SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended March 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ____________
Commission File Number: 333-4304
FIRST CITIZENS CORPORATION
(Formerly Newnan Holdings, Inc.)
(Exact Name of Small Business Issuer as specified in its Charter)
Georgia 58-2232785
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
19 Jefferson Street, Newnan, Georgia 30263
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770) 253-5017
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $1.00 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES __X__ NO _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's revenues for the fiscal year ended March 31, 1997 were
$21,167,848.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing sales price of the registrant's common stock as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation National Market System under the symbol "FSTC" on May 31, 1997, was
$30,620,150 (1,224,806 shares at $25 per share).
As of June 1, 1997, there were issued and outstanding 1,829,375 shares of the
registrant's Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Shareholders (the "Annual
Report") are incorporated by reference into Parts I and II of this report and
portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
1997 Annual Meeting of Shareholders are incorporated by reference into Part III
of this report.
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TABLE OF CONTENTS
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PART I ............................................................................................................. 4
Item 1. Business................................................................................................ 4
Item 2. Properties.............................................................................................. 20
Item 3. Legal Proceedings....................................................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders..................................................... 22
PART II............................................................................................................... 23
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.............................................................................................. 23
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................................................. 23
Item 7. Consolidated Financial Statements....................................................................... 23
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................................. 23
PART III.............................................................................................................. 25
Item 9. Directors, Executive Officers, Promoter and Control Persons; Compliance
with Section 16(a) of the Exchange Act............................................................... 25
Item 10. Executive Compensation................................................................................. 25
Item 11. Security Ownership of Certain Beneficial Owners and Management......................................... 25
Item 12. Certain Relationships and Related Transactions......................................................... 25
PART IV............................................................................................................... 26
Item 13. Exhibits, List and Reports on Form 8-K................................................................. 26
SIGNATURES............................................................................................................ 28
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PART I
Item 1. Business
General
First Citizens Corporation (the "Company") is a Georgia corporation and a
bank/thrift holding company located on the southside of the Metropolitan Atlanta
area. The Company provides financial services through its three subsidiary
financial institutions (the "Banks") which offer a variety of banking and other
financial services to individuals and businesses. Its market area includes
Coweta, Fayette, Henry, Clayton and Troup Counties, Georgia.
The Company was formed on August 22, 1996 when Newnan Savings Bank, FSB (now
known as First Citizens Bank) reorganized itself into a holding company, Newnan
Holdings, Inc. (now known as First Citizens Corporation). In this
reorganization, each shareholder of Newnan Savings Bank received stock in the
new parent company on a one-for-one basis. At the same time, Newnan Holdings
merged with Southside Financial Group, Inc., the parent company of Citizens Bank
and Trust of Fayette County (now known as First Citizens Bank of Fayette
County), issuing 136,990 shares to Southside shareholders. As of March 31, 1997
the Company acquired all the outstanding stock of Tara Bankshares Corporation,
the parent company of Tara State Bank, issuing 221,773 shares of its stock to
Tara shareholders.
On January 14, 1997 Newnan Holdings, Inc. changed its name to First Citizens
Corporation and Newnan Savings Bank, FSB changed its name to First Citizens
Bank. On February 7, 1997 Citizens Bank and Trust of Fayette County changed its
name to First Citizens Bank of Fayette County. On May 15, 1997, the Tara State
Bank Board of Directors voted to change its name to First Citizens Bank of
Clayton County and that application is currently pending regulatory approval.
First Citizens Bank-Newnan is a federally chartered thrift located in Newnan,
Georgia. It was chartered by the State of Georgia in 1927 as Newnan Building and
Loan and converted to a federal charter in 1955. It maintains a total of seven
offices in Newnan, Peachtree City, LaGrange, and Hogansville, Georgia.
First Citizens Bank of Fayette County is a full-service state chartered
commercial bank located in Fayetteville, Georgia. It was chartered in 1991 and
maintains one office.
Tara State Bank is also a full-service state chartered commercial bank located
in Riverdale, Georgia. It was chartered in 1984 and maintains a branch office in
Jonesboro, Georgia.
The Company offers mortgage banking services through Citizens Mortgage Group,
Inc., an operating subsidiary of First Citizens Bank-Newnan. Citizens Mortgage
Group was organized in 1993 and presently has loan origination offices in
Fayetteville, Stockbridge, and Jefferson, Georgia.
Real estate appraisal services are offered through Newnan Financial Services,
Inc., a wholly owned subsidiary of First Citizens Bank-Newnan. In addition,
through Newnan Financial's subsidiary, Jefferson Ventures, Inc., real estate
development was formerly carried out at White Oak, a golf and lake community in
Newnan Georgia. Currently, Jefferson Ventures is selling its remaining tracts of
undeveloped land.
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Selected Consolidated Financial Data
The information contained in the table captioned "Selected Financial Data" on
page 6 of the Company's Annual Report is incorporated herein by reference.
Lending Activities
Loan Portfolio Analysis. The Company makes real estate-mortgage loans, real
estate-construction loans, commercial loans, and consumer and other loans. Such
loans constituted 60%, 25%, 10% and 5%, respectively, of the Company's total
loans at March 31, 1997 and 87%, 9%, 1% and 3%, respectively, at March
31, 1996. Information with respect to the composition of the Company's loan
portfolio by type of loan is contained on page 13 of the Company's Annual
Report and is incorporated herein by reference. Information with respect to the
dollar amounts of loans maturing in the Company's loan and loans held for sale
portfolio based on contractual terms to maturity is contained on page 13 of
the Company's Annual Report and is incorporated herein by reference.
Residential and Commercial Real Estate Loans. The primary lending activity of
the Company is the granting of conventional loans to enable borrowers to
purchase existing homes. At March 31, 1997, approximately 35.5% of the Company's
total loan portfolio consisted of loans secured by residential dwellings
(excluding loans held for sale).
The Company's lending policies generally limit the maximum loan-to-value ratio
on residential mortgage loans to 95% of the lesser of the appraised value or
purchase price, with the condition that private mortgage insurance be required
on any home loans with loan-to-value ratios in excess of 80%. Nonowner occupied
residential loans are made up to 80% of the lesser of the appraised value or
purchase price. Multifamily residential and commercial real estate loans and
unimproved real estate loans generally do not exceed 75% of value.
The loan-to-value ratio, maturity and other provisions of the loans made by the
Company have generally reflected the policy of making less than the maximum loan
permissible under applicable regulations, in accordance with sound lending
practices, market conditions, and underwriting standards established by the
Company. Mortgage loans made by the Company are generally long-term loans,
amortized on a monthly basis, with principal and interest due each month. The
initial contractual loan payment period for residential loans typically ranges
from 15 to 30 years. The Company's experience indicates that real estate loans
remain outstanding for significantly shorter periods than their contractual
terms. Borrowers may refinance or prepay loans at their option.
For loans held in its portfolio, the Company offers adjustable rate mortgages
that have rate adjustments each year based upon one-year Treasury securities.
The interest rates on these mortgages are adjustable once a year with
limitations on upward adjustments of 2% per year and 6% over the life of the
loan. The Company also offers loans which adjust a maximum 1% per year and 4%
over the life of the loan with an option in which the borrower can convert to a
30 year fixed-rate loan at 1/2% above the market rate at the time of conversion.
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Commercial property loans, including loans secured by multifamily apartment
projects with more than four units, constituted approximately 13% of the
Company's loan portfolio at March 31, 1997. These loans are typically secured by
improved real estate located in the Company's primary lending area. Permanent
commercial loans are made up to 75% of the appraised value of the property and
generally have a 20-year amortization and five-year balloon payment or interest
rates that adjust monthly. Although commercial real estate loans typically have
shorter terms to maturity and higher interest rates than residential mortgage
loans, they also involve greater credit risks than certain residential mortgage
loans. Commercial real estate and construction mortgage loans may involve large
loan balances to single borrowers or to groups of related borrowers. In
addition, payment experience on loans secured by income producing properties is
typically dependent on the successful operation of the properties and thus may
be subject to a greater extent to adverse conditions in the real estate market
or in the economy generally. Although adjustable rate commercial real estate
loans provide certain benefits to the Company's asset/liability management
policy, they also pose potential credit risks to the Company. Specifically, as
interest rates rise, the underlying payment by the borrower also rises,
potentially increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates.
All improved real estate which serves as loan security to the Company must be
insured in the amount, and by such companies as may be approved by the Company,
against fire, extended coverage, vandalism, malicious mischief and other
hazards. Such insurance must be maintained through the entire term of the loan
and in an amount not less than the amount necessary to pay the Company's
indebtedness in full.
Construction Loans. The Company provides construction financing for single
family dwellings. At March 31, 1997, the Company had construction loans (net of
undisbursed amounts) of approximately 25% of total loans outstanding.
The Company's general practice is to provide construction loan financing for a
relatively small number of builder-developers. The Company's policy is to grant
single family construction loans up to 80% of the appraised value for an
individual's personal residence and up to 75% for builders. Construction loans
generally are made for a six-month to one-year term. This period may be extended
subject to negotiation and the payment of an extension fee. Interest rates on
loans made to builders are tied to a published prime rate. The interest rate on
other types of construction loans are also tied to a published prime rate.
Construction financing is generally considered to involve a higher degree of
credit risk than long term financing of residential properties. The risk of loss
on a construction loan is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
and the estimated cost (including interest) of construction. If the estimate of
construction cost and the salability of the property upon completion of the
project prove to be inaccurate, the lender may be required to advance funds
beyond the amount originally committed to permit completion of the development.
If the estimate of value proves to be inaccurate, the lender may be confronted,
at or prior to the maturity of the loan, with a project with a value that is
insufficient to assure full repayment. The Company addresses these risks by
providing advances on construction loans only after the project has been
inspected by a party independent of the lending function. These advances are
computed as a percentage of the loan amount (rather than the builder's out of
pocket costs) and are dependent on the completion of certain phases of
construction. If these advances are not sufficient to enable the builder to make
payment to suppliers and subcontractors, the Company can become aware of such
problems
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through liens placed against the property or by complaints received directly by
the supplier or subcontractor involved. In these instances, the Company can
address the situation by ceasing to advance additional funds until the problem
is resolved, and if necessary, ultimately foreclose on the property.
The Company's underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, the Company considers
evidence of the availability of permanent financing or a takeout commitment to
the borrower, the reputation of the borrower and his or her financial condition,
the amount of the borrower's equity in the project, an independent appraisal and
review of cost estimates, pre-construction sale and leasing information, and
cash flow projections of the borrower. The Company sets a limit for the amount
of speculative construction loans each builder may have outstanding from the
Company. As applications are received from builders for such loans, their total
inventory of speculative loans (from both the Company and other lenders) is
evaluated in terms of both the dollars outstanding and the turnover rate the
builder has experienced on speculative homes built. If judged to be excessive,
the loan is denied.
Commercial Loans. The Company's commercial lending includes loans to smaller
business ventures, credit lines for working capital and short-term seasonal or
inventory financing, as well as occasional letters of credit. Commercial
borrowers typically secure their loans with assets of the business as well as
personal guaranties of their principals, often secured by second mortgages on
their residences. The Company has made a significant amount of commercial loans
which are classified as real estate loans because their security is improved
commercial property, the purchase or improvement of which is often financed with
the loan proceeds. Risks associated with these loans can be significant. Risks
include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral, and changes in interest rates.
The Company sells participation interests in loans to other lenders when a loan
exceeds the Company's legal lending limits or in other cases, typically the
secured portion of a Small Business Administration ("SBA") guaranteed loan, when
the Company deems sale appropriate. Risks associated with SBA loans include, but
are not limited to, credit risk (for example, fraud, bankruptcy, economic
downturn, deteriorated or non-existing collateral and changes in interest rates)
and operational risks (for example, failure of the Company to adhere to SBA
funding and servicing requirements in order to secure and maintain the SBA
guarantees and servicing rights).
Consumer and Other Loans. Federal regulations limit the secured and unsecured
consumer loans made by First Citizens Bank-Newnan, as a federal thrift
institution, to 30% of the institution's assets. In addition, a federal thrift
institution has lending authority above the 30% category for certain consumer
loans, such as home equity loans, property improvement loans, mobile home loans
and loans secured by savings accounts. These percentage-of-assets limitations do
not apply to loans made by First Citizens Bank of Fayette County or by Tara
State Bank. The consumer loans granted by the Company include loans on
automobiles, and other consumer goods, as well as education loans, and loans
secured by savings accounts. The Company generally limits the loan-to-value
ratios on its secured consumer loans to 80%. The Company has originated second
mortgage loans for home improvement and other purposes. These loans generally
have a 15 year amortization and are renegotiable in five years or have a seven
year term with a fixed rate of interest. The Company limits the loan-to-value
ratios on its second mortgage loans to 80%. As of March 31, 1997, consumer loans
(which include second mortgage loans and home improvement loans) and other
secured consumer loans amounted to approximately 7% of the Company's
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total loan portfolio. The Company believes that the shorter term and the
normally higher interest rates available on these types of loans have been
helpful in maintaining profitable spread between the Company's average loan
yield and its cost of funds.
Loan Purchases and Sales. The Company has engaged in selling certain loans it
has originated in the secondary market. Such loans sold are generally
fixed-rate, long term mortgage loans. These sales, which are without recourse,
have been made to the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association, both of which are quasi-governmental agencies
that purchase residential mortgage loans from federally insured financial
institutions and certain other lenders. In connection with such sales, the
Company may retain the servicing of the loans (i.e., collection of principal
and interest payments), for which it generally receives a fee payable
monthly based on the margin between the stated rates of the underlying loans and
the rates paid to the investors in the loans. Additionally, the Company sells
loans to other investors on a servicing-released basis in which an additional
fee is paid by the investor for the transfer of the servicing rights. During the
year ended March 31, 1997, the Company sold $55.7 million of loans as compared
to $44.2 million during the comparable period in 1996.
The sale of loans reduces the Company's risk to an increase in the interest
rates it pays for funds while holding long term, fixed-rate loans in its
portfolio and allows the Company to continue to make loans during periods when
deposit flows decline or funds are not otherwise available for lending purposes.
Loan Origination and Other Fees. In addition to interest earned on loans, the
Company receives loan origination fees or "points" for originating loans. Loan
points are a percentage of the principal amount of the mortgage loan which are
charged to the borrower for creation of the loan. The Financial Accounting
Standards Board in December 1986 issued Statement No. 91 on the accounting for
nonrefundable fees and costs associated with originating or acquiring loans. To
the extent that loans are originated or acquired for the portfolio, the
statement limits immediate recognition of loan origination or acquisition fees
as revenues and requires that such income (net of certain loan origination or
acquisition costs) be deferred and amortized as an adjustment of yield over the
life of the loan using a method which approximates the level yield method. Any
deferred fees may be recognized immediately when the related loan is sold.
The Company's loan origination fees are generally 1% to 1-1/2% on conventional
residential mortgages and 1% to 2% for commercial real estate loans. The total
amount of deferred loan fees at March 31, 1997, was $987,503.
The Company also receives other fees and charges relating to existing loans,
which include prepayment penalties, late charges, and fees collected in
connection with a change in borrower or other loan modifications. These fees and
charges have not constituted a material source of income.
Problem Assets and Their Classification. Information with respect to the
Company's non-performing assets at March 31, 1997, 1996, 1995, 1994 and 1993
is set forth on page 8 in the Company's Annual Report and is incorporated
herein by reference.
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An analysis of the Company's allowance for loan losses for the years ended March
31, 1997, 1996, 1995, 1994, and 1993 is included on page 9 of the Company's
Annual Report and is incorporated herein by reference.
Information with respect to the allocation of the allowance for loan losses by
type of loan as of March 31, 1997 and 1996 is found on page 9 in the
Company's Annual Report and is incorporated herein by reference. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category. The Board of Directors establishes an allowance
for loan losses each year based on recommendations of management. As of March
31, 1997 the allowance for losses on loans was 1.54% of outstanding loans.
Over the years, there has been a greater level of scrutiny by regulatory
authorities of the loan portfolios of financial institutions, undertaken as a
part of the examination of the institutions by the FDIC, OTS, or other federal
or state regulators. Results of examinations indicate that these regulators may
be applying more conservative criteria in evaluating real estate values,
requiring significantly increased provisions for probable loan losses. While the
Company believes it has established its existing allowance for loan losses in
accordance with generally accepted accounting principles at March 31, 1997,
there can be no assurance that regulators, when reviewing the Company's loan
portfolio in the future, will not request the Company to increase its allowance
for loan losses, thereby adversely affecting its earnings.
Investment Activities
Interest income from cash deposits and investment securities generally provide
the second largest source of income for the Company after interest payments on
loans. At March 31, 1997, the Company's investment securities portfolio
consisted primarily of U. S. Government and agency securities, state and
municipal securities, mortgage-backed securities, and equity securities
(primarily stock in the FHLB of Atlanta). For additional information concerning
the Company's investment securities portfolio, see Note 2 of "Notes to
Consolidated Financial Statements" on page 23 of the Company's Annual Report.
The Company is required under federal regulations to maintain a minimum amount
of liquid assets which may be invested in specified short term securities and is
also permitted to make certain other investments. Information with respect to
the Company's liquidity levels is found on page 13 in the Company's Annual
Report and is incorporated herein by reference.
Deposit Activities and Other Sources of Funds
Deposits are the major source of the Company's funds for lending and other
investment purposes. In addition to deposits, the Company derives funds from
loan principal repayments, interest payments, and advances from the FHLB of
Atlanta. Loan repayments and interest payments are a relatively stable source of
funds, while deposit inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings, including
repurchase agreements, may be used on a short term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes.
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A summary of time deposits by maturity as of March 31, 1997 is
incorporated by reference to Note 5 of "Notes to Consolidated Financial
Statements" on page 24 of the Company' s Annual Report.
Borrowings. Deposit accounts are the primary source of funds of the Company's
lending and investment activities and for its other general business purposes.
However, during periods when the supply of lendable funds cannot meet the demand
for such loans, the FHLB System seeks to provide a portion of the funds
necessary through loans (advances) to its members. The FHLB of Atlanta has
served as the primary borrowing source for First Citizens Bank-Newnan and First
Citizens Bank of Fayette County. Advances are made on a secured basis.
The FHLB functions as a central reserve bank providing credit for member
financial institutions. As members, First Citizens Bank-Newnan and First
Citizens Bank of Fayette County are required to own capital stock in the FHLB of
Atlanta and are authorized to apply for advances on the security of such stock
and certain of their home mortgages and other assets (principally, securities
which are obligations of, or guaranteed by, the United States) provided certain
standards related to creditworthiness have been met. Advances are made pursuant
to several different programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of an institution's net worth or
on the FHLB's assessment of the institution's creditworthiness.
Information with respect to short term borrowings can be found on page 13
in the Company's Annual Report and is incorporated herein by reference.
Yields Earned and Rates Paid
The earnings of the Company depend significantly upon the difference between the
income it receives from its loan and investment portfolios and its cost of
money, consisting of the interest paid on deposit accounts and borrowings, if
any.
For yield and rate information, refer to Table 1, "Analysis of Net Interest
Income," on page 6 of the Company's Annual Report which is incorporated herein
by reference.
Information regarding changes in interest income and expense for the Company is
provided in Table 2, "Analysis of Changes in Net Interest Income," on page 6
of the Company's Annual Report and is incorporated herein by reference.
Information with respect to certain performance ratios of the Company for the
years ended March 31, 1997 and 1996 can be found on page 4 of the Company's
Annual Report and is incorporated herein by reference.
Subsidiary Activity
First Citizens Bank-Newnan is permitted to invest an amount equal to 2% of its
assets in its service corporations, with an additional investment of 1% of
assets where such investment serves primarily community, inner-city and
community development purposes. In addition, federal institutions meeting
regulatory capital requirements and certain scheduled items tests may invest up
to 50% of their current
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risk-based capital in conforming first mortgage loans to service corporations.
Under such limitations, at March 31, 1997 First Citizens Bank-Newnan was
authorized to invest up to approximately $9.808 million in the stock of, or
loans to, service corporations. As of March 31, 1997, the net book value of the
Company's investment in stock, loan guarantees, unsecured loans, and loans to
its service corporations under GAAP was approximately $150,000. The Company's
investments in its subsidiaries continues to be less than the limit permitted by
OTS regulations, meeting such limitation by $9.658 million at March 31, 1997.
Newnan has one wholly owned service corporation, Newnan Financial Services, Inc.
Newnan Financial Services owns Jefferson Ventures, Inc., which consists of the
White Oak residential development. White Oak consists of property located in
Coweta County that was acquired in July 1984. This property originally included
approximately 3,500 acres, 150 lots, a 53,000 square foot building, marketable
timber on approximately 1,700 acres of the 3,500 acres, a swimming pool and
tennis courts. This area is a planned housing community with a golf course (36
holes), swimming pool, tennis courts and lakes. Additional information
concerning the Company's real estate development activities is provided on page
10 of the Company's Annual Report and is incorporated herein by reference.
Competition
The Company faces strong competition in the attraction of deposits (its primary
source of lendable funds) and in the origination of loans. Its most direct
competition for deposits and loans has historically come from other financial
institutions in the southern Metropolitan Atlanta area. Particularly in times of
high interest rates, the Company faces additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. The Company's competition for loans comes principally
from other financial institutions, mortgage banking companies and other
providers of financial services.
The Company competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of the services it provides
borrowers, real estate brokers, and home builders. It competes for deposits by
offering depositors a wide variety of accounts, convenient office locations,
tax-deferred retirement programs, and other miscellaneous services.
Personnel
As of March 31, 1997 the Company had 138 full-time equivalent employees. The
employees are not represented by a collective bargaining agreement. The Company
believes its employee relations are good.
Strategic Plan
A substantial portion of the growth of the Company during fiscal 1997 has been
through the acquisition of other financial institutions. As part of its ongoing
strategic plan, the Company continually evaluates business combination
opportunities and frequently conducts due diligence activities in connection
with possible business combinations. As a result, business combination
discussions and, in some case, negotiations take place, and future business
combinations involving cash, debt, or equity securities can be expected. Any
future business combination or series of business combinations that the Company
might undertake may be material, in terms of assets acquired or liabilities
assumed, to the Company's financial
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condition. Recent business combinations in the banking industry have typically
involved the payment of a premium over book and market values. This practice
could result in dilution of book value and net income per share for the
acquirer. It is the Company's practice to avoid possible dilution except where
projections indicate a relatively short pay back period.
Forward Looking Statements
This Annual Report on Form 10-KSB, other periodic reports filed by the Company
under the Securities Exchange Act of 1934, as amended, and any other written or
oral statements made by or on behalf of the Company may include forward looking
statements which reflect the Company's current views with respect to future
events and financial performance. Such forward looking statements are based on
general assumptions and are subject to various risks, uncertainties, and other
factors that may cause actual results to differ materially from the views,
beliefs, and projections expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to:
(a) Possible changes in economic and business conditions that may
affect the prevailing interest rates, the prevailing rates of inflation, or
the amount of growth, stagnation, or recession in the global, U.S., and
southeastern U.S. economies, the value of investments, collectability of
loans, and the profitability of business entities;
(b) Possible changes in monetary and fiscal policies, laws, and
regulations, and other activities of governments, agencies, and similar
organizations;
(c) The effects of easing of restrictions on participants in the
financial services industry, such as banks, securities brokers and dealers,
investment companies, and finance companies, and attendant changes in
patterns and effects of competition in the financial services industry.
(d) The cost and other effects of legal and administrative cases and
proceedings, claims, settlements, and judgments;
(e) The ability of the Company to achieve the earnings expectations
related to the acquired operations of recently-completed and pending
acquisitions, which depends on a variety of factors, including (i) the
ability of the Company to achieve the anticipated cost savings and revenue
enhancements with respect to the acquired operations, (ii) the assimilation
of the acquired operations to the Company's corporate culture, including
the ability to instill the Company's credit practices and efficient
approach to the acquired operations, (iii) the continued growth of the
markets in which the Company operates consistent with recent historical
experience, (iv) the absence of material contingencies related to the
acquired operations, including asset quality and litigation contingencies,
and (v) the Company's ability to expand into new markets and to maintain
profit margins in the face of pricing pressures.
The words "believe", "expect", "anticipate", "project", and similar expressions
signify forward looking statements. Readers are cautioned not to place undue
reliance on any forward looking statements made by or on behalf of the Company.
Any such statement speaks only as of the date the statement was made. The
Company undertakes no obligation to update or revise any forward looking
statements.
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Supervision and Regulation
Both bank and savings and loan holding companies, as well as their subsidiary
banks and thrifts, are extensively regulated under both Federal and state law.
The following is a brief summary of certain statutes and rules and regulations
affecting the Company and the Banks. This summary is qualified in its entirety
by reference to the particular statute and regulatory provision referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of the Company and Banks. Supervision,
regulation and examination of the Company and the Banks by the regulatory
agencies are intended primarily for the protection of depositors rather than
shareholders of the Company.
General. The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and its non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before: (a) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the
voting shares of the bank; (b) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of any bank; or (c) it may
merge or consolidate with any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the party's
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking
Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company, and any other bank holding company located in
Georgia, may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks in
other states. By adopting legislation prior to that date, a state
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<PAGE>
has the ability either to "opt in" and accelerate the date after which
interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In February 1996, the Georgia Legislature adopted the "Georgia Interstate
Branching Act" effective June 1, 1997. The Georgia Interstate Branching Act
permits Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia banks and bank holding companies owning
or acquiring banks in Georgia to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branches on a limited basis beginning July 1, 1996.
Beginning July 1, 1998, the number of de novo branches which may be established
will no longer be limited.
The BHC Act generally prohibits the Company from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public, such
as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices. For example, factoring accounts receivable, acquiring or servicing
loans, leasing personal property, conducting discount securities brokerage
activities, performing certain data processing services, acting as agent or
broker in selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. The BHC Act does not place
territorial limitations on permissible non-banking activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
holding company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Each of the Banks is a member of the Federal Deposit Insurance Corporation (the
"FDIC"), and as such, its deposits are insured by the FDIC to the maximum extent
provided by law. Each such subsidiary is also subject to numerous state and
federal statutes and regulations that affect its business, activities, and
operations, and each is supervised and examined by one or more state or federal
bank regulatory agencies.
All of the Banks that are state-chartered banks are subject to supervision and
examination by the FDIC and the Georgia Department of Banking and Finance (the
"Georgia Department"). First Citizens Bank-Newnan is subject to regulations,
supervision, and examination by the OTS and the FDIC. The federal banking
regulator for each of the Banks, as well as the Georgia Department for each of
the Banks that is a state-chartered bank, regularly examine the operations of
the Banks and are given authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate actions.
The FDIC, OTS and the Georgia Department also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
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The Banks are subject to the provisions of the CRA. Under the terms of the CRA,
the Banks have a continuing and affirmative obligation consistent with their
safe and sound operation to help meet the credit needs of their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires each appropriate federal bank
regulatory agency, in connection with its examination of a subsidiary depository
institution, to assess such institution's record in assessing and meeting the
credit needs of the community served by that institution, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the
institution's record is made available to the public. Further, such assessment
is required of any institution which has applied to: (a) charter a national
bank; (b) obtain deposit insurance coverage for a newly chartered institution;
(c) establish a new branch office that will accept deposits; (d) relocate an
office; or (e) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the records of each subsidiary
depository institution of the applicant bank holding company, and such records
may be the basis for denying the application. All of the Banks received at least
a "satisfactory" CRA rating in their most recent examinations.
In April 1995, the federal banking agencies adopted amendments revising their
CRA regulations, with a phase-in schedule applicable to various provisions.
Among other things, the amended CRA regulations, when fully implemented on July
1, 1997, will substitute for the prior process-based assessment factors a new
evaluation system that will rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(a) a lending test, to evaluate the institution's record of making loans in its
service areas; (b) an investment test, to evaluate the institution's record of
investing in community development projects and (c) a service test, to evaluate
the institution's delivery of services through its branches, ATM's and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process.
Payment of Dividends. The Company is a legal entity separate and distinct from
its banking and other subsidiaries. The principal sources of cash flow of the
Company, including cash flow to pay dividends to its shareholders, are dividends
by the Banks. There are statutory and regulatory limitations on the payment of
dividends by the Banks to the Company as well as by the Company to its
shareholders.
As to payment of dividends, the two Banks which are organized under the laws of
Georgia are subject to the laws and regulations of Georgia and to the
regulations of the FDIC. First Citizens Bank-Newnan is subject to the OTS'
capital distributions regulation.
If, in the opinion of the applicable federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See
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<PAGE>
"-- Prompt Corrective Action." Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
At March 31, 1997, under dividend restrictions imposed under federal and state
laws, the Banks, without obtaining governmental approvals, could declare
aggregate dividends to the Company of approximately $1.8 million.
The payment of dividends by the Company and the Banks may also be affected or
limited by other factors, such as the requirement to maintain adequate capital
above regulatory guidelines.
Capital Adequacy. The Company and the Banks are required to comply with the
capital adequacy standards established by the Federal Reserve and the
appropriate federal banking regulator in the case of its banking subsidiaries.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least half
of Total Capital must comprise common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves ("Tier 2 Capital"). At March 31, 1997, the Company's consolidated Total
Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio (i.e., the
ratio of Tier 1 Capital to risk-weighted assets) were 10.29% and 9.04%,
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. At March 31, 1997, the Company's Leverage Ratio was
6.70%.
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<PAGE>
The Banks are subject to risk-based and leverage capital requirements adopted by
their federal banking regulators, which are substantially similar to those
adopted by the Federal Reserve for bank holding companies. As of March 31, 1997,
each of the Banks was in compliance with applicable minimum capital
requirements. The Company has not been advised by any federal banking agency of
any specific minimum capital ratio requirement applicable to it or its
subsidiary depository institutions.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
Support of Subsidiary Institutions. Under Federal Reserve policy, the Company is
expected to act as a source of financial strength for, and to commit resources
to support, each of its banking subsidiaries. This support may be required at
times when, absent such Federal Reserve policy, the Company may not be inclined
to provide it. In addition, any capital loans by a bank holding company to any
of its banking subsidiaries are subordinate in right of payment to deposits and
to certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(a) the default of a commonly controlled FDIC-insured depository institution or
(b) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
Prompt Corrective Action. FDICIA establishes a system of prompt corrective
action to resolve the problems of undercapitalized institutions. Under this
system, which became effective in December 1992, the federal banking regulators
are required to establish five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
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<PAGE>
The capital levels established for each of the categories are as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
===============================================================================================================================
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject
to a capital
directive
- -------------------------------------------------------------------------------------------------------------------------------
Adequately Capitalized 4% or more 8% or more 4% or more --
- -------------------------------------------------------------------------------------------------------------------------------
Undercapitalized less than 4% less than 8% less than 4% --
- -------------------------------------------------------------------------------------------------------------------------------
Significantly Undercapitalized less than 3% less than 6% less than 3% --
- -------------------------------------------------------------------------------------------------------------------------------
Critically Undercapitalized 2% or less -- -- --
tangible equity
===============================================================================================================================
</TABLE>
For purposes of the regulation, the term "tangible equity" includes core capital
elements counted as Tier 1 Capital for purposes of the risk-based capital
standards, plus the amount of outstanding cumulative perpetual preferred stock
(including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At March 31, 1997, each subsidiary bank had the requisite capital levels to
qualify as well capitalized, except First Citizens Bank-Newnan. Such Bank had
the requisite capital level to qualify as well capitalized under two of the
three ratios, and as adequately capitalized under the third ratio because its
Total Risk-Based Capital Ratio was 9.46% instead of 10%.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a new
risk-based assessment system for insured depository institutions that takes into
account the risks attributable to different categories and concentrations of
assets and liabilities. The new system, which went into effect on January 1,
1994, assigns an institution to one of three capital categories: (a) well
capitalized; (b) adequately capitalized; and (c) undercapitalized. These three
categories are substantially similar to
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the prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. An institution is also assigned by the FDIC to one
of three supervisory subgroups within each capital group. The supervisory
subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's insurance assessment rate is then determined based
on the capital category and supervisory category to which it is assigned. Under
the final risk-based assessment system, as well as the prior transitional
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied. Assessment rates for members of both the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF") for the first half
of 1995, as they had during 1994, ranged from 23 basis points (0.23% of
deposits) for an institution in the highest category (i.e., "well capitalized"
and "healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of
time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC reduced
the assessment rate applicable to BIF deposits in two stages, so that, beginning
1996, the deposit insurance premiums for 92% of all BIF members in the highest
capital and supervisory categories were set at $2,000 per year, regardless of
deposit size. The FDIC elected to retain the existing assessment rate range of
23 to 31 basis points for SAIF members given the undercapitalized nature of that
insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates had
adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, on July 28, 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the disparity
between the assessment rates on BIF and SAIF deposits following recapitalization
of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act of 1996
(the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions). Additional information
concerning the impact of the SAIF assessment on the Company is included on page
11 of the Company's Annual Report and is incorporated herein by reference.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
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<PAGE>
Proposed Legislation and Regulatory Action. New regulations and statutes are
regularly proposed which contain wide-ranging proposals for altering the
structures, regulations and competitive relationships of the nation's financial
institutions. It cannot be predicted whether or what form any proposed
regulation or statute will be adopted or the extent to which the business of the
Company may be affected by such regulation or statute.
Item 2. Properties
The table set forth below shows the locations of the Company's offices and other
facilities, as well as certain additional information relating to these offices
and facilities as of March 31, 1997.
All of the Company's offices are maintained in operating condition suitable for
retail banking.
Year Facility
Commenced Leased
Office Location Operation or Owned
- --------------- --------- --------
First Citizens-Newnan 1961 Owned
Main Office
19 Jefferson Street
Newnan, Georgia
Operations Center 1984 Owned
10 Olive Center
Newnan, Georgia
Bullsboro Branch 1981 Owned
71 Bullsboro Drive
Newnan, Georgia
Peachtree City Branch 1981 Owned
705 Hwy. 54, East
Peachtree City, Georgia
White Oak Branch 1987 Leased
1421 Hwy. 34, East
Newnan, Georgia
LaGrange Branch 1988 Owned
310 Broad Street
LaGrange, Georgia
Hogansville Branch 1988 Owned
410 East Main Street
Hogansville, Georgia
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<PAGE>
Year Facility
Commenced Leased
Office Location Operation or Owned
- --------------- --------- --------
Hospital Road Branch 1989 Owned
14 Hospital Road
Newnan, Georgia
Closed Branch Facility NA Owned
461 Highway 29 North
Newnan, Georgia
Proposed Branch Site NA Owned
Highway 154
Sharpsburg, Georgia
First Citizens-Fayetteville(1)
First Citizens Bank 1991 Owned
675 North Jeff Davis Drive
Fayetteville, Georgia 30214
Tara State Bank(2)
Main Office 1984 Owned
6375 Highway 85
Riverdale, Georgia 30274
Jonesboro Office 1986 Owned
223 North Main Street
Jonesboro, Georgia 30236
Citizens Mortgage Group, Inc.
Jefferson, Georgia 1993 Leased
1874 Washington Street
Jefferson, Georgia 30549
Stockbridge, Georgia 1996 Leased
175 Corporate Center Drive
Suite B
Stockbridge, Georgia 30281
Fayetteville, Georgia 1996 Leased
205 Jeff Davis Place
Fayetteville, Georgia 30214
- ----------
(1) Acquired by the Company in 1996.
(2) Acquired by the Company in 1997.
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<PAGE>
Item 3. Legal Proceedings
The Company is not involved in any material pending legal proceedings at the
present time, other than nonmaterial proceedings arising out of the ordinary
course of its business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1997.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The information contained in the section captioned "Stock Prices and Dividends"
on page 34 of the Company's Annual Report is incorporated herein by reference.
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 5 through
16 of the Company's Annual Report is incorporated herein by reference.
Item 7. Consolidated Financial Statements
The consolidated financial statements and independent auditors' report contained
on pages 17 through 33 of the Company's Annual Report are incorporated
herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On March 11, 1997 the Company filed a Form 8-K dated March 4, 1997, which form
was amended on March 24, 1997. The purpose of the Form 8-K was to disclose a
change in auditors for the Company.
On March 4, 1997, the Company's Audit Committee of the Board of Directors
elected to dismiss KPMG Peat Marwick LLP as the independent auditors of Newnan
Savings Bank, FSB, a wholly-owned subsidiary of the Company. That same day, the
Company engaged Mauldin & Jenkins, LLC to replace KPMG Peat Marwick LLP.
Pursuant to Item 302 of Regulation S-B, the Company discloses the following
information:
1. KPMG Peat Marwick LLP was dismissed on March 4, 1997.
2. The report prepared by KPMG Peat Marwick LLP on the consolidated financial
statements of Newnan Savings Bank, FSB and subsidiaries for the fiscal
years ending March 31, 1996 and 1995 did not contain an adverse opinion or
disclaimer of opinion, nor was the report qualified or modified as to
uncertainty, audit scope or accounting principles.
3. The decision to dismiss KPMG Peat Marwick LLP was recommended and approved
by the Audit Committee of the Board of Directors.
4. There were no disagreements with KPMG Peat Marwick LLP on any matter of
accounting principles or practices, financial statement disclosure,
auditing scope or procedure or any other matter requiring disclosure
pursuant to Item 304 of Regulation S-B.
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<PAGE>
In a letter to the Securities and Exchange Commission, KPMG stated that they
agreed with the representations of the Company except that they were not in a
position to agree or disagree with the Company's assertions in number 3 above.
-24-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoter and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The information contained in the section captioned "Election of Directors" in
the Company's Proxy Statement is incorporated herein by reference.
The information contained in the section captioned "Executive Compensation --
Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement is incorporated herein by reference.
Item 10. Executive Compensation.
The information contained in the section captioned "Executive Compensation" in
the Company's Proxy Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information contained in the sections captioned "Principal Holders of Common
Stock" and "Election of Directors" in the Company's Proxy Statement is
incorporated herein by reference.
Management of the Company knows of no arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the registrant.
Item 12. Certain Relationships and Related Transactions
The information contained in the section captioned "Transactions with the
Corporation" in the Company's Proxy Statement is incorporated herein by
reference.
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<PAGE>
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
a. Exhibits
Exhibit No. Description
2.1 Plan of Reorganization, dated as of December 14, 1995,
among the Registrant, Newnan Savings Bank, FSB and
Interim Newnan FSB, included as Appendix A to the Proxy
Statement and Prospectus set forth in Part I of the
Registration Statement. (1)
2.2 Agreement and Plan of Merger, dated as of November 2,
1995, among the Registrant, Newnan Savings Bank, FSB,
Southside Financial Group, Inc., Citizens Bank and Trust
of Fayette County and Interim Citizens Corporation, and
Amendment No. 1 thereto, included as Appendix B to the
Proxy Statement and Prospectus set forth in Part I of
the Registration Statement. (1)
2.3 Agreement and Plan of Merger, dated as of November 21,
1996, as amended, between the Registrant and Tara
Bankshares Corporation. (2)
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant. (3)
10.1 1986 Stock Option and Incentive Plan of Newnan Savings
Bank, FSB. (3)(4)
10.2 Nonqualified Stock Option and Incentive Plan of Newnan
Savings Bank, FSB. (3)(4)
10.3 Form of Non-Competition Covenant to be executed by the
Directors of Southside Financial Group, Inc. (3)(4)
10.4 Employment Agreement, dated as of April 9, 1997, between
First Citizens Corporation, Charles M. Barnes, First
Citizens Bank of Fayette County and Tara State Bank.
10.5 Indexed Executive Salary Continuation Plan, dated August
7, 1995, between Tara State Bank and Charles M. Barnes.
(4)(5)
11.1 Statement regarding computation of per share earnings.
13.1 1997 Annual Report to Shareholders. (Only those portions
of the Annual Report that are specifically incorporated
by reference herein shall be deemed filed with the SEC.)
22.1 Subsidiaries of the Registrant.
-26-
<PAGE>
24.1 A Power of Attorney relating to this Report is set forth
on the signature pages to this Report.
27.1 Financial data schedule (for SEC use only)
99.1 Report of KPMG Peat Marwick LLP.
----------
(1) Incorporated by reference to the Registration Statement on Form S-4
(No,. 333-4304) filed with the SEC on July 1, 1996.
(2) Incorporated by reference to the Form 8-K filed with the SEC on April
25, 1997.
(3) Incorporated by reference to the exhibit of the same number in the
Registration Statement on Form S-4 (No. 333-4304) filed with the SEC
on July 1, 1996.
(4) Management contract or compensatory plan or arrangement.
(5) Incorporated by reference to Exhibit 10.3 in the Annual Report on Form
10-KSB for the year ended December 31, 1995 filed by Tara Bankshares
Corporation with the SEC.
b. Reports on Form 8-K
A Form 8-K dated April 10, 1997 was filed on April 25, 1997 to report the
acquisition of Tara Bankshares Corporation. This Form 8-K was subsequently
amended on June 25, 1997 to include financial statements of Tara Bankshares
Corporation and proforma financial statements for First Citizens Corporation and
Tara Bankshares Corporation.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), the Registrant has duly caused this Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Riverdale, State of Georgia, on the 25th day of June, 1997.
FIRST CITIZENS CORPORATION
By: /s/ Thomas J. Moat
------------------------
Thomas J. Moat
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Littleton Glover, Jr., and Thomas J. Moat, or
either of them, as his or her attorneys-in-fact, acting with full power of
substitution, in his or her name, place and stead, in any and all capacities, to
sign any amendments to this Report and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratifies and confirms all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form 10-KSB has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Don A. Barnette Director June 25, 1997
- --------------------------------
Don A. Barnette
/s/ Thomas B. Chandler Director June 25, 1997
- --------------------------------
Thomas B. Chandler
/s/ J. Littleton Glover, Jr. Chairman of the Board June 25, 1997
- --------------------------------
J. Littleton Glover, Jr.
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas J. Moat President and Director June 25, 1997
- -------------------------------- (Principal Executive
Thomas J. Moat Officer)
/s/ Ellis A. Mansour Director June 25, 1997
- --------------------------------
Ellis A. Mansour
/s/ Douglas J. Hertha Vice President and June 25, 1997
- -------------------------------- Secretary (Principal Financial
Douglas J. Hertha and Accounting Officer)
</TABLE>
-29-
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIRST CITIZENS CORPORATION
1.
The name of the Corporation is: "First Citizens Corporation."
2.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
3.
The object of the Corporation is pecuniary gain and profit, and the
Corporation is formed for the purpose of becoming and operating as a bank
holding company and engaging in such related and permissible activities in
connection therewith as the Board of Directors may from time to time specify by
resolution.
4.
(a) The Corporation shall have authority to issue Eight Million (8,000,000)
shares of common stock (the "Common Stock"), $1.00 par value, and Eight Million
(8,000,000) shares of preferred stock (the "Preferred Stock").
(b) The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Georgia to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences, and relative rights of the shares
of each such series and the qualifications, or restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payments of dividends on
shares of that series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be
<PAGE>
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption rates;
(vi) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount
of such sinking fund;
(vii) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of that series; and
(viii) Any other relative rights, preferences and limitations of that
series.
5.
The initial registered office of the Corporation shall be at 19 Jefferson
Street, Newnan, Georgia 30264. The initial registered agent of the Corporation
at such address shall be Tom Moat.
6.
The mailing address of the initial principal office of the corporation is
P.O. Drawer 400, Newnan, Georgia 30264.
7.
(a) The Board of Directors shall be divided into three (3) classes, Class
I, Class II and Class III, which shall be as nearly equal in number as possible.
Each director in Class I shall be elected to an initial term of one (1) year,
each director in Class II shall be elected to an initial term of two (2) years,
each director in Class III shall be elected to an initial term of three (3)
years, and each director shall serve until the election and qualification of his
or her successor or until his or her earlier resignation, death or removal from
office. Upon the expiration of the initial terms of office for each Class of
directors, the directors of each Class shall be elected for terms of three (3)
years, to serve until the election and qualification of their successors or
until their earlier resignation, death or removal from office.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 7 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
8.
(a) Except as provided in paragraph (b) of this Article 8, the Board of
Directors shall have the right to adopt, amend or repeal the bylaws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding paragraph (a) of this Article 8, any amendment of the
bylaws of the Corporation changing the number of directors shall require the
affirmative vote of two-thirds (2/3) of all directors then in office or the
affirmative vote of the holders of two-thirds (2/3) of the issued and
outstanding
- 2 -
<PAGE>
shares of the Corporation entitled to vote in an election of directors, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
9.
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed without cause only by the affirmative vote of the holders of at
least two-thirds (2/3) of the issued and outstanding shares of the Corporation
entitled to vote in an election of directors.
(b) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed with cause only by the affirmative vote of the holders of at
least a majority of the issued and outstanding shares of the Corporation
entitled to vote in an election of directors.
(c) For purposes of this Article 9, a director of the Corporation may be
removed for cause if (i) the director has been convicted of a felony; (ii) any
bank regulatory authority having jurisdiction over the Corporation requests or
demands the removal; or (iii) at least two-thirds (2/3) of the directors of the
Corporation then in office, excluding the director to be removed, determine that
the director's conduct has been inimical to the best interests of the
Corporation.
(d) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 9 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
10.
The initial Board of Directors of the Corporation shall consist of three
(3) members who shall be and whose addresses are:
J. Littleton Glover, Jr. 18 Woodlane Drive
Newnan, Georgia 30263
Tom Moat 3 Brookwood Drive
Newnan, Georgia 30263
Ellis A. Mansour 7 Mission Drive
Newnan, Georgia 30263
11.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages, for breach of any duty as
a director, except for liability for:
(i) any appropriation, in violation of his or her duties, of any business
opportunity of the Corporation;
- 3 -
<PAGE>
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the Georgia
Business Corporation Code dealing with unlawful distributions of
corporate assets to shareholders; or
(iv) any transaction from which the director derived an improper material
tangible personal benefit.
(b) Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
(c) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 11 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote thereon, at any regular
or special meeting of the shareholders, and notice of the proposed change must
be contained in the notice of the meeting.
12.
Any action required by law or by the Bylaws of the Corporation to be taken
at a meeting of the shareholders of the Corporation, and any action which may be
taken at such a meeting, may be taken without a meeting, if written consent,
setting forth the action so taken, is signed by persons entitled to vote at a
meeting those shares having sufficient voting power to cast not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote were present and voted. Notice
of such action without a meeting by less than unanimous written consent shall be
given within ten (10) days after taking such action to those shareholders of
record on the date when the written consent is first executed and whose shares
were not represented on the written consent.
13.
(a) Except as set forth in subparagraph (d) of this Article 13, the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote thereon shall be required
to approve:
(i) any merger or share exchange of the Corporation with or into any other
corporation; and
(ii) any sale, lease, exchange or other disposition of all or substantially
all of the assets of the Corporation to any other corporation, person
or other entity;
if, as of the record date for determination of shareholders entitled to notice
thereof and to vote thereon, such other corporation, person or entity which is a
party to such a transaction is the beneficial owner, directly or indirectly, of
five percent (5%) or more of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
(b) For purposes of this Article 13, any corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of the
Corporation:
- 4 -
<PAGE>
(i) which it owns directly, whether or not of record; or
(ii) which it has the right to acquire, pursuant to any agreement or
understanding or upon exercise of conversion rights, exchange rights,
warrants or options or otherwise or the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly (including
shares deemed to be owned through application of subparagraph (b)(ii)
above), by an "affiliate" or "associate" (as those terms are defined
in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect on January 1, 1993) of
the other corporation, person or entity; or
(iv) which are beneficially owned, directly or indirectly (including
shares deemed owned through application of subparagraph (b)(ii)
above), by any other corporation, person or entity with which it or
its "affiliate" or "associate" (as defined above) has any agreement
or arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of shares of the Corporation.
For the purpose of determining whether a corporation, person or entity is
the beneficial owner of one or more of the issued and outstanding shares of the
Corporation, the issued and outstanding shares of the Corporation shall include
shares not in fact issued and outstanding but deemed owned through the
application of clauses (b)(ii), (iii) and (iv) above, but shall not include any
other shares which are not then issued and outstanding but which may be issuable
pursuant to any agreement or upon exercise of conversion rights, exchange
rights, warrants, options or otherwise.
(c) The Board of Directors shall have the power and duty to determine for
the purposes of this Article 13, on the basis of information known to the
Corporation, whether:
(i) such other corporation, person or entity beneficially owns, directly
or indirectly, more than five percent (5%) of the issued and
outstanding shares of the Corporation entitled to vote in an election
of directors;
(ii) a corporation, person or entity is an "affiliate" or "associate" (as
defined above) of another;
(iii) any sale, lease, exchange or other disposition of part of the assets
of the Corporation involves substantially all of the assets of the
Corporation; and
(iv) the memorandum of understanding referred to in subparagraph (d) below
is substantially consistent with the transaction covered thereby.
Any such determination shall be conclusive and binding for all purposes of
this Article 13.
(d) The provisions of this Article 13 shall not apply to:
- 5 -
<PAGE>
(i) any merger or similar transaction with any corporation if two-thirds
(2/3) of the directors of the Corporation then in office have approved
a memorandum of understanding with such other corporation with respect
to such transaction prior to the time that such other corporation
shall have become the beneficial owner of more than five percent (5%)
of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors; or, after such acquisition of 5% of
the issued and outstanding shares, if two-thirds (2/3) or more of the
directors then holding office approve such transaction prior to its
consummation;
(ii) any merger or share exchange of the Corporation with, or any sale or
lease to the Corporation (or any subsidiary thereof) of any assets of,
or any sale or lease by the Corporation (or any subsidiary thereof) of
any of its assets to, any corporation of which a majority of the
outstanding shares of all classes of stock entitled to vote in an
election of directors is owned of record or beneficially by the
Corporation and its subsidiaries.
(e) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 13 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote thereon at any regular or
special meeting of the shareholders, and notice of the proposed change must be
contained in the notice of the meeting.
14.
(a) The Board of Directors, when evaluating any offer of another party (i)
to make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate any other corporation with the
Corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the assets of the Corporation, shall, in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (A) the short-term and long-term
social and economic effects on the employees, customers, shareholders and other
constituents of the Corporation and its subsidiaries, and on the communities
within which the Corporation and its subsidiaries operate (it being understood
that any subsidiary bank of the Corporation is charged with providing support to
and being involved in the communities it serves); and (B) the consideration
being offered by the other party in relation to the then-current value of the
Corporation in a freely negotiated transaction and in relation to the Board of
Directors' then-estimate of the future value of the Corporation as an
independent entity.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 14 may be amended or rescinded only by the
affirmative vote of the holders of at least two-thirds (2/3) of the issued and
outstanding shares of the Corporation entitled to vote thereon, at any regular
or special meeting of the shareholders, and notice of the proposed change must
be contained in the notice of the meeting.
15.
Should any provision of these Articles of Incorporation, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of these Articles of Incorporation shall
remain valid and fully enforceable.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these Amended and Restated
Articles of Incorporation to be executed, this 2nd day of October, 1996.
FIRST CITIZENS CORPORATION
/s/ Tom Moat
--------------------
Tom Moat
President
- 7 -
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 9th day of April, 1997, between First
Citizens Corporation (the "Employer"), and Charles M. Barnes, a resident of the
State of Georgia (the "Employee"), First Citizens Bank of Fayette and Tara State
Bank, wholly owned subsidiaries of the Employer (collectively the "Banks") are
made parties to this Agreement for the sole purpose of defining the position and
responsibility of the Employee to the Banks.
RECITALS:
The Employer desires to employ the Employee as the Vice President of the
Employer and President and Chief Executive Officer of the Banks and the Employee
desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms and
their variant forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the Employer,
is controlled by or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Fayette,
Clayton, Henry, Coweta, and Troup Counties. It is the express intent of the
parties that these counties are the Area where the Employee performs or
performed services on behalf of the Employer under this Agreement as of, or
within a reasonable time prior to, the termination of the Employee's employment
hereunder.
1.4 "Business of the Employer" shall mean the business conducted by the
Employer, which is commercial banking.
1.5 "Cause" shall mean:
1.5.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, a breach of any
representation or warranty of the Employee set forth herein, or a
violation of the Employer or the Banks' written policies, or the
specific directions of the Board which directions are consistent
<PAGE>
with normally accepted business practices.
(b) Conduct by the Employee that amounts to fraud, dishonesty or
willful misconduct in the performance of his duties and
responsibilities hereunder;
(c) The conviction of the Employee of a felony;
(d) Conduct of the Employee that amounts to gross and willful
insubordination or inattention to his duties and responsibilities
hereunder; or
(e) Conduct by the Employee that results in removal from his
position as an officer or employee of the Employer pursuant to a
written order by any regulatory agency with authority or jurisdiction
over the Employer.
1.5.2 With respect to termination by the Employee, a material
diminution in the powers, responsibilities, duties, or compensation of
Employee hereunder, or the failure of the Board of Directors of either Bank
and the Employer to elect him as President and Chief Executive Officer of
each Bank and Vice President of the Employer, or a material breach of the
terms of this Agreement by the Employer which remains uncured after the
expiration of thirty (30) days following the delivery of written notice of
such breach to the Employer by the Employee.
1.6 "Employer Information" means Confidential Information or Trade Secrets.
1.7 "Confidential Information" means data and information relating to the
business of the Employer (which does not rise to the status of a Trade Secret)
which is or has been disclosed to Employee or of which Employee became aware as
a consequence of or through Employee's relationship to the Employer and which
has value to the Employer and is not generally known to its competitors.
Confidential Information shall not include any data or information that has been
voluntarily disclosed to the public by the Employer (except where such public
disclosure has been made by Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.8 "Change in Control" of the Employer shall mean any transaction wherein
fifty percent (50%) of the shares of the Bank or the Employer, plus one share,
are directly or indirectly transferred by sale, gift, merger, exchange or any
other means to new owners other than an Affiliate of such person or entity
transferring such shares of or if a majority of the members of the Board of
Directors of the Employer are replaced.
Page 2
<PAGE>
1.9 "Initial Term" shall mean that period of time commencing on the date of
execution of this Agreement by the Employer and the Employee and running until
the earlier of three (3) years thereafter or any termination of employment of
the Employee under this Agreement as provided for in Section 3.
1.10 "Permanent Disability" shall mean the total inability of the Employee
to perform his duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employer and
reasonably acceptable to the Employee.
1.11 "Term" shall mean the Initial Term and all subsequent renewal periods.
1.12 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which (i) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who an obtain economic value from its disclosure or use; and (ii) is the subject
of efforts that are reasonable under the circumstances to maintain its secrecy.
2. Duties.
2.1 The Employee is employed initially as the President and Chief Executive
Officer of the Bank and Vice President of the Employer. Employee, subject to the
direction of the Board or its designee, shall perform and discharge well and
faithfully the duties which may be assigned to him from time to time by the
Employer in connection with the conduct of its business. The initial duties and
responsibilities of the Employee are set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned to
the Employee pursuant to Section 2.1 hereof, the Employee shall: (1) devote
substantially all of his time, energy and skill during regular business hours to
the performance of the duties of his employment (reasonable vacations and
reasonable absences due to illness excepted) and faithfully and industriously
perform such duties; (2) diligently follow and implement all management policies
and decisions communicated to him by the Board; and (3) timely prepare and
forward to the Board all reports and accounting as may be requested of the
Employee.
2.3 The Employee shall devote his entire business time, attention and
energies to the Business of the Employer and shall not during the term of this
Agreement be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit
Page 3
<PAGE>
or other pecuniary advantage; without limitation, the Employee shall not be
engaged in, shall not participate in, shall not invest in, and shall have no
relationship whatsoever with any business or entity which shall conduct business
relations with the Bank or the Employer. Notwithstanding the above, the
limitations of this paragraph shall not be construed as preventing the Employee
from (1) investing his personal assets in businesses which will not require any
services on the part of the Employee in their operation or affairs and in which
his participation is solely that of an investor, (2) purchasing securities in
any corporation whose securities are regularly traded provided that such
purchase shall not result in his collectively owning beneficially at any time
one percent (1%) or more of the equity securities of any business in competition
with the Business of the Employer and (3) participating in civic and
professional affairs and organizations. Prior to commencing any activity
described in clause (3) above, the Employee shall inform the Board, in writing,
of any such activity.
3. Term and Termination.
3.1 Term. This Agreement shall remain in effect for the Initial Term. At
the end of the first twelve-month period hereunder and at the end of each
successive twelve-month period, this Agreement shall automatically be extended
for a successive twelve-month period following the then two-year remaining term
unless either party gives written notice to the other of its intent not to
extend this Agreement with such written notice to be given not less than ninety
(90 days prior to the end of such twelve-month period. In the event such notice
of non-extension is properly given, this Agreement shall terminate at the end of
the remaining term then in effect. However, notwithstanding the provisions of
this Section 3.1, no extension shall be granted that would extend the term of
this Agreement beyond the last day of the month during which the Employee
attains age 61.
3.2 Termination. During the Term, the employment of the Employee under this
Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause [provided that if Cause is as defined in Section
1.5.1(a) the Employer shall first have given Employee written notice
of the act or failure which Employer asserts constitutes such Cause
and fifteen (15) days to cure such] in which event the Employer shall
have no further obligation to the Employee except for the payment of
any amounts which have vested and are due and owing under Section 4 as
of the effect date of termination; (but not any amount accruing
thereafter); or
(b) Without Cause or upon the Disability of Employee at any time,
provided that the Employer shall
Page 4
<PAGE>
give the Employee thirty (30) days' prior written notice of its intent
to terminate, in which event the Employer shall be required to
continue to meet its obligations to the Employee under Section 4 for a
period of twenty-four (24) months following termination.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as provided in Section
1.5.2, in which event the Employer shall be required to continue to
meet its obligations to the Employee under Section 4 for a period of
twelve (12) months following termination; or
(b) Without Cause or upon the Permanent Disability of Employee,
provided that the Employee shall give the Employer sixty (60) days'
prior written notice of his intent to terminate, in which event the
employer shall have no further obligation to the Employee except
future payment of any amounts due and owing under Section 4 on the
effective date of the termination.
3.2.3 By the Employee within six (6) months following a Change in
Control of the Employer, provided that the Employee shall give written
notice to the Employer of his intention to terminate this Agreement,
in which event the Employer shall be required to pay to continue to
meet its obligations to Employee under Section 4 for a period of
twelve (12) months after termination.
3.2.4 At any time upon mutual, written agreement of the parties,
in which event the Employer shall have no further obligation to the
Employee except for the payment of any amounts due and owing under
Section 4 on the effective date of termination unless otherwise set
forth in the written agreement.
3.2.5 Notwithstanding anything in this Agreement to the contrary,
the term of employment shall end automatically upon the Employee's
death, in which event the Employer shall have no further obligation to
the Employee except for the payment of any amounts due and owing under
Section 4 on the effective date of termination.
3.3 Effect of Termination. Termination of the employment of the Employee
pursuant to Section 3.2 shall be without prejudice to any right or claim which
may have previously accrued to either the Employer or the Employee hereunder and
shall not terminate, alter, supersede or otherwise affect the terms and
covenants and the rights and duties prescribed in this Agreement.
4. Compensation. The Employee shall receive the following salary
Page 5
<PAGE>
and benefits:
4.1 Base Salary. During the Initial Term, the Employee shall be compensated
at a base rate of $135,000.00 per annum (the "Base Salary"). The Employee's
salary shall be reviewed by the Board at least annually, not less than ninety
(90) days prior to the anniversary of this Agreement, and the Employee shall be
entitled to receive such amount as may be determined by the Board. Such salary
shall be payable in accordance with the Employer's normal payroll practices.
4.2 Specific Individual Benefits. The Employee shall receive the following
specific individual benefits:
(a) The executive salary continuation plan originally entered
into by Employee and Tara State Bank as of August 7, 1995.
(b) An automobile allowance in the amount of $500.00 per month.
4.3 Incentive Compensation. The Employee shall be entitled to participate
in such bonus, incentive and other executive compensation programs as are made
available to senior management of the Employer from time to time (the "Incentive
Compensation").
4.4 Benefits.
(a) In addition to the Base Salary, Specific Individual Benefits,
and Incentive Compensation, the Employee shall be entitled to such
benefits as may be available from time to time for executives of the
Employer similarly situated to the Employee. All such benefits shall
be awarded and administered in accordance with the Employer's standard
policies and practices. Such benefits may include, by way of example
only, profit-sharing plans, retirement or investment funds, dental,
health, life and disability insurance benefits and such other benefits
as the Employer deems appropriate.
(b) The Employer specifically agrees to reimburse the Employee
for reasonable business expenses incurred by him in performance of his
duties hereunder, as approved from time to time by the Board; provided
that the Employee shall, as a condition of reimbursement, submit
verification of the nature and amount of such expenses in accordance
with reimbursement policies from time to time adopted by the Employer
and in sufficient detail to comply with rules and regulations
promulgated by the Internal Revenue Service.
Page 6
<PAGE>
(c) On a non-cumulative basis the Employee shall be entitled to
Four (4) weeks of vacation in each year of this Agreement, during
which his compensation shall be paid in full. At least two consecutive
weeks each year must be taken by the Employee for vacation, with other
vacation to be taken at the time the Employer determines appropriate,
taking into account the requirements of the Employer.
4.4 Withholding. The Employer may deduct from each payment of compensation
hereunder all amounts required to be deducted and withheld in accordance with
applicable federal and state income, FICA and other withholding requirements.
4.5 Moving Expenses. It is agreed that Employee shall move his residence to
Clayton or Fayette or Henry Counties or an agreed upon nearby community. The
bank shall pay relocation expenses up to $30,000.00. Said expenses shall include
moving by a professional moving company, sales commission on the sale of his
present home, and closing cost on the purchase of his new home.
To facilitate the agreements set forth herein, Employee shall list his
present home (the "Home") for sale within fifteen (15) days after the date on
which Tara State Bank shall become a wholly owned subsidiary of Employer, such
listing to be at Two Hundred Sixty-Five Thousand and 00/100 ($265,000.00)
Dollars. Between the date of such listing and August 1, 1997, (i) Employee shall
accept any offer to purchase the Home which is equal to or greater than said
listing price, and shall thereafter promptly relocate, and (ii) Employee shall
notify Employer of any offer to purchase the Home less than the listing price
and, if Employer agrees to pay to Employee the amount of such deficiency, shall
accept said offer and promptly relocate. After August 1, 1997, Employer shall be
entitled to make all decisions with respect to the listing broker, agent, price,
and the acceptance or rejection of any offer, and all other issues involved in
the sale of the House, provided that regardless of such decision, Employer shall
in every case pay to Employer the deficiency, if any, between the sales price
and the Employee's original purchase price of the Home, and, at Employer's
request, Employee shall promptly relocate at such time as a purchase contract
for the Home shall be determined to be accepted by Employer.
5. Employer Information.
5.1 Ownership of Information. All Employer Information received or
developed by the Employee while employed by the Employer will remain the sole
and exclusive property of the Employer.
5.2 Obligations of Employee. Employee agrees (a) to hold Employer
Information in strictest confidence, and (b) not to use,
Page 7
<PAGE>
duplicate, reproduce, distribute, disclose or otherwise disseminate Employer
Information or any physical embodiments thereof and may in no event take any
action causing or fail to take any action necessary in order to prevent any
Employer Information from losing its character or ceasing to qualify as
Confidential Information or a Trade Secret. In the event that Employee is
required by law to disclose any Employer Information, Employee will not make
such disclosure unless (and then only to the extent that) Employee has been
advised by independent legal counsel that such disclosure is required by law and
then only after prior written notice is given to the Employer when Employee
becomes aware that such disclosure has been requested and is required by law.
This Section 5 shall survive for a period of two (2) years following termination
of this Agreement with respect to Confidential Information, and shall survive
termination of this Agreement for so long as is permitted by the then-current
Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767, with
respect to Trade Secrets.
5.3 Delivery upon Request or Termination. Upon request by the Employer, and
in any event upon termination of his employment with the Employer, the Employee
will promptly deliver to the Employer all property belonging to the Employer,
including without limitation all Employer Information then in his possession or
control.
6. Non-Competition. The Employee agrees that during his employment by the
Employer hereunder and, in the event of his termination other than by the
Employee for Cause pursuant to Section 3.2.2(a), for a period of two (2) years
thereafter, he will not (except on behalf of or with the prior written consent
of the Employer), within the Area on his own behalf or in the service or on
behalf of others, in the capacity which involves the duties and responsibilities
undertaken by the Employee for the Employer, engage in any business which is the
same as or essentially the same as the Business of the Employer.
7. Non-Solicitation of Customers. The Employee agrees that during his employment
by the Employer hereunder and, in the event of his termination other than by the
Employee for Cause pursuant to Section 3.2.2(a), 3.2.3, or 3.2.4 for a period of
two (2) years thereafter, he will not (except on behalf of or with the prior
written consent of the Employer), within the Area, on his own behalf or in the
service or on behalf of others, solicit, divert or appropriate or attempt to
solicit, divert or appropriate, directly or by assisting others, any business
from any of the Employer's customers, including actively sought prospective
customers, with whom the Employee has or had material contact during the last
one (1) year of his employment, for purposes of providing products or services
that are competitive with those provided by the Employer.
8. Non-Solicitation of Employees. The Employee agrees that during his employment
by the Employer hereunder and, in the event
Page 8
<PAGE>
of his termination other than by the Employee for Cause pursuant to Section
3.2.2(a), for a period of two (2) years thereafter, he will not, within the
Area, on his own behalf or in the service or on behalf of others, solicit,
recruit or hire away or attempt to solicit, recruit or hire away, directly or by
assisting others, any person then an employee of the Employer or its Affiliates
with whom Employee has had interaction, whether or not such employee is a
full-time employee or a temporary employee of the Employer or its Affiliates and
whether or not such employment is pursuant to written agreement and whether or
not such employment is for a determined period or is at will.
9. Remedies. The Employee agrees that the covenants contained in Sections 5
through 8 of this Agreement are of the essence of this Agreement; that each of
the covenants is reasonable and necessary to protect the business, interests and
properties of the Employer; and that irreparable loss and damage will be
suffered by the Employer should he breach any of the covenants. Therefore, the
Employee agrees and consents that, in addition to all the remedies provided by
law or in equity, the Employer shall be entitled to a temporary restraining
order and temporary and permanent injunctions to prevent a breach or
contemplated breach of any of the covenants. The Employer and the Employee agree
that all remedies available to the Employer or the Employee, as applicable,
shall be cumulative.
10. Severability. The parties agree that each of the provisions included in this
Agreement is separate, distinct and severable from the other provisions of this
Agreement and that the invalidity or unenforceability of any agreement provision
shall not affect the validity or enforceability of any other provision of this
Agreement. Further, if any provision of this Agreement is ruled invalid or
unenforceable by a Court of competent jurisdiction because of a conflict between
the provision and any applicable law or public policy, the provisions shall be
redrawn to make the provision consistent with and valid and enforceable under
the law or public policy.
11. No Set-Off by Employee. The existence of any claim, demand, action or cause
of action by the Employee against the Employer, or any Affiliate of the
Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Employer of any of its rights
hereunder.
12. Notice. All notices and other communications required or permitted under
this Agreement shall be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, shall be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
shall be deemed effective when delivered or transmitted. All notices and other
communications under this
Page 9
<PAGE>
Agreement shall be given to the parties hereto at the following address:
(i) If to the Employer, to it at:
First Citizens Corporation
P. O. Drawer 400
Newnan, Georgia 30264
Phone: (770) 253-5017
Facsimile: (770) 304-7778
(i) If to the Employee, to him at:
Charles M. Barnes
308 Hillpine Dr
Woodstock, Georgia 30189
13. Assignment. Neither party hereto may assign or delegate this Agreement or
any of its rights and obligations hereunder without the written consent of the
other party hereto.
14. Waiver. A waiver by the Employer of any breach of this Agreement by the
Employee shall not be effective unless in writing, and no waiver shall operate
or be construed as a waiver of the same or another breach on a subsequent
occasion.
15. Attorneys' Fees. In the event of litigation between the parties concerning
this Agreement, the party prevailing in such litigation shall be entitled to
receive from the other party all reasonable costs and expenses, including
without limitation attorneys' fees, incurred by the prevailing party in
connection with such litigation, and the other party shall pay such costs and
expenses to the prevailing party promptly upon demand by the prevailing party.
16. Applicable Law. This Agreement shall be construed and enforced under and in
accordance with the laws of the State of Georgia. The parties agree that any
appropriate state court located in Clayton or Coweta County, Georgia, shall have
jurisdiction of any case or controversy arising under or in connection with this
Agreement and shall be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
17. Interpretation. Words importing any gender include all genders. Words
importing the singular form shall include the plural and vice versa. The terms
"herein", "hereunder", hereby", "hereto", "hereof" and any similar terms refer
to this Agreement.
Page 10
<PAGE>
Any captions, titles or headings preceding the text of any article, section or
subsection herein are solely for convenience of reference and shall not
constitute part of this Agreement or affect its meaning, construction or effect.
18. Entire Agreement. This Agreement embodies the entire and final agreement of
the parties on the subject matter stated in the Agreement. No amendment or
modification of this Agreement shall be valid or binding upon the Employer or
the Employee unless made in writing and signed by both parties. All prior
understandings and agreements relating to the subject matter of this Agreement
are hereby expressly terminated.
19. Rights of Third Parties. Nothing herein expressed is intended to or shall be
construed to confer upon or give to any person, firm or other entity, other than
the parties hereto and their permitted assigns, any rights or remedies under or
by reason of this Agreement.
20. Survival. The obligations of the Employee pursuant to Sections, 5, 6, 7, 8
and 9 shall survive the termination of the employment of the Employee hereunder
for the period designated under each of those respective sections.
21. Joint and Several. The obligation of the Bank and the Employer to Employee
hereunder shall be joint and several.
IN WITNESS WHEREOF, the Employer and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYER:
FIRST CITIZENS CORPORATION
By: /s/ Tom Moat
--------------------------
Name: Tom Moat
Title: President
Page 11
<PAGE>
FIRST CITIZENS BANK, CLAYTON
By: /s/ George Glaze
--------------------------
Name: George Glaze
Title: Chairman
THE EMPLOYEE:
/s/ Charles M. Barnes
Page 12
<PAGE>
Exhibit A
Initial Duties of the Employee
The initial duties of the Employee shall include, in addition to any other
duties assigned the Employee by the Board of Directors of the Bank or the
Employer or their respective designees, the following:
o Foster a corporate culture of the Bank that promotes ethical
practices, encourages individual integrity, fulfills social
responsibility, and is conducive to attracting, retaining and
motivating a diverse group to top-quality employees at all levels.
o Work with the Employer's Chief Executive and Board of Directors to
develop a long-term strategy for the Employer and the Banks that
creates shareholder value.
o Develop and recommend to the Employer's Chief Executive and Board
annual business plans and budgets that support the Employer's
long-term strategy.
o Manage the day-to-day business affairs of the Bank appropriately.
o Use best efforts to achieve the Bank's and the Employer's financial
and operating goals and objectives.
o Improve the quality and value of the products and services provided by
the Bank and the Employer.
o Ensure that the Bank maintains a satisfactory competitive position
within its industry.
o Develop an effective Bank management team and an active plan for its
development and succession, and make recommendations to the Employer's
Chief Executive and Board regarding hiring, firing and compensation.
o Implement major corporate policies.
o Develop and manage the commercial lending program for all banks
included within the Employer, including the development of commercial
lending policies and procedures and the development and supervision of
an effective commercial lending team.
Page 13
Exhibit 11.1
Exhibit 11
Statement Re: Computation of Per Share Earnings
Year Ended March 31,
1997 1996
---------- ----------
Primary
- -------
Weighted average common shares outstanding
during the year 1,540,116 1,445,529
Common shares issuable in connection with
assumed exercise of options under the
treasury stock method 140,297 50,208
---------- ----------
Total 1,680,413 1,495,737
========== ==========
Net income $2,651,686 $4,049,955
========== ==========
Per share earnings $ 1.58 $ 2.71
========== ==========
<PAGE>
Exhibit 13
First (Lantern
Citizens appears
Corporation here)
1997 Annual Report
<PAGE>
The Company
First Citizens Corporation ("The Company") is a Georgia corporation and a
bank/thrift holding company located on the southside of the Metropolitan Atlanta
area. The Company provides financial services through its three subsidiary
financial institutions ("the Banks") which offer a variety of banking and other
financial services to individuals and businesses. Its market area includes
Coweta, Fayette, Henry, Clayton and Troup Counties, Georgia.
The Company was formed on August 22, 1996 when Newnan Savings Bank, FSB
(now known as First Citizens Bank) reorganized itself into a holding company,
Newnan Holdings, Inc. (now known as First Citizens Corporation). In this
reorganization, each shareholder of Newnan Savings Bank received stock in the
new parent company on a one for one basis. At the same time, Newnan Holdings
merged with Southside Financial Group, Inc., the parent company of Citizens Bank
and Trust of Fayette County (now known as First Citizens Bank of Fayette
County), issuing 136,990 shares to Southside shareholders. As of March 31, 1997
the Company acquired all the outstanding stock of Tara Bankshares Corporation,
the parent company of Tara State Bank, issuing 221,773 shares of its stock to
Tara shareholders.
On January 14, 1997 Newnan Holdings, Inc. changed its name to First
Citizens Corporation and Newnan Savings Bank, FSB changed its name to First
Citizens Bank. On February 7, 1997 Citizens Bank and Trust of Fayette County
changed its name to First Citizens Bank of Fayette County. On April 10, 1997,
the Tara State Bank Board of Directors voted to change its name to First
Citizens Bank of Clayton County and that application is currently pending
regulatory approval.
First Citizens Bank-Newnan is a federally chartered thrift located in
Newnan, Georgia. It was chartered by the State of Georgia in 1927 as Newnan
Building and Loan and converted to a federal charter in 1957. It maintains a
total of seven offices in Newnan, Peachtree City, LaGrange, and Hogansville,
Georgia.
First Citizens Bank of Fayette County ("First Citizens-Fayetteville") is a
full-service state chartered commercial bank located in Fayetteville, Georgia.
It was chartered in 1991 and maintains one office.
Tara State Bank is also a full-service state chartered commercial bank
located in Riverdale, Georgia. It was chartered in 1984 and maintains a branch
office in Jonesboro, Georgia.
The Company offers mortgage banking services through Citizens Mortgage
Group, Inc., an operating subsidiary of First Citizens Bank-Newnan. Citizens
Mortgage Group was organized in 1993 and presently has loan origination offices
in Fayetteville, Stockbridge, and Jefferson, Georgia.
Real estate appraisal services are offered through Newnan Financial
Services, Inc. a wholly owned subsidiary of First Citizens Bank-Newnan. In
addition, through its subsidiary, Jefferson Ventures, Inc., real estate
development was formerly carried out at White Oak, a golf and lake community in
Newnan, Georgia. Currently, Jefferson Ventures is selling its remaining tracts
of undeveloped land.
Contents
Business of the Company...inside front cover
Chairman's Letter...1
President's Letter...2
Financial Highlights...3
Selected Financial Data...4
Management's Discussion and Analysis of Financial Condition
and Results of Operations...5
Consolidated Financial Statements...17
Independent Auditors' Report...33
Directors and Officers...34
Locations...36
<PAGE>
Chairman's Letter
Dear Shareholder:
After overcoming the constraints of regulatory restrictions three and a
half years ago, our company was at a crossroads. Your Board of Directors held
a multi-day retreat to discuss and formulate a strategic plan. There were two
obvious alternatives. One involved actively pursuing a sell-out to one of the
large regional bank holding companies. At that time our stock was, in our
opinion, greatly undervalued. Our earnings were beginning to grow, but the
market for our stock reflected neither the potential of our market area nor the
value of our real estate holdings at White Oak. Our opinion at the time was that
pursuing this first alternative was not a prudent action to take.
The second alternative was to grow into a successful mid-sized bank serving
the booming southside of metropolitan Atlanta. At the time, Newnan Savings Bank
was almost exclusively a residential mortgage provider with less than $130
million in assets. The Board decided to develop the second alternative and
concentrate on two objectives. The first was to expand our trade area, moving it
eastward into Fayette and if possible adjoining counties. The second was to
change the composition of our products and services to become more of a
commercial bank. We are well along in our efforts to accomplish both of these
objectives.
During the past twelve months we have become a three bank holding company
with eleven facilities in Clayton, Fayette, Henry, Troup and Coweta Counties.
Our asset size has grown to approximately $335 million. Tom Moat has augmented
his excellent real estate lenders with a new team of commercial bankers -- Tommy
Segers in Clayton County, Chuck Barnes in Fayetteville, Mike Justice in
Peachtree City, and Don Phillips and Mike Barber in Newnan. Chuck is ably
heading up all our banking operations in Fayette and Clayton Counties, and we
are in the process of integrating system wide uniformity to all of our banking
procedures. Although our banks retain the input and decision-making of local
Boards of Directors, our customers can count on uniform excellence in service
and the convenience of facilities available throughout our trade area.
Coordinating these changes has been and continues to be a challenge. Tom,
your officers and employees are to be commended for an excellent job. As Tom
explains in his letter to you, our financial reports for the fiscal year ending
last March 31 are not indicative of our performance as they include operational
profits for only a portion of the year for our Fayette and Clayton County banks.
Although none of us can predict the future, we believe that 1997-98 will be the
best year financially that your bank has ever experienced. Success doesn't
happen -- it is caused. In this case the officers and employees in all of your
banks throughout the system will be responsible for the success of First
Citizens. We are proud of their efforts, and we hope you are also.
There are two new services that I want to mention. Although First Citizens
of Fayette County has offered investment brokerage services in the past, we now
offer both full service and discount brokerage services in all of our banks.
Call Tyler Duffey or Stacy Schofield for more information. Additionally,
recently your Board voted to institute a Stockholder Dividend Reinvestment Plan.
You will be receiving information about the specifics of this plan during July.
Many of you have expressed a desire for a plan such as this, and we hope that
you will enjoy its benefits.
If you have any suggestions or comments as to ways to improve your banks or
their services, please drop me a note or give me a call. We are proud of First
Citizens, and we hope you are too.
Sincerely,
J. LITTLETON GLOVER, JR.
CHAIRMAN
1
President's Letter
Dear Shareholder:
It is a pleasure to have the opportunity to present to you the first,
First Citizens Corporation Annual Report. Even though this is the first report,
many of you have been Shareholders for the past ten years. There have been a
number of changes in your company during this fiscal year. In August, 1996 we
formed a holding company named Newnan Holdings, Inc. This company acquired
Newnan Savings Bank and then purchased the holding company that owned Citizens
Bank and Trust of Fayette County. To more accurately reflect the changing
nature of our business in January, 1997 Newnan Holdings, Inc. changed its name
to First Citizens Corporation. Then Newnan Savings Bank became First Citizens
Bank and Citizens Bank and Trust became First Citizens Bank of Fayette County.
As of March 31, 1997 Tara Bankshares, owner of Tara State Bank in Clayton
County, merged into First Citizens Corporation. Tara State Bank is in the
process of changing its name to First Citizens Bank of Clayton County.
After the mergers were completed, First Citizens Corporation became the
largest banking organization on the southside of Atlanta. We are now in the
process of planning for the future growth and operation of the banks.
Since the accounting for both the Fayette County and Clayton County
mergers had to be made on a "purchase" basis, our earnings only reflect
income from those banks for the period of time that they were part of the First
Citizens organization. There were three large items which affected earnings for
the fiscal year which ended March 31, 1997. The first was a one-time charge to
First Citizens Bank-Newnan for the recapitalization of the Savings Association
Insurance Fund. After taxes this charge amounted to $486,000. The second was a
one-time charge to set up a reserve for possible losses associated with a check
kiting scheme. The after tax charge to earnings was $596,000. We are pursuing
every possibility of recovery on this charge. The total after tax charge for
these two items was $1,082,000 or $0.64 per share. If we had not had these
charges our total income would have been $3,733,686 or $2.22 per share as
compared to the $2,651,686 or $1.58 per share which we actually reported.
The other large item which was significantly different from the prior year
is "Gain on Sale of Real Estate Held for Development and Sale." The gain on
sale of land through our Jefferson Ventures, Inc. subsidiary was approximately
one-third of the amount from the previous year. The net gain amount declined
from $3.2 million to $1.0 million. We do have substantially all of our
remaining real estate holdings under contract and the first four hundred acre
tract closed on June 12, 1997. The income from this closing provided more net
income from real estate sales than all of our sales last year.
There have been a number of personnel changes with the mergers during the
past year. Chuck Barnes who was President of Tara State Bank is now President
of both Tara State and First Citizens-Fayetteville. Chuck is also serving as a
Vice President of the holding company.
Our plan was to hold the Newnan Bank at the same size until the mergers
were complete and then attempt to grow by trying to develop as a full-service
banking operation. We followed that plan and have had substantial growth in the
Newnan bank since August 1996. In January 1997 we were fortunate to have the
opportunity to add Don Phillips as Senior Vice President of Commercial Banking.
Don has a number of years banking experience and has been in Newnan for the
past seven years. In March 1997, we added Mike Justice as Senior Vice President
and City Executive for Peachtree City. Mike was with another bank in Peachtree
City prior to coming to First Citizens. Mike Barber recently joined us in
Newnan as a commercial lender. Lee Greeson came to Fayetteville a few months
ago, and Tommy Segers will be joining us in July in Riverdale. We have been
fortunate to have the opportunity to add a number of other new employees and
services, we have specifically listed these due to our emphasis on moving
toward more commercial banking. We have listed all of the Officers and
Directors of all three banks later in this report.
We all feel that we have been able to attract a number of new employees
who can help us in developing our business; however, it is important to
remember that all three banks have a stable group of long term employees who
have gotten all three of the banks to the point that each was successful enough
to make us all attractive as merger partners. The great challenge for all of us
now is to plan for the future so that the combined banks under First Citizens
Corporation can be stronger than they were individually.
During the past year, many of you have had very positive comments about
the mergers and the formation of First Citizens Corporation. We appreciate your
support during this period of transition. It has been an exciting year and we
are now in a position to take advantage of being "The Largest Banking
Organization On The Southside."
Please remember us when you need any banking services; and of course, if
you ever have the opportunity to refer business we would appreciate the
contact. We are "your" company and always need your support.
Sincerely,
TOM MOAT
PRESIDENT
<PAGE>
Financial Highlights
YEARS ENDED MARCH 31, 1993, 1994, 1995, 1996 and 1997
(ALL DOLLARS ARE IN MILLIONS)
ASSET GROWTH/
RETURN ON AVERAGE ASSETS
1993 1994 1995 1996 1997
1.42% 0.81% 1.06% 2.51% 1.23%
$128.6 $144.3 $169.5 $182.0 $326.4
NET INTEREST INCOME/
NET INTEREST MARGIN
1993 1994 1995 1996 1997
3.68% 3.61% 3.77% 3.95% 4.61%
$4.2 $4.3 $5.3 $5.9 $9.2
LOANS RECEIVABLE, NET
1993 1994 1995 1996 1997
$84.8 $102.9 $130.1 $131.0 $245.4
EQUITY GROWTH/
RETURN ON AVERAGE EQUITY
1993 1994 1995 1996 1997
14.14% 7.40% 10.29% 22.25% 11.81%
$14.0 $15.1 $16.6 $20.3 $29.8
CORE BANKING INCOME(1)
1993 1994 1995 1996 1997
$1.1 $0.5 $1.8 $3.3 $3.9
TOTAL DEPOSITS
1993 1994 1995 1996 1997
$108.6 $117.2 $117.8 $130.6 $269.8
(1) Excludes SAIF Assessment for 1997
2
<PAGE>
Selected Financial Data
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The following selected financial data is derived from the consolidated financial
statements of the Company, and should be read in conjunction with its
consolidated financial statements and the related notes contained elsewhere in
this Annual Report.
<TABLE>
<CAPTION>
1997 1996 1995 1994
<S> <C> <C> <C> <C>
(Dollars in thousands except per share
amounts)
BALANCE SHEET:
Total Assets.............................................................. $326,365 $182,010 $169,477 $144,300
Loans, net (1)............................................................ 245,409 130,952 130,121 102,864
Investments (2)........................................................... 45,451 32,451 23,508 29,144
Real estate held for development and sale................................. 3,292 3,740 5,070 6,026
Deposit accounts (3)...................................................... 269,799 130,635 117,818 117,199
Borrowings (4)............................................................ 17,805 29,489 33,528 10,646
Stockholders' equity...................................................... 29,803 20,266 16,603 15,147
OPERATING DATA:
Interest income........................................................... 17,220 12,412 10,830 8,798
Interest expense.......................................................... 8,135 6,512 5,492 4,484
Net interest income....................................................... 9,085 5,900 5,338 4,314
Provision for loan losses................................................. 185 10 108 275
Other income.............................................................. 3,948 5,248 2,357 2,547
General and administrative expenses....................................... 8,611 4,646 5,071 5,258
Income tax expense........................................................ 1,585 2,442 896 491
Earnings before cumulative effect of change in accounting principle....... 2,652 4,050 1,620 837
Cumulative effect of change in accounting for income taxes................ -- -- -- 250
Net earnings.............................................................. 2,652 4,050 1,620 1,087
Earnings per share before cumulative effect of change in accounting
principle............................................................... 1.58 2.71 1.14 0.59
Cumulative effect per share of change in accounting for income taxes...... -- -- -- 0.17
Net earnings per share.................................................... 1.58 2.71 1.14 0.76
Cash dividends per share.................................................. 0.44 0.34 0.23 --
-- as a percentage of net earnings per share............................. 27.85% 12.55% 20.18% --
Net interest margin....................................................... 4.61% 3.95% 3.77% 3.61%
REGULATORY CAPITAL RATIOS (CONSOLIDATED)
Risk-based................................................................ 10.3% 20.3% 14.4% 15.9%
Tier 1 to risk based assets............................................... 9.0% n/a n/a n/a
Tier 1 to average total assets............................................ 6.7% n/a n/a n/a
Tangible (Thrift)......................................................... 6.3% 11.2% 9.1% 9.6%
Core (Thrift)............................................................. 6.3% 11.2% 9.1% 9.6%
SELECTED FINANCIAL RATIOS AND OTHER DATA (AS PERCENTAGES)
Return on average assets.................................................. 1.23% 2.51% 1.06% 0.81%
Return on average equity.................................................. 11.81% 22.25% 10.29% 7.40%
Average equity to average assets.......................................... 10.38% 11.29% 10.29% 10.99%
Allowance for loan losses to total loans and OREO......................... 1.50% 1.05% 1.09% 1.26%
Nonperforming assets to total loans and OREO.............................. 1.25% 0.63% 0.76% 1.75%
Allowance for loan losses to nonperforming loans.......................... 131.15% 192.29% 164.44% 92.09%
Allowance for loan losses to nonperforming assets......................... 119.96% 165.98% 143.90% 71.60%
<CAPTION>
1993
<S> <C>
BALANCE SHEET:
Total Assets.............................................................. $128,598
Loans, net (1)............................................................ 84,820
Investments (2)........................................................... 28,368
Real estate held for development and sale................................. 7,420
Deposit accounts (3)...................................................... 108,621
Borrowings (4)............................................................ 4,405
Stockholders' equity...................................................... 14,052
OPERATING DATA:
Interest income........................................................... 9,459
Interest expense.......................................................... 5,232
Net interest income....................................................... 4,227
Provision for loan losses................................................. 180
Other income.............................................................. 3,450
General and administrative expenses....................................... 4,664
Income tax expense........................................................ 955
Earnings before cumulative effect of change in accounting principle....... 1,878
Cumulative effect of change in accounting for income taxes................ --
Net earnings.............................................................. 1,878
Earnings per share before cumulative effect of change in accounting
principle............................................................... 1.32
Cumulative effect per share of change in accounting for income taxes...... --
Net earnings per share.................................................... 1.32
Cash dividends per share.................................................. --
-- as a percentage of net earnings per share............................. --
Net interest margin....................................................... 3.68%
REGULATORY CAPITAL RATIOS (CONSOLIDATED)
Risk-based................................................................ 15.9%
Tier 1 to risk based assets............................................... n/a
Tier 1 to average total assets............................................ n/a
Tangible (Thrift)......................................................... 9.7%
Core (Thrift)............................................................. 9.7%
SELECTED FINANCIAL RATIOS AND OTHER DATA (AS PERCENTAGES)
Return on average assets.................................................. 1.42%
Return on average equity.................................................. 14.14%
Average equity to average assets.......................................... 10.08%
Allowance for loan losses to total loans and OREO......................... 1.32%
Nonperforming assets to total loans and OREO.............................. 3.04%
Allowance for loan losses to nonperforming loans.......................... 67.19%
Allowance for loan losses to nonperforming assets......................... 43.32%
</TABLE>
(1) Includes loans held for sale.
(2) Includes investment securities, mortgage-backed securities, and
interest-bearing deposits in other banks.
(3) Includes official checks outstanding.
(4) Includes advances from Federal Home Loan Bank and notes payable.
3
<PAGE>
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
The following is a discussion of First Citizens Corporation's ("Company")
financial condition at March 31, 1997 and 1996 and the results of operations for
the two year period ended March 31, 1997. The purpose of this discussion is to
focus on information about the Company's financial condition and results of
operations which are not otherwise apparent from the audited financial
statements. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.
The consolidated balance sheet and statement of income as of March 31, 1996
and for the year then ended represent the financial position and results of
operation for Newnan Savings Bank, FSB and subsidiaries. On August 22, 1996
Newnan Savings Bank formed a holding company, Newnan Holdings, Inc. and at the
same time merged with Southside Financial Group, Inc. ("Southside"), the parent
company of Citizens Bank and Trust of Fayette County in a business combination
accounted for under the purchase method of accounting. In connection with this
acquisition, shareholders of Southside received 136,990 shares of First Citizens
Corporation stock and $13.7 million in cash. As of March 31, 1997, the Company
acquired Tara Bankshares Corporation. ("Tara"), the parent company of Tara
State Bank. This transaction was also accounted for under the purchase method of
accounting. Tara shareholders received 221,773 shares of Company stock and $5.1
million in cash. The two transactions are summarized as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
BANK DATE ASSETS LOANS DEPOSITS
<S> <C> <C> <C> <C>
First Citizens Bank of
Fayette County August 22, 1996 $91,016 $56,925 $73,589
Tara State Bank March 31, 1997 60,438 34,510 50,014
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
NET EARNINGS
1997 COMPARED TO 1996. Net earnings were $2,651,686, or $1.58 per share
compared to $4,049,955, or $2.71 per share in 1996, a decline of $1,398,269 or
34.5%. The most significant item contributing to the decline include a $2.1
million reduction in the gain on sale of real estate held for development and
sale, the result of reduced sales of tracts of land through Jefferson Ventures,
Inc. Additionally, the Company's deposit insurance premiums increased $725,000,
the result of the Special Assessment to recapitalize the Savings Association
Insurance Fund ("SAIF") which was levied in September 1996 against the Company's
First Citizens-Newnan in the amount of $772,000. Salaries and benefits expense
rose $1.2 million as a result of compensation costs associated with First
Citizans Bank-Fayetteville and two additional loan origination offices opened by
Citizens Mortgage Group, a subsidiary of First Citizens-Newnan. Finally,
subsequent to the balance sheet date the Company identified a potential loss
within a group of deposit accounts controlled by one of its customers as a
result of advancing funds in excess of available deposits. The Company
identified the potential net loss to be $982,000 and determined that a
substantial amount of the loss existed as of March 31, 1997. Therefore, at March
31, 1997 management established a reserve for this loss through a charge to
current earnings.
These amounts were offset by a $3.3 million increase in net interest income,
the result of growth in the amount of interest earning assets of the Company
resulting from both the acquisition of the First Citizens-Fayetteville Bank and
normal growth of the Company.
1996 COMPARED TO 1995. For 1996, the Company earned record net profits of
$4,049,955, or $2.71 per share compared to $1,620,064 or $1.14 per share for
1995, an increase of 150%. The most significant item contributing to the
increase was a pretax increase of $2,451,000 in gain on sale of real estate held
for development and sale, resulting from the sale of commercial tracts of land
through Jefferson Ventures, Inc. Additionally, net interest income increased
$562,000, the result of an increase in the Company's interest earning assets;
gain on sale of loans increased $349,000 due to an increase in the volume of
loans sold of $6.4 million and to higher profit margins on loans sold; a decline
of $181,000 in compensation costs resulted from closing of several of its
mortgage origination offices in the latter part of fiscal 1995; and other
operating expenses declined $88,000.
NET INTEREST INCOME
TABLE 1: AVERAGE BALANCES, INTEREST INCOME
AND INTEREST EXPENSE
The following table contains condensed average balance sheets for the periods
indicated. In addition, the amount of the Company's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the related average interest rates, net interest spread and net
yield on average interest earning assets are included.
4
<PAGE>
Table 1. ANALYSIS OF NET INTEREST INCOME
For The Years Ended March 31,
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE
BALANCE EXPENSE RATE BALANCE P
<S> <C> <C> <C> <C>
Interest Earning Assets:
Loans (1)(2)(7).............................................................. $173,544 $15,789 9.10% $132,641
Federal funds sold (2)....................................................... 2,909 157 5.40% --
Interest bearing deposits (2)................................................ 4,038 212 5.25% 1,821
Nontaxable investment securities (2)......................................... 1,693 89 5.26% --
Taxable investment securities (2) (8)........................................ 17,382 1,089 6.27% 14,775
Total interest earning assets.............................................. $199,566 $17,336 8.69% $149,237
Cash and due from banks (3).................................................. 7,309 3,404
Allowance for loan losses (3)................................................ (2,200) (1,403)
Other assets (3)............................................................. 11,656 10,053
Total assets............................................................... $216,331 $161,291
Interest Bearing Liabilities
Interest bearing demand and savings (2)...................................... $ 54,683 $ 1,561 2.85% $ 39,894
Time deposits (2)............................................................ 103,765 5,882 5.67% 73,459
FHLB advances and other borrowings (3)....................................... 12,003 692 5.77% 16,855
Total interest bearing liabilities......................................... $170,451 $ 8,135 4.77% $130,208
Noninterest-bearing deposits (2)(6).......................................... 20,420 10,052
Total deposits and other borrowings.......................................... $190,871 $140,260
Other liabilities (3)........................................................ 2,995 2,826
Stockholders equity (3)...................................................... 22,465 18,205
Total liabilities and stockholders' equity................................. $216,331 $161,291
Interest rate spread (4)..................................................... 3.92%
Net interest income/margin (5)............................................... $ 9,201 4.61%
<CAPTION>
AVERAGE
INCOME/ YIELD/
EXPENSE RATE
<S> <C> <C>
Interest Earning Assets:
Loans (1)(2)(7).............................................................. $11,449 8.63%
Federal funds sold (2)....................................................... -- --
Interest bearing deposits (2)................................................ 96 5.27%
Nontaxable investment securities (2)......................................... -- --
Taxable investment securities (2) (8)........................................ 867 5.87%
Total interest earning assets.............................................. $12,412 8.32%
Cash and due from banks (3)..................................................
Allowance for loan losses (3)................................................
Other assets (3).............................................................
Total assets...............................................................
Interest Bearing Liabilities
Interest bearing demand and savings (2)...................................... $ 1,174 2.94%
Time deposits (2)............................................................ 4,343 5.91%
FHLB advances and other borrowings (3)....................................... 996 5.91%
Total interest bearing liabilities......................................... $ 6,513 5.00%
Noninterest-bearing deposits (2)(6)..........................................
Total deposits and other borrowings..........................................
Other liabilities (3)........................................................
Stockholders equity (3)......................................................
Total liabilities and stockholders' equity.................................
Interest rate spread (4)..................................................... 3.32%
Net interest income/margin (5)............................................... $ 5,899 3.95%
</TABLE>
Note: The above information is prepared on a consolidated basis in which all
loans and accounts with subsidiaries have been eliminated.
(1) Includes loans held for sale and nonaccrual loans.
(2) Daily average.
(3) Monthly average for 1997, quarterly average for 1996.
(4) Interest rate spread is the weighted average yield on interest earning
assets minus weighted average rate on interest bearing liabilities.
(5) Net interest margin is net interest income divided by interest earning
assets.
(6) Noninterest bearing deposits include official checks outstanding.
(7) Interest income from loans includes amortization of deferred loan fees
totaling $864,000 and $549,000 for the years ended March 31, 1997 and
1996, respectively.
(8) Yields on nontaxable securities has not been computed on a tax equivalent
basis.
TABLE 2: RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the year indicated. For each category of interest-earning asset and
interest-bearing liability, information is provided on changes attributable to
(1) change in volume (change in volume multiplied by previous year rate); (2)
change in rate (change in rate multiplied by previous year volume); and a
combination of change in rate and change in volume. The changes in interest
income and interest expense attributable to both volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
5
<PAGE>
Table 2. ANALYSIS OF CHANGES IN NET INTEREST INCOME
For The Years Ended March 31,
(In Thousands)
<TABLE>
<CAPTION>
1996 COMPARED TO
1997 COMPARED TO 1996 1995
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
RATE VOLUME TOTAL RATE VOLUME
<S> <C> <C> <C> <C> <C>
Interest Income
Loans.................................................................. $ 658 $3,682 $4,340 $871 $ 761
Federal funds sold..................................................... -- 157 157 -- --
Interest bearing deposits.............................................. (1) 117 116 28 (47 )
Nontaxable investment securities....................................... -- 89 89 -- --
Taxable investment securities.......................................... 62 160 222 3 (34 )
Total interest income.............................................. $ 719 $4,205 $4,924 $902 $ 680
Interest Expense
Interest bearing demand and savings.................................... $ (37) $ 424 $ 387 $ 49 $ (50 )
Time deposits.......................................................... (183) 1,722 1,539 837 361
FHLB advances and other borrowings..................................... (23) (281 ) (304) 30 (206 )
Total interest expense............................................. $(243) $1,865 $1,622 $916 $ 105
Net interest income.................................................... $ 962 $2,340 $3,302 $(14) $ 575
<CAPTION>
TOTAL
<S> <C>
Interest Income
Loans.................................................................. $1,632
Federal funds sold..................................................... --
Interest bearing deposits.............................................. (19)
Nontaxable investment securities....................................... --
Taxable investment securities.......................................... (31)
Total interest income.............................................. $1,582
Interest Expense
Interest bearing demand and savings.................................... $ (1)
Time deposits.......................................................... 1,198
FHLB advances and other borrowings..................................... (176)
Total interest expense............................................. $1,021
Net interest income.................................................... $ 561
</TABLE>
(1) The rate volume variance has been allocated between rate and volume
variances in proportion to their percentage of the total volume and rate
change.
1997 COMPARED TO 1996. Net interest income increased $3.3 million, or 55.9%
from $5.9 million in 1996 to $9.2 million in 1997. The average balance of
interest earning assets increased $50.3 million to $199.6 million, the result of
the acquisition of First Citizens-Fayetteville. The average balance of loans
receivable grew by $40.9 million to $173.5 million. In addition, the average
yield on the loan portfolio increased from 8.63% for 1996 to 9.10% for 1997.
This increase in yield results from two items. First, the acquisition of First
Citizens-Fayetteville, whose loan portfolio was concentrated in residential
construction loans and commercial loans which normally carry higher rates of
interest. Second, First Citizens-Newnan increased its construction loan
portfolio during the year as a result of its entry into Henry County, Georgia
through the opening of a loan production office, in addition to its continued
strong growth in the Coweta and Fayette County market areas it has traditionally
served. Average balances of Federal Funds sold and nontaxable securities are
associated with the Fayetteville acquisition. All other average balances of
interest earning assets did not vary materially from 1996.
The average balances of interest bearing liabilities grew $40.2 million, from
$130.2 million in 1996 to $170.5 million in 1997. Interest bearing demand
deposits and savings accounts grew $14.8 million to $54.7 million due to
acquisitions. The average rate paid on these deposits in 1997 was 2.85%,
consistent with the rate of 2.94% in 1996. The average balance of time deposits
was $103.8 million, an increase of $30.3 million from 1996, of which $20.4
million of the increase was attributable to the Fayetteville acquisition and the
remaining $9.9 million attributable to internal growth. The average rate on
these deposits declined from 5.91% in 1996 to 5.67% in 1997. This is the result
of reduced rates paid on certificate accounts and to the lower rate paid on the
deposit base associated with First Citizens-Fayetteville. As a result of the
growth in deposits, the Company reduced its average level of advances by $4.8
million, from $16.8 million in 1996 to $12.0 million in 1997. Average rates paid
on these funds declined from 5.91% in 1996 to 5.77% in 1997.
The net interest margin increased from 3.95% in 1996 to 4.61% in 1997. This is
the result of a higher yield on interest earning assets, which increased from
8.32% in 1996 to 8.69% in 1997. This increase is due to the growth in average
balance and average yields of the loan portfolio, and to the reduction in cost
of funds, which declined from 5.00% in 1996 to 4.77% in 1997. In addition the
average balance of noninterest bearing deposits grew $10.4 million to $20.4
million, the result of the First Citizens-Fayetteville acquisition. Through
these noninterest bearing deposits, the Company could increase its net interest
margin by utilizing these funds which do not require the payment of interest to
fund interest earning assets.
The growth in average balances accounted for $2.3 million of the $3.3 million
increase in net interest income with the changes in yields and rates accounting
for $962,000 in additional net interest income. Interest income on loans
receivable increased $4.3 million of which $3.7 million was due to the growth in
the loan portfolio, while $658,000 was due to the increase in average yields.
Interest income on interest bearing deposits increased $116,000 due to the
increase in average balances. Interest income on Federal funds sold and
nontaxable investment securities grew by $157,000 and $89,000, due to the
increases in volume as these items are strictly attributable to First Citizens-
Fayetteville.
6
<PAGE>
Interest expense increased $1.6 million. Growth in the amount of interest
bearing liabilities resulted in an increase of $1.9 million in interest expense
while the reduction in rates paid on these funds accounted for a $243,000
decline to offset a portion of the volume related increases. Interest on
interest-bearing demand deposits and savings accounts increased by $387,000.
Growth in balances of these accounts resulted in an increase in interest expense
of $424,000 while the decline in rates paid offset this by $37,000. Interest on
time deposits increased by $1.5 million, with the increase in volume resulting
in an increase of $1.7 million which was offset by a decline in average rate
paid, resulting in interest savings of $183,000. Interest on FHLB advances
declined by $304,000. Reduced balances of advances outstanding resulted in a
reduction of $281,000 while decline in average rate resulted in $23,000.
1996 COMPARED TO 1995. Net interest income increased $562,000 or 10.52%, from
$5.3 million for 1995 to $5.9 million for 1996. The average balance of interest
earning assets increased by $7.6 million. While average interest earning assets
increased by $7.6 million, virtually all of the increase came in the Company's
loan portfolio, which normally earns higher rates of interest than do
investments and interest bearing deposits. Average balances, interest income and
average yields for mortgage backed securities, investment securities and Federal
Home Loan Bank stock did not vary materially from 1995 to 1996. A decline in the
average balance of interest bearing deposits was offset by an increase in
average rate, such that interest income amounts did not vary significantly.
The $7.6 million increase in earning assets was funded by growth in
noninterest bearing deposits, whose average balance increased $2.5 million, and
certificates of deposit, whose average balance increased $7.1 million. While the
average yield on interest earning assets increased 67 basis points to 8.32%, the
average rate on interest bearing liabilities increased 72 basis points to 5.00%.
The interest rate spread for 1996 was consistent with that for 1995, declining
slightly from 3.37% to 3.32%. However, the growth in interest earning assets
enabled the net interest margin to increase from 3.77% in 1995 to 3.95% in 1996.
The average balance of certificates of deposit increased $7.1 million as a
result of a marketing effort by the Company to generate new deposits. The focus
of the marketing program was a one year certificate bearing an interest rate of
6.00%. As a result of this, average rates on certificates increased from 4.74%
in 1995 to 5.91% in 1996. Due to the growth in certificates, the Company was
able to reduce the level of its FHLB advances, which declined from an average
balance of $20.3 million in 1995 to $16.7 million in 1996.
As shown in the Table 2, the growth in the average balances resulted in an
increase of $575,000 in net interest income while changes in yields and rates
resulted in a decline of $14,000. Interest income on loans increased $1.6
million of which $761,000 was attributable to increases in volume and $871,000
was due to increases in yield. All other changes in interest income did not vary
materially. Interest expense on certificates of deposit increased $1.2 million
of which $361,000 was due to increase in volume while $837,000 was due to
increase in rates. Interest on FHLB advances and other borrowings declined
$176,000. The reduction in volume resulted in a decline of $206,000 in interest
paid on these funds, while an increase in the average rate resulted in an
increase in interest of $30,000.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of economic
conditions, size and composition of the loan portfolio, the historical charge
off experience, the level of nonperforming and past due loans and other
indicators derived from reviewing the loan portfolio. Management performs such
reviews periodically and determines the level of loan loss allowances needed. At
March 31, 1997 management believes that its allowance for loan losses was
adequate to provide for inherent losses in the loan portfolio.
Generally, asset quality has improved since 1993. Nonaccruing loans as a
percentage of total loans declined from 2.01% in 1993 to 1.15% in 1997, and
declined as a percentage of total assets from 1.33% to 0.86% during the same
period. Total nonperforming assets have declined as a percentage of total assets
from 2.05% in 1993 to 0.87% in 1997 due to declines in nonaccruing loans and
increases in total assets. The ratio of the allowance for loan losses to
nonaccruing loans has increased from 67.21% in 1993 to 133.73% in 1997, due to
declines in nonaccrual loans and an increase in the allowance for loan losses.
The ratio of the allowance to total loans was 1.54% and 1.09% at March 31, 1997
and 1996, respectively. The increase in the allowance for loan loss to total
loans is primarily attributable to the allowance acquired in the business
combinations during fiscal year 1997.
7
<PAGE>
The following table presents at the dates indicated the aggregate of
nonperforming loans for the following categories:
<TABLE>
<CAPTION>
MARCH 31,
DOLLARS IN THOUSANDS
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............. $2,796 $713 $872 $1,427 $1,704
Loans contractually past due
ninety days or more as to
interest or principal
payments and still
accruing..................... 55 -- -- -- --
Loans, the terms of which have
been renegotiated to provide
a reduction or deferral of
interest or principal because
of deterioration in the
financial position of the
borrower..................... -- -- -- -- --
Loans now current about which
there are serious doubts as
to the ability of the
borrower to comply with
present loan repayment
terms........................ -- -- -- -- --
</TABLE>
The reduction in interest income associated with nonaccrual loans as of March
31, 1997 is as follows:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
Interest income that would have been recorded on
nonaccrual loans under original terms............. $209
Interest income that was recorded on nonaccrual
loans............................................. $ 25
</TABLE>
Management considers all nonaccrual loans to be impaired in accordance with
Financial Accounting Standards Board ("FASB") No. 114 and 118. Loans past due
greater than ninety days and still accruing represents those loans which have
adequate collateral values, therefore minimizing the risk of loss of principal
or interest.
In the opinion of management, any loans classified by
regulatory authorities as doubtful, substandard or special mention that have not
been disclosed above do not (1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (2) represent material credits about
which management is aware of any information which causes management to have
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. Any loans classified by regulatory authorities as loss have
been charged off.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the subsidiary Banks have granted
commitments to extend credit and standby letters of credit to approved
customers. Generally, these commitments to extend credit have been granted on a
temporary basis for seasonal or inventory requirements and have been approved by
the Banks' Board of Directors. These commitments are recorded in the financial
statements as they are funded. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at March 31, 1997.
<TABLE>
<CAPTION>
1997
<S> <C>
Unfunded mortgage loan commitments................ $17,794,000
Residential construction and commercial loan
commitments..................................... 26,702,846
Other commitments to extend credit................ 32,928,825
Standby letters of credit......................... 1,539,000
$78,964,671
</TABLE>
The following table summarizes the allowance for loan losses for
each year.
<TABLE>
<CAPTION>
MARCH 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Average amount of
loans outstanding... $173,544 $132,641 $123,420 $92,855 $83,252
Balance of allowance
for loan losses at
beginning of year... $ 1,371 $ 1,435 $ 1,315 $ 1,146 $ 1,263
Charge-offs:
Real estate......... (38) (54) -- (35) (257)
Consumer............ (33) (38) (37) (75) (52)
Commercial.......... (76) -- -- -- --
(147) (92) (37) (110) (309)
Recoveries:
Real estate......... 3 4 -- -- --
Consumer............ 2 14 49 4 12
5 18 49 4 12
Net (charge-offs)
recovery............ (142) (74) 12 (106) (297)
Additions to the
allowance for loan
losses
Reserves acquired in
acquisitions...... 2,325 -- -- -- --
Additions to
allowance charged
to operations..... 185 10 108 275 180
2,510 10 108 275 180
Balance of allowance
for loan loan losses
at end of year...... $ 3,739 $ 1,371 $ 1,435 $ 1,315 $ 1,146
Ratio of net loan
charge-offs during
the year to average
loans outstanding
during the year..... 0.08% 0.06% 0.01% 0.11% 0.36%
</TABLE>
The following table summarizes the allocation of the allowance for loan losses
to types of loans as of the indicated dates.
<TABLE>
<CAPTION>
(DOLLAR IN THOUSANDS)
YEAR ENDED MARCH 31,
1997 1996
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
<S> <C> <C> <C> <C>
Commercial....... $1,531 10.30% -- --%
Real estate...... 1,219 85.10% 547 93.00%
Consumer......... 989 4.60% 824 7.00%
$3,739 100.00% $1,371 100.00%
</TABLE>
1997 COMPARED TO 1996. Provision for loan losses was $185,000 compared to
$10,000 for 1996. For 1997, net chargeoffs were $142,000 compared to $74,000 in
1996. At March 31, 1997 the allowance for loan losses was $3,739,000 or 133.73%
of nonaccruing loans compared to 192.29% at March 31, 1996. Nonaccruing loans
increased $2.08 million from $713,000 at March 31, 1996 to $2.80 million at
March 31, 1997. Of the increase, $1.8 million is
8
<PAGE>
related to the acquisitions of First Citizens-Fayetteville and Tara State Bank.
At March 31, 1997 nonaccrual loans included four loans to two borrowers
totaling $1.3 million. The first borrower had two loans outstanding to the
Company totaling $987,000. These loans were assets of First
Citizens-Fayetteville and were identified by First Citizens-Fayetteville as
impaired loans prior to the acquisition, at which time the
balance on the loans totaled $1.2 million. The loans were restructured in
bankruptcy court and the borrower has been performing in accordance with the new
loan terms. Management has kept the loans on a nonaccrual basis pending further
satisfactory performance.
The second borrower has two loans totaling $308,000 which were nonaccrual at
March 31, 1997. These loans were also assets of First Citizens-Fayetteville and
prior to the acquisition were also identified as impaired
loans, at which time their balance was $360,000. Subsequent to August 22, 1997,
the borrower paid down the balance of one loan in the amount of $170,000.
1996 COMPARED TO 1995. Provision for loan losses was $10,000 compared to
$108,000 for 1995. For 1996, net chargeoffs were $74,000 compared to a net
recovery of $12,000 in 1995. At March 31, 1996, the allowance for loan losses
was $1,371,000, or 192.35% of nonaccruing loans compared to 164.44% at March 31,
1995. Nonaccruing loans declined from $872,000 at March 31, 1995 to $713,000 at
August 22, 1996 while potential problem loans declined from $1,983,000 to
$982,000 for the same period. At August 22, 1996, past due and nonaccruing loans
included six mortgage loans totaling $543,000 secured by single family
dwellings, three second mortgage loans totaling $27,000, and 37 consumer loans
totaling $143,000. The largest single loan past due is a mortgage loan in the
amount of $162,000.
Potential problem loans were $982,000 at March 31, 1996 and consisted mainly
of three loans outstanding to a single group of borrowers totaling $895,000.
These loans are secured by various rental properties and tracts of commercial
and farm land, and were classified as potential problem loans at March 31, 1995.
The estimated value of these properties exceeds the balances of the respective
loans.
OTHER INCOME
1997 COMPARED TO 1996. Other income declined $1.4 million or 27.0% to $3.8
million. The primary component of the decline is a $2.1 million decline in the
gain on sale of real estate held for development and sale (see "Real Estate
Activities" below). Service charges on deposit accounts increased $329,000 or
51.3 % to $969,000. Of this amount, $223,000 is the result of the mergers during
the year while $105,000 is due to growth in deposit accounts over the past year.
Gain on sale of loans increased $179,000 or 28.4% to $810,000. The volume of
loans sold increased from $44.2 million in 1996 to $55.7 million in 1997. The
increase in volume is attributable to the growth in the market area served by
the Company. Gain on sale of real estate owned increased $143,000 due to the
payoff of a loan made in a prior year to finance the sale of a foreclosed
commercial property. The gain was not recognized at the time of sale due to the
down payment not being adequate to qualify for gain recognition under Statement
of Financial Accounting Standards No. 66.
1996 COMPARED TO 1995. Other income increased $2.9 million or 122.69%, to $5.2
million. The significant component was a $2.4 increase in the gain on sale of
real estate held for development and sale (see "Real Estate Activities" below).
Gain on sale of loans increased $349,000 or 123.67% to $631,000. The volume of
loan sales increased from $37.7 million in fiscal 1995 to $44.2 million in 1996.
In addition to the volume growth, profit margins received on loans sold
increased due to a falling interest rate environment which existed throughout
the year. Furthermore, during fiscal 1995 the Company began to broker its
originations to other investors under which it receives a service release
premium at the time of sale. Since this strategy was in place during the
entirety of fiscal 1996 versus a portion of fiscal 1995, resulting gains were
higher in 1996.
REAL ESTATE ACTIVITIES
The Company engages in real estate development through a wholly owned subsidiary
of First Citizens-Newnan, Jefferson Ventures, Inc., which owns the White Oak
residential development in Newnan, Georgia. Since 1991, as a result of
regulatory restrictions, Jefferson Ventures ceased its development activity and
adopted a strategy of selling off, in an orderly manner, remaining developed
lots to builders and undeveloped parcels to other developers. The table below
summarizes real estate sales for the periods shown:
SUMMARY OF REAL ESTATE SALES
For The Years Ended March 31,
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Number of lots sold.................... 15 40
Acres of land sold..................... 116 71
Net sales proceeds..................... $1,853,650 $4,496,834
Less: Basis of land sold............... 448,044 1,336,081
Less: Gains deferred................... 349,808 13,241
Add: Recognition of gains previously
deferred............................. 13,238 67,492
Gain on sale of real estate............ $1,069,036 $3,215,004
</TABLE>
NOTE: The above table represents pretax gains from real estate sales and not the
net earnings from Jefferson Ventures, Inc.
1997 COMPARED TO 1996. For 1997, the net gain on sale of real estate held for
development and sale declined $2.1 million to $1.1 million. While the number of
acres sold increased from 71 in 1996 to 116 in 1997, gains declined because 1996
sales consisted of commercial tracts which typically command higher prices and
result in higher profit margins. Conversely, 1997 land sales consisted of sales
of
9
<PAGE>
residential tracts. The number of residential building lots declined to 15 in
1997 from 40 in 1996. The lots sold in 1997 represented the remaining developed
lots held in inventory.
At March 31, 1997, the White Oak development consisted of approximately 1,544
acres of open land. At March 31, 1997 the estimated market value of the property
exceeds its carrying value of $3.3 million.
In June 1996, the Company entered into an agreement to sell over time
approximately 1,400 acres of the remaining land. The first closing under this
contract occured in June 1997 when the buyer purchased 400 acres. As a result of
that closing, Jefferson Ventures recognized a gain of $3.3 million. The
remaining land may be purchased by the buyer over an eight year period.
1996 COMPARED TO 1995. For 1996, the net gain on sale of real estate held for
development and sale increased $2.5 million to $3.2 million. This increase is
due to 1996 sales including tracts of undeveloped commercial property which
carries a higher sales price than land sold for residential development. The
number of lots sold increased from 21 in 1995 to 40 in 1996 due to a bulk sale
of lots occurring in 1996.
At March 31, 1996, the White Oak development consisted of 15 residential
building lots and approximately 1,660 acres of open land. The estimated market
value of the property exceeds its carrying value of $3.7 million.
OTHER EXPENSES
1997 COMPARED TO 1996. Other expenses increased $4.0 million from $4.6 million
in 1996 to $8.6 million in 1997. Salaries and benefits increased $1.1 million to
$3.3 million of which $761,000 is due to merger related growth while $424,000
results from normal salary increases and additional staffing relating to two
additional mortgage origination offices. Occupancy and equipment costs increased
$309,000 or 38.2% to $1.2 million. Of this amount, $172,000 resulted from
merger-related growth while $137,000 was attributable to additional overhead
incurred in connection with the new mortgage offices.
Federal insurance premiums and assessments increased $725,000 from $274,000 in
1996 to $999,000 in 1997. The reason for this increase relates to legislation
passed to recapitalize the SAIF fund by means of a Special Assessment to be
levied against financial institutions whose deposits were insured by this fund.
This resulted in the Company recording a charge against earnings of $772,000
(see "SAIF Assessment" below).
Data processing costs totaled $307,000 compared to $222,000 for 1996, an
increase of $85,000 for the year relating to the acquisitions made during the
year.
Amortization of goodwill was $210,000 for the year and relates to amortization
of goodwill recorded in connection with the acquisition of the First
Citizens-Fayetteville. This goodwill is being amortized over a period of 15
years using the straight-line method.
Other operating losses were $982,000 for the year and relates to an event
subsequent to March 31, 1997 in which the Company identified a potential loss
within a customer account as the result of advancing funds in excess of
available deposits. On June 3, 1997, after further investigation and review of
the facts and circumstances, the Company determined that the potential net loss
to be incurred was $982,000 and the significant portion of the potential loss
existed as of March 31, 1997. Therefore, the Company has recognized the amount
of the potential loss as of the balance sheet date by a charge to current
earnings and the establishment of a reserve for losses, which is included in
other liabilities. Management continues to pursue all available means of
collection available, however, the amount to be collected, if any, is unknown.
1996 COMPARED TO 1995. Other expenses declined $425,000 or 8.39% to $4.6
million. Compensation costs declined $181,000 or 7.98% due to a reduction of
$299,000 in loan origination commissions and salaries associated with Citizens
Mortgage Group, Inc., the Company's mortgage origination subsidiary. This
decline is attributable to the closing of several mortgage origination offices
in the fourth quarter of fiscal 1995. This decline was offset in part by an
increase of $115,000 in compensation costs in connection with Bank operations.
Of this increase, $43,000 was due to an increase in accrued incentive
compensation expense while $47,000 was due to an increase in loan origination
commissions, the result of increased loan originations.
Occupancy and equipment costs declined $76,000 or 8.61% to $809,000 primarily
due to a reduction of $124,000 of such costs for Citizens Mortgage Group, Inc as
a result of the closing of several of its mortgage origination offices. This
reduction was offset by a $55,000 increase in costs associated with operations
of First Citizens-Newnan, primarily the result of depreciation expense incurred
as a result of computer equipment purchased in fiscal 1996. Data processing
charges declined $64,000 or 22.30% to $222,000 due to reduced fees negotiated as
a part of the Company's contract renewal with its data processing provider.
Other operating expenses declined $88,000 or 6.57% to $1,252,000. The majority
of the reduction results from a reduction in administrative costs associated
with Citizens Mortgage Group, Inc
SAIF ASSESSMENT
On September 30, 1996 legislation was signed into law providing for a special
assessment on financial institutions whose deposits are insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The purpose of the assessment was to recapitalize the SAIF to
levels required by law. This special
10
<PAGE>
assessment took the form of a one time payment of 65.7 cents per $100 of
deposits held by institutions on March 31, 1995. In September 1996, First
Citizens-Newnan recorded a charge to earnings of $772,000 for this assessment.
The new law provides for the merger of the SAIF into the Bank Insurance Fund
("BIF") by 1999 subject to certain conditions. Furthermore, it also requires
that institutions whose deposits are BIF-insured bear a portion of the payment
of interest on the bonds previously issued by the Financing Corporation, a
specially created government entity. These bonds were issued in the 1980s to
resolve the thrift industry crisis which existed at that time. To fund the
interest payments on these bonds, effective January 1, 1997 all SAIF insured
institutions began paying 6.4 basis points of their deposits while BIF insured
institutions began paying 1.3 basis points in addition to any insurance premiums
to be paid. Effective January 1, 1997 insurance premiums paid by SAIF
institutions under the current risk classification were reduced from a range of
23 to 31 basis points to a range of zero to 27 basis points.
BALANCE SHEET REVIEW
1997 COMPARED TO 1996. Total assets increased $144.3 million, or 79.3% to
$326.4 million as a result of the acquisitions of Citizens Bank and Trust of
Fayette County and Tara State Bank. Federal Funds sold increased $7.8 million
due to the acquisition of the First Citizens-Fayetteville and Tara banks.
Securities available for sale increased $7.5 million while securities held to
maturity declined $5.0 million due to maturities and principal repayments. Net
loans receivable increased by $114.4 million of which $91.4 million were added
in connection with the acquisitions First Citizens-Fayetteville and Tara while
$23.0 million relates to growth in the portfolio.
Premises and equipment increased by $4.3 million, primarily due to the
acquisitions. Goodwill increased by $7.3 million, also the result of the
acquisitions.
Deposit accounts increased $139.2 million, or 106.5% to $269.8 million. Of
this, $123.6 million are deposits of the new bank subsidiaries while $15.6
million is attributable to growth in deposit accounts. Advances from the Federal
Home Loan Bank declined by $11.7 million to $17.7 million as the growth in
deposit accounts provided for the repayment of a portion of these advances. At
March 31, 1997 $7.7 million of these advances had maturities of more than a year
while $10.0 million had maturities of less than a year. Other liabilities
increased $7.3 million of which $5.1 million represented consideration payable
in the form of cash to stockholders of Tara Bankshares. Subsequent to March 31,
the Company obtained financing of $4.0 million and used existing cash of $1.1
million to make payment to their shareholders. Also included in other
liabilities was $982,000 reserved for potential losses discussed earlier.
Stockholders' equity increased $9.5 million to $29.8 million. This results
from earnings retained during the year and an addition to capital of $7.5
million resulting from stock issued in connection with the acquisitions during
the year, less dividends declared of $686,000.
1996 COMPARED TO 1995. Total assets increased $12.5 million or 7.40% to $182.0
million. Investment securities increased $12.9 million to $22.8 million. Net
loans receivable declined $1.6 million to $123.1 million due primarily to a $1.1
million reduction in student loans, the result of the sale in fiscal 1996 of the
Company's portfolio of such loans. Real estate held for development and sale
declined $1.3 million or 26.25% to $3.7 million due to sales at White Oak (see
"Real Estate Activities" above). Real estate acquired in settlement of loans
("REO") declined $13,000 or 10.71% to $111,000. At March 31, 1996 REO consisted
of four residential building lots and one single family dwelling.
Deposit accounts increased $12.8 million or 10.88% to $130.6 million. Interest
bearing checking accounts increased $2.4 million while noninterest bearing
checking accounts (which includes commercial accounts, loan servicing custodial
accounts, and the Company's outstanding official checks) increased $2.51
million. Certificates of deposit increased $9.5 million while money market and
passbook accounts declined $770,000 and $833,000, respectively. The increase in
certificates of deposit was mainly attributable to an increase in one year
certificates, which grew $10.8 million as a result of a marketing effort
conducted during the fiscal year in which the Company offered a premium rate of
6.00% to attract new accounts. Federal Home Loan Bank advances declined $4.0
million or 12.03% to $29.4 million. At March 31, 1996, $8.1 million of these
advances had original maturities of more than a year while $22.5 million had
original maturities of less than a year.
Stockholders' equity increased $3.7 million to $20.3 million as a result of
net earnings retained.
SECURITIES PORTFOLIO
The carrying amounts of securities at the dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
U.S. Treasury and other U.S. Government
agencies and corporations................. $31,865 $31,927
State and municipal securities.............. 2,727 --
Equity securities........................... 1,368 1,471
$35,960 $33,398
</TABLE>
The carrying amounts of securities in each category as of March 31, 1997 are
shown in the following table according to maturity classifications. Equity
securities are excluded from the table below because they have no contractual
maturity.
11
<PAGE>
<TABLE>
<CAPTION>
U.S. TREASURY
AND OTHER
U.S. GOVERNMENT STATE AND
AGENCIES AND MUNICIPAL
CORPORATIONS SECURITIES
CARRYING CARRYING
AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
One year or less.......... $ 9,592 5.48 % $ -- --%
After one year through
five years.............. 12,387 5.56 % 366 4.40%
After five years through
ten years............... 2,829 6.20 % 1,317 5.28%
After ten years........... 7,057 5.94 % 1,044 5.02%
$31,865 5.68 % $2,727 5.06%
</TABLE>
LOAN PORTFOLIO
TYPES OF LOANS
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
<TABLE>
<CAPTION>
AT MARCH 31,
DOLLARS IN THOUSANDS
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial,
financial
agricultural..... $ 25,655 $ 1,094 $ -- $ -- $ --
Real estate --
construction..... 60,010 11,203 18,983 13,520 9,496
Real estate --
mortgage (1)..... 152,027 115,938 101,747 80,021 64,989
Consumer and
other............ 11,456 4,088 10,826 10,638 11,480
$249,148 $132,323 $131,556 $104,179 $85,965
Less allowance for
loan losses...... 3,739 1,371 1,435 1,315 1,145
Loans, net......... $245,409 $130,952 $130,121 $102,864 $84,820
</TABLE>
(1) Includes loans held for sale and is stated net of unearned income and fees
on loans.
MATURITIES AND SENSITIVITIES TO
CHANGES IN INTEREST RATES
Total loans as of March 31, 1997 are shown in the following table according to
maturity classifications (1) one year or less, (2) after one year through five
years, and (3) after five years. The disclosure of loans by the above categories
is not available and in making this determination, the Company has considered
the estimated expense and capabilities of its data processing system.
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
MATURITY:
One year or less.................................... $ 97,928
After one year through five years................... 38,397
After five years.................................... 112,823
$249,148
</TABLE>
DEPOSITS
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below. (1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand
deposits.................. $ 20,420 --% $ 10,052 --%
Interest-bearing demand and
savings deposits.......... 54,683 2.85 39,894 2.94
Time deposits............... 103,765 5.67 73,459 5.91
$178,868 $123,405
</TABLE>
(1) Average balances were determined using monthly average balances during the
year for each category.
The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of March 31, 1997 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months, (3) over six through twelve months and (4) over twelve months.
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
Three months or less................................ $ 7,489
Over three months through six months................ 8,109
Over six months through twelve months............... 6,251
Over twelve months.................................. 4,944
$ 26,793
</TABLE>
SHORT TERM BORROWINGS
The following information is presented with respect to the Company's short term
borrowings as of and for the year ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
DOLLARS IN
THOUSANDS
Balance at end of year...................... $10,058 $21,279
Weighted average rate..................... 6.82% 5.60%
Average amount outstanding during year...... $ 3,800 $ 7,779
Weighted average rate..................... 5.59% 6.04%
Maximum amount outstanding during year...... $10,058 $21,279
</TABLE>
LIQUIDITY
Liquidity represents the ability to meet the needs of customers desiring to
withdraw funds from deposit accounts to borrow funds to meet their credit needs.
Each of the Company's subsidiary institutions manage their liquidity needs in
such a way that the needs of depositors and borrowers are met in a timely basis
so that the operations of the Banks are not interrupted. Sources of liquidity
available to meet these needs include cash on deposit, federal funds, securities
available for sale, maturities of securities, and principal payments received on
loans. Growth in the banks' deposit bases provide additional sources as does
access to borrowed funds through relationships with correspondent banks and
advances from the Federal Home Loan Bank of Atlanta
12
<PAGE>
("FHLBA"). Liquidity needs at individual banks can also be met through loan
participations sold to affiliate banks.
At March 31, 1997 the liquidity position of all the subsidiary banks was
considered adequate and within guidelines set forth in the banks' liquidity
policies. Furthermore, the amount of unused line of credit from FHLBA totaled
$37.2 million.
The Parent Company also requires cash for operating expenses and dividends to
stockholders. The primary source of funds for these items is the dividend income
from the subsidiary banks. Management believes that the ability of its
subsidiaries to pay such dividends is adequate to meet its cash needs.
REGULATORY CAPITAL REQUIREMENTS
The Company and its subsidiary banks are subject to minimum capital standards as
set forth by federal bank regulatory agencies.
The Company's capital for regulatory purposes differs from the Company's
equity as determined under generally accepted accounting principles. Generally,
"Tier 1" regulatory capital will equal capital as determined under generally
accepted accounting principles less goodwill and any unrealized gains or losses
on securities available for sale while "Tier 2" capital consists of the
allowance for loan losses up to certain limitations. Risk based capital is the
sum of Tier 1 and Tier 2 capital. The Company's capital ratios and required
minimums at March 31, 1997 are shown below:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
REQUIREMENT ACTUAL
<S> <C> <C>
Tier 1 capital to risk adjusted assets.... 4.00% 9.04%
Risk based capital to risk adjusted
assets.................................. 8.00% 10.29%
Tier 1 leverage ratio (to total average
assets)................................. 3.00% 6.70%
</TABLE>
First Citizens-Newnan is also subject to additional capital requirements of
core capital of 3% of adjusted total assets and tangible capital of 1.5% of
adjusted assets. These requirements are set forth by the Office of Thrift
Supervision, its primary regulator. At March 31, 1997 the Bank was in compliance
with these measures.
Total capital at the subsidiary banks also has an important effect on the
amount of FDIC insurance premiums paid. Institutions not considered well
capitalized can be subject to higher rates for FDIC insurance. This
determination is made each June 30 and December 31. As shown in the table in
Note 12 "Regulatory Matters" in Notes to Consolidated Financial Statements,
First Citizens Bank-Newnan had risk based capital of 9.46%, less than the 10%
minimum required to be considered well capitalized. However, due to sales of
real estate at Jefferson Ventures occurring in June 1997, which will increase
the capital levels at First Citizens-Newnan, Management believes that the Bank
will meet all minimums for well capitalized under regulatory provisions.
ASSET/LIABILITY MANAGEMENT
It is the Company's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers within each subsidiary bank are charged with the responsibility for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix.
Each subsidiary institution's asset/liability mix is monitored on a regular
basis with a report reflecting the interest rate sensitive assets and interest
rate sensitive liabilities being prepared and presented to the Board of
Directors and management's Asset/Liability Committee on a quarterly basis. The
objective is to monitor interest rate sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on earnings. An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Company also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage
13
<PAGE>
loans, have features (generally referred to as "interest rate caps") which limit
changes in interest rates. Prepayment and early withdrawal levels also could
deviate significantly from those assumed in calculating the interest rate gap.
The ability of many borrowers to service their debts also may decrease in the
event of an interest rate increase.
ANALYSIS OF INTEREST SENSITIVITY
As of March 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 3-12 1-3 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Interest bearing
deposits.......... $ 1,672 $ -- $ -- $ -- $ 1,672
Federal funds
sold.............. 7,820 -- -- -- 7,820
Investment
securities........ 11,127 7,107 13,250 4,476 35,960
Loans held for
sale.............. 7,959 -- -- -- 7,959
Loans receivable,
net (1)........... 54,920 108,193 47,274 30,802 241,189
Total interest
earning assets.... $ 83,498 $115,300 $60,524 $35,278 $294,600
Interest-bearing
liabilities
Interest-bearing
demand deposits... $ 57,558 -- -- -- $ 57,558
Savings............. 21,156 -- -- -- 21,156
Time deposits....... 33,535 83,247 33,914 -- 150,696
Federal Home Loan
Bank advances and
other
borrowings........ 342 11,659 4,669 1,135 17,805
Total interest
bearing
liabilities....... $112,591 $ 94,906 $38,583 $ 1,135 $247,215
Interest rate
sensitivity gap... $(29,093) $ 20,394 $21,941 $34,143 $ 47,385
Cumulative interest
rate sensitivity
gap............... $(29,093) $ (8,699) $13,242 $47,385
Interest rate
sensitivity gap
ratio............. 0.74 1.21 1.57 31.08
Cumulative interest
rate sensitivity
gap ratio......... 0.74 0.96 1.05 1.19
</TABLE>
(1) Includes nonaccrual loans.
The above table summarizes interest-sensitive assets and liabilities for the
Company as of March 31, 1997. Adjustable rate loans are included in the period
in which their interest rates are scheduled to adjust. Fixed rate loans are
included in the periods in which they are anticipated to be repaid based on
scheduled maturities and anticipated prepayments. Investment securities are
included in their period of maturity while mortgage backed securities are
included according to expected repayment. Certificates of deposit, Federal Home
Loan Bank advances, and notes payable are presented according to contractual
maturity.
As shown in the table above, the cumulative interest sensitivity gap for the
one year period is a negative $8.7 million. The Company's experience has been
that not all liabilities shown as being subject to repricing will in fact
reprice with changes in market rates. The Company has a base of core deposits
consisting of interest bearing checking accounts and passbook savings accounts
whose average balances and rates paid thereon will not fluctuate with changes in
the levels of market interest rates.
In conjunction with the Company's mortgage banking operation conducted through
its subsidiary, exposure to changes in interest rates is managed by originating
short-term or adjustable rate mortgages and construction loans to be held in the
loan portfolio while originating fixed-rate mortgages underwritten to
specifications such that they can be sold in the secondary market or to private
investors. Fixed rate mortgages are sold to investors on a forward basis at the
time the Company commits to a certain interest rate with the customer involved.
EFFECTS OF INFLATION
First Citizens' consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measure of financial position and operational
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than the
effects of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services, since
such prices are affected by inflation. The yield and maturity structure of the
institution's assets and liabilities is critical to the maintenance of
acceptable performance levels.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to be Disposed Of," (SFAS 121). The
provisions of SFAS 121 require that long-lived assets be reviewed for impairment
whenever events or changes in circumstance indicate that the carrying amount may
not be recoverable. In performing the review of long-lived assets that will be
held and used by the Company, recoverability is based on the future cash flows
expected from the use of the asset and its eventual disposition. If the asset is
impaired, an impairment loss equal to the excess of the carrying value of the
asset over its fair value must be recorded. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted SFAS 121 on April 1, 1996 and it did not have a material impact on the
financial statements.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS 122). SFAS 122 requires that the Company recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired. SFAS 122 also requires that
14
<PAGE>
the Company assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. SFAS 122 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. The
Company adopted SFAS 122 on April 1, 1996 and it did not have a material impact
on the financial statements.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Such
instruments include stock purchase plans, stock options, restricted stock, and
stock appreciation rights. SFAS 123 also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees.
A new method of accounting for stock-based compensation arrangements with
employees is established by SFAS 123. The new method is a fair value based
method rather than the intrinsic value based method. However, SFAS 123 does not
require an entity to adopt the new fair value based method for purposes of
preparing its basic financial statements. Entities are allowed (1) to continue
to use their existing method or (2) adopt the SFAS fair value based method. The
selected method would apply to all of an entity's compensation plans and
transactions.
SFAS 123 requires that an employer's financial statements include certain
disclosures about stock-based employee compensation arrangements regardless of
the method used to account for them. The accounting requirements of this
statement are effective for transactions entered into in fiscal years that begin
after December 15, 1995. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
adopted the disclosure requirements of SFAS 123 on April 1, 1996.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
Per Share" ("SFAS 128. SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the standards
for computing earnings per share previously fount in APB Opinion No. 15,
"Earnings Per Share," and makes them comparable to International EPS standards.
It replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. The effective date
of this Statement is for financial statements issued for periods ending after
December 15, 1997. The Company does not expect the adoption of SFAS 128 to have
a material impact on its earnings per share calculations.
15
<PAGE>
Consolidated Balance Sheets
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
March 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997
<S> <C>
Cash and due from banks............................................................................... $ 13,866,250
Interest-bearing deposits in other banks.............................................................. 1,671,525
Federal funds sold.................................................................................... 7,820,000
Securities available-for-sale......................................................................... 31,809,959
Securities held-to-maturity, at amortized cost, fair value $4,105,789 and $9,086,437, respectively.... 4,149,557
Loans held for sale................................................................................... 7,958,671
Loans receivable, net................................................................................. 237,449,972
Real estate held for development and sale............................................................. 3,291,528
Premises and equipment................................................................................ 7,044,199
Goodwill and other intangibles........................................................................ 7,448,499
Other assets.......................................................................................... 3,854,685
TOTAL ASSETS................................................................................... $326,364,845
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Deposits
Noninterest-bearing demand.......................................................................... $ 40,389,153
Interest-bearing demand............................................................................. 57,557,937
Savings............................................................................................. 21,156,414
Time, $100,000 and over............................................................................. 26,792,537
Other time.......................................................................................... 123,902,996
Total deposits................................................................................. 269,799,037
Federal Home Loan Bank advances....................................................................... 17,767,344
Other borrowings...................................................................................... 37,948
Other liabilities..................................................................................... 8,957,845
Total liabilities.............................................................................. 296,562,174
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock, no par value, 8,000,000 shares authorized; none issued............................. --
Common stock, $1 par value, 8,000,000 shares authorized; 1,840,675 and 1,458,307 shares issued and
outstanding, respectively........................................................................ 1,840,675
Additional paid-in capital.......................................................................... 13,273,562
Retained earnings................................................................................... 14,919,625
Unrealized gains (losses) on securities available-for-sale, net of tax.............................. 459
30,034,321
Less cost of 11,300 shares acquired for the treasury................................................ (231,650)
Total stockholders' equity..................................................................... 29,802,671
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $326,364,845
<CAPTION>
ASSETS 1996
<S> <C>
Cash and due from banks............................................................................... $ 9,214,902
Interest-bearing deposits in other banks.............................................................. 524,372
Federal funds sold.................................................................................... --
Securities available-for-sale......................................................................... 24,265,700
Securities held-to-maturity, at amortized cost, fair value $4,105,789 and $9,086,437, respectively.... 9,132,552
Loans held for sale................................................................................... 7,878,878
Loans receivable, net................................................................................. 123,072,970
Real estate held for development and sale............................................................. 3,739,572
Premises and equipment................................................................................ 2,746,486
Goodwill and other intangibles........................................................................ 195,149
Other assets.......................................................................................... 1,239,719
TOTAL ASSETS................................................................................... $182,010,300
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Deposits
Noninterest-bearing demand.......................................................................... $ 10,955,609
Interest-bearing demand............................................................................. 25,661,029
Savings............................................................................................. 16,658,718
Time, $100,000 and over............................................................................. 403,352
Other time.......................................................................................... 76,956,625
Total deposits................................................................................. 130,635,333
Federal Home Loan Bank advances....................................................................... 29,433,626
Other borrowings...................................................................................... 54,839
Other liabilities..................................................................................... 1,620,505
Total liabilities.............................................................................. 161,744,303
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock, no par value, 8,000,000 shares authorized; none issued............................. --
Common stock, $1 par value, 8,000,000 shares authorized; 1,840,675 and 1,458,307 shares issued and
outstanding, respectively........................................................................ 1,458,307
Additional paid-in capital.......................................................................... 5,853,830
Retained earnings................................................................................... 12,954,052
Unrealized gains (losses) on securities available-for-sale, net of tax.............................. (192)
20,265,997
Less cost of 11,300 shares acquired for the treasury................................................ --
Total stockholders' equity..................................................................... 20,265,997
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $182,010,300
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
Consolidated Statements of Income
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997
<S> <C>
Interest income:
Loans................................................................................................. $15,789,330
Interest-bearing deposits in other banks.............................................................. 211,910
Taxable securities.................................................................................... 1,088,863
Nontaxable securities................................................................................. 88,495
Federal funds sold.................................................................................... 157,271
Total interest income............................................................................ 17,335,869
Interest expense:
Interest on deposits.................................................................................. 7,442,806
Interest on other borrowings.......................................................................... 692,404
Total interest expense........................................................................... 8,135,210
Net interest income.............................................................................. 9,200,659
Provision for loan losses............................................................................... 185,000
Net interest income after provision for loan losses.............................................. 9,015,659
Other income:
Loan servicing and other loan fees, net............................................................... 649,393
Deposit and other service charge income............................................................... 969,151
Gain on sale of loans................................................................................. 810,110
Gain on sale of other real estate owned............................................................... 165,162
Gain on sale of real estate held for development and sale............................................. 1,069,036
Other operating income................................................................................ 169,127
Total other income............................................................................... 3,831,979
Other expenses:
Salaries and benefits................................................................................. 3,272,574
Occupancy and equipment expenses...................................................................... 1,118,608
Federal insurance premiums and assessments............................................................ 999,651
Data processing costs................................................................................. 306,836
Goodwill amortization................................................................................. 210,079
Provision for other operating losses.................................................................. 982,000
Other operating expenses.............................................................................. 1,721,495
Total other expenses............................................................................. 8,611,243
Income before income taxes....................................................................... 4,236,395
Income tax expense...................................................................................... 1,584,709
Net income....................................................................................... $ 2,651,686
Earnings per common share............................................................................... $ 1.58
Weighted average shares and share equivalents outstanding............................................... 1,680,413
<CAPTION>
1996
<S> <C>
Interest income:
Loans................................................................................................. $11,448,987
Interest-bearing deposits in other banks.............................................................. 95,908
Taxable securities.................................................................................... 867,486
Nontaxable securities................................................................................. --
Federal funds sold.................................................................................... --
Total interest income............................................................................ 12,412,381
Interest expense:
Interest on deposits.................................................................................. 5,517,083
Interest on other borrowings.......................................................................... 995,309
Total interest expense........................................................................... 6,512,392
Net interest income.............................................................................. 5,899,989
Provision for loan losses............................................................................... 10,000
Net interest income after provision for loan losses.............................................. 5,889,989
Other income:
Loan servicing and other loan fees, net............................................................... 570,977
Deposit and other service charge income............................................................... 640,555
Gain on sale of loans................................................................................. 630,684
Gain on sale of other real estate owned............................................................... 21,846
Gain on sale of real estate held for development and sale............................................. 3,215,004
Other operating income................................................................................ 168,760
Total other income............................................................................... 5,247,826
Other expenses:
Salaries and benefits................................................................................. 2,088,139
Occupancy and equipment expenses...................................................................... 809,277
Federal insurance premiums and assessments............................................................ 274,463
Data processing costs................................................................................. 222,285
Goodwill amortization................................................................................. 1,000
Provision for other operating losses.................................................................. --
Other operating expenses.............................................................................. 1,250,800
Total other expenses............................................................................. 4,645,964
Income before income taxes....................................................................... 6,491,851
Income tax expense...................................................................................... 2,441,896
Net income....................................................................................... $ 4,049,955
Earnings per common share............................................................................... $ 2.71
Weighted average shares and share equivalents outstanding............................................... 1,495,737
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
Consolidated Statements of Stockholders' Equity
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Additional Available
Common Stock Paid-In Retained for-Sale, Treasury Stock
Shares Par Value Capital Earnings Net of Tax Shares Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1995............... 1,443,116 $1,443,116 $ 5,762,429 $ 9,396,869 $250 -- $ --
Net income........... -- -- -- 4,049,955 -- -- --
Exercise of stock
options............ 15,191 15,191 91,401 -- -- -- --
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... -- -- -- -- (442) -- --
Dividends declared,
$.34 per share..... -- -- -- (492,772) -- -- --
Balance at March 31,
1996............... 1,458,307 1,458,307 5,853,830 12,954,052 (192) -- --
Net income........... -- -- -- 2,651,686 -- -- --
Shares issued in
acquisitions....... 358,763 358,763 7,165,759 -- -- -- --
Exercise of stock
options............ 23,605 23,605 253,973 -- -- -- --
Purchase of treasury
stock.............. -- -- -- -- -- 11,300 (231,650)
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... -- -- -- -- 651 -- --
Dividends declared,
$.44 per share..... -- -- -- (686,113) -- -- --
Balance at March 31,
1997............... 1,840,675 $1,840,675 $13,273,562 $14,919,625 $459 11,300 $(231,650)
<CAPTION>
Total
Stockholders'
Equity
<S> <C>
Balance at March 31,
1995............... $16,602,664
Net income........... 4,049,955
Exercise of stock
options............ 106,592
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... (442)
Dividends declared,
$.34 per share..... (492,772)
Balance at March 31,
1996............... 20,265,997
Net income........... 2,651,686
Shares issued in
acquisitions....... 7,524,522
Exercise of stock
options............ 277,578
Purchase of treasury
stock.............. (231,650)
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... 651
Dividends declared,
$.44 per share..... (686,113)
Balance at March 31,
1997............... $29,802,671
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
Consolidated Statements of Cash Flows
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997
<S> <C>
Operating Activities:
Net Income............................................................................................ $ 2,651,686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation........................................................................................ 431,370
Amortization of intangibles......................................................................... 282,789
Amortization of purchase adjustments................................................................ (99,946)
Provision for loan losses........................................................................... 185,000
Deferred income taxes............................................................................... (583,239)
Increase in loans held for sale..................................................................... (79,793)
Net gain on sale of real estate held for development................................................ (1,405,951)
Net gain on sale of other real estate owned......................................................... (165,162)
(Increase) decrease in interest receivable.......................................................... (134,892)
Increase (decrease) in interest payable............................................................. (20,810)
Decrease in taxes payable........................................................................... (52,685)
Other operating activities.......................................................................... 1,675,451
Net cash provided by (used in) operating activities............................................... 2,683,818
Investing Activities:
Purchases of securities available-for-sale............................................................ (1,992,068)
Proceeds from maturities of securities available-for-sale............................................. 26,319,356
Purchases of securities held-to-maturity.............................................................. --
Proceeds from maturities of securities held-to-maturity............................................... 4,982,995
Net (increase) decrease in interest-bearing deposits in other banks................................... (1,147,153)
Net decrease in Federal funds sold.................................................................... 690,000
Net (increase) decrease in loans...................................................................... (23,313,078)
Additions to real estate.............................................................................. --
Proceeds from sales of real estate held for development............................................... 1,349,495
Proceeds from sales of other real estate owned........................................................ 841,579
Purchase of intangibles............................................................................... (51,268)
Net cash acquired in business combination............................................................. 5,631,880
Acquisition of subsidiary............................................................................. (13,716,878)
Purchase of premises and equipment.................................................................... (187,037)
Proceeds from sales of premises and equipment......................................................... 89,338
Net cash used in investing activities............................................................. (502,839)
Financing Activities:
Net increase in deposits.............................................................................. 15,618,437
Repayment of other borrowings......................................................................... (16,891)
Net decrease in advances from the Federal Home Loan Bank.............................................. (12,521,455)
Dividends paid........................................................................................ (655,650)
Purchase of treasury stock............................................................................ (231,650)
Proceeds from issuance of common stock................................................................ 277,578
Net cash provided by financing activities......................................................... 2,470,369
Net increase in cash and due from banks........................................................... 4,651,348
Cash and due from banks at beginning of year............................................................ 9,214,902
Cash and due from banks at end of year.................................................................. $ 13,866,250
Supplemental Disclosures:
Cash paid for:
Interest............................................................................................ $ 8,156,020
Income Taxes........................................................................................ $ 2,220,633
Business Combination:
Net cash acquired..................................................................................... $ 5,631,880
Federal funds sold.................................................................................... 8,510,000
Securities available-for-sale......................................................................... 31,886,018
Loans receivable...................................................................................... 91,435,309
Premises and equipment................................................................................ 4,636,520
Goodwill.............................................................................................. 7,477,005
Other assets.......................................................................................... 1,898,322
Deposits.............................................................................................. (123,602,741)
Advances from Federal Home Loan Bank.................................................................. (855,533)
Other liabilities..................................................................................... (643,093)
Net assets acquired............................................................................... $ 26,353,687
Supplemental Disclosures of Noncash Investing Activities:
Sales of real estate financed by loans from the Company............................................... $ 504,500
Principal balances of loans transferred to other real estate.......................................... $ 734,749
Unrealized (gains) losses on securities available-for-sale............................................ $ (2,145)
Common stock issued in connection with acquisitions of subsidiaries................................... $ 7,524,522
Merger consideration payable to stockholders of acquired subsidiary................................... $ 5,112,287
<CAPTION>
1996
<S> <C>
Operating Activities:
Net Income............................................................................................ $ 4,049,955
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation........................................................................................ 314,471
Amortization of intangibles......................................................................... 26,261
Amortization of purchase adjustments................................................................ --
Provision for loan losses........................................................................... 10,000
Deferred income taxes............................................................................... (26,000)
Increase in loans held for sale..................................................................... (2,407,924)
Net gain on sale of real estate held for development................................................ (3,454,514)
Net gain on sale of other real estate owned......................................................... --
(Increase) decrease in interest receivable.......................................................... 33,165
Increase (decrease) in interest payable............................................................. 39,131
Decrease in taxes payable........................................................................... (123,673)
Other operating activities.......................................................................... 535,801
Net cash provided by (used in) operating activities............................................... (1,003,327)
Investing Activities:
Purchases of securities available-for-sale............................................................ (21,994,042)
Proceeds from maturities of securities available-for-sale............................................. 9,203,800
Purchases of securities held-to-maturity.............................................................. --
Proceeds from maturities of securities held-to-maturity............................................... 495,759
Net (increase) decrease in interest-bearing deposits in other banks................................... 3,527,447
Net decrease in Federal funds sold.................................................................... --
Net (increase) decrease in loans...................................................................... 4,604,002
Additions to real estate.............................................................................. (5,244)
Proceeds from sales of real estate held for development............................................... 1,767,082
Proceeds from sales of other real estate owned........................................................ --
Purchase of intangibles............................................................................... --
Net cash acquired in business combination............................................................. --
Acquisition of subsidiary............................................................................. --
Purchase of premises and equipment.................................................................... (330,751)
Proceeds from sales of premises and equipment......................................................... --
Net cash used in investing activities............................................................. (2,731,947)
Financing Activities:
Net increase in deposits.............................................................................. 12,816,894
Repayment of other borrowings......................................................................... (15,641)
Net decrease in advances from the Federal Home Loan Bank.............................................. (4,023,686)
Dividends paid........................................................................................ (447,959)
Purchase of treasury stock............................................................................ --
Proceeds from issuance of common stock................................................................ 74,135
Net cash provided by financing activities......................................................... 8,403,743
Net increase in cash and due from banks........................................................... 4,668,469
Cash and due from banks at beginning of year............................................................ 4,546,433
Cash and due from banks at end of year.................................................................. $ 9,214,902
Supplemental Disclosures:
Cash paid for:
Interest............................................................................................ $ 6,473,261
Income Taxes........................................................................................ $ 2,612,727
Business Combination:
Net cash acquired.....................................................................................
Federal funds sold....................................................................................
Securities available-for-sale.........................................................................
Loans receivable......................................................................................
Premises and equipment................................................................................
Goodwill..............................................................................................
Other assets..........................................................................................
Deposits..............................................................................................
Advances from Federal Home Loan Bank..................................................................
Other liabilities.....................................................................................
Net assets acquired...............................................................................
Supplemental Disclosures of Noncash Investing Activities:
Sales of real estate financed by loans from the Company............................................... $ 3,400,133
Principal balances of loans transferred to other real estate.......................................... $ 347,057
Unrealized (gains) losses on securities available-for-sale............................................ $ 559
Common stock issued in connection with acquisitions of subsidiaries................................... $ --
Merger consideration payable to stockholders of acquired subsidiary................................... $ --
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
Notes to Consolidated Financial Statements
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
First Citizens Corporation (the "Company" and formerly Newnan Holdings, Inc.) is
a bank and thrift holding company whose business is conducted by its
wholly-owned subsidiaries, First Citizens Bank (the "Thrift") located in Newnan,
Georgia, First Citizens Bank of Fayette County (a "Bank") located in
Fayetteville, Georgia and Tara State Bank (a "Bank") located in Riverdale,
Georgia. The Thrift and Banks are collectively referred to as subsidiaries.
First Citizens Bank, formerly known as Newnan Savings Bank, FSB, is a
Federally chartered thrift with operations in Newnan, Georgia. The Thrift
provides a full range of banking services to individual and corporate customers
in its primary market area of Coweta, Fayette and Troup County.
Citizens Mortgage Group, Inc. is a wholly-owned operating subsidiary of First
Citizens Bank. Newnan Financial Services, Inc. is a wholly-owned service
corporation of First Citizens Bank and provides real estate appraisal services.
Jefferson Ventures, Inc. is a wholly-owned subsidiary of Newnan Financial
Services, Inc. and is involved primarily in the holding and sale of undeveloped
real estate in its primary market area of Coweta County.
First Citizens Bank of Fayette County and Tara State Bank are commercial banks
which were acquired by the Company during fiscal year 1997 in business
combinations accounted for as purchases. The Banks provide a full range of
banking services to individual and corporate customers in their primary market
areas of Fayette and Clayton Counties and the southern metropolitan area of
Atlanta.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ from those estimates.
CASH AND DUE FROM BANKS
Cash on hand, cash items in process of collection and amounts due from banks are
included in cash and due from banks.
The Company and its subsidiaries maintain amounts due from banks which, at
times, may exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
SECURITIES
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other debt securities are classified as available-for-sale and carried at fair
value with net unrealized gains and losses included in stockholders' equity, net
of tax. Other equity securities without a readily determinable fair value are
carried at cost.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
LOANS HELD FOR SALE
Loans held for sale consist of primarily mortgage loans which are carried at the
lower of aggregate cost or fair value. The determination of fair value includes
consideration of outstanding commitments from investors, related origination
fees and costs and commitment fees paid. Gains and losses are recognized at
settlement dates and are determined by the difference between the selling price
and the carrying value of the loans sold. The Company sells its fixed rate
mortgage loan originations on a servicing released basis. The Company's practice
is to originate mortgage loans subject to existing purchase commitments from
third party investors.
LOANS
Loans are carried at their principal amounts outstanding less unearned income,
net deferred loan fees and costs and the allowance for loan losses. Interest
income on loans is credited to income based on the principal amount outstanding.
Loan origination fees and certain direct costs incurred in originating most
loans are deferred and recognized as income over the life of the loan. Fees and
costs incurred in origination of other loans are recognized at the time the loan
is recorded. The results of operations are not materially different than the
results which would be obtained by accounting for all loan fees and costs in
accordance with generally accepted accounting principles.
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of
20
<PAGE>
the adequacy of the allowance is based on an evaluation of the portfolio, past
loan loss experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses, and may require the
Company to record additions to the allowance based on their judgment about
information available to them at the time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When accrual of interest is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
as amended by Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," on
April 1, 1995. A loan is impaired when it is probable the Company will be unable
to collect all principal and interest payments due in accordance with the terms
of the loan agreement. Individually identified impaired loans are measured based
on the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the measure
of fair value, a valuation allowance is established as a component of the
allowance for loan losses. Changes to the valuation allowance are recorded as a
component of the provision for loan losses.
The Company considers the following type loans to be impaired:
(1) all nonaccrual loans,
(2) loans that have been restructured in a troubled debt restructuring
provided that the restructured loan agreement specifies an interest
rate that is less than the Company would be willing to accept at the
time of the restructuring for a new loan with comparable risk or the
loan becomes impaired based on the terms specified by the
restructured loan agreement, and
(3) any other loan in which management does not expect to collect all
contractual principal and interest payments in accordance with the
terms of the loan agreement.
The Company has not identified large groups of smaller-balance homogeneous
loans which are collectively evaluated for impairment. Any loan that meets the
characteristics as described above are considered to be impaired regardless of
loan type or balance.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent gains
or losses on sale and any subsequent write-downs to the value are recorded as
other expenses.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE
Real estate held for development and sale are carried at the lower of cost or
net realizable value. Carrying costs associated with the properties under
development are capitalized as part of the construction costs during the
construction period.
Sales of real estate are recognized upon closing. The recognition of gains and
losses is dependent upon and determined by the terms and conditions of the sale
and whether the Company has provided financing to facilitate such sales. If the
transaction does not meet the initial investment requirements of SFAS No. 66,
"Accounting for Sales of Real Estate", income recognition is deferred until such
requirements are met. Gains recognized or deferred are based on the proceeds
from sale, less selling costs and the carrying value of the real estate,
including carrying costs. Any losses are recognized at time of sale.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of goodwill and deposit base premiums
related to branch acquisitions in 1988 and the acquisitions of First Citizens
Bank of Fayette County and Tara State Bank in 1997. Goodwill is being amortized
by the straight-line method over 20 years for the branch acquisitions and 15
years for the acquisition of the Banks. Deposit base premiums are being
amortized over 10 years.
21
<PAGE>
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred tax assets and liabilities are recognized for the temporary differences
between the bases of assets and liabilities as measured by tax laws and their
bases as reported in the financial statements. Deferred tax expense or benefit
is then recognized for the change in deferred tax assets or liabilities between
periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax credits
will be realized. A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not occur.
The Company and subsidiaries file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income taxes
(benefits) of the consolidated group.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents consist of stock options.
RECLASSIFICATIONS
Certain balance sheet and income statement items for the year ended March 31,
1996 have been reclassified, with no effect on total assets and net income, to
be consistent with classifications adopted for the year ended March 31, 1997.
Note 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
AMORTIZED COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
SECURITIES
AVAILABLE-FOR-SALE
MARCH 31, 1997:
U. S. GOVERNMENT
AND AGENCY
SECURITIES....... $ 21,668,620 $ 28,490 $(30,625) $21,666,485
STATE AND MUNICIPAL
SECURITIES....... 2,734,848 -- (7,808) 2,727,040
MORTGAGE-BACKED
SECURITIES....... 6,037,145 11,779 -- 6,048,924
EQUITY
SECURITIES....... 1,367,510 -- -- 1,367,510
$ 31,808,123 $ 40,269 $(38,433) $31,809,959
March 31, 1996:
U. S. Government
and agency
securities....... $ 22,794,309 $ 13,732 $(14,041) $22,794,000
Equity
securities....... 1,471,700 -- -- 1,471,700
$ 24,266,009 $ 13,732 $(14,041) $24,265,700
SECURITIES HELD-TO-
MATURITY
MARCH 31, 1997:
MORTGAGE-BACKED
SECURITIES....... $ 4,149,557 $ 472 $(44,240) $ 4,105,789
March 31, 1996:
Mortgage-backed
securities....... $ 9,132,552 $ 40,440 $(86,555) $ 9,086,437
</TABLE>
The amortized cost and fair value of securities as of March 31, 1997 by
contractual maturity are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities and equity securities are not included in the maturity categories in
the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE- SECURITIES HELD-
FOR-SALE TO-MATURITY
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or
less.................... $ 9,504,05 $ 9,494,692 $ -- $ --
Due from one to five
years................... 10,705,720 10,685,198 -- --
Due from five to ten
years................... 3,146,778 3,169,362 -- --
Due after ten years...... 1,046,165 1,044,273 -- --
Mortgage-backed
securities.............. 6,037,145 6,048,924 4,149,557 4,105,789
Equity securities........ 1,367,510 1,367,510 -- --
$31,808,123 $31,809,959 $4,149,557 $4,105,789
</TABLE>
Securities with a carrying value of $10,406,000 and $29,900,000 at March 31,
1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes.
There were no sales of securities during fiscal year 1997 or 1996.
22
<PAGE>
Note 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Commercial......................... $ 25,655,000 $ 1,094,000
Real estate -- construction........ 60,010,000 11,203,000
Real estate -- mortgage............ 145,103,000 109,103,000
Consumer and other................. 11,455,655 4,088,767
242,223,655 125,488,767
Less:
Unearned income and fees......... 1,034,461 1,044,381
Allowance for loan losses........ 3,739,222 1,371,416
$237,449,972 $123,072,970
</TABLE>
Changes in the allowance for loan losses for the years ended March 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
BALANCE, BEGINNING OF YEAR......... $ 1,371,416 $ 1,434,693
Allowance acquired in
acquisitions................... 2,325,393 --
Provision for loan losses........ 185,000 10,000
Loans charged off................ (147,693) (92,210)
Recoveries of loans previously
charged off.................... 5,106 18,933
BALANCE, END OF YEAR............... $ 3,739,222 $ 1,371,416
</TABLE>
The total recorded investment in impaired loans was $3,393,631 and $1,844,000
at March 31, 1997 and 1996, respectively. Included in these loans were
$1,201,917 and $1,131,000 that had related allowances for loan losses of
$669,175 and $5,655 at March 31, 1997 and 1996, respectively, determined in
accordance with generally accepted accounting principles. The average recorded
investment in impaired loans for 1997 was $3,429,154. Interest income on
impaired loans of $136,310 was recognized for cash payments received for the
year ended 1997. There were no cash payments received on impaired loans for the
year ended March 31, 1996.
The Company has granted loans to certain directors, executive officers and
related entities of the Company and the subsidiaries. The interest rates on
these loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan involved.
Changes in related party loans for the year ended March 31, 1997 are as follows:
<TABLE>
<S> <C>
BALANCE, BEGINNING OF YEAR....................... $ 886,475
Advances....................................... 2,976,721
Repayments..................................... (2,631,055)
Transactions due to changes in related
parties...................................... 5,285,935
BALANCE, END OF YEAR............................. $ 6,518,076
</TABLE>
As of March 31, 1997 and 1996, the Company was servicing loans for others with
approximate balances of $117,913,000 and $124,983,000, respectively.
Note 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Land.................................. $ 2,042,999 $ 802,028
Buildings and building improvements... 6,398,310 3,020,021
Furniture, fixtures and equipment..... 4,968,212 2,429,430
Computer equipment.................... 591,738 298,027
14,001,259 6,549,506
Less accumulated depreciation......... 6,957,060 3,803,020
$ 7,044,199 $2,746,486
</TABLE>
Note 5. DEPOSIT ACCOUNTS
A summary of time deposits by maturity as of March 31, 1997 is as follows:
<TABLE>
<S> <C>
1998............................................. $116,781,556
1999............................................. 21,379,902
2000............................................. 5,303,442
2001............................................. 4,797,168
2002............................................. 2,433,465
$150,695,533
</TABLE>
23
<PAGE>
Note 6. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consist of the following:
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Advance from the Federal Home Loan
Bank with interest at 5.71%, due on
March 26, 2001. Interest is payable
monthly............................ $ 1,655,172 $ 2,068,965
Advance from the Federal Home Loan
Bank with interest at 5.41%, due on
September 1, 2001. Interest is
payable monthly.................... 864,388 1,058,633
Advance from the Federal Home Loan
Bank with interest at 5.85%, due on
December 21, 2003. Interest is
payable monthly.................... 4,378,378 5,027,028
Advance from the Federal Home Loan
Bank with interest at 5.77%, due on
August 6, 1997. Interest is payable
monthly............................ 257,500 --
Advance from the Federal Home Loan
Bank with interest at 5.87%, due on
August 1, 1996. Interest is payable
monthly............................ -- 279,000
Advance from the Federal Home Loan
Bank with interest at 6.34%, due on
April 12, 1999. Interest is payable
monthly............................ 83,334 --
Advance from the Federal Home Loan
Bank with interest at 7.80%, due on
April 12, 2004. Interest is payable
monthly............................ 600,000 --
Advance from the Federal Home Loan
Bank with interest at 6.89%, due on
April 12, 2001. Interest is payable
monthly............................ 128,572 --
Variable rate and short-term advances
from the Federal Home Loan Bank at
6.85% (.25% plus the overnight
investment rate), due on December
2, 1997............................ 9,800,000 --
Variable rate and short-term advances
from the Federal Home Loan Bank at
5.60% (.25% plus the overnight
investment rate), due on April 1,
1996............................... -- 21,000,000
$17,767,344 $29,433,626
</TABLE>
The advances from the Federal Home Loan Bank are collateralized by a blanket
floating lien on qualifying first mortgages and pledges of certain securities
and the Company's Federal Home Loan Bank stock.
Aggregate maturities required on Federal Home Loan Bank advances at March 31,
1997 were as follows:
<TABLE>
<S> <C>
1998............................................. $ 11,982,759
1999............................................. 1,325,259
2000............................................. 1,288,592
2001............................................. 1,285,259
2002............................................. 750,342
Thereafter....................................... 1,135,133
$ 17,767,344
</TABLE>
At March 31, 1997, the Company had established lines of credit with the
Federal Home Loan Bank in the amount of $55,000,000 with an available balance of
$37,232,656.
Note 7. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
8% purchase money promissory note
payable by the Thrift in annual
instalments of $21,279, including
interest beginning April 21, 1991
through April 21, 1998, secured by
certain real estate held for
development and sale............... $ 37,948 $ 54,839
</TABLE>
Aggregate maturities required on other borrowings at March 31, 1997 were as
follows:
<TABLE>
<S> <C>
Due in one year or less........................... $ 18,243
Due after one year................................ 19,705
$ 37,948
</TABLE>
Note 8. RETIREMENT PLANS AND EMPLOYEE BENEFITS
The Company has a 401(k) plan which permits eligible employees to make
discretionary contributions to the plan of up to 15 percent of total
compensation. The Company matches the employee's contributions 100 percent up to
2 percent, not to exceed $2,750 per year, of the employee's base annual salary.
The Company recognized $49,211 and $27,290 in expense related to its obligation
under the plan for the years ended March 31, 1997 and 1996, respectively. In
addition, upon approval of the Board of Directors, the Company may make an
annual discretionary profit-sharing contribution to all eligible plan
participants. There was no such discretionary contribution made by the Company
for the years ended March 31, 1997 and 1996.
In addition, the Company has an Incentive Compensation Plan for all employees
that provides for annual cash awards based on certain achievement standards and
earnings performance. The awards are based on earnings performance in relation
to earnings goals as proposed by executive officers and ratified by the Board of
Directors. The Company's expense under this plan, classified as compensation,
was $208,010 and $128,563 for 1997 and 1996, respectively.
The Company adopted a Stock Option and Incentive Plan in 1986 which provides
that stock options may be awarded to officers and key employees with an exercise
price representing the fair market value of the common stock at date of grant.
All options granted were exercisable at March 31, 1997. Other pertinent
information relating to the options is summarized as follows:
24
<PAGE>
<TABLE>
<CAPTION>
March 31,
1997 1996
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
NUMBER PRICE Number Price
<S> <C> <C> <C> <C>
Under option,
beginning of year......... 99,713 $ 9.94 83,909 $ 7.43
Granted................... -- -- 25,000 16.38
Exercised................. (10,460) 8.00 (8,976) 4.61
Expired................... -- -- (220) 3.98
Under option and
exercisable, end of
year...................... 89,253 10.16 99,713 9.94
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
NUMBER RANGE PRICE LIFE
<S> <C> <C> <C> <C>
Options outstanding
and exercisable,
end of year...... 12,518 $ 3.98 $ 3.98 4.90
52,735 8.50 -- 10.23 8.80 5.40
24,000 16.38 16.38 8.75
89,253
</TABLE>
During March 1996, the plan expired and no additional options may be granted.
The stockholders of the Company approved a Directors' Nonincentive Stock
Option Plan (the "Directors' Plan") which provided that a maximum of 110,000
shares would be reserved for future issuance by the Company to be granted to
directors of the Company as an alternative to the payment of directors' retainer
fees. During fiscal 1995, the stockholders approved an amendment to the
Directors' Plan to increase the number of shares of Common Stock reserved for
issuance pursuant to the Directors' Plan to a total of 200,000.
Pursuant to the Directors' Plan, Directors may elect to receive options in
lieu of cash, with the number of options granted equal to the amount of cash
compensation the Director would have received divided by $2.00. The option
exercise price for each option granted shall be the fair market value of shares
of the Company's stock on the date the option is granted less the $2.00 per
share amount described above. The compensation expense relating to these options
was $36,150 and $104,600 for the years ended March 31, 1997 and 1996,
respectively.
Information related to the Directors' Plan is summarized as follows:
<TABLE>
<CAPTION>
March 31,
1997 1996
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
NUMBER PRICE Number Price
<S> <C> <C> <C> <C>
Under option, beginning of
year...................... 162,670 $ 9.20 118,335 $ 7.34
Granted................... 19,825 17.35 50,550 13.12
Exercised................. (13,145) 6.87 (6,215) 4.98
Under option and
exercisable, end of
year...................... 169,350 10.34 162,670 9.20
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
NUMBER RANGE PRICE LIFE
<S> <C> <C> <C> <C>
Options
outstanding and
exercisable, end
of year......... 7,150 $ 3.30 -- 4.32 $ 3.84 5.50
53,725 5.80 -- 7.88 7.01 6.50
63,450 8.75 -- 12.75 9.96 8.00
45,025 14.00 -- 20.75 15.76 9.00
169,350
</TABLE>
At March 31, 1997, no additional options may be granted pursuant to the plan.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company recognizes compensation cost for stock-based employee compensation
awards in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company recognized $36,150 and $104,600 in compensation cost for
stock-based employee compensation awards for the years ended March 31, 1997 and
1996. If the Company had recognized compensation costs in accordance with SFAS
No. 123, net income and net income per share would have been reduced as follows:
<TABLE>
<CAPTION>
March 31,
1997 1996
NET NET INCOME Net Net Income
INCOME PER SHARE Income Per Share
<S> <C> <C> <C> <C>
As reported............... $2,651,686 $ 1.58 $4,049,955 $ 2.71
Stock-based
compensation, adjustment
net of related tax
effect.................. (38,302) (0.02) (64,979) (0.04)
As adjusted............... $2,613,384 $ 1.56 $3,984,976 $ 2.67
</TABLE>
The per share weighted-average fair value of stock options granted during
fiscal years 1997 and 1996 was $5.69 and $3.40, respectively, using the Black
Scholes option pricing model.
The fair value of the options granted during the years ended March 31, 1997
and 1996 was based upon the following assumptions:
25
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Risk-free interest rate............. 6.45% 6.45%
Expected life of the options........ .75 -- 9 YEARS 1.75 -- 9 Years
Expected dividends (as a percent of
the fair value of the stock)...... 1.81% 2.57%
Volatility.......................... 17.60% 10.31%
</TABLE>
Note 9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year Ended
March 31,
1997 1996
<S> <C> <C>
Current................................... $2,167,948 $2,467,896
Deferred.................................. (583,239) (26,000)
Income tax expense...................... $1,584,709 $2,441,896
</TABLE>
The Company's income tax expense differs from the amounts computed by applying
the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996
AMOUNT PERCENT Amount Percent
<S> <C> <C> <C> <C>
Income taxes at statutory
rate.................... $1,440,374 34% $2,207,229 34 %
State income taxes...... 95,847 2 208,532 4
Tax-exempt income....... (31,976) (1) -- --
Goodwill amortization... 37,785 1 340 --
Other items, net........ 42,679 1 25,795 --
Income tax expense........ $1,584,709 37% $2,441,896 38 %
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
March 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................. $ 881,684 $286,378
Deferred gain on sale of real estate...... 137,316 10,176
Write-down of premises and equipment...... 94,645 93,439
Accounting for other real estate.......... 18,872 --
Net operating loss carryforward........... 924,076 --
Securities available-for-sale............. 112,028 --
Alternative minimum tax carryforward...... 21,069 --
Other deferred operational losses......... 370,566 --
Deferred compensation..................... 149,793 117,838
Total gross deferred tax assets......... 2,710,049 507,831
Less valuation allowance................ (826,602) --
Net deferred tax assets................. 1,883,447 507,831
Deferred tax liabilities:
Deferred loan fees........................ 411,782 289,553
FHLB stock dividends...................... 97,380 138,428
Depreciation.............................. 332,983 22,625
Core deposit intangible amortization...... 2,085 17,225
Other..................................... 11,634 --
Total deferred tax liabilities.......... 855,864 467,831
Net deferred tax assets................. $1,027,583 $ 40,000
</TABLE>
At March 31, 1997, the Company has available net operating loss carryforwards
of approximately $2,717,871 for Federal income tax purposes. If unused, the
carryforwards will expire beginning in 2007. Utilization of the net operating
loss carryforwards is subject to the separate return limitations and change of
ownership rules of the Internal Revenue Code of 1996. These net operating loss
carryforwards were acquired in the acquisition of Tara Bankshares Corporation,
the parent of Tara State Bank.
Note 10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company enters into firm commitments to sell mortgage loans which it has
originated at agreed upon prices. The sales price for the loans is set based on
market rates at the time of the commitment. The Company generally has ten days
after a mortgage loan closes in which to provide the investor with the loan
documentation, at which time the investor will fund the loan. The investor bears
the interest rate risk on the loan from the time of the commitment. The
Company's risk is limited to specific recourse provisions within the agreement
with the investor and its ability to provide the required loan documentation to
the investor within the commitment period.
The Company sells mortgage loans to investors under various blanket
agreements. Under the agreements, investors generally have a limited right of
recourse to the Company for normal representations and warranties and, in some
26
<PAGE>
cases, for delinquencies within the first three to six months which lead to loan
default and foreclosure. Management believes that the risk of loss to the
Company as a result of these provisions is insignificant.
The Company enters into residential construction and commercial loan
commitments to fund loans to its customers at prime based interest rates in the
normal course of business. These instruments involve credit risk in excess of
the amount recognized in the financial statements.
In the normal course of business, the Company has entered into off-balance
sheet financial instruments which are not reflected in the financial statements.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are included in the financial
statements when funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for unfunded mortgage loan commitments,
residential construction and commercial loan commitments, commitments to extend
credit and standby letters of credit is represented by the contractual amount of
those instruments. A summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
March 31,
1997
<S> <C>
Unfunded mortgage loan commitments.................. $17,794,000
Residential construction and commercial loan
commitments....................................... 26,702,846
Other commitments to extend credit.................. 32,928,825
Standby letters of credit........................... 1,539,000
$78,964,671
</TABLE>
Commitments to extend credit 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
commitment amounts do not necessarily represent future cash requirements. The
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable securities,
accounts receivable, inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies as
specified above and is required in instances which the Company deems necessary.
As of March 31, 1997 and 1996, the Company had commitments to sell loans of
$16,611,000 and $8,508,000, respectively.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's consolidated financial statements.
LEASE OBLIGATIONS:
The Company leases four office facilities and certain equipment under
noncancelable lease agreements.
The future minimum lease commitments at March 31, 1997 are summarized as
follows:
<TABLE>
<S> <C>
Years Ending March 31,
1998................................................. $37,248
1999................................................. 41,383
$78,631
</TABLE>
Rental expense for the years ended March 31, 1997 and 1996 was $141,388 and
$92,242, respectively.
The Company also leases various other equipment under short-term leases.
Note 11. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans to
customers in the southern metropolitan Atlanta area and surrounding counties.
The ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in the southern
metropolitan Atlanta area.
Eighty-four percent of the Company's loan portfolio is concentrated in real
estate loans, of which twenty-nine percent consists of construction loans. A
majority of these loans are secured by real estate in the Company's primary
market area. In addition, a substantial portion of the other real estate owned
is located in those same markets. Accordingly, the ultimate collectibility of
the loan portfolio and the recovery of the carrying amount of other real estate
owned are susceptible to changes in market conditions in the Company's primary
market area. The other significant concentrations of credit by type of loan are
set forth in Note 3.
27
<PAGE>
The Banks and Thrift, as a matter of policy, do not generally extend credit to
any single borrower or group of related borrowers in excess of the following:
<TABLE>
<S> <C>
First Citizens Bank.................................. $1,966,000
First Citizens Bank of Fayette County................ 1,659,000
Tara State Bank...................................... 1,626,000
</TABLE>
Note 12. REGULATORY MATTERS
The Banks and Thrift are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At March 31,
1997, approximately $1,807,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the subsidiaries are 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 the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and subsidiaries must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company and
subsidiaries' 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 the Company and the subsidiaries to maintain minimum amounts and ratios
of total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets for First Citizens Bank of Fayette County and Tara State Bank and
total adjusted assets for First Citizens Bank. First Citizens Bank must also
have core capital equal to 3% of adjusted total assets and tangible capital
equal to 1.5% of adjusted total assets. These additional requirements are in
accordance with the Office of Thrift Supervision, their primary regulator.
Management believes, as of March 31, 1997, the Company and the subsidiaries meet
all capital adequacy requirements to which they are subject.
As of December 31, 1996, notification from the FDIC categorized the
subsidiaries as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the subsidiaries must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the subsidiaries'
category.
The Company and subsidiaries' actual capital amounts and ratios are presented
in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
As of March 31, 1997
Total Capital (to
Risk Weighted
Assets):
Consolidated...... $25,613 10.29 % $19,912 8.00 % $24,891 10.00 %
First Citizens
Bank............ $12,423 9.46 % $10,506 8.00 % $13,132 10.00 %
First Citizens
Bank of Fayette
County.......... $ 8,425 12.49 % $ 5,396 8.00 % $ 6,745 10.00 %
Tara State Bank... $ 8,172 19.34 % $ 3,380 8.00 % $ 4,225 10.00 %
Tier I Capital (to
Risk Weighted
Assets):
Consolidated...... $22,494 9.04 % $ 9,953 4.00 % $14,929 6.00 %
First Citizens
Bank............ $11,304 8.61 % $ 5,251 4.00 % $ 7,877 6.00 %
First Citizens
Bank of Fayette
County.......... $ 7,573 11.22 % $ 2,700 4.00 % $ 4,050 6.00 %
Tara State Bank... $ 7,639 18.08 % $ 1,690 4.00 % $ 2,535 6.00 %
Tier I Capital (to
Average Assets):
Consolidated...... $22,494 6.70 % $13,429 4.00 % $16,787 5.00 %
First Citizens
Bank............ $11,304 6.29 % $ 7,189 4.00 % $ 8,986 5.00 %
First Citizens
Bank of Fayette
County.......... $ 7,573 9.20 % $ 3,293 4.00 % $ 4,116 5.00 %
Tara State Bank... $ 7,639 14.30 % $ 2,137 4.00 % $ 2,671 5.00 %
Core Capital,
First Citizens
Bank............ $11,304 6.29 % $ 5,394 3.00 %
Tangible Capital,
First Citizens
Bank............ $11,304 6.29 % $ 2,696 1.50 %
</TABLE>
Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using discounted
cash flow methods. Those methods are significantly affected by the assumptions
used, including the discount rates and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different methodologies may have a
material effect on the estimated fair value amounts. Also, the fair value
estimates presented herein are based on pertinent information available to
management as of March 31, 1997 and 1996. Such amounts have not been revalued
for purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
28
<PAGE>
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN
OTHER BANKS AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing deposits in other
banks and Federal funds sold approximate their fair value.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES:
Fair values for securities are based on quoted market prices. The carrying
values of equity securities with no readily determinable fair value approximate
fair values.
LOANS:
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. For other loans, the
fair values are estimated using discounted cash flow methods, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow methods or underlying collateral values. Fair values of
loans held for sale are determined using outstanding commitments from investors
and other similar information.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash flow
methods, using interest rates currently being offered on certificates.
FEDERAL HOME LOAN BANK ADVANCES AND OTHER
BORROWINGS:
The fair value of the Company's Federal Home Loan Bank advances and other
borrowings approximate their carrying value.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair values.
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a significant value to the
Company until such commitments are funded. The Company has determined that these
instruments do not have a distinguishable fair value and no fair value has been
assigned.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 March 31, 1996
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks,
interest-bearing
deposits in banks
and Federal funds
sold............... $ 23,357,775 $ 23,357,775 $ 9,739,274 $ 9,739,274
Securities
available-for-
sale............... 31,809,959 31,809,959 24,265,700 24,265,700
Securities
held-to-maturity... 4,149,557 4,105,789 9,132,552 9,086,437
Loans held for
sale............... 7,958,671 7,958,671 7,878,878 7,878,878
Loans receivable..... 237,449,972 240,036,292 123,072,970 123,633,122
Accrued interest
receivable......... 2,022,968 2,022,968 939,088 939,088
Financial liabilities:
Deposits............. 269,799,037 271,562,693 130,635,333 131,039,000
Federal Home Loan
Bank advances...... 17,767,344 17,767,344 29,433,626 29,433,626
Other borrowings..... 37,948 37,948 54,839 54,839
Accrued interest
payable............ 518,570 518,570 118,913 118,913
</TABLE>
Note 14. BUSINESS COMBINATION
On November 3, 1995, Newnan Savings Bank, FSB announced the signing of a
definitive agreement to merge with Southside Financial Group, Inc.
("Southside"), the parent of Citizens Bank & Trust of Fayette County. In
conjunction with the business combination, the Thrift filed an application with
the Office of Thrift Supervision for the purpose of effecting a Plan of
Reorganization (the Plan) such that a new entity, Newnan Holdings, Inc. (now
known as First Citizens Corporation) would acquire all outstanding shares of
Newnan Savings Bank whereby each shareholder of the Thrift received one share of
Newnan Holdings, Inc. stock for each share of Newnan Savings Bank stock. Under
the terms of the definitive agreement, each shareholder of Southside received
$41.00 in cash for each share of Southside common stock. Any shareholder owning
5,000 or more common shares could elect to receive up to, but not more than,
fifty percent of their consideration in the form of shares of Newnan Holdings,
Inc.
On August 21, 1996, Newnan Holdings, Inc. acquired all of the stock of
Southside for a purchase price of $15,805,976 plus expenses related to the
merger of $75,137. The purchase price included the exchange of 136,990 shares of
its common stock for 66,824 shares of Southside common stock. The remaining
shares were purchased for a cash price of $13,716,878. The excess of the total
acquisition cost over the fair value of the net assets acquired of $5,239,072 is
being amortized over a period of fifteen years. The acquisition has been
accounted for as a purchase and the results of operations of Southside since the
date of acquisition are included in the consolidated financial statements.
29
<PAGE>
On January 14, 1997, Newnan Holdings, Inc. changed its name to First Citizens
Corporation. On that date, Newnan Savings Bank, FSB changed its name to First
Citizens Bank and Citizens Bank and Trust of Fayette County changed its name to
First Citizens Bank of Fayette County.
In November 1996, the Company entered into an agreement and plan of merger
with Tara Bankshares Corporation ("Tara"), parent company of Tara State Bank.
The merger required a cash payment of $15.00 per share except that certain
shareholders of Tara may receive shares of the Company not in excess of 227,608
shares.
On March 31, 1997, First Citizens Corporation acquired all of the stock of
Tara for a purchase price of $10,547,711. The purchase price included the
exchange of 221,773 shares of its common stock for 366,578 shares of Tara common
stock. The remaining shares were purchased for a cash price of $5,112,287. The
excess of the total acquisition cost over the fair value of the net assets
acquired of $2,237,933 is being amortized over a period of fifteen years. The
acquisition has been accounted for as a purchase and the results of operations
of Tara since the date of acquisition are included in the consolidated financial
statements.
Unaudited pro forma consolidated results of operations for the years ended
March 31, 1997 and 1996 as though Southside and Tara had been acquired as of
April 1, 1995 follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Interest income............................... $ 24,155 $ 23,686
Interest expense.............................. (11,441) (11,730)
-------- --------
Net interest income....................... 12,714 11,956
Plus noninterest income....................... 4,616 6,803
Less noninterest expense...................... (13,864) (13,465)
-------- -------
$ 3,466 $ 5,294
======== ========
</TABLE>
The above amounts reflect adjustments, net of taxes, for amortization of
goodwill, additional depreciation, amortization and accretion on revalued
purchased assets and liabilities and the net effect on net interest income
related to cash paid in acquisitions.
Note 15. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet, statements of
income and cash flows of First Citizens Corporation as of and for the year ended
March 31, 1997.
CONDENSED BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
Cash.............................................. $ 790,624
Investment in subsidiaries........................ 33,929,987
Other assets...................................... 649,143
TOTAL ASSETS.................................... $35,369,754
LIABILITIES
Merger consideration payable...................... $ 5,112,287
Other liabilities................................. 454,796
5,567,083
STOCKHOLDERS' EQUITY................................ 29,802,671
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $35,369,754
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<S> <C>
INCOME
Dividends from subsidiaries....................... $14,021,311
Other............................................. 28,795
14,050,106
EXPENSE
Salaries and benefits............................. 28,051
Amortization...................................... 23,050
Legal and professional............................ 23,311
Other expense..................................... 20,818
TOTAL EXPENSE................................... 95,230
INCOME BEFORE INCOME TAX BENEFITS AND
DISTRIBUTIONS IN EXCESS OF INCOME OF
SUBSIDIARIES.................................. 13,954,876
INCOME TAX BENEFITS................................. (24,284)
INCOME BEFORE DISTRIBUTIONS IN EXCESS OF INCOME
OF SUBSIDIARIES............................... 13,979,160
DISTRIBUTIONS IN EXCESS OF INCOME OF SUBSIDIARIES... (11,327,474)
NET INCOME...................................... $ 2,651,686
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income........................................ $ 2,651,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization.................................... 23,050
Distributions in excess of income of
subsidiaries.................................. 11,327,474
Other operating activities...................... (524,820)
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 13,477,390
INVESTING ACTIVITIES
Net cash acquired in business combination......... 1,357,461
Acquisition of subsidiary......................... (13,716,878)
NET CASH USED IN INVESTING ACTIVITIES......... (12,359,417)
FINANCING ACTIVITIES
Purchase of treasury stock........................ (231,650)
Issuance of common stock.......................... 253,585
Dividends paid.................................... (349,284)
NET CASH USED IN FINANCING ACTIVITIES......... (327,349)
Net increase in cash................................ 790,624
Cash at beginning of year........................... --
Cash at end of year................................. $ 790,624
</TABLE>
30
<PAGE>
Note 16. SUBSEQUENT EVENT
In April 1997, the Company identified a potential loss within a group of
accounts controlled by a single individual as the result of advancing funds in
excess of available deposits. On June 3, 1997, after further investigation and
review of the facts and circumstances, the Company determined a potential net
loss as great as $982,000 could be incurred and the significant portion of the
potential net loss existed as of March 31, 1997. Therefore, as of March 31,
1997, the Company recognized the amount of the loss by a charge to current
earnings and established a reserve for losses, which is included in other
liabilities. The net effect on earnings after tax was $596,000. Management
continues to pursue all available means of collection available, however, the
amount to be collected, if any, is unknown.
31
<PAGE>
Independent Auditors' Report
The Board of Directors
First Citizens Corporation and Subsidiaries
Newnan, Georgia
We have audited the accompanying consolidated balance sheet of First Citizens
Corporation and Subsidiaries as of March 31, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Newnan Savings Bank,
FSB and Subsidiaries for the year ended March 31, 1996 were audited by other
auditors whose report, dated May 3, 1996, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Citizens Corporation and Subsidiaries as of March 31, 1997, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Mauldin & Jenkins, LLC
Atlanta, Georgia
April 25, 1997, except for Note 16, as to which the date is June 3, 1997
32
<PAGE>
Stock Prices and Dividends
The common stock of First Citizens Corporation is traded over the counter on the
NASDAQ National Market System under the symbol "FSTC." The table below sets
forth the high and low closing quotations during the given quarters, as reported
by the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
March 31, 1995........................................................................................... $14.25 $10.00
June 30, 1995............................................................................................ 14.25 12.00
September 30, 1995....................................................................................... 15.50 13.00
December 31, 1995........................................................................................ 17.25 15.25
March 31, 1996........................................................................................... 18.00 16.00
June 30, 1996............................................................................................ 19.75 17.00
September 30, 1996....................................................................................... 23.50 18.50
December 31, 1996........................................................................................ 26.75 22.50
March 31, 1997........................................................................................... 25.75 21.25
<CAPTION>
Quarter Ended Dividend
<S> <C>
March 31, 1995........................................................................................... $0.07
June 30, 1995............................................................................................ 0.07
September 30, 1995....................................................................................... 0.08
December 31, 1995........................................................................................ 0.09
March 31, 1996........................................................................................... 0.10
June 30, 1996............................................................................................ 0.11
September 30, 1996....................................................................................... 0.11
December 31, 1996........................................................................................ 0.11
March 31, 1997........................................................................................... 0.11
</TABLE>
At June 30, 1997 First Citizens Corporation had approximately 750
shareholders of record. There are statutory, regulatory, and other restrictions
upon the payment of dividends. See Note 12 of Notes to Consolidated Financial
Statements for a discussion of these restrictions.
Directors and Officers
DIRECTORS
Don A. Barnette
OWNER, MARKET GROCERY COMPANY, A CLAYTON COUNTY SUPPLIER OF WHOLESALE GROCERY
ITEMS TO RESTAURANTS AND CONVENIENCE STORES.
Thomas B. Chandler
PRESIDENT, CHANDLER AND WALDROP, REAL ESTATE DEVELOPERS
J. Littleton Glover, Jr.
CHAIRMAN OF THE BOARD OF THE CORPORATION; CHAIRMAN OF THE BOARD, FIRST
CITIZENS BANK-NEWNAN; PRESIDENT-ATTORNEY, GLOVER AND DAVIS, P.A. IN NEWNAN,
GEORGIA.
Ellis A. Mansour
PRESIDENT, TREASURER AND MAJORITY STOCKHOLDER OF BROTHERS LIMITED, A RETAIL
APPAREL STORE IN NEWNAN, GEORGIA.
Tom Moat
PRESIDENT OF THE CORPORATION; PRESIDENT, FIRST CITIZENS BANK-NEWNAN.
OFFICERS
Tom Moat, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Chuck Barnes, VICE PRESIDENT
Doug Hertha, VICE PRESIDENT AND SECRETARY
<TABLE>
<S> <C>
STOCK TRANSFER AGENT: LEGAL COUNSEL
American Stock Transfer & Trust Co. Glover & Davis, P.A.
40 Wall Street 10 Brown Street
New York, NY 10005 Newnan, GA 30263
AUDITORS SPECIAL COUNSEL
Mauldin & Jenkins Powell, Goldstein, Frazer & Murphy
1640 Powers Ferry Road Sixteenth Floor
Bldg 26 191 Peachtree Street, NE
Atlanta, GA 30067 Atlanta, GA 30303
</TABLE>
33
<PAGE>
Directors and Officers
FIRST CITIZENS BANK-NEWNAN
DIRECTORS
Thomas W. Barron
LouAnne Connell
Dr. Clifford A. Cranford, Jr.
J. Littleton Glover, Jr., Chairman
Ellis Mansour
Tom Moat
H. Pickens Park
Dr. Jack M. Reeves
Holland M. Ware
OFFICERS
Tom Moat, President
Don Phillips, Senior Vice President
Mike Justice, Senior Vice President
Mike Barber, Vice President
Pauline Duncan, Vice President
Doug Hertha, Vice President
Charles M. Smith, Vice President
Linda Walden, Vice President
Yetta Richardson, Assistant Vice President
Tracy Van Norman, Assistant Vice President
Mary L. Roller, Assistant Vice President
Robert G. Ward, Jr. Assistant Vice President
Elizabeth E. Webb, Assistant Vice President
FIRST CITIZENS BANK-FAYETTEVILLE
DIRECTORS
Chuck Barnes
Huie L. Bray
R.B. Dixon, Jr.
Thomas B. Chandler, Vice Chairman
Sam Jones
Jackie L. Mask
Tom Moat
B.D. Murphy, III, Chairman
H. Wade Pearce
Tom Reese
D. Michael Reid
Dr. James C. Sams
J.M. Snowden
M.D. Waldrop, Sr.
Barnard W. Walker
OFFICERS
Chuck Barnes, President
Lee Greeson, Senior Vice President
Fred Faulkner, Senior Vice President
Carol Johnson, Vice Presdident
Pam Thames, Banking Officer
FIRST CITIZENS BANK-CLAYTON COUNTY
DIRECTORS
Dr. James L. Askew
James W. Babb, Jr.
Chuck Barnes
Don A. Barnette
Jimmy W. Benefield
C. Wallace Carrouth, Sr.
George E. Glaze, Chairman
Dr. Sanford E.Gruskin
A. Gene Lee
Tom Moat
Homer Wilkerson
OFFICERS
Chuck Barnes, President
Allette B. Cheaves, Senior Vice President
Sheila M. Juhan, Vice President
Sandra McCoy, Vice President
Brenda Chapman, Assistant Vice President
Trudy Hamilton, Assistant Vice President
Kay F. Polk, Assistant Vice President
Cindy K. Gosdin, Assistant Vice President
Shirley Wynn, Banking Officer
Lisa M. Vandiver, Assistant Banking Officer
34
<PAGE>
Locations
FIRST CITIZENS BANK-NEWNAN
MAIN OFFICE
19 Jefferson Street
Newnan, GA 30263
770/253-5017
BULLSBORO OFFICE
71 Bullsboro Drive
Newnan, GA 30263
770/304-7830
WHITE OAK OFFICE
Highway 34 East
Newnan, GA 30263
770/304-7840
HOSPITAL ROAD OFFICE
14 Hospital Road
Newnan, GA 30263
770/304-7860
PEACHTREE CITY OFFICE
705 Highway 54 East
Peachtree City, GA 30269
770/487-8483
LAGRANGE OFFICE
310 Broad Street
LaGrange, GA 30240
706/884-3021
HOGANSVILLE OFFICE
410 East Main Street
Hogansville, GA 30230
770/637-8619
OPERATIONS CENTER
10 Olive Street
Newnan, GA 30263
770/304-7800
JEFFERSON VENTURES, INC.
19 Jefferson Street
Newnan, GA 30263
770/304-7765
FIRST CITIZENS BANK OF FAYETTE COUNTY
FIRST CITIZENS BANK
675 North Jeff Davis Drive
Fayetteville, GA 30214
770/460-6550
FIRST CITIZENS BANK OF CLAYTON COUNTY
MAIN OFFICE
6375 Highway 85
Riverdale, GA 30274
770/996-8272
JONESBORO OFFICE
223 North Main Street
Jonesboro, GA 30236
770/477-2424
CITIZENS MORTGAGE GROUP, INC.
HOME OFFICE
19 Jefferson Street
770/304-7765
JEFFERSON, GEORGIA
1874 Washington Street
Jefferson, GA 30549
706/367-2877
STOCKBRIDGE, GEORGIA
175 Corporate Center Drive
Suite B
Stockbridge, GA 30281
770/389-8888
FAYETTEVILLE, GEORGIA
205 Jeff Davis Place
Fayetteville, GA 30214
770/460-5025
NEWNAN FINANCIAL SERVICES, INC.
19 Jefferson Street
Newnan, GA 30263
770/304-7765
35
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
State of
Incorporation
-------------
Subsidiaries of First Citizens Corporation
- ------------------------------------------
First Citizens Bank Federal
First Citizens Bank of Fayette County Georgia
Tara State Bank (to be known as First Citizens
Bank of Clayton County) Georgia
Subsidiaries of First Citizens Bank
- -----------------------------------
Newnan Financial Services, Inc. Georgia
Citizens Mortgage Group, Inc. Georgia
Subsidiary of Newnan Financial Services, Inc.
- ---------------------------------------------
Jefferson Ventures, Inc. Georgia
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 13,866
<INT-BEARING-DEPOSITS> 1,672
<FED-FUNDS-SOLD> 7,820
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,810
<INVESTMENTS-CARRYING> 4,150
<INVESTMENTS-MARKET> 4,106
<LOANS> 249,148
<ALLOWANCE> 3,739
<TOTAL-ASSETS> 326,365
<DEPOSITS> 269,799
<SHORT-TERM> 10,058
<LIABILITIES-OTHER> 8,958
<LONG-TERM> 7,747
0
0
<COMMON> 1,841
<OTHER-SE> 27,962
<TOTAL-LIABILITIES-AND-EQUITY> 326,365
<INTEREST-LOAN> 15,789
<INTEREST-INVEST> 1,178
<INTEREST-OTHER> 369
<INTEREST-TOTAL> 17,336
<INTEREST-DEPOSIT> 7,443
<INTEREST-EXPENSE> 8,135
<INTEREST-INCOME-NET> 9,201
<LOAN-LOSSES> 185
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,611
<INCOME-PRETAX> 4,236
<INCOME-PRE-EXTRAORDINARY> 4,236
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,652
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.61
<LOANS-NON> 2,796
<LOANS-PAST> 55
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,371
<CHARGE-OFFS> 148
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 3,739
<ALLOWANCE-DOMESTIC> 3,739
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,739
</TABLE>
EXHIBIT 99.1
Independent Auditors' Report
The Board of Directors
Newnan Savings Bank, FSB
We have audited the consolidated balance sheet of Newnan Savings Bank, FSB and
subsidiaries as of March 31, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Newnan Savings Bank,
FSB and subsidiaries as of March 31, 1996 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
May 3, 1996
