<PAGE>1
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 March 31, 1997 Commission File Number 0-11709
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 743,163 shares outstanding as of March 31, 1997 (net of treasury
stock).
<PAGE>2
PART I -FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>3
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(stated in thousands)
March 31, December 31,
1997 1996
(Unaudited) (Note)
ASSETS
Cash and due from banks $13,819 $12,507
Federal funds sold $0 $1,000
Investment securities
Trading Investments-stated at market $0 $0
Held to maturity-amortized cost-fair
value of $32,578 at March 31,
1997 and $28,097 at December 31,
1996. $32,540 $28,059
Available for sale-stated at market 48,022 $47,688
Loans (Excluding unearned income of
$1,519 at March 31, 1997 and
$1,521 at December 31, 1996) $214,560 $211,389
Less: Allowance for loan losses $2,446 $2,282
Net Loans $212,114 $209,107
Premises and equipment $8,235 $8,135
Other assets $8,670 $6,575
TOTAL ASSETS $323,400 $313,071
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits $256,875 $256,414
Securities sold under Agreements
to Repurchase $19,495 $21,225
Federal Funds Purchased & Other
Short Term Borrowing $5,925 $0
Long term debt-note 3 (includes
long term FHLB) $7,457 $2,997
Notes Payable of Employee Stock
Ownership Plan $0 $0
Other liabilities $3,478 $2,832
TOTAL LIABILITIES $293,230 $283,468
Contingent Liabilities
Stockholders' Equity
Common stock, $1 par value-
2,000,000 authorized; 743,326
issued and outstanding at March
31, 1997; 741,516 issued and
outstanding at December 31, 1996 $743 $741
Surplus $10,195 $10,097
Retained earnings $19,494 $18,679
Obligation of Employee Stock
Ownership Plan $0 $0
Net unrealized gains (losses)
on available for sale $(254) $95
Total Common Stock and
Retained Earnings $30,178 $29,612
Less-163 treasury shares, at
cost at March 31, 1997 and 40
shares at December 31, 1996 ($8) ($9)
TOTAL STOCKHOLDERS' EQUITY $30,170 $29,603
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $323,400 $313,071
NOTE: The balance sheet at December 31, 1996 has been taken from
the audited financial statements at that date and condensed.
<PAGE>4
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(stated in thousands)
Three Month Periods Ended
March 31, March 31,
1997 1996
INTEREST INCOME
Interest and fees on loans $4,886 $4,685
Interest on investment securities:
Taxable $1,140 $1,082
Tax-exempt $121 $125
Other interest income $58 $28
Lease financing income $0 $1
TOTAL INTEREST INCOME $6,205 $5,921
INTEREST EXPENSE
Interest on deposits $2,689 $2,564
Other interest expense $293 $295
TOTAL INTEREST EXPENSE $2,982 $2,859
NET INTEREST INCOME $3,223 $3,062
Provision for loan losses $160 $105
Net interest income
after provision $3,063 $2,957
Other Income
Securities gains (losses) $13 $136
Other income $988 $762
Total Other Income $1,001 $898
Other expenses $2,357 $2,402
Net income before
income taxes $1,707 $1,453
Provision for income taxes $590 $506
Net Income $1,117 $947
Earnings Per Share $1.51 $1.29
Weighted average number of
shares outstanding 741690 733630
The accompanying notes are an integral part of these financial statements.
<PAGE>5
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, STATED IN THOUSANDS)
Three Months Ended March 31
1997 1996 1995
OPERATING ACTIVITIES
Net cash provided by
operating activities $ 161 $ 2,217 $ 525
INVESTING ACTIVITIES
Proceeds of maturities
of held to maturity
securities $4,499 $ 2,309 $ 1,149
Purchase of held to
maturity investments ($8,990) ($ 1,500) ($10,000)
Proceeds from maturities
of available for sale
securities $3,103 $ 1,191 $ 0
Proceeds from sales of
available for sale
securities $1,000 $ 3,100 $ 0
Purchase of available
for sale securities ($4,860) ($ 8,660) ($ 2,133)
Increase in loans-net ($3,167) ($ 5,327) ($ 5,673)
Purchases of premises
and equipment ($ 349) ($ 64) ($ 594)
Net Cash provided by
investing activities ($8,764) ($ 8,951) ($17,251)
FINANCING ACTIVITIES
Net Increase (Decrease)
in Demand & Savings
Accounts $5,237 ($ 1,300) $ 4,430
Increase (Decrease) in
Time Accounts ($4,776) $ 1,992 $16,786
Increase (Decrease) in
Long term Debt $4,460) ($ 545) $ 2,658
Treasury Stock
Transactions $ 1 ($ 3) $ 0
Proceeds from Sale of
Common Stock $ 100 $ 76 $ 228
Cash Dividends Paid ($ 302) ($ 242) ($ 218)
Net Increase (Decrease)in
Short Term Borrowings $4,195 $ 700 $ 270
Net Cash provided (used)by
Financing Activities $8,915 $ 3,278 $15,294
Increase (Decrease) in
Cash & Cash
Equivalents $ 312 ($ 3,456) ($ 1,432)
Cash and Cash
Equivalents at
beginning of year $13,507 $13,544 $12,684
Cash and Cash Equivalents
at end of year $13,819 $10,088 $11,252
Cash Payments made for interest and income taxes during the years
presented are as follows:
1997 1996 1995
Interest $3,106 $2,913 $2,233
Income Taxes $ 263 $ 332 $ 237
NOTE: Net cash provided by operating activities was lower in 1997 due to
the purchase of split dollar life insurance policies for our officers.
These policies are classified as other assets on the balance sheet
statements.
<PAGE>6
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
NOTE 1-CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, the consolidated
statements of income for the three month periods ended March 31, 1997,
1996, and 1995, and the consolidated statements of cash flows for the
three month periods then ended have been prepared by the company with-
out 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 March 31, 1997 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, 1997. For further
information, refer to the consolidated financial statements and foot-
notes thereto included in the company's annual report on Form 10-K for
the year ended December 31, 1996.
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-SHORT TERM BORROWINGS
(stated in thousands)
03/31/97 03/31/96
Amount outstanding-end of period $25,420 $20,445
Weighted average rate of outstanding 4.63% 4.41%
Maximum amount of borrowings at month end $25,420 $22,424
Average amounts outstanding for period $21,054 $19,926
Weighted average rate of average amounts 4.39% 4.51%
NOTE 4-LONG TERM DEBT (stated in thousands)
Long term debt is comprised of Federal Home Loan Bank Borrowings and finance
company debt (organized in 1997). These borrowings are maturity matched with
specific loans and investments. The average volume, rate and maturity are as
follows:
Average Average Average
Volume Rate Maturity
FHLB Borrowings $1,012 5.48% 10 years
FHLB Borrowings $2,029 5.75% 7 years
FHLB Borrowings $ 897 5.57% 2 years
Finance Company Debt $ 333 6.50% 2 years
<PAGE>7
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
MARCH 31, 1997
NOTE 5-STATEMENT OF CASH FLOWS
(stated in thousands)
March March March
1997 1996 1995
Actual payments made
during the periods:
Interest $3,106 $2,913 $2,233
Income taxes $ 263 $ 332 $ 237
NOTE 6-CONTINGENT LIABILITIES
There are no material pending litigations as of the current
reportable date that would result in a liability.
NOTE 7-INVESTMENT SECURITIES
(stated in thousands)
The difference between book values of investment securities and
market values at March 31, 1997 and December 31, 1996, total
$38,000 and $38,000 respectively. FASB 115 requires banks to
classify securities into Held to Maturity, Available for Sale,
and Trading. First Citizens has $0 in the trading account. The available
for sale securities values are adjusted to market every quarter and the
adjustments flow to the capital section (net of tax). The Held to Maturity
securities are stated at amortized cost. The available for sale securities
reflects a negative $423,000 decrease for the quarter ending 1997 resulting
in a net of tax adjustment of $254,000 to capital account. These movements
can fluctuate with the bond market.
First Citizens has not engaged in any derivative activities as defined
by paragraphs 5-7 of FASB 119 for any of the reported periods.
NOTE 8-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. The combined Tier 1 and Tier 2 Ratio are 13.95% and
15.08% respectively.
NOTE 9-DEFERRED INCOME TAXES
(stated in thousands)
First Citizens adopted FASB 109 as of January 1, 1993. The
deferred tax liability account reflects an asset totaling
$483. The timing differences mainly consist of Reserve for
Loan Loss Deductions and FASB 115.
NOTE 10-RESERVE FOR LOAN LOSSES
(stated in thousands)
FASB 114 and 118 were implemented during the first quarter of
1995. This standard requires companies to set aside reserves
for impaired loans.
<PAGE>8
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
MARCH 31, 1996
The following data reflects impaired totals for the reportable
periods:
Impaired Loan Balance or Recorded Balance $1,163
Amount of Recorded Balance with Related Allowance $ 130
Amount of Recorded Balance with no Related Allowance $1,033
Interest income recognized on impaired loans will be done on a
cash basis. Cash receipts will be applied as cost recovery or principal
recovery first, consistent with OCC Regulations. A quarterly review of the
adequacy of the loan loss reserve by the Board of Directors will ensure the
sufficiency of said reserve for both losses and impairment.
Note 11 - Asset Impairment
The financial standards board issued statement 121 addressing the accounting
for the impairment of long-lived assets that will be held and used, including
certain identifiable intangibles, and the good-will related to those assets.
The statement, which was effective for calendar year 1996 financial
statements, also addresses accounting for long lived assets and certain
identifiable assets to be disposed.
The statement requires that assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable.
As of the reportable date, there are no FASB 121 adjustments.
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 March 31, 1996. 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.
Operating results for the first quarter of 1997 produced net income of
$1,117,000, up 18% from $947,000 one year ago. Earnings per share for
the quarter ended March 31, 1997 were $1.51, increasing 17% from $1.29 for
the same quarter last year. Bancshare's annualized return on assets was
1.40%, compared to 1.29% a year ago. Return on Average equity was 14.95% up
from 13.86% for the same quarter in 1996. Total Assets, net of Reserve for
Losses on Loans, increased 9.24% consisting primarily of 8.80% growth
two quarters under comparison. Ninety days or more past due loans reflect
one loan totaling $700,000 that is in the process of collection (discussed
in detail in Composition of Loans section). Also included is $845,198 in
Agriculture loans, 90 percent guaranteed by Farm Service Agency. Past due
loan totals since quarter end have reduced to be more in line with peer
bank percentages. (For a further discussion of past due loans refer to the
section titled Composition of Loans). The percentage of loan loss reserve to
total loans is well within policy guidelines of one percent. Cost of Funds
at 3/31/97 was 4.26% compared to 4.32% at 3/31/96. Liquidity ratio at
3/31/97 was 12.21% including approved lines
<PAGE>9
of credit outstanding totaling $8 million (calculated using the
Comptroller of the Currency format). Maintaining sufficient liquidity is
accomplished through utilization of credit lines with the Federal Home
Loan Bank in addition to traditional Fed Funds lines with correspondent
banks. Competition for deposits with non-bank entities has permanently
changed the source of funding for most if not all banks. Deposit to
loan ratio at quarter end was 83.52 percent.
Loan growth during the first quarter was less than projected, the
result of delayed drawdowns on established agricultural lines. Extensive
flooding followed by a wetter than normal spring forced farmers to re-think
planting strategies, shifting some acreages from corn, cotton and milo to
soybeans, a crop which can be planted much later. While aggressive loan
growth is not projected, second quarter operating results is expected
to reflect an accelerated demand in all loan categories. The price of
Bancshares' common stock remains strong, with demand consistently
outpacing the available supply. Trades during the first quarter were at
a high of $58.00 per share. However, since quarter-end a small number
of shares have traded at $65.00. Dividends of 40 cents per share reflect
an increase of 18.75% over the 32.5 cents paid first quarter of 1996.
Efforts in the future will focus on controlled growth, efficiency and
diversification of operations and products. Strategies in place to
accomplish Strategic Plan goals are as follows: (1) To remain an independent
community bank serving the needs of individuals, small businesses,
corporations and agriculture customers; (2) To maximize the value of First
Citizens to its shareholders by providing the highest level of customer
service and the widest selection of products and services; (3) To
consistently generate earnings that are at a minimum equal to that of peer
banks; (4) To attract and retain high quality personnel, while rightsizing
staffing levels to be more in line with peer banks; (5) To continuously
evaluate and invest in a product and service distribution system that will
provide our customers with personal access as well as electronic delivery of
products and service; and (6) To establish a bank owned finance company as
well as investigate the addition of insurance sales to the bank's products.
The most recent market survey indicates that First Citizens holds over 51%
of its designated market. Customers surveyed indicated that the bank provides
quality service that meets customer expectations. Fulltime equivalent
employees reached high performance levels in the last half of 1995 and have
continued to remainat that level. FTE at 3/31/97 was 149 posting a slight
increase from 145 at 12/31/96. The increase is due to the employment of 3
employees for Delta Finance Company (a bank owned subsidiary). The bank
continues to explore the possibility of offering property and casualty
insurance sales to its customers. All alternatives will be explored to
determine if a bank owned insurance company would be a more profitable
alternative than forming an alliance with an existing agency.
Another strategic action to improve operating efficiency and customer
service was the development of a Technology Strategic Plan. Action goals
were adopted that include the following: (1) Installation of Document
Imaging; (2) Evaluation of a marketing CIF system which will allow for
the identification of needs and opportunities which exist in the current
and potential customer base; (3) Maintaining the IBM AS/400 as the bank's
primary technology infrastructure with a local area network as a secondary
communication structure; (4) Surveying the market to identify the
potential for Home Banking and Corporate Cash Management. In response to
these goals, a contract was signed with Southern Data, Atlanta, Georgia
for a document imaging system in December, 1996. Installation is
scheduled for May, 1997. The Marketing CIF System installed the fourth
quarter of 1996, is producing desired results in identifying products
that meet customer specifications in certain market segments. The first
phase of a quality sales, quality service program was introduced during first
quarter, 1997. Results of a Home Banking survey indicated a demand for
telephone and P.C. home banking products. First Citizens currently offers a
touchtone banking service at no cost to the customer. A search for PC home
banking is scheduled for the last half of 1997.
There are no known trends, events or uncertainties that are likely to have
a material effect on First Citizens' liquidity, capital resources or results
or operations. There currently exists no recommendation by regulatory
authorities which if implemented, would have such an effect. There are
no matters which have not been disclosed. Interstate Banking/Branching
became a reality by legislation passed September 13, 1994. The act
permits full nationwide interstate branching after June 1, 1997. First
Citizens Bancshares, Inc. and First Citizens National Bank are located in a
highly competitive market place, competing for deposit dollars and earning
assets with three other banks, two of which are branches of large regional
competitors. First Tennessee Bank and Union Planters National Bank are
two of the largest financial institutions in the state. While First Citizens
has historically maintained in excess of 50% of local market share,
statistics reflect a loss of approximately 2% over the past five years by
both First Citizens and First Tennessee. This is reflective of increased
competition brought about by the location of two branch banks into the market
place, both of whom have been bought by Union Planters National Bank.
Interstate banking could possibly bring about the location of large out of
state banks to the area. If so, First Citizens would continue to operate
as it has in the past, focusing on the wants and needs of existing and
potential customers. The quality of service and individual attention
afforded by an independent community bank cannot be matched by large regional
competitors, managed by a corporate team unfamiliar to the area.
First Citizens is a forward moving bank offering products and
services required for maintaining a satisfactory customer relationship
moving into the next decade and beyond. A market analysis completed in
September, 1995 indicates a remarkably strong performance by First Citizens
in satisfying customer expectations in the areas of personnel, service and
convenience.
The following table compares year-to-date non-interest income,
and expense of First Citizens as of March 31, 1997, 1996 and
1995:
Non-Interest Income
(in thousands)
March 31
% of % of
1997 Change 1996 Change 1995
Service Charges on
Deposit Accounts $399 20.91% $330 21.33% $272
Other Income $365 (10.98%) $410 91.59% $214
Trust Income $237 50.00% $158 (5.96%) $168
TOTAL NON-INTEREST
INCOME $1,001 11.47% $898 37.31% $654
Total Non-Interest Income increased 11.47% and 37.31% when comparing first
quarter, 1997 to the same time period in 1996 and 1995. The increase
reflects a continued focus on fee income and our commitment to diversifying
the income stream. Results of these efforts are evident when comparing
first quarter 1997 to previous years in the areas of trust, brokerage and
insurance commission income. In October, 1996 the Board approved
reallocating assets of approximately $3 million to purchase permanent life
insurance for Officers having the rank of Vice President and up. This
program allows the bank to increase the retention rate of key officers
while continuing to earn income on the reallocated assets. In the event
of the death of the insured officer, the Bank's original investment plus
accrued interest will be repaid, as well as a death benefit paid to
designated beneficiaries. The plan is in effect at 800+ banks and is in
full compliance with regulatory parameters as defined by the Office of the
Comptroller of the Currency.
<PAGE>11
The 37.31% increase in non-interest income in 1996 was due from a one time
refund of $70,705 from bankruptcy trustees of Southeast Fort Worth Ltd.
The refund partially reimbursed the bank for payments made to trust
customers in December, 1989. Customers were reimbursed by the bank for
investments made in Southeast Fort Worth, Ltd. At the time Southeast filed
bankruptcy, with the understanding that any settlement received from this
company would first be utilized to restore these funds to the bank. Also in
April, 1995 the overdraft fee for per item paid on an overdrawn deposit
account increased from $17.50 to $20.00. Also during the first quarter of
1995, a daily overdraft charge of $3.00 for each day the account is
overdrawn after a 5 day grace period was raised to $5.00 per day. In the
first quarter of 1997, the overdraft fee per item paid on overdrawn deposit
account increased from $20.00 to $22.00.
Non-Interest Expense
(in thousands)
March 31
% of % of
1997 Change 1996 Change 1995
Salaries & Employee
Benefits $1,319 1.23% $1,303 5.68% $1,233
Net Occupancy
Expense $ 464 7.41% $ 432 8.00% $ 400
Other Operating
Expense $ 574 (13.95%) $ 667 (1.19%) $ 675
TOTAL NON-INTEREST
EXPENSE $2,357 (1.88%) $2,402 4.08% $2,308
A review of Non-Interest Expense reflects ongoing efforts to monitor and
control non-interest expense categories such as Salaries and Benefits, Net
Occupancy Expense, and Other Operating Expense. Salaries and Benefits
increased 1.23% when comparing March 31, 1997 to the same time period in
1996. Fulltime equivalent employees of 149 at 3/31/97 compared to 149 at
3/31/96 and 145 at 12/31/96. This level was maintained in 1997 in spite of
the addition of 3 fulltime to staff Delta Finance Company, Inc. and the
employment of 2 parttime and 1 fulltime student from local school vocational
programs. The bank participates in on the job training programs offered
by City and County schools for vocational students. It is anticipated
that FTE will continue to be affected due to our participation in this
program. In the first quarter two Customer Service Associates were employed
to complete the bank CSA training program. Parttime CSA's are trained to
meet additional staffing needs during peak time hours and to support extended
banking hours. Increased investment in technology resulted in an increase
in computer expense and the related depreciation to those investments causing
Net Occupancy Expense to increase 7.41%. An ongoing strategic planning goal
is to automate manual processes through technology and at the same time meet
the technological needs of our customer base. Net Occupancy Expense is
projected to continue to increase as technology is installed to accomplish
this goal. These costs will be offset inpart by the reallocation of employees
to fee income producing positions. Other Operating Expense continues to
decline 13.95% reflecting controls in place to monitor inventory, professional
services and other expense categories.
DEPOSITS
The average daily amount of deposits and average rates paid on such
deposits are summarized for the quarters ending March 31 for the years
indicated:
<PAGE>12
COMPOSITION OF DEPOSITS
(in thousands)
1997 1996 1995
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non
Interest Bearing
Demand Deposits $ 26,974 - $ 26,019 - $ 25,465 -
Savings Deposits $ 82,994 3.27% $ 71,530 3.10% $ 65,650 2.96%
Time Deposits $147,971 5.44% $141,216 5.70% $126,852 5.59%
TOTAL DEPOSITS $257,939 4.17% $238,765 4.30% $217,967 4.64%
A review of composition of deposits for the years 1997, 1996, and 1995
reflects total deposit growth in excess of $19 million and $21 million
respectively. Growth in the deposit base was centered primarily in Time
Deposits reflecting a growth rate of 8.03%. Savings deposits growth was
over 16%, while growth in interest bearing demand deposits remains flat.
Growth in total deposits continues to be a challenge for First Citizens
National Bank. The company's marketplace is described as highly competitive,
ing to a market share analysis, Bancshares hold approximately 51% (excluding
overnight and fixed term repurchase agreements) of the bank deposits
domiciled in Dyer County. The bank competes with First Tennessee Bank, N.A.
(23% of total county deposits), and security (14%). Union Planters, another
regional bank also hold market share of 11 percent. First Citizens also
competes with Dyersburg city employees Credit Union, seven or more consumer
finance companies, and other types of financial service providers in the
area. Competitor marketing programs are aggressive in seeking new deposits
dollars with advertising programs that offers a rate on a certificate of
deposit at .50 basis points higher than any rate offered by another local
bank.
Average rate paid on deposits (4.17%) continues to reflect sound asset/
liability management strategy to maintain interest margins that are
consistent with company goals. Another deposit strategy adopted in 1996
was a shifting from paying higher rates to obtain retail deposits to the
purchase of wholesale deposits. Total deposits consisted of approximately
$14 million in the State of Tennessee Funds at quarter end. The
implementation of a quality sales quality service program is also expected
to increase deposit sales as well as provide for the cross selling of
additional products to form a total customer relationship profile.
Quality Sales, Quality Service program is scheduled to be implemented in
various phases beginning the first quarter, 1997. An active officer call
program is already in place to generate new business and provide support
for existing customers. Deposit growth in the 1997 budget is projected
at approximately 7 percent.
Sweep account funds totaling $14,477,000 are not included in the average
balances for non-interest bearing demand deposits. The "Sweep" total is
included in the balance sheet category of securities sold under an agreement
to repurchase totaling $33,877,000 with an average rate of 4.00% at 3/31/97.
Repurchase Agreement "Sweep" is a product offered to large balance customers
which provides for funds to automatically sweep daily from a demand deposit
account into an overnight repurchase agreement. This affords commercial
customers the opportunity to earn interest on excess collected funds while
providing availability of adequate funds to clear large denomination checks
as presented for payment. There were no significant changes to products and
services during the first quarter.
Management is continuously monitoring and enhancing the bank's product line
in order to retain existing customers and to attract new customer
relationships. Among new products on the market are the "Visa Check Card"
and "The Nest Egg Certificate of Deposit". The Visa Check Card is an
electronic check that allows our customers another convenient method of
accessing their checking account funds without writing a check. The Nest
Egg Certificate of Deposit was introduced as a college
<PAGE>13
savings fund for parents requiring a savings instrument with a low opening
balance and as often as weekly deposits made to the account. Imaged deposit
account statements continue to be a success with 99.9 percent acceptance.
The following table sets 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 March 31, 1997:
Maturity Distribution Of Time Certificates Of Deposit
In Amounts of $100,000.00 Or More As Of March 31, 1997
(in thousands)
Maturity Total Amount
3 months or less $17,763
3 through 12 months $11,797
1 year through 5 years $ 9,490
over 5 years $ 0
Total $39,050
A summary of average interest earning assets and interest bearing
liabilities is set forth in the following table together with average
yields on earning assets and average costs on interest bearing liabilities.
The average yield on interest earning assets continues to
climb upward when reviewing the information presented in the table.
Interest earning assets as of 3/31/97 were $288,054,000 at an average
rate of 8.70% compared to $268,298,000, average rate of 8.91% and
$242,023,000 average rate of 8.71% at 3/31/96 and 3/31/95 respectively.
The rate earned on interest bearing deposits increased 3.28% and 2.90%
when comparing 1997, 1996 and 1995. The average rate on total interest
bearing liabilities was 4.65%, 4.81%, and 4.70% as of March 31, 1997,
1996, and 1995. Net yield on average earning assets was 4.56%, 4.65%, and
4.54%, reflecting a downward movement in interest rates beginning in mid 1996
and continuing into 1997. Maintaining interest rate margins achieved in
prior years continues to be a challenge. As interest rates are rising
customers are shopping banks to lock in the lowest rate possible on loans,
while deposit customers are shopping to lock in the highest rate on deposits.
First Citizens has historically out performed peer banks with the average
rate earned on the loan portfolio. Asset/Liability policies are in place to
protect the company from the negative effects of volatile swings in interest
rates. Interest margins are well managed to achieve acceptable profits and
a return on equity within policy guidelines.
<PAGE>14
<TABLE>
First Citizens National Bank
Quarter Ending March 31
Monthly Average Balances and Interest Rates
(in thousands)
<CAPTION>
1997 1996 1995
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 (1)(2)(3) $207,667 $4,884 9.41% $191,649 $4,685 9.78% $167,931 $4,019 9.57%
Investment Securities:
Taxable $ 66,522 $1,134 6.82% $ 63,718 $1,051 6.60% $ 60,262 $ 997 6.62%
Tax Exempt (4) $ 10,568 $ 201 7.61% $ 10,948 $ 208 7.60% $ 10,814 $ 208 7.70%
Interest Earning
Deposits $ 201 $ 2 3.98% $ 49 $ 1 8.17% $ 163 $ 2 4.91%
Federal Funds Sold $ 3,096 $ 43 5.56% $ 1,930 $ 27 5.60% $ 2,819 $ 42 5.96%
Lease Financing $ 0 $ 0 0% $ 4 $ 0 0% $ 34 $ 1 11.76%
Total Interest
Earning Assets $288,054 $6,264 8.70% $268,298 $5,972 8.91% $242,023 $5,269 8.71%
NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 10,403 $ - -% $ 9,958 $ - -% $ 9,342 $ - -%
Bank Premises and
Equipment $ 8,144 $ - -% $ 8,748 $ - -% $ 8,503 $ - -%
Other Assets $ 7,338 $ - -% $ 4,343 $ - -% $ 3,936 $ - -%
Total Assets $313,939 $ - -% $291,347 $ - -% $263,804 $ - -%
LIABILITIES AND
SHAREHOLDERS' EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 82,994 $ 678 3.27% $ 71,530 $ 553 3.10% $ 65,650 $ 485 2.96%
Time Deposits $147,971 $ 2,011 5.44% $141,216 $2,010 5.70% $126,852 $1,773 5.59%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 25,560 $ 293 4.59% $ 25,024 $ 296 4.74% $ 22,620 $ 269 4.76%
Total Interest
Bearing
Liabilities $256,525 $ 2,982 4.65% $237,770 $2,859 4.81% $215,122 $2,527 4.70%
NON-INTEREST
BEARING LIABILITIES:
Demand Deposits $ 26,974 $ - -% $ 26,019 $ - -% $ 25,465 $ - -%
Other Liabilities $ 2,194 $ - -% $ 2,570 $ - -% $ 1,599 $ - -%
Total Liabilities $285,693 $ - -% $266,359 $ - -% $242,186 $ - -%
SHAREHOLDERS'
EQUITY $ 28,246 $ - -% $ 24,988 $ - -% $ 21,618 $ - -%
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $313,939 $ - -% $291,347 $ - -% $263,804 $ - -%
NET INTEREST
INCOME $ - $3,382 -% $ - $3,113 -% $ - $2,742 -%
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.56% $ - $ - 4.65% $ - $ - 4.54%
(Annualized)
</TABLE>
<PAGE>15
(1) Loan totals are shown net of interest collected, not earned
and Loan Loss Reserve.
(2) Nonaccrual loans are included in average total loans.
(3) Loan Fees are included in interest income and the
computations of the yield on loans. Overdraft fees are excluded.
(4) Interest and rates on securities which are non-taxable for
Federal Income Tax purposes are presented on a taxable
equivalent basis.
COMPOSITION OF LOANS
The bank's loan portfolio has experienced exceptional loan growth as
reflected in the Composition of Loans table. Total loans have increased
from $197,201,000 at 3/31/96 to $214,560,000 at 3/31/97. When reviewing
loan categories, it is evident that the largest percentage of growth is
centered in Real Estate Mortgage Loans. Mortgage loans have increased from
$95,763,000 at 3/31/95 to $112,732,000 at 3/31/96 and $129,317,000 at
3/31/97. The upward trend is attributed to substantial growth in both
population and number of households recorded in Dyer County over the past
decade. Commercial, financial, and agricultural loans decreased
approximately $4.8 million or 11.69%. Growth in this category has been
slower than previous quarters as a result of delayed drawdowns on
agricultural lines of credit. Extensive flooding followed by a wetter
than normal spring forced delays in farm operations.
First Citizens is located in the Dyersburg/Dyer County trade area having a
population of approximately 40,000. The entire trade areas has outpaced
both the state and the nation in per capita personal income growth since
the early 1980's. The State of Tennessee projects that per capita income in
the area will be greater than the national average by the year 2000. A
diversified mix of industry in the local economy has provided stable,
growing employment opportunities for residents under all economic conditions.
The Dyer County distribution of employment consists primarily of service
employers 14.9%, government 14.7%, trade 19.3%, and manufacturing of 40.5%.
Dyer County's unemployment rate for January was 7.2% decreasing .3% from
October's rate of 7.5% according to the Tennessee Department of Employment
Security. This compares to Tennessee's unemployment rate of 5.0% for
January, which is 2.2% lower than our county's rate. Manufacturer's within
the area have indicated that a softness in demand for their products was the
cause for the higher county unemployment rate. During the first quarter of
1997, two local manufacturing firms have announced expansions which would
add jobs for people in Dyer County in 1997.
The provision for loan losses increased in proportion to loan growth as
required by loan policy. Problem loans at 3/31/97 were $3,228,431
reflecting an increase of $217,688 from 3/31/96. Watch loans totaled
$121,572. Past due loan totals were slightly above peer group totals at
quarter end. However, immediately following quarter end, past due loan
totals were reduced to be more in line with peer banks. Loans reviewed
during the last twelve months comprise $125,440,243 or 67.05% of the loan
portfolio. Problem loan and past due totals posted a significant increase
after April, 1996 due to the addition of one credit totaling $991,029.
First Citizens was made aware that the company had filed a chapter 11
bankruptcy and that legal claims had been filed against the company's CFO
claiming among other things the selling of fictitious leases. First
Citizens National Bank is a holder of outstanding debt on the company as
of 3/31/97 totaling $700,000. Charged off debt on this line totals
approximately $291,000 as of year end 1996. The bank holds approximately
176 outstanding leases. All leases have been reinspected and we have no
reason to believe that fictitious or fraudulent leases are contained within
our portfolio. An allocation of $400,000 was added to the Loan Loss
Reserve to cover any exposure to the bank. It is expected that attorney's
representing First Citizens will have negotiated a settlement agreement
before June 30, 1997.
Experience of Senior loan and loan review staff as well as adherence to
policy lends a comfort level to the portfolio and supports the Loan Loss
Allowance at the present level. Loan Administration sets policy
<PAGE>16
guidelines approved by the Board of Directors regarding portfolio
diversification and underwriting standards. Loan policy includes board
approved guidelines for collateralization, loans in excess of loan to value
limits, maximum loan amount, maximum maturity and amortization period for
each loan type. Policy guidelines for loan to value ratio and maturities
related to various collateral are as follows:
Collateral Max. Amortization Max. LTV
Real Estate Amort. discussed herein Amort. discussed herein
Equipment 5 Years 75%
Inventory 5 Years 50%
A/R 5 Years 75%
Livestock 5 Years 80%
Crops 1 Year 50%
*Securities 10 Years 75% (Listed)
50% (Unlisted)
*Maximum LTV on margin stocks (stocks not listed on a national exchange)
when proceeds are used to purchase or carry same, shall be 50%.
Diversification of the banks' real estate portfolio is a necessary and
desirable goal of the bank's real estate loan policy. In order to achieve
and maintain a prudent degree of diversity, given the composition and
general economic state of the bank's market area, the bank will strive to
maintain a real estate loan portfolio diversification based upon the
following:
* Agricultural loans totaling in aggregate no more than 20% of the
Bank's total loans;
* Land acquisition and development loans totaling in aggregate no
more than 10% of the Bank's total loans;
* Commercial construction loans totaling in aggregate no more than
10% of the Bank's total loans;
* Residential construction loans totaling in aggregate no more than
10% of the Bank's total loans;
* Residential mortgage loans totaling in aggregate no more than 40%
of the Bank's total loans; and
* Commercial loans totaling in aggregate no more than 30% of the
Bank's total loans.
It is the policy of FCNB that no real estate loan will be made (except in
accordance with the provisions for certain loans in excess of supervisory
limits provided for hereinafter) that exceed the loan-to-value percentage
limitations ("LTV limits") designated by category as follows:
Loan Category LTV Limit (%)
Raw Land 65
Land Development or Farmland 75
Construction:
Commercial, multi-family, and
other non-residential 80
1-to-4 family residential 80
Improved Property 80
Owner-occupied 1-to-4 family
and home equity 80
<PAGE>17
Multi-family construction loans include loans secured by cooperatives
and condominiums. Owner-occupied 1-to-4 family and home equity loans
which equal or exceed 90% LTV at origination must have either private
mortgage insurance or other readily marketable collateral pledged in
support of the credit.
On occasion, the Loan Committee may entertain and approve a request to
lend sums in excess of the LTV limits as established by policy, provided
that:
a. The request is fully documented to support the fact that other
credit factors justify the approval of that particular loan as an
exception to the LTV limit;
b. The loan, if approved, is designated in the Bank's records and
reported as an aggregate number with all other such loans approved
by the full Board of Directors on at least a quarterly basis;
c. The aggregate total of all loans so approved, including the extension
of credit then under consideration, shall not exceed 50% of the
Bank's total capital; and
d. Provided further that the aggregate portion of these loans in excess
of the LTV limits that are classified as commercial, agricultural,
multi-family or non-1-to-4 family residential property shall not
exceed 30% of the Bank's total capital.
Amortization Schedules. Every loan must have a documented repayment
arrangement. While reasonable flexibility is necessary to meet the credit
needs of the Bank's customers, in general all loans should be repaid within
the following time frames:
Loan Category Amortized Period
Raw Land 10 years
Construction:
Commercial, multi-family, and
other non-residential 20 years
1-to-4 family residential 20 years
Improved Property Farmland 20 years
Owner-occupied 1-to-4 family
and home equity 20 years
The average yield on loans of First Citizens National Bank as of March 31
in the years indicated is as follows:
Year Yield
1997 9.41%
1996 9.78%
1995 9.57%
1994 8.77%
1993 9.73%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $36,865,000 as of 3/31/97.
<PAGE>18
The following table sets forth loan totals net of unearned income by
category for the past five years:
March 31
(in thousands)
1997 1996 1995 1994 1993
Real Estate Loans:
Construction $ 17,643 $ 13,875 $ 11,457 $ 7,598 $ 7,003
Mortgage $129,317 $112,732 $ 95,763 $ 90,537 $ 87,864
Commercial,
Financial and
Agricultural
Loans $ 41,802 $ 46,691 $ 45,467 $ 35,784 $ 27,206
Installment
Loans to
Individuals $ 23,630 $ 21,739 $ 19,885 $ 16,212 $ 14,976
Other Loans $ 2,168 $ 2,164 $ 1,878 $ 2,711 $ 2,119
TOTAL LOANS $214,560 $197,201 $174,450 $152,842 $139,168
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The degree of risk to which a bank is subjected can be controlled through
a well managed asset/liability program. First Citizens controls interest
rate risk by employing interest sensitive liabilities in assets that are
also interest sensitive. One tool used to ensure market rate return is
variable rate loans. Loans totaling $85,487,000 or 39.84% of the total
portfolio are subject to repricing with one year or carry a variable rate
of interest. The ratio is down slightly from 43.89% at 3/31/96, and 40% at
3/31/95. Maturities in the one to five year category total $134,248,000,
reflecting an increase of $19.5 million when compared to 3/31/96.
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $37,680 $96,850 $12,430
Commercial,
Financial and
Agricultural $22,502 $18,451 $ 849
All Other Loans $ 6,759 $18,947 $ 92
TOTAL $66,941 $134,248 $13,371
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $129,073
Interest Rates are Floating or Adjustable $18,546
NON-PERFORMING ASSETS
Non-performing assets at 3/31/97 were 1.04% of total loans compared to .59%
at 3/31/96 and to peer banks ratio of .77% at 12/31/96. The increase is
due primarily to a Bankruptcy credit totaling $700,000 (discussed in the
section titled Composition of Loans) and four credits totaling $845,198
that are 90% guaranteed by the Federal Farm Service Agency. Request for
payment has been made for the Ag credits in the first quarter. It is
expected that payment will be received before the end of second quarter
1995. The increase in 1995 was the result of one credit totaling $900,000
classified as non-performing the first quarter. The credit was paid in full
the last quarter of 1995 and no losses were incurred.
Non-Accrual loans total $1,069,940 consisting primarily of two credits, one
of which is the $700,000 credit discussed previously. Miscellaneous loans
of less than $20,000 make up approximately $174,000.
<PAGE>19
Categorization of a loan as non-performing is not in itself a reliable
indicator of potential loan loss. The banks' policy states that the Bank
shall not accrue interest or discount on (1) any asset which is maintained
on a cash basis because of deterioration in the financial position of the
borrower, (2) any asset for which payment-in-full of interest or principal
is not expected, or (3) any asset upon which principal or interest has
been in default for a period of 90 days or more unless it is both well
secured and in the process of collection. For purposes of applying the 90
day past due test for the non-accrual of interest discussed above, the date
on which an asset reaches non-accrual status is determined by its
contractual term. A debt is well secured if it is secured (1) by collateral
in the form of liens or pledges or real or personal property, including
securities that have a realizable value sufficient to discharge the debt
(including accrued interest) in full, or (2) by the guaranty of a financially
responsible party. A debt is considered to be proceeding in due course either
through legal action, including judgement enforcement procedures, or, in
appropriate circumstances, through collection efforts not involving legal
action which are reasonably expected to result in repayment of the debt or
in its restoration to a current status. Loans that represent a potential
loss to First Citizens are adequately reserved for in the provision for loan
losses.
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 three months ending 3/31/97 if all loans reported as
non-accrual had been current in accordance with their original terms and had
been outstanding throughout the period is $25,000. Interest income on loans
reported as ninety days past due and on interest accrual status was $24,000
for year-to-date 1997. 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 March 31, 1997 were zero.
Loans classified by regulatory examiners and not reported under non-accrual,
past due or restructured pose no significant credit problems. 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 reevaluated at regular intervals for effectiveness.
The following table sets forth the balance of non-performing loans as of
March 31, for the years indicated:
Non-Performing Loans
March 31
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
1997 $1,069 $1,152 $2,221
1996 $ 740 $ 427 $1,167
1995 $ 721 $1,404 $2,125
1994 $1,051 $ 439 $1,490
1993 $1,517 $ 161 $1,678
LOAN LOSS EXPERIENCE AND
RESERVES FOR LOAN LOSSES
During the quarter just ended activity to the Reserve Account consisted
of (1) loan charge-offs - $39,000 (2) recovery of loans previously charged
off - $33,000 and (3) additions to Reserve - $170,000. Recovery of loans
previously charged off continues to be a priority to the bank. One full
time employee is assigned the responsibility for recovery of charged off
loans and overdrawn deposit accounts.
<PAGE>20
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 reported to the Board at its meeting immediately preceding
quarter-end. Requirements of FASB 114 & 118 have been incorporated into
the policy for Accounting by Creditor for Impairment of a Loan. A loan is
impaired when it is probable that a creditor will be unable to collect all
amounts due of principal and interest according to the original
contractional terms of the loan. First Citizens adopted the following as
a measure of impairment: (1) Impairment of a loan at First Citizens
shall exist when the present value of expected future cash flows discounted
at the loans effective interest rate impede full collection of the contract;
and (2) Fair Value of the collateral, if the loan is collateral dependent,
indicates unexpected collection of full contract value. The Impairment
decision will be reported to the Board of Directors and other appropriate
regulatory agencies as specified in FASB 114 and 118. The bank will continue
to follow regulatory guidelines for income recognition for
An annual review of the loan portfolio to identify risks will cover a
minimum of 70% of the gross portfolio less installment loans. 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.
For analysis purposes loans reviewed will be separated into five
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 customary.
3. Problem - Loans which require additional collection effort to
liquidate both principal and interest.
4. Specific Allocation - Impaired loans, in total or in part, in which
a future loss is possible.
5. Charged-Off
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 for either principal or interest 90 days, placed on non-accrual or
renegotiated status, renewed four times without principal reduction,
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.
<PAGE>21
LOAN LOSS ALLOWANCE ANALYSIS
DATE
The following table disclosed the formula for the Analysis for the Loan Loss
Allowance:
AVERAGE AVERAGE PERCENT CURRENT RESERVE
LOSS 3 YRS. BALANCE 3 YRS. BALANCE REQUIRED
I. CREDIT $ GROSS $ % $ $
CARDS
II. INSTALL. $ NET $ % $ $
LOANS
III. IMPAIRED WITH ALLOCATIONS $ $
IMPAIRED WITHOUT ALLOCATIONS $ $
ALLOWANCE
IV. DOUBTFUL 50% $ $
SUBSTANDARD 10%
WATCH 5%
OTHER LOANS NOT LISTED PREVIOUSLY .75%
LESS SBA/FMHA GUARANTEED PORTIONS
__________
TOTAL LOANS $
V. LETTERS OF CREDIT .75% $ $
VI. OTHER REAL ESTATE OWNED $
______
RESERVE REQUIRED $
RESERVE BALANCE $
EXCESS (DEFICIT) $
RESERVE AS % OF TOTAL LOANS %
PEER GROUP %
LOSS EXPERIENCE III & IV AVERAGE LAST 3 YEARS
.% OR $
Management estimates the approximate amount of charge-offs for the 12
month period ending 12/31/97 to be as follows:
Domestic Amount
Commercial, Financial & Agricultural $50,000
Real Estate-Construction None
Real Estate-Mortgage 70,000
Installment Loans to individuals &
credit cards 80,000
Lease financing None
Foreign N/A
01/01/97 through 12/31/97 Total $200,000
The book value of repossessed real property held by Bancshares and First
Citizens National Bank at 3/31/97 is $164,000 compared to $861,000 at
3/31/96 and $1,032,000 at 3/31/95. The balance was significantly reduced
as a result of the sale of a strip shopping center in November 1996. The
remaining balance held in repossessed real property represents property
purchased for expansion of the branch located on Highway 51 Bypass valued at
$164,000. Accounting for adjustments to the value of Other Real Estate
sset is recorded at the lesser of its appraised value or the loan balance.
<PAGE>22
All other real estate parcels are appraised annually and the carrying value
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
expense; and the ratio of net loans charged off to average loans
outstanding.
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
(in thousands)
Quarter ending March 31
1997 1996 1995 1994 1993
Average Net Loans
Outstanding $207,667 $191,653 $167,965 $149,438 $132,564
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 2,282 $ 2,216 $ 2,054 $ 1,676 $ 1,703
Loan Charge-Offs $ (39) $ (72) $ (60) $ (24) $ (26)
Recovery of Loans
Previously Charged Off $ 33 $ 40 $ 56 $ 44 $ 38
Net Loans Charged Off $ (6) $ (32) $ (4) $ 20 $ 12
Additions to Reserve
Charged to Operating
Expense $ 170 $ 105 $ 65 $ 99 $ 117
Balance at End of
Period $ 2,446 $ 2,289 $ 2,115 $ 1,795 $ 1,832
Ratio of Net Charge-Offs
during quarter to Average
Net Loans Outstanding (.01%) (.02%) (.00%) .01% .01%
The following table will identify charge-offs by category for the periods
ending 3/31/97, 3/31/96 and 3/31/95:
Charge-offs: 1997 1996 1995
Domestic:
Commercial, Financial and Agricultural $ 8 $ 43 $ 0
Real Estate-Construction 0 0 0
Real Estate-Mortgage 0 0 31
Installment Loans to individuals 31 29 29
Lease financing 0 0 0
Foreign N/A N/A N/A
Total 39 72 60
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 10 $ 8 $ 15
Real Estate-Construction 0 0 0
Real Estate-Mortgage 0 1 10
Installment Loan individuals 23 31 31
Lease Financing 0 0 0
Foreign N/A N/A N/A
Total $ 33 $ 40 $ 56
Net Charge-offs $ (6) $ (32) $ (4)
<PAGE>23
Investment Securities
Bancshares' book value of listed investment securities as of the
dates indicated are summarized as follows:
Composition of Investment Securities
(March 31)
1997 1996 1995 1994 1993
U. S. Treasury &
Government Agencies $66,923 $62,387 $60,735 $42,353 $61,068
State & Political
Subdivisions $10,630 $11,013 $10,426 $13,665 $ 9,057
All Others $ 3,009 $ 3,637 $ 4,393 $ 5,519 $ 5,645
TOTALS $80,562 $77,037 $75,554 $61,537 $75,770
A major goal of the bank's investment portfolio management is to maximize
returns from investments while controlling the basic elements of risk. The
second goal is to provide liquidity and meet financial needs of the
community. Investment Securities also serve as collateral for government
and public fund deposits. Investments for the first quarter, 1997 were up
$3.5 million when compared to the same time period in 1996. 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. Fixed rate holdings comprise 90% of the portfolio,
while adjustable rates comprise the remaining 10%.
Purchases made during the first quarter, 1997 totaled $7,670,000 consisting
of Government Backed and Municipal Securities. Securities totaling
$5,790,000 were placed in the Held-To-Maturity Account while securities
totaling $1,880,000 were booked in the Available for Sale account.
First quarter sales totaled $1,000,000 at a loss of $6,209. Sales were made
from the available for sale account.
Fixed rate holdings currently have an expected average life of 3.5 years.
It is estimated that this average life would extend to 5.1 years should rates
rise 100 basis points and 5.3 years should rates increase 200 basis points.
This is a result of some extension occurring in the callable bonds and
mortgage-backed holdings as rates rise. Should rates decline 100 basis
points the average life would decrease 1.9 years.
In terms of price sensitivity, we estimate that if rates rise 100 basis
points the market value of the portfolio would fall by 3.6%, while rates
rising 200 basis points would impact the market value by a negative 7.3%.
This is consistent with the price sensitivity of the 4 year Treasury bond,
which is consistent with the current average life of the portfolio. If
rates go down 100 basis points we estimate that the market value would
increase by 2.7%.
The adjustable rate holdings reprice on an annual or more frequent basis
and currently have an average life of 9.4 years. Due to the structure of
these holdings, we would expect very little extension to occur in average
life should interest rates rise, but could see some shortening if rates fall.
We estimate the adjustable rate holdings also have the price sensitivity of a
3-year Treasury, although this is more difficult to project on adjustable
rate holdings than on fixed rate holdings.
FASB 115 required banks to maintain separate investment portfolios for Held-
To-Maturity, Available-For-Sale, and Trading Account Investments. As of
March 31, 1997 approximately 40% of the total
<PAGE>24
portfolio was placed in the Held-To-Maturity account. The remaining 60% was
booked in the Available-For-Sale account. FASB 115 requires banks to Mark to
Market the Available for Sale and Trading Account Investments at the end of
each calendar quarter. Held-To-Maturity Account Investments are stated at
amortized cost on the balance sheet. Mark to Market resulted in a negative
capital entry of $412,590 during the quarter ended 3/31/97.
Maturities in the portfolio are made up of 10% within one year, 39% after
one year and within five years, and 51% after five years. Policy provides
for 20% maturities on an annual basis. Maturities were extended from 5 to
10 years on most securities purchased after 1995. Management made a
conscious effort to extend maturities for a higher yield on the portfolio.
Securities purchased with extended maturities bear call features ranging
from 1 to 3 years. Approximately $1 million are projected to be call
as projected changes in interest rates.
First Citizens National Bank has not engaged in derivative activities as
defined by paragraph 5 thru 7 of FASB 119 (reference footnote 7).
<PAGE>25
Investment Securities
Held to Maturity Available for Sale
March 31, 1997
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 2,003 $ 1,997 $ 5,982 $ 5,980
U.S. Government agency
and corporation obligations
(exclude mortgage-backed
securities):
Issued by U.S. Government
agencies (2) 0 0 0 0
Issued by U.S. Government-
sponsored agencies (3) 21,599 21,447 26,652 26,267
Securities issued by states
and political subdivisions
in the U.S.:
General obligations 3,678 3,879 3,688 3,671
Revenue obligations 2,580 2,573 701 701
Industrial development
and similar obligations 0 0 0 0
Mortgage-backed securities (MBS):
Pass-through securities:
Guaranteed by GNMA 293 300 4,817 4,791
Issued by FNMA and FHLMC 743 741 352 354
Other pass-through
securities 0 0 0 0
Other mortgage-backed securities
(include CMOs, REMICs, and
stripped MBS):
Issued or guaranteed by FNMA,
FHLMC, or GNMA 1,144 1,141 3,753 3,748
Collateralized by MBS
issued or guaranteed by
FNMA, FHLMC, or GNMA 0 0 0 0
All other privately-
issued 0 0 0 0
Other debt securities:
Other domestic debt
securities 500 500 0 0
Foreign debt securities 0 0 0 0
Equity securities:
Investments in mutual funds
Other equity securities with
readily determinable fair
values - - 749 758
All other equity securities (1) - - 1,752 1,752
Total 32,540 32,578 48,446 48,022
(1) Includes equity securities without readily determinable fair values at
historical cost.
(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.
<PAGE>26
Investment Securities
Unrealized Gains/(Losses)
March 31, 1997
Unrealized Unrealized Net
Gains Losses Gains/Losses
U. S. Treasury Securities 63 71 (8)
Obligations of U.S.
Government Agencies &
Corp. 305 937 (632)
Obligations of States and
Political Subdivisions 219 42 177
Other Securities 1 0 1
Totals 588 1050 (462)
<TABLE>
Maturity and Yield on Securities March 31, 1997
(in thousands)
<CAPTION>
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 $ 7,369 6.00% $24,682 6.60% $22,469 6.90% $12,403 7.35%
State and Political
Subdivisions* $ 1,880 7.19% $ 5,995 6.62% $ 2,375 7.84% $ 380 7.68%
All Others $ 500 6.00% $ - -% $ 2,509 5.60% $ - -%
TOTALS $ 9,749 6.23% $30,677 6.61% $27,353 6.86% $12,783 7.37%
</TABLE>
* Yields on tax free investments are stated herein on a taxable equivalent
basis.
<PAGE>27
Return on Equity and Assets
The table below presents for Bancshares certain operating ratios for the
quarters ending March 31st: (Not Annualized)
1997 1996 1995 1994 1993
Percentage of Net
Income to:
Average Total Assets .35% .33% .24% .35% .32%
Average Shareholders
Equity 3.74% 3.47% 2.64% 3.74% 3.84%
Percentage of
Dividends Declared
Per Common Share
to Net Income
Per Common Share 27.04% 25.56% 33.90% 22.73% 22.41%
Percentage of Average
Shareholders'
Equity** to Average
Total Assets 10.14% 10.07% 9.18% 10.03% 9.10%
Return on assets is a measurement of the firms ability in terms of asset
utilization. Total assets at 3/31/97 was $323,400,000. Efforts continue
to focus on positioning the company for future growth and profitability
through improvements in technology, solid growth in the deposit base and
efficient utilization of the branch distribution system. Accelerated asset
growth coupled with rising interest rates had a significant impact on
earnings in 1995. Results of operations for 1996 and first quarter of 1997
reflect continuous improvement.
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 management
and employees are rewarded with incentive compensation based on the level
of ROA achieved at year end. A return on assets of 2.00% is required if
maximum benefits are to be realized.
Total Shareholder's equity (including Loan Loss Reserve) of First Citizens
Bancshares as of 3/31/97 was $30,170,000 compared to $29,603,000 at 12/31/96.
Percentage of Dividends declared per common share to net income per common
share increased on a consistent basis for the years under comparison when
1995 is excluded. Suppressed earnings in 1995 distorted the ratio. Number
of shares outstanding continues to increase as a result of shares issued on
a quarterly basis to service the Dividend Reinvestment Program. A stock
repurchase program has been proven to be ineffective in creating
availability of shares. Shareholders continue to express an interest in
buying additional stock rather than selling shares. Under the terms of
the repurchase program, the company would repurchase up to $200,000 of
Bancshares'stock in a calendar quarter on a first come first served basis.
During the third quarter, of 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 numbers of shares outstanding increased
proportionately with no effect on capital. 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.
<PAGE>28
A quarterly dividend declared for each quarter in 1996 was 32.5 cents per
share compared to .30 cents per share in 1995. A special dividend of .30
cents per share was also declared the fourth quarter compared to .10 cents
per share in 1995.
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 risks. Liquidity is
determined by a comparison of net liquid assets to net liabilities and
consistently remains between 10% and 15%. The stability of our deposit
base, sound/asset liability management, and a strong capital base combined
with expanded lines of credit with the Federal Home Loan Bank assure adequate
liquidity. Strong loan demand and seasonal growth in agriculture lines
of credit place the bank in a tight liquidity position May through October
each year. Loan to deposit ratio including repurchase agreements and federal
home loan bank borrowings is 83.52% at 3/31/97 compared to 81.99% at 3/31/96.
Deposit growth at quarter end was approximately 7%, while loan growth was 9%.
To address liquidity concerns the bank has the following sources available:
(1) Approved lines of credit with the Federal Home Loan Bank totaling $11.5
million and correspondent banks totaling $8.5 million; (2) Loans in excess
of $66 million maturing in one year or less; and (3) Investment Securities
totaling $10 million with maturity dates of one year or less. At March 31,
1997 Federal Home Loan Borrowings totaled $9 million. Other sources of
liquidity or non-core fundings is the State of Tennessee (jumbo CDs). The
state has $10 million in CDs with First Citizens as of 3/31/97. The
average rate associated with these deposits is 5.42%. These funds are
utilized to earmark specific asset needs.
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 and is a primary objective of the asset/liability
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 net interest income exposure
to Tier I Capital shall not exceed 2.00%. Interest rate risk is separated
and analyzed according to the following categories of risk: (1) repricing
(2) yield curve (3) option risk (4) price risk and (5) basis risk. Trading
assets are utilized in-frequently and are addressed in the investment policy.
Any unfavorable trends reflected in interest rate margins will cause an
immediate adjustment to the bank's gap position or asset/liability
management strategies. Interest rate at 3/31/97 projected through gap
simulations, reflects exposure in the range of $12,000 - $38,000.
<PAGE>29
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/31/97
(in thousands)
<CAPTION>
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
CASH AND DUE FROM 12,879 - - - - - - - 12,879
MONEY MARKET 203 203 - - - - - - -
TOTAL CASH &
DUE FROM 13,082 203 - - - - - - 12,879
INVESTMENTS
US TREASURIES 7,983 - - - - 1,250 1,253 2,454 3,026
US AGENCIES 58,252 - - - - 6,425 2,433 5,221 44,173
MUNICIPALS 10,630 - - - - 1,880 - 1,312 7,438
CORP & OTHERS 500 - - - - 500 - - -
EQUITIES 2,509 - - - - - - - 2,509
TOTAL INVESTMENTS 79,874 - - - - 10,055 3,686 8,987 57,146
LOANS
COMMERCIAL FIXED 27,486 - 2,177 583 1,075 2,148 6,909 4,425 10,169
COMMERCIAL
VARIABLE 13,671 - 13,671 - - - - - -
REAL ESTATE-
VARIABLE 17,770 - 16,644 1,117 9 - - - -
REAL ESTATE FIXED 124,011 - 3,090 1,508 2,536 5,410 16,027 9,537 75,903
HOME EQUITY LOANS 4,789 - 4,789 - - - - - -
SEC MORTGAGE 390 - - - - - - - 390
INSTALLMENT LOANS 22,735 - 494 218 352 950 1,682 4,082 14,957
INSTALLMENT VARIABLE 65 - 65 - - - - - -
FINANCE COMPANY 830 - - - - - 830 - -
FLOOR PLAN 645 645 - - - - - - -
CREDIT CARDS 1,659 - - - - - - - 1,659
FACTORING REC 142 - 142 - - - - - -
OVERDRAFTS 367 - 367 - - - - - -
TOTAL LOANS 214,560 645 41,439 3,426 3,972 8,508 25,448 28,044 103,078
LOAN LOSS RESERVE 2,446 - - - - - - - 2,446
NET LOANS 212,114 645 41,439 3,426 3,972 8,508 25,448 28,044 100,632
FED FUNDS SOLD
TOTAL EARNING
ASSETS 291,988 645 41,439 3,426 3,972 8,508 25,448 28,044 100,632
OTHER ASSETS
BUILDING, F&F
& LAND 8,235 - - - - - - - 8,235
OTHER ASSETS 8,398 - - - - - - - 8,398
TOTAL OTHER ASSETS 16,633 - - - - - - - 16,633
TOTAL ASSETS 321,703 848 41,439 3,426 3,972 18,563 29,134 37,031 187,290
DEMAND DEPOSITS 28,983 - - - - - - - 28,983
TOTAL DEMAND 28,983 - - - - - - - 28,983
</TABLE>
<PAGE>30
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/31/97
(in thousands)
<CAPTION>
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 17,100 17,100 - - - - - - -
NOW ACCOUNT 26,306 26,306 - - - - - - -
BUSINESS CHECKING 278 278 - - - - - - -
IMF MMDA 11,239 11,239 - - - - - - -
FIRST RATE ACCOUNT 23,821 23,821 - - - - - - -
DOGWOOD CLUB 4,925 4,925 - - - - - - -
TOTAL SAVINGS 83,669 83,669 - - - - - - -
TIME DEPOSITS
CD 1-2 MONTHS 9,422 - 1,784 7,638 - - - - -
CD 3 MONTHS 1,425 - 660 376 378 10 1 - -
CD 4-5 MONTHS 2,751 - 206 - - 2,545 - - -
CD 6 MONTHS 23,545 - 3,346 5,018 3,224 11,535 422 - -
CD 7-11 MONTHS 3,111 - 210 - 353 1,979 569 - -
CD 12 MONTHS 16,806 - 2,337 1,119 1,761 4,907 6,499 183 -
CD 13-17 MONTHS 1,205 - - - 161 111 23 910 -
CD 18-23 MONTHS 544 - 2 - 10 47 208 277 -
CD 24 MONTHS 7,673 - 729 496 423 392 943 4,612 78
CD 25-30 MONTHS 7,591 - - 22 16 16 178 7,262 97
CD 31-59 MONTHS 14,514 - 171 903 3,833 3,184 1,869 3,602 952
CD 31-59 MONTHS
VARIABLE 87 - - - - 12 15 60 -
CD 60 MONTHS 6,478 - 243 - 50 536 729 2,273 2,647
CD 60 MONTH VAR. 1,053 - - 23 - - 123 643 264
CD SWEET 16 25,210 - - 2,018 1,394 6,436 7,364 7,997 -
CD 7 MONTHS 2,003 - - - 268 1,592 143 - -
IRA FLOATING 182 - 182 - - - - - -
CHRISTMAS CLUB 186 - - - - - 186 - -
TOTAL TIME 144,248 - 10,851 18,299 12,454 35,620 23,085 33,078 10,861
TOTAL DEPOSITS 256,900 83,669 10,851 18,299 12,454 35,620 23,085 33,078 39,844
FED FUNDS PURCHASED 3,250 3,250 - - - - - - -
TT&L 1,000 1,000 - - - - - - -
SECURITIES SOLD-
SWEEP 14,477 14,477 - - - - - - -
SECURITIES SOLD-
FIXED 5,018 - 330 505 188 3,117 - 878 -
FHLB-SHORT TERM 2,675 2,675 - - - - - - -
FHLB-LIBOR INVEST. 1,947 - 1,947 - - - - - -
FHLB-LONG TERM 2,013 - - - - - - - -
FHLB-PRIME RATE
ADVANCE 2,497 2,497 - - - - - - -
NOTES PAYABLE-
FINANCE 1,000 - - - - - 1,000 - -
TOTAL SHORT TERM
BORROWINGS 33,877 23,899 2,277 505 188 3,117 1,000 878 2,013
OTHER LIABILITIES 2,449 - - - - - - - 2,449
TOTAL OTHER LIAB. 2,449 - - - - - - - 2,449
TOTAL LIABILITIES 293,226 107,568 13,128 18,804 12,642 38,737 24,085 33,956 44,306
CAPITAL
STOCK, SURPLUS,
P.I.C. 6,000 - - - - - - - 6,000
UNREALIZED GAIN
(LOSSES) -248 - - - - - - - -248
UNDIVIDED PROFITS 22,725 - - - - - - - 22,725
TOTAL CAPITAL 28,477 - - - - - - - 28,477
TOTAL LIAB'S &
CAPITAL 321,703 107,568 13,128 18,804 12,642 38,737 24,085 33,956 72,783
GAP (SPREAD) --106,720 28,311 -15,378 -8,670 -20,174 5,049 3,075 114,507
GAP % TOTAL
ASSETS - -33.17 8.80 -4.78 -2.70 -6.27 1.57 0.96 35.59
CUMULATIVE GAP --106,720-78,409 -93,787-102,457-122,631-177,582-114,507 -
CUM GAP %
TOTAL ASSETS - -33.17-24.37 -29.15 -31.85 -38.12 -36.55 -35.59 -
SENSITIVITY RATIO - 0.01 0.35 0.33 0.33 0.36 0.45 0.54 1.00
</TABLE>
<PAGE>31
NOTES TO THE GAP REPORT
1. The gap report reflects interest sensitivity positions during a flat
rate environment. These time frames could change if rates rise or fall.
2. Repricing over-rides maturity in various time frames.
3. Demand deposits are placed in the last time frame due to lack of interest
sensitivity. Our demand deposits are considered core deposits.
4. Savings accounts are placed into the +2 year time frame. In a flat rate
environment, saving accounts tend not to reprice or
liquidate. Savings deposits become price sensitive, after a
major increase in the 6 month CD rate. These accounts are placed in
this category instead of the variable position due to history and
characteristics. These accounts are considered core deposits.
5. Simulations will be utilized to reflect the impact of multiple rate
scenarios on net interest income. Decisions should be made
that increase net interest income, while always considering
the impact on interest rate risk. Overall, the bank will manage
the gap between rate sensitive assets and rate sensitive
liabilities to expand and contract with the rate cycle phase.
Approximately 20% - 30% of our CD customers have maturities of
6 months or less. First Citizens will attempt to minimize
interest rate risks by increasing the volume of variable rate loans
within the portfolio. The bank should limit the net interest income
exposure to a maximum of 2.00% of tier I capital.
(Example .02 x $26,857,000 = $537,140). The bank's Asset/
Liability Committee will try to improve net interest income
through volume increases and better pricing techniques.
Long term fixed rate positions should be held to a minimum,
by increasing variable rate loans. The over 5 year fixed
rate loans should be held to less than 25% assets,
unless they are funded with Federal Home Loan Bank matched funds.
These maximum limits are the high points and the ALCO will strive
to keep the amount below this point. The dynamic 03/31/96 gap
reports reflects an exposure of $121,000 to $338,000 if rates go up
or down using multiple rate scenarios. The Board of Directors should
receive interest rate risk reports on a quarterly basis.
(Examples: historical margins graphed and multiple scenarios
reflecting income exposure and as a percent of tier I capital.
Subsidiaries as well as the Parent Company will adhere to providing
above average margins and reviewing the various risks, if material.
New products and services will be reviewed for the various risks by
the Product Development Committee.
6. FCNB would benefit from a flat rate environment. If interest rates
rise rapidly, net interest income could be adversely impacted. First
Citizens Liquidity would be negatively impacted should interest rates
drop prompting an increase in loan demand. Adequate lines of credit
are available to handle liquidity needs.
<PAGE>32
Capital Resources
Total shareholders' equity of First Citizens Bancshares as of March 31,
1997 was $30,170,000, compared to $27,573,000 at March 31, 1996. Capital
as a percentage of total assets for the quarter ending March 31 is presented
in the following table for the years indicated (excluding Loan Loss Reserves):
Leveraged Capital Ratio(s) as of March 31
1997 1996 1995 1994 1993
9.33% 9.31% 9.06% 9.37% 8.41%
Increasing the capital base of the Company is a vital part of strategic
planning. Although the present capital to asset ratio remains well in
excess of the level required by Regulators for banks our size, management
is aware of the importance of this base.
Risk-based capital focuses primarily on broad categories of credit risk
and incorporates elements of transfer, interest rate and market risks.
Calculation of the risk-based capital ratio is accomplished by dividing
qualifying capital by weighted risk assets. The minimum risk-based capital
ratio established by Federal Reserve regulation is 8%. At least one-half or
4% must consist of core capital (Tier 1), and the remaining 4% 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.
Risk-Based Capital Ratio(s) as of March 31
1997 1996 1995 1994 1993
14.32% 14.19% 14.06% 14.17% 12.43%
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. Inflation and competition are major keys 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>33
Part II - Other Information
Item 1. Legal Proceedings
There are no legal proceedings against the bank at this time.
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 and accumulated cash at the Holding Company level.
Regulators would be critical of a bank holding company that pays cash
dividends 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 3/31/96.
<PAGE>34
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: May 14, 1997 Stallings Lipford
Stallings Lipford, Chairman
Date: May 14, 1997 Jeff Agee
Jeff Agee, Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 13,819 10,088
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 48,022 43,924
<INVESTMENTS-CARRYING> 32,540 33,113
<INVESTMENTS-MARKET> 0 0
<LOANS> 214,560 197,210
<ALLOWANCE> 2,446 2,289
<TOTAL-ASSETS> 323,400 296,239
<DEPOSITS> 256,875 240,452
<SHORT-TERM> 25,420 20,445
<LIABILITIES-OTHER> 4,478 3,662
<LONG-TERM> 6,457 4,107
0 0
0 0
<COMMON> 743 735
<OTHER-SE> 29,427 26,838
<TOTAL-LIABILITIES-AND-EQUITY> 323,400 296,239
<INTEREST-LOAN> 4,886 4,686
<INTEREST-INVEST> 1,261 1,207
<INTEREST-OTHER> 58 28
<INTEREST-TOTAL> 6,205 5,921
<INTEREST-DEPOSIT> 2,689 2,564
<INTEREST-EXPENSE> 2,982 2,859
<INTEREST-INCOME-NET> 3,223 3,062
<LOAN-LOSSES> 160 105
<SECURITIES-GAINS> 13 136
<EXPENSE-OTHER> 2,357 2,402
<INCOME-PRETAX> 1,707 1,453
<INCOME-PRE-EXTRAORDINARY> 1,117 947
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,117 947
<EPS-PRIMARY> 1.51 1.29
<EPS-DILUTED> 1.51 1.29
<YIELD-ACTUAL> 4.37 4.47
<LOANS-NON> 0 740
<LOANS-PAST> 0 427
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 2,888
<ALLOWANCE-OPEN> 2,282 2,216
<CHARGE-OFFS> 39 72
<RECOVERIES> 33 40
<ALLOWANCE-CLOSE> 2,446 2,289
<ALLOWANCE-DOMESTIC> 2,446 2,289
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
