<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1998 Commission File Number 2-83542
FIRST CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of 62-1180360
incorporation or organization) (I.R.S. Employer Identification
No.)
P. O. Box 370
Court Street, Dyersburg, Tennessee 38024
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (901) 285-4410
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 3 months and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Of the registrant's only class of common stock (no par value) there
were 3,219,784 (net of treasury) shares outstanding as of September 30,
1998.
<PAGE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
<PAGE> 3
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Stated in thousands)
September 30, December 31,
1998 1997
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 11,618 $ 13,771
Federal funds sold 0 5,075
Investment securities -
Trading Investments-Stated at Market 0 0
Held to maturity-amortized cost-fair
Value of $24,700,000 at September 30,
1998 and $21,610,000 at December 31,
1997. 24,507 21,580
Available for Sale-Stated at Market 79,078 49,596
Loans - (Excluding unearned income of
$1,753,000 at September 30, 1998
and $1,622,000 at December 31, 1997) 274,482 229,277
Less: Allowance for loan losses 3,483 2,789
Net Loans 270,999 226,488
Premises and equipment 9,388 8,177
Intangible assets 3,384 133
Other assets 14,393 8,467
TOTAL ASSETS $413,367 $333,287
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $309,982 $267,590
Securities sold under
agreement to repurchase 19,792 21,765
Federal funds purchased
and other short term borrowing 19,300 0
Long-term debt - Note 3 19,657 7,813
Notes payable of employee stock
ownership plan 1,544 0
Other liabilities 4,042 2,994
TOTAL LIABILITIES 374,317 300,162
Contingent Liabilities
Stockholders' Equity
Common stock, no par value -
10,000,000 authorized; 3,222,214
issued and outstanding at
September 30, 1998; 3,002,872
issued and outstanding at
December 31, 1997 3,222 3,003
Surplus 13,268 8,417
Retained earnings 23,477 21,405
Obligation of employee stock ownership
plan (1,544) 0
Net Unrealized Gains(Losses) on
available for sale 686 307
Total Common Stock and Retained
Earnings 39,109 33,132
Less-2,430 Treasury Shares, at Cost
at September 30, 1998 and 632
Shares at cost at December 31, 1997 (59) (7)
Total Stockholders' Equity 39,050 33,125
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $413,367 $333,287
NOTE: The balance sheet at December 31, 1997, has been taken from the
audited financial statements at that date and condensed. The
current period and prior period have been restated to reflect a
4:1 stock split.
<PAGE> 4
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Interest Income
Interest and fees on loans $ 6,474 $ 5,605 $18,589 $15,797
Interest on investment
securities:
Taxable 1,335 1,142 3,781 3,543
Tax-exempt 135 119 407 370
Other interest income -
Fed Funds Sold 3 2 136 40
Other interest income -
checking 6 9 35 44
Lease financing income 0 0 0 0
Total Interest Income 7,953 6,877 22,948 19,794
Interest Expense
Interest on deposits 3,299 2,775 9,638 8,217
Other interest expense 656 538 1,681 1,246
Total Interest Expense 3,955 3,313 11,319 9,463
Net Interest Income 3,998 3,564 11,629 10,331
Provision for loan losses 121 180 639 541
Net interest income after
provision 3,877 3,384 10,990 9,790
Other Income
Securities gains (losses) 48 48 39 67
Other income 1,005 864 3,181 2,732
Total Other Income 1,053 912 3,220 2,799
Other expenses 3,182 2,668 9,166 7,767
Net income before
income taxes 1,748 1,628 5,044 4,822
Provision for income
taxes 586 572 1,696 1,654
Net income 1,162 1,056 3,348 3,168
Earnings per share $ 0.37 $ 0.35 $ 1.07 $ 1.06
Weighted average number of
shares outstanding 3,117,127 2,975,736 3,117,127 2,975,736
1997 income data has been adjusted to reflect annual incentive bonus accruals
previously accounted for during fourth quarter and a 4.1 stock split that
took place in 1998.
<PAGE>
<PAGE> 5
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(STATED IN THOUSANDS)
Operating Activities
Nine Months Ended September 30
1998 1997 1996
Net cash provided by
operating activities $ 2,863 $ 4,118 $3,224
Investing Activities
Proceeds of maturities of held to
maturity securities 12,119 10,468 4,405
Purchase of held to maturity
investments (15,043) (9,600) (1,500)
Proceeds from maturities of available
for sale securities 19,887 14,478 3,876
Proceeds from sales of available for
sale securities 10,059 1,954 8,600
Purchase of available for sale
securities (59,428) (15,110) (17,125)
Increase in Loans-Net (45,150) (23,273) (23,742)
Payment for purchase of Bank of Troy-
Net of cash acquired (5,957) 0 0
Purchases of premises and equipment (1,881) (719) (245)
Net cash provided
by investing activities (85,394) (21,802) (25,731)
Financing Activities
Net increase (decrease) in demand
and savings accounts 18,670 384 4,754
Increase (decrease) in time accounts 23,722 544 10,493
Increase (decrease) in long-term debt 11,844 6,363 (637)
Treasury stock transactions (52) 2 (4)
Proceeds from sale of common stock 5,070 375 233
Cash dividends paid (1,278) (911) (728)
Net increase (decrease) in short
term borrowings 17,327 12,025 6,476
Net cash provided (used) by
financing activities 75,303 18,782 20,587
Increase (decrease) in cash and
cash equivalents (7,228) 1,098 (1,920)
Cash and cash equivalents at
beginning of year 18,846 13,507 13,544
Cash and cash equivalents,
end of year 11,618 14,605 11,624
Cash payments made for interest and income taxes during the years
presented are as follows:
1998 1997 1996
Interest $11,564 $9,682 $9,065
Income Taxes $2,388 $1,763 $1,329
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>6
FIRST CITIZENS BANCSHARES, INC.
STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS) EXCEPT PER SHARE AMOUNTS
SEPTEMBER 30, 1998
Three Months Ended Nine Months Ended
September September
1998 1997 1998 1997
Net Income $1,162 $1,056 $3,348 $3,168
Changes in Available
for Sale Securities 339 174 379 144
Tax Impact (Available
for Sale Securities) 136 70 152 58
Comprehensive Income $1,365 $1,160 $3,575 $3,254
<PAGE>
<PAGE> 7
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Stated in Thousands)
September 30, 1998
Note 1 - Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1998, the
consolidated statements of income for the three months ended September
30, 1998, 1997 and 1996, and the consolidated statement of cash flows
for the three months then ended have been prepared by the company
without an audit. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S - X.
Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1998 and for all periods
presented have been made. Operating results for the reporting periods
presented are not necessarily indicative of results that may be expected
for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the company's annual report on Form 10-K for the year ended December 31,
1997.
Note 2 - Organization
First Citizens Bancshares, Inc., is a bank holding company chartered on
December 14, 1982, under the laws of the State of Tennessee. On
September 23, 1983, all of the outstanding shares of common stock of
First Citizens National Bank were exchanged for an equal number of
shares in First Citizens Bancshares, Inc.
Note 3 - Short Term Borrowings
September 30 September 30
1998 1997
Amount Outstanding-End of Period $39,092 $35,394
Weighted Average Rate of Outstanding 5.15% 5.01%
Maximum Amount of Borrowings at Month End $39,092 $35,394
Average Amounts Outstanding for Period $30,467 $34,355
Weighted Average Rate of Average Amounts 4.71% 4.64%
Note 4 - Long-Term Debt
Long term debt is comprised of Federal Home Loan Bank Borrowings,
Finance Company debt, and new debt associated with the Troy Acquisition.
The Finance Company debt is classified as long term debt due to our
intent to renew. The parent company debt is with Suntrust-Nashville.
The average life is as presented and the FHLB Funds are matched with
loans and investments.
Average Average Average
Volume Rate Maturity Variable
FHLB Borrowings $15,713 5.07% 10 Years
FHLB Borrowings 2,000 5.67% 10 Years Monthly
Finance Company Debt 1,000 6.00% 5 Years
Parent Company Debt 2,488 6.89% 7 Years Monthly
<PAGE>8
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
(IN THOUSANDS)
September 30, 1998
Note 5 - Statement of Cash Flows
September 30,
1998 1997 1996
Actual payments made
during the periods:
Interest $11,564 $ 9,682 $ 9,065
Income taxes 2,388 1,763 1,329
Note 6 - Contingent Liabilities
There are no material pending litigations as of the current
reportable date that should result in a liability.
Note 7 - Investment Securities
The differences between book values of investment securities
and market values at September 30, 1998 and December 31, 1997,
total $193M and $30M respectively. FASB 115 requires banks to
classify securities as held to maturity, available for sale,
and trading. First Citizens has $0 in the trading account.
Available for Sale securities values are adjusted to market
quarterly and the adjustments flow to the capital account (net
of tax). Held to maturity securities are stated at amortized
cost. Available for sale securities reflects a $68M increase
for the period ending September 1998 and, $686M net of tax,
$686M flowed to the capital account. These movements fluctuate
with the bond market.
First Citizens has not engaged in derivative activities (as
defined by paragraphs 5-7 of FASB 119) for any of the reported
periods.
Note 8 - Regulatory Capital Requirements
Regulatory agencies impose certain minimum capital requirements
on both First Citizens Bancshares, Inc. and First Citizens
National Bank. On December 16, 1988, the Federal Reserve Board
approved risk based capital guidelines for bank holding
companies. Presently, the holding company and First Citizens
National Bank exceed the required minimum standards established
by regulators. Tier 1 and tier 2 risk based capital ratios are
13.26% and 14.59% respectively.
Note 9 - Deferred Income Taxes
First Citizens adopted FASB 109 as of January 1, 1993. The
deferred tax account reflects an asset totaling $540M. Timing
differences mainly consist of Reserve for Loan Loss timing
differences.
Note 10 - Reserve for Loan Losses
FASB 114 and 118 was implemented during the first quarter of
1995, creating a reserve for impaired loans.
The following data reflects impaired totals for the reportable
periods:(in thousands)
Impaired Loan Balance or Recorded Balance $ 928
Amount of Recorded Balance with Related Allowance $ 658
Amount of Recorded Balance with no Related Allowance $ 270
<PAGE>9
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
(IN THOUSANDS)
September 30, 1998
Interest income recognized on impaired loans is recognized
on a cash basis. Cash receipts will be applied as cost recovery
or principal recovery first, consistent with OCC Regulations.
A quarterly assessment of the adequacy of the loan loss reserve,
including the reserve for impaired loans, will ensure that reserves are
sufficient to absorb future losses. The most recent assessment was
presented to the Board of Directors on June 17, 1998 and reflected that
reserves were more than adequate.
Note 11 - Asset Impairment
The Financial Accounting Standards Board issued Statement 121
addressing the accounting for the impairment of long-lived assets
that will be held and used, including certain identifiable
intangibles, and the good-will related to those assets. The
statement, which was effective for calendar-year 1996 financial
statements, also addresses accounting for long-lived assets and
certain identifiable assets to be disposed.
The statement requires that assets to be held and used be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset in question may not
be recoverable.
As of the reportable date, there are no material FASB 121 adjustments.
Note 13 - FASB 128 and 129 - Earnings Per Share
First Citizens Bancshares has a simple capital structure, with only
common stock outstanding. The method used for computing the weighted
average shares is based on a daily weighted average amount. First
Citizens has no preferred stock, redeemable stock, or other items that
would dilute basic earnings per share.
Note 14 - FASB 130 - Comprehensive Income
This statement establishes reporting and display requirements for
comprehensive income and its components. A separate financial statement
is presented that begins with net income from operations and includes
all other comprehensive income. Bancshares has only one comprehensive
income item (changes in the market value of available for sale
investment securities). This total is carried to the Balance Sheet Net
of Tax(unrealized gain or loss on available for sale).
Note 15 - APB 16 - Business Combination
On February 28, 1998, First Citizens Bancshares purchased Bank of Troy,
Troy, Tennessee. This acquisition adds $60 million in assets to the
company and opens up the Obion County market as projected in the Bank's
Strategic Plan. Total acquisition cost of $9.6 million were funded
through utilization of existing capital and a note payable to Suntrust
Bank, Nashville in the amount of $4.1 million. The excess of cost over
fair market value has been accounted for as goodwill and is being
written off at the rate of $219,000 annually, over a 15 year period.
All assets and liabilities have been marked to market in accordance with
purchase accounting rules. An employment contract with the former
President of Bank of Troy provides that he will remain in that position
until his 65th birthday in January of 2000. There are no other
agreements relative to this acquisition that would result in contingent
payments.
<PAGE>10
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
(IN THOUSANDS)
September 30, 1998
The following table presents unaudited pro forma combined historical
results as if the Bank of Troy was acquired at the beginning of fiscal
year 1997. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of
the beginning of fiscal year 1997, nor are they necessarily indicative
of future consolidated results. Troy's total assets and net income is
less than 20% of Bancshares's associated items.
Pro Forma Results (unaudited)
(In thousands except earnings per share)
1998 1997
Interest Income $23,644 $20,455
Interest Expense 11,725 9,849
Net Interest Income 11,919 10,606
Provision for Loan Losses 703 602
Net Interest Income After Provision 11,216 10,004
Other Income 3,274 2,850
Other Expenses 9,412 8,000
Net Income Before Income Taxes 5,078 4,854
Provision for Income Taxes 1,707 1,665
Net Income 3,371 3,189
Earnings Per Share 1.08 1.07
Weighted Average Number of Shares
Outstanding 3,117,127 2,975,736
Note 16 - FASB 132 - Employer's disclosures about pensions and other
post-retirement benefits.
First Citizens and its subs do not sponsor defined benefit plans or
postretirement benefits.
Note 17 - Leveraged ESOP
Origination Date: 06/25/98
Bancshares guaranteed a $2,000,000 loan on behalf of the Employee
Stock Ownership Plan payable to Suntrust Bank, Nashville at a rate
equal to Libor plus 1.2%. Both principal and interest are repayable
quarterly with interest payments commencing July 1, 1998 and principal
repayment beginning October 1, 1998. The loan is amortized over seven
years and will be funded through ESOP allocations as provided for in the
plan document which identifies the First Citizens National Bank Employee
Stock Ownership Plan and Trust. In exchange for payment by the ESOP to
the parent company of $2,000,000, a total of 85,106 shares of common
capital stock was issued at $23.50 per share. The price per share was
determined by a market appraisal performed by Mercer Capital Company,
Memphis, Tennessee.
First Citizens National Bank of Dyersburg Employee Stock Ownership Plan
and Trust is a money purchase/stock bonus plan administered by the
Investment Management and Trust Services Division of First Citizens
National Bank. Eligibility requirements dictate that an employee must
be 21 years of age and must have been employed for a minimum of one year
to participate in the plan by the Company.
<PAGE>11
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
(IN THOUSANDS)
September 30, 1998
The plan provides for minimum annual contributions of not less than 10%
of annual salary/bonus. An employee must be employed on the last day of
the year and have completed 1000 hours of service to qualify for a
contribution.
The current YTD Expense for ESOP is $350m.
Note 18-Fasb 133- This new issuance will not have a material impact on
our company. Derivatives are currently not being utilized by First
Citizens.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The purpose of the following discussion is to address significant
changes in income and expense accounts when compared to the quarter
ending September 30, 1998. Reference should be made to the Financial
Statements included as ITEM 1 for a more thorough understanding of the
analysis. The discussion relates mainly to activities of First Citizens
National Bank (First Citizens) in its banking business. However, the
consolidated statements of income reflect activities of First Citizens,
Bank of Troy and First Citizens Bancshares, Inc. (Bancshares). Limited
activities to date by the Holding Company do not materially affect the
income report.
In spite of recent stock market volatility and global economic problems,
third quarter performance of First Citizens Bancshares, Inc. remained
strong. Net income for the quarter increased ten percent, ending at
$1,162,000 compared to $1,056,000 for the same quarter in 1997. Year-to-date
net income through September totaled $3,348,000 up from
$3,168,000 for the same period one year ago. As indicated in the
financial schedules, year end incentive bonuses are being accounted for
on an accrual basis, as opposed to a fourth quarter charge to earnings.
This approach provides for a more accurate accounting of quarterly
earnings, while having no impact to year end numbers. Annualized return
on asset and equity is 1.20% and 12.37% respectively. This compares to
1.30% and 13.56% at the end of third quarter, 1997. The reduction in
both ratios is a direct result of acquisition and organizational costs
associated with Bank of Troy, White and Associates/First Citizens
Insurance, and a second finance company office opened in Milan,
Tennessee. A reorganization of the Bank of Troy operations was
necessary to align operations with that of First Citizens. Cost
associated with the realignment include increased provision for loan
loss reserve, a write off resulting from the sale of investment
securities and the installation of technology associated equipment. One
time expenses during March, 1998 resulted in a net operating loss of
$17,000 for the quarter. Loan loss provisions for the first three
quarters totals $403,000 or 1.44% of total loans. Investment Losses
totaled approximately $35,000 for the first quarter. The reorganization
process of Troy will be completed in 1998 prior to converting Bank of
Troy to a branch of First Citizens in February, 1999. Future
reorganization cost is not expected to have a material negative impact
on future performance ratios of the Bank of Troy or First Citizens
National Bank. White and Associates/First Citizens purchased the Durham
Insurance Agency located in Union City, Tennessee during second quarter,
1998 enabling White and Associates/First Citizens to locate an insurance
agency in the lobby of Bank of Troy as of July 1, 1998.
<PAGE>12
Performance at First Citizens National Bank, the company's primary
assets, improved when compared to the same time period last year.
Annualized return on assets ended third quarter at 1.33% compared to
1.30% in 1997.
Annualized return on average equity for 1998 and 1997 is 14.65% and
14.33% respectively. Shareholder equity increased 20.59% ending the
quarter at $39,050,000. Total assets of Bancshares at September 30,
1998 were $413,367,000 up 22.2% from 1997 totals. Year to date
dividends increased 33% as stock reflected a per share high of $30.00 up
from $17.50 one year earlier. First Citizens will continue to focus on
growing its assets and revenue base by identifying quality banks in the
West Tennessee area receptive to a partnership with First Citizens. Our
investment in Lauderdale County will rise to new heights with the
construction of a branch facility located on the corner of Cleveland
Street and Walmart Drive, just off of Highway 51 in Ripley, TN. The
facility is being designed to provide our Lauderdale County customers
the convenience of mortgage financing as well as Insurance and brokerage
services. The new branch is projected to open late in first quarter of
1999. Plans are in process for a newly constructed facility at the
First Citizens Mid-Town Branch location on 51 Bypass, Dyersburg, TN. The
existing facility will be replaced with a more modern full service
branch facility that will accommodate increased customer business that
has multiplied over the last few years.
Dividends paid the first two quarters of 1998 were .125 cents per share
while third quarter dividend increased to .15 cents per share. Forty
cents per share was paid each quarter in 1997. A 4 for 1 stock split
was declared to shareholders of record as of June 1, 1998. The
distribution of shares resulted in an issuance of 3 additional shares
for each share owned as of the record date. The split was accomplished
on June 15,1998. Book value of common stock ended September 30 at
$12.13 compared to $10.93 at 9/30/97. Market value of stock at 9/30/98
was $30.00 compared to $17.50 at 9/30/97. Earnings per share at quarter
end was $1.07 compared to $1.06 for the same time period in 1997.
Earnings per share was diluted due to shares of stock issued for the
purchase of 50% Share of White and Associate Insurance Agency and
shares issued to service the quarterly allocations for the Cash Option
and Dividend Reinvestment plans. The Board of Directors voted during
the third quarter to discontinue the quarterly Cash Option Plan as of
September 30, 1998. Outstanding shares adjusted for the 4-1 stock split
increased from 2,984,000 as of June 30, 1997 to 3,193,000 as of June 30,
1998. Outstanding shares at quarter end were 3,219,784.
On August 31, 1998 a definitive agreement was signed with First
Volunteer Bank of Union City, Tennessee, providing for a merger
effective first quarter of 1999, pending regulatory and shareholder
approval. The strength and leadership of First Volunteer combined with
Bank of Troy will position First Citizens as a primary financial
services provider in the Obion County market, increasing total assets
from the current $59 million to more than $110 million, and providing an
expanded market for numerous products and services.
First Citizens Strategic Plan calls for future efforts to be focused on
controlled growth, efficiency and diversification of operations.
Strategic goals of the plan are as follows:
(1) To remain an independent community bank serving the needs of
individuals, small businesses, corporations and agriculture customers;
(2) To maximize the value of First Citizens to its Shareholders by
providing the highest levels of customer service and the widest
selection of products and services; (3) To attract and retain high
quality personnel; (4) To continuously evaluate and invest in a product
and service distribution systems that will provide our customers with
personal access as well as electronic delivery of products and services;
(5) To establish and implement a quality sales and amazing service
program over the next three years that focuses on relationship
strategies; (6) To continue to focus on non-interest income streams as a
<PAGE>13
method of achieving financial goals; and (7) To lay the ground work for
a high performing institution through continuing education and career
development of employees; A separate Technology Strategic Plan has been
developed which provides for: (1) Maintaining the IBM AS/400 as the
bank's primary technology infrastructure with a wide area network as a
secondary communication structure; (2) Evaluation of the market,
selection, and implementation of Retail Banking on the Internet and
Small Business Cash Management; and (3) Conversion of the bank's current
Customer Information File to a relationship data base.
A wide area network was installed and fully operational as of second
quarter, 1998. Applications such as E-Mail, Credit Card data base,
Microsoft Office Suite are installed on the network server and allow
sharing of data files and customer information. The Wide Area Network
will position First Citizens technology advancement into software that
requires a Personal Computer based infrastructure rather than the
AS/400. A service agreement was signed on September 30, 1998 with
nFront, Atlanta, GA to provide retail/small business Internet banking.
nFront is considered to be the premier provider of full-service Internet
banking solution for community banks and winner of Microsoft's Best
Internet Banking Solution Award. nHome, the retail banking product, is
the only "fat server" Internet banking solution designed specifically
for the community bank market, enabling banks to capture and mine
valuable customer data using a secure database. Southern Data Systems,
the bank's platform service provider signed an exclusive 5 year
agreement with nFront to market the product to their customer base. The
integration of these systems will eliminate the need for bank personnel
to manually reenter account and loan application information into their
existing systems, resulting in increased efficiency and error proofing.
This integrated solution also will create centralized customer files,
allowing financial institutions to leverage their existing resources and
processes to service loans and accounts generated through the Internet
delivery channel. nFront, a Microsoft NT-based Internet banking
application, enables banking customers to open new accounts, apply for
loans, view account balances and histories, pay bills, transfer funds,
download images of cleared checks, customize reports and download
statement information into financial management packages at anytime from
any location using any browser-enabled device, such as personal
computers and televisions. From First Citizens perspective nFront
allows the bank to expand it reach to a broader market and retain its
existing customer base. nBusiness will allow small businesses to
perform the same functions as nHome except will allow for additional
services such as wire transfers. Relationship Management Data Base,
phase two of the conversion process, is scheduled to be completed by
12/31/98. The RMS is an Alltel core application, that will allow for
consolidated customer information by individual, family, business, as
well as other types of relationships selected for use by First Citizens.
The data base can be used for pricing of products at the customer level
as well as assessing and meeting the financial needs of individual or a
group of customers.
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 operations. The Agricultural community in Dyer County as
well as West Tennessee was negatively impacted in 1998 as a result of a
wide variations in weather conditions as well as seriously depressed
commodity prices. Some agriculture credits will be deficient in
payments as a result of these conditions. However, only two credits of
the agriculture portfolio have been identified as problem loans with no
additional charges to income or allocation to the Reserve Account
expected. Loan Administration has projected the bank's losses for the
calendar year 1998 to compare favorably to peer banks. Agriculture
borrowers have adequate reserves and financial strength to sustain
unfavorable agriculture conditions experienced this year. First
Citizens is an approved lender of the Rural Development Division of the
Farm Services Agency formerly Farmers Home Administration. Congress has
amended the guaranteed limits for agricultural credits which will
provide protection for the bank in 1999 for production loans as well as
some restructured term debt. Based on knowledge of the portfolio at
<PAGE> 14
present time, a significant increase in substandard loans is not
anticipated at this time. First Citizens will make all efforts to work
with local farmers in cases where good management practices are
exhibited and adversity develops as a result of events beyond the
individual farmer's control.
Interstate Banking/Branching became a reality through legislation passed
September 13, 1994. The act permitted full nationwide interstate
branching after June 1, 1997. First Citizens Bancshares, Inc. and First
Citizens National Bank are located in a highly competitive market,
competing for deposit dollars and earning assets with four other banks,
two of which are branches of large regional competitors. First
Tennessee Bank and Union Planters National Bank are two of the largest
financial institutions in the state. A small banking franchise located
in four West Tennessee counties recently opened a branch in Dyersburg.
Interstate banking could possible 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 thinking bank offering products
and services required for maintaining a satisfactory
customer relationship moving into the next decade and beyond.
First Citizens' designated market area is constantly expanding with the
purchase of the Ripley, Tennessee branch (Lauderdale County), the Bank
of Troy located in Troy, Tennessee (Obion County) and the pending
purchase of First Volunteer Bank, Union City, Tennessee (Obion County).
Demographic studies indicate the population in Dyer, Lauderdale and
Obion County at the end of 1996 was 36,193, 23,972, and 32,053
respectively. Projected population by the year 2000 is 42,000, 22,475,
and 30,657 respectively. The median household income in Dyer County is
approximately $26,562 slightly above the median household income level
for the State of Tennessee. Employment consists of 44.85% in
manufacturing and construction, 24.19% personal, professional and small
business, 19.13% trade, wholesale and retail, 4.34% transport/
communication, 3.93% public administration, and 3.57% agriculture,
forest and fishing. Blue collar occupations employ approximately 8,226,
while other white collar occupations employ approximately 4,672.
Executive and other professional occupations employ approximately 3,200.
First Citizens marketing strategy is to offer financial products and
services designed to meet the needs of the market place. A demographic
study indicated that First Citizens market was primarily in the 38 age
group and above. More convenient products and services that appeal to
the generation X market are included in the bank's technology and
marketing five year strategic plan.
YEAR 2000 PROJECT SUMMARY
The following table summarizes the status of the First Citizens National
Bank Year 2000 Program as of September 30, 1998. For ease of reference,
the project information has been summarized in phases that are similar
to the phases set forth in the Interagency Statement issued by the
Federal Financial Institutions Examination Council. First Citizens core
processing applications are turnkey systems. Turnkey applications are
defined as application in which First Citizens does not maintain or
change the processing code.
<PAGE>15
Total Project By Phase
Approximate Percentage
Complete
Awareness
Substantially Complete
Assessment
Substantially Complete
Renovation
Vendor Responsibility
Validation
Third Quarter, 1998
80% complete
Implementation
Second Quarter, 1999
AWARENESS PHASE
The awareness phase for First Citizens National Bank Year 2000 Program
was the formation of the Year 2000 Plan. The year 2000 team was formed
with the primary responsibility of defining and recognizing Y2K issues
as they relate to the operations of First Citizens and its subsidiaries.
The Bank's Senior Operations Officer has been placed in charge of the
program with responsibility for reporting to the Executive Management
Team and the Board of Directors.
ASSESSMENT PHASE
The assessment phase focused on assessing the size and complexity of the
Year 2000 problem. A complete inventory list was created to identify
and monitor Y2K readiness for information systems (hardware, software,
utilities, vendors, and phone systems) as well as environmental systems
(security systems, elevators, etc.). The following documents were
formed complete with details of how the objectives of the Y2K Program
would be achieved: Year 2000 Project Plan (Master Schedule), Year 2000
Program Requirements, and the Year 2000 Certification Process. A Year
2000 Master Test Plan was developed in second quarter, 1998. Testing of
mission critical software/hardware is more than 80% complete.
RENOVATION PHASE
The renovation phase only encompasses the code remediation of in-house
developed code that resides on the IBM AS/400 for First Citizens
National Bank or other computer hardware for the bank's subsidiaries.
First Citizens and subsidiaries core processing is defined as "Turnkey"
applications meaning the bank does not write code, modify code or
maintain code for its processing applications. The Bank's Y2K Team is
responsible for monitoring code remediation according to it's primary
vendor Y2K project plan.
VALIDATION PHASE
The validation phase is designed to test the ability of year 2000 ready
hardware and software to accurately process date data (including, but
not limited to calculating, comparing, and sequencing) from, into and
between the 20th and 21st centuries, including leap year calculation. A
validation "test" plan for applications identified as "Mission Critical"
applications during the Assessment Phase was developed second quarter,
1998. Testing of mission critical applications is more than 80%
complete.
<PAGE> 16
IMPLEMENTATION PHASE
The implementation phase places renovated/validated hardware and
software into production. This phase of the Y2K Plan will not be
concluded until an item is successfully tested and has completed the
validation phase.
First Citizens National Bank Year 2000 Program also provides post-
implementation support through the first quarter of 2000.
This report and other communications about the Year 2000 are
provided solely for information purposes.
The following table compares year to date non-interest income and
expense of First Citizens as of September 30, 1997, 1996 and 1995:
Non-Interest Income
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1998 % of Change 1997 % of Change 1996
Service Charges on
Deposit Accounts $1,352 9.12% $1,239 18.12% $1,049
Trust Income $ 559 .01% $ 554 4.34% $ 531
Other Income $1,309 30.12% $1,006 10.55% $ 910
TOTAL NON-INTEREST INCOME $3,220 15.04% $2,799 12.41% $2,490
Total non-interest income is up 15.04% and 12.41% when comparing
September 1998 to September 1997 and 1996. The increase reflects a
continued focus on fee income and our commitment to diversifying the
income stream. Results of these efforts are evident when comparing the
third quarter income posted in service charges and other income
categories. Service charges on deposit accounts are up 9.12%, while
other income was up 30.12 percent. Increased other income is attributed
to income received from Mortgage Loans, Financial Plus, Inc. and Bank of
Troy. Insurance commissions Year-to-date are down from $161,000 to
$70,000 when compared to previous years at First Citizens National Bank.
However, insurance commissions received from Bank of Troy in line with
previous years offset decreases at First Citizens' bank level.
In October, 1996 the Board approved reallocating assets of approximately
$3 million to purchase permanent life insurance for officers having the
rank of Vice President and up. This program allows the bank to increase
the retention rate of key officers while continuing to earn income on
the reallocated assets. In the event of death of the insured officer,
the Bank's original investment plus accrued interest will be repaid, as
well as a death benefit paid to designated beneficiaries. The plan is
in effect at 800+ banks and is in full compliance with regulatory
parameters as defined by the Office of the Comptroller of the Currency.
Income received 3rd quarter from the life insurance investment was
$148,000. Third quarter other income included a one time fee of $40,000
collected for the origination of a letter of credit.
The 29% increase in non-interest income in 1996 was the result of a
refund of $70,705 from bankruptcy trustees of Southeast Fort Worth Ltd.
The refund partially reimbursed the bank for payments made to trust
customers in December, 1989. Customers were reimbursed by the bank for
investments made in Southeast Fort Worth, Ltd. At the time Southeast
filed bankruptcy, with the understanding that any settlement received
from this company would first be utilized to restore these funds to the
bank.
<PAGE> 17
Non-Interest Expense
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1998 % of Change 1997 % of Change 1996
Salaries & Employee
Benefits $5,214 15.94% $4,497 4.68% $4,296
Net Occupancy Expense $1,506 6.13% $1,419 (.36%) $1,424
Other Operating Expense $2,446 32.14% $1,851 .22% $1,847
TOTAL NON-INTEREST EXPENSE $9,166 18.01% $7,767 2.64% $7,567
Total non-interest expense for 1998 is $9,166,000 compared to $7,767,000
for the same time period in 1997 resulting in a 18.01% increase. A
comparison of non-interest expense for 1997 and 1996 reflects a slight
increase of 2.64 percent. Salaries and Employee Benefits increased
almost 16% as a result of the gain of 18 employees in the Bank of Troy
acquisition as well as additional employees associated with the
expansion of services offered in mortgage lending (Ripley market),
insurance and brokerage services (Dyersburg, Ripley and Troy market).
Full time equivalent as of September 30, 1998 was 181 including Bank of
Troy employees. Fulltime equivalent per one million is assets is $2.3
million compared to peer banks at $2.4 million. Fulltime equivalent
compared to peer banks reflects the banks efforts to bring FTE in line
with peer ratios. The efficiency ratio is a measure of the bank's
ability to produce income in comparison to fulltime equivalent ratio.
Efficiency ratio at 9/30/98 was 58.66% compared to 58.90% for peer
banks. A comparison of the FTE ratio must note that First Citizens
offers Mortgage, Brokerage, Insurance, and Trust Services that is not
always offered by banks listed in peer groups compared to First
Citizens. A total of approximately 18 employees are employed to support
these non-traditional bank services. Increased investment in technology
resulted in an increase in Computer related expense and depreciation to
those investments. An ongoing strategic plan is to automate manual
processes through technology and at the same time meet the technological
needs of our customer base. Net occupancy expense is projected to
increase as technology is installed to accomplish this goal. Net
occupancy expense is also projected to increase with the construction of
the Ripley and Midtown Branch Banks. Cost associated with technology
will be offset in part by the reallocation of employees to fee income
producing positions as well as with additional income expected with the
expansion of products and services in our market area. Other operating
expense increased significantly at 32.14% with the organization cost
associated with the Insurance Agency, opening of Delta Finance II, and
Bank of Troy acquisition. A peer comparison of non interest expense as
a percent of average assets reflects First Citizens was 3.28% compared
to 3.23 percent.
Deposits
The average daily amount of deposits and average rates paid on such
deposits is summarized for the quarter ending September 30 for the years
indicated:
COMPOSITION OF DEPOSITS
(in thousands)
1998 1997 1996
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 32,747 - $ 28,055 - $ 26,180 -
Savings
Deposits $ 95,597 3.26% $ 79,419 3.42% $ 73,121 3.24%
Time Deposits $178,169 5.66% $150,248 5.58% $148,519 5.62%
TOTAL DEPOSITS $306,513 4.31% $257,722 4.26% $247,820 4.32%
<PAGE> 18
Deposit growth continues to represent 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 holds approximately 51 percent or more (excluding
overnight and fixed term repurchase agreements) of the banks deposits
domiciled in Dyer County. The bank competes with First Tennessee Bank,
N.A. (23% of total county deposits), Security Bank (14%) and Union
Planters 11%. First Citizens also competes with Dyersburg City
Employees Credit Union, seven or more finance companies, 2 brokerage
firms, and other types of financial service providers. Competitor
marketing programs are aggressive in seeking new deposits with
advertising programs that offer rates on certificate of deposits that
are often 40-50 basis points higher than rates paid by First Citizens.
Average rates paid on deposits of 4.30 percent (up from 4.26% paid at
last quarter end) continues to reflect sound asset/liability management
strategy to maintain interest margins that are consistent with company
goals. A deposit strategy adopted in 1996 encourages the purchase of
jumbo CD's (i.e. State of Tennessee) as opposed to increasing funding
costs, by participating in rate wars to secure local retail deposits.
Total deposits consisted of approximately $17 million in the State of
Tennessee funds at quarter end.
A successful bid for County Trustee funds totaling $11 million resulted
in a current rate paid at 9/30/98 of 4.33 percent. The cost of trustee
funds is based off the weekly 90 day Treasury Bill auction, therefore
the low interest rate environment has provided a significant advantage.
County Trustee funds are maturity matched with investments yielding
6.02% resulting in a interest rate spread of 1.69 percent.
The implementation of a Quality Sales, Amazing Service program is also
expected to increase deposits as well as provide for the cross selling
of additional products to form a total customer relationship profile.
An active business development program is in place to generate new
business and provide support for existing customers.
Total deposit growth was approximately $4 million when comparing 1998 to
1997. Bank of Troy deposits totaling approximately $44 million
contribute to 100% of deposit growth noted from 1997 to 1998. Without
Bank of Troy, deposit growth would have been negative 1.13 percent
annualized. A comparison of deposit growth for the years of 1997 and
1996 reflects growth of approximately $8 million acquired in the Ripley,
Tennessee Branch acquisition in 1997. Time Deposits grew approximately
$28 million at an average rate of 5.66%. Both increased dollars and
higher average rates are due to the acquisition of Bank of Troy. First
Citizens deposit rate structure was implemented in the Troy Market
during the second quarter, of 1998. The average rate paid on deposits
should become more in line with the average rate paid on deposits in the
Dyer County market. Non-Interest Bearing Demand Deposits have remained
relatively flat since 1995. Sweep account funds totaling $11.2 million
are not included in the average balance for non-interest bearing demand
deposits. The sweep total is included in the balance sheet category of
securities sold under an agreement to repurchase totaling $6.8 million.
Repurchase agreement sweep is a product offered to large balance
customers which provides for funds to automatically sweep daily from a
demand deposit account into an overnight repurchase agreement. This
affords commercial customers the opportunity to earn interest on funds
to clear large denomination checks as presented for payment. There were
no significant changes to products or services during the third quarter.
However, two new IRA products, the Roth and Simple IRA are currently
being offered to customers. A new product and service portfolio guide
is in process of development that consist of terms and conditions
disclosure, a description of checking services, inquiry card, savings
plans, loan services, mortgage financing, home equity loans, general
services and a welcome card.
<PAGE> 19
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 September 30, 1998.
Maturity Distribution of Time Deposits
In Amounts of $100,000 Or More As Of September 30, 1998
(in thousands)
Maturity Total Amount
3 months or less $22,799
3 through 12 months $21,126
1 year through 3 years $ 9,249
over 3 years $ 300
Total $53,474
A summary of average interest earning assets and interest bearing
liabilities is set forth in the following table together with average
yields on earning assets and average costs on interest bearing
liabilities. The average yield on interest earning assets reflects a
decrease when reviewing information presented in the table. Interest
earning assets as of 9/30/98 totaled $363,510,000 at an average rate of
8.83% compared to $308,060,000 at an average rate of 8.98% and
$288,965,000 at an average rate of 9.02% at 9/30/97 and 9/30/96
respectively. The reduction in average rate when comparing the three
years reflects a declining rate environment. Market demographics and
competition are discussed in the MD&A and deposit section of this
report. Interest bearing liabilities for the same time periods were
$322,933,000 average rate 4.90%, $271,724,000 average rate 4.88%, and
$256,530,000 at 4.84%. Net yield on average earning assets was 4.48%,
4.68%, and 4.72% at 9/30/98, 9/30/97 and 9/30/96. The net yield
reflects management efforts to control interest margins in accordance
with financial goals as well as a downward movement in interest rates
beginning in mid 1996 and continuing into 1998. Maintaining interest
rate margins achieved in prior years continues to be a significant
challenge. When interest rates rise, customers are shopping banks to
lock in the lowest rate possible on loans, while deposit customers are
shopping to lock in the highest rate on deposits. In a declining rate
environment, the competition for deposit dollars increases and outflow
to mutual funds increases. The sensitivity to loan rates also increases
as banks scramble to retain quality customers being "courted" by the
competition. First Citizens has historically out performed peer banks
with the average rate earned on the loan portfolio. Asset/Liability
policies are in place to protect the company from material negative
impact of volatile swings in interest rates. Interest margins are well
managed to achieve acceptable profits and a return on equity within
policy guidelines.
<PAGE>
<PAGE> 20
<TABLE>
<CAPTION> First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1998 1997 1996
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING
ASSETS:
Loans (123)
& Leases $267,955 $6,474 9.66% $231,262 $5,605 9.70% $212,718 $5,184 9.75%
Investment
Securities:
Taxable $ 82,651 $1,335 6.46% $ 66,072 $1,125 6.81% $ 65,323 $1,116 6.84%
Tax Exempt (4) $ 11,974 $ 204 6.81% $ 10,477 $ 180 6.88% $ 10,759 $ 207 7.70%
Interest Earning
Deposits $ 741 $ 6 3.24% $ 230 $ 3 5.22% $ 146 $ 2 5.48%
Federal Funds
Sold & Securities
Purchased Under
an Agreement
to Resell $ 189 $ 3 6.35% $ 27 $ 1 5.22% $ 19 $ 1 21.06%
Total Interest
Earning Assets $363,510 $8,022 8.83% $308,068 $6,914 8.98% $288,965 $6,510 9.02%
NON-INTEREST
EARNING ASSETS:
Cash and Due
From Banks $ 9,213 $ - - $ 9,782 $ - - $ 10,415 $ - -
Bank Premises &
Equipment $ 9,279 $ - - $ 8,228 $ - - $ 8,421 $ - -
Other Assets $ 14,983 $ - - $ 6,339 $ - - $ 2,715 $ - -
Total Assets $396,985 $ - - $332,417 $ - - $310,516 $ - -
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 95,597 $ 779 3.26% $ 79,419 $ 679 3.42% $ 73,121 $ 592 3.24%
Time Deposits $178,169 $2,520 5.66% $150,248 $2,096 5.58% $148,519 $2,085 5.62%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 49,167 $ 656 5.34% $ 42,057 $ 538 5.12% $ 34,890 $ 426 4.89%
Total Interest
Bearing
Liabilities $322,933 $3,955 4.90% $271,724 $3,313 4.88% $256,530 $3,103 4.84%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 32,747 $ - - $ 28,036 $ - - $ 26,180 $ - -
Other Liabilities $ 3,304 $ - - $ 2,070 $ - - $ 1,807 $ - -
Total Liabilities $358,984 $ - - $301,830 $ - - $284,517 $ - -
SHAREHOLDERS'
EQUITY $ 38,001 $ - - $ 30,587 $ - - $ 25,999 $ - -
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $396,985 $ - - $332,417 $ - - $310,516 $ - -
NET INTEREST
INCOME $ - $4,067 - $ - $3,601 - $ - $ 3,407 -
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.48% $ - $ - 4.68% $ - $ - 4.72%
(ANNUALIZED)
</TABLE>
(1) Loan totals are shown net of interest collected, not
earned and Loan Loss Reserve.
(2) Non-accrual loans are included in average total loans.
(3) Loan Fees are included in interest income and the
computations of the yield on loans.
(4) Interest and rates on securities which are non-taxable
for Federal Income Tax purposes are presented on a
taxable equivalent basis.
<PAGE>
<PAGE> 21
COMPOSITION OF LOANS
Loan growth reflected in the Composition of Loans table has resulted
from increased loan production in all areas indicated within the table.
Real estate loans continue to represent a significant increase in the
portfolio. The Dyersburg/Dyer County market continues to experience
growth in new home starts as well as refinancing of existing mortgages
created by the low interest rate environment. Commercial expansion in
retail as well as medical facility construction represents a significant
volume increase in total real estate loans. The Dyer County population
is approximately 41,000 based on 1997 estimates (Dyersburg Dyer County
Chamber of Commerce publication). Total loans as of 9/30/98 were
$274,482,000 compared to $234,627,000 and $215,543,000 for the periods
of 9/30/97 and 9/30/96. The target market is primarily the bank's
delineated market as defined by our CRA Statement area, emphasizing
improvement of the quality of life for individuals and the expansion of
business and commerce. Board approved policies and reporting are in
place to maintain a diversified portfolio without a concentration of
credits that would represent significant risk to the portfolio.
Agricultural loans, up approximately $32 million since September 30,
1997, represent 28% of the total loan portfolio. First Citizens is the
largest agricultural lender in the State of Tennessee and is an approved
Farm Credit Services lender. Agriculture resources comprise a
significant portion of the Dyer County as well as surrounding counties
markets. Total farm land in production is approximately 231,000 acres
with an estimated value of $449,501,000. Average machinery value per
farm is $76,449. First Citizens investment in agricultural real estate
loans total $14.3 million while crop production and equipment loans
total $16.6 million. Total gross agriculture income posted in 1997 from
the sale of agriculture products was $79,203,850. Dyer County ranks as
the number one producer of soybeans, grain sorghum, commercial
vegetables and rice in the State. Agricultural credits listed on the
bank's problem list represent approximately $1.5 million with over $1.2
million of that total being government guaranteed.
The Agricultural community in Dyer County as well as West Tennessee was
negatively impacted in 1998 as a result of a wide variations in weather
conditions as well as seriously depressed commodity prices. Some
agriculture credits will be deficient in payments as a result of these
conditions. However, only two credits of the agriculture portfolio have
been identified as problem loans with no additional charges to income or
allocation to the Reserve Account expected. Loan Administration has
projected the bank's losses for the calendar year 1998 to compare
favorably to that of peer banks. Agricultural borrowers have adequate
reserves and financial strength to sustain unfavorable agriculture
conditions experienced this year. First Citizens is an approved lender
of the Rural Development Division of the Farm Services Agency formerly
Farmers Home Administration. Congress has amended the guaranteed limits
for agricultural credits which will provide protection for the bank in
1999 for production loans as well as some restructured term debt. Based
on knowledge of the portfolio at present time, a significant increase in
substandard loans is not anticipated at this time. First Citizens will
make every effort to work with local farmers in cases where good
management practices are exhibited and adversity develops as a result of
events beyond the individual farmer's control.
Growth in consumer loans has been controlled due to increased numbers of
reported bankruptcies in the State of Tennessee as well as perceived
deterioration in consumer credit in Dyer County.
<PAGE>
<PAGE> 22
The provision for loan losses increased in proportion to loan growth as
required by loan policy. Problem loans at 9/30/98 were $6,997,000
compared to $2,708,000 at 9/30/97 reflecting a 61% increase. Non-performing
assets for the same time periods were $589,000 compared to
$817,000 representing a 28% decrease. Total non-performing at 9/30/98
was .22% of the total loan portfolio compared to peer group at 6/30/98
at .89 percent. Past due loans continue to decline with 90 days or more
ending September 30 at .89% of total loans. Total loans graded by
Internal Loan Review within the last twelve months comprise $137,737,739
or 64.59% of the loan portfolio.
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
collateralization, loans in excess of loan to value limits, maximum loan
amount, maximum maturity and amortization periods for each loan type.
Policy guidelines for loan to value ratio and maturities related to
various collateral are as follows:
Collateral Max. Amortization Max. LTV
Real Estate Discussed herein Discussed herein
Equipment 5 Years 75%
Inventory 5 Years 50%
A/R 5 Years 75%
Livestock 5 Years 80%
Crops 1 Year 50%
*Securities 10 Years 75% (Listed)
50% (Unlisted)
*Maximum LTV on margin stocks (stocks not listed on a national exchange)
when proceeds are used to purchase or carry same, shall be 50%.
Diversification of the banks' real estate portfolio is a necessary and
desirable goal of the bank's real estate loan policy. In order to
achieve and maintain a prudent degree of diversity, given the
composition 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.
<PAGE>
<PAGE> 23
* 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:
a. The request is fully documented to support the fact that other
credit factors justify the approval of that particular loan as an
exception to the LTV limit;
b. The loan, if approved, is designated in the Bank's records and
reported as an aggregate number with all other such loans
approved by the full Board of Directors on at least a quarterly
basis;
c. The aggregate total of all loans so approved,
including the extension of credit then under consideration, shall
not exceed 50% of the Bank's total capital; and
d. Provided further that the aggregate portion of these loans in
excess of the LTV limits that are classified as commercial,
agricultural, multi-family or non-1-to-4 family residential
property shall not exceed 30% of the Bank's total capital.
Amortization Schedules. Every loan must have a documented repayment
arrangement. While reasonable flexibility is necessary to meet the
credit needs of the Bank's customers, in general all loans should be
repaid within the following time frames:
Loan Category Amortized Period
Raw Land 10 years
Construction:
Commercial, multi-family, and
other non-residential 20 years
1-to-4 family residential 20 years
Improved Property Farmland 20 years
Owner-occupied 1-to-4 family
and home equity 20 years
<PAGE> 24
The average yield on loans of First Citizens National Bank for the third
quarter of the years indicated is as follows:
1998 - 9.66%
1997 - 9.70%
1996 - 9.75%
1995 - 9.91%
1994 - 9.22%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $42,580,000 as of 9/30/98.
The following table sets forth loan totals net of unearned income by
category for the past five years:
September 30 (in thousands)
1998 1997 1996 1995 1994
Real Estate Loans:
Construction $ 25,232 $ 22,710 $ 16,712 $ 12,330 $ 9,748
Mortgage $142,281 $138,494 $123,612 $105,640 $ 94,501
Commercial, Financial
and Agricultural Loans $ 77,059 $ 45,592 $ 49,822 $ 50,212 $ 47,382
Installment Loans to
Individuals $ 27,404 $ 25,636 $ 23,290 $ 21,564 $ 17,868
Other Loans $ 2,506 $ 2,195 $ 2,107 $ 2,424 $ 3,986
TOTAL LOANS $274,482 $234,627 $215,543 $192,170 $173,485
Loan Maturities and Sensitivity to Changes in Interest Rates
The degree of risk to which a bank is subjected can be controlled
through a well managed asset/liability program. First Citizens controls
interest rate risk by employing interest sensitive liabilities in assets
that are also interest sensitive. One tool used to ensure market rate
return is variable rate loans. Loans totaling $100,883,000 or 40.76% of
the total portfolio are subject to repricing within one year or carry a
variable rate of interest. The ratio is down from 43% at 9/30/97
reflecting efforts of the customer base to lock in lower interest rates.
Maturities in the one to five year category total $154,012,000,
reflecting a slight increase when compared to $130,113,000 at 9/30/97.
The trend exhibited by consumers in recent years to lock in interest
rates is projected to continue.
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $50,176 $103,681 $13,656
Commercial, Financial
and Agricultural $38,230 $ 25,137 $13,692
All Other Loans $ 4,716 $ 25,194 $ 0
TOTAL $93,122 $154,012 $27,348
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $173,599
Interest Rates are Floating or Adjustable $ 7,761
NON-PERFORMING ASSETS
Non-Performing Assets as of 9/30/98 were approximately $589,000 or .22%
of the total portfolio. Non-performing loans are down from $817,000 or
28% since September 30, 1997. Non accrual loans total approximately
$358,000 down from $514,000 or 30% from the same time period last year.
<PAGE> 25
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 its contractual term. A debt is considered well
secured if it is secured (1) by collateral in the form of liens or
pledges or real or personal property, including securities that have a
realizable value sufficient to discharge the debt (including accrued
interest) in full, or (2) by the guaranty of a financially responsible
party. A debt is considered to be proceeding in due course either
through legal action, including judgement enforcement procedures, or, in
appropriate circumstances, through collection efforts not involving
legal action which are reasonably expected to result in repayment of the
debt or in its restoration to a current status. Loans that represent a
potential loss to First Citizens are adequately reserved for in the
provision for loan losses.
Interest income on loans is recorded on an accrual basis. The accrual
of interest is discontinued on all loans, except consumer loans, which
become 90 days past due, unless the loan is well secured and in the
process of collection. Consumer loans which become past due 90 to 120
days are charged to the allowance for loan losses. The gross interest
income that would have been recorded for the nine months ending 9/30/97
if all loans reported as non-accrual had been current in accordance with
their original terms and had been outstanding throughout the period is
$26,000. Interest income on loans reported as ninety days past due and
on interest accrual status was $22,000 for year-to-date 1997. Loans on
which terms have been modified to provide for a reduction of either
principal or interest as a result of deterioration in the financial
position of the borrower are considered to be Restructured Loans.
Restructured loans as of September 30, 1997 are 0.
Loans classified by the bank Loan Review Officer and regulatory
examiners and not reported under non-accrual, past due or restructured
pose no significant credit problems. Loan Officers are required to
develop a "Plan of Action" for each problem loan within their portfolio.
Adherence to each established plan is monitored by Loan Administration
and reevaluated at regular intervals for effectiveness.
The following table sets forth the balance of non-accrual loans as of
September 30, for the years indicated:
Non Performing Loans
September 30
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
9/30/98 $ 358 $ 301 $ 659
9/30/97 $ 514 $ 290 $ 807
9/30/96 $1,523 $ 171 $1,694
9/30/95 $ 893 $ 315 $1,208
9/30/94 $ 816 $ 150 $ 966
<PAGE>
<PAGE> 26
Loan Loss Experience and
Reserves for Loan Losses
During the quarter just ended activity to the reserve account consisted
of (1) Loans charged off - $166,000; (2) Recovery of loans previously
charged off - $90,000; and (3) Additions to the reserve charged to
operating expense of $121,000. The loan loss reserve allowance is
determined by using a one year actual loss on credit card and
installment loans, making specific allocations for impaired loans, using
50% of Doubtful loans, 10% of Substandard loans, 5% of Watch loans, .75%
of other loans not listed previously less SBA/FMHA guaranteed portions,
.75% of Letters of Credit, and 1% of A/R Factoring. The Reserve balance
as of the last reporting date to the Board of Directors was 1.25% of
total loans. The minimum policy requirement is 1%, therefore, the
reserve is more than adequate based on analysis. Projected charged offs
for 1998 are approximately $600,000.
An analysis of the allocation of the allowance for Loan Losses is made
on a fiscal quarter at the end of the month (February, May, August, and
November) and reported to the board at its meeting immediately preceding
quarter-end. Requirements of FASB 114 & 118 have been incorporated into
the policy for Accounting by Creditor for Impairment of a loan. A loan
is impaired when it is probable that a creditor will be unable to
collect all amounts due of principal and interest according to the
original contractional terms of the loan. First Citizens adopted the
following as a measure of impairment: (1) Impairment of a loan at First
Citizens shall exist when the present value of expected future cash
flows discounted at the loans effective interest rate impede full
collection of the contract; and (2) Fair Value of the collateral, if the
loan is collateral dependent, indicates unexpected collection of full
contract value. The Impairment decision will be reported to the Board
of Directors and other appropriate regulatory agencies as specified in
FASB 114 and 118. The bank will continue to follow regulatory
guidelines for income recognition for 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 annual review.
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.
<PAGE> 27
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 these 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.
LOAN LOSS ALLOWANCE ANALYSIS
DATE
AVERAGE AVERAGE PERCENT CURRENT RESERVE
LOSS 3 YRS. BALANCE 3 YRS. BALANCE REQUIRED
I. CREDIT $ GROSS $ % $ $
CARDS
II. INSTALL. $ NET $ % $ $
LOANS
III. IMPAIRED WITH ALLOCATIONS $ $
IMPAIRED WITHOUT ALLOCATIONS $ $
ALLOWANCE
IV. DOUBTFUL 50% $ $
SUBSTANDARD 10%
WATCH 5%
OTHER LOANS NOT LISTED PREVIOUSLY .75%
LESS SBA/FMHA GUARANTEED PORTIONS
__________
TOTAL LOANS $
V. LETTERS OF CREDIT .75% $ $
VI. OTHER REAL ESTATE OWNED $
______
RESERVE REQUIRED $
RESERVE BALANCE $
EXCESS (DEFICIT) $
RESERVE AS % OF TOTAL LOANS %
PEER GROUP %
LOSS EXPERIENCE III & IV AVERAGE LAST 3 YEARS
.% OR $
The book value of repossessed real property held by First Citizens at
9/30/98 is $131,000 compared to $164,000 at 9/30/97 and $687,000 at
9/30/96. The balance was significantly reduced as a result of the sale
of a strip shopping center in November 1996. The remaining balance held
in repossessed real property at 9/30/98 represents property purchased
for expansion of the branch located on Highway 51 ByPass valued at
$164,000. The first quarter of 1998, the property was transferred to
premises and equipment from the parent company to the Bank with no gain
or loss. Plans for construction of a new branch facility at this
location are currently underway. Repossessed real property of $131,000
is property held by First Citizens and Bank of Troy. 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> 28
Management's estimates of approximate charge-offs for period ending
12/31/98:
Domestic Amount (in thousands)
Commercial, Financial & Agricultural $300
Real Estate-Construction 0
Real Estate- Mortgage 0
Installment Loans to individuals & credit cards 300
Lease financing 0
Foreign 0
01/01/98 through 12/31/98 Total $600
The following table summarizes the monthly average of net loans
outstanding; changes in the reserve for loan losses arising from loans
charged off and recoveries on loans previously charged off; additions to
the reserve which have been charged to operating expenses; and the ratio
of net loans charged off to average loans outstanding.
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
Quarter ending September 30
(in thousands)
1998 1997 1996 1995 1994
Average Net Loans
Outstanding
Net of ICNE $267,955 $231,262 $212,718 $187,478 $167,373
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 3,438 $ 2,596 $ 2,359 $ 2,186 $ 1,879
Loan Charge-Offs $ (166) $ (24) $ (50) $ (80) $ (44)
Recovery of Loans
Previously
Charged Off $ 90 $ 36 $ 39 $ 34 $ 48
Net Loans Charged Off $ (76) $ 12 $ (11) $ (54) $ 4
Additions to Reserve
Charged to Operating
Expense $ 121 $ 180 $ 163 $ 107 $ 102
Balance at End of
Period $ 3,483 $ 2,788 $ 2,511 $ 2,247 $ 1,985
Ratio of Net Charge-
Offs during quarter
to Average Net Loans
Outstanding (.03%) .005% (.01%) (.029%) .002%
<PAGE>
<PAGE> 29
The following table will identify charge-offs by category for the
period ending 9/30/98 and 9/30/97.
Charge-Offs: 1998 1997
Domestic
Commercial, Financial and Agricultural $ 2 $ 0
Real Estate - Construction 0 0
Real Estate - Mortgage 36 0
Installment Loans to Individuals 119 19
Lease Financing 0 0
Credit Cards 9 5
Total $(166) $(24)
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 47 $ 15
Real Estate - Construction 0 0
Real Estate - Mortgage 4 0
Installment Loans to Individuals 26 19
Lease Financing 0 0
Credit Cards 13 2
Total 90 36
Net $(76) $ 12
Investment Securities
The book value of listed investment securities as of the dates
indicated are summarized as follows:
Composition of Investment Securities
September 30
(in thousands)
1998 1997 1996 1995 1994
U. S. Treasury &
Government Agencies $88,559 $61,465 $60,718 $53,336 $43,457
State & Political
Subdivisions $12,330 $ 9,986 $10,807 $10,516 $12,644
All Others $ 2,696 $ 2,359 $ 3,457 $ 3,568 $ 7,245
TOTALS $103,585 $73,810 $74,982 $67,420 $63,346
The bank's investment portfolio is used 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. Total Investments as of September 30, 1998 are
$103,585,000 up from $73,810,000 at September 30, 1997. Bank of Troy
Investment Portfolio purchased in 1998 and added to the bank's Investment
Portfolio totaled approximately $23 million as of 9/30/98. The Investment
portfolio consists primarily of Government, Agencies, Mortgage Backs,
Remics, CMOS, and GNMA Pools. Purchases for the third quarter totaled
approximately $28 million and were placed in the Held to Maturity Account
or the Available For Sale Account. Investment sold during the quarter
totaled $985,000 at a profit of $20,588 and were sold from the Available
for Sale Account. The average maturity of the portfolio is approximately 8
years when averaging portfolios for First Citizens and Bank of Troy.
Fixed rate holdings currently have an expected average life of
1.9 years. It is estimated that this average life would extend
to 3.7 years should rates rise 100 basis points and 6.7 years should rates
increase 200 basis points. This is a result of some extension occurring in
the callable bonds and mortgage-backed holdings as rates rise. Should
rates decline 100 basis points the average life would likely decrease to
1.7 years.
<PAGE> 30
In terms of price sensitivity, we estimate that if rates were to increase
100 basis points, market value of the portfolio would fall by 2.0%, while
rates rising 200 basis points would impact the market value by a negative
8%. This is comparable with the price sensitivity of the 3 to 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 market value
would increase by 1.6%.
Adjustable rate holdings reprice on an annual or more frequent basis and
currently have an average life of 2.8 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 about 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 portfolio accounts
for Held-to-Maturity, Available for Sale, and Trading Account Investments.
As of June 30, 1998 approximately 59.47% of the total portfolio was placed
in the Available-for-Sale account. The remaining 40.53% was booked 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 $373,514 as reflected on the 9/30/98 balance sheet. Mark
to Market impact to capital on 9/30/97 was a positive $398,813.
Maturities in the portfolio are made up of 16.80% within one year, 35.35%
after one year and within five years, and 32.45% after five years. Policy
provides for 20% maturities on an annual basis. Maturities were extended
from 5 to 10 years on most securities purchased since the latter half of
1995. Management made a conscious effort to extend maturities for a higher
yield on the portfolio. Securities purchased with extended maturities bear
call features ranging from 1 to 3 years.
During the quarter just ended there were no transfers between the
investment portfolio accounts. The trading account for the entire quarter
maintained a zero balance.
First Citizens National Bank has not engaged in any Derivative activities
as defined by paragraphs 5 thru 7 of FASB 119 (Reference footnote 7).
The portfolio currently contains the following unrealized gains and
unrealized losses in each investment category:
Investment Securities
Unrealized Gains/(Losses)
September 30, 1998
Unrealized Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury Securities 184 0 184
Obligations of U.S. Government
Agencies and Corp 1027 40 987
Obligations of States and
Political Subdivisions 206 5 201
Other Securities 0 0 0
Totals 1417 45 1372
Yields on Investment Securities slightly increased the twelve month period
ending 9/30/98 from 6.64% to 6.74%.
<PAGE> 31
Maturing and Portfolio Percentages on Securities September 30, 1998
(in thousands)
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount % Amount % Amount % Amount %
9/30/98 $17,408 16.81% $36,622 35.35% $33,617 32.45% $15,938 15.39%
9/30/97 $12,557 17.02% $22,042 29.87% $29,558 40.05% $ 9,633 13.06%
9/30/96 $ 7,050 9.41% $37,574 50.11% $21,351 28.48% $ 9,007 12.00%
9/30/95 $ 2,746 4.07% $47,071 69.81% $14,547 21.59% $ 3,056 4.53%
Maturity and Yield on Securities September 30, 1997
(in thousands)
<TABLE>
Maturing
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government Agencies $15,285 6.70% $31,009 6.62% $28,884 6.60% $13,381 6.71%
State and Political
Subdivisions* $ 2,123 7.07% $ 5,613 6.73% $ 2,037 7.27% $ 2,557 7.45%
All Others $ - -% $ - -% $ 2,696 6.50% $ - -%
TOTALS $17,408 6.74% $36,622 6.64% $33,617 6.63% $15,938 6.83%
</TABLE>
*Yields on tax free investments are stated herein on a
taxable equivalent basis.
Investment Securities
September 30, 1998
(in thousands)
U.S. Treasury Securities $ 0 $ 0 $ 4,553 $ 4,739
U.S. Government agency
and corporation obligations 18,179 18,297 64,790 65,641
Securities issued by states
and political subdivisions
in the U.S.:
Taxable securities 1,927 1,944 0 0
Tax-exempt securities 4,401 4,459 5,876 6,002
U. S. Securities:
Debt securities 0 0 0 0
Equity securities (including
Federal Reserve stock) 2,680 2,696
Foreign securities:
Debt securities 0 0 0 0
Equity securities 0 0
Total 24,507 24,700 77,899 79,078
(1) Includes equity securities without readily determinable fair values
at historical cost.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certi-
ficates," U. S. Maritime Administration obligations, and Export-
Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) 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> 32
Return on Equity and Assets
Return on assets is a measure of the firms ability to maximize asset
utilization. Total assets at 9/30/98 were $413,367,000. Efforts
continue to focus on positioning the company for future growth and
profitability through improvements in technology, solid growth in the
deposit base and efficient utilization of the branch distribution
system. Accelerated asset growth coupled with rising interest rates had
a significant impact on earnings in 1995. Results of operations for
1997 through third quarter 1998 reflect continuous improvement.
The company's strategic plan addresses objectives to sustain improved
earnings, maintain quality loan and investment portfolio and to maintain
market share by providing amazing customer service. The bank's
management and employees are rewarded with incentive compensation based
on various factors including the level of ROA achieved at year end. A
return on assets of 2.00% is required if maximum benefits are to be
realized. The addition of a finance company, insurance business, and
bank acquisitions is expected to boost net income significantly by year
end 1999. Delta Finance (First Citizens Subsidiary) exceeded budget
projections in 1997 and is expected to produce profitable levels in
1998. Delta Finance II, opened third quarter, 1998 is expected to reach
breakeven within the first year of business with profits projected in
year two. White and Associates/First Citizens Insurance has met
projected profitability goals for 1998 and is expected to significantly
add to the Bank's ROA in 1999. Conversion of the Bank of Troy to a
branch of First Citizens will reduce operating cost significantly in
1999, causing an improvement in the bank's Return On Assets. The
purchase and ultimate conversion of First Volunteer Bank is also
projected to cause a positive gain to net income for First Citizens by
the year 2000.
Total Shareholder's equity (including loan loss reserve) of First
Citizens Bancshares as of 9/30/98 was $39,050,000 compared to
$32,706,000 at 9/30/97.
Percentage of Dividends declared per common share to net income per
common share increased on a consistent basis for the years under
comparison when 1995 is excluded. Suppressed earnings in 1995 were the
result of decreased earnings of First Citizens Financial Plus and legal
expenses incurred when First Citizens sued the former President of this
subsidiary. Number of shares outstanding continues to increase as a
result of shares issued to service the Cash Option and Dividend
Reinvestment Programs. The Board of Directors voted to re-open the Cash
Option program in the first quarter of 1998. As a result 25,019 shares
have been issued since February 2, 1998. Effective September 30,1998,
the Bank discontinued the cash option program because of the diluting
effect to existing shareholders. A stock repurchase program continues
to be ineffective in creating availability of shares. Under the terms
of the repurchase program, the company would repurchase up to $200,000
of Bancshare's stock in a calendar quarter on a first come first served
basis. During the third quarter of 1993 a 2.5 for 1 stock split was
declared to holders of record as of October 15, 1993 on the common
capital stock of the company. The number of shares outstanding
increased proportionately with no effect on capital. An amendment to
the Company's Charter by the shareholders in April, 1998 approved an
increase in the number of shares authorized from 750,000 to 10,000,000.
In June, 1998 a 4 for 1 stock split was declared to holders of record as
of June 1, 1998. The number of shares outstanding increased
proportionately with no effect to capital.
A dividend of .125 cents per share was paid on 3/15/98 and 6/15/98, and
a dividend of .15 cents was paid third quarter. A quarterly dividend
declared for each quarter in 1997 was .40 cents per share compared to
32.5 cents and .30 cents per share in 1996 and 1995. A special dividend
of .40 cents per share was also declared the fourth quarter 1997
compared to .30 cents and .10 cents per share in 1996 and 1995.
<PAGE> 33
The table below presents operating YTD ratios for First Citizens
Bancshares, Inc. for the quarter ending September 30 (not annualized):
1998 1997 1996 1995 1994
Percentage of Net Income to:
Average Total Assets .90% .97% .88% .67% .84%
Average Shareholders Equity 9.28% 10.17% 9.65% 7.41% 9.25%
Percentage of Dividends
Declared Per Common Share to
Net Income Per Common Share 38.17% 26.09% 24.38% 31.35% 24.19%
Percentage of Average Shareholders'
*Equity to Average Total Assets 10.50% 10.37% 10.02% 10.09% 9.98%
*Includes Average Reserve for Loan Loss Account
Liquidity and Interest Rate Sensitivity
Liquidity is the ability to meet the needs of our customer base for
loans and deposit withdrawals by maintaining assets which are
convertible to cash equivalents with minimal exposure to interest rate
risks. Liquidity is determined by a comparison of net liquid assets to
net liabilities. The stability of our deposit base, sound/asset
liability management, a strong capital base and quality assets support
adequate liquidity. In addition funds are available from approved lines
of credit totaling $54,826,000. Membership in the Federal Home Loan
Bank provides approximately $36 million of the total. First Citizens
has residential loans totaling $84,208,000 that are available to serve
as collateral for Federal Home Loan borrowings. During the quarter just
ended borrowings from this liquidity source averaged $16,640,000 per
day. Strong loan demand and seasonal growth in agricultural lines of
credit historically places the bank in a less liquid position May
through October. Loan to deposit ratio excluding repurchase agreements
and Federal Home Loan Bank borrowings is 92.67% at 9/30/98. Loan to
asset ratio at quarter end was 69.01%.
Historical liquidity analysis of second and third quarter of each year
confirm an illiquid cash flow due to funding agriculture lines of
credit. However, by November of each year the liquidity position
improves and the bank moves from borrowing short term funds to a
position of selling short term funds. Repayment of agricultural lines
in November and December is expected to ease the bank's liquidity
position through the fourth quarter.
To address liquidity concerns the bank also has loans in excess of $93
million maturing in one year or less; and Investment Securities totaling
$16 million with maturity dates of one year or less. Other sources of
liquidity or non-core fundings is the State of Tennessee (jumbo CDS).
The state has $17 million in CDS with First Citizens as of 9/30/98. The
average rate associated with these deposits is 5.60%. These funds are
utilized to earmark specific asset needs.
Interest rate sensitivity varies with various 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 more
interest rate sensitive than long-term investment securities and fixed
rate loans. The shorter term interest sensitive assets and liabilities
are key to measurement of the interest sensitivity gap. Simulations are
utilized for interest rate risk management over gap statements due to
the validity of the data. Gap statements are not reflective of actual
characteristics of the bank.
<PAGE> 34
The following condensed gap report provides an analysis of interest rate
sensitivity of earning assets and costing liabilities. First Citizens
Asset/Liability Management Policy provides that the net interest income
exposure to Tier I Capital shall not exceed 2.00%. Interest rate risk
is separated and analyzed according to the following categories of risk:
(1) repricing (2) yield curve (3) option risk (4) price risk and (5)
basis risk. Trading assets are utilized infrequently and are addressed
in the investment policy. Any unfavorable trends reflected in interest
rate margins will cause an immediate adjustment to the bank's gap
position or asset/liability management strategies. The following data
schedule reflects a summary of First Citizens' interest rate risk using
simulations. The projected 12 month exposure is based on 5 different
rate movements (flat, rising, or declining). Three different rate
scenarios were used for rising rates since First Citizens is liability
sensitive.
Interest Rate Risk
September 1998
1998 1997 1996
(in thousands)
Fixed Rate Loans > 5 years $19,112 $15,724 $9,620
$2 million matched with FHLB
Exposure - 1998 vs 1997 - Actual Results (382)
Exposure - 1998 vs 1996 - Actual Results (242)
Ranges Ranges
Projected 12 month exposure, utilizing 5
Rate scenarios (pos or neg) $ 33 $ 446
Tier I Capital $29,760 $29,760
Percent of Tier I Capital 0.11% 1.50%
Policy 2.00% 2.00%
Net Interest Income Levels
Declining $14,185
Declining 1 $14,303
Flat Rate $14,152
Rising 1 $14,304
Rising 2 $13,858
High $14,304
Low $13,858
Variance $446
<PAGE>
<PAGE> 35
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
09/30/98
(in thousands)
<CAPTION>
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH AND DUE FROM
CASH AND DUE FROM 11,618 796 - - - - - - 10,822
TOTAL CASH & DUE FROM 11,618 796 - - - - - - 10,822
INVESTMENTS
US TREASURIES 4,737 - - - - 500 1,000 - 3,237
US AGENCIES 73,032 - - - - 1,829 3,459 5,225 62,518
VARIABLE AGENCIES 10,596 - 1,000 1,501 2,500 1,000 2,496 2,099 -
MUNICIPALS 12,328 - - - - 735 1,388 2,386 7,819
EQUITIES 2,893 - - - - - - - 2,893
TOTAL INVESTMENTS 103,585 - 1,000 1,501 2,500 4,064 8,343 9,710 76,467
LOANS
COMMERCIAL FIXED 63,517 - 3,688 1,654 4,616 7,856 8,820 6,064 30,819
COMMERCIAL VARIABLE 13,297 - 13,297 - - - - - -
REAL ESTATE-VARIABLE 11,099 - 11,099 - - - - - -
REAL ESTATE FIXED 148,205 - 10,722 2,488 3,023 9,368 11,533 9,076 101,995
HOME EQUITY LOANS 5,991 - 4,748 - 41 - 1,202 - -
SEC MORTGAGE 2,219 - 2,219 - - - - - -
INSTALLMENT LOANS 27,404 - 588 286 308 1,208 1,871 5,700 17,443
FLOOR PLAN 245 - - - - - - - 245
CREDIT CARDS 2,051 - - - - - 2,051 - -
FACTORING REC -1 - -1 - - - - - -
OVERDRAFTS 455 - 455 - - - - - -
TOTAL LOANS 274,482 - 46,815 4,428 7,988 18,432 25,477 20,840 150,502
LOAN LOSS RESERVE 3,483 - - - - - - - 3,483
NET LOANS 270,999 - 46,815 4,428 7,988 18,432 25,477 20,840 147,019
FED FUNDS SOLD
TOTAL EARNING ASSETS 374,584 - 47,815 5,929 10,488 22,496 33,820 30,550 223,486
OTHER ASSETS
BUILDING, F&F & LAND 9,388 - - - - - - - 9,388
OTHER REAL ESTATE 259 - - - - - - - 259
OTHER ASSETS 17,518 - - - - - - - 17,518
TOTAL OTHER ASSETS 27,165 - - - - - - - 27,165
TOTAL ASSETS 413,367 796 47,815 5,929 10,488 22,496 30,820 30,550 261,473
DEMAND DEPOSITS 33,061 - - - - - - - 33,061
TOTAL DEMAND 33,061 - - - - - - - 33,061
</TABLE>
<PAGE>
<PAGE> 36
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
09/30/98
(in thousands)
<CAPTION>
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAVINGS ACCOUNTS
REGULAR SAVINGS 19,819 19,819 - - - - - - -
NOW ACCOUNT 39,152 39,152 - - - - - - -
BUSINESS CHECKING 281 281 - - - - - - -
IMF-MMDA 7,630 7,630 - - - - - - -
FIRST RATE ACCOUNT 28,745 28,745 - - - - - - -
DOGWOOD CLUB 5,200 5,200 - - - - - - -
TOTAL SAVINGS 100,827 100,827 - - - - - - -
TIME DEPOSITS
CD 1-2 MONTHS 12,811 - 10,773 2,038 - - - - -
CD 3 MONTHS 12,446 - 274 4,117 4,087 3,968 - - -
CD 4-5 MONTHS 5,346 - 203 20 - 5,123 - - -
CD 6 MONTHS 20,560 - 2,342 3,075 2,561 10,423 2,159 - -
CD 7-11 MONTHS 10,776 - 60 6,007 135 337 4,237 - -
CD 12 MONTHS 11,871 - 1,610 460 899 3,764 4,086 1,052 -
CD 13-17 MONTHS 30,613 - 1,782 1,492 1,685 3,891 15,870 5,893 -
CD 18-23 MONTHS 471 - - 13 11 232 54 161 -
CD 24 MONTHS 5,733 - 17 110 7 2,683 1,007 1,909 -
CD 25-30 MONTHS 6,249 - 417 721 852 3,135 293 523 308
CD 31-59 MONTHS 9,850 - 419 60 - - 202 6,166 3,003
CD 31-59 MONTHS VAR. 12 - - - - - - 12 -
CD 60 MONTHS 5,298 - 204 40 239 686 853 740 2,536
CD 60 MONTH VAR. 817 - 50 - - 403 25 60 279
CD SWEET 16 21,054 - 1,033 1,955 1,452 3,241 9,014 4,359 -
CD 7 MONTH 1,532 - 236 191 29 471 605 - -
IRA FLOATING 112 - 112 - - - - - -
IRA FIXED 20,108 - 582 827 986 3,024 5,922 6,661 2,106
CHRISTMAS CLUB 435 - - - - - 435 - -
TOTAL TIME 176,094 - 20,114 21,126 12,943 41,381 44,762 27,536 8,232
TOTAL DEPOSITS 309,982 100,827 20,114 21,126 12,943 41,381 44,762 27,536 41,293
FED FUNDS PURCHASED 9,650 9,650 - - - - - - -
TT&L 317 317 - - - - - - -
SECURITIES SOLD-SWEEP 11,282 11,282 - - - - - - -
SECURITIES SOLD-FIXED 6,810 - 100 - 632 4,424 1,342 312 -
FHLB-SHORT TERM 11,350 11,350 - - - - - - -
FHLB-LIBOR INVEST. 2,000 - 2,000 - - - - - -
FHLB-LONG TERM 15,713 - - - - - 9,000 - 6,713
NOTES PAYABLE FINANCE 3,171 1,717 - - - - 1,000 454 -
TOTAL SHORT TERM
BORR. 60,293 34,316 2,100 - 632 4,424 11,342 766 6,713
OTHER LIABILITIES 4,042 - - - - - - - 4,042
TOTAL OTHER LIAB. 4,042 - - - - - - - 4,042
TOTAL LIABILITIES 374,317 135,143 22,214 21,126 13,575 45,805 56,104 28,302 52,048
CAPITAL
STOCK, SURPLUS,
P.I.C 16,431 - - - - - - - 16,431
UNREALIZED GAIN
(LOSSES) 686 - - - - - - - 686
UNDIVIDED PROFITS 21,933 - - - - - - - 21,933
TOTAL CAPITAL 39,050 - - - - - - - 39,050
TOTAL LIAB'S &
CAPITAL 413,367 135,143 22,214 21,126 13,575 45,805 56,104 28,302 91,098
GAP (SPREAD) --134,347 25,601 -15,197 -3,087 -23,309 -22,284 -2,248 170,375
GAP % TOTAL ASSETS - -32.50 6.19 -3.68 -0.75 -5.64 -5.39 0.54 -41.21
CUMULATIVE GAP - - 134,347 -108,746 -123,943 -127,030 -150,339 -172,623 -170,375 -
CUM GAP % TOTAL ASSETS - -32.50 -26.31 -29.98 -30.73 -36.37 -41.76 -41.22 -
<PAGE> 37
NOTES TO THE GAP REPORT
1. The gap report reflects the interest sensitivity
positions during a flat rate environment. These
time frames could change if rates rise or fall.
2. Repricing over-rides maturities in various time
frames.
3. Demand deposits, considered to be core, are placed
in the last time frame due to lack of interest
sensitivity.
4. Savings accounts, also considered core, are placed
into the +2 year time frame. In a flat rate
environment, saving accounts tend not to reprice or
liquidate and become price sensitive only after a
major increase in the 6 month CD rate. These
accounts are placed in this category instead of the
variable position due to history and
characteristics.
5. Simulations will be utilized to reflect the impact
of multiple rate scenarios on net interest income.
Decisions should be made that increase net interest
income, while always considering the impact on
interest rate risk. Overall, the bank will manage
the gap between rate sensitive assets and rate
sensitive liabilities to expand and contract with
the rate cycle phase. Approximately 20% - 30% of
our CD customers have maturities of 6 months or
less. First Citizens will attempt to minimize
interest rate risk by increasing the volume of
variable rate loans within the portfolio. The bank
will attempt to limit the net interest income
exposure to a maximum of 2.00% of tier I capital.
The bank's Asset/Liability Committee will attempt to
improve net interest income through volume increases
and better pricing techniques. Long term fixed rate
positions will be held to a minimum by increasing
variable rate loans. The over 5 year fixed rate
loans should be held to less than 25% of assets,
unless they are funded with Federal Home Loan Bank
matched funds. These maximum limits are the high
points and the ACLO will strive to keep the amount
below this point. The 9/30/98 dynamic gap reports
reflects an exposure of $50,000 to $450,000.
(Examples: historical margins graphed and multiple
scenarios reflecting income exposure and as a
percent of tier I capital.
Subsidiaries as well as the Parent Company will
adhere to providing above average margins and
reviewing the various material risks. New products
and services will be reviewed for risk by the
Product Development Committee.
6. Bancshares could benefit from a flat or declining
rate environment. If interest rates rise rapidly,
net interest income could be adversely impacted.
First Citizens Liquidity could be negatively
impacted should interest rates drop prompting an
increase in loan demand. Adequate lines of credit
are available to handle liquidity needs should this
occur.
<PAGE>
<PAGE> 38
Capital Resources
Total shareholders' equity of First Citizens Bancshares as
of September 30,1998, was $39,050,000. Capital as a
percentage of total assets for the quarter ending September
30, is presented in the following table for the years
indicated (excluding Loan Loss Reserves):
1998 1997 1996 1995 1994
9.45% 10.50% 9.94% 9.28% 9.97%
A decrease in the capital ratio to 9.45% in 1998 from 10.50%
in 1997 is a result of the investment in Bank of Troy.
Management will continue to seek opportunities to employ
excess capital in order that shareholders return on
investment can be maximized.
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 risk. The calculation of risk-based capital
is accomplished by dividing qualifying capital by weighted
risk assets. The minimum risked based 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 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 risked-based capital ratio as of 9/30/98 was 14.59%,
significantly above the 8.00% 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.
Common Stock
The Board of Directors voted to discontinue the quarterly
cash option program effective September 30, 1998 because of
the diluting effect to existing shareholders. A Stock
Repurchase Program approved by the Board of Directors in
1994 provides for the purchase of the company's common stock
to service the Dividend Reinvestment Program. The Company
may repurchase up to $200,000 of Bancshares' stock in a
calendar quarter on a first come, first served basis.
Effects of Inflation
Inflation has a significant impact on the growth of total
assets in the banking industry, resulting in a need to
increase equity capital in order to maintain an appropriate
equity to asset ratio.
Operating expenses are directly affected by increases in
salaries and employee benefits, supplies, legal, audit and
professional fees, utilities, advertising and insurance.
Inflation is the major key to the cost of acquiring and
retaining deposits.
A well managed asset/liability management program can
maximize net interest income; and at the same time, reduce
the impact of inflation on earnings.
<PAGE> 39
Part II - Other Information
Item 1. Legal Proceedings
There are no legal proceedings that would result in a
significant impact to the bank's financial statement as of
this date.
Item 1. Changes in Securities
Dividends paid to Shareholders of First Citizens Bancshares,
Inc. are funded by dividends to the Bank Holding Company
from First Citizens National Bank. Federal Reserve Bank
regulators would be critical of a bank holding company that
pays cash dividends not covered by earnings or that are
funded from borrowings or unusual or non-recurring gains,
such as the sale of property or assets. Under rules set
forth by the Comptroller of the Currency in Interpretive
Ruling 7.6100, the board of directors of a national bank may
declare dividends as it may judge to be expedient, subject
to statutory limitations which deal with the balance of the
surplus account, sufficiency of net profits, dividend
payments on preferred stock, and default of any assessment
due to the Federal Deposit Insurance Corporation.
Shareholders approved an amendment to the Company's Charter
in April 1998 to increase the number of shares of authorized
from 750,000 to 10,000,000. Subsequently, a 4-for-1 stock
split was declared which increased shares outstanding from
2,252,754 to 2,324,739.
Item 6(b) No reports on Form 8-K were filed for the quarter
ended 9/30/98.
<PAGE>
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
First Citizens Bancshares, Inc.
(Registrant)
Date: November 13, 1998 /s/Stallings Lipford
Stallings Lipford,
Chairman
Date: November 13, 1998 /s/Jeff Agee
Jeff Agee,
Senior Vice President &
Chief Financial Officer
First Citizens National Bank
(Principal Subsidiary)
</TABLE>
<PAGE>
<PAGE> 1
DATA STATED IN THOUSANDS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
THIRD THIRD YEAR
REGULATION STATEMENT CAPTION QTR. QTR. TO DATE
1998 1997 1998 1997
5-02 (1) Cash and Cash Items 11618 14605 11618 14605
5-02 (2) Marketable Securities 103585 73810 103585 73810
5-02 (3)(b)(1) Notes Receivable 274482 234627 274482 234627
5-02 (4) Allowance for Doubtful
Accounts 3483 2788 3483 2788
5-02 (15) Total Assets 413367 338271 413367 338271
5-02 (24) Other Liabilities 374317 305511 374317 305511
5-02 (30) Common Stock 3222 748 3222 748
5-02 (31)(a)(2) Additional Capital Other 13268 10465 13268 10465
5-02 (31)(a)(3)(ii) Retained Earnings - 24163 21261 24163 21261
Unappropriated
Treasury Stock -59 -7
5-03 (b)(1)(e) Other Revenues 9006 7789 26168 22593
5-03 (b)(2)(e) Cost of Other Revenues 3303 2848 9805 8308
5-03 (b)(8) Interest and Amortization
of Debt Discount 3955 3313 11319 9463
5-03 (b)(10) Income Before Taxes and
Other Items 1748 1628 5044 4822
5320
5-03 (b)(11) Income Tax Expense 586 572 1696 1654
5-03 (b)(14) Income/Loss from
Continuing Operations 1162 1056 3348 3168
5-03 (b)(19) Net Income or Loss 1162 1056 3348 3168
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000719264
<NAME> FIRST CITIZENS BANCSHARES
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997 SEP-30-1998 SEP-30-1997
<CASH> 11,618 14,605 11,618 14,605
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 0 0 0 0
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 79,078 46,606 79,078 46,606
<INVESTMENTS-CARRYING> 24,507 27,204 24,507 27,204
<INVESTMENTS-MARKET> 0 0 0 0
<LOANS> 274,482 234,627 274,482 234,627
<ALLOWANCE> 3,483 2,788 3,483 2,788
<TOTAL-ASSETS> 413,367 338,217 413,367 338,217
<DEPOSITS> 309,982 257,342 309,982 257,342
<SHORT-TERM> 39,092 35,394 39,092 35,394
<LIABILITIES-OTHER> 4,042 3,415 4,042 3,415
<LONG-TERM> 21,201 9,360 21,201 9,360
0 0 0 0
0 0 0 0
<COMMON> 3,222 2,992 3,222 2,992
<OTHER-SE> 35,887 29,714 35,887 29,714
<TOTAL-LIABILITIES-AND-EQUITY> 413,367 338,217 413,367 338,217
<INTEREST-LOAN> 6,474 5,605 18,589 15,797
<INTEREST-INVEST> 1,470 1,261 4,188 3,913
<INTEREST-OTHER> 3 2 136 40
<INTEREST-TOTAL> 7,953 6,877 22,948 19,794
<INTEREST-DEPOSIT> 3,299 2,775 9,638 8,217
<INTEREST-EXPENSE> 3,955 3,313 11,319 9,463
<INTEREST-INCOME-NET> 3,998 3,564 11,629 10,331
<LOAN-LOSSES> 121 180 639 541
<SECURITIES-GAINS> 48 48 39 67
<EXPENSE-OTHER> 3,182 2,668 9,166 7,767
<INCOME-PRETAX> 1,748 1,628 5,044 4,822
<INCOME-PRE-EXTRAORDINARY> 1,162 1,056 3,348 3,168
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,162 1,056 3,348 3,168
<EPS-PRIMARY> .37 .35 1.07 1.06
<EPS-DILUTED> .37 .35 1.07 1.06
<YIELD-ACTUAL> 4.23 4.62 4.10 4.47
<LOANS-NON> 358 514 358 514
<LOANS-PAST> 301 290 301 290
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 6,997 2,708 6,997 2,708
<ALLOWANCE-OPEN> 3,438 2,596 3,445 2,282
<CHARGE-OFFS> 221 24 615 142
<RECOVERIES> 90 36 245 107
<ALLOWANCE-CLOSE> 3,483 2,788 3,483 2,788
<ALLOWANCE-DOMESTIC> 3,483 2,788 3,483 2,788
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
