<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended March 31, 2000 Commission File Number 0-11709
FIRST CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of 62-1180360
incorporation or organization) (I.R.S. Employer Identification No.)
P. O. Box 370
Court Street, Dyersburg, Tennessee 38024
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (901) 285-4410
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 3 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Of the registrant's only class of common stock (No par value) there were
3,704,535 shares outstanding as of March 31, 2000(net of treasury stock).
<PAGE>2
PART I -FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>3
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(stated in thousands)
March 31, December 31,
2000 1999
(Unaudited) (Note)
ASSETS
Cash and due from banks $16,448 $17,410
Federal funds sold $0 $0
Investment securities
Trading Investments-stated at market $0 $0
Held to maturity-amortized cost-fair
value of $18,574 at March 31,
2000 and $19,768 at December 31,
1999. $19,168 $20,345
Available for sale-stated at market $80,458 $78,792
Loans (Excluding unearned income of
$1,866 at March 31, 2000 and
$2,131 at December 31, 1999) $325,350 $325,377
Less: Allowance for loan losses $3,762 $3,718
Net Loans $321,588 $321,659
Premises and equipment $13,849 $13,417
Intangible Assets $4,144 $4,223
Other Real Estate $449 $476
Other assets $16,291 $16,348
TOTAL ASSETS $472,395 $472,670
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits $366,494 $366,819
Securities sold under Agreements
to Repurchase $26,393 $22,390
Federal Funds Purchased & Other
Short Term Borrowing $17,900 $23,700
Long term debt $11,983 $11,264
Notes Payable of Employee Stock
Ownership Plan $1,050 $1,117
Other liabilities $4,027 $3,700
TOTAL LIABILITIES $427,847 $428,990
Stockholders' Equity
Common stock, No par value-
10,000,000 authorized; 3,706,546
issued and outstanding at March
31, 2000; 3,705,165 issued and
outstanding at December 31, 1999 $3,707 $3,705
Surplus $15,047 $15,034
Retained earnings $28,923 $28,298
Obligation of Employee Stock
Ownership Plan ($1,050) ($1,117)
Net unrealized gains (losses)
on available for sale ($2,031) ($2,036)
Total Common Stock and
Retained Earnings $44,596 $43,884
Less-2,011 Treasury shares, at
cost at March 31, 2000 and 6,807
shares at December 31, 1999 ($48) ($204)
TOTAL STOCKHOLDERS' EQUITY $44,548 $43,680
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $472,395 $472,670
NOTE: The balance sheet at December 31, 1999 has been taken from
the audited financial statements at that date and condensed.
<PAGE>4
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(stated in thousands except E.P.S. and shares outstanding)
Three Month Periods Ended
March 31, March 31,
2000 1999
INTEREST INCOME
Interest and fees on loans $7,491 $7,084
Interest on investment securities:
Taxable $1,408 $1,452
Tax-exempt $148 $164
Other interest income-Fed Funds Sold $9 $100
Other interest income-Checking $12 $15
Lease financing income $0 $0
TOTAL INTEREST INCOME $9,068 $8,815
INTEREST EXPENSE
Interest on deposits $3,638 $3,394
Other interest expense $671 $790
TOTAL INTEREST EXPENSE $4,309 $4,184
NET INTEREST INCOME $4,759 $4,631
Provision for loan losses $187 $206
Net interest income
after provision $4,572 $4,425
Other Income
Securities gains (losses) $0 $31
Other income $1,515 $1,353
Total Other Income $1,515 $1,384
Other expenses $3,931 $3,736
Net income before
income taxes $2,156 $2,073
Taxes $682 $716
Net Income $1,474 $1,357
Earnings Per Share $0.40 $0.38
Weighted average number of
shares outstanding 3698529 3562501
<PAGE>5
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, STATED IN THOUSANDS)
Three Months Ended March 31
2000 1999 1998
OPERATING ACTIVITIES
Net cash provided by
operating activities $2,269 $ 1,566 $ 2,990
INVESTING ACTIVITIES
Proceeds of maturities
of held to maturity
securities $1,177 $ 5,284 $ 3,992
Purchase of held to
maturity investments $ 0 ($ 2,000) ($ 5,043)
Proceeds from maturities
of available for sale
securities $ 212 $ 6,942 $ 5,463
Proceeds from sales of
available for sale
securities $ 0 $ 839 $ 1,500
Purchase of available
for sale securities ($1,870) ($14,200) ($25,163)
Increase in loans-net ($ 116) ($ 3,186) ($30,395)
Payment for purchase of
Bank of Troy-net of cash
acquired $ 0 $ 0 ($ 5,957)
Purchases of premises
and equipment ($ 553) ($ 820) ($ 1,192)
Net Cash provided by
investing activities ($1,150) ($ 7,141) ($56,795)
FINANCING ACTIVITIES
Net Increase (Decrease)
in Demand & Savings
Accounts ($1,292) ($ 1,541) $ 7,966
Increase (Decrease) in
Time Accounts $ 967 ($ 7,271) $34,275
Increase (Decrease) in
Long term Debt $ 719 $ 2,718 $10,087
Treasury Stock
Transactions $ 156 $ 128 ($ 9)
Proceeds from Sale of
Common Stock $ 15 $ 240 $ 1,811
Cash Dividends Paid ($ 849) ($ 703) ($ 391)
Net Increase (Decrease)in
Short Term Borrowings ($1,797) $ 4,128 $ 856
Net Cash provided (used)by
Financing Activities ($2,081) ($ 2,301) $54,595
Increase (Decrease) in
Cash & Cash
Equivalents ($ 962) ($ 7,876) $ 790
Cash and Cash
Equivalents at
beginning of year $17,410 $28,318 $18,846
Cash and Cash Equivalents
at end of year $16,448 $20,442 $19,636
Cash Payments made for interest and income taxes during the years
presented are as follows:
2000 1999 1998
Interest $ 4,462 $ 4,668 $ 3,263
Income Taxes $ 1,020 $ 140 $ 725
<PAGE>6
FIRST CITIZENS BANCSHARES, INC.
STATEMENT OF COMPREHENSIVE INCOME
STATED IN THOUSANDS EXCEPT PER SHARE AMOUNTS
First Volunteer Bank and its' holding company was purchased on January 1, 1999
with the issuance of 445,000 shares of First Citizens Bancshares Stock. The
following statement reflects assets and liabilities acquired as a result of
the transaction.
Assets Liabilities
Cash $ 1
Due From $ 10
Prepaids $ 85
First Volunteer Bank Investments $3,997
Plateau $ 3
Accrued Interest $ 3
Accrued Taxes $ 10
Other Payables $ 56
Notes Payable $ 225
Capital $3,802
Totals $4,096 $4,096
Three Months Ended March
2000 1999
Net Income $1,474 $1,357
Changes in Available for Sale Securities $8 ($888)
Tax Impact (Available for Sale Securities) ($3) $355
Comprehensive Income $1,479 $824
<PAGE>7
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(stated in thousands)
MARCH 31, 2000
NOTE 1-CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 2000, the consolidated
statements of income for the three month periods ended March 31, 2000, 1999,
and 1998, and the consolidated statements of cash flows for the three month
periods then ended have been prepared by the company without an audit. The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows at March 31, 2000 and for all periods presented have
been made. Operating results for the reporting periods presented are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999.
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
03/31/00 03/31/99
Amount outstanding-end of period $44,293 $42,235
Weighted average rate of outstanding 4.40% 4.75%
Maximum amount of borrowings at
month ends $45,834 $42,235
Average amounts outstanding for period $41,708 $39,750
Weighted average rate of average amounts 4.50% 4.77%
NOTE 4-LONG TERM DEBT
Long term debt is comprised of Federal Home Loan Bank Borrowings, ESOP debt
and 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 ESOP debt is with Suntrust-Nashville. The average
life is as presented and the FHLB funds are matched with loans and investments.
Average Average Average Repricing
Volume Rate Maturity Frequency
FHLB Borrowings $10,141 5.80% 2 years Fixed
Finance Company Debt $1,000 6.00% 5 years Fixed
ESOP Obligation $1,101 6.70% 7 years Monthly
<PAGE>8
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
(stated in thousands)
MARCH 31, 2000
NOTE 5-STATEMENT OF CASH FLOWS
March March March
2000 1999 1998
Actual payments made
during the periods:
Interest $4,462 $4,668 $3,263
Income taxes $1,020 $ 140 $ 725
NOTE 6-CONTINGENT LIABILITIES
There are no material pending litigations as of the current
reportable date that would result in a liability.
NOTE 7-INVESTMENT SECURITIES
The difference between book values of investment securities and market values
at March 31, 2000 and December 31, 1999, total ($594) and ($577) respectively.
FASB 115 requires banks to classify securities into Held to Maturity, Available
for Sale, and Trading. First Citizens has $0 in the trading account. The
available for sale securities values are adjusted to market every quarter and
the adjustments flow to the capital section (net of tax). The Held to Maturity
securities are stated at amortized cost. The available for sale securities
reflects a $12 increase for the quarter ending period of March 2000 and, net of
tax $5 flowed to capital. These movements can fluctuate with the bond market.
First Citizens has not engaged in any derivative activities (as defined by
paragraphs 5-7 of FASB 119) for any of the reported periods.
NOTE 8-REGULATORY CAPITAL REQUIREMENTS
Regulatory agencies impose certain minimum capital requirements on both First
Citizens Bancshares, Inc., and First Citizens National Bank. On December 16,
1988, the Federal Reserve Board approved the Risk Based Capital Guidelines for
Bank Holding Companies. Presently, the Holding Company and First Citizens
National Bank, exceed the required minimum standards set by the Regulators.
The consolidated Tier 1 Ratio and Tier 2 Ratio are 13.08% and 14.25%
respectively.
NOTE 9-DEFERRED INCOME TAXES
First Citizens adopted FASB 109 as of January 1, 1993. The deferred tax
liability account reflects an asset totaling $676. The timing differences
mainly consist of Reserve for Loan Loss timing differences.
NOTE 10-RESERVE FOR LOAN LOSSES
FASB 114 and 118 were implemented during the first quarter of 1995. This new
FASB requires companies to set aside reserves for impaired loans.
<PAGE>9
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
(stated in thousands)
MARCH 31, 2000
The following data reflects impaired totals for the reportable
periods:
Impaired Loan Balance or Recorded Balance $2,607
Amount of Recorded Balance with Related Allowance $2,185
Amount of Recorded Balance with no Related Allowance $ 422
Interest income is recognized on impaired loans on a cash basis. Cash receipts
are applied as cost recovery or principal recovery first, consistent with OCC
Regulations.
First Citizens will continue to make sure the overall reserve is adequate in
addition to the impaired loans.
Note 11 - Asset Impairment
The financial standards board issued statement 121 addressing the accounting
for the impairment of long-lived assets that will be held and used, including
certain identifiable intangibles, and the good-will related to those assets.
The statement, which is effective for calendar year 1996 financial statements,
also addresses accounting for long-lived assets and certain identifiable
assets to be disposed.
The statement requires that assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable.
As of the reportable date, there are no FASB 121 adjustments.
Note 12-FASB 128 and 129-Earnings Per Share
First Citizens Bancshares has a simple capital structure, that is, those with
only common stock outstanding. The method used for computing the weighted
average shares is based off a daily weighted average amount. First Citizens
has no preferred stock, redeemable stock, or any items that would dilute basic
earnings per share.
Note 13-FASB 130-Comprehensive Income
This statement establishes reporting and displays requirements for
comprehensive income and its components. A separate financial statement is
presented that starts with net income from operations and then includes other
comprehensive incomes. 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).
<PAGE>10
FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
(stated in thousands)
MARCH 31, 2000
Note 14-FASB 132-Employers' Disclosures about Pensions and Other Postretirement
Benefits.
First Citizens and its subs do not sponsor any defined benefit plans or post-
retirement benefits.
Note 15-Leveraged ESOP
Origination Date: 6/25/98
First Citizens Bancshares has guaranteed a $2,000,000 loan payable to Suntrust
Bank of Nashville, Tennessee at the rate of Libor plus 1.20%. Accrued interest
is payable quarterly commencing July 1, 1998. Principal shall be paid in equal
quarterly payments of $52 commencing October 1, 1998. There are no prepayment
penalties associated with this loan. It is our intent to pay this loan off
within 7 years of the original maturity date. First Citizens Bancshares issued
85,106 shares at the current market/appraised price of $23.50 to use for the
ESOP purchase/leverage. The parent company also recorded a note payable and a
contra equity account for this transaction. The contra equity account is called
unallocated ESOP shares. The source of repayment of this loan will be the lead
bank (First Citizens National Bank). First Citizens will record as an expense
the contributions for the funding of the payments to the ESOP. First Citizens
National Bank contributes 10% of covered payroll on an annual basis to the ESOP.
First Citizens National Bank of Dyersburg Employee Stock Ownership Plan and
Trust is considered a money purchase/stock bonus plan. The plan trustee is the
Investment Management and Trust Services Division of First Citizens National
Bank. The eligibility requirements to participate in the plan are: an employee
must complete 1 year of service and attain the age of 21. Each year, First
Citizens National Bank will contribute 10% to the money purchase pension plan
and the contributions to the stock bonus plan will be discretionary. The stock
bonus plan has not been utilized in the 1990's. An employee has to be employed
on the last day of the year and have completed 1000 hours of service to receive
a contribution. The current YTD ESOP expense is $163 thousand.
<PAGE>11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
First quarter earnings of $1,474,000 reflect an increase in excess of 8.6% when
compared to first quarter, 1999. The growth was supported primarily by a 3.3%
increase in net interest income and revenues from our retail brokerage unit,
First Citizens Financial Plus, Inc. Increased activity in trading and
investing created by extreme market volatility more than doubled the net income
of the brokerage unit when compared to the same period in the prior year. Net
income per common share increased from .38 cents per share in first quarter,
1999 to .40 cents in the quarter just ended. Return on average assets was
improved to 1.25% up 4.41% when compared to 1.20% at 3/31/99. Return on
average equity ended the quarter at 13.37%, up 5.11% over the 12.72% reported
first quarter of 1999. Net interest margins improved slightly increasing 2.03%
to 4.03% in the twelve months ending 3/31/00. Growth in this area will be
difficult to maintain if market rates continue to increase.
Asset growth remained unchanged for the quarter, evidence of the focus on
earnings and quality. Bancshares acquired assets totaling $49 million in 1999
with acquisitions of Bank of Troy and First Volunteer Bank. Traditionally,
banks which move into new markets through acquisitions, lose market share in
the first year, gain bank some of the loss the second year and by the end of
the third year, regain lost market share. First Citizens' marketing efforts
are implementation of a business development program designed to improve
service to existing customers, identify the potential for new relationships and
cross sell a wide array of products and services to customers, based on a needs
assessment. As evidence of the success of these efforts market share in Dyer
County increased to 53.75% at year end 1999 from slightly over 52% in 1998.
The prospects of significantly growing total assets of Bancshares is not as
great as they were two years ago. Until circumstances change, management's
focus will be on building what we have and concentrate on improving
efficiencies throughout the organization.
First quarter dividends of .2250 cents per share are up 20% when compared to
the same quarter in 1999. The number of shares outstanding increased 7,000 to
3,705,000 at 3/31/00. The value of bank stocks in general remain suppressed
and Bancshares is no exception. Since management cannot change what they do
not control, focus will be on improving earnings, broadening the earnings
base and maintaining a quality loan portfolio. When market sentiment again
favors financial stocks Bancshares will be positioned to maximize the value of
the company. The equity position of Bancshares remains strong, increasing to
9.43% from 9.29% for the twelve month period ending March 31, 2000. Management
will continue efforts to invest excess capital in a manner that compliments
earnings and enhances the potential to increase shareholder dividends.
Net Yield on Average Earning Assets has remained stable at 4.56% for quarter
ended 3/31/00 compared to 4.48% and 4.68% for 3/31/99 and 3/31/98 respectively.
A slight increase is reflected from first quarter 1999 despite the rising rate
environment we have experienced over the past year. Quality in the loan
portfolio continues to be a primary focus of Bank management. Non-performing
loans represent $2,224,000 or .69% of total loans, in line with the peer ratio
of .70%. Non performing loans at 3/31/99 was .82% of total loans. Problem
loans total $8,157,231 at 3/31/00, representing 2.51% of total loans. The
internal loan review report indicates that the loan portfolio is in good
condition based on the percentage of problem loans to gross capital funds as
of 3/31/00. Competition for loans continues to place pressure on the yield
and terms customers are willing to accept. Loan Administration has
taken a conservative position in dealing with situations which deviate from
established underwriting standards, while recognizing the need to maintain
quality loan growth. For further information on the loan portfolio refer to
the section labeled Composition of Loans.
<PAGE>12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CON'T.)
Operating efficiency is achieved through implementation of action steps set in
the Bank's Technology Strategic Plan. Recent technological advancements have
been the development and installation of Internet based banking. First
Citizens Internet Banking site was made available for customer signup on
September 1, 1999 at the Bank's domain location, firstcitizens-bank.com. As of
March 31, 2000, there were 1,434 customers signed up for on-line banking with
247 of those using the bill pay service. First Citizens currently offers touch-
tone telephone banking to its customers with utilization of over 35,000 calls
monthly.
The Gramm-Leach-Bliley Act, referred to as "Financial Modernization" was signed
into law November 12, 1999. The Act is the most significant piece of
legislation to be enacted in the last 50 years and is expected to dramatically
change the landscape of the financial services industry. In essence, the Act is
a conglomeration of numerous provisions that impact a broad range of issues
within the banking industry. Financial Modernization will pave the way for a
new era in banking.
The Act contains seven titles, each of which focuses on a different aspect of
the financial services industry. An overview of the Act can be summarized
using the following points:
* Removes barriers between insurance, banks, and securities by allowing
these entities to merge and sell each other's products under a holding
company structure with some exceptions.
* Reasserts the supremacy of state regulation of the business of insurance
with specific exceptions.
* Prohibits companies outside the financial services industry to purchase
(merge/affiliate) with insurers, banks, and/or securities firms.
* Allows banks to sell insurance and securities products as long as it
discloses to the purchasers that these products are not guaranteed by the
Federal Deposit Insurance System.
* Prohibits banks from tying the purchase of insurance and securities
products as conditions for loan approvals.
* Permits affiliated companies to share customers' personal data with each
other but gives the customer the right to prohibit the sharing of this
data with companies outside the holding company structure.
* Allows states to preempt federal laws that offer greater privacy
protections than those included in the Financial Services
Modernization Act.
* Requires states to enact uniform laws and regulations governing the
licensure of individuals and entities authorized to sell and solicit the
purchases of insurance within and outside a state.
What does this mean for First Citizens? The primary impact will be increased
competition as large-scale independent investment bankers (brokerage firms,
insurance companies, mutual funds) are likely to begin offering banking
services in offices nationwide. The good news is, our focus on diversification
has placed the Company in a position to compete by offering the same products
and services at convenient locations by a staff our customers know and trust.
Through utilization of technology, we offer the same sophisticated services as
larger banks with offices nationwide. One example is our Internet Banking
Account that has drawn rave reviews from existing and new customers. Customers
of First Citizens Financial Plus have access to on-line trading and White and
Associates/First Citizens Insurance has established a web presence that is
progressing toward on-line insurance sales.
<PAGE>13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CON'T.)
Overall, opportunities available as a result of the new legislation are a plus
for community banks. Increased competition that is sure to develop from giant
financial services organizations simply means we will work harder to earn the
business of our customers. As community bankers, we recognize that bigger does
not always mean better, and knowing our customers affords us a tremendous
advantage as we strive to identify and serve their financial needs.
First Citizens intends to pursue challenges and opportunities presented by
"Financial Modernization". The Board of Directors of First Citizens
Bancshares, Inc. approved the filing of a declaration with the Federal Reseve
Bank which would result in a change in status form Bank Holding Company to
Financial Holding Company. We have made the choice to compete and will do so
in an aggressive manner. We intend to maximize our potential for success as
we focus on the following:
* Market Awareness - Business decisions will be driven by a clear
understanding of the financial needs of existing and potential customers,
a focus on enhancing our ability to serve those needs and an awareness of
changes which might impact either or both.
* Strategic Planning - Establishing a clear direction for the future of
First Citizens, understanding what must be done to accomplish established
goals and recognizing signs that might indicate a need to rethink the
strategy are key components of the Plan. The management team, acting
under guidance of a diverse and committed Board of Directors is positioned
to execute a well thought out Strategic Plan.
* Technology Utilization - Automated customer information systems,
electronic banking and remote distribution of services are as available to
First Citizens as to the largest bank in America. We are committed to
investing resources in a manner that will allow us to remain competitive
as the information age continues to grow and mature.
* Staff Development - There is no one element within an organization more
important to success than is the quality of staff. In spite of automation
and the efficiencies of outsourcing, community banks still need people.
In response, a formalized Staff Development program was introduced in
1999, which will support and enhance the quality of current and future
management of First Citizens at all levels. Recognizing leadership
skills, enhancing abilities through training and supporting realistic
career goals are primary objectives of this ongoing process.
The likely focus of the immediate future in this industry is the convergence
of financial services. Our emphasis on diversification in recent years has
placed First Citizens in the enviable position of being able to effectively
compete in this new environment.
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. There currently exists no recommendation by regulatory authorities
which if implemented, would have such an effect. Interstate Banking/Branching
became a reality through legislation passed September 13, 1994. The act
permits full nationwide interstate branching after June 1, 1997.
<PAGE>14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CON'T.)
First Citizens Bancshares, Inc. and First Citizens National Bank are located
in a highly competitive market place, competing for deposit dollars and
earning assets with four other banks, two of which are branches of large
regional competitors. First Tennessee Bank and Union Planters National Bank
are the two largest financial institutions in the state. First Citizens has
historically maintained in excess of 50% of local market share and reflected
54% as of June 1999. Interstate banking could possibly bring about the
location of large out of state banks to the area. If so, First Citizens would
continue to operate as it has in the past, focusing on the wants and needs of
existing and potential customers. The quality of service and individual
attention afforded by an independent community bank cannot be matched by large
regional competitors, managed by a corporate team unfamiliar to the area.
First Citizens is a forward moving bank offering products and services required
for maintaining a satisfactory customer relationship moving into the next
decade and beyond. The most recent market analysis indicates a remarkably
strong performance by First Citizens in satisfying customer expectations in the
areas of personnel, service and convenience.
In 1992, First Citizens National Bank acquired 1.747 acres of land adjoining
its Green Village Branch property to accommodate future growth and expansion.
Construction of a 6400 square foot facility commenced third quarter of 1999
with a completion date set for June 30, 1999. In addition to financial
services, the branch will house a U.S. Postal Service location which will be
available twenty-fours a day, seven days a week. Enhanced financial services
will include concentrated lending efforts toward Small Business customers. A
Small Business Resource Center will also be housed at the Green Village
location. The Center will provide resources that small business owners often
don't have in-house expertise to manage.
The following table compares year-to-date non-interest income, and expense of
First Citizens as of March 31, 2000, 1999, and 1998:
Non-Interest Income
(in thousands)
March 31
% of % of
2000 Change 1999 Change 1998
Service Charges on
Deposit Accounts $597 11.79% $534 29.93% $411
Other Income $668 6.03% $630 46.85% $429
Trust Income $250 13.63% $220 (6.78%) $236
TOTAL NON-INTEREST
INCOME $1,515 9.46% $1,384 28.62% $1,076
Total non-interest income increased 9.46% and 28.62% when comparing 2000 to
1999 and 1998. The increase reflects a continued focus on fee income and the
bank's commitment to diversifying the income stream. Results of these efforts
are evident when comparing first quarter 2000 other income category to previous
years. Increased sales in Broker Services and Insurance, reflective of the
bank's newly established referral and sales program, resulted in a 6% increase
in Other Income. Referrals resulting in closed sales increased over 77% when
comparing first quarter, 2000 to first quarter, 1999. Trust income increased
13.63% when comparing first quarter 2000 to the same period in 1999. A
decrease in Trust Income of 6.78% is reflective of a one time credit of fee
income resulting from a large estate settlement in first quarter, 1998.
Without the settlement Trust income would have remained flat when
compared to previous year.
<PAGE>15
Non-Interest Expense
(in thousands)
March 31
% of % of
2000 Change 1999 Change 1998
Salaries & Employee
Benefits $2,230 5.13% $2,121 28.62% $1,649
Net Occupancy
Expense $ 695 11.20% $ 625 26.52% $ 494
Other Operating
Expense $1,006 1.61% $ 990 36.36% $ 726
TOTAL NON-INTEREST
EXPENSE $3,931 5.21% $3,736 30.22% $2,869
Non-interest expense reflects ongoing efforts to monitor and control non-
interest expense categories such as salaries and benefits, net occupancy
expense and other operating expense. A comparison of staffing levels reveals
that First Citizens maintains one fulltime equivalent employee for every 2.4
million in assets. Peer banks ratio as of 3/31/00 was 2.55 million dollars in
assets per employee. Unlike most peer banks, First Citizens maintains an
Investment and Trust Services Division, Brokerage Firm, Agricultural and
Mortgage Lending Department, and a Finance Company. Each of these entities
adds additional staff, as does the extended banking hours on Thursday, Friday,
and Saturday. First Citizens is committed to attracting and retaining well
qualified personnel by offering salaries and employee benefits which equal or
exceed peer companies, paying bonuses when productivity standards are met, and
enhancing career opportunities by promoting from within when possible. Full-
time equivalent employees were 194 at 3/31/00. First Volunteer acquisition
(21), Opening of Delta Finance II (2), and employees hired to establish
brokerage and mortgage lending service in Obion and Lauderdale Counties (3)
Electronic Banking/Call Center (3) increased FTE approximately 30 employees
in 1999.
Technology investments resulted in an increase in computer expense and the
related depreciation to those investments. Net occupancy and other operating
expense increased 11.20% and 1.61% respectively when compared to 3/31/99.
Installation of a Wide Area Network was completed the last half of 1998. Other
investments in technology related equipment were the purchase and installation
of computer related wiring and equipment associated with bringing Bank of Troy
and First Volunteer computer systems online with those of First Citizens
National Bank. Net occupancy expense is projected to continue to increase as
technology is installed to meet the needs of our customer base. These costs
will be offset in part by the reallocation of employees to fee income producing
positions. Other operating expense increased in 1999 due to organizational
cost associated with the Insurance Agency, Bank of Troy and First
Volunteer acquisitions.
<PAGE>16
DEPOSITS
The average daily amount of deposits and average rates paid on such deposits
are summarized for the quarters ending March 31 for the years indicated:
COMPOSITION OF DEPOSITS
(in thousands)
2000 1999 1998
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non Interest
Bearing
Demand Deposits $ 40,081 0% $ 36,923 0% $ 30,918 0%
Savings Deposits $114,319 2.94% $121,371 2.84% $ 85,943 3.30%
Time Deposits $210,250 5.34% $192,720 5.21% $162,885 5.57%
TOTAL DEPOSITS $364,650 4.00% $351,014 3.84% $279,746 4.26%
Deposit growth continues to be a challenge for First Citizens National Bank.
The Company's marketplace is described as highly competitive, with a fairly
sophisticated customer base. Competition is aggressive for both loans and
deposits. A recent market survey indicates that First Citizens holds
approximately 54% of total deposits domiciled in Dyer County. The bank
competes with First Tennessee Bank, N.A. (21%), Security Bank (15.5%), Union
Planters, another large regional bank holds approximately 12 percent of total
deposits. City State Bank holds the remaining 2% of total deposits. First
Citizens also competes with a Credit Union, Finance Companies, Brokerage Firms,
and other types of financial service providers. Total deposits increased only
4% when comparing 3/31/00 to 3/31/99. Total deposits purchased in the Bank of
Troy and First Volunteer acquisitions were approximately $82 million. Economic
indicators for the West Tennessee area are extremely optimistic. We expect the
population to grow at a marginal rate, in the three counties in which we have
banking locations. Dyer County is projected to grow from the 1998 population
of 36,489 to 37,400 by the year 2003. Previous expectations of Lauderdale
County were for the population to decline. However, current projections call
for an increase from 31,960 to 32,055, a gain of less than 1 percent. The
population of Obion County is projected to increase slightly in the next five
years. First Citizens holds in excess of 15.5% of total deposits in Obion
County and 4% in Lauderdale.
Average rates paid on deposits continue to reflect sound asset/liability
management strategy to maintain interest margins that are consistent
with company goals. A deposit strategy adopted in 1996 was a shifting from
paying higher rates to obtain retail deposits to the purchase of wholesale
deposits. Interest cost of wholesale deposits in comparison to market rates
paid on retail deposits often provides for net interest margins that compliment
the bank's capital plan. The first quarter of 1999 the Asset/Liability
Management Team made a decision to become more aggressive in paying rates to
acquire or retain a total customer relationship. It is presently more cost
effective and efficient to borrow wholesale funds which can be earmarked for
a specific dollar amount and allow for a more precise management of maturities.
Therefore, aggressive pricing of deposits is based on total customer
relationship, and in some cases, high volume deposits.
The bank measures its degree to which short-term and marketable assets are
available to fund short term liabilities and outflow of deposits through its
liquidity ratio. The liquidity ratio at 3/31/00 was 7.77% including approved
lines of credit totaling $107,910,000. The projected liquidity range set in
the Asset/Liability policy is 6.27% to 9.59%. Another measure of liquidity is
the dependency ratio that indicates the degree to which volatile liabilities
are being relied upon to fund longer term assets. The lower the dependency
ratio, the more liquid the bank. First Citizens dependency ratio at 3/31/00
was 21.17% well within policy guidelines of 19.86% to 24.01%.
<PAGE>17
Sweep Account Funds totaling $17,582,000 are not included in the average
balances for demand deposits. The "Sweep" total is included in the
balance sheet category of securities sold under an agreement to repurchase
totaling $26,393,000 with an average rate of 3.00 percent at 3/31/00.
Repurchase Agreement "Sweep" is a product offered to large balance customers
which provides for funds to automatically sweep daily from a demand deposit
account into an overnight repurchase agreement. This affords commercial
customers the opportunity to earn interest on excess collected funds while
providing availability of adequate funds to clear large denomination checks
as presented for payment.
Management is continuously monitoring and enhancing the bank's product line in
order to retain existing customers and to attract new customer relationships.
First Citizens introduced Internet based banking to the market place third
quarter 1999. The service allows customers to access account information,
statement activity, apply for a deposit or loan and pay bills by signing on
to firstcitizens-bank.com. The cost of Internet banking is free to customers,
while bill pay is offered at a competitive price. A call center is in the
early planning stages and will provide more efficient customer support from
account inquiry to electronic banking products and services. An Internet based
cash management product for small businesses will be announced to the market
during the second quarter of 2000.
The following table sets forth the maturity distribution of Certificates of
Deposit and other time deposits of $100,000.00 or more outstanding
on the books of First Citizens on March 31, 2000:
Maturity Distribution Of Time Certificates Of Deposit
In Amounts of $100,000 Or More As Of March 31, 2000
(in thousands)
Maturity Total Amount
3 months or less $24,316
3 through 12 months $40,318
1 year through 3 years $ 7,730
over 3 years $ 0
Total $72,364
Interest earning assets as of 3/31/00 were $423,576,000 at an average rate of
8.63% compared to $423,021,000, average rate of 8.44% at 3/31/99. The average
rate on total interest bearing liabilities was 4.49%, 4.38% and 4.82% as of
March 31, 2000, 1999, and 1998. Net yield on average earning assets was
4.56%, 4.48%, and 4.68%, reflecting an increased competitive environment.
Maintaining interest rate margins achieved in prior years continues to be a
challenge. Customers are shopping banks to lock in the lowest rate
possible on loans, while deposit customers are shopping to lock in the highest
rate on deposits. First Citizens has historically out performed peer banks
with the average rate earned on the loan portfolio. Asset/Liability policies
are in place to protect the company from the negative effects of volatile
swings in interest rates. Interest margins are well managed to achieve
acceptable profits and a return on equity within policy guidelines.
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.
<PAGE>18
<TABLE>
First Citizens Bancshares, Inc.
Quarter Ending March 31
Monthly Average Balances and Interest Rates
(in thousands)
<CAPTION>
2000 1999 1998
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING
ASSETS:
Loans (1)(2)(3) $321,816 $7,491 9.31% $306,742 $7,084 9.24% $235,315 $5,730 9.74%
Investment Securities:
Taxable $ 86,293 $1,408 6.52% $ 96,406 $1,452 6.02% $ 66,998 $1,115 6.66%
Tax Exempt (4) $ 13,165 $ 224 6.80% $ 15,249 $ 273 7.16% $ 11,392 $ 199 6.99%
Interest Earning
Deposits $ 1,169 $ 12 4.10% $ 492 $ 15 12.19% $ 436 $ 6 5.51%
Federal Funds Sold $ 1,133 $ 9 3.17% $ 4,132 $ 100 9.68% $ 6,201 $ 88 5.68%
Lease Financing $ 0 $ 0 0% $ 0 $ 0 0% $ 0 $ 0 0%
Total Interest
Earning Assets $423,576 $9,144 8.63% $423,021 $8,924 8.44% $320,342 $7,138 8.92%
NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 14,020 $ 0 0% $ 14,696 $ 0 0% $ 10,978 $ 0 0%
Bank Premises and
Equipment $ 13,633 $ 0 0% $ 11,664 $ 0 0% $ 8,107 $ 0 0%
Other Assets $ 19,913 $ 0 0% $ 16,194 $ 0 0% $ 10,436 $ 0 0%
Total Assets $471,142 $ 0 0% $465,575 $ 0 0% $349,863 $ 0 0%
LIABILITIES AND
SHAREHOLDERS' EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $114,319 $ 841 2.94% $121,371 $ 862 2.84% $ 85,943 $ 708 3.30%
Time Deposits $210,250 $2,812 5.34% $192,720 $2,511 5.21% $162,885 $ 2,268 5.57%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 59,122 $ 656 4.43% $ 67,963 $ 811 4.77% $ 32,784 $ 416 5.08%
Total Interest
Bearing
Liabilities $383,691 $4,309 4.49% $382,054 $4,184 4.38% $281,612 $3,392 4.82%
NON-INTEREST
BEARING LIABILITIES:
Demand Deposits $ 40,081 $ 0 0% $ 36,923 $ 0 0% $ 30,918 $ 0 0%
Other Liabilities $ 2,821 $ 0 0% $ 3,597 $ 0 0% $ 3,814 $ 0 0%
Total Liabilities $426,593 $ 0 0% $422,574 $ 0 0% $316,344 $ 0 0%
SHAREHOLDERS'
EQUITY $ 44,549 $ 0 0% $ 43,001 $ 0 0% $ 33,525 $ 0 0%
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $471,142 $ 0 0% $465,575 $ 0 0% $349,869 $ 0 0%
NET INTEREST
INCOME $ 0 $4,835 0% $ 0 $4,740 0% $ 0 $ 3,746 0%
NET YIELD ON
AVERAGE EARNING
ASSETS $ 0 $ 0 4.56% $ 0 $ 0 4.48% $ 0 $ 0 4.68%
(Annualized)
</TABLE>
<PAGE>19
(1) Loan totals are shown net of interest collected, not earned
and Loan Loss Reserve.
(2) Nonaccrual loans are included in average total loans.
(3) Loan Fees are included in interest income and the
computations of the yield on loans.
(4) Interest and rates on securities which are non-taxable for
Federal Income Tax purposes are presented on a taxable equivalent basis.
COMPOSITION OF LOANS
The loan portfolio totaling $325,350,000 at 3/31/00 is First Citizens largest
earning asset. Total loans at 3/31/99 were $310,391,000. Loans acquired in
the Bank of Troy and First Volunteer acquisitions added approximately $58
million to the loan portfolio. Exceptional loan growth has been the experience
of the bank for the years reflected in the Composition of Loan table. A
comparison of portfolio growth indicates the largest percentage of growth is
centered in Real Estate loans. Loans in this category increased $37,996,000 or
20.2%. The upward trend in mortgage loans is not only attributed to loans
acquired in the acquisitions, but to substantial growth in the population and
new home starts in Dyer and the surrounding Counties. New housing starts in
1999 totaled approximately 73 in Dyersburg, Tennessee and 135 in Dyer County,
Tennessee. Demographics from the Dyersburg Dyer County Chamber of Commerce
reflects that Dyersburg, Tennessee is one of the fastest-growing communities in
Tennessee. During the 1980's the population increased 16.4%. Tennessee named
Dyer County a Three-Star Community for 15 consecutive years for its community
economic development preparedness. Dyersburg/Dyer County is a regional,
retail, medical,employment and cultural center for more than 300,000 people who
live in 10 counties. The 1997 Per Capita Income for trade area counties list
Dyer County at $20,178, Obion County $20,818, and Lauderdale County at $16,888.
Other surrounding counties range from $11,705 to $19,487.
First Citizens is the largest agriculture lender in the state of Tennessee and
is an approved Farm Services Agency Lender. Agriculture services comprise a
significant portion of the Dyer County market. Total farm land in production
is approximately 231,000 acres or 56% of Dyer County land. The average value
of farm land is $449,501. Farming is a $79 million industry in the county.
Dyer County is Tennessee's no. 1 producer of soybeans, grain, sorghum,
commercial vegetables and rice. Other important crops are wheat, cotton and
corn. The county's 509 farm operations average 453 acres. Agricultural credits
30 days or more past due total $3 million. Agricultural credits listed on the
bank's problem list total approximately $3.2 million with more than $600,000
guaranteed by FSA. Agricultural loans total $27,011,438 or 8.35% of total
loan portfolio. The agricultural economy experienced a downturn since 1998 due
to a combination of drought, flooding and low commodity prices. Each year
since 1993 farmers in the Mississippi River delta have experienced flooding
along the river and its tributaries. However, many of the farmers were
successful in planting late beans and averting a total disaster. The scenario
changed in 1998 continuing into 1999 when most farmers in this area suffered
flooding or some form of water damage and the farmers in the "hills" suffered
from too much water early and then not enough water during the late summer
months. When disastrous weather is coupled with low grain and livestock prices
this could mean that West Tennessee farmers could experience financial
difficulties, depending on financial strength of the farmer. U. S. Government
infusion of disaster payments as well as low interest loans has provided
opportunities for restructuring to farmers affected by weather related problems
occurring in 1999. Government subsidized crop insurance has reduced risk of
loss of crops to many farmers lending support to a perception of stabilization
of the agriculture community. These developments as well as more flexible
government guarantor programs have enhanced First Citizens agriculture
portfolio to the extent that no need for extra reserves exists, when specific
allowances are made to identified loans. Loan Administration is
<PAGE>20
continuously assessing the potential effect of uncontrolled factors to the
banks loan portfolio. As of this report date, losses to local farmers and the
bank's portfolio are projected to be at a manageable level.
Growth in the consumer loan portfolio was slowed in early 1997 due to an
increase in the number of bankruptcies in the State of Tennessee as well as
perceived deterioration in consumer credit in Dyer County. Loan Administration
developed credit scoring tools as well as tighter consumer lending policies to
manage consumer loan losses.
First Citizens is located in the Dyersburg/Dyer County trade area having a
population of approximately 42,000. The entire trade area has outpaced both
the state and the nation in per capita personal income growth since the early
1980's. The State of Tennessee projects that per capita income in the area
will be greater than the national average by the year 2000. A diversified mix
of industry in the local economy has provided stable, growing employment
opportunities for residents under all economic conditions. The Dyer County
distribution of employment consists primarily of service employers 14.9%,
government 14.7%, trade 19.3%, and manufacturing 40.5%. Dyer County's
unemployment rate for March was 5.9% compared to December's rate at 3.7%,
according to the Tennessee Department of Employment Security. This compares
to Tennessee's unemployment rate of 3.6% at 3/31/00. This change is primarily
due to the closing of Penguin USA, a book warehouse and distribution center.
Lauderdale and Obion Counties reported unemployment rates of 7.2%
and 4.4% respectively.
The provision for loan losses increased in proportion to loan growth as
required by loan policy. The provision at 3/31/00 was 1.15% of total loans
well in excess of policy requirements of one percent. Experience of the
lending staff and adherence to policy lends a comfort level to the portfolio
that supports the Loan Loss Allowance at the present level. Problem loans at
3/31/00 were $8,157,231 reflecting an increase of only $270,339 when compared
to the 3/31/99 total of $7,886,892. Problem loans represent 2.52% of total
loans as of 3/31/00.
Loan Administration sets policy guidelines approved by the Board of Directors
regarding portfolio diversification and underwriting standards. Loan policy
includes board approved guidelines for collateralization, loans in excess of
loan to value limits, maximum loan amount, maximum maturity and amortization
period for each loan type. Policy guidelines for loan to value ratio and
maturities related to various collateral are as follows:
Collateral Max. Amortization Max. LTV
Real Estate Amort. discussed herein Amort. discussed herein
Equipment 5 Years 75%
Inventory 5 Years 50%
A/R 5 Years 75%
Livestock 5 Years 80%
Crops 1 Year 50%
*Securities 10 Years 75% (Listed)
50% (Unlisted)
*Maximum LTV on margin stocks (stocks not listed on a national exchange) when
proceeds are used to purchase or carry same, shall be 50%.
Diversification of the banks' real estate portfolio is a necessary and
desirable goal of the bank's real estate loan policy. In order to achieve and
maintain a prudent degree of diversity, given the composition and general
economic state of the bank's market area, the bank will strive to maintain a
real estate loan portfolio diversification based upon the following:
<PAGE>21
* Agricultural loans totaling in aggregate no more than 20% of the
Bank's total loans;
* Land acquisition and development loans totaling in aggregate no
more than 10% of the Bank's total loans;
* Commercial construction loans totaling in aggregate no more than
10% of the Bank's total loans;
* Residential construction loans totaling in aggregate no more than
10% of the Bank's total loans;
* Residential mortgage loans totaling in aggregate no more than 40%
of the Bank's total loans; and
* Commercial loans totaling in aggregate no more than 30% of the
Bank's total loans.
It is the policy of FCNB that no real estate loan will be made (except in
accordance with the provisions for certain loans in excess of supervisory
limits provided for hereinafter) that exceed the loan-to-value percentage
limitations ("LTV limits") designated by category as follows:
Loan Category LTV Limit (%)
Raw Land 65
Land Development or Farmland 75
Construction:
Commercial, multi-family, and
other non-residential 80
1-to-4 family residential 80
Improved Property 80
Owner-occupied 1-to-4 family
and home equity 80
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.
<PAGE>22
Amortization Schedules. Every loan must have a documented repayment
arrangement. While reasonable flexibility is necessary to meet the credit
needs of the Bank's customers, in general all loans should be repaid within
the following time frames:
Loan Category Amortized Period
Raw Land 10 years
Construction:
Commercial, multi-family, and
other non-residential 20 years
1-to-4 family residential 20 years
Improved Property Farmland 20 years
Owner-occupied 1-to-4 family
and home equity 20 years
The average yield on loans of First Citizens National Bank as of March 31 in
the years indicated is as follows:
Year Yield
2000 9.31%
1999 9.24%
1998 9.74%
1997 9.41%
1996 9.78%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $54,368,000 as of 3/31/00.
The following table sets forth loan totals net of unearned income by
category for the past five years:
March 31
(in thousands)
2000 1999 1998 1997 1996
Real Estate Loans:
Construction $ 33,537 $ 28,966 $ 23,313 $ 17,643 $ 13,875
Mortgage $192,575 $159,150 $137,002 $129,317 $112,732
Commercial,
Financial and
Agricultural
Loans $ 59,142 $ 88,207 $ 41,778 $ 41,802 $ 46,691
Installment
Loans to
Individuals $ 37,517 $ 31,810 $ 27,679 $ 23,630 $ 21,739
Other Loans $ 2,579 $ 2,258 $ 1,929 $ 2,168 $ 2,164
TOTAL LOANS $325,350 $310,391 $259,870 $214,560 $197,201
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 $110,186,000 or 34% of the total
portfolio are subject to repricing within one year. The ratio is down from
52% at 3/31/99. Maturities in the one to five year category total
$169,881,000, reflecting an increase of 5% when compared to 3/31/99 total
of $161,677,000.
<PAGE>23
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $ 55,267 $119,534 $51,311
Commercial,
Financial and
Agricultural $ 32,137 $ 19,342 $ 7,663
All Other Loans $ 7,341 $ 31,335 $ 1,420
TOTALS $ 94,745 $170,211 $60,394
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $215,164
Interest Rates are Floating or Adjustable $ 15,441
NON-PERFORMING ASSETS
Total Non Performing Loans were $2,224,000 or .69% of the loan portfolio as
of 3/31/00 compared to peer group ratio of .70% as of 12/31/99. First
Citizens Non Performing loans were $1,809,000 or .58% of total loans at
3/31/99 compared to peer group ratio of .82% as of the same time period.
Allowance for loan losses as a percent of total loans was 1.15 percent.
Loan policy calls for an allowance balance of at least 1% of total loans.
Continued improvements reflected in financial ratios are
indicative of well communicated loans policies and procedures.
Categorization of a loan as non-performing is not in itself a reliable
indicator of potential loan loss. The banks' policy states that the Bank
shall not accrue interest or discount on (1) any asset which is maintained on
a cash basis because of deterioration in the financial position of the
borrower, (2) any asset for which payment-in-full of interest or principal is
not expected, or (3) any asset upon which principal or interest has been in
default for a period of 90 days or more unless it is both well secured and in
the process of collection. For purposes of applying the 90 day past due test
for the non-accrual of interest discussed above, the date on which an asset
reaches non-accrual status is determined by its contractual term. A debt is
well secured if it is secured (1) by collateral in the form of liens or pledges
or real or personal property, including securities that have a realizable value
sufficient to discharge the debt (including accrued interest) in full, or (2)
by the guaranty of a financially responsible party. A debt is considered to be
proceeding in due course either through legal action, including judgement
enforcement procedures, or, in appropriate circumstances, through collection
efforts not involving legal action which are reasonably expected to result in
repayment of the debt or in its restoration to a current status. Loans that
represent a potential loss to First Citizens are adequately reserved for in
the provision for loan losses.
Interest income on loans is recorded on an accrual basis. The accrual of
interest is discontinued on all loans, except consumer loans, which become 90
days past due, unless the loan is well secured and in the process of
collection. Consumer loans which become past due 90 to 120 days are charged to
the allowance for loan losses. The gross interest income that would have
<PAGE>24
been recorded for the three months ending 3/31/00 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 $25,000 for
year-to-date 2000. Loans on which terms have been modified to provide for a
reduction of either principal or interest as a result of deterioration in the
financial position of the borrower are considered to be Restructured Loans.
Restructured Loans at March 31, 2000 were zero.
Loans classified by regulatory examiners and not reported under non-accrual,
past due or restructured pose no significant credit problems. Loan Officers
are required to develop a "Plan of Action" for each problem loan within their
portfolio. Adherence to each established plan is monitored by Loan
Administration and reevaluated at regular intervals for effectiveness.
The following table sets forth the balance of non-performing loans as of
March 31, for the years indicated:
Non-Performing Loans
March 31
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
2000 $1,134 $1,090 $2,224
1999 $ 829 $ 980 $1,809
1998 $ 418 $ 472 $ 890
1997 $1,069 $1,152 $2,221
1996 $ 740 $ 427 $1,167
LOAN LOSS EXPERIENCE AND
RESERVES FOR LOAN LOSSES
During the quarter just ended activity to the Reserve Account consisted of (1)
loan charge-offs - $228,000 (2) recovery of loans previously charged off -
$85,000 and (3) additions to Reserve - $187,000. Recovery of loans previously
charged off continues to be a priority to the bank. One full time employee is
assigned the responsibility for recovery of charged off loans and overdrawn
deposit accounts.
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 risks will cover a minimum
of 70% of the gross portfolio less installment loans. In addition, any single
note or series of notes directly or indirectly related to one borrower which
equals 25% of the bank's legal lending limit will be included in the review.
<PAGE>25
For analysis purposes loans reviewed will be separated into five
classifications:
1. Pass - Loans that have been reviewed and graded high quality or no
major deficiencies.
2. Watch - Loans which, because of unusual circumstances, need to be
supervised with slightly more attention than is customary.
3. Problem - Loans which require additional collection effort to
liquidate both principal and interest.
4. Specific Allocation - Impaired loans, in total or in part, in which a
future loss is possible.
5. Charged-Off
Examples of factors taken into consideration during the review are:
Industry or geographic economic problems, sale of business, change of or
disagreement among management, unusual growth or expansion of the
business, past due for either principal or interest 90 days, placed on
non-accrual or renegotiated status, renewed four times without principal
reduction, declining financial condition, adverse change in
personal life, frequent overdrafts, lack of cooperation by borrower, decline
in marketability or market value of collateral, insufficient cash flow, and
inadequate collateral values.
<PAGE>26
LOAN LOSS ALLOWANCE ANALYSIS
DATE
The following table disclosed the formula for the Analysis for the Loan
Loss Allowance:
AVERAGE AVERAGE PERCENT CURRENT RESERVE
LOSS 3 YRS. BALANCE 3 YRS. BALANCE REQUIRED
I. CREDIT $ GROSS $ % $ $
CARDS
II. INSTALL. $ NET $ % $ $
LOANS
III. IMPAIRED WITH ALLOCATIONS $ $
IMPAIRED WITHOUT ALLOCATIONS $ $
ALLOWANCE
IV. DOUBTFUL 50% $ $
SUBSTANDARD 10%
WATCH 5%
OTHER LOANS NOT LISTED PREVIOUSLY .75%
LESS SBA/FMHA GUARANTEED PORTIONS
__________
TOTAL LOANS $
V. LETTERS OF CREDIT .75% $ $
VI. OTHER REAL ESTATE OWNED $
______
RESERVE REQUIRED $
RESERVE BALANCE $
EXCESS (DEFICIT) $
RESERVE AS % OF TOTAL LOANS %
PEER GROUP %
LOSS EXPERIENCE III & IV AVERAGE LAST 3 YEARS
.% OR $
Management estimates the approximate amount of charge-offs for the 12
month period ending 12/31/00 to be as follows:
Domestic Amount
Commercial, Financial & Agricultural $200,000
Real Estate-Construction 0
Real Estate-Mortgage 150,000
Installment Loans to individuals &
credit cards 250,000
Lease financing 0
Foreign N/A
01/01/00 through 12/31/00 Total $600,000
The book value of repossessed real property held by Bancshares and First
Citizens National Bank at 3/31/00 is $449,000 compared to $232,000 at 3/31/99,
and $0 at 3/31/98. 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.
<PAGE>27
All other real estate parcels are appraised annually and the carrying
value adjusted to reflect the decline, if any, in its realizable value.
Such adjustments are charged directly to expense.
The following table summarizes the monthly average of net loans
outstanding; changes in the reserve for loan losses arising from
loans charged off and recoveries on loans previously charged off;
additions to the reserve which have been charged to operating
expense; and the ratio of net loans charged off to average loans
outstanding.
<TABLE>
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
(in thousands)
Quarter ending March 31
<CAPTION>
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Average Net Loans
Outstanding $321,816 $306,742 $235,315 $207,667 $191,653
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 3,718 $ 3,530 $ 3,159 $ 2,282 $ 2,216
Loan Charge-Offs $ (228) $ (219) $ (248) $ (39) $ (72)
Recovery of Loans
Previously Charged Off $ 85 $ 80 $ 76 $ 33 $ 40
Net Loans Charged Off $ (143) $ (139) $ (172) $ (6) $ (32)
Additions to Reserve
Charged to Operating
Expense $ 187 $ 206 $ 210 $ 170 $ 105
Changes incident to
Mergers $ 0 $ 343 $ 0 $ 0 $ 0
Balance at End of
Period $ 3,762 $ 3,940 $ 3,197 $ 2,446 $ 2,289
Ratio of Net Charge-Offs
during quarter to Average
Net Loans Outstanding (.04%) (.04%) (.08%) (.01%) (.02%)
</TABLE>
<PAGE>28
The following table will identify charge-offs by category for the
periods ending 3/31/00, 3/31/99 and 3/31/98:
Charge-offs: 2000 1999 1998
Domestic:
Commercial, Financial and Agricultural $ 24 $ 75 $ 139
Real Estate-Construction 0 0 0
Real Estate-Mortgage 83 40 0
Installment Loans to individuals 121 104 109
Lease financing 0 0 0
Foreign N/A N/A N/A
Total 228 219 248
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 12 $ 30 $ 36
Real Estate-Construction 0 0 0
Real Estate-Mortgage 10 6 0
Installment Loan individuals 63 44 40
Lease Financing 0 0 0
Foreign N/A N/A N/A
Total $ 85 $ 80 $ 76
Net Charge-offs $(143) $(139) $(172)
Investment Securities
Bancshares' book value of listed investment securities as of the
dates indicated are summarized as follows:
Composition of Investment Securities
(March 31)
2000 1999 1998 1997 1996
U. S. Treasury &
Government Agencies $ 82,596 $ 93,733 $75,644 $66,923 $62,387
State & Political
Subdivisions $ 13,737 $ 15,207 12,662 $10,630 $11,013
All Others $ 3,293 $ 3,899 $ 2,822 $3,009 $ 3,637
TOTALS $ 99,626 $112,839 $91,128 $80,562 $77,037
A major goal of the bank's investment portfolio management is to maximize
returns from investments while controlling the basic elements of risk. The
second goal is to provide liquidity and meet financial needs of the community.
Investment Securities also serve as collateral for government and public fund
deposits. Investments for the first quarter, 2000 were up $12,000 when
compared to the same time period in 1999. Securities contained within the
portfolio consist primarily of U. S. Treasury, and other U. S. Government
Agency Securities and tax exempt obligations of States and Political
Subdivisions. Fixed rate holdings comprise 90% of the portfolio,
while adjustable rates comprise the remaining 10%.
Purchases made during the first quarter, 2000 totaled $1.8 million
consisting of Government Backed and Municipal Securities. These securities
were booked in the Available for Sale account. There were no purchases placed
in the Held to Maturity Account.
There were no first quarter sales made from either account.
<PAGE>29
Fixed rate holdings currently have an expected average life of 6.2 years. It
is estimated that this average life would extend to 6.5 years should rates
rise 100 basis points and 6.6 years should rates increase 200 basis points.
This is a result of some extension occurring in the callable bonds and
mortgage-backed holdings as rates rise. Should rates decline
100 basis points the average life would decrease 4.7 years.
In terms of price sensitivity, we estimate that if rates rise 100 basis points
the market value of the portfolio would fall by 4.5%, while rates rising 200
basis points would impact the market value by a negative 8.8%. This is
consistent with the price sensitivity of the four to five year Treasury bond.
If rates go down 100 basis points we estimate that the market value would
increase by 4.4%.
Adjustable rate holdings reprice on an annual or more frequent basis and
currently have an average life of 5.7 years. Due to the structure of these
holdings, we would expect little extension to occur in average life should
interest rates rise, but could see some further shortening if rates fall. We
estimate the adjustable rate holdings also have the price sensitivity of a
3-year Treasury, although this is more difficult to project on adjustable rate
holdings than on fixed rate holdings.
FASB 115 requires banks to maintain separate investment portfolios for Held-To-
Maturity, Available-For-Sale, and Trading Account Investments. As of March 31,
2000 approximately 20% of the total portfolio was placed in the Held-To-
Maturity account. The remaining 80% was booked in the Available-For-Sale
account. FASB 115 requires banks to Mark to Market the Available for Sale and
Trading Account Investments at the end of each calendar quarter. Held-To-
Maturity Account Investments are stated at amortized cost on the balance sheet.
Mark to Market resulted in a positive capital entry of $5,000 during the
quarter ended 3/31/00.
Maturities in the portfolio are made up of 4% within one year, 44% after one
year and within five years, and 52% after five years. Policy provides for 20%
maturities on an annual basis. Maturities were extended from 5 to 10 years on
most securities purchased after 1995. Management made a conscious effort to
extend maturities for a higher yield on the portfolio. Securities purchased
with extended maturities bear call features ranging from 1 to 3 years. Due to
the present interest rate environment, no securities are expected to be called
in the next 12 months. Maturities on investments purchased are structured to
meet loan demand as well as projected changes in interest rates.
First Citizens National Bank has not engaged in derivative activities as
defined by paragraph 5 thru 7 of FASB 119 (reference footnote 7).
<PAGE>30
Investment Securities
Held to Maturity Available for Sale
March 31, 2000
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 0 $ 0 $ 2,029 $ 1,997
U.S. Government agency
and corporation obligations 16,052 $15,482 $67,631 $64,547
Securities issued by states
and political subdivisions
in the U.S.:
Taxable securities $ 0 $ 0 $ 0 $ 0
Tax-exempt securities $ 3,116 $ 3,092 $10,914 $10,621
U.S. securities:
Debt securities 0 0 0 0
Equity securities
(including Federal
Reserve stock) 0 0 3,271 3,293
Foreign securities:
Debt securities 0 0 0 0
Equity securities 0 0 0 0
Total 19,168 18,574 83,845 80,458
Investment Securities
Unrealized Gains/(Losses)
March 31, 2000
Unrealized Unrealized Net
Gains Losses Gains/Losses
U. S. Treasury Securities 3 35 (32)
Obligations of U.S.
Government Agencies &
Corp. 66 3,719 (3,653)
Obligations of States and
Political Subdivisions 16 332 (316)
Other Securities 0 0 0
Totals 85 4,086 (4,001)
<TABLE>
Maturity and Yield on Securities March 31, 2000
(in thousands)
<CAPTION>
Maturing
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and
Government Agencies $ 2,666 6.23% $39,896 6.11% $34,201 6.20% $ 5,833 6.25%
State and Political
Subdivisions* $ 1,685 6.84% $ 3,935 6.81% $ 3,968 6.75% $ 4,149 7.72%
All Others $ 0 0% $ 0 0% $ 3,293 5.50% $ 0 0%
TOTALS $ 4,351 6.46% $43,831 6.17% $41,462 6.19% $ 9,982 6.86%
</TABLE>
* Yields on tax free investments are stated herein on a taxable
equivalent basis.
<PAGE>31
Return on Equity and Assets
The table below presents for Bancshares certain operating
ratios for the quarters ending March 31st: (Not Annualized)
2000 1999 1998 1997 1996
Percentage of Net
Income to:
Average Total Assets .31% .29% .32% .32% .30%
Average Shareholders
Equity 3.30% 3.15% 3.31% 3.39% 3.12%
Percentage of
Dividends Declared
Per Common Share
to Net Income
Per Common Share 57.53% 51.80% 35.29% 27.04% 25.56%
Percentage of Average
Shareholders'
Equity to Average
Total Assets 9.45% 10.00% 10.63% 10.14% 10.07%
Ratios for first quarter, 2000 reflect a positioning of the company for future
asset growth and earnings potential. Efforts in the years of 1998 and 1999
reflect acquired assets totaling $110 million. Diversification of the income
stream has been underway to position the Bank for increased earnings beyond net
interest margins. The efficiency ratio was 60% in 1998, increasing to 63% at
quarter end 03/31/00. The increase is primarily due to the purchase of Bank
of Troy and First Volunteer. The negative impact experienced as a result of
the purchase is expected to be short term. Going forward we will continue to
maximize efficiencies to achieve peer ratios of 60 percent. The company's
strategic plan addresses objectives to sustain improved earnings, maintain a
quality loan and investment portfolio and to maintain market share by providing
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. A 50/50 partnership was established with a
thriving local insurance agency to open White and Associates/First Citizens
Insurance Agency in February 1998. In 1999, a title insurance company was
established and a full time insurance agent was placed at the Ripley office.
Revenue generated from fee income enhanced the ROA in 1999. This trend is
expected to continue through 2000. ROA at 03/31/00 was up at 1.25% compared
to 1.18% in 1999.
The primary source of earnings for Bancshares continues to be net interest
income. A comparison generated from this source reflects an increase of
$150,000 to $4,647,000 for first quarter 2000 in comparison to $497,000 for
first quarter in 1999. Earnings for the prior years under comparison were a
result of increased loan volume. Yields on interest earnings assets,
i.e. loans and investments increased from 4.48 in 1999 to 4.56 in 2000, while
cost on interest bearing liabilities increased from 4.38 to 4.49. Reduced
funding cost is attributable to utilization of Federal Home Loan Bank as an
alternative source of funds. As a result, we are better able to manage the
cost of funds and maintain net interest margins to acceptable levels.
The percentage of net income to average total assets for the quarters under
review are .31% (2000), .29%(1999), and .32%(1998). Average Shareholders
equity was 3.30%, 3.15% and 3.31% for the same time period. The percentage of
average shareholders equity to average total assets for first quarter 2000,
1999 and 1998 was 9.45%, 10.00% and 10.63% respectively.
<PAGE>32
Total Shareholder's equity (including Loan Loss Reserve) of First Citizens
Bancshares as of 3/31/00 was $44.5 million compared to $43.7 million at
12/31/99.
Percentage of Dividends declared per common share to net income per common
share increased on a consistent basis for the years under comparison. Number
of shares outstanding continues to increase as a result of shares issued on a
quarterly basis to service the Dividend Reinvestment Program. Number of shares
outstanding also increased in 1998 and 1999 as a result of shares issued for
the 50% purchase of White and Associates Insurance and 445,251 shares issued
for the purchase of First Volunteer Bank. A stock repurchase program has been
proven to be ineffective in creating availability of shares. The stock
repurchase program allows First Citizens Bancshares to acquire Bancshares
stock, up to $200,000 in any calendar quarter on a first come, first served
basis. However, a limitation of 27,000 shares per quarter is in effect for
each quarter of 2000. The limitation is a result of FASB Accounting rules for
pooling-of-interest that states Bancshares is limited to the purchase of
Bancshares stock equal to 10% of the original issued quantity of shares
(445,251) for the purchase of First Volunteer Bank.
In 1998, the Employee Stock Ownership Plan entered into a loan agreement in the
amount of $2,000,000 to fund the purchase of unissued stock. The stock will
be utilized to satisfy future allocations to plan participants in accordance
with the plan document approved by the Board of Directors. The balance
remaining on the ESOP loan is $1,050,000 at 3/31/00.
The per share price of Bank stocks came under tremendous pressure the last
half of 1999. Uncertainty of the future direction of interest rates, a
decrease in merger and acquisition activity and a leveling off of earnings have
combined to dampen the enthusiasm of investors and create an unstable stock
market. Bancshares stocked traded at $30.00 per share through December 31,
1999. However, beginning first quarter 2000, the common stock traded at a per
share price of $24.00 reflecting the trend in bank stocks industry wide. An
appraisal of Bancshares stock using most recent finanical data (12/31/99
audited statements) is expected to cause the per share price of future trades
to adjust downward.
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.
Policy sets a projected liquidity ratio range of 6.27% to 9.59% including
balance sheet and off balance sheet components. The liquidity ratio as of
3/31/00 was 7.77%. Slower deposit growth in recent years has forced banks to
seek alternative funding sources in order to meet loan demand. First Citizens
has resolved this issued by becoming a member of the Federal Home Loan Bank and
establishing lines of credit sufficient to meet all liquidity needs. Total
lines available including FHLB was $107,910,000 at quarter end. Funds made
available through the Federal Home Loan Bank establish a fixed level of
credit at a predetermined rate. Correspondent Bank lines provide additional
liquidity required for daily settlement of the bank's books. It is anticpated
that these sources of funds will continue to be utilized as a tool for managing
liquidity. As a result the company has experienced no problem with liquidity
during any of the years under review and anticipates that all liquidity
requirements will be effectively met in the future. Other sources available to
meet liquidity needs are loans and investments totaling $99 million that mature
within one year or less and
<PAGE>33
other investments totaling $80 million placed in the available for sale
account. The dependency ratio reflects the degree that volatile liabilities
depended upon to fund longer term assets. Lower ratios reflect a higher
degree of liquidity. Asset/Liability policy sets a dependency range of 19.86%
to 24.01%. The dependency ratio as of 3/31/00 was 21.17%.
Deposit growth has increased slightly in the Dyer and Lauderdale County markets
and decreased in the Obion County market. Obion and Lauderdale County markets
remain in a highly competitive rate environment with other banks paying rates
on deposits as much as 75 basis points higher. The Ripley Office reflected an
increase in deposits primarily due to county funds being placed in a short-term
certificate of deposit.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Overnight federal funds, on which
rates change daily, and loans which are tied to the prime rate are much more
sensitive than long-term investment securities and fixed rate loans. The
shorter term interest sensitive assets and liabilities are the key to
measurement of the interest sensitivity gap. Minimizing this gap is a continual
challenge and is a primary objective of the asset/liability management program.
There are no known trends or uncertainties that are likely to have a material
affect on First Citizens' liquidity or capital resources. There currently
exists no recommendation by regulatory authorities, which if implemented, would
have such an affect. There are no matters of which management is aware that
have not been disclosed.
The following data schedule reflects a summary of First Citizens' interest rate
risk using simulations. The projected 12 month exposure is based on 9
different rate movements or rate shocks applied to the financials. These rates
are adjusted on day 1. All rate simulations are compared to the base
simulation.
The following condensed gap report provides an analysis of interest rate
sensitivity of earning assets and costing liabilities. First Citizens Asset/
Liability Management Policy provides that the net interest income exposure to
Tier I Capital shall not exceed 2.00%. Interest rate risk is separated and
analyzed according to the following categories of risk: (1) repricing (2) yield
curve (3) option risk (4) price risk and (5) basis risk. Trading assets are
utilized in-frequently and are addressed in the investment policy. Any
unfavorable trends reflected in interest rate margins will cause an
immediate adjustment to the bank's gap position or asset/liability management
strategies.
First Citizens National Bank
FCNB Chart of Accounts
Rate Shock - Income
Result Chng from Ref % Chng from Ref
Base $16,947.30
Base DN 100 $17,983.56 $1,036.27 6.11
Base DN 200 $19,662.06 $2,714.77 16.02
Base DN 300 $19,961.05 $3,013.76 17.78
Base DN 400 $20,093.93 $3,146.64 18.57
Base UP 100 $16,585.86 ($361.43) (2.13)
Base UP 200 $15,663.30 ($1,283.99) (7.58)
Base UP 300 $14,448.00 ($2,499.29) (14.75)
Base UP 400 $13,726.84 ($3,220.45) (19.00)
<PAGE>34
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
<CAPTION>
O/N O/N 0-3 0-3 3-12 3-12
BAL RATE MONTHS BAL RATE MONTHS BAL RATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and Due From 0.00 0.00 0.00 0.00 0.00 0.00
Total Cash and Due From 0.00 0.00 0.00 0.00 0.00 0.00
US Treasury 0.00 0.00 0.00 0.00 1,499.98 6.34
US Agency 0.00 0.00 0.00 0.00 49.61 10.38
MBS 0.00 0.00 286.73 5.81 874.02 5.89
Agency 0.00 0.00 286.73 5.81 923.63 6.13
Municipals 0.00 0.00 734.39 4.16 951.11 4.75
Corp & Others 0.00 0.00 0.00 0.00 0.00 0.00
Equities 0.00 0.00 0.00 0.00 0.00 0.00
Unrealized G/L 0.00 0.00 0.00 0.00 0.00 0.00
Total Investments 0.00 0.00 1,021.12 4.62 3,374.72 5.83
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Sold-Balance 0.00 0.00 0.00 0.00 0.00 0.00
Total Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Commercial Variable 0.00 0.00 9,283.54 9.13 4,588.14 8.87
Commercial Fixed 0.00 0.00 8,533.04 8.88 10,393.90 8.51
Contra Loans - Troy 0.00 0.00 44.50 8.53 135.00 8.50
Floor 0.00 0.00 112.21 0.00 0.00 0.00
Unearned 0.00 0.00 0.00 0.00 0.00 0.00
Total Commercial 0.00 0.00 17,973.28 8.95 15,117.04 8.62
Real Estate Variable 0.00 0.00 11,486.49 9.37 8,283.09 9.49
Real Estate Fixed 0.00 0.00 19,408.73 8.59 37,813.24 8.56
Home Equity +1 0.00 0.00 6,787.02 9.31 0.00 0.00
Home Equity +2 0.00 0.00 2,522.03 9.94 0.00 0.00
Home Equity 0.00 0.00 9,309.05 9.48 0.00 0.00
Secondary Mortgage 0.00 0.00 1,032.05 7.83 0.00 0.00
Total Real Estate 0.00 0.00 41,236.32 8.99 46,096.33 8.73
Installment Variable 0.00 0.00 82.37 9.57 44.63 9.00
Installment Fixed 0.00 0.00 1,687.86 9.66 5,240.13 9.68
Finance Company - 78s 0.00 0.00 0.00 0.00 0.00 0.00
Total Installment 0.00 0.00 1,770.23 9.66 5,284.76 9.67
Credit Cards 0.00 0.00 2,291.98 11.50 0.00 0.00
Overdrafts 0.00 0.00 269.41 0.00 0.00 0.00
Total Other Loans 0.00 0.00 2,561.39 10.29 0.00 0.00
Total Loans 0.00 0.00 63,541.22 9.05 66,498.13 8.78
Loan Loss Reserve 0.00 0.00 0.00 0.00 0.00 0.00
Total Net Loans 0.00 0.00 63,541.22 9.05 66,498.13 8.78
Building, Furniture &
Fixtures 0.00 0.00 0.00 0.00 0.00 0.00
Other Real Estate 0.00 0.00 0.00 0.00 0.00 0.00
Other Assets 0.00 0.00 0.00 0.00 0.00 0.00
Total Assets 0.00 0.00 64,562.34 8.98 69,872.85 8.64
Liabilities:
Demand 0.00 0.00 0.00 0.00 0.00 0.00
Total Demand 0.00 0.00 0.00 0.00 0.00 0.00
Regular 0.00 0.00 0.00 0.00 5,084.21 3.00
NOW 0.00 0.00 0.00 0.00 8,455.31 1.50
Business 0.00 0.00 0.00 0.00 95.19 1.50
IMF 0.00 0.00 0.00 0.00 3,511.57 2.00
First Rate 0.00 0.00 0.00 0.00 13,807.01 3.00
Dogwood 0.00 0.00 0.00 0.00 2,358.64 1.50
Total Savings 0.00 0.00 0.00 0.00 33,311.93 2.40
CD 1-3 Months 0.00 0.00 5,352.40 5.81 0.00 0.00
CD 3-6 Months 0.00 0.00 11,615.50 5.65 18,425.00 5.90
CD 6-12 Months 0.00 0.00 20,775.36 5.13 15,193.48 5.38
CD 13 Months 0.00 0.00 3,821.50 4.59 23,716.47 5.42
CD 1-2 Years 0.00 0.00 12,040.27 4.89 42,656.72 5.49
CD 2-5 Years 0.00 0.00 3,062.98 6.07 5,375.30 5.90
CD 5 + Years 0.00 0.00 314.37 6.70 428.75 5.89
Total CD 0.00 0.00 56,982.38 5.27 105,795.73 5.55
</TABLE>
<PAGE>35
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
<CAPTION>
O/N O/N 0-3 0-3 3-12 3-12
BAL RATE MONTHS BAL RATE MONTHS BAL RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IRA Savings 0.00 0.00 0.00 0.00 0.00 0.00
IRA 1-2 Years 0.00 0.00 2,113.88 5.56 6,341.04 5.56
IRA 2-5 Years 0.00 0.00 302.54 6.22 522.48 5.84
IRA 5 + Years 0.00 0.00 764.27 5.58 799.09 5.22
Total IRA 0.00 0.00 3,180.69 5.63 7,662.60 5.54
Christmas Club 0.00 0.00 0.00 0.00 286.84 2.50
Total Time 0.00 0.00 60,163.08 5.29 113,745.17 5.54
Total Deposits 0.00 0.00 60,163.08 5.29 147,057.09 4.83
Fed Funds Purchased - Balance 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Purchased 0.00 0.00 0.00 0.00 0.00 0.00
TT & L 762.10 6.00 0.00 0.00 0.00 0.00
Securities Sold-Sweep 17,582.43 3.00 0.00 0.00 0.00 0.00
Securities Sold - Fixed 0.00 0.00 3,329.31 5.26 4,964.64 5.76
FHLB Short Term 6,700.00 6.10 0.00 0.00 0.00 0.00
FHLB Long Term Fixed 0.00 0.00 0.00 0.00 0.00 0.00
FHLB Long Term-Callable 0.00 0.00 2,000.00 4.88 9,002.00 5.61
Note Payable-Finance-FCNB 0.00 0.00 0.00 0.00 0.00 0.00
Note Payable-Finance GE 0.00 0.00 0.00 0.00 0.00 0.00
Total Borrowing 25,044.53 3.92 5,329.31 5.12 13,966.64 5.66
Other Liabilities 0.00 0.00 0.00 0.00 0.00 0.00
Total Other Liabilities 25,044.53 3.92 5,329.31 5.12 13,966.64 5.66
Total Liabilities 25,044.53 3.92 65,492.39 5.28 161,023.73 4.90
Equity:
Retained Earnings 0.00 0.00 0.00 0.00 0.00 0.00
Stock, Surplus, PIC 0.00 0.00 0.00 0.00 0.00 0.00
Unrealized Gains/(Losses)
Mortgage 0.00 0.00 0.00 0.00 0.00 0.00
YTD NET INCOME 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Liability/Equity 25,044.53 3.92 65,492.39 5.28 161,023.73 4.90
Period Gap (25,044.53) 0.00 (930.05) 0.00 (91,150.89) 0.00
Cumulative Gap (25,044.53) 0.00 (25,974.57) 0.00 (117,125.46) 0.00
RSA/RSL 0.00 0.00 0.99 0.00 0.43 0.00
Off Balance Sheet:
Total Off Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00
Period Gap (25,044.53) 0.00 (930.05) 0.00 (91,150.89) 0.00
Cumulative Gap (25,044.53) 0.00 (25,974.57) 0.00 (117,125.46) 0.00
RSA/RSL 0.00 0.00 0.99 0.00 0.43 0.00
</TABLE>
<PAGE>36
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
<CAPTION>
1-3 1-3 3-5 3-5 5-10 5-10
YEARS YEARS YEARS YEARS YEARS YEARS
BAL RATE BAL RATE BAL RATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and Due From 0.00 0.00 0.00 0.00 0.00 0.00
Total Cash and Due From 0.00 0.00 0.00 0.00 0.00 0.00
US Treasury 0.00 0.00 0.00 0.00 0.00 0.00
US Agency 10,467.79 6.20 24,582.96 6.07 30,951.20 6.17
MBS 1,961.49 5.91 2,884.28 6.33 3,249.64 6.54
Agency 12,429.28 6.16 27,467.25 6.10 34,200.84 6.20
Municipals 2,831.42 4.39 1,104.68 4.82 3,968.30 4.46
Corp & Others 0.00 0.00 0.00 0.00 0.00 0.00
Equities 3,292.85 5.50 0.00 0.00 0.00 0.00
Unrealized G/L 0.00 0.00 0.00 0.00 0.00 0.00
Total Investments 18,553.55 5.77 28,571.93 6.05 38,169.14 6.02
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Sold-Balance 0.00 0.00 0.00 0.00 0.00 0.00
Total Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Commercial Variable 2.29 10.50 0.00 0.00 0.00 0.00
Commercial Fixed 6,429.47 8.68 12,910.65 8.51 3,179.46 7.41
Contra Loans - Troy 360.00 8.50 235.00 8.50 0.00 0.00
Floor 0.00 0.00 0.00 0.00 0.00 0.00
Unearned 0.00 0.00 0.00 0.00 0.00 0.00
Total Commercial 6,791.76 8.67 13,145.65 8.51 3,179.46 7.41
Real Estate Variable 3,595.16 9.33 2,533.84 9.15 0.00 0.00
Real Estate Fixed 67,221.88 8.39 65,428.64 8.24 0.00 0.00
Home Equity +1 0.00 0.00 0.00 0.00 0.00 0.00
Home Equity +2 0.00 0.00 0.00 0.00 0.00 0.00
Home Equity 0.00 0.00 0.00 0.00 0.00 0.00
Secondary Mortgage 0.00 0.00 0.00 0.00 0.00 0.00
Total Real Estate 70,817.04 8.43 67,962.48 8.27 0.00 0.00
Installment Variable 0.00 0.00 0.00 0.00 0.00 0.00
Installment Fixed 15,926.24 9.88 12,109.67 8.89 1,368.33 8.93
Finance Company - 78s 0.00 0.00 0.00 0.00 0.00 0.00
Total Installment 15,926.24 9.88 12,109.67 8.89 1,368.33 8.93
Credit Cards 0.00 0.00 0.00 0.00 0.00 0.00
Overdrafts 0.00 0.00 0.00 0.00 0.00 0.00
Total Other Loans 0.00 0.00 0.00 0.00 0.00 0.00
Total Loans 93,535.04 8.70 93,217.80 8.38 4,547.79 7.87
Loan Loss Reserve 0.00 0.00 0.00 0.00 0.00 0.00
Total Net Loans 93,535.04 8.70 93,217.80 8.38 4,547.79 7.87
Building, Furniture &
Fixtures 0.00 0.00 0.00 0.00 0.00 0.00
Other Real Estate 0.00 0.00 0.00 0.00 0.00 0.00
Other Assets 0.00 0.00 0.00 0.00 0.00 0.00
Total Assets 112,088.59 8.21 121,789.73 7.84 42,716.93 6.22
Liabilities:
Demand 0.00 0.00 0.00 0.00 0.00 0.00
Total Demand 0.00 0.00 0.00 0.00 0.00 0.00
Regular 10,168.43 3.00 5,084.21 3.00 5,084.21 3.00
NOW 16,910.62 1.50 8,455.31 1.50 8,455.31 1.50
Business 190.38 1.50 95.19 1.50 95.19 1.50
IMF 3,511.57 2.00 0.00 0.00 0.00 0.00
First Rate 13,807.01 3.00 0.00 0.00 0.00 0.00
Dogwood 4,717.27 1.50 2,358.64 1.50 2,358.64 1.50
Total Savings 49,305.28 2.27 15,993.35 1.98 15,993.35 1.98
CD 1-3 Months 0.00 0.00 0.00 0.00 0.00 0.00
CD 3-6 Months 0.00 0.00 0.00 0.00 0.00 0.00
CD 6-12 Months 0.00 0.00 0.00 0.00 0.00 0.00
CD 13 Months 12,485.91 5.93 0.00 0.00 0.00 0.00
CD 1-2 Years 7,385.38 5.71 0.00 0.00 0.00 0.00
CD 2-5 Years 1,528.05 5.51 11.10 6.00 0.00 0.00
CD 5 + Years 1,687.88 6.03 1,521.93 5.51 10.02 4.75
Total CD 23,087.22 5.84 1,533.03 5.51 10.02 4.75
</TABLE>
<PAGE>37
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
1-3 1-3 3-5 3-5 5-10 5-10
YEARS YEARS YEARS YEARS YEARS YEARS
BAL RATE BAL RATE BAL RATE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IRA Savings 0.00 0.00 0.00 0.00 101.70 0.00
IRA 1-2 Years 8,454.72 5.56 0.00 0.00 0.00 0.00
IRA 2-5 Years 1,157.75 5.27 0.00 0.00 0.00 0.00
IRA 5 + Years 1,287.69 5.94 1,562.88 5.34 0.00 0.00
Total IRA 10,900.15 5.57 1,562.88 5.34 101.70 0.00
Christmas Club 0.00 0.00 0.00 0.00 0.00 0.00
Total Time 33,987.38 5.75 3,095.91 5.42 111.72 0.43
Total Deposits 83,292.65 3.69 19,089.26 2.54 16,105.06 1.97
Fed Funds Purchased - Bal 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Purchased 0.00 0.00 0.00 0.00 0.00 0.00
TT & L 0.00 0.00 0.00 0.00 0.00 0.00
Securities Sold-Sweep 0.00 0.00 0.00 0.00 0.00 0.00
Securities Sold - Fixed 516.78 5.95 0.00 0.00 0.00 0.00
FHLB Short Term 0.00 0.00 0.00 0.00 0.00 0.00
FHLB Long Term Fixed 0.00 0.00 0.00 0.00 2,181.74 5.50
FHLB Long Term-Callable 7,000.00 5.06 0.00 0.00 1,998.00 5.10
Note Payable-Finance-FCNB 0.00 0.00 0.00 0.00 0.00 0.00
Note Payable-Finance GE 0.00 0.00 0.00 0.00 0.00 0.00
Total Borrowings 7,516.78 5.12 0.00 0.00 4,179.74 5.31
Other Liabilities 0.00 0.00 0.00 0.00 0.00 0.00
Total Other Liabilities 7,516.78 5.12 0.00 0.00 4,179.74 5.31
Total Liabilities 90,809.43 3.81 19,089.26 2.54 20,284.80 2.65
Equity:
Retained Earnings 0.00 0.00 0.00 0.00 0.00 0.00
Stock, Surplus, PIC 0.00 0.00 0.00 0.00 0.00 0.00
Unrealized Gains/(Losses)
Mortgage 0.00 0.00 0.00 0.00 0.00 0.00
YTD NET INCOME 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Liability/Equity 90,809.43 3.81 19,089.26 2.54 20,284.80 2.65
Period Gap 21,279.15 0.00 102,700.48 0.00 22,432.13 0.00
Cumulative Gap (95,846.31) 0.00 6,854.17 0.00 29,286.30 0.00
RSA/RSL 1.23 0.00 6.38 0.00 2.11 0.00
Off Balance Sheet:
Total Off Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00
Period Gap 21,279.15 0.00 102,700.48 0.00 22,432.13 0.00
Cumulative Gap (95,846.31) 0.00 6,854.17 0.00 29,286.30 0.00
RSA/RSL 1.23 0.00 6.38 0.00 2.11 0.00
</TABLE>
<PAGE>38
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
<CAPTION>
10-15 10-15 15 + 15 + NON-
YEARS YEARS YEARS YEARS SENSITIVE TOTAL
BAL RATE BAL RATE BAL BAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and Due From 0.00 0.00 0.00 0.00 15,214.63 15,214.63
Total Cash and Due From 0.00 0.00 0.00 0.00 15,214.63 15,214.63
US Treasury 0.00 0.00 528.73 6.13 0.00 2,028.70
US Agency 6,371.41 4.83 0.00 0.00 0.00 72,422.97
MBS 1,288.83 6.25 715.52 6.49 0.00 11,260.52
Agency 7,660.24 5.07 715.52 6.49 0.00 83,683.48
Municipals 3,963.44 4.80 221.23 5.50 0.00 13,774.57
Corp & Others 0.00 0.00 0.00 0.00 0.00 0.00
Equities 0.00 0.00 0.00 0.00 0.00 3,292.85
Unrealized G/L 0.00 0.00 0.00 0.00 (3,116.00) (3,116.00)
Total Investments 11,623.68 4.97 1,465.47 6.21 (3,116.00) 99,663.61
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Sold-Balance 0.00 0.00 0.00 0.00 0.00 0.00
Total Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Commercial Variable 0.00 0.00 0.00 0.00 0.00 13,873.97
Commercial Fixed 76.17 9.70 2,868.57 7.57 0.00 44,391.26
Contra Loans - Troy 0.00 0.00 0.00 0.00 0.00 774.50
Floor 0.00 0.00 0.00 0.00 0.00 112.21
Unearned 0.00 0.00 0.00 0.00 0.00 0.00
Total Commercial 76.17 9.70 2,868.57 7.57 0.00 59,151.94
Real Estate Variable 0.00 0.00 0.00 0.00 0.00 25,898.57
Real Estate Fixed 0.00 0.00 0.00 0.00 0.00 189,872.49
Home Equity +1 0.00 0.00 0.00 0.00 0.00 6,787.02
Home Equity +2 0.00 0.00 0.00 0.00 0.00 2,522.03
Home Equity 0.00 0.00 0.00 0.00 0.00 9,309.05
Secondary Mortgage 0.00 0.00 0.00 0.00 0.00 1,032.05
Total Real Estate 0.00 0.00 0.00 0.00 0.00 226,112.16
Installment Variable 0.00 0.00 0.00 0.00 0.00 127.00
Installment Fixed 50.36 9.77 0.00 0.00 0.00 36,382.59
Finance Company - 78s 0.00 0.00 0.00 0.00 0.00 0.00
Total Installment 50.36 9.77 0.00 0.00 0.00 36,509.59
Credit Cards 0.00 0.00 0.00 0.00 0.00 2,291.98
Overdrafts 0.00 0.00 0.00 0.00 0.00 269.41
Total Other Loans 0.00 0.00 0.00 0.00 0.00 2,561.39
Total Loans 126.53 9.72 2,868.57 7.57 0.00 324,335.08
Loan Loss Reserve 0.00 0.00 0.00 0.00 (3,686.32) (3,686.32)
Total Net Loans 126.53 9.72 2,868.57 7.57 (3,686.32) 320,648.76
Building, Furniture &
Fixtures 0.00 0.00 0.00 0.00 13,771.39 13,771.39
Other Real Estate 0.00 0.00 0.00 0.00 363.00 363.00
Other Assets 0.00 0.00 0.00 0.00 19,372.71 19,372.71
Total Assets 11,750.21 5.03 4,334.04 7.11 41,919.40 469,034.09
Liabilities:
Demand 0.00 0.00 0.00 0.00 40,973.44 40,973.44
Total Demand 0.00 0.00 0.00 0.00 40,973.44 40,973.44
Regular 0.00 0.00 0.00 0.00 0.00 25,421.07
NOW 0.00 0.00 0.00 0.00 0.00 42,276.55
Business 0.00 0.00 0.00 0.00 0.00 475.94
IMF 0.00 0.00 0.00 0.00 0.00 7,023.14
First Rate 0.00 0.00 0.00 0.00 0.00 27,614.02
Dogwood 0.00 0.00 0.00 0.00 0.00 11,793.18
Total Savings 0.00 0.00 0.00 0.00 0.00 114,603.90
CD 1-3 Months 0.00 0.00 0.00 0.00 0.00 5,352.40
CD 3-6 Months 0.00 0.00 0.00 0.00 0.00 30,040.50
CD 6-12 Months 0.00 0.00 0.00 0.00 0.00 35,968.83
CD 13 Months 0.00 0.00 0.00 0.00 0.00 40,023.88
CD 1-2 Years 0.00 0.00 0.00 0.00 0.00 62,082.37
CD 2-5 Years 0.00 0.00 0.00 0.00 0.00 9,977.43
CD 5 + Years 0.00 0.00 0.00 0.00 0.00 3,962.95
Total CD 0.00 0.00 0.00 0.00 0.00 187,408.37
</TABLE>
<PAGE>39
<TABLE>
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
<CAPTION>
10-15 10-15 15 + 15 + NON-
YEARS YEARS YEARS YEARS SENSITIVE TOTAL
BAL RATE BAL RATE BAL BAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IRA Savings 0.00 0.00 0.00 0.00 0.00 101.70
IRA 1-2 Years 0.00 0.00 0.00 0.00 0.00 16,909.64
IRA 2-5 Years 0.00 0.00 0.00 0.00 0.00 1,982.76
IRA 5 + Years 0.00 0.00 0.00 0.00 0.00 4,413.92
Total IRA 0.00 0.00 0.00 0.00 0.00 23,408.03
Christmas Club 0.00 0.00 0.00 0.00 0.00 286.84
Total Time 0.00 0.00 0.00 0.00 0.00 211,103.24
Total Deposits 0.00 0.00 0.00 0.00 40,973.44 366,680.58
Fed Funds Purchased - Bal 0.00 0.00 0.00 0.00 0.00 0.00
Fed Funds Purchased 0.00 0.00 0.00 0.00 0.00 0.00
TT & L 0.00 0.00 0.00 0.00 0.00 762.10
Securities Sold-Sweep 0.00 0.00 0.00 0.00 0.00 17,582.43
Securities Sold - Fixed 0.00 0.00 0.00 0.00 0.00 8,810.73
FHLB Short Term 0.00 0.00 0.00 0.00 0.00 6,700.00
FHLB Long Term Fixed 0.00 0.00 0.00 0.00 0.00 2,181.74
FHLB Long Term-Callable 0.00 0.00 0.00 0.00 0.00 20,000.00
Note Payable-Finance-FCNB 0.00 0.00 0.00 0.00 0.00 0.00
Note Payable-Finance GE 0.00 0.00 0.00 0.00 0.00 0.00
Total Borrowings 0.00 0.00 0.00 0.00 0.00 56,037.00
Other Liabilities 0.00 0.00 0.00 0.00 1,774.14 1,774.14
Total Other Liabilities 0.00 0.00 0.00 0.00 1,774.14 57,811.14
Total Liabilities 0.00 0.00 0.00 0.00 42,747.58 424,491.72
Equity:
Retained Earnings 0.00 0.00 0.00 0.00 28,235.98 28,235.98
Stock, Surplus, PIC 0.00 0.00 0.00 0.00 17,032.34 17,032.34
Unrealized Gains/(Losses) 0.00 0.00 0.00 0.00 (2,031.43) (2,031.43)
YTD NET INCOME 0.00 0.00 0.00 0.00 1,305.50 1,305.50
Total Equity 0.00 0.00 0.00 0.00 44,542.38 44,542.38
Total Liability/Equity 0.00 0.00 0.00 0.00 87,289.96 469,034.10
Period Gap 11,750.21 0.00 4,334.04 0.00 (45,370.56) 0.00
Cumulative Gap 41,036.51 0.00 45,370.55 0.00 (0.01) 0.00
RSA/RSL 0.00 0.00 0.00 0.00 0.48 0.00
Off Balance Sheet:
Total Off Balance Sheet 0.00 0.00 0.00 0.00 0.00 0.00
Period Gap 11,750.21 0.00 4,334.04 0.00 (45,370.56) 0.00
Cumulative Gap 41,036.51 0.00 45,370.55 0.00 (0.01) 0.00
RSA/RSL 0.00 0.00 0.00 0.00 0.48 0.00
</TABLE>
<PAGE>40
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
------------------------------------
03/30/00
(in thousands)
TOTAL
RATE
- -------------------------------------------------------------
Assets:
Cash and Due From 0.00
Total Cash and Due From 0.00
US Treasury 6.28
US Agency 6.03
MBS 6.27
Agency 6.06
Municipals 4.59
Corp & Others 0.00
Equities 5.50
Unrealized G/L 0.00
Total Investments 6.03
Fed Funds Sold 0.00
Fed Funds Sold-Balance 0.00
Total Fed Funds Sold 0.00
Commercial Variable 9.05
Commercial Fixed 8.47
Contra Loans - Troy 8.50
Floor 0.00
Unearned 0.00
Total Commercial 8.59
Real Estate Variable 9.38
Real Estate Fixed 8.39
Home Equity +1 9.31
Home Equity +2 9.94
Home Equity 9.48
Secondary Mortgage 7.83
Total Real Estate 8.55
Installment Variable 9.37
Installment Fixed 9.48
Finance Company - 78s 0.00
Total Installment 9.48
Credit Cards 11.50
Overdrafts 0.00
Total Other Loans 10.29
Total Loans 8.67
Loan Loss Reserve 0.00
Total Net Loans 8.77
Building, Furniture & Fixtures 0.00
Other Real Estate 0.00
Other Assets 0.00
Total Assets 7.28
Liabilities:
Demand 0.00
Total Demand 0.00
Regular 3.00
NOW 1.50
Business 1.50
IMF 2.00
First Rate 3.00
Dogwood 1.50
Total Savings 2.22
CD 1-3 Months 5.81
CD 3-6 Months 5.81
CD 6-12 Months 5.23
CD 13 Months 5.50
CD 1-2 Years 5.40
CD 2-5 Years 5.89
CD 5 + Years 5.87
Total CD 5.50
<PAGE>41
CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
03/30/00
(in thousands)
Total
Rate
- ------------------------------------------------------------------
IRA Savings 0.00
IRA 1-2 Years 5.56
IRA 2-5 Years 5.56
IRA 5 + Years 5.53
Total IRA 5.53
Christmas Club 2.50
Total Time 5.50
Total Deposits 3.86
Fed Funds Purchased - Bal 0.00
Fed Funds Purchased 0.00
TT & L 6.00
Securities Sold-Sweep 3.00
Securities Sold - Fixed 5.58
FHLB Short Term 6.10
FHLB Long Term Fixed 5.50
FHLB Long Term-Callable 5.29
Note Payable-Finance-FCNB 0.00
Note Payable-Finance GE 0.00
Total Borrowings 4.73
Other Liabilities 0.00
Total Other Liabilities 4.59
Total Liabilities 3.96
Equity:
Retained Earnings 0.00
Stock, Surplus, PIC 0.00
Unrealized Gains/(Losses) 0.00
YTD NET INCOME 0.00
Total Equity 0.00
Total Liability/Equity 3.58
Period Gap 0.00
Cumulative Gap 0.00
RSA/RSL 0.00
Off Balance Sheet:
Total Off Balance Sheet 0.00
Period Gap 0.00
Cumulative Gap 0.00
RSA/RSL 0.00
<PAGE>42
NOTES TO THE GAP REPORT
1. The gap report reflects interest sensitivity positions during a flat
rate environment. These time frames could change if rates rise or
fall.
2. Repricing over-rides maturity in various time frames.
3. Demand deposits are placed in the last time frame due to lack of
interest sensitivity. Our demand deposits are considered core
deposits.
4. Non-maturity deposits are placed into various time frames. In a flat
rate environment, non-maturity deposits tend not to reprice or
liquidate. Savings deposits become price sensitive after a major
increase in the 6 month CD rate. These accounts are placed in this
category instead of the variable position due to history and
characteristics. These accounts are considered core deposits.
5. Simulations will be utilized to reflect the impact of multiple rate
scenarios on net interest income. Decisions should be made that
increase net interest income, while always considering the impact on
interest rate risk. Overall, the bank will manage the gap between
rate sensitive assets and rate sensitive liabilities to expand and
contract with the rate cycle phase. First Citizens will attempt to
minimize interest rate risks by increasing the volume of variable
rate loans within the portfolio. The bank should limit the net
interest income exposure to a maximum of 2.00% of tier I capital.
(Example .02 x $42,484,000 = $850,000). The bank's Asset/Liability
Committee will try to improve net interest income through volume
increases and better pricing techniques. Long term fixed rate
positions should be held to a minimum, by increasing variable rate
loans. The over 5 year fixed rate loans should be held to less than
25% assets, unless they are funded with Federal Home Loan Bank matched
funds. These maximum limits are the high points and the ALCO will
strive to keep the amount below this point. The dynamic 03/31/00 gap
reports reflect an exposure of $361,000 if rates go up 1%. The Board
of Directors receives interest rate risk reports on a quarterly basis.
(Examples: historical margins graphed and multiple scenarios
reflecting income exposure and as a percent of tier I capital.
Subsidiaries as well as the Parent Company will adhere to providing
above average margins and reviewing the various risks, if material.
New products and services will be reviewed for the various risks by
the Product Development Committee.
5. FCNB would benefit from a flat and declining rate environment. If
interest rates rise rapidly, net interest income could be
adversely impacted. First Citizens Liquidity would be negatively
impacted should interest rates drop prompting an increase in loan
demand. Adequate lines of credit are available to handle liquidity
needs.
<PAGE>43
Capital Resources
Total shareholders' equity of First Citizens Bancshares as of March 31, 2000
was $44,548,000, compared to $43,683,000 at March 31, 1999. Capital as a
percentage of total assets for the quarter ending March 31 is presented in the
following table for the years indicated (excluding Loan Loss Reserves):
Leveraged Capital Ratio(s) as of March 31
2000 1999 1998 1997 1996
9.43% 9.29% 9.10% 9.33% 9.31%
Increasing the capital base of the Company is a vital part of strategic
planning. Although the present capital to asset ratio remains well in excess
of the level required by Regulators for banks our size, management is aware of
the importance of this base.
The Capital Plan states that a risked based capital ratio in excess of the
minimum level required by regulation will be accomplished by: (1) controlling
asset growth, (2) increasing profits (3) adjusting dividend payouts, and/or
(4) raising additional capital when necessary. The bank will strive to
maintain off-balance sheet liabilities at levels equal to the present
percentage of risk weighted assets. The Capital analysis reflects activites
affecting capital within the next five years. Our bank will continually strive
to satisfy shareholders with dividend payments and market value increases. The
bank's goal is to maintain a level of capital adequate to meet the company's
needs, while investing excess capital in a manner that will enhance
profitability. As an additional source of capital, authorized but unissued
stock can be issued to satisfy the needs of the Dividend Reinvestment Program.
Earnings per share are expected to continually increase as expenses decrease,
maintain a strong net interest margin, and maximizing employee utilization.
As bank earnings improve, dividends to shareholders will be increased to
provide a return on investment comparable to or better than that of other well
managed peer banks.
A dividend of .2250 cents per share was declared to shareholders of record as
of February 15, 2000 payable March 15, 2000. Dividends paid to shareholders in
1999 were enhanced by a special dividend declared during fourth quarter. This
process utilized in the past five years serves to raise payout ratios to levels
targeted by the bank's capital plan. In addition a 4 for 1 stock split
increased the numbers of shares outstanding to 3,194,544 as of 12/31/99.
Dividend payouts for each year under comparison were .90 cents in 1999, .75
cents in 1998, .50 cents in 1997 and .40 cents in 1996.
Risk-based capital focuses primarily on broad categories of credit risk and
incorporates elements of transfer, interest rate and market risks. Calculation
of the risk-based capital ratio is accomplished by dividing qualifying capital
by weighted risk assets. The minimum risk-based capital ratio established by
Federal Reserve regulation is 8%. At least one-half or 4% must consist of core
capital (Tier 1), and the remaining 4% may be in the form of core (Tier 1) or
supplemental capital (Tier 2). Tier 1 capital/core capital consists of common
stockholders equity, qualified perpetual stock and minority interests in
consolidated subsidiaries. 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' capital
consists entirely of Tier 1 components, with the exception of the allowance for
loan and lease losses. earnings. There is no reason to assume that income
levels will not be sufficient to maintain an adequate capital ratio.
<PAGE>44
The Risk-Based Capital Ratio as of 3/31/00 and 3/31/99 reflect ratios
significantly above the 8.00% required by regulation. A comparison of Risked-
based Capital ratio of 12.3% in 1998 to 14.32% in 1997 reflects the purchase of
Bank of Troy, funded in part by existing capital totaling $5.5 million. Growth
in Bancshares 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.
Risk-Based Capital Ratio(s) as of March 31
2000 1999 1998 1997 1996
14.25% 13.02% 12.23% 14.32% 14.19%
Effects of Inflation
Inflation has a significant impact on the growth of total assets in the banking
industry, resulting in a need to increase equity capital in order to maintain
an appropriate equity to asset ratio.
Operating expenses are directly affected by increases in salaries and employee
benefits, supplies, legal, audit and professional fees, utilities, advertising
and insurance. Inflation and competition are major keys to the cost of
acquiring and retaining deposits.
A well managed asset/liability management program can maximize net interest
income; and at the same time, reduce the impact of inflation on earnings.
Part II - Other Information
Item 1. Legal Proceedings
A Civil Action suit was filed in the Circuit Court for Dyer County, TN,
Twenty-ninth Judicial District at Dyersburg on February 25, 2000. The
compliant, related to unauthorized entry into a safe deposit box, was
filed for a minimal amount. The suit will have an immaterial impact on
the financial position of the Bank. First Citizens has filed for a dismissal.
Item 2. Changes in Securities
Dividends paid to Shareholders of First Citizens Bancshares, Inc. are funded by
dividends to the Bank Holding Company from First Citizens National Bank and
accumulated cash at the Holding Company level. Regulators would be critical of
a bank holding company that pays cash dividends not covered by earnings or that
are funded from borrowings or unusual or non recurring gains, such as the sale
of property or assets. Under rules set forth by the Comptroller of the
Currency in Interpretive Ruling 7.6100, the board of directors of a national
bank may declare dividends as it may judge to be expedient, subject to
statutory limitations which deal with the balance of the surplus account,
sufficiency of net profits, dividend payments on preferred stock, and default
of any assessment due to the Federal Deposit Insurance Corporation.
Shareholders approved an amendment to the company's Charter in April 1998 to
increase the number of shares authorized from 750,000 to 10,000,000.
Item 6(b) No reports on Form 8-K were filed for the quarter ended 3/31/00.
<PAGE>45
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
First Citizens Bancshares, Inc.
(Registrant)
Date: May 12, 2000 Stallings Lipford
Stallings Lipford, Chairman
Date: May 12, 2000 Jeff Agee
Jeff Agee, Vice President &
Chief Financial Officer
<PAGE>1
<TABLE>
DATA STATED IN THOUSANDS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
REGULATION STATEMENT CAPTION FIRST QTR. FIRST QTR. TO DATE
2000 1999 2000 1999
<S> <C> <C> <C> <C>
5-02 (1) Cash and Cash Items 16448 20442 16448 20442
5-02 (2) Marketable Securities 99626 112839 99626 112839
5-02 (3)(b)(1) Notes Receivable 325350 310391 325350 310391
5-02 (4) Allowance for Doubtful Accounts 3762 3940 3762 3940
5-02 (15) Total Assets 472395 469993 472395 469993
5-02 (24) Other Liabilities 427847 426310 427847 426310
5-02 (30) Common Stock (Net of Treasury Stock) 3707 3698 3707 3698
5-02 (31)(a)(2) Additional Capital Other 15047 14831 15047 14831
5-02 (31)(a)(3)(ii) Retained Earnings - Unappropriated 25842 25155 25842 25155
Treasury Stock (48) (1) (48) (1)
5-03 (b)(1)(e) Other Revenues 10583 10199 10583 10199
5-03 (b)(2)(e) Cost of Revenues 4118 3942 4118 3942
5-03 (b)(8) Interest and Amortization of
Debt Discount 4309 4184 4309 4184
5-03 (b)(10) Income Before Taxes and Other Items 2156 2073 2156 2073
5-03 (b)(11) Income Tax Expense 682 716 682 716
5-03 (b)(14) Income/Loss from Continuing Operations 1474 1357 1474 1357
5-03 (b)(19) Net Income or Loss 1474 1357 1474 1357
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 17,410 12,700
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 12,700
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 78,792 84,019
<INVESTMENTS-CARRYING> 20,345 25,711
<INVESTMENTS-MARKET> 0 0
<LOANS> 325,377 307,331
<ALLOWANCE> 3,718 3,872
<TOTAL-ASSETS> 472,670 472,153
<DEPOSITS> 366,819 360,699
<SHORT-TERM> 46,090 46,768
<LIABILITIES-OTHER> 3,700 3,371
<LONG-TERM> 12,381 18,233
0 0
0 0
<COMMON> 3,705 3,690
<OTHER-SE> 39,975 39,392
<TOTAL-LIABILITIES-AND-EQUITY> 472,670 472,153
<INTEREST-LOAN> 29,382 28,502
<INTEREST-INVEST> 6,703 6,750
<INTEREST-OTHER> 190 694
<INTEREST-TOTAL> 36,085 35,252
<INTEREST-DEPOSIT> 13,586 14,791
<INTEREST-EXPENSE> 16,780 17,288
<INTEREST-INCOME-NET> 19,305 17,964
<LOAN-LOSSES> 720 1,226
<SECURITIES-GAINS> 93 61
<EXPENSE-OTHER> 15,409 14,643
<INCOME-PRETAX> 8,847 6,684
<INCOME-PRE-EXTRAORDINARY> 8,847 6,684
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,799 4,474
<EPS-BASIC> 1.58 1.25
<EPS-DILUTED> 1.58 1.25
<YIELD-ACTUAL> 4.55 4.18
<LOANS-NON> 500 303
<LOANS-PAST> 335 424
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 7,114 6,513
<ALLOWANCE-OPEN> 3,872 2,789
<CHARGE-OFFS> 1,214 952
<RECOVERIES> 339 331
<ALLOWANCE-CLOSE> 3,718 3,872
<ALLOWANCE-DOMESTIC> 3,718 3,872
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
