
banking relationship with FCBNC which also acts as an investment custodian.
Fees paid for this service were minimal for 2001, 2000 and 1999.
45
Note 16--Disclosure of fair value of financial instruments (Dollars in
thousands)
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments" extends
existing fair value disclosure practices for some instruments by requiring
entities to disclose the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the Consolidated Statements of
Condition.
For Bancorporation, approximately 95% of its assets and liabilities are
considered financial instruments, as defined in SFAS No. 107. Many of
Bancorporation's financial instruments, however, lack an available trading
market as characterized by a willing buyer and willing seller engaging in an
exchange transaction. It is not the intent of Bancorporation to liquidate and
therefore realize the difference between market value and carrying value and,
even if it were, there is no assurance that the estimated market values could
be realized. Therefore, significant estimates and present value calculations
were used by Bancorporation for the purposes of this disclosure. Such estimates
involve judgments as to economic conditions, risk characteristics and future
expected loss experience of various financial instruments and other factors
that cannot be determined with precision. Thus, the information presented is
not particularly relevant to predicting Bancorporation's future earnings or
cash flow.
Following is a description of the methods and assumptions used to estimate
the fair value of each class of Bancorporation's financial instruments:
Cash and short-term investments:
The carrying value is a reasonable estimation of fair value.
Investment securities:
Fair value is based upon quoted market prices, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans:
For certain homogeneous categories of loans such as residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
for other types of loans is estimated by discounting the expected future cash
flows using Bancorporation's current interest rates at which loans would be
made to borrowers with similar credit risk. The fair value of nonaccrual loans
was estimated by discounting expected future cash flows utilizing rates of
returns, adjusted for credit risk and servicing cost commensurate with a
portfolio of nonaccrual loans.
Deposits:
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Federal funds purchased and securities sold under agreements to repurchase:
The carrying value is a reasonable estimation of fair value.
Long-term debt:
Rates currently available to Bancorporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
46
Commitments to extend credit and standby letters of credit:
The fair value of commitments and letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them with the counterparties at the reporting date.
SFAS No. 107 requires entities to disclose the fair value of
off-balance-sheet financial instruments for which it is practical to estimate
fair value. The fair values of commitments to extend credit and standby letters
of credit are generally based upon fees charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing. The estimated fair value of the Bank's
off-balance sheet commitments is nominal since the committed rates approximate
current rates offered for commitments with similar rate and maturity
characteristics and since the estimated credit risk associated with such
commitments is not significant.
The carrying amounts and estimated fair values of Bancorporation's financial
instruments are as follows:
December 31, 2001 December 31, 2000
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Financial assets:
Cash and federal funds sold...................... $ 255,898 $ 255,898 $ 253,125 $ 253,125
Investment securities............................ 899,755 900,175 740,519 740,638
Loans............................................ 2,262,283 2,248,006 2,081,871 2,076,312
Financial liabilities:
Deposits......................................... 3,014,954 3,027,226 2,555,229 2,554,910
Federal funds purchased and securities Sold under
agreements to repurchase....................... 214,023 213,907 369,218 368,689
Long-term debt................................... 50,963 50,276 50,963 50,265
Note 17--Capital matters (Dollars in thousands)
Bancorporation is subject to various regulatory capital requirements
administered by the federal 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 Bancorporation's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, Bancorporation must meet specific capital guidelines that involve
quantitative measures of Bancorporation's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
Bancorporation's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Bancorporation to maintain minimum amounts and ratios of Total and Tier
I capital to risk weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 2001, that Bancorporation meets all
capital adequacy requirements to which it is subject.
47
To be categorized as well-capitalized, Bancorporation must maintain minimum
Total risk-based and Tier I risk-based ratios as set forth in the table below.
There are no conditions or events subsequent to December 31, 2001, that
management believes would change the capital amounts and ratios presented below
for Bancorporation, Bank or Exchange.
To Be Well Capitalized
Under Prompt
For Capital Adequacy Corrective Action
Actual Purposes Provisions
----------------- ------------------- ---------------------
Amount Ratio (%) Amount Ratio (%) Amount Ratio (%)
-------- --------- -------- --------- -------- ---------
As of December 31, 2001:
Total capital to risk weighted assets:
Bancorporation............................ $286,212 12.59% $181,817 8.00% $227,271 10.00%
Bank...................................... 257,215 11.70 175,930 8.00 219,913 10.00
Exchange.................................. 13,501 18.13 5,957 8.00 7,447 10.00
Tier I capital to risk weighted assets:
Bancorporation............................ 257,663 11.33 90,908 4.00 136,362 6.00
Bank...................................... 229,583 10.44 87,965 4.00 131,948 6.00
Exchange.................................. 12,567 16.88 2,979 4.00 4,468 6.00
Tier I capital to average assets:
Bancorporation............................ 257,663 7.34 140,421 4.00 175,526 5.00
Bank...................................... 229,583 6.76 135,868 4.00 169,834 5.00
Exchange.................................. 12,567 12.66 3,972 4.00 4,965 5.00
As of December 31, 2000:
Total capital to risk weighted assets:
Bancorporation............................ $255,245 12.09% $168,547 8.00% $210,684 10.00%
Bank...................................... 215,137 10.72 160,498 8.00 200,623 10.00
Exchange.................................. 11,746 17.57 5,359 8.00 6,699 10.00
Tier I capital to risk weighted assets:
Bancorporation............................ 221,812 10.53 84,273 4.00 126,410 6.00
Bank...................................... 189,926 9.47 80,249 4.00 120,374 6.00
Exchange.................................. 10,905 16.31 2,680 4.00 4,019 6.00
Tier I capital to average assets:
Bancorporation............................ 221,812 7.46 118,914 4.00 148,643 5.00
Bank...................................... 189,926 6.66 114,121 4.00 142,651 5.00
Exchange.................................. 10,905 11.11 3,926 4.00 4,908 5.00
Note 18--Bancorporation (Parent Company information only) (Dollars in thousands)
Bancorporation's principal asset is its investments in its wholly-owned
subsidiaries, the Bank and Exchange, and its principal source of income is
dividends from the Bank. The approval of the South Carolina State Board of
Financial Institutions is required for any dividends declared by a state bank.
48
Bancorporation's condensed balance sheets and the related condensed
statements of income and of cash flows are as follows:
BALANCE SHEET DATA
December 31,
-----------------
2001 2000
-------- --------
Assets:
Cash..................................................... $ 9,354 $ 5,592
Investment in the Bank................................... 296,242 254,146
Other assets............................................. 25,472 33,473
-------- --------
Total assets............................................. $331,068 $293,211
======== ========
Liabilities and Stockholders' Equity:
Long term debt........................................... $ 51,547 $ 51,547
Other liabilities........................................ 8,606 7,971
Stockholders' equity..................................... 270,915 233,693
-------- --------
Total liabilities and stockholders' equity............... $331,068 $293,211
======== ========
INCOME STATEMENT DATA
Year Ended December 31,
-------------------------
2001 2000 1999
------- ------- -------
Income:
Other............................................. $ 4,458 $ 1,032 $ 1,339
------- ------- -------
4,458 1,032 1,339
Expenses:
Interest.......................................... 4,327 4,327 4,278
Other............................................. 4,080 278 170
------- ------- -------
8,407 4,605 4,448
(Loss) income before equity in undistributed
earnings subsidiaries and income taxes........... (3,949) (3,573) (3,109)
Equity in undistributed earnings of the
subsidiaries and associated companies............ 35,877 29,934 26,537
------- ------- -------
Income before income taxes.......................... 31,928 26,361 23,428
Applicable income tax benefit....................... (1,948) (1,228) (1,218)
------- ------- -------
Net Income.......................................... $33,876 $27,589 $24,646
======= ======= =======
49
CASH FLOWS DATA
For the Year Ended December 31,
------------------------------
2001 2000 1999
-------- -------- --------
Cash Flows From Operating Activities:
Net income............................................................. $ 33,876 $ 27,589 $ 24,646
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of the Bank......................... (35,877) (29,934) (26,537)
Decrease (increase) in other assets.................................. 91 43 96
(Decrease) increase in other liabilities............................. 876 (1,096) 154
Other, net........................................................... 94 2,242 8,133
-------- -------- --------
Net cash (used in) provided by Operating Activities.................. (940) (1,156) 6,492
Cash Flows From Investing Activities:
Purchases of held-to-maturity and available-for-sale securities........ (3,081) (115) --
Sales and maturities held-to-maturity and available-for-sale securities 11,598 114 3,794
Payments for investments to subsidiaries............................... -- (6,299) (12,203)
-------- -------- --------
Net cash (used in) provided by Investing Activities.................... 8,517 (6,300) (8,409)
Cash Flows From Financing Activities:
Proceeds from advances from subsidiaries............................... 233 -- --
Repayments of term loan................................................ -- -- --
Purchase of stock...................................................... (2,984) (1,666) (4,101)
Cash dividends paid.................................................... (1,064) (844) (171)
-------- -------- --------
Net cash provided by (used in) Financing Activities.................... (3,815) (2,510) (4,272)
-------- -------- --------
Net (decrease) increase in cash......................................... (3,762) (9,966) (6,189)
Cash at beginning of year............................................... 5,592 15,558 21,747
-------- -------- --------
Cash at end of year..................................................... $ 9,354 $ 5,592 $ 15,558
======== ======== ========
Supplemental disclosure of cash flows information:
Interest paid.......................................................... $ 4,125 $ 4,199 $ 4,125
======== ======== ========
50
FIRST CITIZENS BANCORPORATION BOARD OF DIRECTORS
(Directors of First Citizens Bank are identical to those of First Citizens
Bancorporation)
Jim B. Apple* **
Chairman of the Board, Chief Executive Officer and President
First Citizens Bancorporation of South Carolina, Inc.
Chairman of the Board and Chief Executive Officer
First-Citizens Bank and Trust Company of South Carolina,
Columbia
Richard W. Blackmon* **
Owner
Richard Blackmon Construction Company, Lancaster
Peter M. Bristow*
Executive Vice President and Chief Operating Officer
First Citizens Bancorporation of South Carolina, Inc.
President and Chief Operating Officer
First-Citizens Bank and Trust Company of South Carolina
Columbia
George H. Broadrick***
Retired, Charlotte, NC
Walter C. Cottingham, DVM
Cottingham Veterinary Hospital
Jack M. Edwards
President & Treasurer
Edwards Insurance Agency, Inc.
William E. Hancock, III
President
Hancock Buick Company, Columbia
Robert B. Haynes
Vice President and Secretary
C. W. Haynes and Company, Inc., Columbia
Wycliffe E. Haynes
Vice President and Treasurer
C. W. Haynes and Company, Inc., Columbia
Lewis M. Henderson***
Henderson and Associates, Columbia
Carmen H. Ames
San Francisco, CA
Frank B. Holding* **
Vice Chairman
First Citizens Bancorporation of South Carolina, Inc.
First-Citizens Bank and Trust Company of South Carolina
Executive Vice Chairman
First Citizens BancShares, Inc.
First Citizens Bank and Trust Company, Smithfield, NC
Dan H. Jordan
Farmer, Nichols
N. Welch Morrisette, Jr.
Retired, Columbia
E. Perry Palmer
President
E. P. Palmer Corporation
Palmer Memorial Chapel, Columbia
William E. Sellars*
President
C. W. Haynes and Company, Inc., Columbia
Henry F. Sherrill*
Attorney-at-Law, Columbia
* Member of the Executive Committee, First Citizens Bancorporation and
First Citizens Bank
** Member of the Investment Committee, First Citizens Bank
*** Member of the Audit Committee, First Citizens Bancorporation and First
Citizens Bank
FIRST CITIZENS BANCORPORATION
EXECUTIVE OFFICERS
Jim B. Apple
Chairman/Chief Executive Officer/President
Frank B. Holding
Vice Chairman
Peter M. Bristow
Vice President/Chief Operating Officer
Craig L. Nix
Executive Vice President/Chief Financial Officer
E.W. Wells
Secretary
51