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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1996 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
First Citizens Place, Dyersburg, Tennessee 38025-0370
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (901) 285-4410
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The aggregate market value of voting stock held by nonaffiliates of the
registrant at December 31, 1996 was $31,570,000.
Of the registrant's only class of common stock ($1.00 par value) there
were 741,516 shares outstanding as of December 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
Proxy Statement dated March 17, 1997 (Part III)
Filed by Electronic Submission
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PART I
ITEM 1. BUSINESS
GENERAL
First Citizens Bancshares, Inc. ("Bancshares") was organized
December, 1982 as a Tennessee Corporation and commenced
operations in September, 1983, with the acquisition of all
Capital Stock of First Citizens National Bank of Dyersburg
("First Citizens").
First Citizens was chartered as a national bank in 1900 and
presently operates a general retail banking business in
Dyersburg and Dyer County, Tennessee providing customary
banking services. First Citizens operates under the
supervision of the Comptroller of the Currency, is insured up
to applicable limits by the Federal Deposit Insurance
Corporation and is a member of the Federal Reserve System.
First Citizens operates under the day-to-day management of its
own officers and directors; and formulates its own policies
with respect to lending practices, interest rates, service
charges and other banking matters.
Bancshares' primary source of income is dividends received
from First Citizens. Dividend payments are determined in
relation to First Citizens' earnings, deposit growth and
capital position in compliance with regulatory guidelines.
Management anticipates that future increases in the capital of
First Citizens will be accomplished through earnings retention
or capital injection.
The following table sets forth a comparative analysis of
Assets, Deposits, Net Loans, and Equity Capital of Bancshares
as of December 31, for the years indicated:
December 31
(in thousands)
1996 1995 1994
Total Assets $313,069 $291,412 $256,685
Total Deposits 256,413 237,160 209,481
Total Net Loans 209,107 189,690 166,727
Total Equity Capital 29,603 27,103 23,879
Individual bank performance is compared to industry standards
through utilization of the Uniform Bank Performance Report
(UBPR), published quarterly by the Federal Financial
Institution's Examination Council.
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This report provides comparisons of significant operating
ratios of First Citizens with peer group banks. Presented in
the following chart are comparisons of First Citizens with
peer group banks for the periods indicated:
12/31/96 12/31/95 12/31/94
FCNB PEER GRP FCNB PEER GRP FCNB PEER GRP
Average Assets/
Net Interest
Income 4.27% 4.33% 4.07% 4.40% 4.31% 4.43%
Average Assets/
Net Operating
Income 1.32% 1.28% .94% 1.29% 1.09% 1.26%
Net loan losses/
Average total
loans .07% .15% .11% .14% .01% .12%
Primary Capital/
Average Assets 8.62% 8.35% 8.41% 9.04% 8.51% 9.02%
Cash Dividends/
Net Income ** 5.54% 41.18% 8.29% 43.28% 19.03% 43.50%
*Performance as of 12/31/96 is compared to peer group totals
as of 09/30/96
(Most recent UBPR available)
EXPANSION
Bancshares may, subject to regulatory approval, acquire
existing banks or organize new banks. The Federal Reserve
Board permits bank holding companies to engage in non-banking
activities closely related to banking or managing or
controlling banks, subject to Board approval. In making such
determination, the Federal Reserve Board considers whether the
performance of such activities by a bank holding company would
offer advantages to the public which outweigh possible adverse
effects. Approval by the Federal Reserve Bank of a Bank
Holding Company's application to participate in a proposed
activity is not a determination that the activity is a
permitted non-bank activity for all bank holding companies.
Approval applies only to the applicant, although it suggests
the likelihood of approval in a similar case.
First Citizens National Bank through its strategic planning
process has stated its intention to acquire other financial
institutions within the West Tennessee Area. The Bank's
objective in acquiring other banking institutions would be for
asset growth and diversification into other market areas.
Acquisitions would afford the bank increased economies of
scale within the data processing function and better
utilization of human resources. Any acquisition approved by
the Board of Bancshares, Inc. would be deemed to be in the
best interest of Bancshares and its shareholders.
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On September 29, 1994, President Clinton signed into law the
Riegel-Neal Interstate Banking and Branching Efficiency Act of
1994. The Act provides for nationwide interstate Banking and
branching within certain limitations. A more detailed
description of the act is discussed within the section
entitled "Usury, Recent Legislation and Economic Environment."
SUPERVISION AND REGULATION
Bancshares is a one-bank holding company under the Bank
Holding Company Act of 1956, as amended, and is subject to
supervision and examination by the Board of Governors of the
Federal Reserve System.
As a bank holding company, Bancshares is required to file with
the Federal Reserve Board annual reports and other information
regarding the business obligations of itself and its
subsidiaries. Board approval must be obtained before
Bancshares may:
(1) Acquire ownership or control of any voting securities of
a bank or Bank Holding Company where the acquisition
results in the BHC owning or controlling more than 5
percent of a class of voting securities of that bank or
BHC;
(2) Acquire substantially all assets of a bank or BHC or
merge with another BHC.
Federal Reserve Board approval is not required for a bank
subsidiary of a BHC to merge with or acquire substantially all
assets of another bank if prior approval of a federal super-visory agency,
such as the Comptroller of the Currency is required under the Bank Merger Act.
Relocation of a sub-sidiary bank of a BHC from one state to another requires
prior approval of the Federal Reserve Board and is subject to the
prohibitions of the Douglas Amendment.
The Bank Holding Company Act provides that the Federal Reserve
Board shall not approve any acquisition, merger or consolid-ation which would
result in a monopoly or which would be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States. Further, the Federal Reserve Board may not
approve any other proposed acquisition, merger, or consolid-ation, the effect
of which might be to substantially lessen competition or tend to create a
monopoly in any section of the country, or which in any manner would be in
restraint of trade, unless the anti-competitive effect of the proposed
transaction is clearly outweighed in favor of public interest
by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. An
amendment effective February 4, 1993 further provides that an
application may be denied if the applicant has failed to
provide the Federal Reserve Board with adequate assurances
that it will make available such information on its operations
and activities, and the operations and activities of any
affiliate, deemed appropriate to determine and enforce
compliance with the Bank Holding Company Act and any other
applicable federal banking statutes and regulations. In
addition, consideration is given to the competence, experience
and integrity of the officers, directors and principal
shareholders of the applicant and any subsidiaries as well as
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the banks and bank holding companies concerned. The Board
also considers the record of the applicant and its affiliates
in fulfilling commitments to conditions imposed by the Board
in connection with prior applications.
A bank holding company is prohibited with limited exceptions
from engaging directly or indirectly through its subsidiaries
in activities unrelated to banking or managing or controlling
banks. One exception to this limitation permits ownership of
a company engaged solely in furnishing services to banks;
another permits ownership of shares of the company, all of the
activities of which the Federal Reserve Board has determined
after due notice and opportunity for hearing, to be so closely
related to banking or managing or controlling banks, as to be
a proper incident thereto. Moreover, under the 1970
amendments to the Act and to the Board's regulations, a bank
holding company and its subsidiaries are prohibited from
engaging in certain "tie-in" arrangements in connection with
any extension of credit or provision of any property or
service. Subsidiary banks of a bank holding company are
subject to certain restrictions imposed by the Federal Reserve
Act on any extension of credit to the bank holding company or
to any of its other subsidiaries, or investments in the stock
or other securities thereof, and on the taking of such stock
or securities as collateral for loans to any borrower.
Bank holding companies are required to file an annual report
of their operations with the Federal Reserve Board, and they
and their subsidiaries are subject to examination by the
Board.
First Citizens Bancshares, Inc. is subject to capital adequacy
requirements imposed by the Federal Reserve Bank. In
addition, First Citizens National Bank (the principal
subsidiary of the corporation) is restricted by the Office of
the Comptroller of the Currency from paying dividends in any
years which exceed the net earnings of the current year plus
retained profits of the preceding two years. It is the policy
of First Citizens National Bank "the bank" to comply with
regulatory requirements for the payment of dividends. The
Federal Reserve Bank adopted a risk-based capital measure for
use in evaluating the capital adequacy of bank holding
companies effective January 1, 1991. The risk-based capital
measure focuses primarily on broad categories of credit risk
and incorporates elements of transfer, interest rate and
market rate risk. The calculation of risk-based capital is
accomplished by dividing qualifying capital by weighted risk
assets. The minimum risked-base capital ratio is 8%, 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 loses, 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. A
risked based capital analysis is performed on a quarterly
basis to test for compliance with Federal Reserve and bank
policy guidelines before declaring a dividend or increasing a
dividend. The banks' policy states that before declaring a
dividend the following ratios will be achieved: (1) Risked
Based Capital Tier 1 will be 8.34% or above; Return on year-
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to-date average equity 9.00%; Asset Growth and projected one
year future asset growth less than 20.00%; and non performing
assets to capital less than 30%. Non performing assets
include 90 day past due and non accrual loans.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the principal executive
officers of Bancshares and its principal subsidiary, First
Citizens National Bank as of December 31, 1996
Name Age Position and Office
Stallings Lipford 66 Chairman of the Board of
First Citizens Bancshares, Inc and First
Citizens National Bank. Mr.
Lipford joined First Citizens in
1950. He became a member of the
Board of Directors in 1960 and
President in 1970. He was made
Vice Chairman of the Board in 1982.
He served as Vice Chairman of the
Board of Bancshares from September,
1982 to February, 1984. The Board
elected Mr. Lipford Chairman of both
First Citizens and Bancshares on
February 14, 1984. He served as
President of First Citizens and
Bancshares from 1983 to 1992, and
as CEO of Bancshares and First
Citizens from 1960 until 1996.
Katie Winchester 56 President and CEO of First Citizens
Bancshares and First Citizens;
employed by First Citizens National
Bank in 1961; served as Executive
Vice President and Secretary of the
Board from 1986 to 1992. She was
appointed CEO of First Citizens
Bancshares and First Citizens
National Bank in 1996; and
President of Bancshares and First
Citizens in 1992. Ms. Winchester
was elected to the Board of both
First Citizens and Bancshares in 1990.
H. Hughes Clardy 54 Vice President of First Citizens Bancshares, Inc.;
Senior Vice President and Senior Trust Officer
of First Citizens National Bank.
Employed by First Citizens National
Bank in 1993. Mr. Clardy was
employed as Vice President and
Senior Trust Officer at Crestar
Bank from January, 1987 to January, 1991 and
as a Vice President of Dominion Trust Company
of Tennessee from 1991 to 1993.
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Ralph Henson 55 Vice President of First Citizens
Bancshares, Inc.; Executive Vice President of
Loan Administration of First Citizens National Bank.
Employed by First Citizens National Bank in 1964.
Mr. Henson served the Bank as Senior Vice President
and Senior Lending Officer until his appointment as
Executive Vice President of Loan Administration in
February, 1993.
Jeffrey Agee 36 Vice President and Chief Financial
Officer of Bancshares, Inc. and
First Citizens as of April, 1994.
Employed by First Citizens National
Bank in 1982. Served the bank
previous to April, 1994 as Vice
President and Accounting Officer.
Appointed Senior Vice President and
Chief Financial Officer of First
Citizens National Bank, April 17,
1996.
Barry Ladd 56 Appointed Executive Vice President
and Chief Administrative Officer of
First Citizens National Bank and
First Citizens Bancshares in 1996.
Senior Vice President and Senior
Lending Officer of First Citizens
National Bank from April 20, 1994
to January 17, 1996. Employed by
the Bank in 1972. Mr. Ladd served
First Citizens as Vice President
and Lending Officer previous to his
appointment as Senior Vice President.
Bennett Ragan, Jr. 48 Executive Vice President and Senior
Lending Officer of First Citizens
National Bank. Senior Vice
President and Senior Lending
Officer from April 20, 1994 to
January 17, 1996. Employed by the
Bank in 1970. Mr. Ragan served the
Bank as Vice President and Lending
Officer since 1986.
Judy Long 42 Senior Vice President,
Administrative Officer and
Secretary to the Board of Directors
of First Citizens National Bank.
Ms. Long also serves as Secretary
to the Board of First Citizens
Bancshares. Employed by the Bank
on July 19,1974. Previously served
as Vice President and Loan
Operations Manager (1992 - 1996).
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Jimmy Welch 50 Senior Vice President and
Commercial Loan Officer. Employed
by the bank on April 20,1987.
Served as Senior Vice President and
Consumer Lending Manager from
October 25, 1990 to April 19, 1995.
Promoted to Senior Vice President
and Consumer Lending Manager on
April 19, 1995. Appointed to the
position of Commercial Loan Officer
August 20, 1996.
BANKING BUSINESS
First Citizens operates a general retail banking business in
Dyer County, Tennessee. The bank expanded its banking
operations into Lauderdale County with the purchase of a
branch bank in Ripley, Tennessee in January, 1995. All
persons who live in either community or who work in or have a
business or economic interest in either county are considered
as forming a part of the area serviced by the bank. First
Citizens provides customary banking services, such as checking
and savings accounts, funds transfers, various types of time
deposits, and safe deposit facilities. It also finances
commercial transactions and makes and services both secured
and unsecured loans to individuals, firms, and corporations.
Commercial lending operations include various types of credit
services for its customers. Agricultural services are
provided that include operating loans as well as financing for
the purchase of equipment and farm land. The installment
lending department makes direct loans to individuals for
personal, automobile, real estate, home improvement, business
and collateral needs. Mortgage lending makes available long
term fixed and variable rate loans to finance the purchase of
residential real estate. These loans are sold in the
secondary market without retaining servicing rights. Credit
cards and open-ended credit lines are available to both
commercial customers and consumers.
First Citizens National Bank is located in a community
supported by a well diversified economy. Dyer County is home
for over 393 full time farm operators of 603 farms with a
total land acreage of 230,906. Total Farm operators and farm
laborers represent a small percentage of the Dyer County
population (Dyer County Statistical Information, 1992-93). At
12/31/96 agriculture loans outstanding totaled $25,895,000
representing 15.28% of total loans. $16,890,000 was well
secured with farmland, including farms, residential and other
improvements, while $9,005,000 were secured loans to finance
agricultural production and equipment purchases. Approximately
$3,211,000 of agricultural loans were 90% FmHA guaranteed.
Dyer County is also the home base for over 45 manufacturing
firms employing in excess of 40% of the population.
Distribution of employment in other areas consist of 14.9%
services, 14.8% government, and 19.3% trade. While First
Citizens is dependent upon the debtors ability to honor their
obligations, there are no concentrations of credit in any one
borrower, type of loan or industry that would represent a
material affect to the net income of the Bank.
First Citizens Financial Plus, Inc., a Bank Service
Corporation wholly owned by First Citizens National Bank is a
licensed Brokerage Service. This allows the bank to compete
on a limited basis with numerous non-bank entities who pose a
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continuing threat to our customer base, and are free to
operate outside regulatory control.
First Citizens was granted trust powers in 1925 and has
maintained an active Trust Department since that time. Assets
as of December 31, 1996 were in excess of $132,892,000.
Services offered by the Investment Management and Trust
Services Division include but are not limited to estate
settlement, trustee of living trusts, testamentary trustee,
court appointed conservator and guardian, agent for investment
accounts, and trustee of pension and profit sharing trusts.
The business of providing financial services is highly
competitive. The competition involves not only other banks
but non-financial enterprises as well. In addition to
competing with other commercial banks in the service area,
First Citizens competes with savings and loan associations,
insurance companies, savings banks, small loan companies,
finance companies, mortgage companies, real estate investment
trusts, certain governmental agencies, credit card
organizations, and other enterprises.
The following tabular analysis sets forth the competitive
position of First Citizens when compared with other financial
institutions in the service area for the period ending June
30, 1996.
Dyer County Market
(All Financial Institutions)
(in thousands)
Total Deposits % of Market Share
Bank Name 06/30/96 06/30/96
First Citizens
National Bank $234,684* 51.10%
First Tennessee
Bank 105,089 22.88%
Security Bank 63,457 13.82%
Union Planters, FSB 52,776 11.48%
Dyersburg City Employees
Credit Union 3,301 .72%
Total $459,307 100.00%
*Does not include deposits of $21,225,000 categorized as
Overnight and fixed term Repurchase Agreements.
At December 31, 1996 Bancshares and its subsidiary, First
Citizens National Bank, employed a total of 145 full time
equivalent employees. Having been a part of the local
community in excess of 100 years, First Citizens has been
privileged to enjoy a major share of the financial services
market. Dyersburg and Dyer County are growing and with this
growth come demands for more sophisticated financial products
and services. Strategic planning has afforded the Company
both the physical resources and data processing technology
necessary to meet the financial needs generated by this
growth.
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USURY, RECENT LEGISLATION AND ECONOMIC ENVIRONMENT
Tennessee usury laws limit the rate of interest that may be
charged by banks. Certain Federal laws provide for preemption
of state usury laws. Legislation enacted in 1983 amends
Tennessee usury laws to permit interest at an annual rate of
interest four (4) percentage points above the average prime
loan rate for the most recent week for which such an average
rate has been published by the Board of Governors of the
Federal Reserve System, or twenty-four percent (24%),
whichever is less (TCA 47-14-102(3)). The "Most Favored
Lender Doctrine" permits national banks to charge the highest
rate permitted by any state lender.
Specific usury laws may apply to certain categories of loans,
such as the limitation placed on interest rates on single pay
loans of $1,000.00 or less for one year or less. Rates
charged on installment loans, including credit cards, are
governed by the Industrial Loan and Thrift Companies Act.
On September 29, 1994, President Clinton signed into law the
Reigle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Act"). The Act provides for nationwide interstate
banking and branching with certain limitations. The Act
permits bank holding companies to acquire banks without regard
to state boundaries after September 29, 1995. The Federal
Reserve may approve an interstate acquisition only if, as a
result of the acquisition, the bank holding company would
control less than 10% of the total amount of insured deposits
in the United States or 30% of the deposits in the home state
of the bank being acquired. The home state can waive the 30%
limit as long as there is no discrimination against out-of-state institutions.
Pursuant to the Act, interstate branching will take effect on
June 1, 1997, except under certain circumstances. Once a bank
has established branches in a host state (a state other than
its headquarters state) through an interstate merger
transaction, the bank may establish and acquire additional
branches at any location in the host state where any bank
involved in the interstate merger transaction could have
established or acquired branches under applicable federal or
state law. The Act further provides that individual states
may opt out of interstate branching. If a state does not opt
out of interstate branching prior to May 31, 1997, then a bank
in that state may merge with a bank in another state provided
that neither of the states have opted out. States may either
enact laws opting out of interstate branching before June 1,
1997 or permit interstate merges transactions earlier than
June 1, 1997, by statute at their option. A state also may
impose conditions on any interstate merger transaction that
occurs before June 1, 1997 if the conditions do not
discriminate against out-of-state banks, are not preempted by
federal law, and do not apply or require performance after May
31, 1997.
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The Federal Reserve in September, 1996 gave bank holding
company section 20 units the right to exclude some securities
earnings from the 10% cap on underwriting revenue. It later
tore down three firewalls, one of which prevented the same
bank employee from selling underwriting services, loans and
transactions accounts. The Fed on December 20 more than
doubled, to 25% the amount of revenue section 20 units may
earn underwriting and dealing in commercial securities. The
Office of the Comptroller of the Currency adopting its
controversial operating-subsidiary rule in November,
established a procedure that national banks may use to create
subsidiaries to underwrite securities sell insurance, or
conduct scores of other activities the banks may engage in
directly. Change in the law for securities underwriting will
have no impact on First Citizens National Bank since the bank
does not engage in this practice.
The OCC's operating-subsidiary rule also streamlined national
banks' applications for new branches. It sets a strict 45-day
deadline for OCC action on all applications, with a 10 day
extension possible when serious CRA issues are raised. The
OCC provision closely parallel proposed changes to Regulation
Y issued by the Fed in August, 1996. Those changes expected
to be finalized soon, would give the Fed 15 days to process
most merger applications. It would also expand data
processing powers, eliminate tying restriction on nonbanks,
and allow bank-run trusts to buy mutual funds advised by the
bank.
The Supreme Court ruled in February, 1996 that states must
permit national banks to sell insurance from places with fewer
than 5,000 residents. In the fall of 1996, the OCC issued
guidelines that limit the authority of states to regulate
insurance sales by national banks and allowing bankers to sell
insurance to customers outside of small towns, including from
bank branches in major cities.
There are no known trends, events or uncertainties that are
likely to have a material effect on First Citizens liquidity,
capital resources or results of operation. 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. There are presently four banks competing for deposit
dollars and earning assets, two of whom are branches of large
regional competitors. First Tennessee Bank and Union Planters
National Bank are two of the largest financial institutions in
the state. 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 that are required
for maintaining satisfactory customer relationships moving
into the next decade and beyond.
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Monetary policies of regulatory authorities, including the
Federal Reserve Board, have a significant effect on operating
results of bank holding companies and their subsidiary banks.
The Federal Reserve Board regulates the national supply of
bank credit by open market operations in United States
Government securities, changes in the discount rate on bank
borrowings, and changes in reserve requirements against bank
deposits. A tool once extensively used by the Federal Reserve
Board to control growth and distribution of bank loans,
investments and deposits has been eliminated through
deregulation. Competition, not regulation, dictates rates
which must be paid and/or charged in order to attract and
retain customers.
Federal Reserve Board monetary policies have materially
affected the operating results of commercial banks in the past
and are expected to do so in the future. The nature of future
monetary policies and the effect of such policies on the
business and earnings of the company and its subsidiaries
cannot be accurately predicted.
ITEM 2. PROPERTIES
First Citizens owns and occupies a six-story building in
Dyersburg, Tennessee containing approximately 50,453 square
feet of office space, bearing the municipal address of First
Citizens Place (formerly 200 West Court). An expansion
program completed during 1988 doubled the available floor
space of the existing facility. The space was utilized to
combine all lending and loan related functions. First
Citizens owns the Banking Annex containing total square
footage of 12,989, of which approximately 3,508 square feet is
rented to various tenants. The municipal address of the bank
occupied portion of the Annex is 215-219 Masonic Street.
The land and building occupied by the Downtown Drive-In Branch
located at 113 South Church Street, Dyersburg, Tennessee is
owned by First Citizens. The building, containing
approximately 1,250 square feet, is located on a lot which
measures 120 feet square. Also located at this address is a
separate ATM facility wholly owned by the Bank.
The Midtown Branch of First Citizens is located at 620 U.S. 51
By-Pass adjacent to the Green Village Shopping Center. The
building contains 1,920 square feet and has been owned by
First Citizens since construction. The land on which this
Branch is located, having previously been leased, was
purchased during 1987. In June of 1992 an additional 1.747
acres adjoining the Midtown Branch property was purchased to
accommodate future growth and expansion. During 1993, the
Board of Directors made a decision to locate a branch office
at 2211 St. John Avenue near the Industrial Park, eliminating
the need to expand the Midtown Branch. In 1996 the property
was moved from Premises and Equipment to Other Real Estate.
The 1.747 acres valued at $164,000, is now offered for sale.
In addition, the Midtown Branch Motor Bank is located on .9
acres adjoining the Midtown Branch. This property consists of
a servicing facility and six remote teller stations and is
owned in its entirety by the Bank. A drive-through ATM was
located at this facility during 1994.
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The Newbern Branch, also owned by First Citizens, is located
on North Monroe Street, Newbern, Tennessee. The building
contains approximately 4,284 square feet and occupies land
which measures approximately 1.5 acres. A separate facility
located in Newbern on the corner of Highway 51 and RoEllen
Road houses an ATM. Both land and building are owned by the
Bank.
The Super Money Market Branch in the Kroger Supermarket on
Highway 78 is operated under a franchise obtained through
National Bank of Commerce, Memphis, Tennessee. While the
fixtures are owned by First Citizens, space is made available
from the Kroger Company through the franchise agreement. An
ATM is also located near the branch in the Kroger facility.
The Industrial Park Branch located at 2211 St. John Avenue is
a full service banking facility that offers drive-thru Teller
and ATM services. The building owned by First Citizens
National Bank contains approximately 2,773 square feet and is
located on 1.12 acres of land. The Industrial Park Branch,
became operational In November, 1994.
In November, 1993 First Citizens National Bank leased space in
the Wal-Mart Store #677 located at 2650 Lake Road in
Dyersburg, Tennessee to locate an Automatic Teller Machine
(ATM). The ATM was installed in December, 1993. In January,
1995 the ATM was relocated in the newly constructed Super Wal-Mart Store at
the same address.
The Ripley Branch of First Citizens National Bank, purchased
January 16, 1995, is located at 292 South Washington Street in
Ripley, Tennessee (Lauderdale County). The Branch contains
approximately 1,450 square feet and was built in 1984 on a
quarter acre of land. The Ripley Branch is a full service
banking facility that also offers drive-up teller and twenty
four hour ATM services. On July 14, 1995 the bank purchased
1.151 acres located on Cleveland Street in Ripley, Tennessee.
The land was purchased for future expansion of the Ripley
Branch.
There are no liens or encumbrances against any of the
properties owned by First Citizens.
ITEM 3. LEGAL PROCEEDINGS
On June 8, 1995, William M. Boehmler resigned without notice
from his position as President and Director of First Citizens
Financial Plus, Inc. a brokerage subsidiary owned by First
Citizens National Bank. A subsequent lawsuit was filed by
First Citizens Financial Plus, Inc. against Boehmler and the
firm who employed him, J. B. Hilliard, W. L. Lyons, Inc.,
seeking compensatory and punitive damages because Boehmler
took information and records allegedly belonging to the
subsidiary. An injunction was issued by the circuit court
prohibiting use of the information by the rival brokerage firm
until the matter could be resolved. In January, 1996, an
arbitration panel of the National Association of Securities
Dealers awarded Boehmler and his current employer $134,045.87
from Financial Plus. The arbitrators ordered Boehmler to pay
Financial Plus $9,500.00 for data reclamation costs. A letter
issued by the arbitration panel stating their decision gave no
reason for the ultimate outcome of the hearing. Based on
advice of legal council, management made the decision not to
pursue an appeal of the arbitration panel's decision.
<PAGE>14
All costs associated with the matter have been included in
1995 financial statements as required by Financial Accounting
Standards.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ending December 31,
1996, there were no meetings, annual or special, of the
shareholders of Bancshares. No matters were submitted to a
vote of the shareholders nor were proxies solicited by
management or any other person.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1996 there were 645 shareholders of
Bancshares' stock. Bancshares common stock is not actively
traded on any market. Per share prices reflected in the
following table are based on records of actual sales during
stated time periods. These records may not include all sales
during these time periods if sales were not reported to First
Citizens for transfer.
Quarter Ended High Low
March 31, 1996 $44.00 $44.00
June 30, 1996 $49.10 $44.00
September 30, 1996 $49.10 $44.00
December 31, 1996 $55.00 $49.10
March 31, 1995 $40.00 $37.40
June 30, 1995 $42.00 $37.90
September 30, 1995 $42.00 $41.99
December 31, 1995 $44.00 $42.00
Dividends paid each quarter of 1996 were 32.5 cents per share.
In addition a special dividend of 30 cents per share was paid
during the fourth quarter, bringing total dividends paid per
share during 1996 to $1.60. Dividends paid per share during
1995 were 30 cents per share. A special dividend of 10 cents
per share was declared during the fourth quarter of 1995.
Dividends - 1996
Dividend Quarter
Per Share Declared
.325 1st
.325 2nd
.325 3rd
.325 4th
.30* 4th
Total $1.60
*Special dividend paid in fourth quarter, 1996.
Future dividends will depend on Bancshares' earnings and
financial condition and other factors which the Board of
Directors of Bancshares considers relevant.
<PAGE>
<PAGE>15
ITEM 6. SELECTED FINANCIAL DATA
The following table presents information for Bancshares
effective December 31 for the years indicated.
(in thousands)
(except per share data)
1996 1995 1994 1993 1992
Net Interest &
Fee Income (5) $ 12,822 $ 11,283 $ 10,444 $ 10,220 $ 9,733
Gross Interest
Income(5) $ 24,781 $ 22,465 $ 18,415 $ 17,481 $ 18,237
Income From
Continuing
Operations $ 3,709 $ 2,706 $ 2,946 $ 2,638 $ 2,175
Long Term
Obligations(4) $ 2,997 $ 4,652 $ 4,125 $ 0 $ 0
Income Per Share
from Continuing
Operation(1) $ 5.04 $ 3.72 $ 4.15 $ 3.76 $ 3.39
Net Income per
Common Share
(2)(3) $ 5.04 $ 3.72 $ 4.15 $ 3.94 $ 3.39
Cash Dividends
Declared
per Common
Share(2)(3) $ 1.60 $ 1.30 $ 1.19 $ .99 $ .94
Total Assets at
Year End $313,069 $291,412 $256,687 $234,892 $239,897
Allowance for
Loan Losses
as a % Loans 1.08% 1.16% 1.22% 1.13% 1.26%
Allowance for
Loan Losses as
a % of Non-
Performing Loans 176.08% 707.99% 196.75% 520.50% 967.62%
Loans 90 Days
Past Due as a
% of Loans .09% .17% .62% .22% .13%
(1)Restated to reflect 10% stock dividend on December 15,
1992.
(2)Restated to reflect 2.5 for 1 Stock Split on October 15,
1993.
(3)The $1.60 dividend for 1996 reflects $.325 x 4 plus a
special dividend of $.30.
(4)Long Term Obligations is FHLB Borrowings matched with Loans
& Investments.
(5)Reclassified 1992 to 1994 Overdraft Fee Income. It is not
included on this line item.
Credit Card annual fees were restated from loan fees to other
income in years 1992 to 1995.<PAGE>
<PAGE>16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
To understand the following analysis, reference should be made
to the consolidated financial statements and other selected
financial data presented elsewhere in this report. For
purposes of the following discussion, net interest income and
net interest margins are presented on a fully taxable
equivalent basis. Per share data is adjusted to reflect all
stock dividends declared through December 31, 1996.
1996 was a record year for First Citizens National Bank. Net
income was $3,709,904 compared to $2,705,656 and $2,946,249 in
1995 and 1994 respectively. Earnings per common share was
$5.03, $3.72 and $4.15 for the years under comparison.
Weighted average shares outstanding slightly increased to
736,436 from 726,489 at year end 1995 and 709,434 year end
1994. Shares were issued from previously authorized unissued
stock to satisfy the requirements of the Dividend Reinvestment
Program. Book and Market value continue to reflect a strong
earnings performance. Book value of Bancshares' stock is up
$2.88 or 7.78% at 12/31/96. Market value was $55.00 a share
compared to $44.00 at 12/31/95. Total Assets net of reserve
for loan losses were $313,079,000, up from $291,412,000 in
1995. Return on average assets was 1.23 percent after payment
of 1996 bonuses, while ROA for 1995 was .96 percent. Double
digit loan growth, experienced again in 1996, ended the year
with total gross loans of $211,389,000. Nonaccruals, non-performing assets
and problem loans were up slightly due to the addition of one credit of
approximately $991,000 in April, 1996. The credit is discussed further in
the non-performing asset section of this report. Return on average equity
of 13.14 percent improved 2.89% from year end 1995. Management's
continued focus on the reduction of cost of funds is reflected
in the .13 percent decline when comparing 4.24 percent at
12/31/96 to 4.37 percent at 12/31/95.
Intense strategic planning is credited with the record earning
performance reflected. The earnings performance was not only
driven by strong loan demand, but is also a result of
improved operating efficiencies driven by the bank's ongoing
efforts to accomplish established goals.
Management and staff of First Citizens has made a concentrated
effort to achieve a performance level comparable to its peers.
Aggressive goals of the Bank's Strategic Plan include the
following: (1) To achieve loan growth in excess of 7 percent
annually. (2) To remain an independent community bank serving
the needs of individuals, small businesses, corporations, and
agriculture customers; (3) To maximize the value of First
Citizens to its shareholders by providing the highest level of
customer service and the widest selection of quality products
and services; (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 services; (6) To establish a bank
owned finance company as well as investigate the addition of
insurance sales to the bank's products.
<PAGE>17
Customer satisfaction surveys indicate that First Citizens
provides high quality products and services. The bank
currently holds over 51% of its designated market. Two new
branches were opened to expand the development of new and
future business in 1995. Fulltime equivalent employees
reached high performance peer levels in the last half of 1995,
and have remained at that level throughout 1996. The bank's
Automated Teller distribution (First Connection) was converted
from Deluxe, Inc. To Internet/Most, Reston, Virginia in June,
1996. The "check connection", Visa Check Card was tested and
available to the market at year end 1996. In March, 1997 Delta
Finance, a Tennessee Corporation will open its doors to offer
consumer financing to the surrounding counties. Delta Finance
incorporated in August, 1996, was established as a subsidiary
of First Citizens National Bank. 1997 Budget projects loan
volume ranging from $1,200,000 to $1,500,000. The company is
expected to reach the breakeven point at $1.5 million within
1997.
The Bank's Strategic Plan (a three year plan that is reviewed
and updated annually) calls for the addition of insurance
sales to the banks' product and services provided to its
customers. The bank is exploring the possibility of offering
property and casualty insurance products through a source
provided by Tennessee Bankers Association known as Bank
Insure. BankInsure is a pilot program established in eight
states, including Tennessee. The banks efforts to establish
insurance sales will be intensified beginning the first
quarter 1997. Contacts with independent agents will be
explored to determine if a bank owned insurance company would
be a more profitable alternative than forming an alliance with
BankInsure.
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 the second quarter, 1997. Harland Corporation
MCIF system was installed the last quarter, 1996; a marketing
director was hired in January 1996, and a contract was
negotiated with Alex Schessunoff to develop a bankwide Quality
Sales Quality Service Program. Results of a Home Banking
survey completed by a Jackson, Tennessee, Marketing firm
indicated a demand for telephone and P.C. home banking
product. First Citizens currently offers a touchtone
telephone banking service at no cost to its customers. A
search for PC home banking will begin the second quarter,
1997.
Changes in Financial Accounting Standards
FASB NO. 114 (Accounting by creditors for impairments of
loans). Effective date is fiscal years beginning after
December 15, 1994. FASB 114 requires a bank to recognize
impairment of a loan if the present value of expected future
cash flows discounted at the loan's effective interest rate
<PAGE>18
(or alternatively, the observable market price of the loan or
the fair value of the collateral) is less than the recorded
investment. If the fair value used is at least equal or
greater than the recorded amount, there is no impairment.
Impaired loans are usually considered loans in non-accrual
status, 90 days or more past due that will not pay full
interest and principal due, or have been classified as a
problem loan. First Citizens National Bank has implemented
procedures that capture average balances of impaired loans,
interest income associated with impaired loans, and
allocations made to the reserve for loan losses associated
with impaired loans. There has been no material affect to
Bancshares or the Bank as a result of the implementation of
FASB 114.
FASB NO. 115 (Accounting for certain investments in Debt and
Equity Securities). Effective January 1, 1994, the Company
adopted FASB 115 and classified securities contained in its
investment portfolio according to stated specifications: Held-to-maturity
(includes securities which the company has the
intent and ability to hold to maturity); Trading securities
(includes investment securities which are held for short-term
resale); and Available-for-sale (includes all other investment
securities). The cumulative effect of FASB 115 on the
investment portfolio for 1995 was a positive $485,000 and the
1996 cumulative effect was a positive $95,000 (net of tax).
FASB NO. 118 (Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures) amends FASB Statement
114 to allow a creditor to use exiting methods for recognizing
interest income on impaired loans. Implementation of
procedures discussed in FASB 114 includes accounting
requirements for income recognition on impaired loans.
FASB NO. 119 (Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments) amends
FASB 105 (Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk), and FASB 107
(Disclosures about Fair Value of Financial Instruments).
Effective for years after December 15, 1994. Statement No. 119
requires disclosures about the amounts, nature, and terms of
derivatives that are not subject to statement 105 because they
do not result in off-balance-sheet risk of accounting loss.
It requires banks to make a distinction between financial
instruments held or issued for trading purposes and for
purposes other than trading. Derivative products held in the
banks investment portfolio are reported on a quarterly basis
to the banks investment committee and Board of Directors.
Reports presented include disclosure requirements stated in
FASB 119. First Citizens National Bank has $0 investment in
derivative instruments.
FASB NO. 121 (Impairment of Long Lived Assets). FASB 121
establishes accounting standards for the impairment of long
lived assets, certain identifiable intangibles, and good will
related to those assets to be held and used and for long lived
assets and certain identifiable intangibles to be disposed of.
An impaired loss is recognized as the amount by which the
carrying amount of the asset exceeds the fair market value of
the assets. FASB 121 is effective for years beginning after
December 15, 1995. We do not project any material write downs
at this time.
<PAGE>
<PAGE>19
NON-INTEREST INCOME
The following table reflects non-interest income for the years
ending December 31, 1996, 1995, and 1994:
<TABLE>
December 31
Change from prior year
(in thousands)
<C> <S> <S> <S> <S> <S> <S> <S>
Increase Increase
Total (Decrease) Total (Decrease) Total
1996 Amount Percentage 1995 Amount Percentage 1994
Service Charges on
Deposit Accounts $1,457 $ 152 11.65% $1,305 $ 189 16.94% $1,116
Other Service Charges,
Commissions & Fees $ 674 $ 181 36.72% $ 493 $(242) (33.93%) $ 735
Other Income $1,238 $ 288 30.32% $ 950 $(101) (9.61%) $1,051
TOTAL NON-INTEREST
INCOME $3,369 $ 621 22.60% $ 48 $(154) (5.31%) $ 902
</TABLE>
Total non-interest income is up over 22 percent when comparing
December 31, 1996 to December 31, 1995 after declining 5.3
percent when comparing the previous two year ends. Service
charges on deposit accounts contributed $1.4 million to total
income in 1996. Service charge income rose 11.65% from 1995
and is projected to increase approximately $100,000 in 1997.
In January, 1997 the per item overdraft fee increased from
$20.00 to $22.00. In addition, a daily overdraft charge of
$5.00 per day is assessed for each day the account is
overdrawn after a 5 day grace period. The overdraft fee was
increased in April, 1995 from $17.50 to $20.00 and the per day
overdraft charge was increased from $3.00 per day to $5.00 per
day. Overdraft income was reclassified from interest and fees
on loans into other income for prior years and restated within
the table. Non interest income in 1995 decreased when
compared to 1994 due to (1) a gross profit of $297,000
resulting from the sale of the Jackson (Madison County),
Tennessee property in 1994; and (2) A decrease in fee income
of $160,000 received from the Bank's Subsidiary, Financial
Plus, Inc. The broker/dealer experienced a change in
management that resulted in legal proceedings (explained in
the legal proceeding section of this report). Other income
increased in 1996 due to a one time refund of $70,705 from
bankruptcy trustees of Southeast Fort Worth Ltd., increased
fee income from Financial Plus, Inc. and security gains
realized from the sale of Securities from the banks'
investment portfolio. The Southeast refund partially
reimbursed the bank for settlement made to trust customers by
the bank in December 1989. Trust income improved in excess of
25 percent in 1996. Fees charged for services rendered were
restructured in 1995. Other service charges, commissions &
fees were restated for prior years to eliminate overdraft and
annual fees on the credit cards. Other income was restated to
include those fees.
<TABLE>
NON-INTEREST EXPENSE
December 31
Change from prior year
(in thousands)
Increase Increase
Total (Decrease) Total (Decrease) Total
1996 Amount Percentage 1995 Amount Percentage 1994
<C> <S> <S> <S> <S> <S> <S> <S>
Salaries & Employee
Benefits $5,497 $ 325 6.29% $5,172 $ 202 4.07% $4,970
Net Occupancy Expense 446 105 30.80% $ 341 $ 23 7.24% $ 318
Other Operating Expense 3,895 (220) 5.25% $4,115 $ 593 16.84% $3,522
TOTAL NON-INTEREST EXPENSE $9,889 $ 261 2.71% $9,628 $ 818 7.79% $8,810
</TABLE>
<PAGE>20
Management efforts to control non-interest expense continues
to be reflected when reviewing non-interest expense categories
for the years under comparison. Non-interest expense, up
slightly at 2.71%, was maintained below the consumer inflation
rate of 3 percent. Salaries and benefits increased 6.29% in
response to payment of bonus incentives offered for improved
financial performance. This trend is likely to continue,
given the bank's agressive earnings goals. Fulltime equivalent
employees remain at 145 for the years 1995 and 1996. Fulltime
equivalent at 12/31/94 was 150. FTE remained flat in 1996 in
spite of the employment of 4 tellers on the shelf hired to
fill vacancies created by absence or special projects. Assets
per employee totaled $2.1 million at 12/31/96, $1.9 million at
12/31/95. This compares to $2.3 million for peer group banks
at 12/31/96. Increased operating expense of 16.84% in 1995 is
attributed to settlement and professional fees of $261,000
incurred as a result of arbitration between Financial Plus,
Inc. and William M. Boehmler and Hilliard Lyons, Inc.
December 31 Asset Per Employee-Peer
Assets Per Employee-FCNB Groups
(in thousands) (in thousands)
1996 $2,159 $2,300
1995 $1,969 $1,900
1994 $1,695 $1,900
1993 $1,563 $1,900
1992 $1,643 $1,900
COMPOSITION OF DEPOSITS
The average daily amounts of deposits and rates paid on such
deposits are summarized for the periods indicated:
December 31
(in thousands)
1996 1995 1994
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 26,641 - $ 25,375 - $ 24,989 -
Savings Deposits $ 73,908 3.19% $ 65,996 3.05% $ 64,912 2.69%
Time Deposits $146,562 5.63% $136,631 5.91% $111,268 4.79%
TOTAL DEPOSITS $247,111 8.39% $228,002 4.43% $201,169 3.52%
Growth in total deposits continues to be a challenge for First
Citizens National Bank. The company's marketplace is
described as highly competitive, with a fairly sophisticated
customer base. Competition is aggressive for both loans and
deposits. According 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. In spite of aggressive competition, total deposits
increased $19.1 million and $26.8 million when comparing
12/31/96 to 12/31/95 and 12/31/94. A review of the
composition of deposits in 1996 reflects growth of $8 million
<PAGE>
<PAGE>21
in savings deposits and approximately $10 million in time
deposits. Approximately $32 million of total deposit growth
in 1995 was centered in time deposits. Other factors
contributing to deposit growth was higher rates paid on
deposits than paid in 1994 and the purchase of $8 million in
deposits through the Ripley Branch acquisition. An analysis
of 1994 reflects customers response to low interest rates and
their reluctance to recommit funds into bank Certificates of
Deposits. Demand deposits have remained relatively flat when
reviewing the years under comparison. However, sweep account
funds totaling $14,844,000 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 Agreement to Repurchase totaling $21.2
million. The average rate paid on interest bearing liabilities
at 12/31/96 was 4.02% compared to 4.89% at 12/31/95 and 4.81%
at 12/31/94. Pricing of deposits is based on local market
competition and Treasury Bill rates.
SHORT TERM BORROWINGS
12/31/96 12/31/95
Amount outstanding-end of Period $21,225 $19,745
Weighted Average Rate of Outstanding 4.31% 4.59%
Maximum Amount of Borrowings at
Month End 32,902 18,624
Average Amounts Outstanding for
Period 20,883 17,033
Weighted Average Rate of Average
Amounts 4.48% 4.66%
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
offered In 1996 was a "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 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 accounts
statements offered to the market in 1996, 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 or
more outstanding on the books of First Citizens on December
31, 1996. The overall total increased in excess of $9 million
when compared to the prior year.
MATURITY DISTRIBUTION OF TIME DEPOSITS IN AMOUNTS OF $100,000
AND OVER
December 31
(in thousands)
1996 1995
Amount Percent Amount Percent
Maturing in:
3 months or less $13,960 36.57% $ 3,577 13.40%
Over 3 through 12 months $16,902 44.26% $13,928 52.16%
Over 12 months $ 7,319 19.17% $ 9,201 34.44%
TOTAL $38,181 100.00% $26,706 100.00%
<PAGE>22
The following table sets forth an analysis of sources and uses
of funds for the years under comparison.
SOURCES AND USES OF FUNDS
(in thousands)
1996 1995 1994
FUNDING USES Average Increase Average Increase Average
Balance (Decrease) Balance (Decrease) Balance
Amount % Amount % Amount
INTEREST-EARNING
ASSETS:
Loans (Net of
Unearned Discounts
& Reserve) $203,663 $ 20,645 11.28% $183,018 $22,764 14.21% $160,254
Taxable Investment
Securities $ 64,392 $ 5,032 8.48% $ 59,360 $10,593 21.73% $ 48,767
Non-Taxable
Investment
Securities $ 10,825 $ 358 3.42% $ 10,467 $(2,817)(21.21%) $ 13,284
Federal Funds
Sold $ 1,166 $(1,437)(55.21%)$ 2,603 $ (84) (3.13%) $ 2,687
Interest Earning
Deposits In
Banks $ 196 $ 83 73.46% $ 113 $ (43)(27.57%) $ 156
TOTAL INTEREST-
EARNING ASSETS $280,242 $24,681 9.66% $255,561 $30,413 13.51% $225,148
Other Uses $ 23,478 $ 2,540 12.14% $ 20,938 $ 187 .91% $ 20,751
TOTAL FUNDING
USES $303,720 $27,221 9.85% $276,499 $30,600 12.45% $245,899
INTEREST-BEARING
LIABILITIES:
Savings
Deposits $ 73,908 $ 7,912 11.99% $ 65,996 $ 1,084 1.15% $ 64,912
Time Deposits $146,562 $ 9,931 7.27% $136,631 $25,363 22.80% $111,268
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 28,470 $ 4,857 20.57% $ 23,613 $ 967 4.27% $ 22,646
TOTAL INTEREST-
BEARING
LIABILITIES $248,940 $ 22,700 10.04% $226,240 $27,414 13.79% $198,826
Demand Deposits $ 26,641 $ 1,266 4.99% $ 25,375 $ 386 1.55% $ 24,989
Other Sources $ 28,139 $ 3,255 13.08% $ 24,884 $ 2,800 12.68% $ 22,084
TOTAL FUNDING
SOURCES: $303,720 $ 27,221 9.85% $276,499 $30,600 12.45% $245,899
<PAGE>
<PAGE>23
<TABLE>
SUMMARY - AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
(FIRST CITIZENS NATIONAL BANK)
Monthly Average Balances and Interest Rates
(in thousands)
1996 1995 1994
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) $203,658 $19,768 9.71% $182,997 $ 17,718 9.69% $160,217 $ 14,619 9.12%
Investment
Securities:
Taxable $ 64,392 $ 4,353 6.76% $ 59,360 $ 3,948 6.65% $ 48,767 $ 2,978 6.11%
Tax Exempt (4) $ 10,825 $ 755 6.98% $ 10,467 $ 730 6.98% $ 13,284 $ 908 6.84%
Interest Earning
Deposits $ 196 $ 7 3.58% $ 113 $ 7 6.20% $ 156 $ 5 3.21%
Federal Funds
Sold $ 1,166 $ 69 5.92% $ 2,603 $ 158 6.07% $ 2,687 $ 113 4.21%
Lease Financing $ 5 $ 1 20.00% $ 21 $ 2 9.53% $ 37 $ 4 10.81%
Total Interest
Earning Assets $280,242 $24,953 8.91% $255,561 $ 22,563 8.83% $225,148 $ 18,627 8.27%
NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 10,048 $ - - $ 9,457 $ - - $ 8,876 $ - -
Bank Premises and
Equipment $ 8,499 $ - - $ 8,699 $ - - $ 8,008 $ - -
Other Assets $ 4,931 $ - - $ 2,782 $ - - $ 3,867 $ - -
Total Assets $303,720 $ - - $276,499 $ - - $245,899 $ - -
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 73,908 $ 2,355 3.19% $ 65,996 $ 2,009 3.05% $ 64,912 $ 1,746 2.69%
(5)
Time Deposits $146,562 $ 8,246 5.63% $136,631 $ 8,063 5.91% $111,268 $ 5,335 4.79%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 28,470 $ 1,358 4.77% $ 23,613 $ 1,184 5.02% $ 22,646 $ 912 4.03%
Total Interest
Bearing
Liabilities $248,940 $11,959 4.81% $226,240 $ 11,256 4.98% $198,826 $ 7,993 4.02%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 26,641 $ - - $ 25,375 $ - - $ 24,989 $ - -
Other
Liabilities $ 2,213 $ - - $ 1,972 $ - - $ 1,553 $ - -
Total
Liabilities $277,794 $ - - $253,587 $ - - $225,368 $ - -
SHAREHOLDERS'
EQUITY $ 25,926 $ - - $ 22,912 $ - - $ 20,530 $ - -
<PAGE>24
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $303,720 $ - - $276,499 $ - - $245,899 $ - -
NET INTEREST
INCOME $ - $12,994 - $ - $11,307 - $ - $10,634 -
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.64% $ - $ - 4.43% $ - $ - 4.72%
</TABLE>
(1) Loan totals are shown net of interest collected, not earned and loan
loss reserves.
(2) Fee Income is included in interest income and the computations of the
yield on loans. Overdraft Fee Income is excluded from the totals.
(3) Includes loans on nonaccrual status.
(4) Interest and rates on securities which are non-taxable for Federal
Income Tax purposes are presented on a taxable equivalent basis.
(5) Includes Insured Money Fund, NOW, Club Accounts, and other Savings.
<TABLE>
VOLUME/RATE ANALYSIS
(First Citizens 1996 Compared to 1995 1995 Compared to 1994
National Bank) Due to Changes in: Due to Changes in:
Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(in thousands)
<C> <S> <S> <S> <S> <S> <S>
Interest Earned On:
Loans $ 2,002 $ 48 $ 2,050 $ 2,987 $ 112 $ 3,099
Taxable Investments 335 70 405 647 323 970
Tax Exempt Investment
Securities 25 - 25 (193) 15 (178)
Interest Bearing
Deposits with Other
Banks 5 (5) 0 1 1 2
Federal Funds Sold and
Securities purchased
under agreements to
resell (87) (2) (89) (4) 49 45
Lease Financing (1) - (1) (4) 2 (2)
TOTAL INTEREST EARNING
ASSETS $ 2,279 $ 111 $ 2,390 $ 3,434 $ 502 $ 3,936
Interest Paid On:
Savings Deposits 241 105 346 29 234 263
Time Deposits 587 (404) 183 1,215 1,513 2,728
Federal Funds Purchased
and Securities Sold
Under Agreement to
Repurchase 244 (70) 174 39 233 272
TOTAL INTEREST BEARING
LIABILITIES $ 1,072 $ (369) $ 703 $ 1,283 $ 1,980 $ 3,263
INTEREST EARNINGS $ 1,207 $ 480 $ 1,687 $ 2,151 $(1,478) $ 673
</TABLE>
A summary of average interest earning assets and interest
bearing liabilities is set forth in the preceding table
together with average yields on the earning assets and average
cost on the interest bearing liabilities. Total interest
earning assets increased 9.66% and 13.51% when comparing 1996
to 1995 and 1994. Total interest bearing liabilities
<PAGE>25
increased 10.04% and 13.79% when comparing 1996, 1995 and 1994
respectively. Total interest earning assets averaged
$280,242,000 at an average rate of 8.91% while total interest
bearing liabilities averaged $248,940,000 at an average rate
of 4.81%. Net yield on average earning assets (annualized)
was 4.64%, 4.43%, and 4.72% for the years 1996, 1995, and
1994, reflecting an upward swing in interest rates in 1994.
Maintaining interest rate margins achieved in prior years
proved more difficult in 1995 due to higher rates paid on
deposits. However, 1996 Cost of funds was reduced, thereby
improving interest rate margins. 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.
LOAN PORTFOLIO ANALYSIS
COMPOSITION OF LOANS
December 31
(in thousands)
1996 1995 1994 1993 1992
Real Estate Loans:
Construction $ 17,130 $ 12,954 $ 10,511 $ 7,675 $ 5,272
Mortgage $127,080 $107,844 $ 97,310 $ 87,314 $ 79,376
Commercial, Financial
and Agricultural Loans $ 42,067 $ 45,061 $ 38,843 $ 35,626 $ 33,931
Installment Loans to
Individuals $ 22,743 $ 23,718 $ 19,117 $ 15,901 $ 15,077
Other Loans $ 2,369 $ 2,329 $ 3,000 $ 2,806 $ 2,005
TOTAL LOANS $211,389 $191,906 $168,781 $149,322 $135,661
CHANGES IN LOAN CATEGORIES
December 31, 1996 as compared to December 31, 1995
(in thousands)
Amount of Increase % of Increase
Loan Category (Decrease) (Decrease)
Real Estate $23,412 19.39%
Commercial, Financial
and Agricultural $(2,994) (6.65%)
Installment Loans to
Individuals $ (975) (4.11%)
Other Loans $ 40 1.72%
TOTAL LOANS $19,483 10.16%
The bank's loan portfolio has experienced exceptional loan growth as
reflected in the Composition of Loans table. Total loans at 12/31/96 was
$211,389,000 compared to $191,906 000 for the same time period in 1995.
A comparison of growth in the portfolio indicates the largest percentage
of growth (19.39%) is centered in Real Estate. Mortgage and con-struction
loans increased approximately $23 million in 1996. Growth in
this category in 1995 exceeded 19 percent. The upward trend is
attributed to substantial growth in both population and number of
households recorded in Dyer county over the past decade. Loan categories
<PAGE>26
reflecting a decrease from 1995 are Commercial, Financial and Agriculture
loans ($2,994,000 or 6.65%) and Installment Loans to Individuals
($975,000 or 4.11%). Agricultural resources comprise a significant part
of the Dyer County market. In 1996, crop production as well as commodity
prices were higher than in previous years, thereby accounting for a
significant pay down in agriculture loans at year end. Problem and non-
performing loans increased after April, 1996 due to the addition of
Bennett Funding Group, Inc. loan in the amount of $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. Assets of
the corporation were frozen as a result of the bankruptcy filing. First
Citizens National Bank is a holder of outstanding debt on Bennett Funding
Group, Inc. totaling $991,029 down from the beginning balance of
$1,699,880. As of December 31, 1996 approximately $300,000 of the debt
was charged off. An allocation of $400,000 had been added to the loan
loss reserve to cover any exposure to the bank. The bank holds 176
outstanding leases securing the debt. Of the total, 25 have been
contacted using the acceptable language provided by Bennett. Response
received indicate that the equipment securing the leases is in place and
in working order. All leases have been reinspected and we have no reason
to believe there are fictitious or fraudulent leases in our portfolio.
First Citizens joined with other banks, also purchases of leases from
Bennett Funding, to employ legal representation as a group until all
facts can be sorted out.
First Citizens is located in the Dyersburg/Dyer County Trade Area, having
a population of 40,000. The entire trade area has out paced 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. The 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 40.5%. Dyer
County's unemployment rate at year end was 6.8% down from November's rate
of 7.2%, but higher than the State of Tennessee's rate of 4.2%. The loan
portfolio is made up of quality loans, and is well diversified with no
concentrations of credit in any one industry. Problem loans totaled
$2,856,235 at 12/31/96, while watch loan total was slightly above $5,000.
Total non-performing loans were .61% of total portfolio, at 12/31/95
compared to .73% for peer group banks. Experience of the lending staff
and adherence to policy lends a comfort level to the portfolio that
supports the Loan Loss Allowance at the present level.
The book value of repossessed real property held by Bancshares at year
end was $194,000 compared to $935,000 at 12/31/95 and $1,119,000 at
12/31/94. The balance was significantly reduced as a result of the sale
of the Strip Shopping Center (at a loss of $18,000) in November, 1996.
The remaining balance held in repossessed real property represents 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 $164,000. 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.
Loan Administration sets policy guidelines approved by the Board of
Directors regarding portfolio diversification and underwriting standards.
Loan policy also includes board approved guidelines for collateral-ization,
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 as follows:
<PAGE>27
Collateral Max. Amortization Max. LTV
Real Estate Various (see discussion) Various (see discussion)
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
of the bank's market area and the general economic state of the market
area, the bank will strive to maintain a real estate loan portfolio
diversification based upon the following:
. Agricultural loans totaling in the aggregate no more than 20% of the
Bank's total loans.
. Land acquisition and development loans totaling in the aggregate no
more than 10% of the Bank's total loans.
. Commercial construction loans totaling in the aggregate no more than
10% of the Bank's total loans.
. Residential construction loans totaling in the aggregate no more than
10% of the Bank's total loans.
. Residential mortgage loans totaling in the aggregate no more than 40%
of the Bank's total loans.
. Commercial loans totaling in the 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%
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:
<PAGE>28
. 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;
. 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;
. 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
. 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 for the years
indicated are as follows:
1996 - 9.71%
1995 - 9.69%
1994 - 9.12%
1993 - 9.46%
1992 - 10.05%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $34,023,000 at 12/31/96.
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $37,390 $91,237 $15,583
Commercial, Financial
and Agricultural $25,639 $15,332 $ 1,096
All Other Loans $ 6,330 $18,599 $ 183
TOTALS $69,359 $125,168 $16,862
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $125,933
Interest Rates are Floating or Adjustable $ 16,097
The degree of interest rate risk that a bank is subject to can be
controlled through a well managed asset/liability management program.
First Citizens controls interest rate risk by matching assets and
liabilities, (by employing interest-sensitive funds in assets that are
also interest sensitive). One tool used to ensure market rate return is
<PAGE>29
variable rate loans. Loans totaling $84,456,000 or 39.95% of the total
portfolio are subject to repricing within one year or carry a variable
rate of interest. Loan maturities in the one to five year category
increased to $125,165,000 at 12/31/96 from $115,163,000 at 12/31/95 as a
result of customer demand to lock in fixed rates for a longer period of
time. The trend exhibited by consumers in recent years to lock in
interest rates is projected to continue in 1997.
NON-PERFORMING LOANS
Nonaccrual, Restructured and Past Due Loans and Foreclosed Properties
(First Citizens National Bank)
December 31
(in thousands)
1996 1995 1994 1993 1992
Nonaccrual Loans $1,118 $ 836 $ 945 $1,079 $1,743
Restructured Loans 0 0 0 0 0
Foreclosed Property
Other Real Estate, 50 111 148 98 550
Other Repossessed
Assets 0 0 0 0 0
Loans and leases 90 days
Past due and still
accruing interest 177 313 1,044 322 176
Total Nonperforming
Assets $1,295 $1,260 $2,137 $1,499 $2,469
Nonperforming assets
as a percent of
loans and leases
plus foreclosed
property at end
of year .62% .66% 1.27% 1.01% 1.82%
Allowance as a percent of:
Nonperforming
assets 176.22% 175.88% 96.12% 111.81% 68.98%
Gross Loans 1.08% 1.16% 1.22% 1.12% 1.27%
Addition to Reserve as a
percent of Net
Charge-Offs 112.16% 180.20% 1,675.00% 93.69% 63.82%
Loans and leases 90 days
past due as a percent of
loans and leases at year
end .09% .17% .62% .22% .13%
Recoveries as a
percent of Gross
Charge-Offs 20.15% 44.66% 87.10% 28.79% 36.17%
Total Non Performing Assets were $1,295,000 as of 12/31/96 compared to
$1,260,000 at year end in 1995. Non performing Assets as a percent of
loans was .62% compared to .66% in 1995 and .73% for peer group banks.
Allowance for Loan Losses as a percent of Nonperforming assets and total
loans was 176.22% and 1.08% respectively. Loan policy calls for an
allowance balance of at least 1% of total loans. Continued improvements
reflected in the financial ratios are indicative of well communicated loan
policies and procedures. 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 due test for the non-accrual of interest
discussed above, the date on which an asset reaches non-accrual status is
determined by it 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
<PAGE>30
discharge the debt (including accrued interest) in full, 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 twelve months ending 12/31/96 if all loans
reported as non-accrual had been current in accordance with their original
terms and had been outstanding throughout the period is $201,000. Interest
income on loans reported as ninety days past due and on interest accrual
status was $48,000 for 1995. 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". First Citizens has no Restructured Loans for the
period being reported.
Certain loans contained on the bank's Internal Problem Loan List are not
included in the listing of non-accrual, past due or restructured loans.
Management is confident that, although certain of these loans may pose
credit problems, any potential for loss has been provided for by specific
allocations to the Loan Loss Reserve Account. 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.
LOAN LOSS EXPERIENCE & RESERVE FOR LOAN LOSSES (in thousands)
1996 1995 1994 1993 1992
Average Net Loans
Outstanding $203,663 $183,018 $160,254 $141,664 $134,514
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 2,216 $ 2,054 $ 1,676 $ 1,703 $ 1,936
Loan Charge-Offs $ (680) $ (365) $ (186) $ (601) $ (1,009)
Recovery of Loans
Previously Charged Off $ 137 $ 163 $ 162 $ 173 $ 365
Net Loans Charged Off $ (543) $ (202) $ (24) $ (428) $ (644)
Additions to Reserve
Charged to Operating
Expense $ 609 $ 364 $ 402 $ 401 $ 411
Balance at End of
Period $ 2,282 $ 2,216 $ 2,054 $ 1,676 $ 1,703
Ratio of Net Charge-
Offs to Average Net
Loans Outstanding .27% .11% .01% .30% .48%
The preceding table summarizes activity posted to the Loan Loss Reserve
Account for the past five years. The summary includes the average 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. Changes to the
Reserve Account for the quarter just ended consisted of (1) Loans charged
off of $680,000 (2) Recovery of loans previously charged off $137,000 and
(3) Additions to reserves totaling $609,000.
An analysis of the allocation of the allowance for Loan Losses is made on a
fiscal quarter at the end of the month, (February, 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
<PAGE>31
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 purposes of
generally accepted accounting principles, as well as regulatory accounting
principles.
An annual review of the loan portfolio to identify the 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 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.
Identification of impaired loans from non-performing assets as well as
bankrupt and doubtful loans is paramount to the reserve analysis. Special
allocations shall support loans found to be collateral or interest cash
flow deficient. In addition an allowance shall be determined for pools of
loans including all other criticized assets as well as small homogeneous
loans managed by delinquency. In no circumstance shall the reserve fall
below 1% of total loans less government guarantees. The following is a
sample of information analyzed quarterly to determine the allowance for
loan losses.
<PAGE>
<PAGE>32
LOAN LOSS ALLOWANCE ANALYSIS
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 50.00% $ $
SUBSTANDARD 10.00%
WATCH 5.00%
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 $
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.
<PAGE>
<PAGE>33
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 $200,000
Real Estate-Construction 0
Real Estate-Mortgage 80,000
Installment Loans to individuals & credit cards 120,000
Lease financing 0
01/01/97 through 12/31/97 Total $400,000
The following table will identify charge-offs by category for the periods
ending December 31 as indicated:
Year Ending December 31
(in thousands)
1996 1995 1994
Charge-offs:
Domestic:
Commercial, Financial & Agricultural $ 432 $ 54 $ 32
Real Estate-Construction 0 0 0
Real Estate-Mortgage 20 113 22
Installment Loans to individuals
& credit cards 228 198 132
Lease financing 0 0 0
Total $ 680 $ 365 $ 186
Recoveries:
Domestic:
Commercial, Financial & Agricultural $ 32 $ 38 $ 30
Real Estate-Construction 0 0 0
Real Estate-Mortgage 3 19 12
Installment Loans to individuals
& credit cards 102 106 120
Lease financing 0 0 0
Total $ 137 $ 163 $ 162
Net Charge-offs $ 543 $ 202 $ 24
COMPOSITION OF INVESTMENT SECURITIES
December 31
(in thousands)
1996 1995 1994 1993 1992
U. S. Treasury &
Government Agencies $62,194 $59,462 $47,042 $42,502 $59,019
State & Political
Subdivisions $10,569 $10,776 $10,883 $12,774 $ 9,300
All Others $ 2,984 $ 3,654 $ 4,801 $ 5,471 $ 6,129
TOTALS $75,747 $73,892 $62,726 $60,747 $74,448
<PAGE>
<PAGE>34
MATURITY AND YIELD ON SECURITIES - DECEMBER 31, 1996
(in thousands)
Maturing Maturing Maturing
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
U. S. Treasury
and Government
Agencies $ 9,788 5.97% $26,161 6.79% $18,369 7.05% $ 7,876 7.29%
State and
Political
Subdivisions* $ 1,835 7.01% $ 6,652 6.72% $ 1,557 7.85% $ 525 7.72%
All Others $ 500 6.00% $ --- --- $ 2,484 5.60% $ ---- ---
TOTALS $12,123 6.13% $32,813 6.78% $22,410 6.95% $ 8,401 7.32%
*Yields on tax free investments are stated herein on a taxable
equivalent basis.
HELD TO MATURITY & AVAILABLE FOR SALE SECURITIES - DECEMBER 31, 1996
Held to Maturity Available for Sale
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities 3,005 3,002 6,971 7,050
U.S. Government Agency & Corporation
obligations (exclude mortgage-backed
securities):
Issued by U.S. Govt. Agencies (2) 0 0 0 0
Issued by U.S. Govt.-Sponsored
Agencies (3) 16,027 16,009 26,760 26,819
Securities issued by states & political
subdivisions in the U.S.:
General Obligations 3,549 3,556 3,412 3,413
Revenue Obligations 2,699 2,699 901 908
Industrial development &
similar obligations 310 319 2,896 2,911
Mortgage-backed Securities (MBS):
Pass-through securities:
Guaranteed by GNMA 786 793 362 368
Issued by FNMA & FHLMC 0 0 0 0
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 1,146 3,754 3,739
Collateralized by MBS
issued or guaranteed by
FNMA, FHLMC or GNMA 35 35 0 0
All other mortgage-backed securities 0 0 0 0
Other Debt Securities:
Other domestic debt securities 500 501 0 0
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 0 749 757
All other equity securities (1) 0 0 1,726 1,727
Total 28,055 28,060 47,531 47,692
(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>35
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 funds deposits. Investment activity for 1996
was driven by strong loan demand and Financial Accounting Standard No.
115 (further explanation is contained within this section as well as
footnotes included in the Auditors Report) which addresses Accounting in
Certain Investments in Debt and Equity Securities. The investment
portfolio, which currently totals $75,747,000, is comprised of U. S.
Treasury and U. S. Agency Obligations of $62,194,000, Municipal
Obligations of $10,569,000, and all other investments totaling
$2,984,000. Fixed rate holdings comprise 90% of the portfolio, while
adjustable rates comprise the remaining 10%.
The fixed rate holdings currently have an expected average life of 3.1
years. It is estimated that this average life would extend to 4.6 years
should rates go up by 100 basis points and 4.9 years if 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 to 1.9 years.
In terms of price sensitivity, we estimate that if rates go up 100 basis
points the market value of the portfolio would fall by 3.3%, while rates
up 200 basis points would impact the market value by a negative 6.8%.
This is equal to 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 2.3%.
The adjustable rate holdings reprice on an annual or more frequent basis
and currently have an average life of 6.8 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
should rates fall. We estimate that 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 12/31/96 approximately 63 percent of the bank's total portfolio
was placed in the Held For Sale Account while the remaining 37 percent
is contained in the Held to Maturity Account. FASB 115 also 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 positive capital entry of $159,542 as
reflected on the 12/31/96 balance sheet. Mark to market impact to
capital on 12/31/95 was a positive $745,000. All purchase and sale
transactions in 1996 were made in accordance with specifications set
forth in FASB 115. During the fourth quarter of 1995 transfers were
made from the Held to Maturity account to the Held for Sale account to
provide for future liquidity. The Financial Accounting Standards Board
provided a grace period under FASB 115 from November 15 thru December
31, 1995 to allow banks to reclassify investments contained in the three
portfolios. The trading account at 12/31/96 maintained a zero balance.
First Citizens has not engaged in Derivative activities as defined by
paragraphs 5 thru 7 of FASB 119.
<PAGE>
<PAGE>36
Maturities in the portfolio are made up of 16.00% within one year, and
43.3% maturing after one year and within five years. Maturities on
future investment purchases will be structured to meet loan demand as
well as projected changes in interest rates.
Gains/Losses reflected in year-end income statements attributable to
trading account securities:
Year Ended
12/31 Gains Losses Net
1996 $ 0.00 $ 0.00 $ 0.00
1995 $ 0.00 $ 0.00 $ 0.00
1994 $ 0.00 $ 0.00 $ 0.00
The following table allocates by category unrealized Gains/Losses within
the portfolio as of December 31, 1995 (in thousands):
Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury
Securities $ 103 $ 27 $ 76
Obligations of U.S.
Government Agencies
and Corporations $ 266 $ 352 $ (86)
Obligations of States
and Political
Subdivisions $ 41 $ 26 $ 15
Federal Reserve and
Corporate Stock $ 0 $ 0 $ 0
TOTALS $ 410 $ 405 $ 5
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is the ability to meet the needs of our customer base for loan
and deposit withdrawals by maintaining assets which are convertible to
cash equivalents with minimal exposure to interest rate risk.
Liquidity, which is determined by a comparison of net liquid assets to
net liabilities, remains between 10% and 15%. The stability of our
deposit base, sound asset/liability management, a strong capital base
and quality assets assure adequate liquidity. Loan to deposit ratio at
12/31/96 was 82%. Two factors primarily affecting liquidity in 1996,
were loan demand in excess of budget projections and customer demand to
lock in low interest rates for longer periods of time. Solid deposit
growth centered primarily in time deposits provided a steady source of
funds to meet liquidity needs. During the last half of 1994 interest
rates started to climb upward, causing consumers to move funds from
Annuities and Mutual Funds into bank certificates of deposits. Asset
growth was approximately 7% for 1996. Other sources available to meet
liquidity needs were (1) approved lines of credit with Federal Home Loan
Bank and correspondent banks totaling $20 million (2) Loans and
investments in excess of $84,343,000 maturing within one year and (3)
approximately 63% of the banks' total investments placed in the held-for-
sale account. As of year end approximately $3 million was drawn on
approved lines of credit. The borrowings were maturity matched with
loans and investments on the books of the bank.
There are no known trends or uncertainties that are likely to have a
material affect on First Citizens liquidity or capital resources. There
currently exists no recommendations by regulatory authorities which if
implemented, would have such an affect. There are no matters of which
management is aware that have not been disclosed.
<PAGE>
<PAGE>37
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 a 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 less than the $150,000 limitation established by policy.
<PAGE>
<PAGE>38
<TABLE>
CONDENSED GAP REPORT
12/31/96 CURRENT BALANCES
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12
TOTAL FLOATING MONTHS MONTHS MONTHS MONTHS MONTHS
<C> <S> <S> <S> <S> <S> <S> <S>
CASH AND DUE FROM:
CASH AND DUE FROM 10,871 - - - - - -
MONEY MARKET 196 196 - - - - -
TOTAL CASH & DUE FROM 11,067 196 - - - - -
INVESTMENTS
US TREASURIES 75,549 - - 4,777 1,000 8,633 5,000
TOTAL INVESTMENTS 75,549 - - 4,777 1,000 8,633 5,000
LOANS:
COMMERCIAL FIXED 25,394 - 4,875 1,127 1,471 1,913 3,199
COMMERCIAL VARIABLE 15,940 - 15,940 - - - -
REAL ESTATE VARIABLE 19,844 - 18,703 - 13 1,128 -
REAL ESTATE FIXED 118,591 - 6,100 1,902 2,754 3,869 9,624
HOME EQUITY LOANS 5,007 - 4,303 - 29 272 402
SEC MORTGAGE 768 - - - - - -
INSTALLMENT LOANS 22,669 - 717 182 294 913 1,781
INSTALLMENT VARIABLE 74 - 74 - - - -
FLOOR PLAN 733 - - - - - -
CREDIT CARDS 1,759 - - - - - -
FACTORING REC 184 - - - - - -
OVERDRAFTS 426 - - - - - -
TOTAL LOANS 211,389 - 50,712 3,211 4,561 8,095 15,006
LOAN LOSS RESERVE 2,282 - - - - - -
NET LOANS 209,107 - 50,712 3,211 4,561 8,095 15,006
FED FUNDS SOLD 1,000 - - - - - -
TOTAL FED FUNDS SOLD 1,000 - - - - - -
TOTAL EARNING ASSETS 285,656 - 50,712 7,988 5,561 16,728 20,006
OTHER ASSETS:
BUILDING, F&F & LAND 8,135 - - - - - -
OTHER REAL ESTATE 50 - - - - - -
OTHER ASSETS 6,256 - - - - - -
TOTAL OTHER ASSETS 14,441 - - - - - -
TOTAL ASSETS 311,164 196 50,712 7,988 5,561 16,728 20,006
DEMAND DEPOSITS:
DEMAND DEPOSITS 27,894 - - - - - -
TOTAL DEMAND 27,894 - - - - - -
SAVINGS ACCOUNTS:
REGULAR SAVINGS 16,886 - 1,000 - - - -
NOW ACCOUNT 26,809 - - - - - -
BUSINESS CHECKING 278 - - - - - -
IMF-MMDA 12,578 1,000 - - - - -
FIRST RATE ACCOUNT 17,820 17,820 - - - - -
DOGWOOD CLUB 5,139 1,139 - - - - -
TOTAL SAVINGS 79,510 19,959 1,000 - - - -
</TABLE>
<PAGE>
<PAGE>39
CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)
1-2 2+
YEARS YEARS
CASH AND DUE FROM:
CASH AND DUE FROM - 10,871
MONEY MARKET - -
TOTAL CASH & DUE FROM - 10,871
INVESTMENTS
US TREASURIES 7,530 48,609
TOTAL INVESTMENTS 7,530 48,609
LOANS
COMMERCIAL FIXED 4,476 8,333
COMMERCIAL VARIABLE - -
REAL ESTATE VARIABLE - -
REAL ESTATE FIXED 20,739 73,603
HOME EQUITY LOANS - 1
SEC MORTGAGE - 768
INSTALLMENT LOANS 4,035 14,747
INSTALLMENT VARIABLE - -
FLOOR PLAN - 733
CREDIT CARDS - 1,759
FACTORING REC - 184
OVERDRAFTS - 426
TOTAL LOANS 29,250 100,554
LOAN LOSS RESERVE - 2,282
NET LOANS 29,250 98,272
FED FUNDS SOLD - 1,000
TOTAL FED FUNDS SOLD - 1,000
TOTAL EARNING ASSETS 36,780 147,881
OTHER ASSETS:
BUILDING, F&F & LAND - 8,135
OTHER REAL ESTATE - 50
OTHER ASSETS - 6,256
TOTAL OTHER ASSETS - 14,441
TOTAL ASSETS 36,780 173,193
DEMAND DEPOSITS:
DEMAND DEPOSITS - 27,894
TOTAL DEMAND - 27,894
SAVINGS ACCOUNTS:
REGULAR SAVINGS - 15,886
NOW ACCOUNT - 26,809
BUSINESS CHECKING - 278
IMF-MMDA - 11,578
FIRST RATE ACCOUNT - -
DOGWOOD CLUB - 4,000
TOTAL SAVINGS - 58,551
<PAGE>
<PAGE>40
<TABLE>
CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12
TOTAL FLOATING MONTHS MONTHS MONTHS MONTHS MONTHS
<C> <S> <S> <S> <S> <S> <S> <S>
TIME DEPOSITS:
CD 1 - 2 MONTHS 7,266 - 237 7,029 - - -
CD 3 MONTHS 1,367 - 775 173 403 15 1
CD 4 - 5 MONTHS 271 - 246 25 - - -
CD 6 MONTHS 23,965 - 5,101 2,991 3,332 12,439 102
CD 7 - 11 MONTHS 2,779 - 1,131 358 162 563 565
CD 12 MONTHS 16,396 - 817 353 645 5,399 9,180
CD 13 - 17 MONTHS 298 - - 3 - 161 125
CD 18 - 23 MONTHS 634 - 65 50 3 32 254
CD 24 MONTHS 10,041 - 138 3,004 1,965 1,738 920
CD 25 - 30 MONTHS 6,442 - 6 - - 42 140
CD 31 - 59 MONTHS 15,291 - 320 180 792 4,851 4,771
CD 31 - 59 MONTHS
VARIABLE 87 - - - - - 12
CD 60 MONTHS 6,551 - 59 207 259 292 1,053
CD 60 MONTHS VARIABLE 1,087 - - - 15 23 80
CD SWEET 16 33,381 - 3,669 2,481 3,708 5,801 8,948
CD 7 MONTH 2,123 - 628 388 58 268 781
IRA-FLOATING 179 - 179 - - - -
IRA FIXED 20,788 - 791 1,286 1,296 2,435 3,604
CHRISTMAS CLUB 75 - - - - - 75
TOTAL TIME 149,021 - 14,162 18,528 12,638 34,059 30,611
TOTAL DEPOSITS 256,425 19,959 15,162 18,528 12,638 34,059 30,611
SHORT TERM BORROWINGS:
TT&L 533 - - - - - -
SECURITIES SOLD-SWEEP 14,844 14,844 - - - - -
SECURITIES SOLD-FIXED 6,381 - 2,960 1,890 600 278 268
FHLB-LIBOR INVESTMENT 936 - - - 936 - -
FHLB-LONG TERM 2,061 - - - - - -
TOTAL SHORT TERM BORR. 24,755 14,844 2,960 1,890 1,536 278 268
OTHER LIABILITIES:
OTHER LIABILITIES 2,276 - - - - - -
TOTAL OTHER LIABILITIES 2,276 - - - - - -
TOTAL LIABILITIES 283,456 34,803 18,122 20,418 14,174 34,337 30,879
CAPITAL:
STOCK, SURPLUS, P.I.C. 6,000 - - - - - -
UNREALIZED GAIN (LOSSES) 96 - - - - - -
UNDIVIDED PROFITS 21,612 - - - - - -
TOTAL CAPITAL 27,708 - - - - - -
TOTAL LIAB'S & CAPITAL 311,164 34,803 18,122 20,418 14,174 34,337 30,879
GAP (SPREAD) - -34,607 32,590 -12,430 -8,613 -17,609 -10,873
GAP % TOTAL ASSETS - -11.12 10.47 -3.99 -2.77 -5.66 -3.49
CUMULATIVE GAP - -34,607 -2,017 -14,447 -23,060 -40,669 -51,542
CUM. GAP % TOTAL ASSETS - -11.12 -0.65 -4.64 -7.41 -13.07 -16.56
SENSITIVITY RATIO - 0.01 0.96 0.80 0.74 0.67 0.66
</TABLE>
<PAGE>
<PAGE>41
CONDENSED GAP REPORT
12/31/96 CURRENT BALANCES
(in thousands)
1-2 2+
YEARS YEARS
TIME DEPOSITS:
CD 1 - 2 MONTHS - -
CD 3 MONTHS - -
CD 4 - 5 MONTHS - -
CD 6 MONTHS - -
CD 7 - 11 MONTHS - -
CD 12 MONTHS 2 -
CD 13 - 17 MONTHS 9 -
CD 18 - 23 MONTHS 230 -
CD 24 MONTHS 2,276 -
CD 25 - 30 MONTHS 4,109 2,145
CD 31 - 59 MONTHS 3,891 486
CD 31 - 59 MONTHS
VARIABLE 75 -
CD 60 MONTHS 1,941 2,740
CD 60 MONTHS VARIABLE 303 666
CD SWEET 16 8,774 -
CD 7 MONTH - -
IRA-FLOATING - -
IRA FIXED 4,038 7,338
CHRISTMAS CLUB - -
TOTAL TIME 25,648 13,375
TOTAL DEPOSITS 25,648 99,820
SHORT TERM BORROWINGS:
TT&L - 533
SECURITIES SOLD-SWEEP - -
SECURITIES SOLD-FIXED 385 -
FHLB-LIBOR INVESTMENT - -
FHLB-LONG TERM - 2,061
TOTAL SHORT TERM BORR. 385 2,594
OTHER LIABILITIES:
OTHER LIABILITIES - 2,276
TOTAL OTHER LIABILITIES - 2,276
TOTAL LIABILITIES 26,033 104,690
CAPITAL:
STOCK, SURPLUS, P.I.C. - 6,000
UNREALIZED GAIN (LOSSES) 96
UNDIVIDED PROFITS - 21,612
TOTAL CAPITAL - 27,708
TOTAL LIAB'S & CAPITAL 26,033 132,398
GAP (SPREAD) 10,747 40,795
GAP % TOTAL ASSETS 3.45 13.11
CUMULATIVE GAP -40,795 -
CUM. GAP % TOTAL ASSETS -13.11 -
SENSITIVITY RATIO 0.77 1.00
NOTES TO THE GAP REPORT
1. This gap report reflects interest sensitivity positions during a
flat rate environment. 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. Demand deposits are considered core deposits.
4. Savings accounts are placed in the +2 year time frame. In a flat
rate environment, savings accounts generally do not reprice or
liquidate. Savings deposits tend to be price sensitive, after a
major increase in the 6 month CD rate. These accounts are placed in
<PAGE>42
the +2 year time frame as opposed to variable based on past
historical trends. Savings accounts are considered core deposits.
5. 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. Effective GAP management ensures minimal impact to net interest
income in a volatile interest rate environment. Financial markets
are strained by rapid changes in rates, whether up or down. When
rates rise rapidly, net interest margins are squeezed. Rapidly
decreasing rates have the potential to excessively stimulate loan
demand, placing pressure on the bank's liquidity position.
RETURN ON EQUITY AND ASSETS
FIRST CITIZENS BANCSHARES, INC.
1996 1995 1994 1993 1992
Percentage of Net Income to:
Average Total Assets 1.22% 1.00% 1.20% 1.17% .95%
Average Shareholders Equity 13.09% 10.60% 12.93% 13.48% 11.79%
Percentage of Dividends Declared
Per Common Share to Net Income
Per Common Share 32.28% 35.56% 29.23% 25.62% 27.67%
Percentage of Average Shareholders'
Equity to Average Total Assets 9.34% 9.32% 9.27% 8.71% 8.07%
Return on assets is a measurement of the firms profitability in terms of
asset utilization. Total assets at 12/31/96 were $313,000,000. 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 rates paid on
interest bearing deposits had a significant impact on earnings the first
half of 1995. Results of operations for 1996 reflected significant
improvement.
The company's strategic plan addresses objectives to sustain improved
earnings, maintain a quality loan and investment portfolio, seek fee
income opportunities 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 1.25% or above is required if maximum benefits are
to be realized. The incentive program is being revised to challenge
The staff by offering incrementally increased incentives based on a
return on assets up to 2%.
Percentage of dividends declared per common share to net income per
common share decreased 3.2% in 1996, the result of significantly
improved earnings. Number of shares outstanding continues to increase
as a result of stock issued on a quarterly basis to service the Dividend
Reinvestment Program. A stock repurchase program, approved by the Board
of Directors in 1994 for the purpose of acquiring shares on the open
market to service the Dividend Reinvestment Program continues to be
ineffective. Shareholders continue to express an interest in buying
additional stock rather than selling shares. Under the terms of the
repurchase program, the company will repurchase up to $200,000 of
Bancshares' stock in a calendar quarter on a first come, first served
basis.
<PAGE>
<PAGE>43
Total Capital (excluding Reserve for Loan Losses) as a percentage of
total assets is presented in the following table for years indicated:
CAPITAL RESOURCES/TOTAL ASSETS - YEAR-END TOTALS
FIRST CITIZENS BANCSHARES, INC.
1996 1995 1994 1993 1992
9.46% 9.30% 9.30% 9.24% 8.05%
Cash Dividends to Shareholders for 1996, 1995, and 1994 respectively
were $1.60,$1.30 and $1.19. Total shares outstanding were 741,516,
733,399, and 714,824 at 12/31/96, 1995 and 1994. An Amendment to the
Articles of Association ratified by Shareholders in April, 1993 approved
an increase in number of shares authorized from 750,000 to 2,000,000.
In September, 1993 a 2.5 for l stock split on the Common Capital Stock
of Bancshares was declared to holders of record as of October 15, 1993.
The number of shares outstanding increased proportionately with changes
to the capital account. In addition, a 10% stock dividend was declared
payable December 15, 1992 which provided for issuance of one share of
stock for each 10 shares owned, with payment of fractional shares being
made in cash. 25,158 shares were issued as a result of the dividend.
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. The minimum risk-based
capital ratio is 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 preferred
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 risk-based capital
ratio for Bancshares as of 12/31/96 and 12/31/95 was 14.72 percent and
14.05 percent respectively, significantly above the 8.0 percent level
required by regulation. 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.
<PAGE>
<PAGE>44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Independent Auditors' Report
Board of Directors
First Citizens Bancshares, Inc.
Dyersburg, Tennessee 38024
We have audited the accompanying consolidated balance sheets of First
Citizens Bancshares, Inc., and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years ended December 31,
1996. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First
Citizens Bancshares, Inc., and Subsidiary as of December 31, 1996 and
1995, and their results of operations and cash flows for the three years
ended December 31, 1996, in conformity with generally accepted
accounting principles.
Dyersburg, Tennessee
January 22, 1996
Carmichael, Dunn, Creswell & Sparks CPAs
<PAGE>
<PAGE>45
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
ASSETS
Cash and due from banks - Note 12 $ 12,507,293 $ 11,694,413
Federal funds sold 1,000,000 1,850,000
Investment securities - Notes 1 and 2
Securities held-to-maturity (fair value of
$28,097,406 at December 31, 1996 and
$34,258,371 at December 31, 1995) 28,059,382 33,947,383
Securities available-for-sale, at fair value 47,687,500 39,943,942
Loans - Notes 1 and 3 (net of unearned income of
$1,520,885 in 1996 and $1,657,033 in 1995) 211,389,096 191,906,433
Less: Allowance for loan losses - Notes 1 & 4 2,282,231 2,216,511
Net Loans 209,106,865 189,689,922
Premises and equipment - Notes 1 and 5 8,135,023 8,830,533
Accrued interest receivable 3,697,639 3,951,100
Other assets - Notes 1 and 6 2,877,297 1,504,603
TOTAL ASSETS $313,070,999 $291,411,896
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits - Note 7
Demand 27,882,403 26,131,710
Time 149,023,682 140,713,180
Savings 79,507,938 70,315,491
Total Deposits 256,414,023 237,160,381
Securities sold under agreement to
repurchase - Note 16 21,225,315 19,744,966
Long-term debt - Note 15 2,996,480 4,651,903
Other liabilities - Note 22 2,831,975 2,751,409
Total Liabilities 283,467,793 264,308,659
Stockholders' Equity
Common stock, par value $1; shares
authorized 2,000,000 Issued and outstanding
- 741,516 shares in 1996
733,399 shares in 1995 741,516 733,399
Surplus 10,096,882 9,719,966
Retained earnings 18,678,876 16,166,392
Unrealized gain (loss) on securities
available-for-sale, net of applicable
deferred income taxes 94,600 485,271
Less treasury stock, at cost 40 shares in 1996;
3 shares in 1995 (8,668) (1,781)
Total Stockholders' Equity 29,603,206 27,103,237
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $313,070,999 $291,411,896
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>46
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995, 1994
1996 *1995 *1994
Interest Income
Interest and fees on loans $19,769,117 $17,720,050 $14,619,684
Interest and dividends on
investment securities:
Taxable 4,254,795 4,029,277 2,950,541
Tax-exempt 497,826 482,209 598,515
Dividends 180,794 61,928 160,085
Other interest income 76,846 197,635 113,435
Lease financing income 338 1,487 4,271
Total Interest Income 24,779,716 22,492,586 18,446,531
Interest Expense
Interest on deposits 10,601,172 10,039,401 7,106,421
Interest on long-term debt 395,514 347,683 233,659
Other interest expense 962,014 794,169 631,006
Total Interest Expense 11,958,700 11,181,253 7,971,086
Net Interest Income 12,821,016 11,311,333 10,475,445
Provision for loan losses - Note 4 608,505 364,449 402,000
Net interest income after provision
for loan losses 12,212,511 10,946,884 10,073,445
Other Income
Income from fiduciary activities 745,861 704,726 625,293
Service charges on deposit accounts 1,456,681 1,304,523 1,116,456
Other service charges, commissions,
and fees 605,305 464,879 703,599
Securities gains (losses) - net -
Note 2 211,233 59,644 (69,534)
Other income 349,407 186,137 494,996
Total Other Income 3,368,487 2,719,909 2,870,810
Other Expenses
Salaries and employee benefits
- Note 8 5,497,388 5,171,955 4,970,061
Net occupancy expenses 445,720 340,663 317,614
Furniture and equipment expense 146,388 154,680 144,805
Depreciation 1,011,677 930,292 823,599
Data processing expense 304,451 227,812 177,288
Legal and professional fees 161,261 280,155 86,818
Stationary and office supplies 238,000 204,794 146,685
Other expenses 2,032,839 2,317,900 2,143,276
Total Other Expenses $9,837,724 $9,628,251 $8,810,146
Net income before income taxes $5,743,274 $4,038,542 $4,134,109
Provision for income tax expense
- Note 9 2,033,370 1,332,886 1,187,860
Net Income $3,709,904 $2,705,656 $2,946,249
Earnings Per Common Share - Note 10:
Net income 5.03 3.72 4.15
Weighted average shares outstanding $ 736,436 $ 726,489 $ 709,434
*Certain items have been reclassified to conform to current years format.
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>47
<TABLE>
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Unrealized
Gain(Loss) on
Securities Available
For Sale Net of Applicable
Common Stock Deferred Income
Shares Amount Surplus Retained Earnings Taxes Treasury Stock
<S> <C> <C> <C> <C> <C> <CS>
Balance, January 1, 1994 706,656 $7,066,560 $2,356,082 $12,338,242 $ $ (60,407)
Net income, year ended December 31, 1994 2,946,249
Cash dividends paid - $1.19 per share (861,407)
Conversion of par value of
common stock
from $10 to $1 - Note 10 (6,378,246) 6,378,246
Sale of common stock 8,168 26,510 265,710
Adjustment to record unrealized
gain(loss) in securities available-
for-sale, net of applicable deferred
income taxes effective January 1,
1995 - Note 2 94,696
Adjustment of unrealized gain(loss)
on securities available-for-sale,
net of applicable deferred
income taxes during the year - Note 2 (354,239)
Treasury stock transactions-net 447 60,305
Balance, December 31, 1994 714,824 714,824 9,000,485 14,423,084 (259,543) (102)
Net income, year ended December 31, 1995 2,705,656
Cash dividends paid - $1.30 per share (962,348)
Sale of common stock 18,575 18,575 719,315
Adjustment of record unrealized gain(loss)
in securities available-for-sale, net of
applicable deferred income taxes effective
January 1, 1995 - Note 2 744,814
Treasury stock transactions-net 156 (1,679)
Balance, December 31, 1995 733,399 733,399 9,719,956 16,166,392 485,271 (1,781)
Net income, year ended December 31, 1996 3,709,904
Cash dividends paid - $1.60 per share (1,197,420)
Sale of common stock 8,117 8,117 376,926
Adjustment of unrealized gain (loss)
on securities available-for-sale, net of
applicable deferred income taxes during
the year (390,671)
Treasury stock transaction-net (6,887)
Balance, December 31, 1996 741,516 $ 741,516 $10,096,882 $18,678,876 $ 94,600 $ (8,668)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>48
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994
Operating Activities
Net income $3,709,904 $2,705,656 $2,946,249
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 608,505 364,449 402,000
Provision for losses on other real estate 53,404
Provision for depreciation 1,011,677 930,292 823,599
Amortization of investment security
discounts (3,000)
Deferred income taxes (319,360) (61,538) (31,737)
(Gains) losses on sale of other real estate 36,004
Realized and unrealized investment
security (gains) losses (211,233) (59,644) 69,534
(Increase) decrease in accrued
interest receivable 253,461 (949,763) (428,668)
(Increase) decrease in accrued
interest payable (67,981) 732,857
Increase (decrease) in other assets (1,053,334) 118,877 1,151,106
Increase (decrease) in other liabilities 148,547 (169,629) (171,424)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,080,186 3,697,965 4,760,659
Investing Activities
Proceeds of maturities of held-to-
maturity investment securities 6,335,363 7,160,748 19,405,141
Purchases of held-to-maturity investment
securities (1,500,000) (17,780,040)
Proceeds of sales and maturities of available-
for-sale investment securities 13,705,781 11,639,381 5,109,625
Purchases of available-for-sale investment
securities (20,576,139)(27,718,689)(10,625,663)
Increase in loans - net (20,025,448)(23,326,723)(19,483,603)
Purchase of premises and equipment (316,167) (1,368,626) (1,588,847)
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (22,376,610)(33,613,909)(24,963,387)
Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $10,061,195 $ 3,557,638 $ 4,255,599
Increase (decrease) in time deposits-net 9,192,447 24,122,492 11,401,403
Increase in long-term borrowing 527,173 4,124,730
Payment of principal on long-term debt (1,655,423) (30,021)
Proceeds from sale of common stock 385,043 737,890 292,220
Cash dividends paid (1,197,420) (962,348) (861,407)
Net increase (decrease) in short-term
borrowings 1,480,349 2,794,880 35,944
Treasury stock transactions-net (6,887) (1,523) 60,752
NET CASH PROVIDED BY
FINANCING ACTIVITIES 18,259,304 30,776,202 19,279,220
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (37,120) 860,258 (923,508)
Cash and cash equivalents at
beginning of year 13,544,413 12,684,155 13,607,663
CASH AND CASH EQUIVALENTS AT
END OF YEAR $13,507,293 $13,544,413 $12,684,155
Cash payments made for interest and income taxes during the years presented
are as follows:
1996 1995 1994
Interest $11,997,839 $10,448,396 $ 7,838,662
Income taxes 1,972,000 1,567,316 1,260,380
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>49
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1 - Summary of Significant Accounting and Reporting
Policies
The accounting and reporting policies of First Citizens
Bancshares, Inc., and Subsidiary conform to generally accepted
accounting principles. The significant policies are described
as follows:
BASIS OF PRESENTATION
The consolidated financial statements include all accounts of
First Citizens Bancshares, Inc., and First Citizens National
Bank. First Citizens Bancshares, Inc.'s, investment in its
Subsidiary shown on the Parent Company Balance Sheet, is
stated at equity in the underlying assets. All significant
inter-company items are eliminated in consolidation.
NATURE OF OPERATIONS
The Company and its subsidiary provide commercial banking
services of a wide variety to individual corporate customers
in the Mid-Southern United States with a concentration in
northwest Tennessee. The Company's primary products are
checking and savings deposits and residential, commercial and
consumer lending.
BASIS OF ACCOUNTING
The consolidated financial statements are presented using the
accrual basis of accounting.
USES OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the
allowance for losses on loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks which do not
bear interest and federal funds sold. Generally, federal
funds are purchased and sold for one day periods.
SECURITIES
Effective January 1, 1995, the Company adopted Statement No.
115 of the Financial Accounting Standards Board according to
which investment securities are classified as follows:
Held-to-maturity which includes those investment securities
which the Company has the intent and the ability to hold until
maturity;
<PAGE>50
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 1 - Summary of Significant Accounting and Reporting
Policies (Continued)
Trading securities which includes those investment securities
which are held for short-term resale; and Available-for-sale
which includes all other investment securities.
Securities which are held-to-maturity are reflected at cost,
adjusted for amortization of premiums and accretion of
discounts using methods which approximate the interest method.
Securities which are available-for-sale are carried at fair
value, and unrealized gains and losses are recognized as
direct increases or decreases in stockholders' equity.
Trading securities, where applicable, are carried at fair
value, and unrealized gains and losses on these securities are
included in net income.
Realized gains and losses on investment securities
transactions are determined based on the specific
identification method and are included in net income.
LOANS
Loans are reflected on the balance sheet at the unpaid
principal amount less the allowance for loan losses and
unearned income.
Loans are generally placed on non-accrual status when, in the
judgment of management, the loans have become impaired.
Unpaid interest on loans placed on non-accrual status are
reversed from income and further accruals of income are not
usually recognized. Subsequent collections related to
impaired loans are usually credited first to principal and
then to previously uncollected interest.
ALLOWANCE FOR LOAN LOSSES
The provision for loan losses which is charged to operations
is based on management's assessment of the quality of the loan
portfolio, current economic conditions and other relevant
factors. In management's judgment, the provision for loan
losses will maintain the allowance for loan losses at adequate
level to absorb potential loan losses which may exist in the
portfolio.
PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less
accumulated depreciation. The provision for depreciation is
computed using straight-line and accelerated methods for both
financial reporting and income tax purposes. Expenditures for
maintenance and repairs are charged against income as
incurred. Cost of major additions and improvements are
capitalized and depreciated over their estimated useful lives.
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired through foreclosure is reflected in other
assets and is recorded at the lower of fair value less
estimated costs to sell or cost. Adjustments made at the date
of foreclosure are charged to the allowance for loan losses.
<PAGE>51
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 1 - Summary of Significant Accounting and Reporting
Policies (Continued)
Expenses incurred in connection with ownership, subsequent
adjustments to book value, and gains and losses upon
disposition are included in other non-interest expenses.
Adjustments to net realizable value are made annually
subsequent to acquisition based on appraisal.
INCOME TAXES
First Citizens Bancshares, Inc., uses the accrual method of
accounting for federal income tax reporting. Deferred tax
assets or liabilities are computed for significant differences
in financial statement and tax basis of assets and liabilities
which result from temporary differences in financial statement
and tax accounting.
INTEREST INCOME ON LOANS
Interest income on commercial and real estate loans is
computed on the basis of the daily principal balance
outstanding using the accrual method. Interest on installment
loans is credited to operations by the rule of 78ths method,
which does not represent a significant financial deviation
from the interest method.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed by dividing
net income by the weighted average number of shares of common
stock outstanding during the period, after giving retroactive
effect to stock dividends and stock splits.
INCOME FROM FIDUCIARY ACTIVITIES
Income from fiduciary activities is recorded on the accrual
basis.
<PAGE>
<PAGE>52
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 2 - Investment Securities
At January 1 1995, First Citizens Bancshares, Inc. adopted
Statement No. 115 of the Financial Accounting Standards Board
which sets forth criteria for classification of investment
securities for financial statement purposes. The following
tables reflect amortized cost, unrealized gains, unrealized
losses and fair value of investment securities for the balance
sheet dates presented, segregated into held-to-maturity and
available-for-sale categories:
<TABLE>
December 31, 1996
Held-To-Maturity
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $19,032,226 $127,208 $115,164 $19,044,207
Obligations of states and
political subdivisions 6,248,290 19,858 13,123 6,255,025
Mortgage-backed securities 2,278,566 26,277 8,027 2,296,816
Corporate debt securities 500,300 995 501,295
TOTAL SECURITIES INVESTMENTS $28,059,382 $174,338 $136,314 $28,097,406
Available-for-Sale
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $33,730,315 $342,752 $203,894 $33,869,173
Obligations of states and
political subdivisions 4,312,448 20,757 12,038 4,321,167
Mortgage-backed securities 7,011,620 52,274 50,434 7,013,460
Total Debt Securities 45,054,383 415,783 266,366 45,203,800
Equity investments 2,475,450 8,250 2,483,700
TOTAL SECURITY INVESTMENT $47,529,833 $424,033 $266,366 $47,687,500
</TABLE>
<PAGE>
<PAGE>53
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 2 - Investment Securities (Continued)
<TABLE>
December 31, 1995
Held-To-Maturity
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $23,704,060 $358,117 $ 87,616 $23,974,561
Obligations of states and
political subdivisions 6,569,421 33,373 19,955 6,582,839
Mortgage-backed securities 2,678,582 30,592 7,327 2,701,847
Corporate debt securities 995,320 3,804 999,124
TOTAL SECURITIES INVESTMENTS $33,947,383 $425,886 $114.898 $34,258,371
Available-For-Sale
Gross Gross
Unrealized Unrealized
Amortized Cost Gains Losses Fair Value
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $26,088,212 $721,405 $ 8,748 $26,800,869
Obligations of states and
political subdivisions 4,190,086 31,773 1,535 4,206,324
Mortgage-backed securities 6,230,808 86,988 39,925 6,277,871
Corporate debt securities 250,000 2,078 252,078
Total Debt Securities 36,759,106 842,244 64,208 37,537,142
Equity investments 2,376,050 30,750 2,406,800
TOTAL SECURITIES INVESTMENT $39,135,156 $872,994 $64,208 $39,943,942
</TABLE>
<PAGE>
<PAGE>54
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 2 - Investment Securities (Continued)
The tables below summarize maturities of debt securities held-to-maturity
and available-for-sale as of December 31, 1996 and 1995:
<TABLE>
December 31, 1996
Securities Securities
Held-To-Maturity Available-For-Sale
Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C>
Amounts Maturing In:
One Year or less $ 8,410,816 $ 8,582,245 $ 3,494,077 $ 3,499,555
After one year through
five years 14,674,677 14,710,573 12,124,981 12,275,220
After five years through
ten years 3,726,901 3,692,240 14,983,046 15,125,707
After ten years 1,246,988 1,112,348 14,452,279 14,303,318
$28,059,382 $28,097,406 $45,054,383 $45,203,800
December 31, 1995
Securities Securities
Held-To-Maturity Available-For-Sale
Amortized Cost Fair Value Amortized Cost Fair Value
Amounts Maturing In:
One Year or less $ 9,637,185 $ 9,644,453 $14,756,019 $14,851,381
After one year through
five years 23,051,250 23,355,974 18,944,304 19,414,850
After five years through
ten years 260,857 258,349 2,883,783 3,092,877
After ten years 998,091 999,595 175,000 178,034
$33,947,383 $34,258,371 $36,759,106 $37,537,142
</TABLE>
Securities gains (losses) presented in the consolidated statements of income
consist of the following:
Year Ended December 31 Gross Sales Gains Losses Net
1996 - Trading securities $ 150,000 $ 750 $ $ 750
1996 - Securities held-to-maturity 6,335,663 43,003 43,300
1996 - Securities available-for-sale 13,705,781 179,583 12,103 167,480
1995 - Securities held to maturity 2,150,000 7,261 5,189 2,072
1995 - Securities available-for-sale 9,379,381 57,604 32 57,572
1994 - Securities available-for-sale 5,109,625 69,534 (69,534)
Sales of securities classified as held-to-maturity consist of securities
which were called resulting in a gain or loss or sold within ninety days of
maturity.
At December 31, 1996 and 1995, investment securities were pledged to secure
government, public and trust deposits as follows:
December 31 Amortized Cost Fair Value
1996 $24,657,408 $24,695,742
1995 38,480,063 39,548,513
In accordance with provisions of the Implementation Guide of Statement No. 115
issued by the Financial Accounting Standards Board, First Citizens Bancshares,
Inc. transferred securities with a book value of $14,824,727 from the held-to-
maturity category to available-for-sale category during 1996. An unrealized
gain of $549,287 was recognized on these securities.
<PAGE>
<PAGE>55
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 3 - Loans
Loans outstanding at December 31, 1996 and 1995 were comprised of the
following:
1996 1995
(In Thousands)
Commercial, financial and agricultural $ 42,067 $ 45,061
Real estate - construction 17,130 12,954
Real estate - mortgage 127,080 107,844
Installment 22,743 23,718
Other loans 2,369 2,330
211,389 191,907
Less: Allowance for loan losses 2,282 2,217
$ 209,107 $189,690
In conformity with Statement No. 114 of the Financial
Accounting Standards Board, the Corporation has recognized
loans with carrying values of $1,539,000 at December 31, 1996,
and $836,000 at December 31, 1995, as being impaired. The
balance maintained in the Allowance for Loan Losses related to
these was $132,230 at December 31, 1996, and $216,166 at
December 31, 1995.
Note 4 - Allowance for Loan Losses
An analysis of the allowance for loan losses during the three
years ended December 31 is as follows:
1996 1995 1994
Balance, beginning of period $2,216,511 $2,053,843 $1,676,133
Provision for loan losses charged
to operations 608,505 364,449 402,000
Loans charged to allowance,
net of loan loss recoveries of
$137,566, $164,148, and $162,474 (542,785) (201,781) (24,290)
Balance, end of period $2,282,231 $2,216,511 $2,053,843
For tax purposes, the Corporation deducts the maximum amount allowable.
During the year ended December 31, 1996, the deduction taken was
$542,785. The deductions for tax purposes in 1995 and 1994 were
$235,971 and $13,182, respectively.
Note 5 - Premises and Equipment
The fixed assets used in the ordinary course of business are summarized
as follows:
Useful Lives
in Years 1996 1995
Land $1,114,046 $ 1,114,046
Buildings 5 to 50 7,839,273 7,814,847
Furniture and equipment 3 to 20 7,115,619 6,868,553
16,068,938 15,797,446
Less: Accumulated depreciation 7,933,915 6,966,913
$ 8,135,023 $ 8,830,533
<PAGE>
<PAGE> 56
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
During 1995, First Citizens National Bank acquired real estate in
Dyersburg, Tennessee, as a site for a new branch banking facility at a
cost of $337,023. The new branch was constructed during the year and
placed in service at a total cost of building and equipment of $680,406.
Note 6 - Repossessed Real Property
The book value of repossessed real property on the balance sheet is
$50,000 at December 31, 1996 and $722,004 at December 31, 1995. At
December 31, 1995, the book value of repossessed real estate included
certain commercial real estate which First Citizens National Bank
acquired through foreclosure and which was sold to First Citizens
Bancshares, Inc. as of December 31, 1991. The property had a cost basis
of $650,000. During the year ended December 31, 1996, the property was
sold at a loss of $18,349. During the years ended December 31, 1996 and
1995, the property was rented and produced rental income of $93,968 and
$129,143, respectively.
The balance of repossessed real property is reflected on the balance
sheet of First Citizens Bancshares, Inc. and is carried in "other
assets."
Note 7 - Deposits
Included in the deposits shown on the balance sheet are the following
time deposits and savings deposits in denominations of $100,000 or more:
1996 1995
(In Thousands)
Time Deposits $38,181 $26,706
Savings Deposits 44,396 22,557
NOW accounts, included in savings deposits on the balance sheet, totaled
$26,809,062 at December 31, 1996 and $25,823,300 at December 31, 1995.
First Citizens National Bank routinely enters into deposit relationships
with its directors, officers and employees in the normal course of
business. These deposits bear the same terms and conditions as those
prevailing at the time for comparable transactions with unrelated
parties. At December 31, 1996, executive officers and directors of the
Bank had deposits with a total outstanding balance of $3,895,000.
Note 8 - Employee Stock Ownership Plan
First Citizens National Bank maintains the First Citizens National Bank
of Dyersburg Employee Stock Ownership Plan as an employee benefit. The
plan provides for a contribution annually not to exceed twenty-five
percent of the total compensation of all participants and affords
eligibility for participation to all full-time employees who have
completed at least one year of service. Contributions to the Employee
Stock Ownership Plan totaled $399,138 in 1996, $390,252 in 1995, and
$375,914 in 1994.
<PAGE>57
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 9 - Income Taxes
Provision for income taxes is comprised of the following:
1996 1995 1994
Federal income tax expense(benefit)
Current $1,712,398 $ 1,144,344 $1,081,655
Deferred (22,344) (52,308) (137,851)
State income tax expense(benefit)
Current 347,259 250,090 314,088
Deferred (3,943) (9,230) (70,032)
$ 2,033,370 $1,332,896 $1,187,860
The ratio of applicable income taxes to net income before income taxes
differed from the statutory rates of 34%. The reasons for these
differences are as follows:
1996 1995 1994
Tax expense at statutory rate $1,952,713 $1,373,104 $1,405,597
Increase (decrease) resulting from:
State income taxes, net of
federal income tax benefit 226,589 158,968 143,500
Tax exempt income (172,142) (219,247) (212,477)
Other differences 26,210 20,061 (148,760)
$2,033,370 $1,332,886 $1,187,860
Deferred tax liabilities have been provided for taxable temporary
differences related to depreciation, accretion of securities discounts
and other minor items. Deferred tax assets have been provided for
deductible temporary differences related primarily to the allowance for
loan losses and adjustments for loss on repossessed real estate. The
net deferred tax assets in the accompanying consolidated balance sheets
include the following components:
December 31
1996 1995
Deferred tax liabilities $( 63,817) $(251,125)
Deferred tax assets 318,052 186,000
Net deferred tax assets $ 254,235 $ (65,125)
Note 10- Common Stock Par Value
During the year ending December 31, 1995, the Company's Board of
Directors voted to reduce par value of the Company's capital stock from
$10 to $1. The transaction was recorded on June 30, 1995, and involved
a transfer from capital stock to surplus in the amount of $6,378,246.
The Board of Directors also voted to increase the Company's number of
shares authorized from 750,000 to 2,000,000.
<PAGE>
<PAGE>58
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 11- Regulatory Matters
First Citizens National Bank is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and
possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the bank's financial
statements. The regulations require the Bank to meet specific capital
adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital classification
is also subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the
regulations) to total average assets (as defined), and minimum ratios of
Tier 1 and total capital (as defined) to risk-weighted assets (as
defined). To be considered adequately capitalized (as defined) under
the regulatory framework for prompt corrective action, the Bank must
maintain minimum Tier 1 leverage, Tier 1 risk-based, total risk-based
ratios as set forth in the table. The Bank's actual capital amounts and
ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Amount Ratio Amount Ratio Amount Ratio
As of 12/31/96:
Total Capital $27,708,459 13.0% $17,063,040 > 8.0% $21,328,800 > 10.0%
(To Risk Weighted Assets)
Tier 1 Capital 27,486,916 12.9% 8,531,520 > 4.0% 12,797,280 > 6.0%
(To Risk Weighted Assets)
Tier 1 Capital 27,486,916 8.8% 12,445,400 > 4.0% 15,556,750 > 5.0%
(To Average Assets)
As of 12/31/95:
Total Capital $24,531,039 12.12% $16,192,240 > 8.0% $20,242,800 > 10.0%
(To Risk Weighted Assets)
Tier 1 Capital 24,391,840 12.05% 8,097,120 > 4.0% 12,145,680 > 6.0%
(To Risk Weighted Assets)
Tier 1 Capital 24,391,840 8.7% 11,151,157 > 4.0% 13,938,946 > 5.0%
(To Average Assets)
Note 12 - Restrictions on Cash and Due From Bank Accounts
The Corporation's bank subsidiary maintains cash reserve balances as
required by the Federal Reserve Bank. Average required balances during
1996 and 1995 were $173,000 and $161,000, respectively.
<PAGE>
<PAGE>59
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 13 - Restrictions on Capital and Payment of Dividends
The Corporation is subject to capital adequacy requirements imposed by
the Federal Reserve Bank. In addition, the Corporation's National Bank
Subsidiary is restricted by the Office of the Comptroller of the
Currency from paying dividends in any years which exceed the net
earnings of the current year plus retained profits of the preceding two
years. As of December 31, 1996, approximately $7.5 million of retained
earnings was available for future dividends from the subsidiary to the
parent corporation.
Note 14 - Condensed Financial Information
First Citizens Bancshares, Inc.
(Parent Company Only)
December 31
1996 1995
BALANCE SHEETS
ASSETS
Cash $ 1,451,161 $ 728,839
Investment securities, available-for-sale-at
fair value 198,125 1,098,778
Investment in subsidiary 27,708,459 24,531,039
Real estate owned 164,181 824,134
Other assets 103,389 30,577
TOTAL ASSETS 29,625,315 27,213,367
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses 22,109 110,130
TOTAL LIABILITIES 22,109 110,130
STOCKHOLDERS' EQUITY 29,603,206 27,103,237
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,625,315 $27,213,367
STATEMENTS OF INCOME
December 31
1996 1995
INCOME
Dividends from bank subsidiary $ 165,000 $ 214,800
Other income 188,865 313,608
TOTAL INCOME 353,865 528,408
EXPENSES
Other expenses 192,489 137,301
TOTAL EXPENSES 192,489 137,301
Income before income taxes and equity
in undistributed net income of bank subsidiary 161,376 391,107
Income tax expense (benefit) 18,100 62,891
143,276 328,216
Equity in undistributed net income of
bank subsidiary 3,566,628 2,377,440
NET INCOME $3,709,904 $2,705,656
<PAGE>
<PAGE>60
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
Note 14 - Condensed Financial Information (Continued)
(Parent Company Only)
STATEMENTS OF CASH FLOW
December 31
1996 1995
Operating Activities
Net income $3,709,904 $2,705,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 27,415 28,282
Undistributed income of subsidiary (3,566,628) (2,377,440)
Gain(Loss) on sale of other real estate 18,349
(Increase) decrease in other assets (98,186) 53,483
Increase (decrease) in other liabilities (88,021) (44,952)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,833 365,029
Investing Activities
Purchase of other real estate (32,014)
Proceeds of sale of other real estate 639,563
Investment in securities (200,000) (500,000)
Proceeds of sale of securities 1,099,190 863,107
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,538,753 331,093
Financing Activities
Payment of dividends and payments in lieu of
fractional shares (1,197,420) (962,348)
Sale of Common Stock 385,043 737,890
Treasury Stock transactions - net (6,887) (1,523)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (819,264) (225,981)
INCREASE (DECREASE) IN CASH 722,322 470,141
Cash at beginning of year 728,839 258,698
CASH AT END OF YEAR $1,451,161 $ 728,839
Note 15 - Long Term Debt
At December 31, 1996 and 1995, long-term debt consists of advances from
the Federal Home Loan Bank in the amounts of $2,996,480 and $4,651,903
respectively. These advances are secured by all of the fully disbursed,
1-4 family residential mortgage loans held by First Citizens National
Bank and mature in the years 2004 through 2010. The averages for 1996
and 1995 are as follows:
Year Average Volume Average Rate Average Maturity
FHLB Borrowings 1996 $4,084,025 5.64% 7 years
FHLB Borrowings 1995 $5,892,739 5.90% 7 years
Note 16 - Securities Sold Under Agreement to Repurchase
At December 31, 1996 and 1995, First Citizens National Bank had
outstanding balances in securities sold under agreement to repurchase as
follows:
1996 1995
Outstanding balance $21,225,315 $19,744,966
Weighted average interest rate 4.31% 4.59%
Average balances outstanding
during the year 20,883,000 17,033,000
Average weighted average interest rate 4.48% 4.66%
<PAGE>61
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
Note 17 - Non-cash Investing and Financing Activities
During the periods presented, the Corporation engaged in the following
non-cash investing and financing activities:
Investing 1996 1995 1994
Other real estate acquired in
satisfaction of loans $67,302 $368,000 $188,431
Note 18 - Financial Instruments with Off-Balance Sheet Risk
First Citizens National Bank is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit risk which
are not recognized in the statement of financial position.
The Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The same policies are utilized in making
commitments and conditional obligations as are used for creating on-balance
sheet instruments. Ordinarily, collateral or other security is
not required to support financial instruments with off-balance sheet
risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Loan commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Each customer's credit-worthiness is evaluated on a case-by-
case basis, and collateral required, if deemed necessary by the Bank
upon extension of credit, is based on management's credit evaluation of
the counter party. At December 31, 1996 and 1995, First Citizens
National Bank had outstanding loan commitments of $32,540,000 and
$26,037,000 respectively. Of these commitments, none had an original
maturity in excess of one year.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are issued primarily to
support public and private borrowing arrangements, and the credit risk
involved is essentially the same as that involved in extending loans to
customers. The bank requires collateral to secure these commitments
when it is deemed necessary. At December 31, 1996 and 1995, outstanding
standby letters of credit totaled $1,483,000 and $1,676,000.
In the normal course of business, First Citizens National Bank extends
loans which are subsequently sold to other lenders, including agencies
of the U. S. Government. Certain of these loans are conveyed with
recourse creating off-balance sheet risk with regard to the
collectability of the loan. At December 31, 1996, however, the Bank had
no loans sold.
<PAGE>62
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
Note 19 - Significant Concentrations of Credit Risk
First Citizens National Bank grants agribusiness, commercial,
residential and personal loans to customers throughout a wide area of
the mid-southern United States. A large majority of the Bank's loans,
however, are concentrated in the immediate vicinity of the Bank or
northwest Tennessee. Although, the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
obligations is dependent upon the agribusiness and industrial economic
sectors of that geographic area.
Note 20 - Disclosure of Fair Value of Financial Instruments
The following assumptions were made and methods applied to estimate the
fair value of each class of financial instruments reflected on the
balance sheet of the Corporation:
Cash and Cash Equivalents
For instruments which qualify as cash equivalents, as described in Note
1 of Notes to Financial Statements, the carrying amount is assumed to be
fair value.
Investment Securities
Fair value for investment securities is based on quoted market price, if
available. If quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans Receivable
Fair value of variable-rate loans with no significant change in credit
risk subsequent to loan origination is based on carrying amounts. For
other loans, such as fixed rate loans, fair values are estimated
utilizing discounted cash flow analyses, applying interest rates
currently offered for new loans with similar terms to borrowers of
similar credit quality. Fair values of loans which have experienced
significant changes in credit risk have been adjusted to reflect such
changes.
The fair value of accrued interest receivable is assumed to be its
carrying value.
Deposit Liabilities
Demand Deposits
The fair values of deposits which are payable on demand, such as
interest-bearing and non-interest-bearing checking accounts, passbook
savings and certain money market accounts are equal to the carrying
amount of the deposits.
Variable-Rate Deposits
The fair value of variable-rate money market accounts and certificates
of deposit approximate their carrying value at the balance sheet date.
<PAGE>63
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
Note 20 - Disclosure of Fair Value of Financial Instruments (continued)
Fixed-Rate Deposits
For fixed-rate certificates of deposit, fair values are estimated using
discounted cash flow analyses which apply interest rates currently being
offered on certificates to a schedule of aggregated monthly maturities
on time deposits.
Short-Term Borrowings
Carrying amounts of short-term borrowings, which include securities sold
under agreement to repurchase approximate their fair values at December
31, 1996 and 1995.
Long-Term Debt
The fair value of the Corporation's long-term debt is estimated using
the discounted cash flow approach, based on the institution's current
incremental borrowing rates for similar types of borrowing arrangements.
At December 31, 1996, the long-term debt interest rate equals the fair
market rate and, as a result, the carrying value of long-term debt
approximates its fair value.
Other Liabilities
Other liabilities consist primarily of accounts payable, accrued
interest payable and accrued taxes. These liabilities are short-term
and their carrying values approximate their fair values.
Unrecognized Financial Instruments are generally extended for short
periods of time, and as a result, the fair value is estimated to
approximate the face or carrying amount.
The estimated fair values of the Corporation's financial instruments are
as follows:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Cash and cash equivalents $ 13,507,293 $ 13,507,293 $ 13,544,413 $13,544,413
Investment securities 75,746,882 75,784,906 73,891,325 74,202,313
Loans 211,389,096 191,906,433
Less: Allowance for
loan losses (2,282,231) (2,216,511)
Loans, net of allowance 209,106,865 206,282,461 189,689,922 188,182,000
Accrued interest
receivable 3,951,100 3,951,100
Financial Liabilities
Deposits 256,414,023 258,355,315 237,160,381 238,314,000
Short-term borrowings 21,225,315 21,240,136 19,744,966 19,744,966
Long-term debt 2,996,480 2,985,417 4,651,903 4,665,000
Other liabilities 2,831,975 2,831,975 2,751,409 2,751,409
<PAGE>
<PAGE>64
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
Unrecognized Financial
Instruments
Commitments to extend
credit 32,540,000 32,540,000 26,037,000 26,037,000
Standby letter of
credit 1,483,000 1,483,000 1,676,000 1,676,000
Note 21 - Commitments and Contingencies
During the year ended December 31, 1995, the Board of Directors approved
a stock repurchase plan whereby the Company is authorized to acquire up
to a maximum of $200,000 of its outstanding capital stock per calendar
quarter. The stock repurchase plan is designed to enable First Citizens
Bancshares, Inc. to meet the requirements of the Employee Stock
Ownership Plan and the Dividend Reinvestment Plan in place.
Note 22 - Judgement
At December 31, 1996, First Citizens Financial Plus, Inc. a subsidiary
of First Citizens National Bank, was a defendant in a legal action filed
by a former employee alleging unfair competitive practices used against
him after he left employment of the Company. First Citizens Financial
Plus, Inc. had previously initiated litigation against the former
employee asserting that he had breached his fiduciary duties to the
Company. In February, 1996, an arbitration panel of the National
Association of Securities Dealers held First Citizens Financial Plus,
Inc. liable for damages totaling approximately $134,000. The same panel
found the former employee liable for $9,500 in compensatory damages.
The Company recorded the judgement, along with related legal expenses,
as a liability at December 31, 1996. The expense of the judgement is
reflected in "other expenses" on the Consolidated Statement of Income.
Note 23 - Branch Acquisition
During the year ended December 31, 1995, First Citizens National Bank
acquired a branch of another financial institution in Ripley, Tennessee.
In the transaction, the Bank acquired fixed assets and loans with a
value of approximately $242,749 and assumed deposits totaling
approximately $8,400,000. First Citizens National Bank paid a premium
of $124,382 for the deposits acquired which had been recorded as
goodwill and is being amortized over fifteen years.
<PAGE>
<PAGE>65
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
Note 24 - Amounts Receivable From Certain Persons
Year Ended December 31, 1996
(In Thousands)
Column A Column B Column C Column D Column E
Balance at Balance at
Beginning End of
of Period Additions Deductions Period
Amounts
Amounts Written Not
Collected Off Current Current
Aggregate indebtedness
to First Citizens
National Bank of
Directors and Executive
Officers of First
Citizens Bancshares,
Inc. (21) $4,043 $3,004 $2,720 $-0- $4,328 $-0-
Aggregate indebtedness
to First Citizens
National Bank of
Directors and Executive
Officers of First
Citizens National
Bank (21) $4,146 $3,054 $2,752 $-0- $4,448 $-0-
Year Ended December 31, 1995
(In Thousands)
Aggregate indebtedness
to First Citizens
National Bank of
Directors and Executive
Officers of First
Citizens Bancshares,
Inc. (21) $2,443 $2,568 $ 968 $-0- $4,043 $-0-
Aggregate indebtedness
to First Citizens
National Bank of
Directors and Executive
Officers of First
Citizens National
Bank (21) $2,535 $2,662 $1,051 $-0- $4,146 $-0-
Indebtedness shown represents amounts owed by directors and
executive officers of First Citizens Bancshares, Inc., and
First Citizens National Bank and by businesses in which such
persons are general partners or have at least 10% or greater
interest and trust and estates in which they have a
substantial beneficial interest. All loans have been made on
substantially the same terms, including interest rates and
collateral as those prevailing at the time for comparable
transactions with others and do not involve other than normal
risks of collectibility.
<PAGE>
<PAGE>66
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Bancshares had no disagreements regarding accounting
procedures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information appearing in Bancshares' 1996 Proxy Statement
regarding directors and officers is incorporated herein by
reference in response to this Item.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is set forth in the
1996 Proxy Statement, and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Ownership of Bancshares' common stock by certain beneficial
owners and by management is set forth in Bancshares' 1996
Proxy Statement for the Annual Meeting of Shareholders to be
held April 17, 1996, in the sections entitled Voting
Securities and Election of Directors and is incorporated
herein by reference. (See pages 3 through 5 of the Proxy
Statement).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Officers, Directors and principal shareholders of the holding
company (and their associates) have deposit accounts and other
transactions with First Citizens National Bank. These
relationships are covered in detail on page 9 of the Proxy
Statement under "Certain Relationships and Related
Transactions" and incorporated herein by reference.
Additional information concerning indebtedness to Bancshares
and First Citizens by Directors and/or their affiliates is
included herein under Part III, Page 53 "Amounts Receivable
from Certain Persons".
<PAGE>
<PAGE>67
SIGNATURES
Pursuant to the requirements of Section 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, hereunto duly authorized.
FIRST CITIZENS BANCSHARES, INC.
By /s/Stallings Lipford
Stallings Lipford
Chairman
By /s/Jeff Agee
Jeff Agee
Vice President & Principal
Financial Officer
Dated: 03/17/97
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 17, 1997.
/s/ Eddie Anderson /s/Milton E. Magee
Eddie Anderson Milton E. Magee
Director Director
/s/Mary Frances McCauley
/s J. Walter Bradshaw Mary Frances McCauley
J. Walter Bradshaw Director
Director
/s/James Daniel Carpenter /s/L. D. Pennington
James Daniel Carpenter L. D. Pennington
Director Director
/s/William C. Cloar /s/G.W. Smitheal, III
William C. Cloar G.W. Smitheal, III
Director Director
/s/Richard Donner /s/P. H. White, Jr.
Richard W. Donner P. H. White, Jr.
Director Director
/s/J.E. Heckethorn /s/Dwight Steven Williams
John E. Heckethorn Dwight Steven Williams
Director Director
/s/ E.H. Lannom, Jr. /s/Katie Winchester
E.H. Lannom, Jr. Katie Winchester
Director Director
/s/ Barry T. Ladd /s/Billy S. Yates
Barry T. Ladd Billy S. Yates
Director Director
/s/Stallings Lipford
Stallings Lipford
Director
<PAGE>1
PART IV - EXHIBIT INDEX
Page No
(3) Subsidiaries of the registrant * (Ex-21) 1
(22) Articles of Incorporation and By-Laws * (Ex-3) 1
* Filed with current report
<PAGE>1
Subsidiaries
The Company has one subsidiary, First Citizens National Bank,
Dyersburg, Tennessee. The Company is the sole shareholder of the
Bank. First Citizens National Bank is a National Bank organized
under the authority of the Comptroller of the Currency.
On January 28, 1985, First Citizens Financial Plus, Inc. was
chartered in the State of Tennessee as a wholly-owned subsidiary
of First Citizens National Bank for the purpose of providing
investment advisory service to the community. The Corporation's
registration with the Securities and Exchange Commission as an
investment advisor was effective February 21, 1985.
On December 19, 1988 First Citizens Financial Plus, Inc. received
notification from the National Association of Securities Dealers
that the Company's registration as a broker/dealer was effective.
As a result, in addition to being an investment advisor, the
Company is now a full service introducing broker/dealer.
On August 19, 1996, Delta Finance, Inc. was chartered in the
State of Tennessee as a wholly-owned subsidiary of First Citizens
National Bank for the purpose of providing consumer financial
services to the community. Delta Finance will operate as an
Industrial Loan and Thrift Company pursuant to Tennessee Code
Annotated Section 45-5-101 and to acquire by purchase, lease or
otherwise, and to hold, operate, manage, develop, encumber and
otherwise deal with any and all kinds of real and personal
property and to engage in any business not prohibited by law
under the laws of Tennessee; and to do any and all things
necessary or incidental in the operation of such business or
businesses.
<PAGE>1
CHARTER
OF
FIRST CITIZENS BANCSHARES, INC.
The undersigned natural person or persons, having capacity to
contract and acting as the incorporator or incorporators of a
corporation under the Tennessee General Corporation Act, adopt
the following charter for such corporation:
l. The name of the corporation is First Citizens Bancshares,
Inc.
2. The duration of the corporation is perpetual.
3. The address of the principal office of the corporation in
the State of Tennessee shall be Court and Mill Streets,
Dyersburg, Tennessee, County of Dyer.
4. The corporation is for profit.
5. The principal purpose for which the corporation is organized
is to engage in banking and non-banking activities of a bank
holding company which is registered with the Board of
Governors of the Federal Reserve System under the Federal
Bank Holding Company Act of 1956, as amended. This
corporation may engage in any and all lawful businesses
allowed for such a bank holding company under state and
federal law.
6. The maximum number of shares which the corporation shall
have the authority to issue is Seven Hundred Fifty Thousand
(750,000) shares which shall have a par value of Ten Dollars
($10.00).
7. The corporation will not commence business until
consideration of an amount not less than One Thousand
Dollars ($1,000.00) has been received for the issuance of
shares.
8. The capital stock of the corporation may be issued for valid
corporate purposes upon authorization by the Board of
Directors of the corporation without prior stockholder
approval.
9. The affirmative vote of the holders of not less than eighty
percent (80%) of the outstanding voting stock of the
corporation is required in the event that the Board of
Directors of the corporation does not recommend to the
stockholders of the corporation a vote in favor of (1) a
merger or consolidation of the corporation with, or (2) a
sale, exchange or lease of all or substantially all of the
assets of the corporation to, any person or entity. For
purposes of this provision, substantially all of the assets
shall mean assets having a fair market value or book value,
whichever is greater, of 25 percent or more of the total
assets as reflected on a balance sheet of the corporation as
of a date no earlier than 45 days prior to any acquisition
of such assets. The affirmative vote of the holders of not
less than eighty percent (80%) of the outstanding voting
stock of the corporation is required to amend or repeal the
provisions of this Section 9.
10. The Board of Directors of the corporation shall consist of a
maximum of twenty-two (22) stockholders of the corporation.
The affirmative vote of the holders of not less than eighty
percent (80%) of the outstanding voting stock of the
corporation is required to amend or repeal the provisions of
this Section 11.
11. The holders of the shares of the corporation shall have no
preemptive right, as defined in Section 48-713 of the
Tennessee General Corporation Act.
Dated December 13, 1982
<PAGE>
<PAGE>2
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST CITIZENS BANCSHARES, INC.
Pursuant to the provisions of Section 48-303 of the
Tennessee General Corporation Act, the undersigned corporation
adopts the following articles of amendment to its Charter:
l. The name of the corporation is First Citizens
Bancshares, Inc.
2. The amendments adopted are:
a. The corporation hereby adopts the following
article as Article 12 of its Charter:
At all times each holder of common stock of the corporation
shall be entitled to one vote for each share of such stock
standing in his name on the books of the corporation. At
all elections of directors of the corporation, each holder
of common stock shall be entitled to as many votes as shall
equal the number of votes which (except for this provision)
he would then be entitled to cast for the election of
directors with respect to his shares multiplied by the
number of directors upon whose election he is then entitled
to vote, and he may cast all of such votes for a single
candidate or may distribute them among some or all of the
candidates, as he may see fit.
b. The corporation hereby adopts the following
amendment to Section 10 of its Charter:
The reference to "Section 11" in the last line of Section 10
of the corporation's Charter is amended to read "Section 10."
3. The amendment was duly adopted by unanimous written
consent of the shareholders on June 14, 1983.
4. The amendment shall be effective upon the filing of
these Articles with the Secretary of State.
Dated June 17, 1983.
FIRST CITIZENS BANCSHARES, INC.
By: (Stallings Lipford)
Stallings Lipford, President
<PAGE>
<PAGE>3
AMENDMENTS TO ARTICLES OF ASSOCIATION
OF
FIRST CITIZENS BANCSHARES, INC.
CONTROL NUMBER 0123149
Pursuant to the provisions of Section 48-303 of the
Tennessee General Corporation Act, the undersigned corporation
adopts the following articles of amendment to its Charter:
1. The name of the corporation is First Citizens
Bancshares, Inc.
2. The amendments adopted are:
a. The corporation hereby adopts the following
amendment to Article 6 of its Charter by restating as follows:
Article 6: The maximum number of shares which the
Corporation shall have the authority to issue is seven-hundred
fifty thousand (750,000) shares which shall have a par value of
Ten Dollars ($10.00).
b. The Corporation hereby adopts the following as
Article 13 of its Charter:
Article 13: Indemnification of Directors and Officers.
Section 1. Right to Indemnification. Each person who was
or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a
director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving
as a director or officer shall be indemnified and held
harmless by the Corporation to the fullest extent authorized
by applicable Federal and state law, as the same exists or
may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to
such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines ERISA excise
taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director or
officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators provided, however, that,
except as provided in Section 2 hereof with respect to
proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof)
was authorized by the board of directors of the Corporation.
The right to indemnification conferred in this Article shall
be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided,
however, that if the applicable Federal and state law
requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon
the following:
<PAGE>
<PAGE>4
(I) delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication"), that such
indemnitee is not entitled to be indemnified for such expenses
under this Section or otherwise;
(ii) delivery to the Corporation by the indemnitee of a written
affirmation by the indemnitee of his good faith belief that he
has (a) conducted himself in good faith; and (b) he reasonably
believed in the case of his official capacity with the
Corporation, that his conduct was in its best interest; (c) he
reasonably believed in all other cases, that his conduct was at
least not opposed to its best interest; and (d) in the case of
any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful;
(iii)
a determination is made on the facts then known to those making
the determination would not preclude indemnification under
Tennessee law.
Section 2. Right of Indemnitee to Bring Suit.
If a claim under Section 1 of this Article is not paid in full by
the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending
such suit. In (I) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any such suit by the
Corporation to recover an advancement of expenses pursuant to the
terms of an under-taking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee
has not met the application standard of conduct set forth in the
Tennessee law. Neither the failure of the Corporation (including
its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the application
standard of conduct set forth in the Tennessee law, nor an actual
determination by the Corporation (including its board of directors,
independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the indemnitee,
be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article or otherwise shall
be on the Corporation.
Section 3. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute,
the Corporation's Articles of Incorporation, bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
<PAGE>5
Section 4. Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any director or officer of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against
such expense, liability of loss under Tennessee Business
Corporations Law.
Section 5. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from
time to time by the board of directors, grant rights to
indemnification, and to the advancement of expenses to any employee
or agent of the Corporation to the fullest extent of the provisions
of this Section with respect to the indemnification and advancement
of expenses of directors and officers of the Corporation.
c. The Corporation hereby adopts the following as Article 14
of its Charter:
Article 14: Elimination of Liability of Directors for Monetary
Damages for Certain Alleged Breaches of Fiduciary Duty
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (I) for any
breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii)
or under TCA 48-18-304. No provision will eliminate or limit the
liability of a director for any act or omission occurring prior to
the date when such provisions become effective.
3. The amendments were duly adopted by a majority vote of the
shareholders on April 18, 1989.
4. The amendment shall be effective upon the filing of these
Articles with the Secretary of State.
Dated May 2, 1989.
FIRST CITIZENS BANCSHARES, INC.
By: (Stallings Lipford)
Stallings Lipford, President
<PAGE>
<PAGE>6
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST CITIZENS BANCSHARES, INC.
CONTROL #0123149
Pursuant to the provisions of Section 48-303 of the Tennessee
General Corporation Act, the undersigned corporation adopted the
following article of amendment to its Charter:
1. The name of the corporation is First Citizens Bancshares, Inc.
2. The amendment adopted is:
a. The corporation hereby adopts the following amendment to
Article 6 of its Charter by restating as follows:
Article 6: The maximum number of shares which the Corporation shall
have the authority to issue is two million (2,000,000) shares which
shall have a par value of One Dollar ($1.00)
3. The amendment was duly adopted by a majority vote of the
shareholders on April 20, 1994.
4. The amendment shall be effective upon the filing of this Article
with the Secretary of State.
Dated May 25, 1994
First Citizens Bancshares, Inc.
By: (Katie Winchester)
Katie Winchester, President
<PAGE>
<PAGE>7
BYLAWS OF
FIRST CITIZENS BANCSHARES, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
l. Annual Meeting. The annual meeting of the share- holders of
First Citizens Bancshares, Inc. (the "Corporation") shall be held on the
second Tuesday in April of each year at its principal office unless a
different time or place, either within or without Tennessee, is
designated by the Directors.
2. Special Meetings. Special meetings of the share- holders may
be called by any director and/or the President and Chief Executive
Officer; provided, however, that a special meeting at which a tender
offer or exchange offer, a merger or consolidation of the Corporation
with or into another corporation, or any offer to purchase or otherwise
acquire all or substantially all of the assets of the Corporation are to
be considered may be called only by the President and Chief Executive
Officer of the Corporation. The place of such meetings shall be
designated by the directors.
3. Notice of Shareholder Meetings. Written or printed notice
stating the place, day, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called
and the person or persons calling the meeting, shall be delivered either
personally or by mail by or at the direction of the President,
Secretary, officer, or person calling the meeting, to each shareholder
entitled to vote at the meeting. If mailed, such notice shall be mailed
not less than ten (10) nor more than sixty (60) days before the date of
the meeting, by depositing such notice in the United States mail
addressed to the shareholder at his address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid. If
delivered personally, such notice shall be delivered not less than five
(5) nor more than sixty (60) days before the date of the meeting, and
shall be deemed delivered when actually received by the shareholder.
The person giving such notice shall certify that the notice required by
this paragraph has been given.
4. Quorum Requirements. A majority of the shares entitled to vote
shall constitute a quorum for the transaction of business. A meeting
may be adjourned despite the absence of a quorum, and notice of an
adjourned meeting need not be given if the time and place to which the
meeting is adjourned are announced at the meeting at which the
adjournment is taken. When a quorum is present at any meeting, a
majority in interest of the stock there represented shall decide any
question brought before such meeting, unless the question is one upon
which, by express provision of this Corporation's charter, these bylaws,
or by the laws of Tennessee, a larger or different vote is required, in
which case such express provisions shall govern the decision of such
question.
5. Voting and Proxies. Every shareholder entitled to vote at a
meeting may do so either in person or by written proxy, which proxy
shall be filed with the secretary of the meeting before being voted.
Such proxy shall entitle the holders thereof to vote at any adjournment
of such meeting, but shall not be valid after the final adjournment
thereof. No proxy shall be valid after the expiration of eleven (11)
months from the date of its execution unless otherwise provided in the
proxy.
<PAGE>
<PAGE>8
ARTICLE II
BOARD OF DIRECTORS
l. Qualification and Election of Directors. Directors must be
shareholders. The terms of the initial Board of Directors elected by
the shareholder(s) shall be set so as to implement staggered terms, i.e.
the terms of one-third (or as near one-third as possible) of the
directors shall be one year, the terms of one-third shall be two years
and the terms of one-third shall be three years. Thereafter, one-third
of the directors shall be elected by a majority of the votes cast at
each annual meeting of the shareholders, or by similar vote at any
special meeting called for the purpose, to serve three year terms. Each
director shall hold office until the expiration of the term for which he
is elected, except as stated above, and thereafter until his successor
has been elected and qualified. Any vacancy occurring in the Board of
Directors shall be filled by appointment by the remaining directors, and
any director so appointed shall serve until the next election, for the
remainder of the term of the director being replaced, or for a full
term, at the option of the directors.
2. Number. The maximum number of directors is fixed by the
Charter and may be altered only by amendment thereto, but shall never be
less than the number required by law. The Board of Directors may, by a
vote of the majority of the full Board, between annual meetings of the
shareholders, increase the membership of the Board up to the maximum
number set out in the Charter and by like vote appoint qualified persons
to fill the vacancies created thereby.
3. Meetings. The annual meeting of the Board of Directors shall
be held immediately after the adjournment of the annual meeting of the
shareholders, at which time the officers of the Corporation shall be
elected. The Board may also designate more frequent intervals for
regular meetings. Special meetings may be called at any time by any one
director or any two officers of the Corporation.
4. Notice of Directors' Meetings. The annual and all regular
Board Meetings may be held without notice. Special meetings shall be
held with not less than one hour notice of such meeting to be given to
each director, which notice shall be given on a best efforts basis by
those calling the meeting.
5. Quorum and Vote. The presence of a majority of the directors
shall constitute a quorum for the transaction of business. A meeting
may be adjourned despite the absence of a quorum, and notice of an
adjourned meeting need not be given if the time and place to which the
meeting is adjourned are fixed at the meeting at which the adjournment
is taken, and if the period of adjournment does not exceed thirty (30)
days in any one adjournment. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of
the Board, unless the vote of a greater number is required by the
charter, these bylaws, or by the laws of Tennessee.
6. Appointment of Chairman, Executive and Other Committees. The
Chairman of the Board of Directors of the corporation shall also serve
as an officer of the corporation. The Board of Directors, by a
resolution adopted by a majority of its members, may designate an
executive committee, consisting of two or more directors, and other
committees, consisting of two or more persons, who may or may not be
directors, and may delegate to such Chairman, committee or committees
any and all such authority as it deems desirable, including the right to
delegate to an executive committee the power to exercise all the
authority of the Board of Directors in the management of the affairs and
property of the corporation.
7. Powers. In addition to other powers specifically set out
herein or that apply under Tennessee or other applicable law, the Board
of Directors shall have the power to manage and administer the affairs
of the Corporation and to do and perform all lawful acts with respect to
the affairs of the Corporation except those that may be specifically
reserved to the shareholders under Tennessee or other applicable law.
<PAGE>9
8. Contracts with Interested Directors. No contract or other
transaction between this Corporation and any other corporation shall be
affected by the fact that any director of this Corporation is interested
in, or is a director or officer of, such other corporation, and any
director, individually or jointly, may be a party to, or may be
interested in, any contract or transaction of this Corporation or in
which this Corporation is interested; and no contract, or other
transaction, of this Corporation with any person, firm, or corporation,
shall be affected by the fact that any director of this Corporation is a
party to, or is interested in, such contract, act, or transaction, or
is in any way connected with such person, firm, or corporation and every
person who may become a director of this Corporation is hereby relieved
from any liability that might otherwise exist from contracting with the
Corporation for the benefit of himself or any firm, association, or
corporation in which he may be in any way interested.
9. Special Considerations by Directors. The directors of this
Corporation shall consider all factors they deem relevant in evaluating
any proposed tender offer or exchange offer for the Corporation's stock,
any proposed merger or consolidation of the Corporation with or into
another Corporation and any proposal to purchase or otherwise acquire
all of the assets of the Corporation. The directors shall evaluate
whether the proposal is in the best interests of the Corporation by
considering the best interests of the shareholders and other factors the
directors determine to be relevant, including the social, legal and
economic effects on employees, customers and the communities served by
the Corporation and its subsidiary or subsidiaries. The directors shall
evaluate the consideration being offered to the shareholders of the
Corporation in a freely negotiated transaction, and the directors'
estimate of the future value of shares of the Corporation as an
independent entity.
ARTICLE III
OFFICERS
l. Number. The Corporation shall have a President, a Chairman of
the Board, a Secretary, and such other officers as the Board of
Directors shall from time to time deem necessary. Any two or more
offices may be held by the same person, except the offices of president
and secretary.
2. Election and Term. The officers shall be elected by the Board
at its annual meeting for terms of one year. Each officer shall serve
until the expiration of the term which he is elected, and thereafter
until his successor has been elected and qualified.
3. Duties. All offices shall have such authority and perform such
duties in the management of the Corporation as are normally incident to
their offices and as the Board of Directors may from time to time
provide.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
l. Resignations. Any officer or director may resign at any time
by giving written notice to the Chairman of the Board of Directors, the
president, or the secretary. Any such resignation shall take effect at
the time specified therein, or, if no time is specified, then upon its
acceptance by the Board of Directors.
2. Removal of Officers. Any officer or agent may be removed by
the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby.
3. Removal of Directors. Any or all of the directors may be
removed with cause by a proper vote of the shareholders or with cause by
a majority vote of the entire Board of Directors.
<PAGE>10
4. Vacancies. Newly created directorships resulting from an
increase in the number of directors, and vacancies occurring in any
office or directorship for any reason, including removal of an officer
or director, may be filled by the vote of a majority of the directors
then in office, even if less than a quorum exists.
ARTICLE V
CAPITAL STOCK
l. Stock Certificates. Every shareholder shall be entitled to a
certificate or certificates of capital stock of the Corporation in such
form as may be prescribed by the Board of Directors. Unless otherwise
decided by the Board of Directors, such certificates shall be signed by
two officers of the Corporation.
2. Transfer of Shares. Any share or shares of stock may be
transferred on the books of the Corporation by delivery and surrender of
the properly assigned certificate, but subject to any restrictions on
transfer imposed by either the applicable securities laws or any
shareholder agreement.
3. Loss of Certificates. In the case of the loss, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be
issued upon such terms as the Board of Directors shall prescribe.
ARTICLE VI
ACTION BY CONSENT
Whenever the shareholders or directors are required or permitted to
take any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by all the
persons or entities entitled to vote thereon.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact
that he or she is or was a director or officer of the Corporation as a
director or officer of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis
of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director
or officer shall be indemnified and held harmless by the Corporation to
the fullest extend authorized by Tennessee law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability and
loss (including attorneys fees, judgements, fines ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be
a director or officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators; provided, however, that, except as
provided in Section 2 hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation.
<PAGE>
<PAGE>11
The right to indemnification conferred in this Article shall be a
contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided,
however, that if the Tennessee law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to
an employee benefit plan) shall be made only upon the following:
(I) delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication"), that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise;
(ii) delivery to the Corporation by the indemnitee of a written
affirmation by the indemnitee of his good faith belief that
he has (a) conducted himself in good faith; and (b) he reasonably
believed in the case of his official capacity with the Corporation,
that his conduct was in its best interest; (c) he reasonably believed
in all other cases, that his conduct was at least not opposed to its
best interest; and (d) in the case of any criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful;
(iii) a determination is made on the facts then known to those making the
determination would not preclude indemnification under Tennessee law.
2. Right of Indemnitee to Bring Suit. If a claim under Section 1
of this Article is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (I) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought
by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any such suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met the
application standard of conduct set forth in the Tennessee law. Neither
the failure of the Corporation (including its board of directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the application standard of conduct set forth in
the Tennessee law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard
of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified,
or to such advancement of expenses, under this Article or otherwise
shall be on the Corporation.
<PAGE>12
3. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Articles of Incorporation, bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
4. Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any director or officer of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability of loss under Tennessee Business Corporations Law.
5. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification, and to the
advancement of expenses to any employee or agent of the Corporation to
the fullest extent of the provisions of this Section with respect to the
indemnification and advancement of expenses of directors and officers of
the Corporation.
ARTICLE VIII
AMENDMENT OF BYLAWS
These bylaws may be amended, added to, or repealed by vote of two-thirds
(2/3) of the directors at a regular or special meeting of the
Board of Directors. Any change in the bylaws made by the Board of
Directors, however, may be amended or repealed by the shareholders.
CERTIFICATION
I certify that these Bylaws were adopted at the shareholder's
meeting of the Corporation held on the 4th day of January, 1983.
(Katie S. Winchester)
Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 12,506 11,694
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 1,000 1,850
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 47,692 39,944
<INVESTMENTS-CARRYING> 28,055 33,947
<INVESTMENTS-MARKET> 0 0
<LOANS> 211,389 191,906
<ALLOWANCE> 2,282 2,216
<TOTAL-ASSETS> 313,069 191,906
<DEPOSITS> 256,413 237,160
<SHORT-TERM> 21,225 19,745
<LIABILITIES-OTHER> 2,831 2,752
<LONG-TERM> 2,997 4,652
0 0
0 0
<COMMON> 741 733
<OTHER-SE> 28,862 26,370
<TOTAL-LIABILITIES-AND-EQUITY> 313,069 291,412
<INTEREST-LOAN> 19,768 17,693
<INTEREST-INVEST> 4,935 4,537
<INTEREST-OTHER> 77 197
<INTEREST-TOTAL> 24,781 22,465
<INTEREST-DEPOSIT> 0 0
<INTEREST-EXPENSE> 11,959 11,182
<INTEREST-INCOME-NET> 12,822 11,283
<LOAN-LOSSES> 609 364
<SECURITIES-GAINS> 211 60
<EXPENSE-OTHER> 9,889 9,628
<INCOME-PRETAX> 5,693 4,039
<INCOME-PRE-EXTRAORDINARY> 5,693 4,039
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,709 2,706
<EPS-PRIMARY> 5.04 3.72
<EPS-DILUTED> 5.04 3.72
<YIELD-ACTUAL> 4.45 4.22
<LOANS-NON> 1,118 893
<LOANS-PAST> 177 315
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 2,856 2,784
<ALLOWANCE-OPEN> 2,216 2,054
<CHARGE-OFFS> 680 365
<RECOVERIES> 137 163
<ALLOWANCE-CLOSE> 2,282 2,216
<ALLOWANCE-DOMESTIC> 2,282 2,216
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE>1
DATA STATED IN THOUSANDS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
REGULATION STATEMENT CAPTION 1996 1995 1994
5-02 (1) Cash and Cash Items 12506 11694 9784
5-02 (2) Marketable Securities 75747 73892 64168
5-02 (3)(b)(1) Notes Receivable 211389 191906 168781
5-02 (4) Allowance for Doubtful Accounts 2282 2216 2054
5-02 (15) Total Assets 313069 291412 256685
5-02 (24) Other Liabilities 283466 264309 232806
5-02 (30) Common Stock 732 731 715
5-02 (31)(a)(2) Additional Capital Other 10097 9720 9000
5-02 (31)(a)(3)(ii) Retained Earnings-Unappropriated 18774 16651 14164
5-03 (b)(1)(e) Other Revenues 28150 25213 21318
5-03 (b)(2)(e) Cost of Other Revenues 10498 9992* 9213
5-03 (b)(8) Interest and Amortization of
Debt Discount 11959 11181 7971
5-03 (b)(10) Income Before Taxes & Other Items 5693 4039* 4134
5-03 (b)(11) Income Tax Expense (Benefit) 1984 1333 1188
5-03 (b)(14) Income/Loss from Continuing
Operations 3709 2706* 2946
5-03 (b)(17) Cumulative Change in Accounting
Principle 0 0 0
5-03 (b)(19) Net Income or Loss 3709 2706 2946
*Reclassification of overdraft income.
