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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1994 Commission File Number 2-83542
FIRST CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of 62-1180360
incorporation or organization) (I.R.S. Employer Identification No.)
P. O. Box 370
Court Street, Dyersburg, Tennessee 38024
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (901) 285-4410
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 3 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Of the registrant's only class of common stock ($1.00 par value) there
were 712,318 (net of treasury) shares outstanding as of September 30, 1994.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1994 1993
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 8,665,000 $ 8,408,000
Federal funds sold 0 5,200,000
Investment securities -
(Market value is $62,049,000 at
September 30, 1994 and
$61,789,000 at December 31, 1993)
Trading Investments-Stated at Market 0 0
Held to Maturity-Amortized Cost 44,740,000 60,747,000
Available for Sale-Stated at Market 18,606,000 0
Loans -
(Excluding unearned income of
$1,212,000 at September 30, 1994,
and $1,066,000 at December 31, 1993) 173,485,000 149,322,000
Less: Allowance for loan losses 1,985,000 1,676,000
Net Loans 171,500,000 147,646,000
Premises and equipment 8,121,000 7,778,000
Other assets 4,950,000 5,113,000
TOTAL ASSETS $256,582,000 $234,892,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $202,872,000 $193,823,000
Securities sold under
agreement to repurchase 15,977,000 16,914,000
Federal funds purchased
and other short term borrowing 8,528,000 0
Long-term debt - Note 3 (Includes
long term FHLB) 4,183,000 30,000
Notes payable of Employee Stock
Ownership Plan 0 0
Other liabilities 1,422,000 2,424,000
Total Liabilities 232,982,000 213,191,000
Contingent Liabilities - See Note 5
Stockholders' Equity
Common stock, $1 par value -
2,000,000 authorized; 712,318
issued and outstanding at
September 30, 1994; 706,656
issued and outstanding at
December 31, 1993 712,000 7,067,000
Surplus 8,909,000 2,356,000
Retained earnings 14,109,000 12,338,000
Obligation of Employee Stock
Ownership Plan 0 0
Net Unrealized Gains(Losses) on
available for Sale (130,000) 0
Total Common Stock and Retained
Earnings 23,600,000 21,761,000
Less-Treasury 2 Shares, At Cost
at September 30, 1994 and 2,024
at December 31, 1993 0 (60,000)
Total Stockholders' Equity 23,600,000 21,701,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $256,582,000 $234,892,000
NOTE: The balance sheet at December 31, 1993, has been taken from the
audited financial statements at that date and condensed. The par
value of the stock was reduced in the second quarter of 1994 from
$10 to $1. The December 1993 Balance Sheet reflects a par value of
$10.
The accompanying notes are an integral part of these financial
statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Interest Income
Interest and fees on loans $ 4,030,000 $ 3,615,000 $11,208,000 $10,486,000
Interest on investment
securities:
Taxable 782,000 857,000 2,263,000 2,789,000
Tax-exempt 151,000 109,000 453,000 315,000
Other interest income 11,000 13,000 78,000 65,000
Lease financing income 1,000 2,000 3,000 5,000
Total Interest Income 4,975,000 4,632,000 14,005,000 13,660,000
Interest Expense
Interest on deposits 1,863,000 1,650,000 5,087,000 4,926,000
Other interest expense 277,000 171,000 646,000 516,000
Total Interest Expense 2,140,000 1,821,000 5,733,000 5,442,000
Net Interest Income 2,835,000 2,811,000 8,272,000 8,218,000
Provision for loan losses 102,000 119,000 301,000 355,000
Net interest income after
provision 2,733,000 2,692,000 7,971,000 7,863,000
Other Income
Securities gains (losses) 0 22,000 0 35,000
Other income 501,000 510,000 1,798,000 1,599,000
Total Other Income 501,000 532,000 1,798,000 1,634,000
Other expenses 2,100,000 2,160,000 6,349,000 6,335,000
Net income before
income taxes 1,134,000 1,064,000 3,420,000 3,162,000
Provision for income
taxes 377,000 324,000 1,084,000 975,000
Net income 757,000 740,000 2,336,000 2,187,000
Earnings per share $ 1.07 $ 1.06 $ 3.30 $ 3.12
Weighted average number of
shares outstanding 707,876 699,902 707,876 699,902
The accompanying notes are an integral part of these financial statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30
1994 1993 1992
Operating Activities
Net cash provided by
operating activities $ 2,370,000 $ 3,274,000 $ 1,812,000
Investing Activities
Proceeds from maturities of
securities 15,544,000 18,035,000 17,400,000
Proceeds from sales of
investment securities 0 4,178,000 6,500,000
Purchases of investment securities (18,251,000) (12,109,000) (22,466,000)
Increase in Loans-Net (24,155,000) (15,055,000) (9,048,000)
Purchases of premises and equipment (937,000) (272,000) (1,035,000)
Net cash provided
by investing activities (27,799,000) (5,223,000) (8,649,000)
Financing Activities
Net increase (decrease) in demand
and savings accounts (2,337,000) (2,950,000) 2,640,000
Increase (decrease) in time accounts 11,386,000 (1,583,000) (8,579,000)
Increase (decrease) in long-term debt 4,153,000 (99,000) (98,000)
Treasury stock transactions 60,000 (3,000) 0
Proceeds from sale of common stock 198,000 145,000 0
Cash dividends paid (565,000) (524,000) (442,000)
Cash paid in lieu of fractional shares 0 0 0
Net increase (decrease) in short
term borrowings 7,591,000 (1,047,000) 4,687,000
Net cash provided (used) by
financing activities 20,486,000 (6,061,000) 1,792,000
Increase (decrease) in cash and cash
equivalents (4,943,000) (8,010,000) (8,629,000)
Cash and cash equivalents at
beginning of year 13,608,000 17,291,000 22,400,000
Cash and cash equivalents,
end of year 8,665,000 9,281,000 $13,771,000
The accompanying notes are an integral part of these financial statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1994
Note 1 - Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1994, the
consolidated statements of income for the nine month periods ended
September 30, 1994, 1993 and 1992, and the consolidated statements of cash
flows for the nine month periods then ended have been prepared by the
Company without an audit. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and cash flows
at September 30, 1994 and for all periods presented have been made.
Operating results for the reporting periods presented are not necessarily
indicative of the results that may be expected for the year ended December
31, 1994. For further information, refer to the consolidated financial
statements and footnotes thereto included in the company's annual report on
Form 10-K for the year ended December 31, 1993.
Note 2 - Organization
First Citizens Bancshares, Inc., is a bank holding company chartered
on December 14, 1982, under the laws of the State of Tennessee. On
September 23, 1983, all of the outstanding shares of common stock of First
Citizens National Bank were exchanged for an equal number of shares in
First Citizens Bancshares, Inc.
Note 3 - Long-Term Debt
During the year ended December 31, 1989, First Citizens National Bank
placed in service furniture, fixtures, and equipment with a total cost of
$520,964 which were acquired through capital leases. These leases became
effective at various dates ranging from January, 1989 through October,
1989, and each lease extends for a term of sixty months. The total
liability on these leases as originated was $655,232 with less than $1,000
remaining to be paid as of September 30, 1994. Future minimum lease
payments according to these leases are as follows:
Years Ending
December 31, 1994 $ 1,000
Less: amount representing interest $ 1,000
Present value of net minimum lease payments $ 0
The Long Term Debt is comprised of Federal Home Loan Bank Borrowings. The
average life is 9 years and these funds are matched with loans and
securities. The FHLB Funds were maturity matched with these assets to
produce a positive spread relationship.
Long Term Debt consist of borrowings from the Federal Home Loan Bank,
average life of nine (9) years in the amount of $4,183,000. These
borrowings are maturity matched with specific assets (loans and
securities). Also referenced in footnote 10 Other Borrowings and Debt.
Note 4 - Statement of Cash Flows
September 30,
1994 1993 1992
Actual payments made
during the periods:
Income taxes $ 705,000 $ 678,000 $ 565,000
Interest $5,835,000 $5,453,000 $7,046,000
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Note 5 - Contingent Liabilities
There are no material pending litigations as of the current
reportable date.
Note 6 - Investment Securities
The differences between book values of investment securities and
market values at September 30, 1994 and September 30, 1993, total
($1,297,000) and $1,442,000 respectively. FASB 115 requires banks to
classify securities into categories Held to Maturity, Available for Sale,
and Trading. First Citizens has $0 in the Trading Account. Available for
Sale Securities values are adjusted to market quarterly and adjustments
flow to the Capital Section (Net of Tax). Held to Maturity Securities are
stated at amortized cost. Available for Sale Securities reflect a $217,000
decrease the first three quarters of 1994 resulting in a net of tax
decrease to capital of $130,000. These movements fluctuate with increases
or decreases in interest rates.
FASB 119 effective January 1, 1995 will require banks to identify and
closely monitor Derivative products held in investment portfolios and to
disclose mark downs in book value that will have a material effect on the
balance and income statements. Derivatives listed in the following table
comprise $13,902,000 of the First Citizens Investment Portfolio and are
classified primarily as Government Backed Investments bearing short
maturities. Also listed is a comparison of Book to Market Value reflecting
no material difference. There are no future plans to increase the bank's
exposure by purchasing additional derivatives.
Book Market
CMO's 6433 6254
Strip Coupons 477 458
Step Up Agencies 4992 4763
CMT's 2000 1889
Total 13902 13364
Note 7 - Regulatory Capital Requirements
Regulatory agencies impose certain minimum capital requirements on
both First Citizens Bancshares, Inc., and First Citizens National Bank.
On December 16, 1988, the Federal Reserve Board approved the risk based
capital guidelines for bank holding companies. Presently, the holding
company and First Citizens National Bank exceed the required minimum
standards set by the regulators.
Note 8 - Deferred Income Taxes
First Citizens adopted FASB 109 as of January 1, 1993. The September
YTD 1994 figures reflected a $56,000 credit to income tax expense. The
timing differences mainly consist of reserve for loan loss deductions.
Note 9 - Stock Split
A 2.5 for 1 stock split was authorized by the Board for shareholders
of record as of October 15, 1993, payable November 15, 1993. The
outstanding shares and earnings per share for 1993 were adjusted to reflect
the 2.5 for 1 stock split.
Note 10 - Other Borrowings and Debt
The Short Term Borrowings consists of Federal Home Loan Bank and Fed
Funds purchased in the amount of $7,550,000. The Long Term Borrowings
consist of Federal Home Loan Bank Funds in the amount of $4,183,000. The
long term funds are maturity matched with specific assets.
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Note 11 - Other Income
The Jackson Tennessee property was sold for a gain of $297,000 (net of
tax effect was $178,000 or $.25 per share).
Note 12 - Par Value
The par value of Bancshare's Stock was reduced from $10 to $1 during
the second quarter. This action resulted in a reclassification of funds,
with no material effect to either the balance sheet or income statement.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of the following discussion is to address significant
changes in income and expense accounts when compared to the quarter ending
September 30, 1993. Reference should be made to the Financial Statements
included as ITEM 1 for a more thorough understanding of the analysis. The
discussion relates mainly to activities of First Citizens National Bank
(First Citizens) in its banking business. However, the consolidated
statements of income reflect activities of both First Citizens and First
Citizens Bancshares, Inc. (Bancshares). Limited activities to date by the
Holding Company do not materially affect the income report.
Strong earnings were reported for the first nine months of 1994. Net
income year-to-date increased approximately $149,000 when comparing 9/30/94
to 9/30/93. Year-to-date Earnings Per Share was $3.30 compared to $3.12.
Net income increased $17,000.00 or 2.4% when comparing the three months
ended 9/30/94 to 9/30/93. The earnings performance was enhanced by
increased loan volume and rising interest rates charged on loans. Total
Interest Income was $14,005,000 at quarter end compared to $13,660,000 for
the same time period in 1993. A review of Total Interest Expense of
$5,733,000 (1994) compared to $5,442,000 (1993) reflects rising rates on
deposit accounts. Interest rates are projected to increase an additional
one-half of one percent before year end 1994. First Citizens National Bank
through its Asset Liability Management program has adequately matched
deposit and loan maturities to protect the bank from risk caused by
volatile changes in interest rates. Net Interest Income reflects
continuous improvements since the first quarter, 1994. During the second
quarter of 1994 the sale of a parcel of other real estate was finalized
resulting in an after tax gain of $178,000. Other income decreased
approximately $31,000 when comparing quarter end 1993 to 1994 due primarily
to a $22,000 securities gain recognized in 1993. Weighted average number
of shares outstanding changed from 699,902 to 707,876. Shares were issued
from previously authorized unissued stock to satisfy the demands of the
Dividend Reinvestment and Quarterly Optional Stock Purchase plans.
However, a comparison of year-to-date other income reflects a positive
variance of $164,000. Other Expenses only increased $14,000 when comparing
year-to-date 1994 to 1993. Fulltime equivalent employees as of 9/30/94 was
149.52 compared to 151 at September 30, 1993 and 153 at September 30, 1992.
Procedures are in place to continuously monitor and reduce FTE to be more
in line with peer banks.
Total Assets increased approximately $21,690,000 when comparing
9/30/94 to 12/31/93. The Loan Portfolio excluding Allowance for Loan
Losses increased $24,163,000 with the major portion of growth centered in
the Agricultural segment. Deposit growth, a reduction in Federal Funds
Sold and borrowings from the Federal Home Loan Bank were combined to fund
loan and investment activity. The investment portfolio increased
approximately $3 million. An aggressive loan demand during the second
quarter of 1994 resulted in a decision by management to solicit deposits
from sources outside our trade area. This effort increased time deposit
totals by $2,700,000. Rates and terms on these deposits were the same as
those offered to local customers. The pressure on deposit total is
expected to ease as interest rates continue to move upward causing funds to
flow into Bank CD's from stocks and mutual funds. Through the
asset/liability management process, earning assets and costing liabilities
are constantly monitored for unfavorable trends. A conscious effort has
been made to control growth in order to remain within desired capital
ratios and to maximize the Bank's return on assets and equity.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CON'T.
The bank is well positioned, maintaining over 50% market share, to be
competitive with products and services offered by even the largest
institution in the servicing area. New products introduced to our customer
in 1994 are an OverDraft Line of Credit and Free Checking Account. Both
products were designed to attract customers in the 30-45 age group that
have expressed a need for these product types. In June, 1994 the bank
entered into an agreement with the accounting firm of Reynolds, Bone &
Griesbeck to conduct a cost/benefit analysis for the installation of a
check/statement imaging product. In October, 1994 additional services were
contracted with the firm that included the selection of a Debit Card
product and processor and acting as a advisor on the bank's Information
System Strategic Planning Team. It is expected that the bank will announce
the selection of an imaging product during the fourth quarter of 1994.
On August 29, 1994, First Citizens submitted a bid for assets and
deposits of the Ripley, Tennessee Branch of Union Planters Bank of West
Tennessee. Having been advised on September 1, 1994 that the bid had been
accepted, efforts to obtain regulatory approval were commenced. Pending
this approval, the Ripley Branch of First Citizens National Bank should be
in operation by December 31, 1994. This acquisition will increase deposit
totals in excess of $8,000,000, providing an excellent source of funding
for future loan growth. This purchase will provide a physical presence in
the Lauderdale County market, allowing for expansion of our existing
customer base in this area.
The First Citizens Industrial Park Branch is scheduled to open in
early November. The decision to expand within the local market through the
addition of this branch is reflective of a First Citizens management
philosophy which has existed for more than a century. It is a primary
objective to enhance shareholder value by providing convenient high quality
service to all our customers. We will accomplish this objective in the
future as we have in the past with convenient locations, quality financial
products and services and a well trained, dedicated staff.
Multiple changes in the financial services industry continue to offer
both opportunity and challenge. Interstatebanking/branching became a
reality by legislation passed September 13, 1994. The Act permits full
nationwide interstate banking one year from enactment and authorized
interstate branching after June 1, 1997. Methods by which Regulators
measure bank's compliance with the community Reinvestment Act will be
changing in the coming year. First Citizens takes pride in having received
an "Outstanding" rating on the most recent CRA examination, and has every
intention of maintaining this designation. The Board, Management and Staff
are committed to providing products and services which meet the financial
needs of all segments of the communities we serve.
The following table compares year to date non-interest income and
expense of First Citizens as of September 30, 1994, 1993 and 1992:
Non-Interest Income
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1994 % of Change 1993 % of Change 1992
Service Charges on
Deposit Accounts $ 334 3% $ 325 (1%) $ 327
Trust Income $ 405 18% $ 342 (8%) $ 318
Other Income $1,059 10% $ 967 1% $ 960
TOTAL NON-INTEREST INCOME $1,798 10% $1,634 2% $1,605
Non Interest Income is up by 10% and 2% respectively when comparing
1994 to 1993 and 1992. All categories listed within the table reflect a
significant increase with the largest percentage reflected in Trust Income.
The Investment Management and Trust Services Division has posted improved
income and profits each quarter of 1994. Under new management since April,
1993, a strategic plan has been developed and implemented that provides for
business development and sustained growth and profit. Other income has
increased 10.31% since 1992 reflecting a continuous effort to focus on fee
income.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CON'T.
Non-Interest Expense
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1994 % of Change 1993 % of Change 1992
Salaries & Employee
Benefits $3,472 3% $3,363 2% $3,313
Net Occupancy Expense $ 489 1% $ 486 (57%) $1,124
Other Operating Expense $2,388 (4%) $2,486 11% $2,245
TOTAL NON-INTEREST EXPENSE $6,349 1% $6,335 (5%) $6,682
A review of Non-Interest Expense reflects that all categories have
been well managed. Total non-interest expense increased only 1% when
comparing 1994 to 1993 after decreasing 5% when comparing 1993 to 1992. A
57% decrease occurred in Net Occupancy Expense in 1993 due to a change in
Data Processing Software and Hardware in September, 1992. The change
resulted in a reduction of $226,000, excluding depreciation cost of
$59,000. Salaries and benefits have only increased 3% reflecting a
continuous effort to increase salaries and benefits at a manageable level
while reducing FTE. A comparison of the Full Time Equivalent Ratio is
presented within this section.
Deposits
The average daily amount of deposits and average rates paid on such
deposits is summarized for the quarter ending September 30 for the years
indicated:
COMPOSITION OF DEPOSITS
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 24,700 - $ 21,776 - $ 19,050 -
Savings
Deposits $ 63,315 2.74% $ 66,939 2.61% $ 60,760 2.79%
Time Deposits $116,329 4.97% $103,608 4.69% $110,473 5.30%
TOTAL DEPOSITS $204,344 3.68% $192,323 3.43% $190,283 3.97%
Total Deposits grew $12 million when comparing September 30, 1994 to
September 30, 1993. The increase is due to rising interest rates and an
aggressive program implemented to seek deposit funds. During June, 1994
management made a decision to purchase Brokered Deposits at the same rate
of interest paid to other depositors for similar investments, to
aggressively bid on public funds and to seek deposits from the bank's Trust
Division. Increased Time Deposit totals of $12,721,000 is reflective of
our customers preference to invest in bank CD's rather than stocks and
mutual fund investments when interest rates are comparable for each type.
An analysis of prior years presented in the table is reflective of
customer response to the low interest rates paid on deposits in 1992 and
1993. Deposit rates have increased and are projected to remain higher in
1994 than previous years thereby enhancing the appeal of the banks
investment options.
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Non Interest Bearing Demand Deposits have increased approximately $2.7
million for each year under review. One factor that is not evident when
reviewing deposit categories is funds invested in "Sweep Account Funds"
totaling $9,980,000. Large balance customers are offered a service which
provides for funds to automatically sweep daily from a demand deposit
account into an overnight repurchase agreement. This affords commercial
and large balance customers (Amounts of $25,000 or more per depositor) the
opportunity to earn interest on excess collected funds while providing
availability of adequate funds to clear large denomination checks when
presented for payment. Also not included in total deposits are Fixed
Repurchase Agreements totaling $5,797,000. Pricing of deposits products is
based on local market conditions and Treasury Bill rates. The average rate
paid on deposits in 1994 was 3.68% compared to 3.43% in 1993 and 3.97% in
1992.
The following tables set forth the maturity distribution of
Certificates of Deposit and other time deposits of $100,000.00 or more
outstanding on the books of First Citizens on September 30, 1994. The
total reflects a reduction of $1,835,000 when comparing to September, 1993
totals.
Maturity Distribution of Time Deposits
In Amounts of $100,000 Or More As Of September 30, 1994
(in thousands)
Maturity Total Amount
3 months or less $ 5,946
3 through 6 months $ 2,996
6 through 12 months $ 4,671
over 12 months $ 5,184
Total $18,797
A summary of average interest earning assets and interest bearing
liabilities is set forth in the following table together with average
yields on the earning assets and average costs on the interest bearing
liabilities. Interest Earning Assets at 9/30/94 total $230,910,000 with an
average rate of 8.27% compared to $213,396,000 average rate of 8.37% at
9/30/93 and $205,587,000 average rate of 8.85% at 9/30/92. Interest
Bearing Liabilities totaled $204,500,000 with an average rate of 4.23% at
9/30/94 compared to $191,329,000 average rate of 3.81% and $188,834,000
average rate of 4.33%. Net Yield on Average Earning Assets (Annualized)
was 4.56%, 4.96% and 4.88% at 9/30/94, 9/30/93 and 9/30/92 respectively.
During 1993 and the first 6 months of 1994 loan rates reflected a decrease
as a result of a declining interest rate environment and a highly
competitive local market. Rates paid on deposits decreased more
significantly in proportion. Maintaining net interest margins achieved in
prior years could prove difficult as interest rate continue to rise in
1994. However, sound asset/liability management guidelines should limit
the impact to earnings resulting from increased interest rates.
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<TABLE>
First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING
ASSETS:
Loans (123)
& Leases $167,373 $ 3,859 9.22% $145,567 $ 3,486 9.58% $138,633 $ 3,454 9.97%
Investment Securities:
Taxable $ 49,535 $ 764 6.19% $ 57,106 $ 863 6.04% $ 57,142 $ 987 6.91%
Tax Exempt (4) $ 13,844 $ 151 4.36% $ 8,992 $ 103 4.58% $ 6,556 $ 82 5.01%
Interest Earning
Deposits $ 133 $ 1 3.01% $ 324 $ 2 2.47% $ 175 $ 2 4.58%
Federal Funds Sold
& Securities
Purchased Under
an Agreement
to Resell $ 25 $ 1 16% $ 1,407 $ 11 3.13% $ 3,081 $ 24 3.12%
Total Interest
Earning Assets $230,910 $ 4,776 8.27% $213,396 $ 4,465 8.37% $205,587 $ 4,549 8.85%
NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 8,822 $ - - $ 8,449 $ - - $ 7,477 $ - -
Bank Premises and
Equipment $ 7,935 $ - - $ 7,805 $ - - $ 7,891 $ - -
Other Assets $ 4,069 $ - - $ 4,042 $ - - $ 5,211 $ - -
Total Assets $251,736 $ - - $233,692 $ - - $226,166 $ - -
</TABLE>
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<TABLE>
First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 63,315 $ 434 2.74% $ 66,939 $ 436 2.61% $ 60,760 $ 424 2.79%
Time Deposits $116,329 $1,446 4.97% $103,608 $1,214 4.69% $110,473 $ 1,463 5.30%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 24,856 $ 263 4.23% $ 20,782 $ 171 3.29% $ 17,601 $ 155 3.52%
Total Interest
Bearing
Liabilities $204,500 $2,143 4.19% $191,329 $1,821 3.81% $188,834 $ 2,042 4.33%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 24,700 $ - - $ 21,776 $ - - $ 19,050 $ - -
Other Liabilities $ 1,696 $ - - $ 1,817 $ - - $ 1,817 $ - -
Total Liabilities $230,896 $ - - $214,922 $ - - $209,701 $ - -
SHAREHOLDERS'
EQUITY $ 20,840 $ - - $ 18,770 $ - - $ 16,465 $ - -
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $251,736 $ - - $233,692 $ - - $226,166 $ - -
NET INTEREST
INCOME $ - $ 2,633 - $ - $2,644 - $ - $ 2,507 -
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.56% $ - - 4.96%__$ - $ - 4.88%
(ANNUALIZED)
</TABLE>
(1) Loan totals are shown net of interest collected, not earned and Loan
Loss Reserve.
(2) Non-accrual loans are included in average total loans.
(3) Loan Fees are included in interest income and the computations of the
yield on loans.
(4) Interest and rates on securities which are non-taxable for Federal
Income Tax purposes are not presented on a taxable equivalent basis.
(5) The yield on Federal Funds Sold is distorted due to rounding of
interest income.
<PAGE>
<PAGE>14
COMPOSITION OF LOANS
Improved earnings for the quarter just ended resulted from several
factors, one of which was the ability to increase loan portfolio totals in
excess of $22 million from 1993 to 1994. All categories with exception of
Other Loans listed in the following table reflect substantial growth when
comparing to prior years. Real Estate Loans - Mortgage and Commercial,
Financial and Agricultural Loans growth totaled approximately $10 million
for each category. Low interest rates prompted customer refinancing of
existing mortgages, as well as new home purchases adding significantly to
the mortgage loan portfolio. In addition, commercial customers secured
outstanding debt with real estate to take advantage of the lower rates and
to provide longer repayment terms. Loans for Agricultural production
purposes are fully funded by June 30 of each year resulting in seasonal
growth in the Agricultural category. Loan growth in 1993 and 1994 has been
well above budget projections. Rising interest rates are projected to
result in a slow down in new loan volume.
The average yield on loans of First Citizens National Bank for the
third quarter of the years indicated is as follows:
1994 - 9.22%
1993 - 9.58%
1992 - 9.97%
1991 - 11.42%
1990 - 12.67%
The aggregate amount of unused guarantees, commitments to extend
credit and standby letters of credit was $20,225,000 as of 9/30/94.
The following table sets forth loan totals net of unearned income by
category for the past five years:
September 30 (in thousands)
1994 1993 1992 1991 1990
Real Estate Loans:
Construction $ 9,748 $ 7,642 $ 4,603 $ 4,966 $ 5,282
Mortgage $94,501 $84,540 $82,035 $79,364 $72,061
Commercial, Financial
and Agricultural Loans $47,382 $37,339 $36,974 $39,793 $35,151
Installment Loans to
Individuals $17,868 $15,545 $15,425 $16,712 $17,244
Other Loans $ 3,986 $ 5,642 $ 2,663 $ 2,548 $ 3,029
TOTAL LOANS $173,485 $150,708 $141,700 $143,383 $132,767
Loan Maturities and Sensitivity to Changes in Interest Rates
Managing interest rate risk is a primary objective of asset-liability
management. One tool utilized by First Citizens to ensure market rate
return is variable rate loans. Loans totaling $75,788,000 (43.68% of total
portfolio) are subject to repricing within one year or carry a variable
interest rate. This total is up $11,000,000 from September 30, 1993. Loan
maturities in the one to five year category increased approximately
$4,000,000 since 9/30/93 due to customer demand to lock in a fixed rate for
a longer period. While growth in the portfolio is an objective, our first
priority is ensuring credit quality. Management considers the portfolio
composition to be diversified with no concentrations in any one industry.
<PAGE>
<PAGE>15
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $14,359 $ 71,808 $18,082
Commercial, Financial
and Agricultural $14,902 $ 27,964 $ 4,516
All Other Loans $ 3,051 $ 16,633 $ 2,170
TOTAL $32,312 $116,405 $24,768
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $97,697
Interest Rates are Floating or Adjustable $43,476
NON-PERFORMING ASSETS
Interest income on loans is recorded on an accrual basis. The accrual
of interest is discontinued on all loans, except consumer loans, which
become 90 days past due, unless the loan is well secured and in the process
of collection. Consumer loans which become past due 90 to 120 days are
charged to the allowance for loan losses. The gross interest income that
would have been recorded for the nine months ending 9/30/94 if all loans
reported as non-accrual had been current in accordance with their original
terms and had been outstanding throughout the period is $75,000. Interest
income on loans reported as ninety days past due and on interest accrual
status was $14,000 for third quarter 1994. Loans on which terms have been
modified to provide for a reduction of either principal or interest as a
result of deterioration in the financial position of the borrower are
considered to be "Restructured Loans". Restructured loans at September 30,
1994 is zero. Loan Officers are required to develop a "Plan of Action" for
each problem loan within their portfolio. Adherence to each established
plan is monitored by Loan Administration and re-evaluated at regular
intervals for effectiveness.
When analyzing non-performing loans for 1994 compared to 1993, a 50%
decrease is reflected for the periods under comparison. Non-performing
loans reflected the highest balance in 1991 of $3,277,000. The balance was
not a reflection of overall deterioration in the loan portfolio, but in one
credit placed on non-accrual status during the third quarter, 1990. That
credit remains on non-accrual status and is reflected in totals as of
9/30/94 net of write downs. Management has made every effort to strengthen
controls that reduce risk and limit loan losses within the portfolio.
These efforts are reflected in the decreased non-performing loan totals as
of 9/30/94. Non-performing loans totals are .56% of Total Loan Portfolio
compared to peer group banks of .67%.
Categorization of a loan as non-performing is not in itself a reliable
indicator of potential loan loss. Other factors, such as the value of
collateral securing the loan and the financial condition of the borrower
must be considered in judgments as to potential loan loss. Loans that
represent a potential material loss to First Citizens are adequately
reserved for in the provision for loan losses.
The following table sets forth the balance of non-accrual loans as of
September 30, for the years indicated:
Non Performing Loans
September 30
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
9/30/94 $ 816 $ 150 $ 966
9/30/93 $1,399 $ 545 $1,944
9/30/92 $1,845 $ 566 $2,411
9/30/91 $2,255 $1,022 $3,277
9/30/90 $ 464 $ 848 $1,312
<PAGE>
<PAGE>16
The portfolio contains no loans renegotiated to provide a reduction or
deferral of interest or principal because of a deterioration in the
financial position of the borrower as of September 30 for the years under
comparison.
Loan Loss Experience and
Reserves for Loan Losses
During the quarter just ended activity to the Reserve account
consisted of (1) Loans charged off $44,000, (2) Recovery of loans
previously charged off $48,000, and (3) Additions to reserve $102,000.
Charged off loan totals as a percentage of total loans reflect a decrease
when comparing to previous years. This is evidence of fewer problem loans
within the portfolio. Efforts continue to ensure sound underwriting
principals and thereby reduce the potential for future loan losses. Charge
off projections for 1994 are $200,000 or .12% of total loans. The Reserve
balance at quarter-end 1994 decreased slightly from quarter-end balance in
1993. The decrease is justified based on improved quality of the
portfolio. A quarterly analysis of the adequacy of the reserve indicates
the need for a lesser amount despite growth in excess of 14%. An increase
in the balance in 1991 reflected increased problem assets.
An analysis of the allocation of the allowance for Loan Losses is made
on a fiscal quarter at the end of the month, (February, May, August, and
November) and reports are presented to the board at its monthly meeting.
The primary purpose of the analysis is to assure that the existing
allowance is adequate for future losses.
A review of the loan portfolio to identify risks will cover a minimum
of 70% of the gross portfolio, less installment loans, on an annual basis.
In addition, any single note or series of notes directly or indirectly
related to one borrower which equals 25% of the bank's legal lending limit
will be included in the review automatically.
For analysis purposes, the loan portfolio is separated into four
classifications:
1. Pass - Loans that have been reviewed and graded high quality or no
major deficiencies.
2. Watch - Loans which, because of unusual circumstances, need to be
supervised with slightly more attention than is common.
3. Problem - Loans which require additional collection efforts to
liquidate both principal and interest.
4. Specific Allocation - Loans, in total or in part, in which a future
loss is possible.
Examples of factors taken into consideration during the review are:
Industry or geographic economic problems, sale of business, change of or
disagreement among management, unusual growth or expansion of the business,
past due status of either principal or interest for 90 days, placed on
non-accrual or renegotiated status, declining financial condition, adverse
change in personal life, frequent overdrafts, lack of cooperation by
borrower, decline in marketability or market value of collateral,
insufficient cash flow, and inadequate collateral values.
Since all future losses cannot be identified with complete accuracy,
in addition to the specific allocation to individual loans, a minimum of
70% of the allowance for Loan and Lease Loss Reserve must be allocated to
general risk (unallocated).
<PAGE>
<PAGE>17
Management estimates of approximate charge-offs for period ending
12/31/94:
Domestic Amount (in thousands)
Commercial, Financial & Agricultural $ 50
Real Estate-Construction 0
Real Estate- Mortgage 30
Installment Loans to individuals & credit cards 120
Lease financing 0
Foreign N/A
01/01/94 through 12/31/94 Total $200
The book value of repossessed real property held by Bancshares was
$788,000 and $2,123,000 at 9/30/94 and 9/30/93 respectively. The balance
was significantly reduced as a result of the sale of property in December,
1993 valued at $1,055,000. The only property held on the books of
Bancshares is a strip shopping center valued at $685,000. The remaining
balance held in repossessed real property represents other real estate held
by First Citizens National Bank with exception to property purchased for
expansion of the branch located on Highway 51 Bypass valued at $151,000.
Other Real Estate Owned by the Bank has reduced significantly as a result
of intensified efforts in this area.
Accounting for adjustments to the value of Other Real Estate when
recorded subsequent to foreclosure is accomplished on the basis of an
independent appraisal. The asset is recorded at the lesser of its
appraised value or the loan balance. Any reduction in value is charged to
the allowance for possible loan losses. All other real estate parcels are
appraised annually and the carrying value is adjusted to reflect the
decline, if any, in its realizable value. Such adjustments are charged
directly to expense.
The following table summarizes the monthly average of net loans
outstanding; changes in the reserve for loan losses arising from loans
charged off and recoveries on loans previously charged off; additions to
the reserve which have been charged to operating expenses; and the ratio of
net loans charged off to average loans outstanding.
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
Quarter ending September 30
(in thousands)
1994 1993 1992 1991 1990
Average Net Loans
Outstanding Net of ICNE $167,373 $145,567 $138,633 $139,560 $129,546
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 1,879 $ 1,920 $ 1,757 $ 2,053 $ 1,570
Loan Charge-Offs $ (44) $ (56) $ (112) $ (121) $ (72)
Recovery of Loans
Previously Charged Off $ 48 $ 67 $ 138 $ 30 $ 21
Net Loans Charged Off $ 4 $ 11 $ 26 $ (91) $ (51)
Additions to Reserve
Charged to Operating
Expense $ 102 $ 119 $ 104 $ 158 $ 219
Balance at End of
Period $ 1,985 $ 2,050 $ 1,887 $ 2,120 $ 1,738
Ratio of Net Charge-
Offs during quarter
to Average Net Loans
Outstanding .002% .008% (.19%) (.07%) (.04%)
<PAGE>
<PAGE>18
The following table will identify charge-offs by category for the
period ending 9/30/94 and 9/30/93.
Charge-Offs: 1994 1993
Domestic
Commercial, Financial and Agricultural $ 15 $ 0
Real Estate - Construction 0 0
Real Estate - Mortgage 1 20
Installment Loans to Individuals 23 30
Lease Financing 0 0
Credit Cards 5 6
Total $(44) $(56)
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 4 $ 41
Real Estate - Construction 0 0
Real Estate - Mortgage 3 3
Installment Loans to Individuals 35 20
Lease Financing 0 0
Credit Cards 6 3
Total 48 67
Net $ 4 $ 11
Investment Securities
The book value of listed investment securities as of the dates
indicated are summarized as follows:
Composition of Investment Securities
September 30
(in thousands)
1994 1993 1992 1991 1990
U. S. Treasury &
Government Agencies $43,457 $47,317 $45,805 $43,162 $45,048
State & Political
Subdivisions $12,644 $11,259 $ 7,523 $ 4,871 $ 7,652
All Others $ 7,245 $ 5,459 $ 4,241 $ 4,852 $ 5,391
TOTALS $63,346 $64,035 $57,569 $52,885 $58,091
The Investment Portfolio serves a primary role in the overall context
of balance sheet management. It provides a stable, long-term income stream
and is managed in such a way as to enhance the company's asset/liability
management program. Investment Securities serve as collateral for
government and other public fund deposits. Securities contained within the
portfolio consist primarily of U.S. Treasury, and other U. S. Government
Agency securities and tax exempt obligations of states and political
subdivisions. All other investments contained therein comprise
approximately $12,644 (11.43%) of the portfolio. Sound Asset/liability
management requires management to continuously monitor the need for tax
free investments as well as set guidelines for the term of investment
maturities. Tax Free Investments make up $12,644,000 (18.99%) of the
investment portfolio. This total has increased over 66% since 1992 as a
conscious effort to reduce the bank's tax liability. In light of current
rising interest rates, caution will be used when purchasing investments
with maturities longer than 7 years.
Investments for the first half of 1994 were curtailed by strong loan
demand and the implementation of the Financial Accounting Standard No. 115
which addresses Accounting for Certain Investments in Debt and Equity
Securities. FASB 115 requires that banks maintain separate investment
portfolios for Held-To-Maturity, Available-For-Sale, and Trading Account
investments. As of 9/30/94 approximately 33% of total investments were
booked in the Available-For-Sale portfolio. The remaining 67% was placed
in the Held-To-Maturity category. FASB 115 also requires banks to mark to
<PAGE>
<PAGE>19
market the Available for Sale and Trading account investments at the end of
each calendar quarter. Held-To-Maturity investments are stated at
amortized cost on the balance sheet. Mark to Market resulted in a negative
after tax impact on the capital account of the consolidated balance sheet
at 9/30/94 of $130,000.
During the quarter just ended additions made to the portfolio included
$1,500,000 in U. S. Treasury Notes, and $1,000,000 in FNMA (Mortgage-
backed securities). A review of activity for this period reflects neither
sales nor transfers between categories of the investment portfolio. The
Trading Account as reflected on the consolidated balance sheet maintained
an average balance of zero for the quarter. Securities contained in the
Trading Account consist of U. S. Treasury Bills which were purchased in the
second quarter by the bank's subsidiary Financial Plus, Inc.
As of September 30, 1994, the securities portfolio held $13,902,000 in
"Derivative" products which consisted of $6,433,000 CMO's (Collateralized
Mortgagee Obligations), $4,992,000 Step-Up Bonds, $2,000,000 in CMT
(Constant Maturity Treasury) Bonds, and $477,000 in strip coupons.
"Derivatives" are non-traditional securities that derive value from the
price action of other assets. Total investment in Derivative products
constitutes 22% of the investment portfolio. Derivative products contained
in the Bank's Investment Portfolio are Government Backed securities bearing
short maturities. These investments do not represent a high level of
concentration or an abnormal amount of market risk to the overall
portfolio.
Maturities in the Investment Portfolio are made up of 14.79% within
one year and 62.36% after one year and within five years. Policy provides
for 20% maturities on an annual basis. Management has made a conscious
effort to shorten maturities based on the current interest rate environment
and mark to market rules effective January 1, 1994. As of January 1, 1994,
the portfolio was structured to insure that future sales of securities
prior to maturity would be accomplished from either the Trading or Held for
Sale accounts. Should management or the Board determine that a new
investment strategy is warranted by then current economic conditions,
policy will be reviewed and changes considered, keeping in mind the
limitations of FASB 115. In the past, securities have been sold from the
investment portfolio prior to maturity only when it was evident that the
sale was in the best interest of the bank.
The portfolio currently contains the following unrealized gains and
unrealized losses in each investment category:
Investment Securities
Unrealized Gains/(Losses)
September 30, 1994
Unrealized Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury Securities 1 120 (119)
Obligations of U.S. Government
Agencies and Corp 14 885 (871)
Obligations of States and
Political Subdivisions 13 265 (252)
Other Securities 19 74 (55)
Totals 47 1,344 (1,297)
Yields on Investment Securities decreased the twelve month period
ending 9/30/94 from 5.84% to 5.78%. This is reflective of the overall
interest rate market. Also reflected in the following table is the results
of efforts to shorten maturities within the portfolio:
<PAGE>
<PAGE>20
Maturing and Portfolio Percentages on Securities September 30, 1994
(in thousands)
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount % Amount % Amount % Amount %
9/30/94 $ 9,368 14.79% $39,502 62.36% $12,876 20.33% $ 1,600 2.52%
9/30/93 $13,182 20.59% $35,432 80.72% $ 6,693 11.67% $ 8,728 10.35%
9/30/92 $17,230 29.93% $37,131 64.50% $ 2,717 4.72% $ 491 .85%
9/30/91 $18,784 35.52% $25,456 48.13% $ 5,322 10.06% $ 3,323 6.29%
Maturity and Yield on Securities September 30, 1994
(in thousands)
<TABLE>
Maturing
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government Agencies $ 5,403 6.08% $29,682 6.01% $ 7,372 5.60% $ 1,000 5.62%
State and Political
Subdivisions* $ 1,365 6.06% $ 7,520 6.95% $ 3,759 6.73% $ - -
All Others $ 2,600 6.84% $ 2,300 6.08% $ 1,745 5.50% $ 600 9.14%
TOTALS $ 9,368 6.30% $39,502 6.19% $12,876 5.92% $ 1,600 6.93%
</TABLE>
*Yields on tax free investments are stated herein on a taxable equivalent
basis.
Investment Securities
Held to Maturity Available for Sale
September 30, 1994
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 5,056 $ 4,937 $ 6,564 $ 6,446
U.S. Government agency
and corporation obligations
(exclude mortgage-backed
securities):
Issued by U.S. Government
agencies (2) 1 1 0 0
Issued by U.S. Government-
sponsored agencies (3) 19,070 18,431 2,500 2,508
Securities issued by states
and political subdivisions
in the U.S.:
General obligations 9,117 8,888 3,004 3,005
Revenue obligations 1,130 1,055 124 141
Industrial development and
similar obligations 0 0 0 0
Mortgage-backed securities (MBS):
Pass-through securities:
Guaranteed by GNMA 647 649 1,217 1,173
Issued by FNMA and FHLMC 1,465 1,451 0 0
Privately-issued 0 0 0 0
<PAGE>
<PAGE 21>
CMOs and REMICs:
Issued by FNMA and FHLMC 5,064 4,868 822 769
Privately-issued and
collateralized by MBS
issued or guaranteed by
FNMA, FHLMC, or GNMA 900 909 0 0
All other privately-issued 0 0 0 0
Other debt securities:
Other domestic debt securities 2,290 2,268 1,051 1,061
Foreign debt securities 0 0 0 0
Equity securities:
Investments in mutual funds 0 0 0 0
Other equity securities with
readily determinable fair
values 0 0 2,066 2,048
All other equity securities (1) 0 0 0 0
Total 44,740 43,457 17,348 17,151
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool
Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than pass-through securities, CMOs, and
REMICs) issued by the Farm Credit System, the Federal Home Loan Bank
System, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Financing Corporation, Resolution
Funding Corporation, the Student Loan Marketing Association, and the
Tennessee Valley Authority.
Return on Equity and Assets
An analysis of Percentage of Net Income to Average Total Assets
reflects sustained improved earnings when comparing 1990 through 1994
listed in the table. Return on Assets as of September 30, 1994 was .95%
compared to .93%, .65%, .63% and .68% for the previous four years
respectively. Improved earnings are reflective of an ongoing effort to
control expenses and maximize earnings to achieve earnings comparable to
peer group banks. The Company's Strategic Plan addresses objectives to
sustain improved earnings, maintain a quality loan and investment portfolio
and to maintain market share by providing quality customer service. The
bank's budget based incentive plan also requires a 1.15% ROA at 12/31/94 if
managers and employees are to realize maximum benefits. Budget projections
for Return on Assets at 12/31/94 is a minimum of one percent.
A 10 percent stock dividend declared on October 31, 1992 was payable
to shareholders of record December 15, 1992, thereby increasing outstanding
shares. Earning per share were adjusted accordingly. During the third
quarter, 1993, a 2.5 for 1 stock split was declared to holders of record as
of October 15, 1993 on the common capital stock of Bancshares. The number
of shares outstanding increased proportionately with no effect to capital.
The percentage of Dividends declared per common share to net income
per common share was .78 compared to .74 for the same period in the prior
year. Dividends at 9/30/93 were restated to reflect the stock split.
<PAGE>
<PAGE>22
An amendment to the Company's Charter by the shareholders in April,
1994 approved an increase in the number of shares authorized from 750,000
to 2,000,000.
The table below presents operating ratios for First Citizens
Bancshares, Inc. for the quarter ending September 30th (not annualized):
1994 1993 1992 1991 1990
Percentage of Net Income to:
Average Total Assets .95% .93% .65% .63% .68%
Average Shareholders Equity 10.29% 10.78% 7.92% 8.17% 9.54%
Percentage of Dividends Declared
Per Common Share to Net Income
Per Common Share 24.19% 23.96% 30.21% 30.51% 19.92%
Percentage of Average Shareholders'
*Equity to Average Total Assets 9.98% 9.40% 8.91% 8.61% 7.78%
*Includes Average Reserve for Loan Loss Account
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is the ability to meet the needs of our customer base for
loans and deposit withdrawals by maintaining assets which are convertible
to cash equivalents with minimal exposure to interest rate risk. The
liquidity ratio which is determined by a comparison of net liquid assets to
net liabilities remains around 10%. The average Loan to Deposit ratio for
the second quarter was 84% excluding Repurchase Agreements totaling $15,977
and $2.2 million in loan maturities matched with Federal Home Loan Bank
Funds. The low interest rate environment placed pressure on our customers
to seek investment options such as annuities, mutual funds and stocks while
encouraging loan customers to refinance, make purchases and expand their
business thereby having an impact on the banks liquidity and loan to
deposit ratios. Interest rate increases during 1994 appear to be reversing
this trend, as consumers take advantage of higher rates offered on bank
CD's. Deposits of $100,000 and over were more volatile and interest
sensitive than the smaller deposits that make up the major portion of the
bank's deposit base. Another factor which must be considered in the
current interest rate situation is the inclination of customers to lock in
loan rates for longer periods of time. However, the stability of our
deposit base, sound asset/liability management, a strong capital base and
quality assets assure us of adequate liquidity. Other sources that are
available to meet liquidity needs are (1) Loans in excess of $32,312,000
and Investment Securities totaling $19,368,000 maturing within one year (2)
Lines of Credit with correspondent banks totaling $7.5 Million and (3)
Membership with the Federal Home Loan Bank, thereby opening up an
additional liquidity source totaling $11.5 Million.
Interest rate sensitivity varies with different types of interest-
earning assets and interest-bearing liabilities. Overnight federal funds,
on which rates change daily, and loans which are tied to the prime rate are
much more sensitive than long-term investment securities and fixed rate
loans. The shorter term interest sensitive assets and liabilities are the
key to measurement of the interest sensitivity gap. Minimizing this gap is
a continual challenge in the present interest rate environment. This is
the primary objective of the asset/liability management program.
The following condensed gap report provides an analysis of interest
rate sensitivity of earning assets and costing liabilities. First Citizens
Asset-Liability Management Policy provides that the cumulative gap as a
percent of assets shall not exceed 10% for categories up to 12 months and
one to two year categories and 20% for categories in excess of two years.
As evidenced by the following table, our current position is significantly
below this level, with annual income exposure determined to be $80,000 to
$90,000.
<PAGE>
<PAGE>23
<TABLE>
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH AND DUE FROM
CURRENCY AND COIN 1,774 - - - - - - - 1,774
DUE FROM BANKS 2,498 - - - - - - - 2,498
CASH ITEMS 3,922 - - - - - - - 3,922
MONEY MARKET 133 133 - - - - -
TOTAL CASH & DUE FROM 8,327 133 - - - - - - 8,194
INVESTMENTS
INVESTMENTS 61,891 9,013 - 4,623 - 2,848 - 32,006 13,401
TOTAL INVESTMENTS 61,891 9,013 - 4,623 - 2,848 - 32,006 13,401
LOANS
COMMERCIAL FIXED 21,860 - 4,224 572 1,227 2,060 2,763 1,728 9,286
COMMERCIAL VARIABLE 23,818 23,818 - - - - - - -
REAL ESTATE VARIABLE 20,137 20,137 - - - - - - -
REAL ESTATE FIXED 79,276 - 2,931 516 1,002 4,614 3,121 5,664 61,428
HOME EQUITY LOANS 4,644 4,644 - - - - - - -
SEC MORTGAGE 192 - 192 - - - - - -
INSTALLMENT LOANS 17,838 - 235 258 269 653 1,390 3,636 11,397
INSTALLMENT VARIABLE 30 30 - - - - - - -
FLOOR PLAN 888 888 - - - - - - -
CREDIT CARDS 1,572 - - 786 - - 786 - -
OVERDRAFTS 244 - 244 - - - - - -
NON-ACCRUAL LOANS 816 - - - - - - - 816
FHLB LOANS 2,170 - - - - - - - 2,170
TOTAL LOANS 173,485 49,517 7,826 2,132 2,498 7,327 8,060 11,028 85,097
LOAN LOSS RESERVE 1,985 - - - - - - - 1,985
NET LOANS 171,500 49,517 7,826 2,132 2,498 7,327 8,060 11,028 83,112
FED FUNDS SOLD - - - - - - - - -
TOTAL EARNING ASSETS 233,391 58,530 7,826 6,755 2,498 10,175 8,060 43,034 96,513
OTHER ASSETS
BUILDING, F&F AND LAND 7,970 - - - - - - - 7,970
OTHER REAL ESTATE 130 - - - - - - - 130
OTHER ASSETS 4,049 - - - - - - - 4,049
TOTAL OTHER ASSETS 12,149 - - - - - - - 12,149
TOTAL ASSETS 253,867 58,663 7,826 6,755 2,498 10,175 8,060 43,034 116,856
DEMAND DEPOSITS
BANKS 39 - - - - - - - 39
DEMAND DEPOSITS 23,464 - - - - - - - 23,464
TOTAL DEMAND 23,503 - - - - - - - 23,503
</TABLE>
<PAGE>
<PAGE>24
<TABLE>
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS ACCOUNTS
REGULAR SAVINGS 18,365 - - - - - - - 18,365
NOW ACCOUNT 25,072 - - - - - - - 25,072
IMF-MMDA 12,801 - - - - - - - 12,801
HIGH YIELD ACCOUNT 2,525 - - - - - - - 2,525
GENERATIONS GOLD 4,282 - - - - - - - 4,282
TOTAL SAVINGS 63,045 - - - - - - - 63,045
TIME DEPOSITS
FLEX-CD 80,474 - 5,915 5,404 4,223 13,536 20,910 13,972 16,514
LARGE CD-FLEX 18,797 - 2,100 773 3,073 2,996 4,671 1,650 3,534
IRA-FLOATING 239 239 - - - - - - -
IRA-FIXED 16,517 - 493 215 248 1,099 2,690 3,597 8,175
CHRISTMAS CLUB 349 - - 349 - - - - -
TOTAL TIME 116,376 239 8,508 6,741 7,544 17,631 28,271 19,219 28,223
TOTAL DEPOSITS 202,924 239 8,508 6,741 7,544 17,631 28,271 19,219 114,771
SHORT TERM BORROWINGS
FED FUNDS PURCHASED 2,950 2,950 - - - - - - -
TT&L 978 978 - - - - - - -
SECURITIES SOLD-SWEEP 9,980 9,980 - - - - - - -
SECURITIES SOLD-FIXED 5,997 - 595 1,759 103 1,951 1,589 - -
FHLB-SHORT TERM 4,600 4,600 - - - - - - -
FHLB-LIBOR INVESTMENT 1,925 - - - 1,925 - - - -
FHLB-LONG TERM 2,258 - - - - - - - 2,258
TOTAL SHORT TERM BORR. 28,688 18,508 595 1,759 2,028 1,951 1,589 - 2,258
OTHER LIABILITIES
OTHER LIABILITIES 1,284 - - - - - - - 1,284
TOTAL OTHER LIAB. 1,284 - - - - - - - 1,284
TOTAL LIABILITIES 232,896 18,747 9,103 8,500 9,572 19,582 29,860 19,219 118,313
CAPITAL
COMMON STOCK 2,000 - - - - - - - 2,000
SURPLUS 4,000 - - - - - - - 4,000
UNREALIZED GAIN (LOSSES) -118 - - - - - - - -118
UNDIVIDED PROFITS 15,089 - - - - - - - 15,089
TOTAL CAPITAL 20,971 - - - - - - - 20,971
TOTAL LIAB. & CAPITAL 253,867 18,747 9,103 8,500 9,572 19,582 29,860 19,219 139,284
GAP (SPREAD) - 39,916 -1,277 -1,745 -7,074 -9,407 21,800 23,815 22,428
GAP % TOTAL ASSETS - 15.72 -0.50 -0.69 -2.79 -3.71 8.59 9.38 -8.83
CUMULATIVE GAP - 39,916 38,639 36,894 29,820 20,413 1,387 22,428 -
CUMM. GAP % TOTAL ASSETS - 15.72 15.22 14.53 11.75 8.04 0.55 8.83 -
SENSITIVITY RATIO - 3.13 2.39 2.01 1.65 1.31 0.99 1.20 1.00
</TABLE>
<PAGE>
<PAGE>25
Capital Resources
Total shareholders' equity (including Loan Loss Reserve) of First
Citizens Bancshares as of September 30, 1994, was $23,600,000. Total
capital (including Reserve for Loan Losses) as a percentage of total assets
for the quarter ending September 30 is presented in the following table for
the years indicated:
1994 1993 1992 1991 1990
9.97% 9.01% 9.13% 8.72% 8.44%
Increasing the capital base of First Citizens is a vital part of
strategic planning. Although the present capital to asset ratio remains in
excess of the level required by Regulators for banks our size, management
is aware of the importance of strengthening this base.
Risk-based capital focuses primarily on broad categories of credit
risk and incorporates elements of transfer, interest rate and market risks.
The calculation of risk-based capital ratio is accomplished by dividing
qualifying capital by weighted risk assets. Effective January 1, 1993, the
minimum risk-based capital ratio increased to 8.00%. At least one-half or
4.00% must consist of core capital (Tier 1), and the remaining 4.00% may be
in the form of core (Tier 1) or supplemental capital (Tier 2). Tier 1
capital/core capital consists of common stockholders equity, qualified
perpetual stock and minority interests in consolidated subsidiaries. Tier
2 Capital/Supplementary capital consists of the allowance for loan and
lease losses, perpetual preferred stock, term subordinated debt, and other
debt and stock instruments.
Bancshares has historically maintained capital in excess of minimum
levels established by the Federal Reserve Board. The Tier I Capital ratio
as of September 30, 1994 was 12.43%. Total Risk Based Capital as of
9/30/94 was 13.48%. With the exception of the Reserve for Loan and Lease
Losses, all capital is Tier 1 level. Growth in capital will be maintained
through retained earnings. There is no reason to assume that income levels
will not be sufficient to maintain an adequate capital ratio.
Common Stock
A stock Repurchase program has been approved by the Board of Directors
effective the fourth quarter of 1994. The purpose of this action is to
acquire shares to service the Dividend Reinvestment and Optional Stock
Purchase Programs. Under the terms of the program, the Company will
repurchase up to $200,000 of Bancshares' stock in a calendar quarter on a
first come, first served basis.
Effects of Inflation
Inflation has a significant impact on the growth of total assets in
the banking industry, resulting in a need to increase equity capital in
order to maintain an appropriate equity to asset ratio.
Operating expenses are directly affected by increases in salaries and
employee benefits, supplies, legal, audit and professional fees, utilities,
advertising and insurance. Now that interest rates have been deregulated,
inflation is the major key to the cost of acquiring and retaining deposits.
A well managed asset/liability management program can maximize net
interest income; and at the same time, reduce the impact of inflation on
earnings.
<PAGE>
<PAGE>26
Part II - Other Information
Item 1. Legal Proceedings
Information dealing with legal proceedings as disclosed in Part I, Item 1,
in footnote five (5) of the notes to financial statements is incorporated
herein by reference.
Item 2. Changes in Securities
Dividends paid to Shareholders of First Citizens Bancshares, Inc. are
funded by dividends to the Bank Holding Company from First Citizens
National Bank. Federal Reserve Bank regulators would be critical of a
bank holding company that pays cash dividends that are not covered by
earnings or that are funded from borrowings or unusual or non-recurring
gains, such as the sale of property or assets. Under rules set forth by
the Comptroller of the Currency in Interpretive Ruling 7.6100, the board of
directors of a national bank may declare dividends as it may judge to be
expedient, subject to statutory limitations which deal with the balance of
the surplus account, sufficiency of net profits, dividend payments on
preferred stock, and default of any assessment due to the Federal Deposit
Insurance Corporation.
Item 6(b) No reports on Form 8-K were filed for the quarter ended 9/30/94.
<PAGE>
<PAGE>27
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
First Citizens Bancshares, Inc.
(Registrant)
Date: November 10, 1994 /s/Stallings Lipford
Stallings Lipford, Chairman, CEO
Date: November 10, 1994 /s/Jeff Agee
Jeff Agee, Vice President &
Chief Financial Officer
First Citizens National Bank
(Principal Subsidiary)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C> <C> <C>
<PERIOD-TYPE> QTR-3 QTR-3 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1994
<PERIOD-END> SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1994
<CASH> 8,665,000 9,281,000 8,665,000 9,281,000
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 18,606,000 0 18,606,000 0
<INVESTMENTS-CARRYING> 44,740,000 64,035,000 44,740,000 64,035,000
<INVESTMENTS-MARKET> 0 0 0 0
<LOANS> 173,485,000 150,708,000 173,485,000 150,708,000
<ALLOWANCE> 1,985,000 2,050,000 1,985,000 2,050,000
<TOTAL-ASSETS> 256,582,000 236,142,000 256,582,000 236,142,000
<DEPOSITS> 202,872,000 188,926,000 202,872,000 188,926,000
<SHORT-TERM> 24,505,000 23,200,000 24,505,000 23,200,000
<LIABILITIES-OTHER> 1,422,000 2,678,000 1,422,000 2,678,000
<LONG-TERM> 4,183,000 64,000 4,183,000 64,000
<COMMON> 712,000 2,815,000 712,000 2,815,000
0 0 0 0
0 0 0 0
<OTHER-SE> 22,888,000 18,559,000 22,888,000 18,559,000
<TOTAL-LIABILITIES-AND-EQUITY> 256,582,000 236,142,000 256,582,000 236,142,000
<INTEREST-LOAN> 4,031,000 3,653,000 11,211,000 10,491,000
<INTEREST-INVEST> 933,000 966,000 2,716,000 3,104,000
<INTEREST-OTHER> 11,000 13,000 78,000 65,000
<INTEREST-TOTAL> 4,975,000 4,632,000 14,005,000 13,660,000
<INTEREST-DEPOSIT> 1,863,000 1,650,000 5,087,000 4,926,000
<INTEREST-EXPENSE> 2,140,000 1,821,000 5,733,000 5,442,000
<INTEREST-INCOME-NET> 2,835,000 2,811,000 8,272,000 8,218,000
<LOAN-LOSSES> 102,000 119,000 301,000 355,000
<SECURITIES-GAINS> 0 22,000 0 35,000
<EXPENSE-OTHER> 2,100,000 2,160,000 6,349,000 6,335,000
<INCOME-PRETAX> 1,134,000 1,064,000 3,420,000 3,162,000
<INCOME-PRE-EXTRAORDINARY> 757,000 740,000 2,336,000 2,187,000
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 757,000 740,000 2,336,000 2,187,000
<EPS-PRIMARY> 107 106 330 312
<EPS-DILUTED> 107 106 330 312
<YIELD-ACTUAL> 479 524 466 510
<LOANS-NON> 814,000 1,399,000 814,000 1,399,000
<LOANS-PAST> 158,000 518,000 158,000 518,000
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 3,274,000 4,183,000 3,274,000 4,183,000
<ALLOWANCE-OPEN> 1,879,000 1,920,000 1,676,000 1,703,000
<CHARGE-OFFS> 44,000 56,000 118,000 151,000
<RECOVERIES> 48,000 67,000 126,000 143,000
<ALLOWANCE-CLOSE> 1,985,000 2,050,000 1,985,000 2,050,000
<ALLOWANCE-DOMESTIC> 1,985,000 2,050,000 1,985,000 2,050,000
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
