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
For the fiscal year ended March 31, 1998 OR
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________________
Commission File Number: 333-4304
--------
FIRST CITIZENS CORPORATION
--------------------------
(Name of Small Business Issuer 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)
Issuer's telephone number: (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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, 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, 1998 were
$34,731,896.
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 Nasdaq Stock Market under the symbol "FSTC" on May 29, 1998, was
$89,086,449 (2,794,869 shares at $31.875 per share).
As of June 1, 1998, there were issued and outstanding 2,794,869 shares of the
registrant's Common Stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 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
1998 Annual Meeting of Shareholders are incorporated by reference into Part III
of this report.
<PAGE>
TABLE OF CONTENTS
Page
PART I ........................................................ 4
Item 1. Business .............................................. 4
Item 2. Properties ............................................ 19
Item 3. Legal Proceedings ..................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ... 21
PART II ....................................................... 22
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters ............................... 22
Item 6. Management's Discussion and Analysis of Results of
Operations and Financial Condition .................... 22
Item 7. Consolidated Financial Statements ..................... 22
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 22
PART III ...................................................... 23
Item 9. Directors, Executive Officers, Promoter and Control
Persons; Compliance with Section 16(a) of the Exchange
Act ................................................... 23
Item 10.Executive Compensation ................................ 23
Item 11. Security Ownership of Certain Beneficial Owners
and Management ....................................... 23
Item 12. Certain Relationships and Related Transactions ....... 23
PART IV ....................................................... 24
Item 13. Exhibits, List and Reports on Form 8-K ............... 24
SIGNATURES .................................................... 26
<PAGE>
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 (now known as First Citizens Bank of
Clayton County), 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 August 13, 1997, the Tara
State Bank changed its name to First Citizens Bank of Clayton County.
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.
First Citizens Bank of Clayton County 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.
4
<PAGE>
Selected Consolidated Financial Data
The information contained in the table captioned "Selected Financial Data" on
page 4 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 45%, 30%, 17% and 8%, respectively, of the Company's total
loans at March 31, 1998 and 60%, 25%, 10% and 5%, respectively, at March 31,
1997. Information with respect to the composition of the Company's loan
portfolio by type of loan is contained on page 12 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 portfolio based on contractual
terms to maturity is contained on page 12 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, 1998, approximately 31.70% 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%. Non-owner
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.
Commercial property loans, including loans secured by multifamily apartment
projects with more than four units, constituted approximately 22.4% of the
Company's loan portfolio at March 31, 1998. 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
5
<PAGE>
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, possibly 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, 1998, the Company had construction loans (net of
undisbursed amounts) of approximately 30% 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 builders' 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 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, by ultimately foreclosing 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,
6
<PAGE>
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 First
Citizens Bank of Clayton County. 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, 1998,
consumer loans (which include second mortgage loans and home improvement loans)
and other secured consumer loans amounted to approximately 8% of the Company's
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 a 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
instititutions 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
7
<PAGE>
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, 1998, the Company sold $69.8
million of loans as compared to $55.7 million during the comparable period in
1997.
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. To the extent that loans are
originated or acquired for the portfolio, generally accepted accounting
principles ("GAAP") limit 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, 1998, was $780,556.
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.
Problem Assets and Their Classification. Information with respect to the
Company's non-performing assets at March 31, 1998, 1997, 1996, 1995, and 1994 is
set forth on page 8 in the Company's Annual Report and is incorporated herein
by reference.
An analysis of the Company's allowance for loan losses for the years ended March
31, 1998, 1997, 1996, 1995, and 1994 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, 1998 and 1997 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, 1998 the
allowance for losses on loans was 1.47% 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, 1998,
there can be no assurance
8
<PAGE>
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 securities generally provides the second
largest source of income for the Company after interest payments on loans. At
March 31, 1998, the Company's 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.
A summary of time deposits by maturity as of March 31, 1998 is incorporated by
reference and is found on page 13 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
Citizen 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.
9
<PAGE>
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 7
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, 1998 and 1997 can be found on page 7 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 savings institutions
meeting regulatory capital requirements and certain scheduled items tests may
invest up to 50% of their current risk-based capital in conforming first
mortgage loans to service corporations. Under such limitations, at March 31,
1998 First Citizens Bank-Newnan was authorized to invest up to approximately
$12.8 million in the stock of, or loans to, service corporations. The Company's
investments in its subsidiaries continues to be less than the limit permitted by
OTS regulations.
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 1700 acres of the 3500 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
inventors' 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.
10
<PAGE>
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 and wide variety of accounts, convenient office locations,
tax-deferred retirement programs, and other miscellaneous services.
Personnel
As of March 31, 1998 the Company had 141 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 was
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 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;
11
<PAGE>
(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 statements speaks only as of the date the statement was made. The
Company undertakes no obligation to update or revise any forward looking
statements.
Supervision and Regulation
- --------------------------
The following discussion sets forth the material elements of the
regulatory framework applicable to bank holding companies and their bank and
thrift subsidiaries and provides certain specific information related to 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, if applicable, its non-bank subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve. In addition, as a savings and loan holding company, the
Company is also registered with the Office of Thrift Supervision ("OTS") and is
subject to the regulation, supervision, examination, and reporting requirements
of the OTS.
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 including the
parties' 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, as of
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 had the ability either to "opt in" and
12
<PAGE>
accelerate the date after which interstate branching is permissible or "opt out"
and prohibit interstate branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (a) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (b) interstate acquisitions of institutions
located in Georgia will be permitted by institutions in states that allow
national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act which 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 as of July 1, 1996. Beginning July 1, 1998, the
number of de novo branches that 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.
The bank and thrift subsidiaries of the Company are members of the
Federal Deposit Insurance Corporation (the "FDIC"), and as such, their deposits
are insured by the FDIC to the maximum extent provided by law. Such subsidiaries
are also subject to numerous state and federal statutes and regulations that
affect their businesses, activities, and operations, and they are supervised and
examined by one or more state or federal bank regulatory agencies.
13
<PAGE>
All of the Company's depository institution subsidiaries that are
state-chartered banks and are not members of the Federal Reserve System are
subject to supervision and examination by the FDIC and the Georgia Department of
Banking and Finance. The Company's subsidiary that is a federal savings bank is
subject to regulation, supervision, and examination by the OTS and the FDIC. The
federal banking regulator for each of the Company's subsidiaries, as well as the
Georgia Department of Banking and Finance for each of the subsidiary banks that
is a state chartered bank, regularly examines the operations of the subsidiary
banks and is given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions. The federal and
state banking regulators also have the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
Payment of Dividends. The Company is a legal entity separate and
distinct from its subsidiaries. The principal sources of cash flow of the
Company, including cash flow to pay dividends to its shareholders, are dividends
by its bank and thrift subsidiaries. There are statutory and regulatory
limitations on the payment of dividends by such subsidiaries to the Company as
well as by the Company to its shareholders.
As to the payment of dividends, all of the Company's depository
institution subsidiaries that are state nonmember banks are subject to the laws
and regulations of the state of Georgia and to the regulations of the FDIC. The
Company's depository institution subsidiary that is a federal savings bank 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 "-- 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, 1998, under dividend restrictions imposed under federal
and state laws, the bank and thrift subsidiaries of the Company, without
obtaining governmental approvals, could declare aggregate dividends to the
Company of up to approximately $4,587,000.
The payment of dividends by the Company and its subsidiaries 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 its depository institution
subsidiaries 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 depository institution subsidiaries. There are two basic
14
<PAGE>
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, 1998, 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
12.60% and 11.35%, 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
Company's Leverage Ratio at March 31, 1998 was 8.40%. 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.
The Company's depository institution subsidiaries are subject to
risk-based and leverage capital requirements adopted by their applicable federal
regulators, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. Such subsidiaries were in compliance with
applicable minimum capital requirements as of March 31, 1998. 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 an institution 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
15
<PAGE>
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "-- Prompt Corrective Action."
CRA. The Company's subsidiaries are subject to the provisions of the
CRA. Under the terms of the CRA, the subsidiaries 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 Company's subsidiary depository institutions 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, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the system focuses 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.
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 depository institution 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
depository institution subsidiaries will be assumed by the bankruptcy trustee
and entitled to a priority of payment.
16
<PAGE>
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 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.
The capital levels established for each of the categories are as
follows:
<TABLE>
<S> <C>
========================== ==================== ========================= ====================== ===================
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based Capital Based Capital Other
========================== ==================== ========================= ====================== ===================
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 less than 3% less than 6% less than 3% --
Undercapitalized
========================== ==================== ========================= ====================== ===================
Critically 2% or less -- -- --
Undercapitalized tangible equity
========================== ==================== ========================= ====================== ===================
</TABLE>
17
<PAGE>
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, 1998, the Company's depository institution subsidiaries
had the requisite capital levels to qualify as well capitalized.
FDIC Insurance Assessments. Pursuant to FDICIA, the FDIC adopted a
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 system 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 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 risk-based assessment
system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates
are applied.
Pursuant to the Deposit Insurance Funds Act of 1996, 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) and adopted revisions to the assessment rate
schedules that would generally eliminate the disparity between assessment rates
applicable to the deposits insured by the Bank Insurance Fund ("BIF") and the
SAIF. The revisions in the assessment rate schedules reduced assessment rates on
SAIF-insured deposits and would generally equalize BIF and SAIF assessment rates
by January, 2000. The Company anticipates that the net effect of the decrease in
the premium assessment rate on SAIF deposits will result in a reduction in its
total deposit insurance premium
18
<PAGE>
assessments through 1999 as compared to years prior to 1997, assuming no further
changes in announced premium assessment rates. The Company recorded a charge
against earnings for the special assessment in the quarter ended September 30,
1996 in the pre-tax amount of approximately $772,000.
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.
Proposed Legislation and Regulatory Action. New statutes and
regulations are regularly proposed that 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 statute or regulation will be adopted or the extent to which the
business of the Company may be affected by such statute or regulation.
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, 1998.
All of the Company's offices are maintained in operating condition suitable for
retail banking.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
19
<PAGE>
Year Facility
Commenced Leased
Office Location Operation or Owned
- --------------- --------- --------
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
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 1991 Owned
First Citizens Bank
675 North Jeff Davis Drive
Fayetteville, Georgia 30214
First Citizens-Clayton
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
20
<PAGE>
Year Facility
Commenced Leased
Office Location Operation or Owned
- --------------- --------- --------
Fayetteville, Georgia 1996 Leased
205 Jeff Davis Place
Fayetteville, Georgia 30214
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 Matter 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, 1998.
21
<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
15 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 16 through 33 of the Company's Annual Report is incorporated herein by
reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There was no change in or disagreements with accountants during the fiscal year
ended March 31, 1998.
22
<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.
23
<PAGE>
PART IV
Item 13. Exhibits, List and Reports on Form 8-K
<TABLE>
<S> <C>
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.(6)
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 executed by
the Directors of Southside Financial Group,
Inc.(3)(4)
10.4 Employment Agreement, dated as of April 9, 1997,
between Tara State Bank and Charles M.
Barnes.(6)(4)
10.5 Indexed Executive Salary Continuation Plan, dated
August 7, 1995, between Tara State Bank and
Charles M. Barnes.(4)(5)
10.6 Employment Agreement, dated as of January 1, 1998,
between First Citizens Corporation and Tom Moat.
(4)
10.7 Form of Non-Competition Covenant executed by the
Directors of Tara Bankshares Corporation. (4)
10.8 First Citizens Corporation Employee Stock Purchase
Plan, adopted June 24, 1997. (4) (7)
10.9 First Citizens Corporation Directors' Deferred
Plan, dated June 19, 1997. (4)
13.1 1998 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.)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Mauldin & Jenkins, LLC.
24.1 A Power of Attorney relating to this Report is set
forth on the signature pages to this Report.
</TABLE>
24
<PAGE>
27.1 Financial data schedule (for SEC use only)
(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.
(6) Incorporated by reference to the Form 10-KSB filed with the
SEC on June 30, 1997.
(7) Incorporated by reference to Appendix A of the Proxy
Statement filed with the SEC on July 10, 1997.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
25
<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 26th day of June,
1998.
FIRST CITIZENS CORPORATION
By: /s/ Thomas J. Moat
----------------------
Thomas J. Moat
President
26
<PAGE>
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.
Signature Title Date
--------- ----- ----
/s/ Don A. Barnette Director June 26, 1998
- --------------------
Don A. Barnette
/s/ Thomas B. Chandler Director June 26, 1998
- ----------------------
Thomas B. Chandler
/s/ J. Littleton Glover, Jr. Chairman of the Board June 26, 1998
- ----------------------------
J. Littleton Glover, Jr.
/s/ Thomas J. Moat President and Director June 26, 1998
- -------------------- (Principal Executive
Thomas J. Moat Officer)
/s/ Ellis A. Mansour Director June 26, 1998
- --------------------
Ellis A. Mansour
/s/ Douglas J. Hertha Vice President and June 26, 1998
- ---------------------- Secretary (Principal
Douglas J. Hertha Financial and Accounting
Officer)
27
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1998 between First
Citizens Corporation (the "Employer"), and Tom Moat, a resident of the State of
Georgia (the "Employee").
RECITALS:
The Employer desires to employ the Employee as the President and Chief
Executive Officer of the Employer and the President and Chief Executive Officer
of First Citizens Bank (the "Bank") 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 with normally accepted business
practices.
(b) Conduct by the Employee that amounts to fraud,
dishonesty or willful misconduct in the performance of
<PAGE>
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 the
Bank and the Employer to elect him as President and Chief Executive
Officer of the Bank and 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; [provided, however,
that in the event that the Employer shall grow so as to have Five
Hundred Million Dollars ($500,000,000.00) or more in assets, the Boards
of Directors of the Employer and the Bank may, without giving the
Employee grounds for termination herein, cause Employee's duties as
President and Chief Executor Officer of the Bank to be eliminated and
the Employee to be solely charged with performing the duties of
President and Chief Executive of Employer].
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
Page 2
<PAGE>
transferring such shares of or if a majority of the members of the Board of
Directors of the Employer are replaced.
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 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
Page 3
<PAGE>
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 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 month hereunder and at the end of each successive month,
this Agreement shall automatically be extended for a successive month following
the then two-year and eleven month 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 monthly 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 62.
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
Page 4
<PAGE>
(b) Without Cause or upon the Permanent Disability of
Employee at any time, provided that the Employer shall 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 thirty-six months following
termination; provided further, however, that in the event of
the Permanent Disability of the Employee, the Employer shall
pay to the Employee a sum equal to the difference between the
payments made to the Employee as short term disability
payments during the first six (6) months of such Permanent
Disability and the full salary of the Employee, and shall
after such six (6) month initial period of Permanent
Disability pay the thirty-six (36) months obligation as
provided in this subparagraph.
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 thirty-six (36)
months following termination; or
(b) Without Cause or upon the Permanent Disability of
Employee, provided that (i) the Employee shall give the
Employer sixty (60) days' prior written notice of his intent
to terminate Without Cause, 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, and (ii) in the event that
the Employee's termination is as a result of the Permanent
Disability of the Employee, Employee shall receive
remuneration as provided in Section 3.2.1(b) above.
3.2.3 By the Employee within thirteen (13) 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 continue to meet its obligations to Employee under
Section 4 for a period of thirty-six (36) 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.
Page 5
<PAGE>
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 and benefits:
------------
4.1 Base Salary. During the Initial Term, the Employee shall be
-----------
compensated at a base rate of $160,000.00 per annum (the "Base Salary"). The
Employee's salary shall be reviewed by the Board at least annually, 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 as a
----------------------------
specific individual benefit an automobile allowance in the amount of Five
Hundred and 00/100 ($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
Page 6
<PAGE>
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.
(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. Employer and Employee shall attempt to arrange the
vacation period so that at least two consecutive weeks of
vacation each year are taken by the Employee, with the other
Vacation to be taken at the time the Employer determines
appropriate.
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.
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, 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
Page 7
<PAGE>
by the then-current Georgia Trade Secrets Act of 1990, O.C.G.A.
(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 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
Page 8
<PAGE>
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 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
Attention: J. Littleton Glover, Jr., Chairman
Phone: (770) 253-5017
Facsimile: (770) 304-7778
Page 9
<PAGE>
(i) If to the Employee, to him at:
Tom Moat
3 Brookwood Drive
Newnan, Georgia 30263
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. 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.
Page 10
<PAGE>
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: (Signature of J. Littleton Glover, Jr.)
Name: J. Littleton Glover, Jr.
Title: Chairman
THE EMPLOYEE:
(Signature of Tom Moat)
Tom Moat
Page 11
<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:
# Foster a corporate culture of the Bank and the Employer 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.
# Work with the Employer's Board of Directors to develop a
long-term strategy for the Employer and the Banks that creates
shareholder value.
# Develop and recommend to the Employer's Board annual business
plans and budgets that support the Employer's long-term
strategy.
# Manage the day-to-day business affairs of the Bank and the
Employer appropriately.
# Use best efforts to achieve the Bank's and the Employer's
financial and operating goals and objectives.
# Improve the quality and value of the products and services
provided by the Bank and the Employer.
# Ensure that the Bank maintains a satisfactory competitive
position within its industry.
Page 12
<PAGE>
# Develop an effective management team and an active plan for
its development and succession, and make recommendations to
the Employer's Board regarding hiring, firing and
compensation.
# Implement major corporate policies.
Page 13
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the ______
of April, 1996, by and between the undersigned, ____________________, a resident
of _______________, Georgia, and First Citizens Corporation, a corporation
organized and existing under the laws of the State of Georgia ("First
Citizens").
On even date herewith, First Citizens and Tara Bankshares Corporation,
a corporation organized and existing under the laws of the State of Georgia
("Tara"), have entered into an Agreement and Plan of Merger (the "Merger
Agreement"). The Merger Agreement generally provides for the merger of Tara into
First Citizens (the "Merger") and the conversion of the issued and outstanding
shares of the $10.00 par value common stock of Tara ("Tara Common Stock") into
cash and shares of the $1.00 par value common stock of First Citizens, the
receipt of certain regulatory approvals, and the satisfaction of other
conditions.
The undersigned is a member of the Board of Directors of Tara and is
the owner of __________ shares of Tara Common Stock and, if any, has rights by
option or otherwise to acquire _______________ additional shares of Tara Common
Stock ("Shares"). In order to induce First Citizens to enter into the Merger
Agreement, the undersigned is entering into this Agreement with First Citizens
to set forth certain terms and conditions governing the actions to be taken by
the undersigned with respect to the Shares until consummation of the Merger.
NOW, THEREFORE, in consideration of the transactions contemplated by
the Merger Agreement and the mutual promises and covenants contained herein, the
parties agree as follows:
I. The undersigned covenants and agrees with First Citizens that for a
period of three years after the effective time of the Merger, or one year
following the date of the undersigned's termination of his status as a Director
of Tara State Bank, whichever is later, the undersigned shall not, without the
prior written consent of First Citizens directly or indirectly serve as a
consultant to, serve as a management official of, or be or become a major
shareholder of any financial institution having its principal office in Clayton
County or any county adjacent to Clayton County. It is expressly understood that
the covenants contained in this paragraph 1 do not apply to (i) securities
holdings which cause the undersigned to be deemed a shareholder of a financial
institution other than Tara as of the date of this Agreement, or (ii) advisory
relationships with a financial institution which the undersigned has as of the
date of this Agreement or may have after the date hereof solely in the capacity
as legal counsel or certified public account. For the purposes of the covenants
contained in this paragraph 1, the following terms shall have the following
respective meanings:
(a) The term "management official" shall refer to service of
any type which gives the undersigned the authority to participate,
directly or indirectly, in policy-making functions of the financial
institution. This includes but is not limited to, service as an
organizer, officer, director or advisory director of the financial
institution. It is expressly understood that the undersigned may be
deemed a management official of the financial institution whether or
not he holds any official, elected or appointed position with such
financial institution.
<PAGE>
(b) The term "financial institution" shall refer to any bank,
bank holding company, savings and loan association, savings and loan
holding company, banking-related company or any other similar financial
institution which engages in the business of accepting deposits or
making loans or which owns or controls a company which engages in the
business of accepting deposits or making loans. It is expressly
understood that the term "financial institution" shall include any
financial institution as defined herein that, after the date of this
Agreement, makes application to an appropriate federal or state
regulatory authority for approval to organize.
(c) The term "major shareholder" shall refer to the beneficial
ownership of 5% or more of any class of voting securities of such
company or the ownership of 5% of the total equity interest in such
company, however denominated.
The provisions of this paragraph 1 shall be of no further force and
effect if the undersigned is not offered employment as a director or advisory
director of Tara State Bank or any of its subsidiaries at the effective time of
the Merger.
(2) The undersigned acknowledges and agrees that First Citizens could
not be made whole by monetary damages in the event of any default by the
undersigned of the terms and conditions set forth in this Agreement. It is
accordingly agreed and understood that First Citizens, in addition to any other
remedy which it may have at law or in equity, shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and specifically to enforce
the terms and provisions hereof in any action instituted in any court of the
United States or in any state having appropriate jurisdiction.
(3) The undersigned, in his capacity as an officer or a director, is
not aware of any claims against Tara or Tara State Bank (other than regular
compensation and benefits in the ordinary course of business and routine
deposit, loan and other banking services conducted in the ordinary course of
business with Tara and Tara State Bank, as applicable) that he may have, and
hereby releases Tara and Tara State Bank from any and all claims of which he is
aware that he may have against either of them in his capacity as an officer or a
director.
(4) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provision of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
(5) Except with respect to the covenants contained in paragraph 1,
which shall be governed by the terms set forth therein and shall be effective
only upon consummation of the Merger, the covenants and obligations set forth in
this Agreement shall expire and be of no further force and effect on the earlier
of (i) May 31, 1997 or such date to which the Merger Agreement is extended, or
(ii) the date on which the Merger Agreement shall terminate.
- 2 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed under seal
and delivered by the undersigned as of the day and year first above written.
As to the Undersigned,
signed in the presence of:
- ----------------------------------- --------------------------------------
Name:
---------------------------------
(Please print or type)
ATTEST: FIRST CITIZENS CORPORATION
By: By:
-------------------------------- -------------------------------------
(Secretary)
[CORPORATE SEAL]
DEFERRED COMPENSATION PLAN
OF FIRST CITIZENS CORPORATION
FOR DIRECTORS
<PAGE>
DEFERRED COMPENSATION PLAN
OF FIRST CITIZENS CORPORATION
FOR DIRECTORS
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS 1
SECTION 2 ELIGIBILITY 2
SECTION 3 DEFERRALS 2
SECTION 4 CREDITING OF DEFERRALS AND INCOME 3
SECTION 5 HARDSHIP WITHDRAWALS 3
SECTION 6 DISTRIBUTION OF ACCOUNT 4
SECTION 7 ADMINISTRATION OF THE PLAN 5
SECTION 8 CLAIM REVIEW PROCEDURE 6
SECTION 9 LIMITATION OF RIGHTS 6
SECTION 10 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS 6
SECTION 11 ADOPTION OF PLAN BY AFFILIATES 7
SECTION 12 AMENDMENT TO OR TERMINATION OF THE PLAN AND RABBI TRUST 7
SECTION 13 STATUS OF MEMBER AS UNSECURED CREDITOR 7
i
<PAGE>
DEFERRED COMPENSATION PLAN
OF FIRST CITIZENS CORPORATION
FOR DIRECTORS
SECTION 1
DEFINITIONS
1.1 "Annual Retainer Compensation" means the retainer fee payable to a
Member by the Company for the then current calendar year, but shall not
include any meeting or committee fees or expense reimbursements paid to
a Member, as determined on the first day of the fiscal year or, if
later, as of the first day an individual becomes a Member.
1.2 "Beneficiary" means only the person or trust as a Member, in his most
recent written designation filed with the Plan Administrator, shall
have designated; provided that, if the Member has failed to make a
designation or if no person designated shall be alive or if no trust
shall have been established by the Member, and no successor Beneficiary
shall have been designated and be alive, the term "Beneficiary" shall
mean (i) the spouse of the deceased Member, or (ii) if no spouse shall
be alive, the surviving children of the deceased Member, or (iii) if no
children shall be alive, the parent or parents of the deceased Member,
or (iv) if no parent shall be alive, the legal representative of the
deceased Member's estate. Changes in designations of Beneficiaries may
be made upon written notice to the Plan Administrator in any form as
the Plan Administrator may prescribe and the Plan Administrator shall
immediately notify the Trustee, in writing, of any designation or
change in designation.
1.3 "Board of Directors" means the Board of Directors of the Company.
1.4 "Code" means the Internal Revenue Code of 1986, as heretofore and
hereafter amended.
1.5 "Company" means First Citizens Corporation.
1.6 "Compensation" means Annual Retainer Compensation and Nonretainer
Compensation.
1.7 "Deferral Amount" means a deferral of Compensation by a Member pursuant
to Plan Section 3.1.
1.8 "Deferred Compensation Account" means an account established and
maintained on behalf of each Member which shall be credited with
certain amounts deferred by Members under the Plan and adjusted to
reflect income, gain, losses and other credits or charges attributable
thereto.
1.9 "Effective Date" means, with respect to the Company, the date on or
after November 1, 1997 designated by the President of the Company and,
with respect to each other affiliate adopting this Plan, the date
designated by the adopting affiliate.
<PAGE>
1.10 "Member" means any individual who, pursuant to Plan Section 2, is
eligible to participate in the Plan.
1.11 "Nonretainer Compensation" means the meeting and committee fees paid to
a Member by the Company, but does not include Annual Retainer
Compensation or expense reimbursement paid to a Member.
1.12 "Plan Administrator" means the person or entity designated to
administer the Plan in accordance with Plan Section 6.1.
1.13 "Plan Sponsor" means individually (a) the Company or any successor
thereto and (b) each wholly-owned subsidiary of the Company which has
adopted the Plan in the manner set forth in Plan Section 10.
1.14 "Plan Year" means the calendar year.
1.15 "Rabbi Trust" means a grantor trust that may be established pursuant to
the Plan by the Company.
1.16 "Trustee" means the trustee serving under the Rabbi Trust, if
established and maintained by the Company.
1.17 "Valuation Date" means each June 30 and December 31.
SECTION 2
ELIGIBILITY
Any member of the board of directors of a Plan Sponsor, other than any
such member who is an employee, shall be a Member.
SECTION 3
DEFERRALS
3.1 Each Member may elect to defer a portion of the Compensation
otherwise payable to the Member. Deferrals shall be in whole number increments
expressed as a percentage of Compensation to the Member's Deferred Compensation
Account.
3.2 Elections pursuant to Plan Section 3.1 must be made in writing
before the Compensation is payable and shall be made effective only with respect
to Compensation earned on or after the commencement of January 1 or July 1
following the receipt of the Member's election. The election may only be made
pursuant to and in such form and manner specified by the Plan Administrator and
subject to such rules and limitations as the Plan Administrator may prescribe.
2
<PAGE>
3.3 A Member may revoke or modify an election made pursuant to Plan
Section 3.1 as of a date no earlier than the January 1 or July 1 following
receipt of the revocation by the Plan Administrator and subject to such other
rules as may be established by the Plan Administrator.
3.4 A Member who has suspended deferrals pursuant to Plan Section 3.3
may resume deferrals in accordance with Plan Section 3.1 at any time to be
effective at the beginning of the January 1 or July 1 after the resumption is
requested in the form and manner specified by the Plan Administrator.
SECTION 4
CREDITING OF DEFERRALS AND INCOME
4.1 All Deferral Amounts shall be credited to the Deferred Compensation
Account of the Member as soon as possible.
4.2 Except as otherwise provided in the Plan and Rabbi Trust, if
established, as of each Valuation Date the Company shall credit to each Member's
Deferred Compensation Account the income, gains, losses and other credits or
charges attributable thereto in the manner described in Plan Section 4.4.
4.3 Each Member may designate the hypothetical investment of the
Member's Deferred Compensation Account among one or more of the funds as chosen
and permitted by the Plan Administrator from time to time. The Plan
Administrator shall specify the form and manner to be used to designate such
hypothetical investment of a Member's Deferred Compensation Account. The
designation will continue until changed in the form and manner specified by the
Plan Administrator, which change will be effective as of January 1 or July 1
following the date the designation change is received by the Plan Administrator.
If no election has been properly or timely filed with the Plan Administrator or
if the Plan Administrator suspends the election of hypothetical investment
returns by Members, the Member's Deferred Compensation Account shall be credited
with a designated hypothetical investment selected by the Plan Administrator.
4.4 As of each Valuation Date, each Member's Deferred Compensation
Account (other than any Member who has received a distribution of his benefits
prior to that Valuation Date) or portions thereof shall be credited with
hypothetical investment return(s) as selected by the Member, or, if applicable,
the Plan Administrator, based upon the amount credited to the Member's Deferred
Compensation Account as of the immediately preceding Valuation Date.
4.5 The right of any Member to receive future distributions under the
provisions of the Plan shall constitute an unsecured claim against the general
assets of the Company.
SECTION 5
HARDSHIP WITHDRAWALS
5.1 The Plan Administrator may pay all or a portion of a Member's
Deferred
3
<PAGE>
Compensation Account prior to the time such amounts otherwise become payable in
accordance with the provisions of the Plan; provided, however, that any such
distribution shall be made only if the Member demonstrates that he or she is
suffering from "Hardship," as that term is defined under Code Section
401(k)(2)(B)(i)(IV) and applicable Treasury Regulations thereunder. For purposes
of this Section, the Plan Administrator shall have the sole and absolute
discretion, which shall be exercised in a nondiscriminatory and uniform manner,
to determine if a "Hardship" exists with respect to a Member.
5.2 Hardship payments shall be made to a Member only in accordance with
such rules, policies, procedures, restrictions, and conditions as the Plan
Administrator may from time to time adopt. Any determination of the amount to be
distributed on account of a Hardship shall be made by the Plan Administrator in
accordance with rules applied in a uniform and nondiscriminatory manner. A
payment under this Section shall be made in a lump sum in cash to the Member and
shall be charged against the Member's Deferred Compensation Account as of the
Valuation Date coinciding with or immediately preceding the date of the payment.
SECTION 6
DISTRIBUTION OF ACCOUNT
6.1 Amount credited to a Member's Deferred Compensation Account shall
be distributed in either a lump sum or installments (not longer than ten (10)
years), as designated by the Member in his or her initial election form or on a
subsequent election form delivered to the Plan Administrator not less than one
year prior to the distribution. Distribution of a Deferred Compensation Account
shall be made (in the case of a lump sum payment) or commence (in the case of
installment payments) as soon as practicable following the January 1 or July 1,
whichever occurs first, following the date the Member ceases to be a member of
the Board of Directors of the Company and a member of the board of directors of
any affiliate. If a Member elects to have his or her Deferred Compensation
Account distributed in installments, the amount of the first installment shall
be a fraction, the numerator of which is one and the denominator of which is the
total number of installments elected, and the amount of each subsequent
installment shall be a fraction of the value (including income credited pursuant
to Plan Section 4.2) on the date preceding each subsequent payment, the
numerator of which is one and the denominator of which is the total number of
installments elected minus the number of installments paid.
6.2 In the event of the death of a Member prior to the distribution of
his or her Deferred Compensation Account in full, the value of such Deferred
Compensation Account shall be determined as of the day immediately following the
Member's death and such amount shall be distributed in a lump sum payment to
Member's designated Beneficiary as soon as administratively feasible thereafter.
6.3 Distributions shall be made in cash although the Plan Administrator
may distribute in kind all or any portion of a Member's Deferred Compensation
Account then being adjusted by a rate of return tied to the value of Company
common stock.
4
<PAGE>
SECTION 7
ADMINISTRATION OF THE PLAN
7.1 Operation of the Plan Administrator. The Company shall be the Plan
Administrator, unless it appoints another Plan Administrator. If an organization
is appointed to serve as the Plan Administrator, then the Plan Administrator may
designate in writing a person who may act on behalf of the Plan Administrator.
The Company shall have the right to remove the Plan Administrator at any time by
notice in writing. The Plan Administrator may resign at any time by written
notice or resignation to the Company. Upon removal or resignation, or in the
event of the dissolution of the Plan Administrator, the Company shall appoint a
successor.
7.2 Responsibilities.
(a) The Plan Administrator may designate in writing other
persons to carry out its responsibilities under the Plan. The Plan Administrator
may remove any person designated to carry out its responsibilities under the
Plan by notice in writing to that person.
(b) The Plan Administrator may employ persons to render advice
with regard to any of their responsibilities. Charges for all services may be
charged against the assets of the Rabbi Trust, if established.
(c) Each Plan Sponsor shall indemnify and hold harmless each
person constituting the Plan Administrator from and against any and all claims
and expenses (including, without limitation, attorney's fees and related costs),
in connection with the performance by the person of his duties in that capacity,
other than any of the foregoing arising in connection with the willful neglect
or willful misconduct of the person acting.
7.3 Duties of the Plan Administrator.
(a) If a Rabbi Trust has been established by the Company, the
Plan Administrator shall advise the Trustee with respect to all payments under
the terms of the Plan and shall direct the Trustee in writing to make payments
from the Rabbi Trust.
(b) The Plan Administrator shall establish rules, not contrary
to the provisions of the Plan and the Rabbi Trust, if established, for the
administration of the Plan and the transaction of its business. The Plan
Administrator shall have the discretionary authority to construe and interpret
the provisions of the Plan and shall determine all questions arising in the
administration, interpretation and application of the Plan, including, but not
limited to those concerning eligibility for benefits. All determinations of the
Plan Administrator shall be conclusive and binding on all Members and
Beneficiaries, subject to the provisions of this Plan, the terms of the Rabbi
Trust, if established, and applicable law.
7.4 Action by Plan Sponsor. Any action to be taken by a Plan Sponsor
shall be
5
<PAGE>
taken by resolution adopted by its Board of Directors or an executive committee
thereof; provided, however, that by resolution, the Board of Directors or an
executive committee thereof may delegate to any officer of a Plan Sponsor the
authority to take any actions other than the power to amend or terminate the
Plan or the Rabbi Trust, if established, or to determine the basis of Plan
benefits.
SECTION 8
CLAIM REVIEW PROCEDURE
8.1 In the event that a Member or Beneficiary is denied a claim for
benefits under this Plan (the "claimant"), the Plan Administrator shall provide
to the claimant written notice of the denial which shall set forth the specific
reason or reasons for the denial and an explanation of the Plan's claim review
procedure.
8.2 If the claimant wishes a review of the decision denying his claim
to benefits under the Plan, he or his representative must submit a written
request to the Plan Administrator within sixty (60) days after receiving written
notice of the denial.
8.3 Upon receiving a written application for review, the Plan
Administrator shall review the claimant's claim, which shall take place not more
than sixty (60) days from the date on which the Plan Administrator received the
written application for review.
SECTION 9
LIMITATION OF RIGHTS
Neither this Plan, the Rabbi Trust, if established, nor membership in
the Plan, shall give any Member or other person any right, except to the extent
that right is specifically fixed under the terms of the Plan. The establishment
of the Plan shall not be construed to give any member of the board of directors
of a Plan Sponsor the right to continue to be a member of the board of directors
of a Plan Sponsor or to interfere with any right to remove the member at any
time.
SECTION 10
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
10.1 No benefit which shall be payable under the Plan to any person
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose
of the same shall be void. No benefit shall in any manner be subject to the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for or against any person, except to
the extent as may be required by law.
10.2 Whenever any benefit which shall be payable under the Plan is to
be paid to or for the benefit of any person who is then a minor or determined to
be incompetent by qualified medical advice, the Plan Administrator need not
require the appointment of a guardian or custodian,
6
<PAGE>
but shall be authorized to cause the same to be paid over to the person having
custody of the minor or incompetent, or to cause the same to be paid to the
minor or incompetent without the intervention of a guardian or custodian, or to
cause the same to be paid to a legal guardian or custodian of the minor or
incompetent if one has been appointed or to cause the same to be used for the
benefit of the minor or incompetent.
10.3 If the Plan Administrator cannot ascertain the whereabouts of any
Member to whom a payment is due under the Plan, the Plan Administrator may
direct that the payment and all remaining payments otherwise due to the Member
be cancelled on the records of the Plan. In the event the Member later notifies
the Plan Administrator of his whereabouts and requests the payments due to him
under the Plan, the Plan Sponsor shall cause the Plan to restore the Member's
Deferred Compensation Account by the amount of the cancelled payment.
SECTION 11
ADOPTION OF PLAN BY AFFILIATES
With the consent of the Board of Directors, any wholly-owned subsidiary
of the Company may adopt this Plan by action of its board of directors. Any
adoption shall be evidenced by certified copies of the resolution of the
foregoing board of directors indicating the adoption by the adopting
wholly-owned subsidiary. The resolution shall define the Effective Date for the
purpose of the Plan as adopted by the wholly-owned subsidiary.
SECTION 12
AMENDMENT TO OR TERMINATION OF THE PLAN AND RABBI TRUST
The Company reserves the right at any time to amend or terminate, in
whole or in part, the Plan or, if established, the Rabbi Trust, except as
otherwise expressly provided therein. No amendments shall have the effect of
retroactively changing or depriving Members or Beneficiaries of rights already
accrued under the Plan. In the event that the Company shall change its name, the
Plan shall be deemed to be amended to reflect the name change without further
action of the Company, and the language of the Plan shall be changed
accordingly.
SECTION 13
STATUS OF MEMBER
AS UNSECURED CREDITOR
All Plan benefits shall be the unsecured obligations of the Company and
each Plan Sponsor and, except for those assets which may be placed in a Rabbi
Trust established in connection with this Plan by the Company, no assets will be
placed in trust or otherwise segregated from the general assets of any Plan
Sponsor for the payment of obligations hereunder.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this indenture to be
executed as of the 19th day of June, 1997.
COMPANY:
FIRST CITIZENS CORPORATION
By: /s/ Tom Moat
--------------------------
Title: President
--------------------------
ATTEST: /s/ Douglas J. Hertha
------------------------------
Title: Secretary
------------------------------
[CORPORATE SEAL]
EXHIBIT 13
FIRST
CITIZENS [LOGO APPEARS HERE]
CORPORATION
------------------
1998 ANNUAL REPORT
------------------
<PAGE>
The Company
[LOGO APPEARS HERE]-------------------------------------------------------------
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 (now known as First Citizens Bank of
Clayton County), 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 August 13, 1997,
Tara State Bank changed its name to First Citizens Bank of Clayton County.
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.
First Citizens Bank of Clayton County 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, 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
<TABLE>
<S><C>
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....................................... 6
Independent Auditors' Report............................................ 33
Directors and Officers.................................................. 34
Locations............................................................... 36
</TABLE>
<PAGE>
Chairman's Letter
- -------------------------------------------------------------[LOGO APPEARS HERE]
Dear Shareholder:
It is with a great deal of pride and [PICTURE APPEARS HERE]
pleasure that I report to you the results of
operations of First Citizens Corporation during
the last fiscal year. As you will see from an
examination of the information in this annual
report, 1997-98 was a record year for First
Citizens. Our company had net earnings in excess
of $7.2 million during this past year, which
equates to $2.42 for each share of common stock
outstanding. Earnings per share for 1997-98 grew
by 130% over the previous year.
Our company's earnings growth resulted from
several factors. In order to capitalize on what
we perceive to be a very strong economy in our
local market area, the Board of Directors adopted
a multi-year business plan stressing growth in
assets and deposits. Your officers and employees
worked hard to achieve this goal. Assets grew by
$42 million to $368 million, an increase of
almost 13%. Even more outstanding was the growth
in deposits. The almost $50 million growth in
deposits was an increase of approximately 18%
over the previous year.
Although I am proud of the efforts of your officers and employees in
achieving the growth in assets and deposits. I am equally if not more proud of
their efforts in maintaining the profitability ratios that allowed us to achieve
our record earnings. Our Return on Average Equity of 21.68% and Return on
Average Assets of 2.10% are well above industry averages. While these
profitability ratios might have been even higher had our banks booked more risky
marginal credits, our business plan and philosophy holds steadfast to the
premise that sound underwriting is the cornerstone of our lending policy. We
strive to keep the percentage of non-performing loans at our banks at one-half
of the industry average or less. The officers and employees of our banks are
currently achieving this goal.
You will also note as you examine this annual report that the composition
of our loan portfolio is changing. Construction and commercial loans, which last
year made up 35% of our total loan portfolio, now total in excess of 47% of our
loan portfolio. Whereas in the previous year real estate mortgage loans made up
60% of the loan portfolio of our banks, this year mortgage loans only comprise
44% of total loans.
As I am sure all of you are aware, during 1997 the per share value of each
of your shares in First Citizens more than doubled. The dramatic rise in the
stock price of First Citizens stock during 1997 reflected both last year's
excellent performance and the anticipation of continued good returns of our
banks during this year. The price of our shares has been relatively flat during
the first part of 1998. This could be attributable to last year's extraordinary
rise in our per share value, or to other factors such as the overall decline in
per share market price of Southeast community banks. While we cannot control the
stock market, we remain committed to our business plan of growing our banks and
maintaining both our credit quality and returns. We believe that this philosophy
will result in sound recurring profits which in the long run will be recognized
and rewarded in the stock market.
As you know, there has been much discussion of late concerning the "Year
2000" problem. First Citizens has just expended in excess of $1 million in
modernizing and standardizing all of our computer systems. In the process, we
have received certification that these systems are "Year 2000 Compliant". You
can feel confident that as the millennium approaches, no significant Year 2000
issues will have an adverse effect on your bank accounts at First Citizens.
I invite any shareholder who has a question or comment concerning First
Citizens to give me a call at any time. Your Board of Directors and I are proud
of First Citizens and our latest annual returns. We can always be better,
however, and I welcome any suggestions, comments, or observations that you may
have.
Sincerely,
J. LITTLETON GLOVER, JR.
CHAIRMAN
1
<PAGE>
President's Letter
[LOGO APPEARS HERE]-------------------------------------------------------------
Dear Shareholder:
[PICTURE APPEARS HERE]
Once again it is a pleasure to have the
opportunity to let you know about the success of
your company during the past year. It was a year
of record profits and growth for First Citizens
Corporation. The mergers and name changes for
Newnan Savings Bank; Citizens Bank and Trust; and
Tara State Bank are complete. All three banks are
now operating under the name of First Citizens
Bank.
We are currently in the process of
converting all three banks to the same computer
system. This should allow us to be more efficient
in our operations, will allow us to provide our
customers with the same service at all of our
branches, and will allow us to provide new
services such as: telephone banking, PC banking,
and item imaging. We believe that the computer
conversion will allow us to be "Year 2000"
compliant without additional operating costs.
As most of you know our primary emphasis is
and has been to try to increase the value of your
investment in First Citizens Corporation.
Historically, the best way to do this is through
profitability. We were able to earn a net profit
of $7,214,871 for the year ended March 31, 1998, or $2.42 per share fully
diluted ($2.62 basic earnings per share), compared to a net profit of $2,651,686
or $1.05 per share fully diluted ($1.15 basic earnings per share) for 1997. This
amounts to net income which was one-hundred seventy-two (172%) percent higher
than the previous year.
The current year net profits were higher due to three significant factors:
higher core earnings from the operation of the three First Citizens Banks, the
level of real estate sales in the First Citizens Bank-Newnan subsidiary, and the
one-time charge last year to set up a reserve for a possible loss. Net earnings
from core banking operations were $5,047,597 or $1.69 per share fully diluted
($1.83 basic earnings per share) compared to $2,104,281 or $0.83 per share
($0.91 basic earnings per share) for the previous year, one-hundred forty (140%)
percent over the previous fiscal year.
Net earnings at White Oak, our real estate development owned by the Newnan
Bank's affiliate, Jefferson Ventures, Inc., were up over the previous year. Net
profit from real estate operations for the year was $2,167,274 compared to
$547,405 a year ago.
First Citizens Corporation had total assets of $367.8 million at March 31,
1998 compared to $326.4 at March 31, 1997. Total borrowings decreased to $9.6
million from $17.8 million at the end of the previous year.
Our stock price seemed to reflect our improved earnings during the course
of the year. At March 31, 1997, the selling price per share for our stock was
$16.917 ($25.375 adjusted for the 3 for 2 stock split in November). At March 31,
1998 our stock was selling at $33.00 per share, about a ninety-five (95%)
percent increase in value. In addition, we were able to increase our quarterly
dividend by approximately ten (10%) percent beginning with the December 31, 1997
dividend.
We are currently working on ways to try to increase profitability this
year. We have expanded our commercial banking operation this year to the point
that it will soon become a significant portion of our operation. Please remember
us when you need any banking services. We offer all of the services that the
large banks provide, and we try to offer our services with a personal touch.
Check with us for our full line of personal and commercial accounts.
The First Citizens Banks are your banks. Please encourage your friends and
associates to bring their banking business to "your" bank. As always, thank you
for your support.
Sincerely,
/s/ TOM MOAT
____________
TOM MOAT
PRESIDENT
2
<PAGE>
Financial Highlights
- -------------------------------------------------------------[LOGO APPEARS HERE]
YEARS ENDED MARCH 31, 1994, 1995, 1996, 1997 and 1998
(All Dollars in Millions)
ASSET GROWTH/ EQUITY GROWTH/
RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY
- ------------------------ ------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S><C>
0.81% 1.06% 2.51% 1.23% 2.10% 7.40% 10.29% 22.25% 11.81% 21.68%
$144.3 $169.5 $182.0 $326.4 $367.8 $15.1 $16.6 $20.3 $29.8 $36.8
</TABLE>
NET INTEREST INCOME/
NET INTEREST MARGIN CORE BANKING INCOME(1)
- -------------------- ----------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S><C>
3.61% 3.77% 3.95% 4.71% 4.76% $0.5 $1.8 $3.3 $3.9 $7.6
$4.3 $5.3 $5.9 $9.4 $14.9
</TABLE>
LOANS RECEIVABLE, NET TOTAL DEPOSITS
- --------------------- --------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S><C>
$102.9 $130.1 $131.0 $245.4 $263.8 $117.2 $117.8 $130.6 $269.8 $318.4
</TABLE>
(1) Excludes SAIF Assessment for 1997
3
<PAGE>
Selected Financial Data
[LOGO APPEARS HERE]-------------------------------------------------------------
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>
1998 1997 1996 1995
-------- -------- -------- --------
<S><C>
(Dollars in thousands, except per share amounts)
BALANCE SHEET:
Total assets.............................................................. $367,812 $326,365 $182,010 $169,477
Loans, net (1)............................................................ 263,784 245,409 130,952 130,121
Investments (2)........................................................... 70,704 45,451 32,451 23,508
Real estate held for development and sale................................. 2,321 3,292 3,740 5,070
Deposit accounts (3)...................................................... 318,382 269,799 130,635 117,818
Borrowings (4)............................................................ 9,602 17,805 29,489 33,528
Stockholders' equity...................................................... 36,760 29,803 20,266 16,603
OPERATING DATA:
Interest income........................................................... 27,906 $ 17,532 $ 12,412 $ 10,830
Interest expense.......................................................... 12,975 8,135 6,512 5,492
Net interest income....................................................... 14,931 9,397 5,900 5,338
Provisions for loan losses................................................ 235 185 10 108
Other income.............................................................. 6,826 3,636 5,248 2,357
General and administrative expenses....................................... 10,600 8,611 4,646 5,071
Income tax expense........................................................ 3,707 1,585 2,442 896
Earnings before cumulative effect of change in accounting principle....... 7,215 2,652 4,050 1,620
Cumulative effect of change in accounting for income taxes................ -- -- -- --
Net earnings.............................................................. 7,215 2,652 4,050 1,620
Basic earnings per share before cumulative effect of change in accounting
principle............................................................... 2.62 1.15 2.71 1.14
Cumulative effect per share of change in accounting for income taxes...... -- -- -- --
Basic earnings per share.................................................. 2.62 1.15 1.86 0.76
Diluted earnings per share................................................ 2.42 1.05 1.81 0.76
Cash dividends per share.................................................. 0.31 0.29 0.23 0.15
-- as a percentage of diluted earnings per share......................... 12.81% 27.62% 12.71% 19.74%
Net interest margin....................................................... 4.76% 4.71% 3.95% 3.77%
REGULATORY CAPITAL RATIOS (CONSOLIDATED)
Risk-based................................................................ 12.6% 10.3% 20.3% 14.4%
Tier 1 to risk based assets............................................... 11.4% 9.0% n/a n/a
Tier 1 to average total assets............................................ 8.4% 6.7% n/a n/a
Tangible (Thrift)......................................................... 8.0% 6.3% 11.2% 9.1%
Core (Thrift)............................................................. 8.0% 6.3% 11.2% 9.1%
SELECTED FINANCIAL RATIOS AND OTHER DATA (AS PERCENTAGES)
Return on average assets.................................................. 2.10% 1.23% 2.51% 1.06%
Return on average equity.................................................. 21.68% 11.81% 22.25% 10.29%
Average equity to average assets.......................................... 9.70% 10.38% 11.29% 10.29%
Allowance for loan losses to total loans and OREO......................... 1.43% 1.50% 1.05% 1.09%
Nonperforming assets to total loans and OREO.............................. 1.19% 1.25% 0.63% 0.76%
Allowance for loan losses to nonperforming loans.......................... 120.78% 131.15% 192.29% 164.44%
Allowance for loan losses to nonperforming assets......................... 120.71% 119.96% 165.98% 143.90%
<CAPTION>
1994
--------
<S><C>
BALANCE SHEET:
Total assets.............................................................. $144,300
Loans, net (1)............................................................ 102,864
Investments (2)........................................................... 29,144
Real estate held for development and sale................................. 6,026
Deposit accounts (3)...................................................... 117,199
Borrowings (4)............................................................ 10,646
Stockholders' equity...................................................... 15,147
OPERATING DATA:
Interest income........................................................... $ 8,798
Interest expense.......................................................... 4,484
Net interest income....................................................... 4,314
Provisions for loan losses................................................ 275
Other income.............................................................. 2,547
General and administrative expenses....................................... 5,258
Income tax expense........................................................ 491
Earnings before cumulative effect of change in accounting principle....... 837
Cumulative effect of change in accounting for income taxes................ 250
Net earnings.............................................................. 1,087
Basic earnings per share before cumulative effect of change in accounting
principle............................................................... 0.59
Cumulative effect per share of change in accounting for income taxes...... 0.17
Basic earnings per share.................................................. 0.51
Diluted earnings per share................................................ 0.51
Cash dividends per share.................................................. --
-- as a percentage of diluted earnings per share......................... --
Net interest margin....................................................... 3.61%
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)......................................................... 9.6%
Core (Thrift)............................................................. 9.6%
SELECTED FINANCIAL RATIOS AND OTHER DATA (AS PERCENTAGES)
Return on average assets.................................................. 0.81%
Return on average equity.................................................. 7.40%
Average equity to average assets.......................................... 10.99%
Allowance for loan losses to total loans and OREO......................... 1.26%
Nonperforming assets to total loans and OREO.............................. 1.75%
Allowance for loan losses to nonperforming loans.......................... 92.09%
Allowance for loan losses to nonperforming assets......................... 71.60%
</TABLE>
- ---------------
(1) Includes loans held for sale.
(2) Includes securities, Federal funds sold, and interest-bearing deposits in
banks.
(3) Includes official checks outstanding.
(4) Includes advances from Federal Home Loan Bank and notes payable.
4
<PAGE>
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
- -------------------------------------------------------------[LOGO APPEARS HERE]
The following is a discussion of First Citizens Corporation's ("Company")
financial condition at March 31, 1998 and 1997 and the results of operations for
the two year period ended March 31, 1998. 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 sheets as of March 31, 1998 and 1997 include the
Company 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. On March 31, 1997, the Company acquired Tara
Bankshares, Inc. ("Tara"), the parent company of Tara State Bank. This
transaction was also accounted for under the purchase method of accounting.
The consolidated statement of income for the year ended March 31, 1997
includes the operations of Southside Financial Group, Inc. and Tara Bankshares,
Inc. subsequent to the date of acquisition. The consolidated statement of income
for the year ended March 31, 1998 includes the operations of the Company and
subsidiaries for a full year.
RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
NET EARNINGS
1998 COMPARED TO 1997. For the year ended March 31, 1998, the Company earned
record net profits of $7,215,000 or $2.42 per common share on a diluted basis.
This is the Company's second record earning year in a three-year period. The
increase in net earnings compared to 1997 is $4,563,000, or an increase of 172%.
Again in 1998, the Company's most significant item contributing to the increase
was the gain on sale of real estate held for development and sale held by
Jefferson Ventures, Inc. The gain in 1998 of $3,369,000 represented an increase
of $2,300,000 compared to 1997 and accounts for one-half of the increase in net
earnings for the year.
In addition to the gains on sale of real estate, income from operations for
the year ended March 31, 1998 includes full-year operations of First Citizens
Bank of Fayette County and First Citizens Bank of Clayton County. The year ended
March 31, 1997 included only seven months of operations of First Citizens Bank
of Fayette County and none of the operations of First Citizens Bank of Clayton
County. Their combined contribution to net consolidated earnings was
approximately $2,558,000 in 1998 versus $851,000 in 1997.
The Company began consolidating the operations of the banking and thrift
subsidiaries during the year. This consolidation includes the conversion to a
common information technology system. The conversion is expected to be completed
in the second calendar quarter of 1998. The Company expects this process to
provide improved service to its customers while decreasing the Company's
overhead.
1997 COMPARED TO 1996. Net earnings were $2,651,686, or $1.05 per share
compared to $4,049,955, or $1.81 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
Citizens Bank of Fayette County and two additional loan origination offices
opened by Citizens Mortgage Group, a subsidiary of First Citizens-Newnan. The
Company identified a 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 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, which was realized subsequent to March 31, 1997.
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 Bank of Fayette County
and normal growth of the Company.
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.
5
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
Table 1. ANALYSIS OF NET INTEREST INCOME
For The Years Ended March 31,
<TABLE>
<CAPTION>
1998 1997
------------------------------ --------
AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE
BALANCE EXPENSE RATE BALANCE
-------- ------- ------- --------
<S><C>
(DOLLARS IN THOUSANDS)
Interest Earning Assets:
Loans (1)(2)(7).............................................................. $262,504 $24,924 9.49% $173,544
Federal funds sold (2)....................................................... 9,246 552 5.97% 2,909
Interest bearing deposits (2)................................................ 6,277 307 4.89% 4,038
Nontaxable securities (2).................................................... 2,693 141 5.24% 1,693
Taxable securities (2)(8).................................................... 32,830 1,982 6.04% 17,382
-------- ------- --------
Total interest earning assets.............................................. $313,550 $27,906 8.90% $199,566
-------
Cash and due from banks (3).................................................. 11,530 7,309
Allowance for loan losses (3)................................................ (3,913) (2,200)
Other assets (3)............................................................. 21,895 11,656
-------- --------
Total assets............................................................... $343,062 $216,331
-------- --------
-------- --------
Interest Bearing Liabilities:
Interest bearing demand and savings (2)...................................... $ 79,204 $ 2,331 2.94% $ 54,683
Time deposits (2)............................................................ 165,760 9,567 5.77% 103,765
FHLB advances and other borrowings (3)....................................... 15,673 1,077 6.87% 12,003
-------- ------- --------
Total interest bearing liabilities......................................... $260,637 $12,975 4.98% $170,451
-------
Noninterest-bearing deposits (2)(6).......................................... 41,197 20,420
Other liabilities (3)........................................................ 7,952 2,995
Stockholders equity (3)...................................................... 33,276 22,465
-------- --------
Total liabilities and stockholders' equity................................. $343,062 $216,331
-------- --------
-------- --------
Interest rate spread (4)..................................................... 3.92%
-------
-------
Net interest income/margin (5)............................................... $14,931 4.76%
------- -------
------- -------
<CAPTION>
AVERAGE
INCOME/ YIELD/
EXPENSE RATE
------- -------
<S><C>
Interest Earning Assets:
Loans (1)(2)(7).............................................................. $15,985 9.21%
Federal funds sold (2)....................................................... 157 5.40%
Interest bearing deposits (2)................................................ 212 5.25%
Nontaxable securities (2).................................................... 89 5.26%
Taxable securities (2)(8).................................................... 1,089 6.27%
-------
Total interest earning assets.............................................. $17,532 8.79%
-------
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)...................................... $ 1,561 2.85%
Time deposits (2)............................................................ 5,882 5.67%
FHLB advances and other borrowings (3)....................................... 692 5.77%
-------
Total interest bearing liabilities......................................... $ 8,135 4.77%
-------
Noninterest-bearing deposits (2)(6)..........................................
Other liabilities (3)........................................................
Stockholders equity (3)......................................................
Total liabilities and stockholders' equity.................................
Interest rate spread (4)..................................................... 4.02%
-------
-------
Net interest income/margin (5)............................................... $ 9,397 4.71%
------- -------
------- -------
</TABLE>
(1) Includes loans held for sale and nonaccrual loans.
(2) Daily average.
(3) Monthly average.
(4) Interest rate spread is the weighted average yield on interest earning
assets minus 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 total fee income of approximately
$723,000 and $668,000 for the years ended March 31, 1998 and 1997,
respectively.
(8) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
(9) The above information is prepared on a consolidated basis in which all
loans and accounts with subsidiaries have been eliminated.
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 expense during the
year indicated. For each category of interest-earning assets and
interest-bearing liabilities, 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.
6
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
Table 2. ANALYSIS OF CHANGES IN NET INTEREST INCOME
For The Years Ended March 31,
(In Thousands)
<TABLE>
<CAPTION>
1997 COMPARED TO
1998 COMPARED TO 1997 1996
------------------------------- -------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
----------------- -------------------
RATE VOLUME TOTAL RATE VOLUME
---- ------ ------- ------ ------
<S><C>
Interest Income
Loans................................................................. $501 $8,438 $ 8,939 $ 811 $3,725
Federal funds sold.................................................... 19 376 395 -- 157
Interest bearing deposits............................................. (14) 109 95 (1) 117
Nontaxable securities................................................. (1) 53 52 -- 89
Taxable securities.................................................... (38) 931 893 62 160
---- ------ ------- ------ ------
Total interest income............................................. $467 $9,907 $10,374 $ 872 $4,248
---- ------ ------- ------ ------
Interest Expense
Interest bearing demand and savings................................... $ 50 $ 720 $ 770 $ (37) $ 424
Time deposits......................................................... 106 3,579 3,685 (183) 1,722
FHLB advances and other borrowings.................................... 148 237 385 (23) (281 )
---- ------ ------- ------ ------
Total interest expense............................................ $304 $4,536 $ 4,840 $ (243) $1,865
---- ------ ------- ------ ------
Net interest income................................................... $163 $5,371 $ 5,534 $1,115 $2,383
---- ------ ------- ------ ------
---- ------ ------- ------ ------
<CAPTION>
TOTAL
------
<S><C>
Interest Income
Loans................................................................. $4,536
Federal funds sold.................................................... 157
Interest bearing deposits............................................. 116
Nontaxable securities................................................. 89
Taxable securities.................................................... 222
------
Total interest income............................................. $5,120
------
Interest Expense
Interest bearing demand and savings................................... $ 387
Time deposits......................................................... 1,539
FHLB advances and other borrowings.................................... (304)
------
Total interest expense............................................ $1,622
------
Net interest income................................................... $3,498
------
------
</TABLE>
1998 COMPARED TO 1997. Net interest income increased by $5,534,000 for the
year ended March 31, 1998, or 58.9%. The significant increase is due to the
inclusion of the operations of First Citizens Bank of Fayette County and First
Citizens Bank of Clayton County for a full year, and to growth in the commercial
loan portfolio at First Citizens-Newnan. The net interest margin increased
slightly during the year from 4.71% to 4.76%. The slight increase in the net
interest margin is consistent with the increase in yield on earning-assets which
increased by 11 basis points. During the same period, the rate paid on interest
bearing liabilities increased by 21 basis points to 4.98%, resulting in a net
decrease in the interest rate spread of 10 basis points, or 3.92%. As noted in
the above table, over 90% of the change in interest income and expense is
attributable to the change in volume for 1998.
For the year ended March 31, 1998, average rates earned on assets and paid on
liabilities differ little from the rates in 1997. Overall, rates have increased
slightly which can be attributed to the acquisitions of the two community banks.
These banks differ from the thrift in that they market commercial and consumer
loans, in addition to real estate loans which are primarily marketed by the
thrift. Commercial and consumer loans typically earn higher yields. The
increases in rates paid on liabilities is attributable to increased competition
for deposit growth.
1997 COMPARED TO 1996. Net interest income increased $3.5 million, or 59.3%
from $5.9 million in 1996 to $9.4 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 Bank of Fayette County. 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 9.21% for
1997. This increase in yield results from two items: first, the acquisition of
First Citizens Bank of Fayette County, 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 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 on paid on certificate accounts and to the lower rate paid on
the deposit base associated with First Citizens Bank of Fayette County. 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 4.71% in 1997. This is
the result of a higher yield on interest earning assets, which increased from
8.32% in 1996 to
7
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
8.79% 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 Bank of Fayette County 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
earning assets.
The growth in average balances accounted for $2.4 million of the $3.5 million
increase in net interest income with the changes in yields and rates accounting
for $1,115,000 in additional net interest income. Interest income on loans
receivable increased $4.5 million of which $3.7 million was due to the growth in
the loan portfolio, while $811,000 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
Bank of Fayette County.
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, 1998 management believes that its allowance for loan losses was
adequate to provide for inherent losses in the loan portfolio.
Asset quality continued to improve during the year ended March 31, 1998.
Nonaccrual loans as a percentage of total loans decreased from 1.15% to 1.11%
during the year. The ratio of nonperforming assets (to total assets) remained
the same at 0.87% in 1998. At March 31, 1998 the allowance for loan losses as a
percentage of total loans was 1.47% compared to 1.54% at March 31, 1997. The
slight decrease in the allowance is due to the improved asset quality and
reduction in net charge-offs for the year.
The following table presents at the dates indicated the aggregate of
nonperforming loans for the following categories:
<TABLE>
<CAPTION>
MARCH 31,
(DOLLARS IN THOUSANDS)
--------------------------------------
1998 1997 1996 1995 1994
------ ------ ---- ---- ------
<S><C>
Loans accounted for on a
nonaccrual basis............. $2,886 $2,796 $713 $872 $1,427
Loans contractually past due
ninety days or more as to
interest or principal
payments and still
accruing..................... 303 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 (included above).... 894 -- -- -- --
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, 1998 is as follows:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S><C>
Interest income that would have been recorded on
nonaccrual loans under original terms............. $265
Interest income that was recorded on nonaccrual
loans............................................. 100
----------
Reduction in interest income...................... $165
----------
----------
</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. In the
event of non-performance by the borrower, these loans have collateral pledged
which would prevent the recognition of substantial losses. 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 Bank's 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
8
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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, 1998 and
1997.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S><C>
Unfunded mortgage loan commitments... $14,786,000 $17,794,000
Residential construction and
commercial loan commitments........ 25,825,000 26,702,846
Other commitments to extend credit... 44,470,976 32,928,825
Standby letters of credit............ 1,394,031 1,539,000
----------- -----------
$86,476,007 $78,964,671
----------- -----------
----------- -----------
</TABLE>
The following table summarizes the allowance for loan losses for each year.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S><C>
Average amount of
loans outstanding... $262,504 $173,544 $132,641 $123,420 $92,855
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Balance of allowance
for loan losses at
beginning of year... $ 3,739 $ 1,371 $ 1,435 $ 1,315 $ 1,141
-------- -------- -------- -------- -------
Charge-offs:
Real estate......... (101) (38) (54) -- (35)
Consumer............ (56) (33) (38) (37) (75)
Commercial.......... (253) (76) -- -- --
-------- -------- -------- -------- -------
(410) (147) (92) (37) (110)
Recoveries:
Real estate......... 155 3 4 -- --
Consumer............ 19 2 14 49 4
Commercial.......... 114 -- -- -- --
-------- -------- -------- -------- -------
288 5 18 49 4
-------- -------- -------- -------- -------
Net (charge-offs)
recoveries.......... (122) (142) (74) 12 (106)
-------- -------- -------- -------- -------
Additions to the
allowance for loan
losses
Reserves acquired in
acquisitions...... -- 2,325 -- -- --
Additions to
allowance charged
to operations..... 235 185 10 108 275
-------- -------- -------- -------- -------
235 2,510 10 108 275
-------- -------- -------- -------- -------
Balance of allowance
for loan losses at
end of year......... $ 3,852 $ 3,739 $ 1,371 $ 1,435 $ 1,315
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratio of net loan
charge-offs
(recoveries) during
the year to average
loans outstanding
during the year..... 0.05% 0.08% 0.06% (0.01)% 0.11%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</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,
--------------------------------------------------
1998 1997
----------------------- -----------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ -------------
<S><C>
Commercial....... $1,789 16.60% $1,531 10.30%
Real estate...... 1,037 75.23% 1,219 85.10%
Consumer......... 1,026 8.17% 989 4.60%
------ ------------- ------ -------------
$3,852 100.00% $3,739 100.00%
------ ------------- ------ -------------
------ ------------- ------ -------------
</TABLE>
1998 COMPARED TO 1997. The provision for loan losses increased to $235,000
from $185,000 for the year ended March 31, 1998. The increase in the provision
of $50,000 is attributable to the increase in total loans of $18.9 million
during the year. The allowance for loan losses at March 31, 1998 was $3,852,000,
or a net increase of $113,000 for the year. Net charge-offs decreased from
$143,000 in 1997 to $123,000 in 1998, representing a net charge-off ratio of
0.05% compared to 0.08% in 1997. The allowance as a percentage of nonaccruing
loans decreased only slightly during 1998 to 133.47%, compared to 133.73% in
1997. The continued improvement is attributable to the Company's lending
environment along with the overall general economy.
Included in nonaccrual loans are three loans totaling $2,035,000, or 71% of
the total amount of nonaccrual loans. Two of the three loans totaling $648,000
have been reduced from $987,000 at March 31, 1997. These loans continue to
perform in accordance with the new loan terms. The third loan in the amount of
$1,387,000 also continues to perform in accordance with the bankruptcy court's
plan and is adequately secured by real estate. The Company has allocated
reserves for these three loans totaling $457,000.
1997 COMPARED TO 1996. Provision for loan losses was $185,000 compared to
$10,000 for 1997. For 1997, net charge-offs 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 related to the acquisitions of
First Citizens Bank of Fayette County 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 Bank of
Fayette County and were identified by First Citizens Bank of Fayette County as
impaired loans prior to the acquisition at March 31, 1996, at which time the
balance on the loans totaled $1.2 million. The loan was restructured in
bankruptcy court and the borrower has been performing in accordance with the new
loan terms. Management has kept the loan 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 Bank of Fayette
County and, prior to the acquisition at March 31, 1996, were also identified as
impaired loans, at which time their balance was $360,000. Subsequent to March
31, 1997, the borrower paid down the balance of one loan in the amount of
$170,000.
OTHER INCOME
1998 COMPARED TO 1997. Other income increased by $3,190,000 in 1998, or 87.7%
in 1998 compared to 1997. As discussed earlier, gains on sale of real estate
held for
9
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
development and sale increased by $2,300,000, or 72% of the total increase (see
"Real Estate Activities" below). Deposit and service charge income and other
operating income increased by $525,000 and $317,000, respectively for the year
ended March 31, 1998. These increases are due primarily to the inclusion of a
full year's operations for the two acquired banks which accounted for $589,000
of the total increase in deposit and service charge income and other operating
income. In addition to the newly acquired banks, First Citizens-Newnan grew $8.4
million in demand deposit accounts which contributes to the increase in service
charge income. Gains on sale of loans increased by $202,000, or 25% in 1998
compared to 1997. This increase is attributable to the housing market in the
Company's market areas combined with the favorable mortgage rates offered during
the year. During 1998, the Company combined the mortgage operations of First
Citizens Bank-Newnan and First Citizens Bank of Fayette County. Total loans sold
during 1998 was $69.8 million compared to $55.7 million in 1997.
1997 COMPARED TO 1996. Other income declined $1.6 million or 30.7% to $3.6
million. The primary component of the decline is a $2.1 million decline in the
gain on sale of real estate held for sale. 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.
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>
1998 1997
---------- ----------
<S><C>
Number of lots sold.................... 3 15
Acres of land sold..................... 485 116
Net sales proceeds..................... $4,314,750 $1,853,650
Less: Basis of land sold............... 946,007 448,044
Less: Gains deferred................... -- 349,808
---------- ----------
Gain on sale of real estate............ $3,368,743 $1,069,036
---------- ----------
---------- ----------
</TABLE>
NOTE: The above table represents pretax gains from real estate sales and not the
net earnings from Jefferson Ventures, Inc.
1998 COMPARED TO 1997. As mentioned above, net gains increased by $2,300,000
in 1998. At March 31, 1998, the White Oak development consisted of approximately
1,094 acres of open land. At March 31, the estimated market value of the
property exceeds its carrying value of $2.0 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 occurred 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.
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 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.
OTHER EXPENSES
1998 COMPARED TO 1997. Other expenses increased during 1998 by $1,978,000
compared to the same period in 1997. The significant increase is due to the full
year of operating expenses for the two commercial banks included in the year
ended March 31, 1998. This combined increase in other expenses related to the
inclusion of First Citizens Bank of Fayette County and First Citizens Bank of
Clayton County was $2,976,000. The increase in expenses attributable to the
acquired banks was offset by the nonrecurring expenses in 1997 of the $772,000
SAIF assessment and the other operating loss of $982,000. All other items of
other expenses increased approximately $756,000, of which $489,000 was an
increase in salaries and benefits at First Citizens Bank-Newnan.
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
10
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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 capitalize 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
Bank of Fayette County. 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 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 net loss to be incurred was
$982,000 and the significant portion of the loss existed as of March 31, 1997.
Therefore, the Company recognized the amount of the loss as of the balance sheet
date by a charge to earnings and the establishment of a reserve for losses,
which was included in other liabilities. Management continues to pursue any
available means of collection, however, the amount to be collected, if any, is
unknown.
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 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 1980's 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
1998 COMPARED TO 1997. Total assets increased in 1998 by $41.4 million, or
12.7%. The most significant increase in assets came in the growth of the loan
portfolio, which grew $18.5 million, or 7.4%. Total interest-earning assets
increased by $43.7 million. Interest bearing deposits in banks and Federal funds
sold combined increased $23.0 million. The most significant categories of growth
in assets by Bank subsidiary is as follows:
<TABLE>
<CAPTION>
NEWNAN FAYETTE CLAYTON
------- ------- -------
<S><C>
(DOLLARS IN THOUSANDS)
Total loans....................... $9,554 $ 5,781 $3,016
Total securities.................. 3,977 532 (2,208 )
Interest bearing deposits......... 16,932 -- --
Federal funds sold................ -- 2,450 3,570
Total assets...................... 28,600 7,954 4,825
</TABLE>
Total deposits increased by $48.6 million, or 18% which was used to fund the
asset growth and the reduction of other borrowings. The most significant
increase was in other time deposits which increased from $124.0 million to
$172.3 million, or $48.4 million. The deposit growth by Bank subsidiary is as
follows:
<TABLE>
<CAPTION>
NEWNAN FAYETTE CLAYTON
------- ------- -------
<S><C>
(DOLLARS IN THOUSANDS)
Total deposits.................... $36,235 $ 6,256 $5,804
</TABLE>
Federal Home Loan Bank advances decreased in 1998 by $11.4 million as various
advances matured during the year. Other borrowings increased by a net of $3.2
million, which was due to long term debt incurred at the holding company
originally in the amount of $4,000,000. This debt is being amortized over five
years.
Stockholders' equity increased by $7.0 million. This increase was funded by
net earnings of $7.2 million, proceeds from exercise of stock options totaling
$636,000, plus unrealized gains on securities of $155,000, less treasury stock
purchased of $201,000 and dividends declared of $847,000.
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
11
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
due to the acquisition of the First Citizens Bank of Fayette County 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 of First Citizens Bank of
Fayette County 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.
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,
------------------
1998 1997
------- -------
<S><C>
(DOLLARS IN
THOUSANDS)
U.S. Treasury and other U.S. Government
agencies and corporations................. $33,997 $31,865
State and municipal securities.............. 2,841 2,727
Equity securities........................... 1,422 1,368
------- -------
$38,260 $35,960
------- -------
------- -------
</TABLE>
The carrying amounts of securities in each category as of March 31, 1998 are
shown in the following table according to maturity classifications. Equity
securities are excluded from the table below because they have no contractual
maturity.
<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>
(DOLLARS IN THOUSANDS)
One year or less.......... $11,657 5.55 % $ 200 4.05%
After one year through
five years.............. 14,081 6.12 % 272 5.16%
After five years through
ten years............... 8,259 6.01 % 1,820 5.34%
After ten years........... -- -- 549 5.33%
-------- ----- -------- -----
$33,997 5.89 % $2,841 5.23%
-------- ----- -------- -----
-------- ----- -------- -----
</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
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S><C>
Commercial,
financial,
agricultural....... $ 43,362 $ 25,655 $ 1,094 $ -- $ --
Real estate --
construction....... 80,203 60,010 11,203 18,983 13,520
Real estate --
mortgage (1)....... 122,730 152,027 115,938 101,747 80,021
Consumer and other... 21,341 11,456 4,088 10,826 10,638
-------- -------- -------- -------- --------
$267,636 $249,148 $132,323 $131,556 $104,179
Less allowance for
loan losses........ 3,852 3,739 1,371 1,435 1,315
-------- -------- -------- -------- --------
Loans, net........... $263,784 $245,409 $130,952 $130,121 $102,864
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</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 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.................................... $137,659
After one year through five years................... 73,035
After five years.................................... 56,942
----------
$267,636
----------
----------
</TABLE>
12
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
DEPOSITS
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing and savings deposits and
time deposits, for the periods indicated are presented below. (1)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1998 1997
----------------- ----------------
AMOUNT RATE AMOUNT RATE
-------- ----- -------- ----
<S><C>
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand
deposits.................. $ 41,197 --% $ 20,420 --%
Interest-bearing demand and
savings deposits.......... 79,204 2.94% 54,683 2.85%
Time deposits............... 165,759 5.77% 103,765 5.67%
-------- --------
$286,160 $178,868
-------- --------
-------- --------
</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................................ $ 6,354
Over three months through six months................ 7,510
Over six months through twelve months............... 20,090
Over twelve months.................................. 3,780
----------
$ 37,734
----------
----------
</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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S><C>
DOLLARS IN
THOUSANDS
Balance at end of period.................... $ -- $10,058
Weighted average rate..................... -- 6.82%
Average amount outstanding during period.... $ 6,695 $ 3,800
Weighted average rate..................... 5.59% 5.59%
Maximum amount outstanding during period.... $10,058 $10,058
</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
to 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 ("FHLBA"). Liquidity needs
at individual banks can also be met through loan participations sold to
affiliate banks.
At March 31, 1998 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
$48.6 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, 1998 are shown below:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
REQUIREMENT ACTUAL
----------- ------
<S><C>
Tier 1 capital to risk adjusted assets.... 4.00% 11.35%
Risk based capital to risk adjusted
assets.................................. 8.00% 12.60%
Tier 1 leverage ratio (to total assets)... 3.00% 8.40%
</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, 1998, 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.
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.
13
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
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 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, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 3-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- ------- --------
<S><C>
Interest-bearing
deposits.......... $ 18,604 $ -- $ -- $ -- $ 18,604
Federal funds
sold.............. 13,840 -- -- -- 13,840
Investment
securities........ 8,825 6,201 19,449 3,785 38,260
Loans held for
sale.............. 7,474 -- -- -- 7,474
Loans receivable,
net (1)........... 94,637 65,444 73,035 27,046 260,162
-------- -------- -------- ------- --------
Total
interest-earning
assets............ $143,380 $ 71,645 $ 92,484 $30,831 $338,340
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
Interest-bearing
liabilities:
Interest-bearing
demand deposits... 62,823 -- -- -- 62,823
Savings............. 20,517 -- -- -- 20,517
Time deposits....... 37,111 132,554 22,050 132 191,847
FHLB advances and
other
borrowings........ 20 800 4,455 4,328 9,603
-------- -------- -------- ------- --------
Total
interest-bearing
liabilities....... 120,471 133,354 26,505 4,460 284,790
-------- -------- -------- ------- --------
Interest rate
sensitivity gap... $ 22,909 $(61,709) $(65,979) $26,371 $ 53,550
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
Cumulative interest
rate sensitivity
gap............... $ 22,909 $(38,800) $ 27,179 $53,550
-------- -------- -------- -------
-------- -------- -------- -------
Interest rate
sensitivity gap
ratio............. 1.19 0.54 3.49 6.91
-------- -------- -------- -------
-------- -------- -------- -------
Cumulative interest
rate sensitivity
gap ratio......... 1.19 0.85 1.10 1.19
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
(1) Includes nonaccrual loans.
The above table summarizes interest-sensitive assets and liabilities for the
Company as of March 31, 1998. 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 above table, the cumulative interest sensitivity gap for the
one year period is a negative $38.8 million. At March 31, 1998, the Company's
cumulative one year interest rate sensitivity gap ratio was 85%. The Bank's
targeted ratio is 80% to 120% in this time horizon. This indicates that the
interest-earning assets will reprice during this period at a rate slower than
the interest-bearing liabilities. 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.
14
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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 historic 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.
CAPABILITY OF THE BANKS' DATA PROCESSING SOFTWARE TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, the Banks rely upon computers for the daily
conduct of their business and for data processing generally. There is concern
among industry experts that commencing on January 1, 2000, computers will be
unable to "read" the new year and there may be widespread computer malfunctions.
Management has assessed the electronic systems, programs, applications, and
other electronic components used in the operations of the Banks and believes the
hardware and software have been programmed to be able to accurately recognize
the year 2000, and that significant additional costs will not be incurred in
connection with the year 2000 issue, although there can be no assurances in this
regard.
15
<PAGE>
Consolidated Balance Sheets
[LOGO APPEARS HERE]-------------------------------------------------------------
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
March 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998
------------
<S><C>
Cash and due from banks............................................................................... $ 13,057,128
Interest-bearing deposits in banks.................................................................... 18,603,707
Federal funds sold.................................................................................... 13,840,000
Securities available-for-sale......................................................................... 36,380,214
Securities held-to-maturity, at amortized cost, fair value $1,881,250
and $4,105,789, respectively........................................................................ 1,879,748
Loans held for sale................................................................................... 7,473,800
Loans receivable, net................................................................................. 256,310,581
Real estate held for development and sale............................................................. 2,320,521
Premises and equipment................................................................................ 7,371,409
Goodwill and other intangibles........................................................................ 7,009,308
Other assets.......................................................................................... 3,565,672
------------
TOTAL ASSETS................................................................................... $367,812,088
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand.......................................................................... $ 43,194,962
Interest-bearing demand............................................................................. 62,823,293
Savings............................................................................................. 20,516,630
Time, $100,000 and over............................................................................. 37,733,682
Other time.......................................................................................... 154,113,488
------------
Total deposits................................................................................. 318,382,055
Federal Home Loan Bank advances....................................................................... 6,382,660
Other borrowings...................................................................................... 3,219,705
Other liabilities..................................................................................... 3,067,797
------------
Total liabilities.............................................................................. 331,052,217
------------
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 8,000,000 shares authorized; none issued............................. --
Common stock, $1 par value, 8,000,000 shares authorized; 2,835,897 and 1,840,675 shares issued,
respectively..................................................................................... 2,835,897
Additional paid-in capital.......................................................................... 12,914,173
Retained earnings................................................................................... 21,287,420
Unrealized gains on securities available-for-sale, net of tax....................................... 155,502
------------
37,192,992
Less cost of 41,028 and 24,200 shares acquired for the treasury, respectively....................... (433,121)
------------
Total stockholders' equity..................................................................... 36,759,871
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $367,812,088
------------
------------
<CAPTION>
ASSETS 1997
------------
<S><C>
Cash and due from banks............................................................................... $ 13,866,250
Interest-bearing deposits in 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 $1,881,250
and $4,105,789, 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
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
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
Stockholders' equity
Preferred stock, no par value, 8,000,000 shares authorized; none issued............................. --
Common stock, $1 par value, 8,000,000 shares authorized; 2,835,897 and 1,840,675 shares issued,
respectively..................................................................................... 1,840,675
Additional paid-in capital.......................................................................... 13,273,562
Retained earnings................................................................................... 14,919,625
Unrealized gains on securities available-for-sale, net of tax....................................... 459
------------
30,034,321
Less cost of 41,028 and 24,200 shares acquired for the treasury, respectively....................... (231,650)
------------
Total stockholders' equity..................................................................... 29,802,671
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $326,364,845
------------
------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
Consolidated Statements of Income
- -------------------------------------------------------------[LOGO APPEARS HERE]
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998
-----------
<S><C>
Interest income:
Loans................................................................................................. $24,923,405
Interest-bearing deposits in banks.................................................................... 307,366
Taxable securities.................................................................................... 1,982,325
Nontaxable securities................................................................................. 141,052
Federal funds sold.................................................................................... 551,829
-----------
Total interest income............................................................................ 27,905,977
-----------
Interest expense:
Deposits.............................................................................................. 11,898,718
Other borrowings...................................................................................... 1,076,504
-----------
Total interest expense........................................................................... 12,975,222
-----------
Net interest income.............................................................................. 14,930,755
Provision for loan losses............................................................................... 235,000
-----------
Net interest income after provision for loan losses.............................................. 14,695,755
-----------
Other income:
Loan servicing and other fees......................................................................... 291,271
Deposit and other service charge income............................................................... 1,493,830
Gain on sale of loans................................................................................. 1,012,326
Gain on sale of real estate held for development and sale............................................. 3,368,743
Net realized gains on sale of securities.............................................................. 8,488
Other operating income................................................................................ 651,261
-----------
Total other income............................................................................... 6,825,919
-----------
Other expenses:
Salaries and benefits................................................................................. 5,316,318
Occupancy and equipment expenses...................................................................... 1,507,509
Federal insurance premiums and assessments............................................................ 110,771
Data processing....................................................................................... 555,118
Goodwill amortization................................................................................. 371,913
Provision for other operating losses.................................................................. --
Other operating expenses.............................................................................. 2,737,840
-----------
Total other expenses............................................................................. 10,599,469
-----------
Income before income taxes....................................................................... 10,922,205
Income tax expense...................................................................................... 3,707,334
-----------
Net income....................................................................................... $ 7,214,871
-----------
-----------
Basic earnings per common share......................................................................... $ 2.62
-----------
-----------
Diluted earnings per common share....................................................................... $ 2.42
-----------
-----------
<CAPTION>
1997
-----------
<S><C>
Interest income:
Loans................................................................................................. $15,985,095
Interest-bearing deposits in banks.................................................................... 211,910
Taxable securities.................................................................................... 1,088,863
Nontaxable securities................................................................................. 88,495
Federal funds sold.................................................................................... 157,271
-----------
Total interest income............................................................................ 17,531,634
-----------
Interest expense:
Deposits.............................................................................................. 7,442,806
Other borrowings...................................................................................... 692,404
-----------
Total interest expense........................................................................... 8,135,210
-----------
Net interest income.............................................................................. 9,396,424
Provision for loan losses............................................................................... 185,000
-----------
Net interest income after provision for loan losses.............................................. 9,211,424
-----------
Other income:
Loan servicing and other fees......................................................................... 453,628
Deposit and other service charge income............................................................... 969,151
Gain on sale of loans................................................................................. 810,110
Gain on sale of real estate held for development and sale............................................. 1,069,036
Net realized gains on sale of securities.............................................................. --
Other operating income................................................................................ 334,289
-----------
Total other income............................................................................... 3,636,214
-----------
Other expenses:
Salaries and benefits................................................................................. 3,272,574
Occupancy and equipment expenses...................................................................... 1,118,608
Federal insurance premiums and assessments............................................................ 999,651
Data processing....................................................................................... 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
-----------
-----------
Basic earnings per common share......................................................................... $ 1.15
-----------
-----------
Diluted earnings per common share....................................................................... $ 1.05
-----------
-----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
Consolidated Statements of Stockholders' Equity
[LOGO APPEARS HERE]-------------------------------------------------------------
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Common Stock Additional Available Treasury Stock
------------------------ Paid-In Retained for-Sale, --------------------
Shares Par Value Capital Earnings Net of Tax Shares Cost
---------- ---------- ----------- ----------------- -------------- ------- ---------
<S><C>
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,
$.29 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)
Net income........... -- -- -- 7,214,871 -- -- --
3 for 2 stock
split.............. 927,591 927,591 (927,591) -- -- 12,900 --
Exercise of stock
options............ 67,631 67,631 568,202 -- -- -- --
Purchase of treasury
stock.............. -- -- -- -- -- 16,828 (201,471)
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... -- -- -- -- 155,043 -- --
Dividends declared,
$.31 per share..... -- -- -- (847,076) -- -- --
---------- ---------- ----------- ----------------- -------------- ------- ---------
Balance at March 31,
1998............... 2,835,897 $2,835,897 $12,914,173 $21,287,420 $155,502 41,028 $(433,121)
---------- ---------- ----------- ----------------- -------------- ------- ---------
---------- ---------- ----------- ----------------- -------------- ------- ---------
<CAPTION>
Total
Stockholders'
Equity
-------------
<S><C>
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,
$.29 per share..... (686,113)
-------------
Balance at March 31,
1997............... 29,802,671
Net income........... 7,214,871
3 for 2 stock
split.............. --
Exercise of stock
options............ 635,833
Purchase of treasury
stock.............. (201,471)
Net change in
unrealized gains
(losses) on
securities
available-for-sale,
net of tax......... 155,043
Dividends declared,
$.31 per share..... (847,076)
-------------
Balance at March 31,
1998............... $36,759,871
-------------
-------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
Consolidated Statements of Cash Flows
- -------------------------------------------------------------[LOGO APPEARS HERE]
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998
-------------
<S><C>
Operating Activities
Net income............................................................................................ $ 7,214,871
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation........................................................................................ 610,361
Amortization of goodwill and intangibles............................................................ 439,191
Amortization of purchase adjustments................................................................ (270,138)
Net realized gains on sale of securities............................................................ (8,488)
Provision for loan losses........................................................................... 235,000
Provision for losses on real estate held for development............................................ 25,000
Deferred income taxes (benefits).................................................................... 174,090
(Increase) decrease in loans held for sale.......................................................... 484,871
Net gain on sale of real estate held for development................................................ (3,368,743)
Net gain on sale of other real estate owned......................................................... (3,667)
(Increase) decrease in interest receivable.......................................................... (206,166)
Increase (decrease) in interest payable............................................................. 177,924
Increase (decrease) in taxes payable................................................................ 457,889
Other operating activities.......................................................................... (1,522,906)
-------------
Net cash provided by operating activities......................................................... 4,439,089
-------------
Investing Activities
Purchases of securities available-for-sale............................................................ (29,480,346)
Proceeds from maturities of securities available-for-sale............................................. 13,725,839
Proceeds from sales of securities available-for-sale.................................................. 11,710,465
Proceeds from maturities of securities held-to-maturity............................................... 2,269,809
Net increase in interest-bearing deposits in banks.................................................... (16,932,181)
Net (increase) decrease in Federal funds sold......................................................... (6,020,000)
Net increase in loans................................................................................. (19,616,427)
Proceeds from sales of real estate held for development............................................... 4,314,750
Proceeds from sales of other real estate owned........................................................ 770,642
Purchase of intangibles............................................................................... --
Net cash acquired in business combination............................................................. --
Acquisition of subsidiary............................................................................. --
Reduction of payable to stockholders of acquired subsidiary........................................... (5,112,287)
Purchase of premises and equipment.................................................................... (958,617)
Proceeds from sales of premises and equipment......................................................... 1,386
-------------
Net cash used in investing activities............................................................. (45,326,967)
-------------
Financing Activities
Net increase in deposits.............................................................................. 48,647,645
Advances on other borrowings.......................................................................... 4,000,000
Repayment of other borrowings......................................................................... (818,243)
Net decrease in advances from the Federal Home Loan Bank advances..................................... (11,384,684)
Dividends paid........................................................................................ (800,324)
Purchase of treasury stock............................................................................ (201,471)
Proceeds from issuance of common stock................................................................ 635,833
-------------
Net cash provided by financing activities......................................................... 40,078,756
-------------
Net increase (decrease) in cash and due from banks................................................ (809,122)
Cash and due from banks at beginning of year............................................................ 13,866,250
-------------
Cash and due from banks at end of year.................................................................. $ 13,057,128
-------------
-------------
Supplemental Disclosures
Cash paid for:
Interest............................................................................................ $ 12,797,298
-------------
-------------
Income taxes........................................................................................ $ 2,853,163
-------------
-------------
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............................................... $ --
Principal balances of loans transferred to other real estate.......................................... $ 467,259
Unrealized gains on securities available-for-sale..................................................... $ (238,996)
Common stock issued in connection with acquisitions of subsidiaries................................... $ --
Merger consideration payable to stockholders of acquired subsidiary................................... $ --
<CAPTION>
1997
------------
<S><C>
Operating Activities
Net income............................................................................................ $ 2,651,686
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation........................................................................................ 431,370
Amortization of goodwill and intangibles............................................................ 282,789
Amortization of purchase adjustments................................................................ (99,946)
Net realized gains on sale of securities............................................................ --
Provision for loan losses........................................................................... 185,000
Provision for losses on real estate held for development............................................ --
Deferred income taxes (benefits).................................................................... (583,239)
(Increase) decrease 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)
Increase (decrease) in taxes payable................................................................ (52,685)
Other operating activities.......................................................................... 1,675,451
------------
Net cash provided by 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
Proceeds from sales of securities available-for-sale.................................................. --
Proceeds from maturities of securities held-to-maturity............................................... 4,982,995
Net increase in interest-bearing deposits in banks.................................................... (1,147,153)
Net (increase) decrease in Federal funds sold......................................................... 690,000
Net increase in loans................................................................................. (23,313,078)
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)
Reduction of payable to stockholders of acquired subsidiary........................................... --
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
Advances on other borrowings.......................................................................... --
Repayment of other borrowings......................................................................... (16,891)
Net decrease in advances from the Federal Home Loan Bank advances..................................... (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 (decrease) 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......................................................................... 31,866,018
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 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
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
Notes to Consolidated Financial Statements
[LOGO APPEARS HERE]-------------------------------------------------------------
FIRST CITIZENS CORPORATION AND SUBSIDIARIES
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
First Citizens Corporation (the "Company") 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 First Citizens Bank of
Clayton County (a "Bank") located in Riverdale, Georgia. The Thrift and Banks
are collectively referred to as subsidiaries.
First Citizens Bank 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 subsidiary of First Citizens
Bank. Newnan Financial Services, Inc. is also 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 First Citizens Bank of Clayton
County 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, Clayton, and Henry Counties and the south
metropolitan Atlanta area.
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 and
disclosures 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. 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 primarily of 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 primarily 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 all 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>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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 against current income. Interest income is subsequently recognized only
to the extent cash payments are received.
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 writedown 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 Statement of
Financial Accounting Standards (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 First Citizens Bank of Clayton County in 1997.
Goodwill is being amortized by the straight-line method over 15 to 20 years.
Deposit base premiums are being amortized over 10 years.
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
21
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
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
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted earnings
per share are computed by dividing net income by the sum of the weighted-average
number of shares of common stock outstanding and potential common shares.
Potential common shares consist of stock options.
RECENT DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued, and the Company has
adopted, SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". SFAS No. 125 was amended by SFAS No.
127, which defers the effective date of certain provisions of SFAS No. 125 until
January 1, 1998. This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of this statement did not
have a material effect on the Company's financial statements.
The FASB has issued, and the Company has adopted, SFAS No. 128, "Earnings Per
Share". SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15
"Earnings Per Share" and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock or potential issuable common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS and fully diluted EPS with
diluted EPS. It also requires dual presentation of basic and diluted EPS on the
face of the statement of income for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator for the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The adoption of this statement did not
have a material effect on the Company's financial statements.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 requires all
items that are required to be recognized under accounting standards as
components of comprehensive income to be reported in a financial statement that
is displayed in equal prominence with the other financial statements. The term
"comprehensive income" is used in the SFAS to describe the total of all
components of comprehensive income including net income. "Other comprehensive
income" refers to revenues, expenses, gains and losses that are included in
comprehensive income but excluded from earnings under current accounting
standards. Currently, "other comprehensive income" for the Company consists of
items previously recorded directly in equity under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 130 is effective
for periods beginning after December 15, 1997.
22
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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>
SECURITIES
AVAILABLE-FOR-SALE
MARCH 31, 1998:
U. S. GOVERNMENT
AND AGENCY
SECURITIES....... $ 27,490,368 $148,527 $(32,475) $27,606,420
STATE AND MUNICIPAL
SECURITIES....... 2,730,648 110,408 (42) 2,841,014
MORTGAGE-BACKED
SECURITIES....... 4,496,557 21,740 (7,326) 4,510,971
EQUITY
SECURITIES....... 1,421,809 -- -- 1,421,809
---------------- ---------- ---------- -----------
$ 36,139,382 $280,675 $(39,843) $ 6,380,214
---------------- ---------- ---------- -----------
---------------- ---------- ---------- -----------
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
---------------- ---------- ---------- -----------
---------------- ---------- ---------- -----------
SECURITIES HELD-TO-
MATURITY
MARCH 31, 1998:
MORTGAGE-BACKED
SECURITIES....... $ 1,879,748 $ 4,464 $ (2,962) $ 1,881,250
---------------- ---------- ---------- -----------
---------------- ---------- ---------- -----------
March 31, 1997:
Mortgage-backed
securities....... $ 4,149,557 $ 472 $(44,240) $ 4,105,789
</TABLE>
The amortized cost and fair value of securities as of March 31, 1998 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 summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE- SECURITIES HELD-
FOR-SALE TO-MATURITY
------------------------ ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S><C>
Due in one year or
less.................... $11,825,620 $11,833,201 $ -- $ --
Due from one to five
years................... 10,751,654 10,822,030 -- --
Due from five to ten
years................... 7,129,910 7,243,233 -- --
Due after ten years...... 513,832 548,970 -- --
Mortgage-backed
securities.............. 4,496,557 4,510,971 1,879,748 1,881,250
Equity securities........ 1,421,809 1,421,809 -- --
----------- ----------- ---------- ----------
$36,139,382 $36,380,214 $1,879,748 $1,881,250
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
Securities with a carrying value of $4,163,027 and $10,406,000 at March 31,
1998 and 1997, respectively, were pledged to secure public deposits and for
other purposes.
Gains and losses on sales of securities available-for-sale consist of the
following:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
------------ ------------
<S><C>
Gross gains........................ $ 8,802 $ --
Gross losses....................... (314) --
------------ ------------
Net realized gains................. $ 8,488 $ --
------------ ------------
------------ ------------
</TABLE>
Note 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
------------ ------------
<S><C>
Commercial......................... $ 43,361,665 $ 25,655,000
Real estate -- construction........ 80,203,250 60,010,000
Real estate -- mortgage............ 116,251,074 145,103,000
Consumer and other................. 21,340,819 11,455,655
------------ ------------
261,156,808 242,223,655
Less:
Unearned income and fees......... 994,535 1,034,461
Allowance for loan losses........ 3,851,692 3,739,222
------------ ------------
$256,310,581 $237,449,972
------------ ------------
------------ ------------
</TABLE>
Changes in the allowance for loan losses for the years ended March 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S><C>
BALANCE, BEGINNING OF YEAR......... $ 3,739,222 $ 1,371,416
Allowance acquired in
acquisitions................... -- 2,325,393
Provision for loan losses........ 235,000 185,000
Loans charged off................ (410,279) (147,693)
Recoveries of loans previously
charged off.................... 287,749 5,106
------------ ------------
BALANCE, END OF YEAR............... $ 3,851,692 $ 3,739,222
------------ ------------
------------ ------------
</TABLE>
The total recorded investment in impaired loans was $2,331,766 and $3,393,631
at March 31, 1998 and 1997, respectively. Included in these loans were
$2,165,439 and $1,201,917 that had related allowances for loan losses of
$530,179 and $669,175 at March 31, 1998 and 1997, respectively. The average
recorded investment in impaired loans for the year ended March 31, 1998 and 1997
was $2,931,116 and $3,429,154, respectively. Interest income on impaired loans
of $115,634 and $136,310 was recognized for cash payments received for the years
ended March 31, 1998 and 1997, respectively.
23
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
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, 1998 are as follows:
<TABLE>
<S><C>
BALANCE, BEGINNING OF YEAR....................... $ 6,518,076
Advances....................................... 3,765,516
Repayments..................................... (4,200,462)
Transactions due to changes in related
parties...................................... 18,291
------------
BALANCE, END OF YEAR............................. $ 6,101,421
------------
------------
</TABLE>
As of March 31, 1998 and 1997, the Company was servicing loans for others with
approximate balances of $102,489,000 and $117,913,000, respectively.
Note 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------
1998 1997
----------- ----------
<S><C>
Land.................................. $ 2,042,999 $2,042,999
Buildings and improvements............ 6,551,049 6,398,310
Furniture, fixtures and equipment..... 5,219,304 4,968,212
Computer equipment.................... 1,116,379 591,738
----------- ----------
14,929,731 14,001,259
Less accumulated depreciation......... 7,558,322 6,957,060
----------- ----------
$ 7,371,409 $7,044,199
----------- ----------
----------- ----------
</TABLE>
Note 5. DEPOSIT ACCOUNTS
A summary of time deposits by maturity as of March 31, 1998 is as follows:
<TABLE>
<S><C>
1999............................................. $169,664,887
2000............................................. 10,468,184
2001............................................. 8,847,778
2002............................................. 1,083,342
2003............................................. 1,782,979
------------
$191,847,170
------------
------------
</TABLE>
Note 6. FEDERAL HOME LOAN BANK ADVANCES
<TABLE>
<CAPTION>
March 31,
--------------------------
1998 1997
----------- -----------
<S><C>
Federal Home Loan Bank advances...... $ 6,382,660 $17,767,344
----------- -----------
----------- -----------
</TABLE>
Federal Home Loan Bank advances totaled $6,382,660 at March 31, 1998. The
advances have maturity dates ranging from April 12, 1999 through April 12, 2004.
Interest is payable monthly at rates ranging from 5.41% to 7.80%. Advances are
collateralized by blanket floating liens on qualifying first mortgages and
pledges of certain securities and the Company's Federal Home Loan Bank stock.
Aggregate maturities of Federal Home Loan Bank advances at March 31, 1998 are
as follows:
<TABLE>
<S><C>
1999............................................... $1,325,258
2000............................................... 1,288,591
2001............................................... 1,285,258
2002............................................... 750,344
2003............................................... 648,649
Thereafter......................................... 1,084,560
----------
Total.............................................. $6,382,660
----------
----------
</TABLE>
Note 7. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------------
1998 1997
---------- -------
<S><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.................... $ 19,705 $37,948
Term note payable by the Company, due in
ten semi-annual instalments of $400,000
with interest due quarterly, at prime
less seventy-five basis points (7.75% at
March 31, 1998), collateralized by
200,000 shares of common stock of First
Citizens Bank of Clayton County and
300,000 shares of common stock of the
Thrift, matures March 31, 2002.......... 3,200,000 --
---------- -------
$3,219,705 $37,948
---------- -------
---------- -------
</TABLE>
Aggregate maturities of other borrowings at March 31, 1998 are as follows:
<TABLE>
<S> <C>
Due in one year or less............................ $ 819,705
Due after one year................................. 2,400,000
----------
$3,219,705
----------
----------
</TABLE>
Note 8. RETIREMENT PLANS AND EMPLOYEE BENEFITS
EMPLOYEE BENEFIT PLANS
401(K) PLAN
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
4 percent, not to exceed $2,750 per year, of the employee's base annual salary.
The Company recognized $75,023 and $49,211 in expense related to its obligation
under the plan for the years ended March 31, 1998 and 1997, respectively. In
addition, upon approval of the Board of Directors, the Company may make an
annual discretionary profit-sharing
24
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
contribution to all eligible plan participants. There was no such discretionary
contribution made by the Company for the years ended March 31, 1998 and 1997.
INCENTIVE COMPENSATION PLAN
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 $319,523 and $208,010 for 1998 and 1997, respectively.
STOCK OPTION PLANS
The Company has a Stock Option and Incentive Plan which provided 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 are exercisable at March 31, 1998. The plan expired in 1996 and
no additional options may be granted. Other pertinent information relating to
the options is summarized as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------
1998 1997
------------------- -------------------
WEIGHTED- Weighted-
AVERAGE Average
EXERCISE Exercise
NUMBER PRICE Number Price
------- --------- ------- ---------
<S><C>
Under option,
beginning of year........ 133,880 $ 6.78 149,570 $ 6.62
Granted.................. -- -- -- --
Exercised................ (35,145) 3.86 (15,690) 5.33
Expired.................. -- -- -- --
------- -------
Under option and
exercisable, end of
year..................... 98,735 7.12 133,880 6.78
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING
PRICE EXERCISE CONTRACTUAL
NUMBER RANGE PRICE LIFE
------ ---------------- --------- -----------
<S><C>
Options outstanding
and exercisable,
end of year...... 17,457 $ 2.65 $ 2.65 3.90
45,278 5.67 -- 6.82 5.82 5.33
36,000 10.92 10.92 7.75
------
98,735
------
------
</TABLE>
DIRECTORS' BENEFIT PLAN
The stockholders of the Company approved a Directors' Nonincentive Stock Option
Plan (the "Directors' Plan") which provided that a maximum of 300,000 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.
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 $ -- and $36,150 for the years ended March 31, 1998 and 1997, respectively.
Information related to the Directors' Plan is summarized as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------
1998 1997
------------------- -------------------
WEIGHTED- Weighted-
AVERAGE Average
EXERCISE Exercise
NUMBER PRICE Number Price
------- --------- ------- ---------
<S><C>
Under option, beginning of
year..................... 254,025 $ 6.89 244,005 $ 6.13
Granted.................. -- -- 29,738 11.57
Exercised................ (39,817) 4.39 (19,718) 4.58
------- -------
Under option and
exercisable, end of
year..................... 214,208 7.36 254,025 6.89
------- -------
------- -------
</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......... 6,683 $ 2.20 -- 3.30 $ 2.56 4.50
44,809 3.87 -- 5.81 4.63 5.50
95,175 5.83 -- 8.75 6.74 7.00
67,541 9.33 -- 13.77 10.50 8.00
-------
214,208
-------
-------
</TABLE>
As of 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 in compensation cost for stock-based
employee compensation awards for the years ended March 31, 1997. 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:
25
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997
------------------------
NET NET INCOME
INCOME PER SHARE
---------- ----------
<S><C>
As reported........................... $2,651,686 $ 1.05
Stock-based adjustment, net of related
tax effect.......................... (38,302) (0.01)
---------- ----------
As adjusted........................... $2,613,384 $ 1.04
---------- ----------
---------- ----------
</TABLE>
The per share weighted-average fair value of stock options granted during
fiscal year 1997 was $3.79, using the Black Scholes option pricing model.
The fair value of the options granted during the year ended March 31, 1997 was
based upon the following assumptions:
<TABLE>
<CAPTION>
1997
----------------
<S><C>
Risk-free interest rate........................... 6.45%
Expected life of the options...................... .75 -- 9 Years
Expected dividends (as a percent of the fair value
of the stock)................................... 1.81%
Volatility........................................ 17.60%
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
On June 24, 1997, the Company adopted an employee stock purchase plan (the
"Plan") to provide substantially all employees an opportunity to purchase shares
of its common stock through payroll deductions. Each participant may elect to
contribute at least 1% and up to 10% of their compensation, including bonuses.
On the first day of each calendar year (the "grant date"), a participant is
granted a right to purchase a fixed maximum number of whole shares of the
Company's common stock for that calendar year. The maximum number is determined
by dividing $25,000 by the fair market value of a share of common stock as of
the date the right is granted. On the third business day following a payroll
period (the "exercise date"), accumulated payroll deductions are used to
purchase shares of the Company's common stock at 90% of its fair market value as
of the first day or the last day of the payroll period, whichever is lower.
A total of 37,500 shares were originally available to be sold to participants
under the Plan, subject to adjustment upon changes in capitalization of the
Company. During the fiscal year ended March 31, 1998, 1,576.50 shares were
purchased on the open market for participants. The average purchase price per
share was $29.98. The purchase price discount charged to operations totaled
$7,835 for the year ended March 31, 1998.
Note 9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year Ended
March 31,
-----------------------
1998 1997
---------- ----------
<S><C>
Current................................... $3,757,773 $2,167,948
Change in valuation allowance............. (250,101) --
Deferred.................................. 199,662 (583,239)
---------- ----------
Income tax expense...................... $3,707,334 $1,584,709
---------- ----------
---------- ----------
</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,
-------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT Amount Percent
---------- ------- ---------- -------
<S><C>
Income taxes at statutory
rate.................... $3,713,531 34% $1,440,374 34 %
State income taxes...... 264,924 2 95,847 2
Tax-exempt income....... (47,975) -- (31,976) (1)
Goodwill amortization... 126,450 1 37,785 1
Change in valuation
allowance............. (250,101) (2) -- --
Other items, net........ (99,495) (1) 42,679 1
---------- ------- ---------- -------
Income tax expense........ $3,707,334 34% $1,584,709 37 %
---------- ------- ---------- -------
---------- ------- ---------- -------
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------
1998 1997
---------- ----------
<S><C>
Deferred tax assets:
Allowance for loan losses............... $ 852,542 $ 881,684
Deferred gain on sale of real estate.... 137,315 137,316
Write-down of premises and equipment.... 94,645 94,645
Accounting for other real estate........ 22,641 18,872
Net operating loss carryforward......... 699,547 924,076
Securities available-for-sale........... -- 1,130
Alternative minimum tax carryforward.... 28,315 21,069
Other deferred operational losses....... -- 370,566
Core deposit amortization............... 11,265 --
Deferred compensation................... 283,059 149,793
Other................................... 2,595 --
---------- ----------
Total gross deferred tax assets....... 2,131,924 2,599,151
Less valuation allowance.............. (465,603) (715,704)
---------- ----------
Net deferred tax assets............... 1,666,321 1,883,447
---------- ----------
Deferred tax liabilities:
Deferred loan fees...................... 282,208 411,782
FHLB stock dividends.................... 97,380 97,380
Depreciation............................ 434,370 332,983
Core deposit intangible amortization.... -- 2,085
Securities available-for-sale........... 83,952 --
Other................................... -- 11,634
---------- ----------
Total deferred tax liabilities........ 897,910 855,864
---------- ----------
Net deferred tax assets............... $ 768,411 $1,027,583
---------- ----------
---------- ----------
</TABLE>
26
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
At March 31, 1998, the Company has available net operating loss carryforwards
of approximately $1,853,798 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 First Citizens Bank of Clayton County, formerly Tara State Bank.
Note 10. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
weighted-average shares outstanding (the denominator) used in determining basic
and diluted earnings per common share (EPS):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
-----------------------------------------
NET WEIGHTED-AVERAGE PER SHARE
INCOME SHARE AMOUNT
---------- ---------------- ---------
<S><C>
BASIC EPS................. $7,214,871 2,754,039 $2.62
---------
---------
EFFECT OF DILUTIVE
SECURITIES
STOCK OPTIONS........... -- 233,122
---------- ----------------
DILUTED EPS............... $7,214,871 2,987,161 $2.42
---------- ---------------- ---------
---------- ---------------- ---------
<CAPTION>
YEAR ENDED MARCH 31, 1997
-----------------------------------------
NET WEIGHTED-AVERAGE PER SHARE
INCOME SHARE AMOUNT
---------- ---------------- ---------
<S><C>
Basic EPS................. $2,651,686 2,310,173 $1.15
---------
---------
Effect of Dilutive
Securities
Stock options........... -- 210,447
---------- ----------------
Diluted EPS............... $2,651,686 2,520,620 $1.05
---------- ---------------- ---------
---------- ---------------- ---------
</TABLE>
Note 11. 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
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,
--------------------------
1998 1997
----------- -----------
<S><C>
Unfunded mortgage loan commitments... $14,786,000 $17,794,000
Residential construction and
commercial loan commitments........ 25,825,000 26,702,846
Other commitments to extend credit... 44,470,976 32,928,825
Standby letters of credit............ 1,394,031 1,539,000
----------- -----------
$86,476,007 $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
27
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
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, 1998 and 1997, the Company had commitments to sell loans of
$14,786,000 and $16,611,000, 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 three office facilities and certain equipment under
noncancelable lease agreements.
The future minimum lease commitments at March 31, 1998 are summarized as
follows:
<TABLE>
<S><C>
Years Ending March 31,
1999................................................. $61,967
2000................................................. 17,448
2001................................................. 7,800
-------
$87,215
-------
-------
</TABLE>
Rental expense for the years ended March 31, 1998 and 1997 was $171,995 and
$141,388, respectively.
The Company also leases various other equipment under short-term leases. One
of the office facility's lease, scheduled to expire during the year ending March
31, 2000, has a five year extension clause at the sole discretion of the
Company.
Note 12. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans to
customers in the south 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.
Seventy-five percent of the Company's loan portfolio is concentrated in loans
secured by real estate, of which thirty-one 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.
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.................................. $2,620,000
First Citizens Bank of Fayette County................ 1,659,000
First Citizens Bank of Clayton County................ 1,114,000
</TABLE>
Note 13. REGULATORY MATTER
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,
1998, approximately $4,587,000 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 First Citizens Bank
of Clayton County 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, 1998, the Company and
the subsidiaries meet all capital adequacy requirements to which they are
subject.
As of March 31, 1998, 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
28
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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>
(DOLLARS IN THOUSANDS)
As of March 31, 1998
Total Capital (to
Risk Weighted
Assets):
Consolidated...... $32,987 12.60 % $20,944 8.00 % $26,180 10.00 %
First Citizens
Bank............ $17,484 12.22 % $11,446 8.00 % $14,308 10.00 %
First Citizens
Bank of Fayette
County.......... $10,020 13.61 % $ 5,890 8.00 % $ 7,362 10.00 %
First Citizens
Bank of Clayton
County.......... $ 7,211 15.90 % $ 3,628 8.00 % $ 4,535 10.00 %
Tier I Capital (to
Risk Weighted
Assets):
Consolidated...... $29,708 11.35 % $10,470 4.00 % $15,705 6.00 %
First Citizens
Bank............ $16,459 11.50 % $ 5,725 4.00 % $ 8,587 6.00 %
First Citizens
Bank of Fayette
County.......... $ 9,095 12.36 % $ 2,943 4.00 % $ 4,415 6.00 %
First Citizens
Bank of Clayton
County.......... $ 6,638 14.63 % $ 1,815 4.00 % $ 2,722 6.00 %
Tier I Capital (to
Average Assets):
Consolidated...... $29,708 8.40 % $14,147 4.00 % $17,683 5.00 %
First Citizens
Bank............ $16,459 7.96 % $ 8,271 4.00 % $10,339 5.00 %
First Citizens
Bank of Fayette
County.......... $ 9,095 9.81 % $ 3,708 4.00 % $ 4,636 5.00 %
First Citizens
Bank of Clayton
County.......... $ 6,638 10.75 % $ 2,470 4.00 % $ 3,087 5.00 %
Core Capital:
First Citizens
Bank............ $16,459 7.96 % $ 6,203 3.00 %
Tangible Capital:
First Citizens
Bank............ $16,459 7.96 % $ 3,102 1.50 %
</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>
(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 %
First Citizens
Bank of Clayton
County.......... $ 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 %
First Citizens
Bank of Clayton
County.......... $ 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 %
First Citizens
Bank of Clayton
County.......... $ 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 14. 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, 1998 and 1997. 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.
29
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS, AND FEDERAL FUNDS
SOLD:
The carrying amounts of cash, due from banks, interest-bearing deposits in
banks, and Federal funds sold approximate their fair value.
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, 1998 March 31, 1997
-------------------------- --------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------------ ------------ ------------ ------------
<S><C>
Financial assets:
Cash and due from
banks,
interest-bearing
deposits in banks
and Federal funds
sold............... $ 45,500,835 $ 45,500,835 $ 23,357,775 $ 23,357,775
Securities
available-for-
sale............... 36,380,214 36,380,214 31,809,959 31,809,959
Securities
held-to-maturity... 1,879,748 1,881,250 4,149,557 4,105,789
Loans held for
sale............... 7,473,800 7,473,800 7,958,671 7,958,671
Loans receivable..... 256,310,581 260,600,000 237,449,972 240,036,292
Accrued interest
receivable......... 2,181,924 2,181,924 2,022,968 2,022,968
Financial liabilities:
Deposits............. 318,382,055 318,919,578 269,799,037 271,562,693
Federal Home Loan
Bank advances...... 6,382,660 6,382,660 17,767,344 17,767,344
Other borrowings..... 3,219,705 3,219,705 37,948 37,948
Accrued interest
payable............ 649,400 649,000 518,570 518,570
</TABLE>
Note 15. 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 22, 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 twenty 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.
30
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
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"). 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 twenty 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 year ended
March 31, 1997 as though Southside and Tara had been acquired as of April 1,
1996 follows:
<TABLE>
<CAPTION>
1997
----------
<S><C>
(DOLLARS
IN
THOUSANDS)
Interest income................................... $ 24,155
Interest expense.................................. (11,441)
----------
Net interest income........................... 12,714
Plus noninterest income........................... 4,616
Less noninterest expense.......................... (13,864)
----------
$ 3,466
----------
----------
</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 16. STOCK SPLIT
On October 15, 1997, the Company declared a three-for-two common stock split
payable on or after November 14, 1997 to stockholders of record on October 31,
1997. The number of shares issued after the split was 2,768,266, which is
reflected in the number of issued shares of common stock on the balance sheet.
An amount equal to the par value of common stock declared was transferred from
additional paid in capital to common stock. The basic and diluted earnings per
share of common stock for the years ended March 31, 1998 and 1997 have been
retroactively adjusted for the increased number of shares of common stock after
giving effect to the stock split.
Note 17. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets, statements of
income and cash flows of First Citizens Corporation as of and for the years
ended March 31, 1998 and 1997.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S><C>
ASSETS
Cash.................................. $ 524,707 $ 790,624
Investment in subsidiaries............ 39,629,547 33,929,987
Other assets.......................... 184,554 649,143
----------- -----------
TOTAL ASSETS........................ $40,338,808 $35,369,754
----------- -----------
----------- -----------
LIABILITIES
Other liabilities..................... $ 378,937 $ 5,112,287
Other borrowings...................... 3,200,000 454,796
----------- -----------
3,578,937 5,567,083
----------- -----------
Stockholders' equity.................... 36,759,871 29,802,671
----------- -----------
Total liabilities and stockholders'
equity............................ $40,338,808 $35,369,754
----------- -----------
----------- -----------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1998 1997
---------- ------------
<S><C>
INCOME
Dividends from subsidiaries............ $2,050,000 $ 14,021,311
Other.................................. 263,164 28,795
---------- ------------
2,313,164 14,050,106
---------- ------------
EXPENSE
Interest on other borrowings........... 271,939 28,051
Salaries and benefits.................. 357,126 --
Amortization........................... 24,993 23,050
Other expense.......................... 220,850 44,129
---------- ------------
TOTAL EXPENSE........................ 874,908 95,230
---------- ------------
INCOME BEFORE INCOME TAX BENEFITS AND
UNDISTRIBUTED EARNINGS
(DISTRIBUTIONS IN EXCESS) OF INCOME
OF SUBSIDIARIES.................... 1,438,256 13,954,876
INCOME TAX BENEFITS...................... (232,115) (24,284)
---------- ------------
INCOME BEFORE UNDISTRIBUTED EARNINGS
(DISTRIBUTIONS IN EXCESS) OF INCOME
OF SUBSIDIARIES.................... 1,670,371 13,979,160
UNDISTRIBUTED EARNINGS (DISTRIBUTIONS IN
EXCESS) OF INCOME OF SUBSIDIARIES...... 5,544,500 (11,327,474)
---------- ------------
NET INCOME........................... $7,214,871 $ 13,979,160
---------- ------------
---------- ------------
</TABLE>
31
<PAGE>
[LOGO APPEARS HERE]-------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S><C>
OPERATING ACTIVITIES
Net income............................ $ 7,214,871 $ 2,651,686
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization........................ 24,993 23,050
Undistributed earnings
(distributions in excess) of
income of subsidiaries............ (5,544,500) 11,327,474
Other operating activities.......... 316,968 (524,820)
----------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES...................... 2,012,332 13,477,390
----------- ------------
INVESTING ACTIVITIES
Net cash acquired in business
combination......................... -- 1,357,461
Acquisition of subsidiary............. (5,112,287) (13,716,878)
----------- ------------
NET CASH USED IN INVESTING
ACTIVITIES...................... (5,112,287) (12,359,417)
----------- ------------
FINANCING ACTIVITIES
Proceeds from other borrowings........ 3,200,000 --
Purchase of treasury stock............ (201,471) (231,650)
Issuance of common stock.............. 635,833 253,585
Dividends paid........................ (800,324) (349,284)
----------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............ 2,834,038 (327,349)
----------- ------------
Net increase (decrease) in cash......... (265,917) 790,624
Cash at beginning of year............... 790,624 --
----------- ------------
Cash at end of year..................... $ 524,707 $ 790,624
----------- ------------
----------- ------------
</TABLE>
32
<PAGE>
- -------------------------------------------------------------[LOGO APPEARS HERE]
Independent Auditor's Report
To the Board of Directors
First Citizens Corporation and Subsidiaries
Newnan, Georgia
We have audited the accompanying consolidated balance sheets of First Citizens
Corporation and Subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Citizens Corporation and Subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Atlanta, Georgia
May 8, 1998
33
<PAGE>
Stock Prices and Dividends
[LOGO APPEARS HERE]-------------------------------------------------------------
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>
March 31, 1996........................................................................................... 12.00 10.67
June 30, 1996............................................................................................ 13.17 11.33
September 30, 1996....................................................................................... 15.67 12.33
December 31, 1996........................................................................................ 17.83 15.00
March 31, 1997........................................................................................... 17.17 14.17
June 30, 1997............................................................................................ 18.00 15.50
September 30, 1997....................................................................................... 23.33 17.50
December 31, 1997........................................................................................ 35.50 22.67
March 31, 1998........................................................................................... 35.00 29.25
<CAPTION>
Quarter Ended Dividend
- --------------------------------------------------------------------------------------------------------- ---------
<S><C>
March 31, 1996........................................................................................... 0.07
June 30, 1996............................................................................................ 0.07
September 30, 1996....................................................................................... 0.07
December 31, 1996........................................................................................ 0.07
March 31, 1997........................................................................................... 0.07
June 30, 1997............................................................................................ 0.07
September 30, 1997....................................................................................... 0.07
December 31, 1997........................................................................................ 0.08
March 31, 1998........................................................................................... 0.08
</TABLE>
At June 30, 1998 First Citizens Corporation had approximately 750
shareholders of record. There are statutory, regulatory, and other restrictions
upon the payment of dividends. See Note 13 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
Allette Cheaves, 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, LLC Powell, Goldstein, Frazer & Murphy
1640 Powers Ferry Road Sixteenth Floor
Building 26 191 Peachtree Street, N.E.
Marietta, GA 30067 Atlanta, GA 30303
</TABLE>
34
<PAGE>
Directors and Officers
- -------------------------------------------------------------[LOGO APPEARS HERE]
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
Mike Justice, Senior Vice President
Don Phillips, 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
Mary L. Roller, Assistant Vice President
Tracy Van Norman, 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
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
Fred Faulkner, Senior Vice President
Lee Greeson, Senior Vice President
Carol Johnson, Vice President
Mike Teal, Vice President
Pam Thames, Assistant Vice President
Tommy Whaley, Assistant Vice President
Lora Wood, 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
C.T. Segers, Executive Vice President
Trudy Hamilton, Vice President
Brenda Chapman, Assistant Vice President
Shirley Wynn, Assistant Vice President
Lisa M. Vandiver, Banking Officer
35
<PAGE>
Locations
[LOGO APPEARS HERE]-------------------------------------------------------------
FIRST CITIZENS BANK
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 30265
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
Newnan, GA 30263
770/304-7765
JEFFERSON, GEORGIA
1874 Washington Street
Jefferson, GA 30549
706/367-2877
FAYETTEVILLE, GEORGIA
675 North Jeff Davis Drive
Fayetteville, GA 30214
770/460-5025
NEWNAN FINANCIAL SERVICES, INC.
19 Jefferson Street
Newnan, GA 30263
770/304-7765
- --------------------------------------------------------------------------------
36
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
State of
Subsidiaries of First Citizens Corporation Incorporation
- ------------------------------------------ -------------
First Citizens Bank Federal
First Citizens Bank of Fayette County Georgia
First Citizens Bank of Clayton County Georgia
Subsidiaries of First Citizens Bank
- -----------------------------------
Newnan Financial Services, Inc. Georgia
Citizens Mortgage Group, Inc. Georgia
Subsidiaries of Newnan Financial Services, Inc.
- -----------------------------------------------
Jefferson Ventures, Inc. Georgia
EXHIBIT 23.1
CONSENT TO INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report, dated May 8,
1998, relating to the consolidated financial statements of First Citizens
Corporation and subsidiaries for the two years ended March 31, 1998, included in
the 1998 Annual Report to Shareholders and incorporated by reference in this
Form 10-KSB in the previously filed Registration Statements of First Citizens
Corporation on Form S-8 (No. 333-36765 and 333-37099) and Form S-3 (No.
333-35197 and 333-52207).
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 13,057
<INT-BEARING-DEPOSITS> 18,604
<FED-FUNDS-SOLD> 13,840
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,380
<INVESTMENTS-CARRYING> 1,880
<INVESTMENTS-MARKET> 1,881
<LOANS> 267,636
<ALLOWANCE> 3,852
<TOTAL-ASSETS> 367,812
<DEPOSITS> 318,382
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,068
<LONG-TERM> 9,602
0
0
<COMMON> 2,836
<OTHER-SE> 33,924
<TOTAL-LIABILITIES-AND-EQUITY> 367,812
<INTEREST-LOAN> 24,924
<INTEREST-INVEST> 2,123
<INTEREST-OTHER> 859
<INTEREST-TOTAL> 27,906
<INTEREST-DEPOSIT> 11,899
<INTEREST-EXPENSE> 12,975
<INTEREST-INCOME-NET> 14,931
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 10,599
<INCOME-PRETAX> 10,922
<INCOME-PRE-EXTRAORDINARY> 10,922
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,215
<EPS-PRIMARY> 2.62 <F1>
<EPS-DILUTED> 2.42 <F1>
<YIELD-ACTUAL> 4.69
<LOANS-NON> 2,886
<LOANS-PAST> 303
<LOANS-TROUBLED> 894
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,739
<CHARGE-OFFS> 410
<RECOVERIES> 288
<ALLOWANCE-CLOSE> 3,852
<ALLOWANCE-DOMESTIC> 3,852
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,852
<FN>
EPS have been restated giving effect to the 3-for-2 stock split declared October
15, 1997. EPS also is restated in accordance with FASB 128 which was adopted
April 1, 1997. Prior schedules have not been restated for the split.
</FN>
</TABLE>
<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> 15,985
<INTEREST-INVEST> 1,178
<INTEREST-OTHER> 369
<INTEREST-TOTAL> 17,532
<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> 1.15 <F2>
<EPS-DILUTED> 1.05 <F2>
<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
<FN>
EPS has been restated in accordance with FASB 128 which was adopted April 1,
1997.
</FN>
</TABLE>
