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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM
10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE 
             ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2005

[  ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-11709

First Citizens
Bancshares, Inc.(Exact name of registrant as specified in its charter)

|Tennessee                       | 62-1180360                       
|------------------------------- | ---------------------------------
|(State or other jurisdiction of | (IRS Employer Identification No.)
|incorporation or organization)  |                                  

P.O. Box 370, First
Citizens Place
Dyersburg, Tennessee 38025-0370

(731) 285-4410
(Registrant's telephone number, including area code)________________________

Securities registered pursuant to Section 12(b) of the Act:Name of each exchange
Title of each class on which registered
None

Securities registered pursuant to Section 12(g) of the Act:Common Stock
(Title of class)________________________

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [ ]   No [ x ]

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.  Yes [ ]  No [x]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [x]
No [  ].

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation
S-K (Section 229.40) is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. Yes [x]   
No [ ]

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer.  See definition of "accelerated filer and large accelerated
filer" in Rule 12b-2 of the Exchange Act (Check One): 
                                       Large accelerated filer [ ]     Accelerated filer
[x]    Non-accelerated filer [ ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes [ ]  No [x]

________________________

The aggregate market value of
voting and non-voting common stock held by non-affiliates of the registrant at June 30, 2005 was
$80,271,322.

Of the registrant's only class of
common stock (no par value) there were 3,635,008 shares outstanding as of
December 31, 2005.

________________________

DOCUMENTS
INCORPORATED BY
REFERENCE:

Portions of the Proxy
Statement dated March 15, 2006 (Part III)



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PART I

ITEM 1 - BUSINESS

GENERAL

First Citizens Bancshares, Inc.
(Bancshares or the Company) is a Tennessee Corporation organized and
incorporated in 1982 and commenced operations in September 1983.  Bancshares is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended and elected,
effective April 19, 2000 to become a financial holding company pursuant to the
provisions of the Gramm-Leach Bliley Act.  
As a financial holding company, Bancshares may engage in activities that
are financial in nature or incidental to a financial activity.  Permissible activities for a financial
holding company are contained in Regulation Y of Federal Reserve
regulations.  Bancshares may continue to
claim the benefits of financial holding company status so long as each
depository institution owned by the company remains well capitalized and well
managed.  In addition, Bancshares may
not commence new activities under sections 4(k) or 4(n) of the Bank Holding
Company Act or acquire control of a company engaged in activities under those
sections if any of The Company's insured depository institutions receive a
rating of less than satisfactory under any examination conducted to determine
compliance with the Community Reinvestment Act. Bancshares is a one-bank
holding company. At December 31, 2005, the Corporation had total assets of $816
million compared to $773 million at December 31, 2004.

The Principal Executive Offices
are at One First Citizens Place, Dyersburg, Tennessee 38024.   Our telephone number is 731-285-4410.  Our website is
www.firstcitizens-bank.com.  In accordance with the Securities Exchange Act
of 1934 and other related laws, Bancshares files reports with the United States
Securities Exchange Commission (SEC) including annual and quarterly reports
(Forms 10-K and 10-Q) as well as current reports on Form 8-K and amendments to
those reports, if any.  As of the end of
the second fiscal quarter of 2005, the market value of outstanding voting and
non-voting common equity held by non-affiliates exceeded $75 million and thus,
Bancshares will file required periodic reports with the SEC under accelerated
status beginning with the filing of this report.

The public may read and copy any
materials the Company files with the SEC at the SEC's Public Reference Room at
450 Fifth Street, NW Washington, DC 20549. 
The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site at
www.sec.gov, which contains reports, proxy and
information statements, and other information. 
We post our website links to our annual, quarterly and current reports
as soon as reasonably practicable after filing with the SEC.  Such reports can be downloaded and/or viewed
free of charge through access to the links on our website.  Shareholders may request a copy of the
quarterly or annual reports without charge by contacting Judy Long, Secretary,
First Citizens Bancshares, Inc., P. O. Box 370 Dyersburg, Tennessee
38025-0370.

Shareholders desiring to
communicate directly with the Board of Directors of the Corporation may do so
through the Corporate Governance Committee by contacting the Chairman or any
member of the committee.  Committee
membership is identified on First Citizens website at
www.firstcitizens-bank.com or may
be obtained by calling the Audit Department of First Citizens at
731-287-4275.  Letters sent via the US
Postal Service may be mailed to Chairman, Corporate Governance Committee, First
Citizens National Bank, Audit Department, P.O. Box 890, Dyersburg, TN  38025-0890.

Bancshares, through its principal
banking subsidiary, First Citizens National Bank, provides a broad range of
financial services. The Company is engaged in both retail and commercial
banking business.  First Citizens
National Bank was chartered as a national bank in 1900 and operates in West
Tennessee.  First Citizens operates
under the supervision of the Comptroller of the Currency, and is insured up to
applicable limits by the Federal Deposit Insurance Corporation (FDIC) and is a
member of the Federal Reserve System. 
The subsidiary bank is also subject to various requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and interest that may be charged thereon and limitations on the
types of investments that may be made, activities that may be engaged in, and
types of services that may be offered. 
Various consumer laws and regulations also affect operations of the
subsidiary bank.  In addition to the
impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve as it attempts to control the money supply and
credit availability in order to influence the economy.  The subsidiary bank operates under the
day-to-day management of its officers and directors; and formulates its own
policies with respect to lending practices, interest rates and service charges
and other banking matters.

Bancshares' primary source of
income is dividends received from First Citizens National Bank.  Dividend payments are determined in relation
to earnings, deposit growth and capital position of the subsidiaries in
compliance with regulatory guidelines. Management anticipates that future
increases in the capital of Bancshares will be accomplished through earnings
retention or capital injection.



- 2 -

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The following table sets forth a comparative analysis of Assets, Deposits, Net Loans, and Equity Capital of Bancshares as of December 31, for the years indicated:

|                     | December 31   
|-------------------- | --------------
|                     | (In Thousands)
|                     | 2005          
|Total Assets         | $  815,749    
|Total Deposits       | 635,509       
|Total Net Loans      | 540,387       
|Total Equity Capital | 63,646        

Individual bank performance is
compared to industry standards through utilization of the Federal Reserve
Board's Division of Banking Supervision and Regulation.  First Citizens Bancshares is grouped with
peers in the $500 million assets to $1 billion.  The group consisted of 393 bank holding companies per the
September 30, 2005 Bank Holding Company Performance Report.

The following presents
comparisons of Bancshares with its peers as indicated on Bank Holding Company
Performance Reports for the periods indicated:

|                                                                                                                                           | 12/31/2005** | 12/31/
      2004 | 12/31/
      2003
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | ----------------- | -----------------
|                                                                                                                                           | Bancshares   | Peer Group        | Bancshares       
|Net Interest Income/Average
      Assets                                                                                                   | 3.53%        | 3.79%             | 3.44%            
|Net Operating Income/Average
      Assets                                                                                                  | 1.10%        | 1.11%             | 1.08%            
|Net Loan
      Losses/Average Total Loans                                                                                                  | 0.09%        | 0.10%             | 0.00%            
|Primary Capital/Average Assets                                                                                                             | 7.88%        | 9.18%             | 7.05%            
|Cash Dividends/Net
      Income                                                                                                            | 47.03%       | 23.22%            | 50.83%           
|                                                                                                                                           |              |                   |                  
|                                                                                                                                           |              |                   |                  
|** Peer
      information for December 31, 2005 is
      compared to the September 30, 2005 Bank Holding Company Performance
      Report.

EXPANSION

On November 12, 1999 the Gramm
Leach-Bliley Act was signed into law. 
The act contains seven titles, each of which focuses on a different
aspect of the financial services industry. 
This new law significantly changed the way we do business by opening up
new business opportunities to the banking industry.

Based on authority granted under
this act, Bancshares, formerly a bank holding company, converted to a financial
holding company.  As a financial holding
company, Bancshares may engage in activities that are financial in nature or
incidental to a financial activity.

Bancshares through its strategic
planning process has stated its intention to seek profitable opportunities that
would utilize excess capital and maximize income within the West Tennessee
Area.  Bancshares' objective in
acquiring other banking institutions would be for asset growth and
diversification into other market areas. 
Acquisitions and de-novo branches would afford Bancshares increased
economies of scale within the operation functions and better utilization of
human resources.  Any acquisition or
de-novo branching approved by Bancshares would be deemed to be in the best
interest of Bancshares and its shareholders.

Bancshares acquired Munford Union
Bank in May 2002.  This acquisition
originally added $115 million in assets housed in Tipton and Shelby Counties in
Tennessee to Bancshares' balance sheet. 
Since this acquisition, the Bank has opened three additional branches in
this area which are Arlington in Shelby County that opened in 2003, Oakland in
Fayette County which opened in June 2004 and Collierville in Shelby County
which opened in April 2005.  The assets
of the Southwest Region (branches in Shelby, Tipton, and Fayette Counties) were
approximately $215 million as of December 31, 2005.

- 3 -

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CAPITAL ADEQUACY

Bancshares is subject to capital
adequacy requirements imposed by the Federal Reserve.   The Federal Reserve has adopted risk-based capital guidelines
for bank holding companies.  The minimum
guideline for the ratio of total capital to risk weighted assets (including
certain off-balance-sheet items such as standby letters of credit) is 8%, and
the minimum ratio of Tier 1 Capital to risk-weighted assets is 4%.  At least half of the Total Capital must be
composed of common stock, minority interests in the equity capital accounts of
consolidated subsidiaries, non-cumulative perpetual preferred stock and a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets (Tier 1 Capital).  The remainder may consist of qualifying subordinated debt,
certain types of mandatory convertible securities and perpetual debt, other
preferred stock and a limited amount of loan loss reserves.  At December 31, 2005, Bancshares' total
risked-based capital ratio was 12.11% significantly in excess of 8% mandated by
regulation.  The risk based capital
ratio was 10.86% for 2004 and 11.14% for 2003. 
Our strategic plan directs the company to leverage capital by growing
assets. Risk based capital focuses primarily on broad categories of credit risk
and incorporates elements of transfer, interest rate and market risks.  The calculation of risk-based capital ratio
is accomplished by dividing qualifying capital by weighted risk assets.  Tier 1 leverage ratio at year-end 2005 was
7.84%, with total capital as a percentage of total assets at 7.8%.

Failure to meet capital
guidelines could subject a financial holding company to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business and in certain circumstances
to the appointment of a conservator or receiver.

BANKING BUSINESS

The Company headquartered in
Dyersburg, Tennessee, is the bank holding company for First Citizens National
Bank ("Bank"), First Citizens Capital Assets and First Citizens (TN) Statutory
Trusts II and III.  First Citizens
National Bank is a diversified financial service institution, which provides
banking and other financial services to its customers. The bank operates two
wholly owned subsidiaries: First Citizens Financial Plus, Inc. and First
Citizens Investments, Inc. First Citizens Investments, Inc. was formerly named
Nevada Investments II, Inc. but changed its name through a corporate charter
amendment as of September 21, 2004. 
First Citizens Investments, Inc. formed a wholly owned subsidiary, First
Citizens Holdings, Inc. as of September 17, 2004.   First Citizens Properties, Inc., which is a wholly owned
subsidiary of First Citizens Holdings, Inc., was also formed September 17,
2004.  The formation of these entities
had no material impact on the consolidated financial statements of First
Citizens Bancshares, Inc.  The bank also
owns 50% of White and Associates/First Citizens Insurance, LLC which provides
various insurance products to its customers and First Citizens/White and Associates
Insurance Company, Inc., which is a provider of credit insurance. The
activities of the Bank's subsidiaries consist of: brokerage, investments,
insurance related products, credit insurance and real estate participation
interests.

First Citizens provides customary
banking services, such as checking and savings accounts, funds transfers,
various types of time deposits and safe deposit facilities.  Other services also include the financing of
commercial transactions and making and servicing both secured and unsecured
loans to individuals, firms and corporations. First Citizens is a leader in
agricultural lending in Tennessee.  Agricultural
services include operating loans as well as financing for the purchase of
equipment and farmland.  The
consumer-lending department makes direct loans to individuals for personal,
automobile, real estate, home improvement, business and collateral needs.

Mortgage lending makes available
long term fixed and variable rate loans to finance the purchase of residential
real estate.  These loans are sold in
the secondary market without retaining servicing rights.  Commercial lending operations include various
types of credit services for customers.

The subsidiary bank has a total
of 33 banking locations (16 full service branch banks, three drive-thru only
branches and 14 free standing ATMs) in seven Tennessee counties.  Subsidiaries of the Bank consist of the
following:

- First Citizens Financial
Plus, Inc., a bank service corporation wholly owned by First Citizens provides
licensed brokerage services that allow the bank to compete on a limited basis
with numerous non-bank entities that pose a continuing threat to our customer
base.  The brokerage firm operates three
locations in West Tennessee.
- White and
Associates/First Citizens Insurance, LLC was chartered by the State of
Tennessee and is a general insurance agency offering a full line of insurance
products including casualty, life and health, and crop insurance.  First Citizens holds a 50% ownership in the
company, which is accounted for using the equity method.  The insurance agency operates nine offices
in Northwest Tennessee.
- First Citizens/White and
Associates Insurance Company, is organized and existing under the laws of the
state of Arizona.  Its principal
activity is credit insurance.  First
Citizens holds a 50 percent ownership in the company and is accounted for using
the equity method.
- First Citizens Investments,
Inc. was organized and existing under laws of the state of Nevada.  The principal activity of this entity is to
acquire and sell investment securities as well as collect the income from the
portfolio.  First Citizens Investments
owns the following:First
      Citizens Holdings, a wholly owned subsidiary of First Citizens
      Investments, acquires and sells certain investment securities, collects
      income from its portfolio, and owns the following subsidiary:First Citizens Properties, Inc., a real estate
investment trust (REIT), whose principal activity is to invest in participation
interests of real estate loans made by First Citizens National Bank and
provides First Citizens with an alternative vehicle for raising capital.  First Citizens Holdings owned 100% of the
REIT as of December 31, 2004.  As of
December 31, 2005, First Citizens Holdings owned 98% due to preferred stock
issued as a bonus to directors, executive officers and certain employees in
January 2005.  The 2% owned by
directors, executive officers and certain employees is immaterial to the
consolidated financial statements of the Company.
- First
      Citizens Holdings, a wholly owned subsidiary of First Citizens
      Investments, acquires and sells certain investment securities, collects
      income from its portfolio, and owns the following subsidiary:First Citizens Properties, Inc., a real estate
investment trust (REIT), whose principal activity is to invest in participation
interests of real estate loans made by First Citizens National Bank and
provides First Citizens with an alternative vehicle for raising capital.  First Citizens Holdings owned 100% of the
REIT as of December 31, 2004.  As of
December 31, 2005, First Citizens Holdings owned 98% due to preferred stock
issued as a bonus to directors, executive officers and certain employees in
January 2005.  The 2% owned by
directors, executive officers and certain employees is immaterial to the
consolidated financial statements of the Company.
- First Citizens Properties, Inc., a real estate
investment trust (REIT), whose principal activity is to invest in participation
interests of real estate loans made by First Citizens National Bank and
provides First Citizens with an alternative vehicle for raising capital.  First Citizens Holdings owned 100% of the
REIT as of December 31, 2004.  As of
December 31, 2005, First Citizens Holdings owned 98% due to preferred stock
issued as a bonus to directors, executive officers and certain employees in
January 2005.  The 2% owned by
directors, executive officers and certain employees is immaterial to the
consolidated financial statements of the Company.

-4-

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COMPETITIVE ENVIRONMENT



The business of providing
financial services is highly competitive. The competition involves not only
other banks but non-financial enterprises as well. In addition to competing
with other commercial banks in the service area, the Bank competes with savings
and loan associations, insurance companies, savings banks, small loan
companies, finance companies, mortgage companies, real estate investment
trusts, certain governmental agencies, credit card organizations, credit unions
and other enterprises.  In 1998 federal
legislation allowed credit unions to expand their membership criterion.  Expanded membership criterion coupled with
an existing tax free status provided a competitive advantage when compared with
that of banks.

First Citizens builds and
implements strategic plans and commitments to address competitive factors in
the various markets it serves.  The
primary strategic focus is on obtaining and maintaining profitable customer
relationships in all markets.  The markets
demand competitive pricing but First Citizens competes on high quality customer
service that will attract and enhance loyal, profitable customers to our
bank.  Industry surveys have
consistently revealed that 65-70 percent of customers leave due to customer
service issues.  First Citizens is
committed to excellent customer service in all markets served as a means of
branding and distinguishing itself from other financial institutions.  Advertising and promotional activities such
as newspaper and radio ads are also utilized in accordance with defined
strategic plans.  For example,
advertising and promotions were increased in 2004 and 2005 in the Southwest
Region after the announcement of two mergers of large regional banks in efforts
to attract new deposits and promote brand awareness.

In the markets it serves, First
Citizens offers a typical mix of interest-bearing transaction, savings and time
deposit products as well as traditional non-interest bearing deposit
accounts.  First Citizens is the leader
in deposit market share compared to competitors in the Dyer, Fayette, Lauderdale,
Obion, Tipton and Weakley County, Tennessee markets.  Source of the following information is the Deposit Market Share
Report as of June 30, 2005 prepared annually by the FDIC.  The following tabular analysis presents the
number of offices, deposits (in thousands), and market share percentage for
deposits:

Dyer, Lauderdale,
        Obion, Tipton & Weakley Counties Market(Banks
        only,
        Deposits Inside of Market)As
        of June 30, 2005Bank Name
      # of
        Offices
      Total   Deposits
      % of   
        Market   Share(In
        Thousands)First Citizens National Bank
      15
      $  
        507,248
      19.98%First State Bank

      14
      467,728

      18.42%Regions Bank

      15

      237,793
      9.37%BancorpSouth Bank

      6

      167,872
      6.61%Somerville Bank
        & Trust Co.

      5

      156,017
      6.15%Bank of Ripley

      5

      123,362
      4.86%Commercial Bank & Trust

      2

      110,914
      4.37%Bank of Fayette
        County

      4

      94,584
      3.73%Reelfoot Bank

      5

      90,351
      3.56%INSOUTH Bank

      2

      84,713
      3.34%Security Bank
      6
      77,977
      3.07%First Tennessee Bank, National
        Association
      2
      69,273
      2.73%Oakland Deposit Bank

      3

      61,247
      2.41%Bank of
        Gleason
      1
      55,117
      2.17%All others

      14
      234,360
      9.23%Total

      99

      $ 
        2,538,556
      100.00%




First Citizens has consistently
been the leader in market share of deposits in its markets for several
years.  First Citizens' market share has
been about 20% in these six counties combined and in excess of 62 percent in
Dyer County for the last three years.

First Citizens National Bank also
competes in the Shelby County Market. 
As the size and composition of the Shelby County Market is much larger
and more diverse, Shelby County is excluded from the tabular presentation
above.  Market share in Shelby County
has increased from 0.32% to 0.41% from 2004 to 2005.

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EMPLOYEES

At December 31, 2005, Bancshares
and its subsidiary employed a total of 266 full-time equivalent employees (FTE)
compared to 264 at December 31, 2004. 
Increase in FTE is primarily due to expansion into Collierville.  First Citizens is committed to hiring and
retaining high quality employees to execute strategic plans of the Company.
Relationship with employees is satisfactory and no collective bargaining issues
exist.

SUPERVISION AND
REGULATION

Bancshares is a one-bank financial
holding company under the Bank Holding Company Act of 1956, as amended, and is
subject to supervision and examination by the Board of Governors of the Federal
Reserve. As a financial holding company, Bancshares is required to file with
the Federal Reserve annual reports and other information regarding its business
obligations and those of its subsidiaries. 
Federal Reserve approval must be obtained before Bancshares may:

1)      
Acquire
ownership or control of any voting securities of a bank or bank  holding company
where the acquisition results in the bank 
  holding company owning or controlling
more than 5 percent of a class of voting securities of that bank or bank
holding company;

2)       Acquire
substantially all assets of a bank or bank holding company or merge with
another bank holding company.

Federal Reserve approval is not
required for a bank subsidiary of a bank holding company to merge with or
acquire substantially all assets of another bank if prior approval of a federal
supervisory agency, such as the Comptroller of the Currency is required under
the Bank Merger Act.  Relocation of a
subsidiary bank of a bank holding company from one state to another requires
prior approval of the Federal Reserve and is subject to the prohibitions of the
Douglas Amendment.

The Bank Holding Company Act
provides that the Federal Reserve shall not approve any acquisition, merger or
consolidation which would result in a monopoly or which would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States.  Further, the Federal Reserve may not approve any other proposed
acquisition, merger, or consolidation, the effect of which might be to
substantially lessen competition or tend to create a monopoly in any section of
the country, or which in any manner would be in restraint of trade, unless the
anti-competitive effect of the proposed transaction is clearly outweighed in
favor of public interest by the probable effect of the transaction in meeting
convenience and needs of the community to be served. An amendment effective
February 4, 1993 further provides that an application may be denied if the
applicant has failed to provide the Federal Reserve with adequate assurances
that it will make available such information on its operations and activities,
and the operations and activities of any affiliate, deemed appropriate to
determine and enforce compliance with the Bank Holding Company Act and any
other applicable federal banking statutes and regulations.  In addition, consideration is given to the
competence, experience and integrity of the officers, directors and principal
shareholders of the applicant and any subsidiaries as well as the banks and
bank holding companies concerned.  The
Federal Reserve also considers the record of the applicant and its affiliates
in fulfilling commitments to conditions imposed by the Federal Reserve in
connection with prior applications.

A bank holding company is
prohibited with limited exceptions from engaging directly or indirectly through
its subsidiaries in activities unrelated to banking or managing or controlling
banks. One exception to this limitation permits ownership of a company engaged
solely in furnishing services to banks; another permits ownership of shares of
the company, all of the activities of which the Federal Reserve has determined
after due notice and opportunity for hearing, to be so closely related to
banking or managing or controlling banks, as to be a proper incident thereto.
Moreover, under the 1970 amendments to the Act and to the Federal Reserve
regulations, a financial holding company and its subsidiaries are prohibited
from engaging in certain "tie-in" arrangements in connection with any extension
of credit or provision of any property or service. Subsidiary banks of a
financial holding company are subject to certain restrictions imposed by the
Federal Reserve Act on any extension of credit to the financial holding company
or to any of its other subsidiaries, or investments in the stock or other
securities thereof, and on the taking of such stock for securities as
collateral for loans to any borrower.

Financial holding companies are
required to file an annual report of their operations with the Federal Reserve,
and they and their subsidiaries are subject to examination by the Federal
Reserve.

- 6 -

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USURY, RECENT LEGISLATION AND ECONOMIC ENVIRONMENT

Tennessee usury laws limit the
rate of interest that may be charged by banks. Certain Federal laws provide for
preemption of state usury laws.

Legislation enacted in 1983
amends Tennessee usury laws to permit interest at an annual rate of four (4)
percentage points above the average prime loan rate for the most recent week
for which such an average rate has been published by the Board of Governors of
the Federal Reserve, or twenty-four percent (24%), whichever is less (TCA
47-14-102(3)). The "Most Favored Lender Doctrine" permits national banks to
charge the highest rate permitted by any state lender.

Specific usury laws may apply to
certain categories of loans, such as the limitation placed on interest rates on
single pay loans of $1,000.00 or less for one year or less.  Rates charged on installment loans,
including credit cards, as well as other types of loans may be governed by the
Industrial Loan and Thrift Companies Act.

IMPACT OF GRAMM LEACH-BLILEY ACT

The Gramm Leach-Bliley Financial
Modernization Act of 1999 permits bank holding companies meeting certain
management, capital, and community reinvestment act standards to engage in a
substantially broader range of non-banking activities than permitted
previously, including insurance underwriting and merchant banking
activities.  The Act repeals sections 20
and 32 of the Glass Steagall Act, permitting affiliations of banks with
securities firms and registered investment companies.  The Act authorizes financial holding companies, permitting banks
to be owned by security firms, insurance companies and merchant banking
companies and visa-versa. Some of these affiliations are also permissible for
bank subsidiaries.  The Act gives the
Federal Reserve Board authority to regulate financial holding companies, but
provides for functional regulation of subsidiary activities.

The Gramm Leach-Bliley Financial
Modernization Act also modifies financial privacy and community reinvestment
laws. The new financial privacy provisions generally prohibit financial
institutions such as the Bank from disclosing non-public personal financial
information to third parties unless customers have the opportunity to opt out of
the disclosure.  The Act also magnifies
the consequences of a bank receiving less than a satisfactory community
reinvestment act rating, by freezing new activities until the institution
achieves a better community reinvestment act rating.

BANK SECRECY ACT

Over the past thirty plus years,
Congress has passed several laws impacting a financial institution's
responsibilities relating to Bank Secrecy Act. 
The most recent change was in 2001 with the enactment of the USA Patriot
Act (Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism ACT). 
This act significantly amended and expanded the application of the Bank
Secrecy Act, including enhanced measures regarding customer identity, new
suspicious activity reporting rules and enhanced anti-money laundering
programs.   In 2005, there was no new
legislation enacted relating to Bank Secrecy Act.  However, on June 30, 2005, the Federal Financial Institutions
Examination Council (FFIEC) and the Federal bank examination agencies released
the new interagency "Bank Secrecy Act Anti-Money Laundering Examination
Manual".  The manual emphasizes a
banking organization's responsibility to establish and implement risk-based
policies, procedures, and processes to comply with the Bank Secrecy Act and
safeguard its operations from money laundering and terrorist financing.   It is a compilation of existing regulatory
requirements, supervisory expectations, and sound practices for Bank Secrecy
Act/Anti-Money Laundering (BSA/AML) compliance.  An effective BSA/AML compliance program requires sound risk
management; therefore, the manual also provides guidance on identifying and
controlling risk associated with money laundering and terrorist financing.  The development of this manual was a
collaborative effort of the federal banking agencies and the Financial Crimes
Enforcement Network (FinCEN), a bureau of the U. S. Department of the Treasury,
to ensure consistency in the application of the BSA/AML requirements and
consistent examinations of banking organizations.

The specific examination
procedures performed will depend on the BSA/AML risk profile of the banking
organization, the quality and quantity of independent testing, the financial
institutions history of BSA/AML compliance and other relevant factors.   First Citizens has implemented effective
risk-based policies and procedures that reinforce existing practices and
encourages a vigilant determination to prevent the institution from becoming
associated with criminals or being used as a channel for money laundering or
terrorist financing activities.

USA
PATRIOT ACT OF 2001

On October 26, 2001, President
Bush signed into law the USA Patriot Act of 2001.  The law enhances the powers of the federal government and law
enforcement organizations to combat terrorism, organized crime and money
laundering.   The Patriot Act
significantly amends and expands the application of the Bank Secrecy Act, including
enhanced measures regarding customer identity, new suspicious activity
reporting rules and enhanced anti-money laundering programs.  Under the Act, each financial institution is
required to establish and maintain anti-money laundering programs, which
include, at a minimum, the development of internal policies, procedures, and
controls; the designation of a compliance officer; an ongoing employee training
program; and an independent audit function to test programs.  In addition, the Act requires the bank
regulatory agencies to consider the record of a bank or banking holding company
in combating money laundering activities in their evaluation of bank and bank
holding company merger or acquisition transactions.  Regulations proposed by the U.S. Department of Treasury to
effectuate certain provisions of the Patriot Act provide that all transaction
or other correspondent accounts held by a U.S. financial institution on behalf
of any foreign bank must be closed within ninety days after the final
regulations are issued, unless the foreign bank has provided the U.S. financial
institution with a means of verification that the institution is not a shell
bank. First Citizens National Bank implemented policies and procedures in
compliance with stated regulations of the Patriot Act.

-7-

---

FEDERAL DEPOSIT INSURANCE REFORM ACT
OF 2005

After six years, the Federal
Deposit Insurance Reform Act of 2005 (FDIRA) was passed on February 8, 2006, as
part of the Deficit Reduction Act of 2005. 
The primary components of FDIRA are as follows:  merges the two major funds into a new
Deposit Insurance Fund, raises coverage on retirement accounts to $250,000, establishes
indexing insurance levels for inflation, caps the fund, sets up a system of
dividends, gives banks credit for past payments to the fund and provides for
flexibility if the fund should ever face financial difficulty.  The FDIC is required to implement most of
the provisions of FDIRA by November 5, 2006.

CUSTOMER INFORMATION SECURITY AND CUSTOMER FINANCIAL PRIVACY

The Board of Governors of the
Federal Reserve System published guidelines for Customer Information Security
and Customer Financial Privacy with a mandatory effective date of July 1,
2001.  First Citizens has established
policies in adherence to the published guidelines.

The three principal requirements
relating to the Privacy of Consumer Financial Information in the Gramm
Leach-Bliley Act (GLBA) are as follows:

- Financial institutions must provide customers with notices
     describing their privacy policies and practices, including policies with
     respect to disclosure of nonpublic personal information to affiliates and
     to nonaffiliated third parties. Notices must be provided at the time the
     customer relationship is established and annually thereafter.
- Subject to specified exceptions, financial
     institutions may not disclose nonpublic personal information about
     consumers to any nonaffiliated third party unless consumers are given a
     reasonable opportunity to direct that such information not be shared (to "opt out").
- Financial institutions generally may not disclose
     customer account numbers to any nonaffiliated third party for marketing
     purposes.

The Customer Information Security
guidelines implement section 501(b) of GLBA. 
The act requires the agencies to establish standards for financial
institutions relating to administrative, technical and physical safeguards for
customer records and information.

The guidelines require financial
institutions to establish an information security program to:

- Identify and assess the risks that may threaten
     customer information;
- Develop a written plan containing policies and
     procedures to manage and control these risks;
- Implement and test the plan; and
- Adjust the plan on a continuing basis to account for
     changes in technology, the sensitivity of customer information, and
     internal or external threats to information security.

Each institution may implement a
security program appropriate to its size, complexity, nature and scope of its
operations.  First Citizens National
Bank has structured and implemented a financial security program that complies
with all principal requirements of the act.

Monetary policies of regulatory
authorities, including the Federal Reserve have a significant effect on
operating results of bank holding companies and their subsidiary banks.  The Federal Reserve regulates the national
supply of bank credit by open market operations in United States Government
securities, changes in the discount rate on bank borrowings, and changes in
reserve requirements against bank deposits. A tool once extensively used by the
Federal Reserve to control growth and distribution of bank loans, investments
and deposits has been eliminated through deregulation.  Competition, not regulation, dictates rates,
which must be paid and/or charged in order to attract and retain customers.

Federal Reserve monetary policies
have materially affected the operating results of commercial banks in the past
and are expected to do so in the future. 
The nature of future monetary policies and the effect of such policies
on the business and earnings of the company and its subsidiaries cannot be
accurately predicted.

-8-

---

INSURANCE ACTIVITIES

Subsidiaries of Bancshares sell
various types of insurance as agents in the State of Tennessee.  Insurance activities are subject to
regulation by the states in which such business is transacted.  Although most of such regulation focuses on
insurance companies and their insurance products, insurance agents and their activities
are also subject to regulation by the states, including, among other things,
licensing and marketing and sales practices.

ITEM
1A. RISK FACTORS

The asset value and earnings of First Citizens
Bancshares, Inc. (Company) and its subsidiaries as well as the value of its
common stock is subject to various types of risks.  The ability of the Company to continue its history of strong
financial performance and return on investment is dependent on the ability to
continue to effectively manage its risks. 
Three of such risks include but are not limited to interest rate risk,
competition, and supervision and regulation.

Interest income on loans and
investments is the largest source of income and interest expense on deposits
and borrowings is the largest expense of the Company.  The level and volatility of interest rates directly impact the
Company's earnings.  Interest rates are
largely driven by the monetary policies set by the Federal Open Market
Committee (FOMC) and the shape of the yield curve.  The FOMC sets interest rates to influence the cost and
availability of money and credit to help promote national economic goals.  The shape of the yield curve is the
relationship of shorter-term rates to longer-term rates.  The FOMC began a series of rate increases that
resulted in the Federal Reserve's discount rate being raised from 1.00% to 4.50%
from June 2004 to January 2006.  Short
term rates have increased steadily with the increases in the Federal funds
rates but longer term rates have lagged behind resulting in a flattened and
then inverted yield curve by the end of 2005. 
The behavior of short-term rates compared to long-term rates over the
last two years has compressed the net interest margin of Bancshares and many
other financial institutions.  The
unrealized gains and losses on securities available-for-sale are also heavily
influenced by the fluctuations in interest rates and the yield curve.  The changes in such unrealized gains and
losses have an effect on the accumulated other comprehensive income component
of equity.

Competition is another
significant factor that directly affects the net interest margin and therefore
overall earnings of the Company.  The
Company must be able to compete in its markets in order to remain
profitable.  Competition is often
intense in the pricing of both loans and deposits and can lead to reduced earnings
if the Company has to earn less on loans or pay more on deposits in order to
compete against not only other financial institutions but also credit unions,
brokers, mortgage bankers, investment advisors, insurance companies and finance
companies.  Changes in technology and
regulation, the trend of consolidations in the financial services industry, and
competition for experienced, qualified employees also affect the Company's
ability to compete.

The Company is subject to
extensive regulation including banking and financial services laws, tax
legislation, accounting standards and interpretations thereof.  Legislation introduced at the state and
national levels can impact the banking industry and its operating environment
substantially.  The Company cannot
determine whether such legislation will be enacted or the ultimate impact on
the Company's financial position or earnings.

-9-

---

ITEM
1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.     PROPERTIES

First Citizens owns and
occupies the followings properties:

- Main branch and executive offices are in six-story
     building at One First Citizens Place (formerly 200 West Court), Dyersburg,
     Tennessee.  This property also
     includes the Banking Annex, which has a municipal address of the bank
     occupied portion of 215-219 Masonic Street.  The Annex is currently under major renovations to become a
     new operations center.  The Annex
     previously provided operating space for banking departments i.e.
     agricultural services, training and public relations, as well as the
     bank's brokerage subsidiaries. 
     These departments have been relocated to the Main Bank and the
     brokerage subsidiary has been relocated to a leased facility.  Once the renovations are completed, the
     bank operations, information technology, call center, bank security, and
  mail room departments will be housed there.
- The Downtown Drive-Thru Branch is located at 113
     South Church Street, Dyersburg, Tennessee, and is a remote motor bank with
     six drive-thru lanes and a drive-up ATM lane.
- The Green Village Office located at 620 U.S. 51
     Bypass adjacent to the Green Village Shopping Center in Dyersburg, Tennessee,
     is a full service banking facility. 
     This facility is equipped with seven drive-up lanes, one of which
     is an ATM.
- The Newbern Branch, a full service facility is
     located on North Monroe Street, Newbern, Tennessee.
- The Industrial Park Branch located at 2211 St. John
     Avenue, Dyersburg, Tennessee, is a full service banking facility that
     offers drive-thru Teller and ATM services.
- The Ripley, Lauderdale County facility is located at
     316 Cleveland Street in Ripley, Tennessee.  This full service facility has four drive-up lanes and a
     twenty-four hour access drive-up ATM.
- The Troy Branch is full service banking facility
     located on Harper Street just west of Highway 51 in Troy, Tennessee.  This facility has three drive-up lanes
     and a twenty-four hour access drive-up ATM.
- The Union City branch operates two full service
     facilities, a motor branch and three ATM's in Obion County.  The main office is located at 100
     Washington Avenue in Union City, Tennessee.  A motor branch is located at First and Harrison Streets
     across from the main office.  The
     East branch facility and ATM are located at 1509 East Reelfoot Avenue in
     Union City.
- The Martin office is located at 200 University
     Avenue, Martin, Tennessee, and is a full service banking facility with four
     drive-thru service lanes with the fourth lane serving as an ATM.  Two other ATMs offer banking services,
     one a drive-up on University Avenue and a second occupies space in the
     Student Center of The University of Tennessee at Martin.
- The Munford, Tennessee branch is located at 1426
     Munford Avenue.  A remote building
     located at 1483 Munford Avenue serves as a drive-thru facility.
- Atoka full service branch is located on the
     Atoka-Idaville Road at 123 Atoka-Munford Avenue, Atoka, Tennessee.  The Atoka Branch also has an ATM.
- Millington Branch is a full service branch facility
     located at 8170 Highway 51 N. Millington, Shelby County, Tennessee.  The Millington Branch has a drive-thru
     ATM.
- Full service Bartlett branch is located at 7580
     Highway 70, Bartlett, Shelby County, Tennessee.  A drive-thru ATM is attached to the facility.
- Arlington branch located at 5845 Airline Road,
     Arlington, Tennessee serves as a full service branch facility and houses a
     drive thru ATM.
- The permanent facility for a full-service Oakland
     branch was opened in February 2005 at 7285 Highway 64, Oakland, Fayette
     County, Tennessee.  A drive-thru
     ATM is attached to the facility.
- The Collierville, Tennessee
  branch opened in first quarter
     2005 and operated in a leased temporary facility. The permanent facility
     was completed in January 2006.  The
     permanent facility is located at 3668 South Houston Levee in Collierville
     and includes a drive-thru ATM.

All properties are owned by First
Citizens and there are no liens or encumbrances against any properties owned by
First Citizens. All of the properties described above are adequate and
appropriate facilities to provide banking services as noted and are adequate to
handle growth expected in the foreseeable future.  As growth continues or needs change, individual property
enhancements or additional properties will be evaluated if considered
necessary.

-10-

---

ITEM 3.     LEGAL PROCEEDINGS

Various legal claims arise from
time to time through the normal course of business of the Company and its
subsidiaries.  There is no pending or
threatened litigation as of December 31, 2005.

ITEM 4.     SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the
year ending December 31, 2005, there were no meetings, annual or special, of
the shareholders of Bancshares. No matters were submitted to a vote of the
shareholders nor were proxies solicited by management or any other person.

PART II

ITEM 5.     MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of December 31, 2005, there were
1,062 shareholders of Bancshares' stock. Bancshares common stock is not
actively traded on any market. Per share prices reflected in the following
table are based on records of actual sales during stated time periods of which
management of Bancshares is aware. These records may not include all sales
during these time periods if sale prices were not reported to First Citizens in
connection with a transfer of shares. 
Range of stock prices for 2005 and 2004 by quarter is as follows:

Quarter Ended
    
    Low
    HighMarch 31,
      2004
    $  
      27.50
    $ 
      30.00June 30,
      2004
    $  
      28.00
    $ 
      30.00September 30,
      2004
    $  
      28.00
    $ 
      30.00December 31,
      2004
    $  
      28.50
    $ 
      31.00March 31,
      2005
    $  
      31.00
    $ 
      32.75June 30,
      2005
    $  
      31.00
    $ 
      32.00September 30,
      2005
    $  
      32.00
    $ 
      32.00December 31,
      2005
    $  
      32.00
    $ 
      33.00




Dividends paid per share
were $1.12 in 2005, $1.12 in 2004, and $1.08 in 2003.  Dividends by quarter for
2005 were declared as follows:



QuarterDeclared
    2005    
 DividendsPer Share
    2004    
 DividendsPer ShareFirst
      Quarter
    $  .28
    $  .28Second
      Quarter
    $  .28
    $  .28Third
      Quarter
    $  .28
    $  .28Fourth
      Quarter
    $  .28
    $  .28Total
    $1.12
    $1.12====
    ====


Future dividends will depend on
Bancshares' earnings, financial condition, regulatory capital levels and other
factors, which the Board of Directors of Bancshares considers relevant.

-11-

---

The Company had no publicly
announced plans or programs for purchase of stock during the periods
presented.  The number of shares of
treasury stock repurchased in open-market transactions not pursuant to publicly
announced plans or programs and the average price paid by month is as follows:

No. of Shares   Purchased
    Weighted      
      Average Price Paid Per Share2005January
    2,075
    $ 
      31.00February
    6,194
    31.00March
    -
    -April
    -
    -May
    531
    32.00June
    3,125
    32.00July
    3,260
    32.00August
    73
    32.00September
    1
    32.00October
    -
    -November
    -
    -December
    -
    -Total 2005
    15,259
    $
      31.46=====
    =====2004January
    2,535
    $ 
      28.00February
    -
    -March
    -
    -April
    474
    28.00May
    1
    28.50June
    1
    28.50July
    1,075
    29.22August
    -
    -September
    -
    -October
    -
    -November
    2,230
    31.00December
    249
    31.00Total 2004
    6,565
    $
      29.33=====
    =====


The Company sold 435 shares of treasury stock in 2005 at a
weighted average price of $31.22 per share. Proceeds from such sales were used
to reacquire additional treasury shares.

ITEM 6.     SELECTED FINANCIAL DATA

The following table
presents selected financial data for Bancshares for the twelve months ended
December 31, for the years indicated:

2005



2004



2003



2002



2001(Dollars in
      thousands, except per share data)Net Interest & Fee Income
    $   
      26,922



    $   
      25,668



    $   
      25,354



    $   
      24,262



    $    19,917Gross Interest Income
    $   
      44,614



    $   
      39,017



    $    39,506



    $   
      38,970



    $    39,189Income From Continuing Operations
    $     
      8,665



    $     
      8,049



    $     
      7,820



    $     
      7,838



    $     
      5,761Net Income Per Common Share
    $     
        2.38



    $     
       
      2.20



    $     
       
      2.14



    $     
       
      2.14



    $     
        1.56Cash Dividends Declared
      Per Common Share
    $     
       
      1.12



    $     
       
      1.12



    $     
       
      1.08



    $     
       
      1.04



    $     
        1.00Total Assets at Year End
    $  815,749



    $  773,204



    $  726,104



    $  694,198



    $  537,991Long Term Obligations (1)
    $   
      78,128



    $   
      84,481



    $   
      83,314



    $   
      83,881



    $   
      63,075Allowance For Loan Losses as a % Loans
    1.25%



    1.16%



    1.25%



    1.24%



    1.08%Allowance For Loan Losses as a % of
            Non-Performing Loans
    349.36%



    262.25%



    438.36%



    144.31%



    141.97%Loans 90 Days Past Due as a % of Loans
    0.36%



    0.44%



    0.04%



    0.37%



    0.33%


(1)    Long-Term
Obligations consist of FHLB advances and acquisition debts funded by a line of
credit with First Tennessee Bank and trust-preferred securities.

-12-

---

ITEM 7.     MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

See Banking Business under Item 1 of
this report regarding details of subsidiaries of the bank and holding company
and what types of activities each engage in.

FORWARD LOOKING STATEMENTS

Management's discussion may contain
forward-looking statements with respect to Bancshares' beliefs, plans, goals
  and estimates. Forward-looking statements are necessarily based upon estimates
  and assumptions that are inherently subject to significant banking, economic,
  and competitive uncertainties, many of which are beyond management's control.
  When used in this discussion, the words "anticipate,"
  "project," "expect," "believe,"
  "should," "intend," "is likely," "going
  forward" and other expressions are intended to identify forward-looking
  statements. These forward-looking statements are within the meaning of section
  27A of the Securities Exchange Act of 1934. Such statements may include, but
  are not limited to, projections of income or loss, expenses, acquisitions,
  plans for the future and others.

Forward-looking statements are based
upon information currently available and represent management's expectations or
predictions of the future. Due to risks and uncertainties involved, actual
results could differ materially from such forward-looking statements. Examples
of such risks and uncertainties include but are not limited to:

- Changes in general economic and
    business conditions that are not anticipated and result in changes in loan
    and deposit demands and/or increases in loan delinquencies and defaults;
- Changes in market rates and prices
    may adversely impact the value of securities, loans, deposits and other
    financial instruments;
- Effect of changes in legislative or
    regulatory developments including changes in tax, banking, insurance,
    securities, or other financial service related laws.

EXECUTIVE
SUMMARY

The 2005 financial performance of
Bancshares and its subsidiaries remains strong and consistent with the prior
two years as evidenced by a return on equity of 13.71% compared to 13.56% and
13.88% in 2004 and 2003, respectively. 
Return on assets is 1.10%, 1.08% and 1.09% for 2005, 2004, and 2003,
respectively.  Earnings per share
increased to $2.38 for the year ended December 31, 2005 from $2.20 per share in
2004.  The increase in earning assets
coupled with the rising rate environment contributed to the overall increase in
earnings per share.

Loans are the single largest
category of interest-earning assets at First Citizens and produce the highest
level of revenues.  At December 31,
2005, loans, net of unearned income totaled $547 million.  Growth in the portfolio in 2005 slowed to
2.34% compared to growth of 8%-10% each of the two prior years.  Factors contributing to slower growth are
increasing economic pressures in our markets, rising rate environment, market
competition and strict asset quality standards.  First Citizens' commitment to asset quality is demonstrated by
non-performing assets totaling well below one percent of total loans the last
three years.  Other Real Estate Owned
has been very low the last two years at $129 thousand in 2005 and $337 thousand
in 2004.  Net charge-offs in 2005 also
continued at a very manageable level of $468 thousand as compared to $822
thousand in 2004.

The dividend payout ratio in 2005
was 47.06% and the dividend yield of 3.61% continues to exceed peer group banks
in the Southeast region by a significant margin.  Our goal continues to be providing shareholder returns that
exceed peer group banks and is achieved by focusing efforts on deploying
capital resources in a manner that supports long-term shareholder value.  The investments in the metropolitan
Southwest Tennessee markets afforded the company opportunities to expand the
customer base and extend the First Citizens brand outside of Northwest
Tennessee.  This prudent utilization of
capital will support future growth and development of both assets and earnings.

The most significant factor
critical to the success of our Company is not quantitative, but rather the
quality of the over 260 members of our staff. 
First Citizens focuses on attracting and retaining quality bankers and
the success of such efforts is measured by their tenure.  The average tenure of the overall staff is
more than ten years and the average tenure of officers with the position of
vice-president and higher is over 17 years.

-13-

---

CRITICAL ACCOUNTING
POLICIES

The accounting and reporting of
First Citizens Bancshares and its subsidiaries conform to accounting principles
generally accepted in the United States and follow general practices within its
industry.  The preparation of these
financial statements requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The company's estimates are based on historical experience, information
supplied from professionals, regulators and others believed to be reasonable
under the facts and circumstances. 
Accounting estimates are considered critical if (1) management is
required to make assumptions or judgments about items that are highly uncertain
at the time the estimate is made, and (2) different estimates reasonably could
have been used during the current period or changes in such estimates are
reasonably likely to occur from period to period, that could have a material
impact of the presentation of the Consolidated Financial Statements.

The development, selection and
disclosure of critical accounting policies are discussed with the Audit
Committee of the Board of Directors. 
Due to the potential impact on the financial condition or results of
operations and the required subjective or complex judgments involved,
management believes its critical accounting policies to consist of the
allowance for loan losses, fair value of financial instruments, and goodwill
and assessment of impairment.

ALLOWANCE FOR LOAN
LOSSES



The allowance for loan losses
represents management's best estimate of inherent losses in the existing loan
portfolio.  Management's policy is to
maintain the allowance for loan losses at a level sufficient to absorb
reasonably estimated and probable losses within the portfolio.  The company believes the loan loss reserve
estimate is a critical accounting estimate because:  changes can materially affect bad debt expense on the income
statement, changes in the borrower's cash flows can impact the reserve, and
management has to make estimates at the balance sheet date and also into the
future in reference to the reserve. 
While management uses the best information available to establish the
allowance for loan losses, future adjustments may be necessary if economic or
other conditions change materially.  The
Loan Portfolio Analysis included in this Management's Discussion and Analysis
provides further detail regarding how loans are monitored and evaluated in
relation to the determination of the allowance for loan losses.  Also, refer to Note 1 of the Consolidated
Financial Statements included in Item 8 of this report.



FAIR VALUE OF FINANCIAL
INSTRUMENTS



Accounting principles generally
accepted in the United States require that certain assets and liabilities be
carried on the balance sheet at fair value. 
Furthermore, the fair value of financial instruments is required to be
disclosed as a part of the notes to the consolidated financial statements for
other assets and liabilities.  Fair
values are volatile and may be influenced by a number of factors, including
market interest rates, prepayment speeds, discount rates, the shape of yield
curves and the credit worthiness of counter parties.

Fair values for the majority of
First Citizens' available-for-sale investment securities are based on quoted
market prices from actively traded markets. 
In instances where quoted market prices are not available, fair values
are based on the quoted prices of similar instruments with adjustment for
relevant distinctions (e.g., size of issue, interest rate, etc.).

Fair value of the only derivative
held by the company is determined using a combination of quoted market rates
for similar instruments and quantitative models that are based on market inputs
including rate, price and index scenarios to generate continuous yield or
pricing curves and volatility factors. 
Third party vendors are used to obtain fair value of available-for-sale
securities and the cash flow hedge.

See also the Fair Value of
Financial Instruments footnote in the Consolidated Financial Statements
included in Item 8 of this report.

GOODWILL



The Company's policy is to review
goodwill for impairment at the reporting unit level on an annual basis unless
an event occurs that would likely impair the goodwill amount.  Goodwill represents the excess of the cost
of an acquired entity over fair value assigned to assets and liabilities.  Management believes accounting estimates
associated with determining fair value, as part of the goodwill test is a
critical accounting estimate because estimates and assumptions are made based
on prevailing market factors, historical earnings and multiples and other
contingencies.  See also the Goodwill
footnote in the Company's  Consolidated
Financial Statements included in Item 8 of this report for additional policy
information.

-14-

---

RECENTLY ISSUED
ACCOUNTING STANDARDS



SFAS (Statement of Financial
Accounting Standard) No. 154 Accounting Changes and Error Corrections -This new
standard issued in May 2005 replaces SFAS No. 3 and APB Opinion No. 20 and changes requirements
for the accounting for and reporting of a voluntary change in accounting
principle and in the unusual instance that an accounting pronouncement does not
include specific transition provisions. 
This standard does not apply to accounting pronouncements with specific
transition provisions.  The effective
date of SFAS No. 154 is for fiscal years beginning after December 15,
2005.  Early adoption is permitted for
fiscal years beginning after the issuance date of the Statement (May 2005).  Adoption of this statement is not
expected to materially impact the Company's consolidated financial statements
in 2006 or beyond.

SFAS No. 153:  Exchanges of Nonmonetary Assets-an amendment
of APB Opinion No. 29- APB Opinion No. 29, Accounting for Nonmonetary
Transactions is based on the principle that exchange of nonmonetary assets
should be measured on fair value of assets exchanged.  SFAS No. 153 revises this statement to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges that do not have commercial substance that is
defined as significant change in future cash flows as a result of the
change.  This statement focuses on the
exception to exchanges that lack commercial substance and was implemented to
help improve consistency between U. S. standards and standards issued by
International Accounting Standards Board (IASB).  The provisions of SFAS No. 153 are effective for non-monetary
exchanges occurring in fiscal periods beginning after June 15, 2005.  Adoption of this statement did not
materially impact the Company's consolidated financial statements presented in
this report and is not expected to materially impact financials statements
going forward.

SFAS No. 123 (Revised 2004):  SFAS No. 123 (Revised 2004) Share-Based
Payment was revised to address concerns of users and others, improve
comparability of reporting financial information by eliminating alternative
accounting methods, simplify U. S. generally accepted accounting principles,
and converge with international accounting standards.  The Statement required public entities to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions).  The cost is to be recognized over the period
during which an employee is required to provide service in exchange for the
award or the requisite service period (usually the vesting period).  No compensation cost is recognized for
equity instruments for which employees do not render the requisite
service.  Employee share purchase plans
will not result in cost recognition if certain conditions are met as outlined
in No. 123.  The effective date for the
Company to adopt this statement is the first interim or annual reporting period
beginning after June 15, 2005.  The
Company currently does not issue equity instruments in exchange for employee
service, so adoption of this statement had no material impact on the Company's
financial statements.

RESULTS OF OPERATIONS

Return on average assets was
1.10%, 1.08%, and 1.09% for the years ending December 31, 2005, 2004 and 2003,
respectively.  The increase in the
return on average assets is directly attributable to overall increase in
earnings coupled with moderate growth of approximately 5.5% in total
assets.  Return on average equity is
13.71%, 13.56%, and 13.88% for 2005, 2004 and 2003, respectively.

Asset quality remains strong with
decreases in non-performing loans, other real estate and net charge-offs in
2005 compared to 2004.    Non-performing
loans and other real estate as a percent of total loans plus other real estate
at December 31, 2005 were 0.13 % less than at year-end 2004 and 0.22% less than
peer as reported in the December 31, 2005 Uniform Bank Performance Report for
Bancshares' subsidiary bank.  The Bank
is strategically committed to maintaining excellent asset quality but
recognizes that the current economic factors of its markets could lead to an
increase in non-performing asset trends in 2006 as the levels in 2005 were
extremely low.  Such economic factors
include but are not limited to increased fuel and energy costs, changes in
unemployment rates, consumer confidence and spending levels, and number of
customer bankruptcies.  Although
potential exists for a negative trend in non-performing assets in 2006 compared
to 2005, management does not expect this trend to be material.  The allowance for loan loss reserve as a
percent of non-performing assets was 327.74%, 229.54%, 316.97%, 99.21%, and
88.08% for the years 2005, 2004, 2003, 2002, and 2001, respectively.  Additions made to the reserve account as a
percent of net charge offs for 2005 was 167.56%. Other Real Estate Owned
declined 62% ending 2005 at $129 thousand. 
The increase in the provision for loan losses of $122 thousand in 2005
is primarily due to providing a reserve against overall loan growth and
consideration of a potential slightly negative trend in non-performing loans in
2006.  Net charge-offs in 2005 were $468
thousand compared to $822 thousand in 2004. 
The reserve for potential loan losses as a percent of total portfolio
ended the year at 1.25% and is within the range of 1.15% to 1.25% that has been
maintained the last five years and is comparable to peer range of 1.20% to
1.30% also over the last five years.

Bancshares reports consolidated
net income of $8.67 million for the year ended December 31, 2005 compared to
$8.0 million in 2004 and $7.8 million in 2003. 
Earnings per share increased to $2.38 per share for 2005 compared to
$2.20 per share for 2004 and $2.14 per share in 2003. Pressures exerted on the
net interest margins continue to be a factor. 
As evidenced in the cash flow statement, Bancshares continues to deploy
capital for purchases of premises and equipment totaling $5.9 million, $3.5
million and $5.3 million in 2005, 2004 and 2003, respectively.  The opportunity cost on these investments in
fixed assets is approximately $378 thousand based on the average yield on
earning assets of 6.42 percent, as the funds likely would have been invested in
loans or investments if fixed assets were not purchased.  Expansion costs of construction of new
branches are present in 2005, 2004 and 2003 with the construction of four new
branches over the last three years.  As
of January 2006, Martin and Arlington are operating at a profit and Oakland is
expected to be profitable by the end of 2006. 
Collierville is expected to become profitable during 2007.  Also in fourth quarter 2005, the Company
began major renovations of its annex building to the main headquarters in order
to convert this building into a new Operations Center.  The overall cost of the Operations Center is
expected to be approximately $2 million for the completion of this project.  This project is expected to be completed by
the end of the first quarter 2006 and will provide a means for an expedited
workflow, improved operational organization as well as improved protection and
uninterrupted power in case of a natural disaster.

-15-

---

The accompanying Summary Average
Balance Sheet and Net Interest Income Schedule indicate the net yield on
average earning assets is flat at 3.92% for year 2005 compared to 3.91% for
2004.  This is primarily due to the
fairly neutral position of the balance sheet in terms of interest rate
risk.  Thus, the increases in yields on
interest-earning assets were offset by increases in the costs of
interest-bearing liabilities during 2005. 
See Item 7A of this report for additional information regarding interest
rate risk and market sensitivity.

Net interest margins are a constant concern of financial
institutions.  Peer banks ($500 million
to $1 billion assets) including First Citizens National Bank have struggled
with margins which headed downward from summer of 2002 until 2004.  Liabilities were not able to keep pace with
the decline in earning assets, which was experienced until the third quarter of
2004.  From late June 2004 through
January 2006, the Federal Open Market Committee (FOMC) has consistently raised
federal funds rates from 1.00% to 4.50% with 25 basis point increases at each
meeting.  As shorter-term rates have
followed suit to the federal funds rates, the longer-term rates have not and
thus, the yield curve flattened and then has recently inverted near the end of
2005 and into 2006.  The 10-year Treasury
note, a common benchmark for long-term rates, has dropped from the 4.6% to 4.7%
range in June 2004 to the 4.3% to 4.4% range as of year-end.  The 2-year Treasury note is also in the 4.3%
to 4.4% range as of year-end.  As a
result of the behavior of the yield curve and competitive factors, pricing of
deposits and short-term liabilities outpaced the increase in loan and
investment rates in 2004 and into 2005. 
By third quarter 2005, loan yields finally began to catch up to the
increased costs of deposits and borrowings. 
Net interest income on tax equivalent basis has increased $1.4 million
over the prior twelve months resulting from asset growth.  The impact of the rising rate environment
resulted in flat net interest margin from 2004 to 2005 as loan yields lagged
behind the increased funding costs.  The
Company's funds management committee has strategically moved interest
sensitivity position of the balance sheet from a liability sensitive position
to a slightly asset sensitive position over the last two years.  Bancshares' balance sheet is structured in a
manner deemed to be fairly neutral but is slightly "asset sensitive." This
neutral position is also a major factor in the flat net interest margin 3.92%
in 2005 compared to 3.91% in 2004. 
Rising rate environment of 100 basis points over a 12-month period would
result in an increase in net interest income of $634,000 or 2.39%.  A declining rate of 100 basis points for the
same 12-month period would decrease net interest income approximately $1
million or negative 3.79%.

Secondary mortgage activity has
been a significant factor in loan fee income over the last several years.  This trend is consistent with the overall
market as consumers opted to take advantage of the low rate environment by
purchasing or refinancing existing home mortgages at record levels.  Gross income and fees recorded from this
activity totaled $1.2 million in 2005, $1.0 million in 2004 and $1.7 million in
2003.  Refinance activity is expected to
slow during 2006 depending on activity in newer markets served.

The effective tax rate is 26.3%
in 2005 compared to 28% in both 2004 and 2003.  The effective tax rate and changes therein are impacted by fluctuations
in certain factors, including but not limited to the level of tax-free investments
within our investment portfolio, tax-exempt earnings on bank owned life
insurance policies, certain tax benefits which result from ESOP dividends and
payouts, and other factors incidental to the financial services business.

NON-INTEREST INCOME

The following table
compares non-interest income for the years ended December 31, 2005, 2004 and
2003:

Non-Interest
        IncomeYear
        Ended December 31ChangeFrom Prior Year(In
        Thousands)Total
        2005
      Increase
        (Decrease)Amount
      Percentage
      Total
        2004
      Increase (Decrease)Amount
      Percentage
    
      Total
        2003
  Service Charges on 
              Deposit Accounts
    $  5,952
    $  393
    7.07%
    $  5,559
    $  646
    13.15 %
    $  4,913Trust Fees
    963
    17
    1.80%
    946
    160
    20.36
      %
    786Brokerage
    1,307
    147
    12.67%
    1,160
    282
    32.12
      %
    878Earnings
      on Bank Owned 
           Life Insurance Policies
    914
    471
    106.32%
    443
    (253)
    (36.35)%
    696Other
    1,708
    422
    32.81%
    1,286
    (257)
    (16.66)%
    1,543Total Non-interest
                 Income
    $  10,844
    $  1,450
    15.44 %
    $  9,394
    $  578
    6.56 %
    $  8,816======
    ======
    =======
    ======
    ======
    =======
    ======


Non-interest income increased
$1.45 million or 15.44% when comparing 2005 results to 2004.  In the year 2005, non-interest income (fee
income) contributed 19.5% of total revenue compared to 19.4% and 16.47% for the
same periods in 2004 and 2003, respectively. 
Over the last several years, non-interest income has been a significant
source of income especially when interest rates are low.  All of the major categories of non-interest
income contributed to the overall increase of $1.45 million including service
charges on deposits, brokerage income, earnings on bank owned life insurance
and Bancshares' proportionate share of income from the full service insurance
subsidiary.  Overdraft fees are the largest
component of service charges on deposit accounts.  The increase in service charges is proportionate to the increase
in overall deposits during 2005. 
Brokerage fees have increased as a result of further development of
brokerage services in our newer markets, which began in 2004 and improved
condition of financial markets.

The largest increase in
non-interest income was derived from an increase in earnings from bank owned
life insurance due to a $260 thousand death benefit received on a policy inherited
through a prior bank acquisition coupled with in increase in 2005 of the cash
surrender value of certain policies that had a decrease in value during
2004.

Income from First Citizens/White and Associates Insurance Company, LLC
is included in other non-interest income.  
In 2004, this subsidiary brought suit to protect certain rights and
earnings in 2004 were down due to related legal fees incurred.  Settlement
of the subsidiary's litigation occurred early in 2005 in favor of the
subsidiary and First Citizens' portion of the gain of approximately $150,000
was recorded in first quarter of 2005. 
The settlement of the suit along with an overall increase in revenue
from the company contributed approximately $400 thousand of the overall
positive variance in non-interest income.  
Bancshares' portion of other non-interest income generated by
First Citizens/White and Associates Insurance Company, LLC for the years ending
2005, 2004, and 2003 totaled $709,000, $315,000, and $434,000,
respectively.

-16-

---

NON-INTEREST EXPENSE

The following table compares
  non-interest expense for the years ended December 31, 2005, 2004 and 2003:

Non-Interest ExpenseYear Ended December 31,Changes
      in Non-Interest Expense(In
      Thousands)Increase
      (Decrease)
    
    Increase
      (Decrease)Total
      2005
    Increase 
    (Decrease)Amount
    Percentage
    Total
      2004
    Increase 
    (Decrease)Amount
    Percentage
    Total
      2003Salaries & Employees
           Benefits
    $ 14,506
    $  1,776
    8.82%
    $ 13,330
    $  777
    6.19%
    $ 12,553Occupancy Expense
    4,287
    384
    9.84%
    3,903
    88
    2.31%
    3,815Other Operating
         Expense
    6,162
    560
    10.00%
    5,602
    (156)
    (2.71)%
    5,758Total Non-Interest
                 Expense
    $ 24,955
    $  2,120
    9.28%
    $ 22,835
    $  709
    3.20%
    $ 22,126======
    ======
    =======
    ======
    ======
    =======
    =====




The non-interest expense category
is dominated by salaries and benefits expense and comprises 58 percent of the
total in years 2005 and 2004, and 56 percent in year 2003.  Employees receive performance based
incentives based on factors including accomplishing a certain Return on Equity
level (calculated excluding incentives at the bank level), accomplishing annual
budget goals and attaining or exceeding business development goals.  Incentive pay totaled 11.89% of salaries and
benefits compared to 11.24% in 2004 and 10.93% in 2002.  The increase in employee salaries and
benefits is primarily due to hiring additional staff necessary to support
growth and expansion into new markets as well as overall increases in salaries
of existing employees.  The significant
expense associated with salaries and benefits is consistent with Bancshares'
strategic plan to hire and retain high quality employees to provide outstanding
customer service and strive for exceptional shareholder returns.  The efficiency ratio is a measurement of
non-interest expense as a percentage of total revenue.  A comparison of the efficiency ratio for the
years 2005, 2004 and 2003 reflects ratios of 64.62%, 65.46% and 63.19%,
respectively. The improvement in efficiency ratio is attributable to the
digestion of the three branches opened during 2003 and 2004.



The following table compares
assets per employee (in thousands) for Bancshares compared to peer.  Peer information is obtained from Uniform
Bank Performance Reports (UBPR) for the periods noted.



December 31,
      Assets Per Employee
      Assets Per EmployeePeer Group2005**
      $ 
        2,967
      $ 
        3,8602004**
      $ 
        2,903
      $ 
        3,7002003**
      $ 
        2,916
      $ 
        3,5402002**
      $ 
        2,712
      $ 
        3,4002001*
      $  2,637
      $  3,350


**     Peer Group $500 million to $1
billion. Peer group changed upon acquisition in 2002.
*       Peer Group $100 million to $500
million.

Comparison of assets per employee
for the Company compared to its peers reveals that the Company is more heavily
staffed than its counterparts.  This is
primarily a result of the growth through acquisitions and new branches that has
occurred over the last five years.  New
branches have an inefficient assets-per-employee ratio and thus, dilute the
total assets per employee ratio as compared to peer.  As expected, this comparison improved during 2005, as the
expansion has somewhat slowed with the addition of only one new branch in 2005
compared to three new branches over the prior two years.  Although improvements are expected as the
new branches grow, our commitment to the highest level of customer service may
continue to cause the Company to be less than peer in this area due to the
staff required to provide such a high level of customer service.

The 10% increase in net occupancy
expense including depreciation and data processing/computer expenses are a
result of four new branches over the past three years as well as technology
expenses necessary to upgrade and maintain the subsidiary bank's technology at
a level necessary to achieve a superior level of customer service.  While every effort will be made to ensure
efficiencies in these areas, the expansion and customer service strategies adopted
by the board will continue to exert pressure on occupancy and depreciation
expense as markets are expanded by future acquisitions and the establishment of
new branches.  The cost of the
Operations Center will also impact occupancy and depreciation expense going
forward.

Other operating expenses for 2005
increased approximately 10% from December 31, 2004 primarily due to the digestion
of newer branches and as a result of increasing regulatory burdens associated
with Sarbanes-Oxley and Bancshares becoming an accelerated filer with the SEC
during 2005.  Implementation costs for
this act were approximately $200,000 for the year ended December 31, 2005 and
include increased audit fees, fees paid to directors serving on Corporate
Governance Committee, additional personnel costs, consulting and technology
costs.  Advertising costs increased $197
thousand in 2005 due to strategic plans to improve the brand recognition of
First Citizens in its newer markets. 
Advertising costs are also expected to increase again in 2006 as First
Citizens continues its efforts to increase brand awareness with a focus on
promoting and providing exceptional customer experiences.

No impairment of goodwill has
been recognized since the adoption of SFAS 142 in 2002.  Goodwill is 1.45% of total assets and 18.58%
of total capital as of December 31, 2005.

-17-

---

COMPOSITION OF DEPOSITS

The average daily
amounts of deposits and rates paid on such deposits are summarized for the
three years ended December 31,2005, 2004 and 2003:

|Year Ended
      December 31,
      (In Thousands)
|--------------------------------------------------
|                                                  
|                                                  
|                                                  
|Non-Interest Bearing Demand Deposits              
|Savings Deposits                                  
|Time Deposits                                     
|Total Deposits                                    
|                                                  



Market share data for the
Tennessee Counties served by First Citizens is included in Item 1 Banking
Business of this report.  As noted in
Item 1, First Citizens is the market share leader in six of the seven counties
it serves with approximately 20% of the market share.  Shelby County is the one market that First Citizens participates
in but is not the leader due to the diversity and large number of institutions
in that market as well as the length of time that First Citizens has been
competing there.   First State Bank, a
competitor in markets of First Citizens was second in market share accounting
for approximately 18.5% of total deposits. 
Bancshares' average deposits for 2005 were $601 million at an average
rate of 2.08% compared to $565 million at an average rate of 1.53% in 2004 and
$545 million at an average rate of 1.76% in 2003.  The increase in the average cost of deposits is due to the impact
of the rising rate environment and competitive factors on time deposits.  The current market and competitive
environment has resulted in fierce competition in pricing of time
deposits.  First Citizens does not
compete solely on price as strategies are focused more on customer service to
attract and retain core deposit customers rather than time deposits.

The success of our overall
deposit strategies over the past two years resulted in net growth from $560
million at year-end 2003 to $592 million at year-end 2004 to $635 million at
year-end 2005.  Consistent with its
strategies to increase core deposits, the average deposits balances in the
previous table illustrate growth of core deposits in both the demand and
savings deposits.  In the current rate
environment, all markets have demanded a competitively priced interest-bearing
transaction account.  As a result
evidenced in our Statements of Cash Flows, transaction deposit accounts
increased approximately $19 million in 2005 and $20 million in 2004.  One of our deposit products is the Wall
Street checking account introduced first quarter 2001, which draws deposits
that in the past had flowed to a similar deposit account offered by brokerage
firms.  Wall Street accounts have been a
significant portion of savings deposits the last three years at $73 million for
year-end 2005, $77 million for year-end 2004, and $64 million for year-end
2003.  In 2005, First Citizens shifted
its emphasis from the Wall Street account to a money market account called the
First Rate account.  Balances in First
Rate accounts increased from $13.5 million to $29.1 million.  This increase offsets the $4 million
decrease in Wall Street accounts in 2005.  
First Citizens also continues to offer free checking to attract and
retain deposit relationships.

The fluctuation in time deposits
is evident by the variation between the 2005 year-to-date average balance of
$332 million and balance at year-end 2005 of $348 million.  In fourth quarter 2005, time deposits
increased approximately $19 million as a result of an increase in municipal time
deposits and brokered time deposits. 
Due to the fierce pricing in the time deposit market, First Citizens has
chosen to more heavily pursue core demand and savings deposits as opposed to
time deposits.  Maturity distribution of
time deposits reflects that approximately 80% of total time deposits in the
amount of $100,000 or more will reprice in the next twelve months.  Customers are hesitant to lock in rates on
time deposit accounts for longer than twelve months given a lack of stability
in the economy and competitive interest rate environment.

Core deposits serve as a source
of liquidity for Bancshares.  The
short-term borrowings table below reflects the maximum amount of borrowings at
any month end during the respective years. 
Short-term borrowings are used to manage fluctuations in liquidity based
on seasonality of agricultural production loans and other factors.  The maximum amount of borrowings in any
given month during 2005 was comparable to 2004 driven by the seasonality of
certain deposits and the agricultural loan portfolio.  See also the Short Term Borrowings footnote included in the
Consolidated Financial Statements in Item 8 of this report.

Long-term debt at the subsidiary
bank is primarily Federal Home Loan Bank Borrowings and reflects average volume
for 2005 of $73 million at an average rate of 4.87% compared to 2004 of $69
million at an average rate of 5.12% and to 2003 of $83.5 million at an average
rate of 5.18%. The average maturity for long-term borrowing is 5 years.  FHLB borrowings have various call features
ranging from 1 to 5 years and the maturities range from 2008 to 2011.  Under the current and forecasted rate
environments, none of these borrowings are likely to be called and therefore are
not included in current liabilities on the Consolidated Balance Sheet included
in Item 8 of this report.  Federal Home
Loan Bank borrowings are comprised of fixed rate positions ranging from 3.97%
to 6.55%.  Debt at Bancshares consists
of Correspondent debt and Trust Preferred debt that are affiliated with a prior
acquisition in 2002 and have variable rates. 
Bancshares has strategically reduced this debt subsequent to the 2002
acquisition by approximately $1.9 million. 
Liquidity management and long term borrowings are discussed within the
Liquidity section of this report.



-18-

---

SHORT TERM BORROWINGS

The following presents
short-term borrowing balances at year end, maximum borrowings at month end
during the year and average cost for the periods presented:

12/31/2005
      12/31/2004
  12/31/2003Amount Outstanding - End of Period
      $    1,000
      $    1,000
      $       967Maximum Amount of Borrowings at Any Month End
During the Year
      26,217
      25,732
      15,544Year-to-Date Daily Average
      6,527
      9,656
      2,364Weighted Average Cost
      3.54%
      1.43%
      1.14%


LONG TERM BORROWINGS

The following presents
average volumes, rates, maturities, and re-pricing frequencies for long-term
debt:



Average Volume
    Average
       Rate
    Average   Maturity
    Repricing
       FrequencyFHLB Borrowings
    $ 72,956
    4.87%
    5 years
  
  FixedCorrespondent Debt
    4,611
    4.62%
    1
      year
  
  VariableTrust Preferred Debt
    9,021
    6.42%
    27 years
  Variable


MATURITY DISTRIBUTION OF TIME DEPOSITS IN AMOUNTS OF $100,000 AND OVER

Deposits over $100,000 increased
$17.8 million or 11% from 2004 to 2005. 
The following table sets forth the maturity distribution of Certificates
of Deposit and other time deposits of $100,000 or more outstanding on the books
of the bank on December 31, 2005 and 2004.



December 31(In Thousands)2005
    2004Amount
    Percent
    Amount
    PercentMaturing in:3
      Months or Less
    $  
      56,725
    31.64%
    $  
      59,566
    36.89%Over 3
      Through 12 Months
    86,509
    48.25
    76,450
    47.34Over 12
      Months
    36,062
    20.11
    25,474
    15.77Total
    $
      179,296
    100.00%
    $
      161,490
    100.00%=======
    =======
    ========

    
    ======




-19-

---

SUMMARY - AVERAGE BALANCE SHEET AND NET
INTEREST INCOME ANALYSIS

The following presents
the year-to-date daily average balance sheet and net interest income analysis:



2005
    2004
    2003Average Balance
    Interest
    AverageRate
    Average Balance
    Interest
    AverageRate
    Average Balance
    Interest
    AverageRateASSETSINTEREST EARNING
      ASSETS:Loans (1) (2) (3)
    $ 538,789
    $ 37,991
    7.05%
    $ 513,678
    $ 33,302
    6.48%
    $ 474,956
    $ 34,055
    7.17%Investment Securities:Taxable
    117,487
    4,704
    4.00%
    117,835
    4,169
    3.54%
    109,170
    3,656
    3.35%Tax
      Exempt (4)
    40,567
    2,512
    6.19%
    38,064
    2,226
    5.85%
    37,223
    2,477
    6.65%Interest Earning Deposits
    711
    20
    2.81%
    732
    3
    0.41%
    547
    6
    1.10%Federal
      Funds Sold
    11,134
    241
    2.16%
    5,041
    74
    1.47%
    13,479
    154
    1.14%Total Interest Earning Assets
    $ 708,688
    $ 45,468
    6.42%
    $ 675,350
    $ 39,774
    5.89%
    $ 635,375
    $  40,348
    6.35%NON-INTEREST EARNING
      ASSETS:Cash and Due From Banks
    $  
      18,619
    
    
    $  
      15,835
    
    
    $  
      16,807Property and Equipment
    25,817
    
    
    22,293
    
    
    19,950Other Assets
    36,281
    
    
    33,332
    
    
    39,157Total Assets
    $ 789,405
    
    
    $ 746,810
    
    
    $ 711,289========

    
    

    ========

    


    ========
  LIABILITIES AND
      SHAREHOLDERS' EQUITYINTEREST-BEARING
      LIABILITIES:Savings Deposits
    $ 190,106
    $ 
      2,242
    1.18%
    $ 181,164
    $ 
      1,288
    0.71%
    $ 168,149
    $ 
      1,287
    0.77%Time Deposits
    331,973
    10,246
    3.09%
    311,671
    7,348
    2.36%
    313,562
    8,333
    2.66%Federal Funds
      Purchased and Other
          Interest Bearing Liabilities
    122,754
    5,204
    4.24%
    117,316
    4,713
    4.02%
    105,634
    4,532
    4.29%Total Interest Bearing Liabilities
    $ 644,833
    $17,692
    2.74%
    $ 610,151
    $13,349
    2.19%
    $ 587,345
    $ 14,152
    2.41%NON-INTEREST
      BEARING LIABILITIES:Demand Deposits
    $  
      78,586
    
    
    
    
    $  
      72,272
    
    

    
    $  
      62,836Other Liabilities
    2,788
    
    
    
    
    5,036
    
    

    
    4,780Total Liabilities
    $
      726,207
    
    
    
    
    $
      687,459
    
    

    
    $
      654,961Shareholders' Equity
    $  
      63,198
    
    
    
    
    $  
      59,351
    
    

    
    $  
      56,328TOTAL LIABILITIES
      AND 
         SHAREHOLDERS' EQUITY
    $ 789,405
    
    
    
    
    $ 746,810
    
    
    
    
    $ 711,289========
    
    
    
    
    ========
    
    

    
    ========NET INTEREST INCOME
    
    $ 27,776
    
    
    $ 26,425
    
    
    $ 26,196======

    


    ======

    


    ======
  NET YIELD ON AVERAGE
      EARNING ASSETS
    
    
    3.92%
    
    
    3.91%
    
    
    4.12%=====

    


    =====

    


    =====_____________________
      (1)  Loan totals are shown net of unearned income and loan loss
      reserves.
      (2)  Fee Income is included in interest income and the computations
      of the yield on loans.
      (3)  Includes loans on non-accrual status.
      (4)  Interest and rates on securities which are non-taxable for
      Federal Income Tax purposes are presented on a taxable equivalent basis.


Interest-earning assets at
year-end averaged $709 million at an average rate of 6.42% compared to $675
million at an average rate of 5.89% in 2004, and $635 million at an average
rate of 6.35% in 2003.  Interest bearing
liabilities at year end averaged $645 million at a cost of 2.74% compared to
$610 million at a cost of 2.19% in 2004, and $587 million at a rate of 2.41% in
2003.  The trends of balance sheet
growth and increasing rate environment continued in 2005 and are expected to
continue into 2006.

-20-

---

VOLUME/RATE
  ANALYSIS

The following table is an
analysis of the impact of the changes in balances and rates on interest income
and interest expense changes from 2005 to 2004 as well as from 2004 to 2003:

|                                                                                               | 2005 Compared
      to 2004 | 2004 Compared
      to 2003
|---------------------------------------------------------------------------------------------- | --------------------------- | ---------------------------
|                                                                                               | Due to Changes in:          | Due to Changes
      in:   
|                                                                                               | AverageVolume               | AverageRate                
|                                                                                               | (In
      Thousands)       
|Interest Earned On:                                                                            |                             |                            
|Loans                                                                                          | $ 
      1,771              | $ 2,918                    
|Taxable
      Investments                                                                      | (14)                        | 549                        
|Tax Exempt Investment Securities                                                               | 155                         | 131                        
|Interest Bearing Deposits with
      Other Banks                                               | (1)                         | 18                         
|Federal Funds Sold and
      Securities Purchased
            Under Agreements to Resell       | 132                         | 35                         
|TOTAL INTEREST EARNING ASSETS                                                                  | $ 
      2,043              | $ 3,651                    
|Interest Expense On:                                                                           |                             |                            
|Savings
      Deposits                                                                         | 105                         | 849                        
|Time
      Deposits                                                                            | 627                         | 2,271                      
|Federal Funds Purchased and
      Securities Sold Under
              Agreements to Repurchase | 231                         | 260                        
|TOTAL INTEREST EARNING LIABILITIES                                                             | 963                         | 3,380                      
|NET INTEREST EARNINGS                                                                          | $ 1,080                     | $    
      271            
|                                                                                               | ======                      | ======                     

The above table indicates the
balance sheet growth is the reason for the overall increase in net interest
earnings while the impact of the rising rate environment kept net interest
margins flat in 2005.

LOAN
PORTFOLIO ANALYSIS

The following compares the loan
portfolio mix as of year-end for the last five years:

December 31(In
    Thousands)2005
2004
2003
2002
2001Real Estate Loans:Construction
$   74,817
$   99,028
$   71,599
$   57,758
$   36,862Mortgage*
355,792
321,957
305,077
285,759
225,743Commercial, Financial and 
     Agricultural Loans
78,086
72,330
70,658
67,732
64,496Installment Loans to Individuals
37,761
38,550
37,401
39,089
39,200Other Loans
3,804
4,147
3,372
3,142
2,725TOTAL LOANS
$ 550,260
$ 536,012
$ 488,107
$ 453,480
$ 369,026======
=======
=======
=======
=======


*Includes mortgage loans to be
sold in secondary market.  Secondary
market mortgages total $3.0 million, $1.3 million, $2.4 million, $5.9 million,
and $4.0 million for 2005, 2004, 2003, 2002, and 2001, respectively.

-21-

---

CHANGES IN LOAN CATEGORIES

Loan growth was modest at 2.34%
for the year ended December 31, 2005. 
The following details the breakdown of that growth by category for 2005
(in thousands):

Increase  (Decrease)
    Percent   ChangeReal Estate Loans:Construction
    $ 
      (24,211)
    -24.45 %Mortgage
    33,835
    10.51 %Commercial, Financial and
           Agricultural
    5,756
    7.96 %Installment Loans to Individuals
    (789)
    -2.05 %Other Loans
    (343)
    -8.27 %TOTAL LOANS
    $ 
      14,248
    2.66 %=======
    ========


Total loans at December 31, 2005
were $550 million compared to $536 million at December 31, 2004 and $488
million at December 31, 2003.  Loans for
this discussion include loans that are sold in the secondary mortgage
market.  Loans to be sold in the
secondary mortgage market are separately classified in the Consolidated
Financial Statements included in Item 8 of this report.  Secondary market mortgages total $3.0
million, $1.3 million, $2.4 million, $5.9 million, and $4.0 million for 2005,
2004, 2003, 2002, and 2001, respectively. 
See also Notes 4, 5 and 6 of the Consolidated Financial Statements
included in Item 8 of this report. 
Interest and fees earned on secondary mortgage loans are included in
interest and fees on loans as discussed in this report.

Overall, loan growth was slower
in 2005 than 2004 and consisted primarily of growth centered in real estate
loans of $9.6 million or 2.29% and an increase in commercial loans (including
agricultural loans) of $5.8 million or 7.96%. 
The slowdown in growth is primarily due to flat overall growth in the
mature markets served by First Citizens. 
Construction and permanent financing of one to four family residential
loans has been the focus of the bank's marketing program over the past two
years with residential loan rates at the lowest point in many years.  Loan growth in 2004 and 2003 was 9.81% and
7.64%, respectively.  Loan growth in
2004 and 2003 is a result primarily of growth in the newer markets served.  Loan growth in 2002 from 2001 (excluding
acquisitions) increased only $14 million or 3.91 percent when comparing the
current period to December 2001.  Weaker
loan growth in 2005 can be attributed to the slowing economy and a tightening
in consumer credit underwriting standards. In spite of economic conditions,
overall loan portfolio quality remains high with approximately $431 million or
78 percent of total portfolio volume recorded in real estate loans; $78 million
or 14 percent in Commercial and Agricultural loans and $38 million or 7 percent
of total portfolio in installment loans to consumers.  Portfolio quality remains strong with the ratio of net charge
offs to average net loans outstanding for the years of 2005, 2004, and 2003 at
0.09%, 0.16%, and 0.08%, respectively. 
Non performing assets as a percent of total loans plus foreclosed
property at current year end represent 0.38% compared to 0.51% and 0.39% at
year end 2004 and 2003, respectively. 
The loan loss reserve as a percent of loans is 1.25% and is consistent
with the 1.15-1.25 percent range maintained over the past five years.  Overall, loan demand over the next twelve
months is expected to grow approximately 5 percent based on the expected economic
conditions of markets served and strategic objectives to grow and maintain
existing customer bases in markets served.

Unemployment rates for year-end
2005, 2004 and 2003 in counties in which Bancshares does business are as
follows:



2005
        2004
        2003Dyer
        5.6%
        5.8%
        6.4%Fayette
        8.6%
        12.0%
        N/ALauderdale
        7.8%
        10.0%
        13.7%Obion
        5.3%
        5.9%
        7.4%Shelby
        5.6%
        6.2%
        5.4%Tipton
        5.3%
        6.5%
        7.0%Weakley
        5.5%
        5.5%
        7.5%


Unemployment rates for the state
of Tennessee as of the end of each quarter of 2005 were 5.9%, 6.0%, 5.1%, and
5.4%, consecutively.

The following data details the
internally classified loans by category as of December 31, 2005 (in thousands):



Category
Total      
    Outstanding


    
Internally Classified
    Problem Loans% of CategoryResidential Real Estate
$   
187,329


    
$ 4,242
    2.26%Home Equity Lines
22,750


    
260
    1.14%Ag. Real Estate
29,184


    
198
    0.68%Commercial Real Estate
178,236


    
7,498
    4.21%Commercial Other
47,997


    
613
    1.28%Installment Loans


    
36,515
157
    0.43%




Internally classified loans are
those loans that have certain characteristics or circumstances that warrant
additional monitoring of credit quality and may require specific reserve
allocations as determined in accordance with SFAS No. 114.

Concentrations of credit are
defined in accordance with regulatory guidelines as 25 percent of gross capital
of the bank or $18,959,000 as of year-end 2005.  As of year-end 2005 and subsequently, there are no concentrations
of credit within the portfolio that represent one certain industry or a
specific type of loans within these categories.  Real estate loans account for approximately 78% of the total loan
portfolio.  Within real estate loans, residential
mortgage loans (including residential construction) are the largest category
comprising 39% of total loans, which historically have low loan loss
experience.  The following table lists
categories of real estate loans, volume and category type as a percentage of
total loans and loan policy limits established for each category:



Category

Volume
Actual   Percentage
Policy    PercentageAgricultural
  $   
29,422
5.43%
20.00%Land Acquisition
Development & 
    Commercial Construction
  12,987
2.40%
10.00%Commercial Permanent
  151,183
27.92%
30.00%Residential Construction
  49,637
9.17%
10.00%Residential Mortgage
  160,774
29.69%
40.00%


-22-

---

REPOSSESSED REAL PROPERTY:

The book value of repossessed
real property held by Bancshares was $129 thousand at December 31, 2005
compared to $337 thousand in 2004 and $535 thousand in 2003.  Foreclosed properties have been listed with
local realtors and a plan to market those properties is in place.

POLICY GUIDELINES

Loan Administration sets policy
guidelines approved by the Board of Directors regarding portfolio
diversification and underwriting standards. Loan policy also includes
board-approved guidelines for collateralization, loans in excess of loan to
value (LTV) limits, maximum loan amount, and maximum maturity and amortization
period for each loan type.  Policy
guidelines for loan to value ratios and maturities related to various
collateral are as follows:

Collateral
    
    Maximum  Amortization
    Maximum LTVReal Estate
    Various (see discussion)
    Various (see discussion)Equipment**
    5 Years
    75%Inventory
    5 Years
    50%Accounts Receivable
    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%.** New
      farm equipment can be amortized over seven years.


Diversification of the real
estate portfolio is a necessary and desirable goal of the real estate loan
policy.  In order to achieve and
maintain a prudent degree of diversity, given the composition of the market area
and the general economic state of the market area, Bancshares will strive to
maintain a real estate loan portfolio diversification.

Bancshares' policy is that no
real estate loan will be made (except in accordance with 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 LimitRaw Land
      65%Land Development or Farmland
      75%Construction:Commercial,
        Multi-family, and Other Non-residential
      80%1-4
        Family Residential
      80%Improved Property
      80%Owner-occupied 1-4
        Family and Home Equity
      80%Home Equity Lines
      90%Non-Owner Occupied 1-4
        Family Residential
      75%


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 80% 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:

- The request is fully documented to support the fact
     that other credit factors justify the approval of that particular loan as
     an exception to the LTV limit;
- The loan, if approved, is designated in the Bank's
     records and reported as an aggregate number with all other such loans
     approved by the full Board of Directors on at least a quarterly basis;
- The aggregate total of all loans so approved, including
     the extension of credit then under consideration, shall not exceed 65% of
     the Bank's total capital; and
- Provided further that the aggregate portion of these
     loans in excess of the LTV limits that are classified as commercial,
     agricultural, multi-family or non-1-to-4 family residential property shall
     not exceed 30% of the Bank's total capital.



-23-

---

AMORTIZATION SCHEDULES

Every loan must have a
documented repayment arrangement. While reasonable flexibility is
necessary to meet the credit needs of customers, in general all loans
should be repaid within the following time frames:

Loan Category
  Amortized PeriodRaw Land
      10 YearsConstruction:
      1
        YearCommercial,
        Multi-family, and Other Non-residential
      20 Years1-4
        Family Residential
      20 YearsImproved Property/Farmland
      20 YearsOwner-occupied 1-4
        Family and Home Equity
      20 Years


AVERAGE LOAN YIELDS

The average yield on loans of the
subsidiary bank for
the years indicated are as follows:

2005
    7.05%2004
    6.48%2003
    7.17%2002
    7.93%2001
    9.22%


The aggregate amount of unused
guarantees, commitments to extend credit and standby letters of credit was
approximately $108 million at year end. 
Other information in reference to commitments and standby letter of
credits is included in Note 18 of the Consolidated Financial Statements
included in Item 8 of this report.

LOAN
MATURITIES

Contractual
maturities of loans as of December 31, 2005, are as follows:

Due in One
      Year or Less
    Due After One
      Year
      but Within     Five Years
    Due After Five Years(In
      Thousands)Real Estate
    $ 
      122,268
    $  225,462
    $  
      82,879Commercial, Financial and Agricultural
    45,886
    31,367
    4,637All Other Loans
    11,734
    25,687
    340Totals
    $  179,888
    $  282,516
    $   87,856=======
    =======
    =======


Loans with Maturities After One Year for which:
                                                                                                       
(in thousands)
Interest Rates are Fixed or Predetermined                                    
$189,419
Interest Rates are Floating or Adjustable                                       180,953

The degree of interest rate risk to which a bank is
subjected can be controlled through a well managed asset/liability management
program.

Bancshares controls interest rate
risk by matching assets and liabilities, better explained by employing interest-sensitive
funds in assets that are also interest sensitive.  Bancshares is asset sensitive since assets reprice at a much
faster rate than liabilities.  This
means that in a rising rate environment (with a normal yield curve) of one to
two percent net income would improve, while a flat rate or a lower rate
environment would result in diluted interest rate margins and net income. In
recent years the interest rate environment as well as competitive pricing
strategies of Bancshares' competition has resulted in a transition in the loan
portfolio from primary floating or adjustable rates to a more predetermined or
fixed rate portfolio. Approximately $180 million or 33 percent of loans will
mature immediately or over the next twelve months, while $283 million or 51% of
outstanding loans will mature after one year, but within five years.  Only $87 million or approximately 16% of
outstanding loans bear maturities of greater than five years.

-24-

---

NON-PERFORMING LOANS

Non-accrual, Restructured and
Past Due Loans and Foreclosed Properties are as follows:

December 31(In Thousands)2005
2004
2003
2002
2001Non-accrual Loans
$  1,524
$  1,581
$  1,174
$  2,216
$  1,600Restructured Loans
--
--
--
--
--Foreclosed Property Other Real Estate
129
337
535
1,730
1,730Other Repossessed Assets
-
2
--
--
--Loans and Leases 90 Days Past Due and
Still 
    Accruing Interest
431
798
223
1,701
1,228Total
Non-Performing Loans and Other Assets
$  2,084
$  2,718
$  1,932
$  5,647
$  4,558======
======
=======
======
======Non-Performing Assets as a Percent of
Loans and Leases
    Plus Foreclosed Property at End of Year
0.38%
0.51%
0.39%
1.25%
1.23%Allowance as a Percent of:Non-Performing Assets
327.74%
229.54%
316.97%
99.21%
88.08%Gross Loans
1.25%
1.16%
1.25%
1.24%
1.08%Addition to Reserve as a
Percent of
Charge-Offs
167.56%
90.44%
237.80%
179.00%
118.10%Loans and Leases 90 days Past
Due as a Percent of Loans
      and Leases at Year End
0.36%
0.44%
0.04%
0.37%
0.33%Recoveries as a Percent of Gross Charge-Offs
25.95%
20.66%
55.38%
51.34%
30.98%




Non-performing assets consist of
non-accrual loans, restructured loans, foreclosed properties, and loans and
leases 90 days past due and still accruing interest.  Non performing assets as a percent of total loan portfolio at
December 31, 2005, 2004 and 2003 were $2.1 million or 0.38%, $2.7 million or
0.51%, and $1.9 million or .39% of total loans plus foreclosed property,
respectively.  Loans and leases 90 days
past due and still accruing interest total $431 thousand as of year-end 2005
compared to  $798 thousand as of
year-end 2004 and $223 thousand in 2003. 
The allowance for loan loss as a percent of non-performing assets was
328%, 230%, and 317%, as of December 31, 2005, 2004, and 2003,
respectively.  The allowance as a
percent of gross loans for the same time periods was 1.25%, 1.16% and
1.25%.  Overall portfolio quality
remains strong and the trend going forward is not expected to move in a
materially negative direction.

Categorization of a loan as
non-performing is not in itself a reliable indicator of potential loan loss.
The 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 of real or personal
property, including securities that have a realizable value sufficient to
discharge the debt (including accrued interest) in full, considered to be
proceeding in due course either through legal action, including judgment
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 are
adequately reserved for in the allowance for loan losses.

-25-

---

Interest income on loans is
recorded on an accrual basis.  The
accrual of interest is discontinued on all loans, except consumer loans, which
become 90 days past due, unless the loan is well secured and in the process of
collection. Consumer loans which become past due 90 to 120 days are charged to
the allowance for loan losses.  The
gross interest income that would have been recorded for the twelve months
ending December 31, 2005 if all loans reported as non-accrual had been current
in accordance with their original terms and had been outstanding throughout the
period is $96,000 compared to $94,000 for the same period in 2004.  Interest income on loans reported as ninety
days past due and on interest accrual status was $86,000 for 2005 and $69,000
for 2004.  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". 
Bancshares has no Restructured Loans for the period being reported.

Certain loans contained on the
Internally Classified Problem Loan List are not included in the listing of
non-accrual, past due or restructured loans. Management is confident that,
although certain of these loans may pose credit problems, any potential for
loss has been provided for by specific allocations to the Loan Loss Reserve
Account.  Loan officers are required to
develop a "Plan of Action" for each problem loan within their portfolio.
Adherence to each established plan is monitored by Loan Administration and
re-evaluated at regular intervals for effectiveness.



LOAN
LOSS EXPERIENCE AND RESERVE FOR LOAN LOSSES

(In Thousands)December 31,2005
2004
2003
2002
2001Average Net Loans Outstanding
$  538,789
$  513,678
$  411,890
$  359,296
$  330,468Balance of Reserve for Loan Losses at Beginning of Period
6,239
6,124
5,653
4,015
3,763Loan Charge-Offs
(632)
(1,036)
(919)
(1,743)
(2,017)Recovery of Loans Previously Charged Off
164
214
509
895
625Net Loans Charged Off
(468)
(822)
(410)
(848)
(1,392)Additions to Reserve Charged to Expense
1,059
937
975
1,518
1,644Changes Incident to Mergers
-
-
(94)
968
--Balance at End of Period
$     6,830
$     6,239
$     6,124
$     5,653
$     4,015======
======
======
======
======Ratio of Net Charge-Offs to Average Net Loans Outstanding
0.09%
0.16%
0.08%
0.20%
0.38%


The preceding table summarizes
activity posted to the Loan Loss Reserve Account for the past five years.  The summary includes the average net loans
outstanding; changes in the reserve for loan losses arising from loans charged
off and recoveries on loans previously charged off; additions to the reserve
which have been charged to operating expenses; and the ratio of net loans
charged off to average loans outstanding. 
Changes to the Reserve Account for the year just ended consisted of (1)
loans charged off of $632 thousand, (2) recovery of loans previously charged
off $164 thousand, and (3) additions to reserves totaling $1 million.

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 contractual
terms of the loan. Impairment means: 
(1) Impairment of a loan 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.  Bancshares will continue to follow
regulatory guidelines for income recognition for purposes of generally accepted
accounting principles, as well as regulatory accounting principles.

-26-

---

An annual review of the loan
portfolio to identify the risks will cover a minimum of 70% of the gross
portfolio less installment loans.  In
addition, any single note or series of notes directly or indirectly related to
one borrower which equals 25% of the banks legal lending limit are included in
the review.

In determining probable losses on
loans, management heavily weighs historical losses and how soon and accurately
management was able to identify such losses. 
If significant differences are evident, then justification is
addressed.  If probable losses are
detected then appropriate assets are identified as impaired, analyzed, and
specific allocations funded in order to avoid extraordinary charges to reserve.
It is incumbent upon loan administration to ensure that assets are graded for
quality in a timely manner and appropriate reserves maintained, based on
internal analysis. Local trends in sales tax receipts, unemployment, and
economic development are assessed quarterly and adjustments made to allowance
based on upward or downward trends to these elements. National economic
conditions are monitored but direct a much lesser impact on allowance
determination.  For analysis purposes,
the loan portfolio is separated into the following four classifications:

1.                  
Pass - Loans that have been reviewed and graded high quality
or no major deficiencies.

2.                  
Watch - Loans that because of unusual circumstances need to be
supervised with slightly more attention than is common.

3.                  
Problem - Loans that require additional collection efforts to
liquidate both principal and interest.

4.                  
Specific Allocation - Loans in total or in part in which a
future loss is possible.

Examples of factors taken into
consideration during the review are:

Industry or geographic economic
problems, sale of business, change of or disagreement among management, unusual
growth or expansion of the business, past due status of either principal or
interest for 90 days, placed on non-accrual or renegotiated status, declining
financial condition, adverse change in personal life, frequent overdrafts, lack
of cooperation by borrower, decline in marketability or market value of
collateral, insufficient cash flow, and inadequate collateral values.

Identification of impaired loans
from non-performing assets as well as bankrupt and doubtful loans is paramount
to the reserve analysis.  Special
allocations shall support loans found to be collateral or interest cash flow
deficient.  In addition an allowance shall
be determined for pools of loans including all other criticized assets as well
as small homogeneous loans managed by delinquency.

Accounting for adjustments to the
value of Other Real Estate when recorded subsequent to foreclosure is
accomplished on the basis of an independent appraisal. The asset is recorded at
the lesser of its appraised value or the loan balance.  Any reduction in value is charged to the
allowance for possible loan losses.  All
other real estate parcels are appraised annually and the carrying value
adjusted to reflect the decline, if any, in its realizable value.  Such adjustments are charged directly to
expense.

The following table identifies
charge-offs and recoveries by category for the years presented:

Year Ending December 31,
(In Thousands)Charge-Offs:


    
2005
2004
    2003

2002
2001Domestic:Commercial, Financial
& Agricultural
$       
(139)
$       
(459)
$     (139)
$    
(188)
$  
 (1,537)Real Estate - Construction
(242)
(115)
--
--
--Real Estate - Mortgage
(62)
(138)
(398)
(803)
(480)Installment Loans to
Individuals
& Credit Cards
(189)
(324)
(382)
(752)
(795)Total Charge-offs
$    
(632)
$    
(1,036)
$     (919)
$  (1,743)
$   (2,017)Recoveries:Domestic:Commercial, Financial and Agricultural
$     62
$     66
$     142
$      
91
$      336Real Estate - Construction
10
3
--
--
--Real Estate - Mortgage
4
37
237
565
95Installment Loans to
Individuals
& Credit Cards
88
108
130
239
194Total Recoveries
164
214
509
895
625Net Charge-offs
$    (468)
$    (822)
$    (410)
$    (848)
$ (1,392)=======
=======
=======
=======
=======


-27-

---

INVESTMENT SECURITIES ANALYSIS

The following presents
the composition of securities for the last five years:

December 31,(In Thousands)2005
2004
2003
2002
2001U.S. Treasury & Government Agencies
$  112,803
$  101,105
$  102,117
$  101,415
$   74,335State & Political Subdivisions
41,776
39,352
38,719
35,906
17,798All Others
6,589
6,680
8,844
5,551
12,141TOTALS
$ 161,168
$ 147,137
$ 149,680
$ 142,872
$ 104,274=======
=======
=======
=======
======


MATURITY AND YIELD ON SECURITIES - DECEMBER 31,
2005

The following presents contractual maturities and yields by category for debt
securities:

(In Thousands)Maturing
      Within One Year
    Maturing After One
      Year But Within Five Years
    Maturing After Five
       Years
      But WithinTen Years
    Maturing
      After Ten YearsAmount
    Yield
    Amount
    Yield
    Amount
    Yield
    Amount
    Yield
    TotalsU.S. Treasury and Government Agencies
    $ 1,878
    2.53%
    $ 43,173
    3.97%
    $ 21,599
    3.86%
    $  46,151
    4.42%
    $ 112,801State and Political Subdivisions*
    658
    7.09
    7,116
    4.70
    13,177
    7.01
    20,826
    7.06
    41,777All Others
    -
    0.00
    1,020
    6.67
    -
    
    5,511
    6.89
    6,531Total Debt Securities
    $ 2,536
    
    $ 51,309
    
    $ 34,776
    
    $ 72,488
    
    $ 161,109Equity Securities
    
    
    
    
    
    
    
    
    59Total
    
    
    
    
    
    
    
    
    $161,168========________________________________
      * Yields on tax-exempt investments are stated on a tax-equivalent basis
      calculated using a federal statutory rate of 34 percent.


HELD TO MATURITY AND AVAILABLE FOR SALE SECURITIES - DECEMBER 31,
2005

Held to Maturity
Available for Sale(In Thousands)Amortized Cost
Fair Value
Amortized Cost
Fair ValueU.S. Treasury Securities
$        -
$        -
$      2,699
$    2,677U.S. Government Agencies and
Corporation Obligations
-
-
112,932
110,126Securities Issued by States and
Political Subdivisions in the
U.S.:Taxable Securities
-
-
-
-Tax-exempt
Securities
290
296
40,171
41,486U.S. Securities:Other
Debt Securities
-
-
6,340
6,530Equity Securities
-
-
10
59Total
$    290
$    296
$ 162,152
$ 160,878=====
======
=======
=======


In addition to amounts presented above, the Bank also has
$5.2 million in Federal Home Loan Bank and Federal Reserve Bank stock, recorded
at cost.  FHLB and FRB stocks are listed
as a separate line item on the Consolidated Balance Sheets included in Item 8
of this report.

Objectives of investment
portfolio management are to provide safety of principal, adequate liquidity,
insulate GAAP capital against excessive changes in market value, insulate
earnings from excessive change, and optimize investment performance.  Investments also serve as collateral for
government, public funds, and large deposit accounts that exceed Federal
Deposit Insured limits.  Pledged
investments at year-end 2005 had a fair market value of $117 million.  Total held-to-maturity and
available-for-sale investments at December 31, 2005, 2004, and 2003 were $161
million, $147 million, and $150 million, respectively.  The average expected life is 4.63 years, 4.2
years, and 4.43 years, for 2005, 2004, and 2003, respectively.  After low yields, above average maturities,
pay downs, and calls occurring in years 2003 and 2002, investment yields began
improving in 2004 and continued to improve throughout 2005 and into 2006.  Tax Equivalent Yield on Investment
Securities in 2005 improved to 4.57 percent from 4.10 percent in 2004.

-28-

---

The company classifies
investments by intent into trading, available-for-sale and held-to-maturity
categories in accordance with generally accepted accounting principles.  The company held no securities in the
trading category for any period presented in this report and does not expect to
in 2006.  Bancshares' investment
strategy is to classify most of the portfolio as available-for-sale, which are
carried on the balance sheet at fair market value.  Classification of available-for-sale investments allows
flexibility to actively manage the portfolio under various market
conditions.  U. S. Treasuries and
Agencies account for 70 percent of the investment portfolio with mortgage related
investments comprising the largest percentage of this category and
approximately 40 percent of total portfolio. 
Precisely defined mortgage related investments produce consistent cash
flows and enable the Company to defend against rising interest rates.  The Statement of Cash Flows included in Item
8 of this report reflect above average maturities, pay-downs and calls in the
investment portfolio in 2003 and steady cash flows in 2004 and 2005.  Steady cash flows from the portfolio are
expected to continue in 2006.  Portfolio
performance is good and is improving which has helped to offset higher funding
costs.  Bancshares' pursues a moderately
aggressive investment style with limited allocations to CMOs and increased
allocations to longer-term municipals, three to five year bullet agencies and
longer-lockout callable agencies.

Also purchased were certain
derivative financial instruments as described in Note 3 of the Consolidated
Financial Statements, primarily to hedge interest rate fluctuations.

The following table indicates by
category unrealized gains and losses within the available-for-sale portfolio as
of December 31, 2005 (in thousands):



UnrealizedGains
    Losses
    NetU.S. Treasury Securities and Obligations of 
            U.S. Government Agencies and Corporations
    $       20
    $     (2,849)
    $   (2,829)Obligations of States and Political
      Subdivisions
    1,555
    (240)
    1,315All Others
    257
    (17)
    240Totals
    $ 1,832
    $ 
      (3,106)
    $ 
      (1,274)======
    =======
    ======


AGGREGATE CONTRACTUAL OBLIGATIONS AND OFF
BALANCE SHEET ARRANGEMENTS

Contractual obligations are due as follows (in thousands):

|                            | Total      | <1 Year    | 1-3
Years       | 3-5
Years       | > 5 Years      
|--------------------------- | ---------- | ---------- | --------------- | --------------- | ---------------
|Unfunded Loan Commitments   | $  104,250 | $  104,250 | $            
- | $            
- | $            
-
|Standby Letters of Credit   | 3,350      | 3,350      | -               | -               | -              
|Long Term Debt*             | 78,128     | 3,215      | 11,665          | 33,020          | 30,228         
|Capital Lease Obligations   | -          | -          | -               | -               | -              
|Operating Leases            | 564        | 233        | 261             | 70              | -              
|Purchase Obligations        | 6,750      | 6,750      | -               | -               | -              
|Other Long Term Liabilities | -          | -          | -               | -               | -              
|TOTAL                       | $ 193,042  | $ 117,798  | $ 11,926        | $ 33,090        | $ 30,228       
|                            | =======    | =======    | =======         | =======         | ======         

* Long-term debt is presented as principal only excluding interest.

Except for unfunded loan commitments and standby letters of credit, First
Citizens does not materially engage in off balance sheet activities and does not
anticipate material changes in volume going forward.

Notes 13 and 18 of the Consolidated Financial Statements including in Item
  8 of this report reflect long term obligations and off balance sheet risk.

-29-

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LIQUIDITY AND INTEREST
RATE SENSITIVITY

Liquidity is managed in a manner
to ensure the availability of ample funding to satisfy loan demand, fund
investment opportunities, and large deposit withdrawals.  The primary funding sources for Bancshares
includes customer core deposits, Federal Home Loan Bank borrowings, as well as
correspondent bank and other borrowings. 
Customer based sources accounted for 84 percent of funding for the
current year versus 83 percent for the prior year.  Borrowed funds from the Federal Home Loan Bank amounted to 8.7
percent ($65 million) of total funding for 2005 compared to 9.9 percent ($71
million) of total funding in 2004.  The
Bank had additional borrowing capacity of approximately $13 million with
Federal Home Loan Bank at year-end 2005. 
As of December 31, 2005, First Citizens held $23 million in short term
Certificates of Deposit from the State of Tennessee and held $22 million in
brokered Certificates of Deposit, representing 3.5% of total deposits.  Brokered time deposits were approximately
$21 million and 3.5% of total deposits as of the prior year-end.

Bancshares' 
liquidity position is
further strengthened by ready access to a diversified base of wholesale borrowings
which include lines of credit with the Federal Home Loan Bank, FTN Financial,
federal funds purchased, securities sold under agreements to repurchase,
Brokered certificates of deposit and others. 
Bancshares has a line of credit for $13 million earmarked for
acquisitions and other financial needs of the holding company with
approximately $10 million available at year-end 2005.  Bancshares has a crisis contingency liquidity plan to defend
against any material downturn in the liquidity position.

Loan growth was approximately
2.34% compared to deposit growth of 7.28% in 2005.  During second and third quarters 2005, loan growth was primarily
funded through short-term borrowings with correspondents due to the seasonality
of the agriculture loan portfolio and certain deposits.  Most of the 7% deposit growth occurred
during fourth quarter of 2005 as a result of successful implementation of
strategic plans to grow core deposits coupled with an increase in municipal
deposits and brokered time deposits. 
Loan growth is expected to outpace deposit growth in 2006 and will exert
pressure on liquidity especially during seasonal fluctuations of deposits and
agricultural loans.  Management will
continue to focus strategic activities on growing deposits as well as carefully
monitoring and managing liquidity levels and sources.

When evaluating liquidity,
comparison is made between funding needs and the current level of liquidity,
plus liquidity that would likely be available from other sources. This
comparison should determine whether funds management practices are adequate.
Management should be able to manage unplanned changes in funding sources, as
well as react to changes in market conditions that could hinder the bank's
ability to quickly liquidate assets with minimal loss.  Funds management practices should ensure
that Bancshares does not maintain liquidity by paying up for funds or by
relying unduly on wholesale or credit-sensitive funding sources.  Office of the Comptroller of the Currency
has established benchmarks to be used for guidelines in managing liquidity. The
following areas are considered liquidity Red Flags:

Significant increases in reliance
on wholesale funding.

- Significant increases in large certificates of
     deposit, brokered deposits, or deposits with interest rates higher than
     the market.
- Mismatched funding - funding long-term assets with
     short-term liabilities or short-term assets with long-term liabilities.
- Significant increases in borrowings.
- Significant increases in dependence on funding
     sources other than core deposits.
- Reduction in borrowing lines by correspondent banks.
- Increases in cost of funds.
- Declines in levels of core deposits.
- Significant decreases in short-term investments.

Liquidity is an ongoing concern
of the company's Funds Management Committee, which continues to seek
alternative funding sources that are conducive to net interest margin
strategies.  The following table
reflects liquidity position of First Citizens National Bank as of December 31,
2005 and 2004 in comparison to the OCC Liquidity Benchmarks.



OCC Liquidity Benchmark
      Actual 12/31/2005
      Actual 12/31/2004Short Term Liabilities/Total Assets > 20%
    
    16.90%
    16.41%On Hand Liquidity to Total Liabilities < 8%
  
  7.98%
  7.91%Loan to Deposits < 80%
  
  86.55%
  90.39%Wholesale Funds/Total Sources > 15%
  
  17.58%
  16.53%Non Core Funding Dependence > 20%
  
  48.06%
  51.52%


-30-

---

There are no known trends or
uncertainties that are likely to have a material effect on Bancshares'
liquidity or capital resources. There currently exist no recommendations by
regulatory authorities, which, if implemented, would have such an effect.  There are no matters of which management is
aware that have not been disclosed.

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 key to measurement
of the interest sensitivity gap. Minimizing this gap is a continual challenge
and a primary objective of the asset/liability management program.

The following condensed gap
report provides an analysis of interest rate sensitivity of earning assets and
costing liabilities. Interest rate risk is separated and analyzed according to
the following categories of risk: (1) re-pricing (2) yield curve (3) option
risk (4) price risk and (5) basis risk. Trading assets are utilized
infrequently and are addressed in the investment policy.  Any unfavorable trends reflected in interest
rate margins will cause an immediate adjustment to the bank's gap position or
asset/liability management strategies. 
The following data schedule reflects a summary of Bancshares' interest
rate risk using simulations. The projected 12-month exposure is based on 5
different rate movements (flat, rising, or declining).  In a rising rate cycle, non-maturity
deposits will not re-price until a 100 basis point rise takes place.  In a declining rate cycle, non-maturity
deposits will re-price with market conditions when deposits hit a floor
position.

Interest Rate Risk
December 2005
(In Thousands)

Tier
Capital                       
$62,213

Projected 12 Month Exposure

Net InterestIncome Levels
      Rate Movesin Basis Pts.
      CurrentPosition
      PossibleScenarios
      Variance
      % of Net IntIncome
      POLICY
        % of Net Int. IncomeDeclining 2
      (200)
      $ 26,567
      $ 24,098
      ($  2,469)
      -9.29%
      20.00%Declining 1
      (100)
      26,567
      25,561
      (1,006)
      -3.79%
      10.00%Most Likely-Base
      0
      26,567
      26,567
      0
      0.00%
      0.00%Rising 1
      100
      26,567
      27,201
      $   634
      2.39%
      -10.00%Rising 2
      200
      26,567
      27,815
      $ 1,248
      4.70%
      -25.00%


Notes

Net interest income as
presented in the preceding table assumes that interest rates would change
immediately within the total portfolio, a scenario which would reflect a worst
case position and is unlikely to happen.



Bancshares monitors and employs
multiple strategies to continuously manage interest rate risk and liquidity at
acceptable levels.  Such strategies
include but are not limited to use of Federal Home Loan Bank borrowings,
shortening the re-pricing date of loans, use of an interest rate swap that gave
the company ($1.5 million) a variable rate income stream, and increased
investments in mortgage back investments that enables the company to have
constant cash inflows.

-31-

---

CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
DECEMBER 31, 2005(In Thousands)

<
  3 MONBAL
3-12
 MONTHSBAL
1-3
  YEARSBAL
3-5
  YEARS BAL
>5
  YEARSBAL
NON
  SENSITIVEBAL
TOTALAssets:Total Cash and Due From
$               
-
$               
-
$               
-
$               
-
$               
-
$     15,808
$      15,808Total Investments
9,068
17,842
56,580
38,523
40,354
(1,199)
161,168Total Fed Funds Sold
24,878
-
-
-
-
-
24,878Total Net Loans
228,134
91,331
171,713
58,503
-
(6,251)
543,430Total Other Assets
-
-
-
-
-
70,465
70,465Total Assets
$    262,080
$    109,173
$    228,293
$      
97,026
$      40,354
$    78,823
$    815,749=========
=========
=========
=========
=========
=========
=========Liabilities:Total Demand
$               
-
$               
-
$               
-
$               
-
$               
-
$     83,970
$      83,970Total Savings
57,483
-
24,834
24,649
51,225
44,828
203,019Total Time
93,365
164,515
77,251
12,990
399
-
348,520Total Deposits
150,848
164,515
102,085
37,639
51,624
128,798
635,509Total Borrowings
38,013
6,873
14,201
36,294
18,500
-
113,881Other Liabilities
-
-
-
-
-
2,713
2,713Total Other Liabilities
38,013
6,873
14,201
36,294
18,500
2,713
116,594Total Liabilities
188,861
171,388
116,286
73,933
70,124
131,511
752,103Total Equity
-
-
-
-
-
63,646
63,646Total Liabilities/Equity
$ 188,861
$ 171,388
$ 116,286
$     
73,933
$   70,124
$ 195,157
$ 815,749======
======
======
======
======
======
======Period Gap
73,219
(62,215)
112,007
23,093
(29,770)
(116,334)
-Cumulative Gap
73,219
11,004
123,011
146,104
116,334
-
-RSA/RSL
138.77%
63.70%
196.32%
131.24%
57.55%
40.39%
0.00%


-32-

---

CONDENSED GAP REPORT
------------------------------------
CURRENT BALANCES
-----------------------------------
DECEMBER 31, 2004(In Thousands)

<3 MONBAL
3-12
 MONTHSBAL
1-3
  YEARSBAL
3-5
  YEARS BAL
>5
  YEARSBAL
NON
  SENSITIVEBAL
TOTALAssets:Total Cash and Due From
$               
-
$               
-
$               
-
$               
-
$               
-
$     18,384
$     18,384Total Investments
7,319
26,862
39,800
25,980
50,658
1,574
152,193Total Fed Funds Sold
15,002
-
-
-
-
-
15,002Total Net Loans
133,202
166,295
161,430
49,985
25,100
(6,239)
529,773Total Other Assets
-
-
-
-
-
57,852
57,852Total Assets
$    155,523
$    193,157
$    201,230
$      
75,965
$      75,758
$    71,571
$    773,204=========
=========
=========
=========
=========
=========
=========Liabilities:Total Demand
$               
-
$               
-
$               
-
$               
-
$               
-
$     74,596
$      74,596Total Savings
-
27,296
47,796
20,501
97,537
-
193,130Total Time
100,432
151,640
55,693
15,369
1,522
-
324,656Total Deposits
100,432
178,936
103,489
35,870
99,059
74,596
592,382Total Borrowings
39,189
4,077
775
12,921
59,130
-
116,092Other Liabilities
-
-
-
-
-
3,522
3,522Total Other Liabilities
39,189
4,077
775
12,921
59,130
3,522
119,614Total Liabilities
139,621
183,013
104,264
48,791
158,189
78,118
711,996Total Equity
-
-
-
-
-
61,208
61,208Total Liabilities/Equity
$   139,621
$ 183,013
$ 104,264
$     
48,791
$ 158,189
$ 139,326
$ 773,204======
======
======
======
======
======
======Period Gap
15,902
10,144
96,966
27,174
(82,431)
(67,755)
-Cumulative Gap
15,902
26,046
123,012
150,186
67,755
-
-RSA/RSL
111.39%
105.54%
193.00%
155.69%
47.89%
51.37%
0.00%


-33-

---

NOTES TO THE GAP REPORT



The gap report reflects the interest sensitivity positions
during a flat rate environment.  Time
frames could change depending on whether rates rise or fall.

Re-pricing overrides maturities in various time frames.

Demand deposits, considered to be core, are placed in the last
time frame due to lack of interest sensitivity.

Savings accounts, also considered core, are split into time
frames greater than 12 months.  In a
flat rate environment, savings accounts tend not to re-price or liquidate and
become price sensitive only after a major increase in the 6-month CD rate. 
These accounts are placed in this category
instead of the variable position due to history and characteristics.

Simulations
  are 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 manages
  the gap between rate sensitive liabilities to expand and contract with the
  rate cycle phase. The banks' Funds Management Committee (FMC) is responsible
  for implementing and monitoring procedures to improve net interest income
  through volume increases and better pricing techniques. Long term fixed rate
  positions will be held to a minimum by increasing variable rate loans. The
  over 5 year fixed rate loans should be held to less than 25% of assets, unless
  they are funded with Federal Home Loan Bank matched funds. These maximum
  limits are the high points and the FMC will strive to keep the amount below
  this point.
  Subsidiaries as well as the Parent Company strive to achieve margins at or
  above peer. The Product Development Committee will review new products and
  services for risk.

1. Bancshares expects to benefit from a steady rate
increase.  First Citizens' Liquidity
could be negatively impacted should interest rates drop prompting an increase
in loan demand.  Although rates are not
expected to decrease in the near term, adequate lines of credit are available
to handle liquidity needs should this occur.

The
following presents return on equity and assets for the years presented:

2005
2004
2003
2002
2001Percentage of Net Income to:Average Total Assets
1.10%
1.08%
1.09%
1.27%
1.10%Average Shareholders' Equity
13.71%
13.56%
13.88%
15.05%
11.91%Percentage of Dividends Declaredto Net Income
47.03%
50.83%
50.49%
48.66%
64.31%Percentage of Average
Equityto Average Assets
8.01%
7.95%
7.91%
8.43%
9.29%


Total Capital (excluding Reserve for Loan
Losses) as a percentage of total assets is presented in the following table for
years indicated:

|2005  | 2004  | 2003  | 2002  | 2001 
|----- | ----- | ----- | ----- | -----
|7.80% | 7.92% | 7.86% | 9.25% | 9.35%



Total capital increased 3.98% to
$63.6 million in 2005 from $61.2 million at year-end 2004.  Growth in capital during 2005 is from
undistributed net income.  Adjustments
to capital resulting from changes in market value of available-for-sale
securities and cash flow hedge, quantified as comprehensive income, are made
quarterly and diluted the growth in 2004 by $1.7 million.  Bancshares has historically maintained
capital in excess of minimum levels established by regulation and reflects
continuous improvement when comparing previous years.  The risk based capital ratio of 12.11 percent at December 31,
2005 was significantly in excess of the 8 percent mandated by regulation.  This ratio has been maintained in the 10-12
percent range over the past three years. 
Total capital as a percentage of total assets was 7.80%, 7.92%, and
7.86% at December 31, 2005, 2004, and 2003, respectively.  The decrease in total capital as a percent
of total assets is primarily due to the fluctuations in other comprehensive
income as a result of market value adjustments to the available-for-sale
investment securities portfolio.

Risk-based capital focuses
primarily on broad categories of credit risk and incorporates elements of
transfer, interest rate and market risks. The calculation of risk-based capital
ratio is accomplished by dividing qualifying capital by weighted risk assets in
accordance with financial institution regulatory guidelines.  The minimum risk-based capital ratio is
8.00%.  At least one-half or 4.00% must
consist of core capital (Tier 1), and the remaining 4.00% may be in the form of
core (Tier 1) or supplemental capital (Tier 2).  Tier 1 capital/core capital consists of common shareholders'
equity, qualified perpetual preferred stock and minority interests in
consolidated subsidiaries.  Tier 2
capital/supplementary capital consists of the allowance for loan and lease losses,
perpetual preferred stock, term-subordinated debt, and other debt and stock
instruments.

-34-

---

Dividends for 2005 were held flat
compared to 2004 at $1.12 per share due to Bancshares' strategy to reduce
holding company debt during 2005.  The
dividend payout ratio is 47.06% in 2005 compared to 50.83% in 2004 and 50.49%
in 2003.  The projected payout ratio for
2006 is in the range of 47-50 percent. 
Dividend payout for Southeast Bank Group for 2005 was 40.57%.  The dividend yield in 2005 is 3.61 percent
compared to 4.07 percent in 2004.  The
dividend yield is well in excess of the Southeast Bank Group peer average of
2.50-2.70 percent the last two years.

As of year-end 2005, there are
approximately $10.7 million of retained earnings available for the payment of
future dividends from First Citizens National Bank to Bancshares.  Banking regulations require certain capital
levels to be maintained and may limit dividends paid by the bank to the holding
company or by the holding company to shareholders.  These restrictions pose no practical limit on the ability of the
bank or bank holding company to pay dividends at historical levels.

Bancshares has repurchased 82,585
shares of its common stock and the treasury stock has weighted average cost
basis of $25.36 per share. 
Approximately 15,260 treasury shares were repurchased during 2005 at a
weighted average cost of $31.46 per share. 
Also, 435 shares of treasury stock were sold in 2005 at a weighted
average price of $31.22 per share. 
There are no publicly announced plans or programs to repurchase shares
in place during the periods presented or subsequently primarily due to
Bancshares current strategy to reduce debt at the holding company level.

ITEM 8.    FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

MANAGEMENT'S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING

The management of First Citizens Bancshares, Inc.
(Bancshares) is responsible for establishing and maintaining an adequate
internal control structure which governs financial reporting.  Bancshares' internal control system is
designed to provide reasonable assurance to management and the Board of
Directors regarding the preparation and fair presentation of the Bancshares'
annual financial statements in accordance with generally accepted accounting
principles of the United States.

Inherent limitations exist in the
effectiveness of any internal control structure, including the possibility of
human error and circumvention of controls. 
Accordingly, even effective internal control can only provide reasonable
assurance with respect to financial statement preparation.

Management has assessed the
effectiveness of Bancshares' internal control over financial reporting as of
December 31, 2005, based on criteria for effective internal control over
financial reporting described in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this assessment, management
believes that, as of December 31, 2005, Bancshares' internal control over financial
reporting is effective.

Bancshares' independent auditors
have issued an attestation opinion on management's assessment of Bancshares'
internal control over financial reporting as stated in the report that appears
on the following page.

-35-

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 185 N. Church
      Street                                                
      Telephone: (731) 285-7900
      Dyersburg, TN 
      38024                                                
      (800) 608-5612
                                                                                         
      Fax: (731) 285-6221
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Members
      of:                                                             
                                                                                                                                                                                                           
      American Institute of Certified Public Accountants  
                                                                                                                                                                                                           
      Governmental Audit Quality Center - AICPA             
                                                                                                                                                                                                           
      Tennessee Society of Certified Public Accountants
                                                                                                                                                                                                           
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      www.atacpa.net

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors
First Citizens Bancshares, Inc.
Dyersburg, Tennessee 38024

We
have audited the accompanying consolidated balance sheets of First Citizens
Bancshares, Inc., and its subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2005. We also have audited management's assessment, included in the
accompanying Management's Assessment as to the Effectiveness of Internal Control
over Financial Reporting, that First Citizens Bancshares, Inc. and its
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). First Citizens Bancshares, Inc.
and its subsidiaries' management is responsible for these financial statements,
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an
opinion on management's assessment, and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audits.



We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.



A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention of timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

-
36 -

---



Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of First Citizens Bancshares, Inc.,
and its subsidiaries as of December 31, 2005 and 2004, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, management's
assessment that First Citizens Bancshares, Inc. and its subsidiaries, maintained
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Furthermore, in our opinion,
First Citizens Bancshares, Inc. and its subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).





/s/ 
ALEXANDER THOMPSON ARNOLD PLLC

Dyersburg, Tennessee

February
14, 2006

|Alamo, TN
Dyersburg, TN
Fulton, KY
Henderson, TN
Jackson, TN |  | Martin, TN
Milan, TN
McKenzie, TN
Paris, TN
Trenton, TN
Union City, TN
|------------------------------------------------------------ |  | ----------------------------------------------------------------------











-37-

---

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS 
DECEMBER 31, 2005 AND 2004(in thousands)

AS OFDecember, 31 2005

AS OFDecember, 31 2004ASSETSCash and Due From Banks
$            15,808

$            18,384Federal Funds Sold
24,878

15,002Cash and Cash Equivalents
40,686

33,386Investment SecuritiesTrading
Investments - Stated at Market
-

-Held to
Maturity, at Amortized Cost, Fair Value of $296 at December 31, 2005
       and $810 at December 31, 2004
290

785Available-for-Sale,
Stated at Market
160,878

146,352Loans (Excluding Unearned Income of
$462 at December 31, 2005
      and $350 at December 31, 2004)
547,217

534,682Less: Allowance For Loan Losses
6,830

6,239Net Loans
540,387

528,443Loans Held-for-Sale
3,043

1,330Federal Home Loan Bank and Federal
Reserve Bank stocks, at Cost
5,258

5,056Premises and Equipment
27,642

23,587Accrued Interest Receivable
5,478

4,559Goodwill
11,825

11,825Other Intangible Assets
542

625Other Real Estate
129

337Bank Owned Life Insurance Policies
16,013

14,081Other Assets
3,578

2,838TOTAL ASSETS
$        815,749

$        773,204========

========LIABILITIES AND
SHAREHOLDERS' EQUITYLiabilities:DepositsDemand
$             83,970

$             74,596Time
348,520

324,656Savings
203,019

193,130Total Deposits
635,509

592,382Securities Sold Under Agreements to
Repurchase
34,753

30,611Federal Funds Purchased and Other Short
Term Borrowings
1,000

1,000Long- Term Debt
78,128

84,481Other Liabilities
2,713

3,522TOTAL LIABILITIES
752,103

711,996Shareholders' Equity:Common Stock, No
Par Value - 10,000,000 Authorized; 3,717,593 Issuedand
Outstanding at December 31, 2005 and 3,717,593 Issued andOutstanding at December 31, 2004
3,718

3,718Surplus
15,331

15,331Retained Earnings
47,591

43,001Accumulated Other Comprehensive
Income
(900)

785Total
Common Stock and Retained Earnings
65,740

62,835Less - 82,585 Treasury Shares, at Cost as
of December 31, 2005 and 67,760
     Shares at Cost at December 31, 2004
2,094

1,627TOTAL
SHAREHOLDERS' EQUITY
63,646

61,208TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$  815,749

$  773,204==========

=========


Note: See
accompanying notes to consolidated financial statements.





-38-

---

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

|                                                          | 2005                                 |  | 2004              |  | 2003             
|--------------------------------------------------------- | ------------------------------------ |  | ----------------- |  | -----------------
|Interest Income                                           | (In Thousands Except Per Share Data)
|Interest and Fees on
      Loans                          | $   
      37,991                    |  | $   
      33,302 |  | $   
      34,055
|Interest and Dividends on
      Investment Securities:    |                                      |  |                   |  |                  
|Taxable                                                   | 4,342                                |  | 3,872             |  | 3,383            
|Tax-Exempt                                                | 1,658                                |  | 1,469             |  | 1,635            
|Dividends                                                 | 362                                  |  | 297               |  | 273              
|Other Interest Income                                     | 261                                  |  | 77                |  | 160              
|Total Interest Income                                     | 44,614                               |  | 39,017            |  | 39,506           
|                                                          |                                      |  |                   |  |                  
|Interest Expense                                          |                                      |  |                   |  |                  
|Interest on Deposits                                      | 12,488                               |  | 8,636             |  | 9,620            
|Interest on Borrowings                                    | 4,404                                |  | 4,247             |  | 4,140            
|Other Interest Expense                                    | 800                                  |  | 466               |  | 392              
|Total Interest Expense                                    | 17,692                               |  | 13,349            |  | 14,152           
|Net Interest Income                                       | 26,922                               |  | 25,668            |  | 25,354           
|Provision for Loan
      Losses                           | 1,059                                |  | 937               |  | 975              
|Net Interest Income
      After Provision for Loan Losses | 25,863                               |  | 24,731            |  | 24,379           
|                                                          |                                      |  |                   |  |                  
|Other Income                                              |                                      |  |                   |  |                  
|Income From Fiduciary
      Activities                    | 963                                  |  | 946               |  | 786              
|Service Charges on
      Deposit Accounts                 | 5,952                                |  | 5,559             |  | 4,913            
|Brokerage Fees                                            | 1,307                                |  | 1,160             |  | 878              
|Earnings on Bank Owned
      Life Insurance               | 914                                  |  | 443               |  | 696              
|Net Gains
      (Losses) on Sale of Securities            | (19)                                 |  | 210               |  | 81               
|Other Income                                              | 1,727                                |  | 1,076             |  | 1,462            
|Total Other Income                                        | 10,844                               |  | 9,394             |  | 8,816            
|                                                          |                                      |  |                   |  |                  
|Other Expenses                                            |                                      |  |                   |  |                  
|Salaries and Employee
      Benefits                      | 14,506                               |  | 13,330            |  | 12,553           
|Net Occupancy Expense                                     | 1,701                                |  | 1,551             |  | 1,542            
|Depreciation                                              | 1,882                                |  | 1,625             |  | 1,445            
|Data Processing
      Expense                             | 704                                  |  | 727               |  | 828              
|Legal and Professional
      Fees                         | 190                                  |  | 293               |  | 71               
|Stationary and Office
      Supplies                      | 303                                  |  | 276               |  | 333              
|Amortization of
      Intangibles                         | 85                                   |  | 85                |  | 85               
|Advertising and
      Promotions                          | 641                                  |  | 444               |  | 410              
|Other Expenses                                            | 4,943                                |  | 4,504             |  | 4,859            
|Total Other Expenses                                      | 24,955                               |  | 22,835            |  | 22,126           
|Net Income Before
      Income Taxes                      | 11,752                               |  | 11,290            |  | $ 
      11,069  
|Provision for Income
      Tax Expense                    | 3,087                                |  | 3,241             |  | 3,249            
|Net Income                                                | $  
      8,665                      |  | $  
      8,049   |  | $  
      7,820  
|                                                          | =====                                |  | =====             |  | =====            
|Earnings Per Common Share:                                |                                      |  |                   |  |                  
|Net
      Income                                          | $ 2.38                               |  | $ 2.20            |  | $ 2.14           
|                                                          | =====                                |  | =====             |  | =====            
|Weighted Average
      Shares Outstanding                 | 3,639                                |  | 3,652             |  | 3,668            
|                                                          | =====                                |  | =====             |  | =====            

Note: See
accompanying notes to consolidated financial statements.






-39-

---

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2005, 2004, and 2003



|                                                                                                    | 2005                 |  | 2004                    |  | 2003              
|--------------------------------------------------------------------------------------------------- | -------------------- |  | ----------------------- |  | ------------------
|                                                                                                    | (In
      Thousands)
|Net Income For Year                                                                                 | $   
      8,665     |  | $   
      8,049        |  | $   
      7,820  
|                                                                                                    |                      |  |                         |  |                   
|Other Comprehensive
      Income, Net of Tax                                                        |                      |  |                         |  |                   
|Unrealized
      Gains (Losses)
      on Available-for-Sale Securities and Cash Flow Hedge:         |                      |  |                         |  |                   
|Unrealized
      Gains (Losses) Arising During the Period                                           | (1,685)              |  | (523)                   |  | (373)             
|Total Comprehensive Income                                                                          | $   
      6,980     |  | $   
      7,526        |  | $   
      7,447  
|                                                                                                    | =====                |  | =====                   |  | =====             
|Related tax effects
      allocated to each component of other comprehensive income are as follows: |                      |  |                         |  |                   
|                                                                                                    | Before-taxAmount     |  | Tax (Expense)or Benefit |  | Net of taxAmount  
|Year Ended December 31,
      2005                                                                  |                      |  |                         |  |                   
|                                                                                                    |                      |  |                         |  |                   
|Unrealized Gains (Losses) on
      Available-for-Sale Securities and Cash Flow Hedge:               |                      |  |                         |  |                   
|Unrealized Gains
      (Losses) Arising During the Period                                           | $   
      (2,827)   |  | $   
      1,131        |  | $   
      (1,696)
|Reclassification
      Adjustments for Gains Included in 
               Net Income                 | 19                   |  | (8)                     |  | 11                
|Net
      Unrealized Gains (Losses)                                                                 | $   
      (2,808)   |  | $    
      1,123       |  | $  
       (1,685)
|                                                                                                    | =====                |  | =====                   |  | =====             
|Year Ended December 31,
      2004                                                                  |                      |  |                         |  |                   
|                                                                                                    |                      |  |                         |  |                   
|Unrealized Gains (Losses) on
      Available-for-Sale Securities and Cash Flow Hedge:               |                      |  |                         |  |                   
|Unrealized Gains
      (Losses) Arising During the Period                                           | $   
      (662)     |  | $   
      265          |  | $   
      (397)  
|Reclassification
      Adjustments for Gains Included in 
               Net Income                 | (210)                |  | 84                      |  | (126)             
|Net
      Unrealized Gains (Losses)                                                                 | $   
      (872)     |  | $    
      349         |  | $  
       (523)  
|                                                                                                    | =====                |  | =====                   |  | =====             
|Year Ended December 31,
      2003                                                                  |                      |  |                         |  |                   
|                                                                                                    |                      |  |                         |  |                   
|Unrealized Gains (Losses) on
      Available-for-Sale Securities and Cash Flow Hedge:               |                      |  |                         |  |                   
|Unrealized Gains
      (Losses) Arising During the Period                                           | $   
      (541)     |  | $     
      217        |  | $   
      (324)  
|Reclassification
      Adjustments for Gains Included in 
               Net Income                 | (81)                 |  | 32                      |  | (49)              
|Net
      Unrealized Gains (Losses)                                                                 | $   
      (622)     |  | $    
      249         |  | $   
      (373)  
|                                                                                                    | =====                |  | =====                   |  | =====             

Note: See
accompanying notes to consolidated financial statements.




-40-

---

FIRST CITIZENS BANCSHARES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004, and 2003
(In Thousands, Except Per Share Data)

|                                                                                                                                                                                    | Common StockShares       
  At Par | Surplus   | RetainedEarnings | Accumulated
    Other
  ComprehensiveIncome | TreasuryStock   | Total         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | --------- | ---------------- | ------------------------------------------- | --------------- | --------------
|Balance, January 1, 2003                                                                                                                                                            | 3,718                              | $ 3,718   | $
    15,299     | $ 35,174                                    | $  1,681        | $ 
    (1,271)
|                                                                                                                                                                                    |                                    |           |                  |                                             |                 |               
|Net Income,
    Year Ended December 31,
    2003                                                                                                                                    |                                    |           |                  | 7,820                                       |                 |               
|Adjustment of Unrealized Gain (Loss) on Securities
           Available-for-Sale and Cash Flow Hedge,
    Net of Applicable Deferred
           Income Taxes $249 During the Year   |                                    |           |                  |                                             | (373)           |               
|Cash
    Dividends Paid -
    $1.08 per Share                                                                                                                                       |                                    |           |                  | (3,951)                                     |                 |               
|Treasury
    Stock Transactions - Net                                                                                                                                               | --                                 | --        | 32               | --                                          | --              | (183)         
|Balance, December 31,
    2003                                                                                                                                                      | 3,718                              | $   3,718 | $  
    15,331   | $  39,043                                   | $    1,308      | $
    (1,454) 
|                                                                                                                                                                                    |                                    |           |                  |                                             |                 |               
|Net Income,
    Year Ended December 31,
    2004                                                                                                                                    |                                    |           |                  | 8,049                                       |                 |               
|Adjustment of Unrealized Gain (Loss) on Securities
           Available-for-Sale and Cash Flow Hedge,
    Net of Applicable Deferred
           Income Taxes $349 During the Year   |                                    |           |                  |                                             | (523)           |               
|Cash
    Dividends Paid -
    $1.12 per Share                                                                                                                                       |                                    |           |                  | (4,091)                                     |                 |               
|Treasury
    Stock Transactions - Net                                                                                                                                               | --                                 | --        | -                | --                                          | --              | (173)         
|Balance, December 31,
    2004                                                                                                                                                      | 3,718                              | $   3,718 | $  
    15,331   | $  43,001                                   | $    
    785   | $
    (1,627) 
|                                                                                                                                                                                    | ======                             | ======    | =======          | ======                                      | =======         | ======        
|Net Income,
    Year Ended December 31, 2005                                                                                                                                        |                                    |           |                  | 8,665                                       |                 |               
|Adjustment of Unrealized Gain (Loss) on Securities
           Available-for-Sale and Cash Flow Hedge,
    Net of Applicable Deferred
           Income Taxes $1,123 During the Year |                                    |           |                  |                                             | (1,685)         |               
|Cash
    Dividends Paid -
    $1.12 per Share                                                                                                                                       |                                    |           |                  | (4,075)                                     |                 |               
|Treasury
    Stock Transactions - Net                                                                                                                                               | --                                 | --        | -                | --                                          | --              | (467)         
|Balance, December 31,
    2005                                                                                                                                                      | 3,718                              | $   3,718 | $  
    15,331   | $  47,591                                   | $    
    (900) | $
    (2,094) 
|                                                                                                                                                                                    | ======                             | ======    | =======          | ======                                      | =======         | ======        

Note: See
accompanying notes to consolidated financial statements.






-41-

---

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2005, 2004, and 2003
(in thousands)

2005

2004

2003Operating ActivitiesNet Income
$     8,665

$     8,049

$     7,820Adjustments to Reconcile Net Income to Net
Cash Provided
   by Operating Activities:Provisions for
Loan Losses
1,059

937

975Provision for
Depreciation
1,882

1,625

1,445Provision for
Amortization - Intangibles
85

85

85Deferred
Income Taxes
(355)

145

(264)Realized
Investment Security (Gains) Losses
19

(210)

(81)Net (Increase) Decrease in Loans Held for Sale
(1,713)

1,064

3,465(Increase) Decrease in Accrued Interest Receivable
(919)

(399)

443Increase
(Decrease) in Accrued Interest Payable
374

(101)

77(Increase) in Cash Surrender Value of Bank Owned
               
Life Insurance
(624)

(443)

(696)Net (Increase) Decrease in Other Assets
(735)

(21)

2,078Net Increase (Decrease) in Other Liabilities
342

129

(888)NET CASH PROVIDED BY OPERATING ACTIVITIES
$     8,080

$  10,860

$  14,459Investing ActivitiesProceeds of Maturities of
Held-to-Maturity Investment Securities
$        504

$       
40

$      
145Proceeds of Sales and Maturities of
Available-for-Sale 
     Investment Securities
49,044

49,450

77,181Purchases of Available-for-Sale
Investment Securities
(66,084)

(48,464)

(85,423)Increase in Loans - Net
(13,373)

(49,782)

(38,596)Premiums on Bank Owned Life Insurance -
Net
(1,308)

(126)

(1,391)Purchase of Premises and Equipment
(5,937)

(3,474)

(5,317)NET CASH
USED BY INVESTING ACTIVITIES
$  (37,154)

$   
(52,356)

$   
(53,401)Financing ActivitiesNet Increase (Decrease) in Demand
Deposits, NOW Accounts,
      and  Savings Accounts
$  19,263

$     20,647

$      7,142Increase in Time Deposits - Net
23,864

11,125

21,826Increase in Long-Term Borrowings

5,155

2,000
-Payment of Principal on Long-Term Debt
(11,508)

(833)

(567)Cash Dividends Paid
(4,075)

(4,091)

(3,951)Net Increase (Decrease) in Short-Term
Borrowings
4,142

11,930

1,237Treasury Stock Transactions - Net
(467)

(173)

(151)NET CASH PROVIDED BY
FINANCING ACTIVITIES
$   36,374

$   
40,605

$   
25,536INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
7,300

(891)

(13,406)Cash and Cash Equivalents at Beginning of
Year
33,386

34,277

47,683CASH AND CASH EQUIVALENTS AT END OF
YEAR
$   40,686





$  
33,386





$   34,277======





======





======Supplemental
    Cash Flow Information:
Interest
    Paid
$  17,318





$    
13,450





$    
14,075=======





=======





=======Income
    Taxes Paid
$    3,480





$     
2,982





$     
3,260=======





=======





=======Supplemental
    Noncash Disclosures:
Transfers from Loans to Foreclosed Assets
$      
441





$       
440





$     
1,868=======





=======





=======


Note: See
accompanying notes to consolidated financial statements.




-42-

---

FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES

The accounting and reporting policies of First Citizens Bancshares, Inc., and
subsidiaries conform to generally accepted accounting principles. The significant policies are described as follows:

BASIS OF PRESENTATION

The consolidated financial
statements include all accounts of First Citizens Bancshares, Inc., and its
subsidiaries First Citizens National Bank, First Citizens Capital Assets, and First
Citizens (TN) Statutory Trust. First Citizens National Bank also has two wholly
owned subsidiaries, First Citizens Financial Plus and First Citizens
Investments, Inc., which are consolidated into its financial statements. First
Citizens Bancshares, Inc.'s investment in these subsidiaries is reflected on
the Parent Company's condensed balance sheet (Note 22).

First Citizens National Bank has
a 50% ownership in two insurance subsidiaries both of which are accounted for
using the equity method.  One is White
and Associates/First Citizens Insurance, LLC which is a general insurance
agency offering a full line of insurance products.  The other is First Citizens/White and Associates Insurance
Company whose principal activity is credit insurance.  The investment in these subsidiaries is included in Other Assets
on the Balance Sheets presented in this report and earnings from these
subsidiaries are recorded in Other Income on the Income Statements presented in
this report.

Nevada Investments II, Inc. was organized
and existing under laws of the state of Nevada and changed its name to First
Citizens Investments, Inc. in September 2004. 
The principal activity of this entity is to acquire and sell investment
securities as well as collect the income from the portfolio.  First Citizens Holdings, a wholly owned
subsidiary of First Citizens Investments, acquires and sells certain investment
securities, collects income from its portfolio, and owns First Citizens
Properties, Inc., a real estate investment trust (REIT).  First Citizens Properties, Inc. invests in
participation interests of real estate loans made by First Citizens National
Bank and provides First Citizens with an alternative vehicle for raising
capital.  First Citizens Holdings owns
100% of the REIT as of December 31, 2004 but owns 98% after preferred stock was
issued as a bonus to directors, executive officers and certain employees in
January 2005.

The Company also has two wholly
owned subsidiaries, First Citizens (TN) Statutory Trust II and First Citizens
(TN) Statutory Trust III.  The purpose
and activities of these two subsidiaries are further discussed in Note 13 of
Notes to the Consolidated Financial Statements.

All significant inter-company
balances and transactions are eliminated in consolidation.  Certain balances have been reclassified to
conform to current year presentation.

NATURE OF OPERATIONS

The Company and its subsidiaries
provide commercial banking services of a wide variety to individuals and
corporate customers in the mid-southern United States with a concentration in
West Tennessee.  The Company's primary
products are checking and savings deposits and residential, commercial, and
consumer lending.

BASIS OF ACCOUNTING

The consolidated financial statements are presented using the accrual basis of accounting.

USE OF ESTIMATES

The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. 
Actual results could differ from those estimates.

Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.  In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.

CASH EQUIVALENTS

Cash equivalents include amounts
due from banks, which do not bear interest and federal funds sold. Generally,
federal funds are purchased or sold for one-day periods.

-43-

---

SECURITIES

Investment securities are
classified as follows:

Held-to-maturity, which includes
those investment securities which the Company has the intent and the ability to
hold until maturity; Trading securities, which include those investments that
are held for short-term resale; and available-for-sale, which includes all
other investment securities.

Securities, which are
held-to-maturity, are reflected at cost, adjusted for amortization of premiums
and accretion of discounts using methods, which approximate the interest
method.  Securities, which are
available-for-sale, are carried at fair value, and unrealized gains and losses
are recognized as direct increases or decreases in stockholders' equity.  Trading securities, where applicable, are
carried at fair value, and unrealized gains and losses on these securities are
included in net income.

Realized gains and losses on
investment securities transactions are determined based on the specific
identification method and are included in net income.

LOANS HELD FOR SALE

Mortgage loans originated and
intended for sale in the secondary market are carried at the lower of aggregate
cost or market, as determined by outstanding commitments from investors.  Net unrealized losses, if any, are recorded
as a valuation allowance and charged to earnings.  Servicing rights are not retained when mortgage loans are sold.

LOANS

Loans that management has the
intent and ability to hold for the foreseeable future or until maturity or
payoff are reflected on the balance sheets at the unpaid principal amount less
the allowance for loan losses and unearned interest and fees.

Loans are generally placed on
non-accrual status when, in the judgment of management, the loans have become
impaired.  Unpaid interest on loans
placed on non-accrual status is reversed from income and further accruals of
income are not usually recognized.  Subsequent
collections related to impaired loans are usually credited first to principal
and then to previously uncollected interest.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is
established as losses are estimated to have occurred through a provision for
loan losses charged to earnings.  Loan
losses are charged against the allowance when management believes the
uncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is
evaluated on a regular basis by management and is based upon management's
periodic review of the collectability of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective, as
it requires estimates that are susceptible to significant revision as more
information becomes available.

The allowance consists of
specific, general and unallocated components. 
The specific component relates to loans that are classified as doubtful,
substandard or special mention.  For
such loans that are also classified as impaired, an allowance is established
when the discounted cash flows (or collateral value or observable market price)
of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified
loans and is based on historical loss experience adjusted for qualitative
factors.  An unallocated component is
maintained to cover uncertainties that could affect management's estimate of
probable losses.  The unallocated
component of the allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and
general losses in the portfolio.

A loan is considered impaired
when, based on current information and events, it is probable that the
Corporation will be unable to collect scheduled payments of principal or
interest when due according to contractual terms of the loan agreement.  Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all circumstances surrounding the loan and the borrower, including
the length of delay, reasons for the delay, borrower's prior payment record,
and amount of the shortfall in relation to principal and interest owed.  Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of
expected future cash flows discounted at the loan's effective interest rate,
the loan's obtainable market price, or fair value of the collateral if the loan
is collateral dependent.

Large groups of smaller balance
homogeneous loans are collectively evaluated for impairment.  Accordingly, the Corporation does not
separately identify individual consumer and residential loans for impairment
disclosures, unless such loans are the subject of a restructuring agreement.

-44-

---

PREMISES AND EQUIPMENT

Bank premises and equipment are
stated at cost less accumulated depreciation. The provision for depreciation is
computed using straight-line and accelerated methods for both financial
reporting and income tax purposes. 
Expenditures for maintenance and repairs are charged against income as
incurred. Cost of major additions and improvements are capitalized and
depreciated over estimated useful lives.

REAL ESTATE ACQUIRED BY FORECLOSURE

Real estate acquired through
foreclosure is reflected in other assets and recorded at the lower of fair
value less estimated costs to sell or cost. 
Adjustments made at the date of foreclosure are charged to the allowance
for loan losses.  Expenses incurred in
connection with ownership, subsequent adjustments to book value, and gains and
losses upon disposition are included in other non-interest expenses.

Adjustments to net realizable
value are made annually subsequent to acquisition based on appraisal.

INCOME TAXES

First Citizens Bancshares, Inc.
uses the accrual method of accounting for federal income tax reporting.   Deferred tax assets or liabilities are
computed for significant differences in financial statement and tax bases of
assets and liabilities, which result from temporary differences in financial
statement and tax accounting.

INTEREST INCOME ON LOANS

Interest income on commercial and
real estate loans is computed on the basis of daily principal balance
outstanding using the accrual method. 
Interest on installment loans is credited to operations by the level-yield
method.  Interest income on loans is
discontinued at the time the loan is 90 days delinquent unless the loan is well
secured and in process of collection. 
Loans may be placed on non-accrual status at an earlier date if
collection of principal or interest is considered doubtful.  All interest accrued but not received for
loans placed on non-accrual status is reversed against interest income.  Interest received on such loans is accounted
for on the cash-basis or cost-recovery method until qualifying to return to
accrual status.  Loans are returned to
accrual status when all principal and interest amounts contractually due are
brought current and future payments are reasonably assured.

NET INCOME PER SHARE OF COMMON STOCK

Net income per share of common
stock is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period, after giving retroactive
effect to stock dividends and stock splits.

INCOME FROM FIDUCIARY ACTIVITIES

Income from fiduciary activities is recorded on the accrual
basis.

ADVERTISING AND PROMOTIONS

The Company's policy is to charge advertising and promotions
to expense as incurred.

NOTE 2 - CASH
RESERVE REQUIREMENTS

The Corporation's bank subsidiary
maintains cash reserve balances as required by the Federal Reserve Bank.  Average required balances during 2005 and
2004 were $500,000 and $812,000, respectively.

-45-

---

NOTE 3 - INVESTMENT
SECURITIES

The following tables reflect amortized cost, unrealized gains,
unrealized losses, and fair value of investment securities for the balance sheet
dates presented, segregated into held-to-maturity and available-for-sale
categories:

Amortized Cost
Gross
UnrealizedGains
Gross
UnrealizedLosses
Fair ValueAs of December 31, 2005 (in thousands):Securities Held-to-Maturity:Obligations of States and Political
Subdivisions
$         
290
$             
6
$               
-
$         
296========
========
=========
========Securities Available-for-Sale:U.S. Treasury Securities and Obligations
of 
      U.S. Government Agencies and Corporations
$   115,631
$          
20
$    (2,849)
$   112,802Obligations of States and Political
Subdivisions
40,171
1,555
(240)
41,486All Others
6,350
257
(17)
6,590$  162,152
$      1,832
$    (3,106)
$  160,878=======
========
========
========As of December 31, 2004 (in thousands):Securities Held-to-Maturity:Obligations of States and Political
Subdivisions
$         
785
$           
25
$               
-
$         
810========
========
=========
========Securities Available-for-Sale:U.S. Treasury Securities and Obligations
of 
      U.S. Government Agencies and Corporations
$   101,763
$        
232
$        (890)
$   101,105Obligations of States and Political
Subdivisions
36,626
2,058
(117)
38,567All Others
6,374
327
(21)
6,680$  144,763
$      2,617
$    (1,028)
$  146,352=======
=======
=======
=======


The table below
summarizes maturities of debt securities held-to-maturity and available-for-sale
as of December 31, 2005:

December 31, 2005Securities
Held to Maturity
Securities
Available for SaleAmortized Cost
Fair Value
Amortized Cost
Fair ValueAmounts Maturing In:
(In Thousands)One Year or Less
$   
--
$      
--
$     2,554
$     2,536After One Year Through
Five Years
290
296
51,892
51,020After Five Years Through
Ten Years
--
--
35,120
34,775After Ten Years
--
--
72,576
72,488$   290
$   
296
$ 162,142
$ 160,819Equity Securities
--
--
10
59Total Securities
$   290
$    
296
$ 162,152
$  160,878======
======
========
========


-46-

---

|Securities gains (losses) on sale of
available-for-sale securities presented in the consolidated statements of income
consist of the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               
|                                                                                                                                               

At December 31, 2005
and 2004, investment securities were pledged to secure government, public and
trust deposits as follows:

Amortized
        Cost
      Fair ValueDecember 31
      (In
        Thousands)2005
      $
        119,045
      $
        116,9742004
      $
        112,859
      $
        113,141


The following table presents information on securities with gross unrealized
losses at December 31, 2005, aggregated by investment category and the length of
time that the individual securities have been in a continuous loss position:

Less than Twelve
Months
Over Twelve
Months
TotalGross UnrealizedLosses
Fair Value
Gross UnrealizedLosses
Fair Value
Gross UnrealizedLosses
Fair ValueSecurities Available-for-Sale
(In Thousands)U.S. Treasury Securities
and Obligations of
        U.S. Government Corporations and
Agencies

$ (1,389)
$ 68,228
$ (1,460)
$  40,347
$ (2,849)
$ 108,575Obligations of States and
Political Subdivisions
(105)
6,079
(135)
4,117
(240)
10,196Other Debt Securities

-
-
(17)
983
(17)
983Total Securities
Available-for-Sale

$(1,494)
$ 74,307
$(1,612)
$ 45,447
$(3,106)
$ 119,754======
======
======
======
======
======


In reviewing the investment
portfolio for other-than-temporary impairment of individual securities,
consideration is given to (1) the length of time in which fair value has been
less than cost and the extent of the unrealized loss, (2) the financial
condition of the issuer, and (3) the ability of the Company to maintain its
investment in the issuer for a time that would provide for any anticipated
recovery in the fair value.

As of December 31, 2005, the
Company had 125 debt securities noted with unrealized losses with 114 of those
securities having been in an unrealized loss position for greater than 12
months.  Most of the 125 securities are
U. S. government agency or mortgage-backed securities which have declined in
value or remained in an unrealized loss position from 2004 due to the
flattening and then inversion of the yield curve that occurred in 2005
subsequent to the increasing federal funds rates over the last year and a
half.  Such unrealized losses are
considered to be driven entirely by current market conditions and interest
rates and not related to the credit quality of the issuers.  In analyzing reasons for the unrealized
losses management considers whether the securities are issued by the federal
government or its agencies, whether downgrades of bond ratings have occurred,
and also reviews any applicable industry analysts'  reports.  With respect to unrealized losses on
securities noted and the analysis performed relating to the securities,
management currently believes that declines in market value are temporary.

Generally accepted accounting
principles have established accounting and reporting standards for derivative
financial instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. These standards require that
derivatives be reported either as assets or liabilities on the balance sheets
and be reflected at fair value. The accounting for changes in the fair value of
a derivative instrument depends on the intended use of the derivative and the
resulting designation.   The Company has
one derivative transaction, which is an interest rate swap that was purchased in
June 2000.  Since a Federal Home Loan Bank
Variable LIBOR Borrowing has been designated as the hedged item and in doing
so, the Company has effectively fixed the cost of this liability.  As a floating rate liability was hedged,
there are no significant fluctuations in its market value but there are
fluctuations in the cash flows.  Thus,
the swap is designated as a cash flow hedge, hedging the "benchmark interest
rate."   The market value gain or loss
of the swap is adjusted through other comprehensive income.  The purpose of the transaction was to reduce
exposure to interest rate risk.  Volume
of the transaction is $1.5 million and the term is 10 years.

During the year ended December
31, 2005, the value of the derivative is a liability of approximately
$177,000.  Market interest rate fluctuations
resulted in a reduction of the liability by approximately $89,000, as well as a
reduction in negative accumulated other comprehensive income of approximately
$50,000, net of tax, during the year ended December 31, 2005.  Accumulated other comprehensive income (net
of tax) related to the swap totaled a negative $109,000 as of December 31,
2005.

-47-

---

NOTE 4 - LOANS

Loans outstanding at December 31, 2005
and 2004, were comprised of the following:

2005
      2004(In Thousands)Commercial, Financial and Agricultural
      $   78,086
      $   72,330Real Estate - Construction
      74,817
      99,028Real Estate - Mortgage
      352,749
      320,627Installment
      37,761
      38,550Other Loans
      3,804
      4,147547,217
      534,682Less: Allowance for Loan Losses
      6,830
      6,239Net Loans
      $ 540,387
      $ 528,443======
      ======


In conformity with Statement No.
114 of the Financial Accounting Standards Board, the Corporation has recognized
loans with carrying values of approximately $1,766,000 at December 31, 2005 and
$2,076,000 at December 31, 2004, as being impaired.  The balance maintained in the Allowance for Loan Losses related
to these loans was $505,000 at December 31, 2005, and $391,000 at December 31,
2004.  Average investment in impaired
loans in 2005 and 2004 were $1.9 million and $1.75 million, respectively.  Interest income on impaired loans was
immaterial to the consolidated financial statements for the three years ended
December 31, 2005, 2004 and 2003.  Loans
and leases 90 days past due and still accruing interest total $431 thousand as
of year-end 2005 compared to  $798
thousand as of year-end 2004 and $223 thousand in 2003.

NOTE 5 - ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses during the three
years ended December 31 is as follows:

2005
    2004
    2003(In Thousands)Balance - Beginning of
      Period
    $  6,239
    $  6,124
    $  5,653Addition Incident to
      Merger
    -
    -
    (94)Provision for Loan
      Losses
    1,059
    937
    975Loans
      Charged to Allowance
    (632)
    (1,036)
    (919)Recovery
      of Loan Previously Charged Off
    164


  
    214


    509Net Charge-offs


  
    (468)
    (822)
    (410)Balance - End of Period


  
    $ 
      6,830
    $ 
      6,239
    $ 
      6,124======
    ======
    ======


NOTE 6 - SECONDARY MORTGAGE
MARKET ACTIVITIES

Mortgage loans originated and
intended for sale in the secondary market are carried at the lower of aggregate
cost or market, as determined by outstanding commitments from investors.  Net unrealized losses, if any, are recorded
as a valuation allowance and charged to earnings.  There were no such losses for any of the three years ended
December 31, 2005, 2004 and 2003.  There
has been no material difference between cost and fair market values of loans
held for sale for any of the periods presented.

Servicing rights are not retained
on any mortgage loans held for sale. 
Secondary mortgage fees included interest and fees on loans were
$1,182,000, $1,040,000, and $1,684,000 for the years ended December 31, 2005,
2004, and 2003, respectively.

-48-

---

NOTE 7 - PREMISES AND
EQUIPMENT

The fixed assets used in the
ordinary course of business are summarized as follows:

Useful Livesin Years
      2005
      2004(In
        Thousands)Land
      
      $  
        5,616
      $  
        4,279Buildings
      5 to 50
      25,000
      20,172Furniture and
        Equipment
      3 to 20
      16,004
      15,01646,620
      39,467Less:
        Accumulated Depreciation
      18,978
      15,880Net Fixed Assets
      
      $ 27,642
      $ 23,587=======
      =======




NOTE 8 - GOODWILL AND
OTHER INTANGIBLE ASSETS

Upon adoption of SFAS 142 in
January 2002, the Company ceased to amortize goodwill ($25 thousand per
month).  Impairment testing is performed
during the first quarter of each year. 
Based on annual impairment testing since adoption of SFAS 142, there has
been no impairment of goodwill recorded. 
Thus, there are no impairment charges recorded for any periods presented
in these consolidated financial statements and notes or subsequently.  There was no activity in goodwill during the
years end December 31, 2005, 2004 and 2003, except for a reclassification
adjustment made in third quarter 2004. 
During the third quarter 2004, goodwill totaling $392,000 was
reclassified as a deferred tax asset to correct an error made on the accounting
for the Munford Union Bank acquisition in 2002.  The acquisition accounting did not include an amount for deferred
taxes related to Munford Union Bank being an S Corporation prior to
acquisition.  As this entry was a
reclassification on the balance sheet, there was no impact on total assets,
equity or net income for the periods presented.    Total goodwill as of December 31, 2005 is $11.8 million or 1.45%
of total assets or 18.58% of total capital.

Other identifiable intangibles
consist of core deposit intangibles being amortized over a 10-year period as
follows:

2005
      2004Core Deposit Intangible
      $     
845
      $     
845Accumulated Amortization
      (303)
      (220)Net Core Deposit Intangible
      $      542
      $     
625======
      ======




Amortization expense for the past
three years has been $84,500 per year for 2005, 2004 and 2003.  Estimated amortization expense for each of
the next five years is $84,500 per year.

NOTE 9 - REPOSSESSED
REAL PROPERTY

The carrying value of repossessed
real property on the balance sheets of the Corporation is $129,000 at December
31, 2005, and $337,000 at December 31, 2004. The value of repossessed real
property is reflected on the balance sheets in "Other Assets."

NOTE 10 - BANK OWNED
LIFE INSURANCE

The Bank has a significant
investment in bank owned life insurance policies (BOLI) due to providing this
fringe benefits to its employees in the position of Vice President and higher
after one year of service.  The cash
surrender values of BOLI are $16 million and $14 million as of December 31,
2005 and 2004, respectively.  BOLI are
initially recorded at the amount of premiums paid and are adjusted to current
cash surrender values.  Changes in cash
surrender values are recorded in other non-interest income and are based on
premiums paid less expenses plus accreted interest income.  Earnings on BOLI resulted in non-interest
income of $914,000, $443,000 and $695,000 for the three years ended December
31, 2005, 2004 and 2003, respectively. 
Earnings in 2005 included approximately $260,000 received from a death
benefit associated with a policy inherited through a prior acquisition.

-49-

---

NOTE 11 - DEPOSITS

Included in the deposits shown on the balance sheets are the following time deposits and savings deposits in denominations of $100,000 or more:

2005
      2004(In Thousands)Time Deposits
      $   179,296
      $   161,490Savings Deposits
      111,987
      94,937


NOW accounts, included in savings
deposits on the balance sheets, totaled $62,211,000 at December 31, 2005 and
$63,788,000 at December 31, 2004.

Time deposits maturing in years
subsequent to December 31, 2005, are as follows:



(In Thousands)On or before December 31, 2006
$ 257,621On or during year ended December 31, 2007
56,192On or during year ended December 31,
2008
21,429On or during year ended December 31,
2009
6,658On or during year ended December 31,
2010
6,620Total
$  348,520=======


NOTE 12 - SHORT-TERM BORROWINGS

The Bank has three sources of
short-term borrowings, which consist of cash management advances from the
Federal Home Loan Bank (FHLB), Treasury, Tax and Loan (TT&L) option note,
and federal funds purchased from correspondent banks.  Short-term borrowings are used to manage seasonal fluctuations in
liquidity.

Cash management advances from
FHLB are secured 1-4 family first mortgages under the blanket collateral pledge
agreement that also collateralizes long-term advances from FHLB and have
maturities of 90 days or less.  See the
long-term debt footnote in regards to maximum borrowing capacity with FHLB as
of December 31, 2005.  There were no
borrowings outstanding against this line as of December 31, 2005.

First Citizens National Bank is
an Option B bank in regards to TT&L and up to $1 million in collected
TT&L payments collected can be retained as a short-term option note.  This option note is callable upon demand by
the TT&L.  The current balance of
this line was $1,000,000 as of December 31, 2005.

The Bank has federal fund lines
of credit available with four correspondent banks totaling $52,500,000.  There were no outstanding federal funds
purchased as of December 31, 2005.

The following tabular analysis
presents year-end balances of short-term borrowings, maximum month-end balance,
year-to-date daily average, and weighted average cost for 2005, 2004 and 2003:

2005
    2004
    2003Amount
      Outstanding - End of Period
  
    $ 
        1,000
  $ 
        1,000
    $ 
           967Maximum
      Amount of Borrowings 
          at Any Month End During the Year

    $  26,217

    $ 
      25,732
    $ 
      15,544Year-to-Date
      Daily Average
    $    6,527
    $    9,656
    $    2,364Weighted
      Average Cost
    3.54%
    1.43%
    1.14%


-50-

---

NOTE 13 - LONG TERM
DEBT

In March 2002, First Citizens
Bancshares, Inc. formed a new wholly-owned subsidiary, First Citizens (TN) Statutory
Trust under the provisions of the Business Act of Delaware. The subsidiary was
formed for the purpose of issuing preferred securities and conveying the
proceeds to First Citizens Bancshares, Inc. in exchange for long-term,
subordinated debentures issued by First Citizens Bancshares, Inc. The
debentures are the only assets of the trust.

On March 26, 2002, the Company,
through its Trust subsidiary, issued 5,000 floating rate Preferred Trust
Securities in denominations of $1,000 for a total of $5,000,000, which mature
thirty (30) years from the date of issuance. Interest is payable on March 26,
June 26, September 26 and December 26 of each year during the term. The
interest rate is calculated quarterly equal to the three-month LIBOR interest
rate plus 3.6%, provided that prior to March 26, 2007, the interest rate cannot
exceed eleven percent (11%).  
Responsibilities of the Company concerning the debentures and related
documents constitute a full and unconditional guarantee by the Company of the
Trust issuer's preferred securities.

Although for accounting
presentation, the Preferred Trust Securities are treated as debt, the
outstanding balance qualifies as Tier I capital subject to the provision that
the amount of the securities included in Tier I Capital cannot exceed
twenty-five percent (25%) of total Tier I capital.

First Citizens Bancshares, Inc.
has a line of credit with First Tennessee Bank National Association in the
amount of $13 million, secured by common stock of First Citizens National Bank
with a book value totaling 143% of the total outstanding advances on the
line.  The note was originally executed
in 2002 with a two-year maturity with the purpose for use in various financial
strategies including the acquisition of Munford Union Bank.  Interest on the outstanding balance is
payable on a quarterly basis, calculated at 100 basis points below the base
rate of First Tennessee Bank.  Since its
original maturity in 2004, the line has been renewed annually for a one-year
term.  At December 31, 2005, the
outstanding balance on this line is $2.657 million.  This line was reduced by $5 million during 2005 with the proceeds
from trust preferred securities discussed in the next two paragraphs.

In
March 2005, the Company formed a wholly owned subsidiary First Citizens (TN)
Statutory Trust III.  The Trust was
created under the Business Act of Delaware for the sole purpose of issuing and
selling preferred securities and using proceeds from the sale to acquire long
term subordinated debentures issued by Bancshares.  The debentures are the sole assets of the Trust.  First Citizens Bancshares owns 100% of the
common stock of the Trust.

On March 17, 2005 the Company
through its wholly owned subsidiary, First Citizens (TN) Statutory Trust III,
sold 5,000 of its floating rate Preferred Trust Securities at a liquidation
amount of $1,000 per security for an aggregate amount of $5,000,000.  For the period beginning on (and including)
the date of original issuance and ending on (but excluding) June 17, 2005 the
rate per annum of 4.84%.  For each
successive period beginning on (and including) June 17, 2005, and each
succeeding interest payment date at a rate per annum equal to the 3-month LIBOR
plus 1.80%.  Interest payment dates are:
March 17, June 17, September 17, and December 17 during the 30-year term.  The entire $5 million in proceeds was used
to reduce Bancshares' revolving line of credit with First Tennessee discussed
above.  This trust preferred debt is
recorded as debt by the Company but included as Tier I Capital for regulatory
reporting in accordance with regulatory guidelines as discussed above.

First Citizens Bancshares, Inc.
will be dependent on the profitability of its subsidiaries and their ability to
pay dividends in order to service its long-term debt.

First Citizens National Bank has
secured advances from the Federal Home Loan Bank in the amounts of $65,161,000
at December 31, 2005 and $70,630,000 at December 31, 2004, which are considered
long-term in nature. These advances bear interest at rates which vary from
2.85% to 6.55% and mature in the years 2008 through 2011. Obligations are
secured by the Bank's entire portfolio of fully disbursed, one to four family
residential mortgages and multi-family residential mortgages.  The Bank had additional borrowing capacity
of approximately $13 million as of December 31, 2005.

Annual average volume, rates and
maturities of long-term debt for the years 2005 and 2004 are as follows:



AverageVolume
      Average   Interest Rate
      Average 
         
        Maturity(in
        thousands)2005First Citizens
        Bancshares, Inc.
      $ 13,399
      5.91%
      19 yearsFirst Citizens
        National Bank
      65,102
      5.32%
      5 years2004First Citizens
        Bancshares, Inc.
      $ 13,831
      4.11%
      8 yearsFirst Citizens
        National Bank
      69,404
      5.12%
      6 years


Maturities of principal
on the above referenced long-term debt for the following five years are as shown:

Years
        Ending December 31,2006
      $       3,2152007
      5452008
      7,5642009
      3,5562010
      33,020Thereafter
      30,228

      $   78,128
    =======


-51-

---

NOTE 14 - INCOME TAXES

Provision for income taxes is comprised of the following:

2005
    2004
    2003(In Thousands)Federal
      Income Tax Expense (Benefit)Current
    $  3,442
    $  2,980
    $  3,515Deferred
    (355)
    261
    (266)$  3,087
    $  3,241
    $  3,249======
    ======
  =====


Effective tax rates differ from
federal statutory rate of 34% applied to income before income taxes due to the
following:

2005
    2004
    2003(In Thousands)Tax Expenses at
      Statutory Rate


  
    $  3,996
  $  3,839
    $  3,763Increase (Decrease)
      Resulting From:State Income Taxes, Net Federal Income Tax Benefit


  
    -
  300
    438Tax Exempt Interest
      Income


  
    (607)
  (540)
    (556)Earnings on Bank Owned
      Life Insurance


  
    (276)
  (150)
    (190)ESOP Dividend


  
    (270)
    (168)
    (259)Other Items


  
    244
  (40)
    53$  3,087
  $  3,241
    $  3,249======
  ======
    ======


In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized.  The
ultimate realization of the deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. 
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment.  Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefit of these
deductible differences.  However, the
amount of deferred tax assets considered realizable could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.  Year-end deferred
tax assets and liabilities were due to the following:

2005
      2004(In Thousands)Deferred Tax Assets:Allowance for Loan
Losses
      $   2,099
      $   1,999Net Unrealized Loss on
Available-for-Sale Securities
      491
      -Net Unrealized Loss on
Cash Flow Hedge
      68
      108Deferred Loan Fees
      111
      52Other
      82
      39Total Deferred Tax Assets
      2,851
      2,198Deferred Tax Liabilities:Depreciation
      (1,226)
      (1,416)FHLB Stock
Dividends
      (679)
      (636)Net Unrealized
Gain on Available-for-Sale Securities
      -
      (630)Prepaid Expenses
      (91)
      (99)Other
      (55)
      (55)Total Deferred Tax Liabilities
      (2,051)
      (2,836)Net Deferred Tax Assets (Liabilities)
      $        800
      $       (638)=========
      =========


At year-end 2005, the Company has
a net operating loss carryforward for state tax purposes of approximately $3.8
million that will expire in 2020.

-52-

---

NOTE 15 - REGULATORY MATTERS

First Citizens Bancshares, Inc.
is subject to various regulatory capital requirements administered by federal
banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company and the consolidated financial statements.  The regulations require the Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. 
The Bank's capital classification is also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

Quantitative measures established
by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios (set forth in the table below) of Tier I capital (as defined
in the regulations) to total average assets (as defined), and minimum ratios of
Tier I and total risk-based capital (as defined) to risk-weighted assets (as
defined).  To be considered adequately
capitalized (as defined) under the regulatory framework for prompt corrective
action, the Bank must maintain minimum Tier I leverage, Tier I risk-based, and
total risk-based ratios as set forth in the table.  The Bank's actual capital amounts and ratios are also presented
in the table.

As of December 31, 2005, the most
recent notification from the Bank's primary regulatory authorities categorized
the Bank and Bancshares as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table.  There
are no conditions or events since notification that management believes have
changed the institution's category.



Actual
    For CapitalAdequacy Purposes
    To
      Be Well Capitalized
      Under Prompt CorrectiveAction ProvisionsAmount
    Ratio
    Amount
    Ratio
    Amount
    RatioDecember 31, 2005:

    (In Thousands)Total Capital to Risk
      Weighted Assets:First
      Citizens Bancshares
    $ 69,043
    12.1%

    $ 45,611
    8.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 70,916
    12.5%

    $ 45,569
    8.0%
    $ 56,961
    10.0%Tier I Capital to Risk
      Weighted Assets:First
      Citizens Bancshares
    $ 62,213
    10.9%

    $ 22,810
    4.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 64,091
    11.3%

    $ 22,768
    4.0%
    $ 34,152
    6.0%Tier I Capital to
      Average Assets:First
      Citizens Bancshares
    $ 62,213
    7.8%

    $ 31,741
    4.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 64,091
    8.1%

    $ 31,728
    4.0%
    $ 39,660
    5.0%December 31, 2004:Total Capital to Risk
      Weighted Assets:First
      Citizens Bancshares
    $ 58,923
    10.9%

    $ 43,389
    8.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 66,496
    12.3%

    $ 43,305
    8.0%
    $ 54,131
    10.0%Tier I Capital to Risk
      Weighted Assets:First
      Citizens Bancshares
    $ 52,684
    9.7%

    $ 21,695
    4.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 60,274
    11.1%

    $ 21,652
    4.0%
    $ 32,478
    6.0%Tier I Capital to
      Average Assets:First
      Citizens Bancshares
    $ 52,684
    7.0%

    $ 30,317
    4.0%
    N/A
    N/AFirst
      Citizens National Bank
    $ 60,274
    8.0%

    $ 30,273
    4.0%
    $ 37,842
    5.0%


NOTE 16 - RESTRICTIONS ON
CAPITAL AND PAYMENTS OF DIVIDENDS

The Corporation is subject to
capital adequacy requirements imposed by the Federal Reserve Bank.  In addition, the Corporation's National Bank
Subsidiary is restricted by the Office of the Comptroller of the Currency from
paying dividends in any years that exceeded the net earnings of the current
year plus retained profits of the preceding two years.  As of December 31, 2005, approximately $10.7
million of retained earnings were available for future dividends from the
subsidiary bank to the parent corporation.

-53-

---

NOTE 17 - RELATED PARTY
TRANSACTIONS

The Company has loans and
deposits with executive officers, directors and their affiliates.  The Company also enters into contracts with
certain related parties from time to time such as for construction of a
branch.  All related party transactions
are entered into under substantially the same terms as unrelated third party
transactions.  All material contracts
are awarded based on competitive bids.

Activity in loans to executive
officers, directors and their affiliates is as follows for the three years
ended December 31, 2005, 2004 and 2003:

2005
    2004
    2003Balance at
      Beginning of Period
    $  14,682
    $  14,419
    $  11,068New Loans
    11,209
    12,725
    14,021Repayments
    (11,495)
    (12,462)
    (10,670)Balance at End of Period
    $  14,396
    $  14,682
    $  14,419======
    ======
    =====


There were no charged-off,
restructured or non-current loans to related parties for any of the periods
presented.  Loans to related parties are
made on substantially the same terms as third party transactions.

Indebtedness shown represents
amounts owed by directors and executive officers of First Citizens Bancshares,
Inc. and First Citizens National Bank and by business in which such persons are
general partners or have at least 10% or greater interest and trust and estates
in which they have a substantial beneficial interest.  All loans have been made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with others and do not involve other than normal risks
of collectibility.

First Citizens National Bank
routinely enters into deposit relationships with its directors, officers, and
employees in the normal course of business. 
These deposits bear the same terms and conditions as those prevailing at
the time for comparable transactions with unrelated parties.  Balances of executive officers and directors
on deposit as of December 31, 2005 and 2004, were $11.5 million and $17.5
million respectively.

Over the last few years, First
Citizens has invested in the construction of four new branches, Martin,
Arlington, Oakland and Collierville. 
Construction has also been started to convert the Bank Annex into a bank
operations and information technology center. 
In 2005, payments totaling $5.51 million were paid to related parties
for completion of the Oakland branch construction, for site development and
construction of the Collierville branch, and the Annex conversion.  In 2004, payments totaling $1.55 million
were paid to related parties for the completion of the Martin branch
construction and for site development and construction of the Oakland branch.

In July 2005, the main office of
the brokerage subsidiary was moved from the Banking Annex to a leased facility
in Dyersburg.  The new facility is
leased from a related party.  The
subsidiary invested approximately $100,000 in leasehold improvements to this
facility and paid approximately $11,000 in lease payments during 2005.  The lease is set up for a five-year term
with monthly payments of $1,850.  The
lease includes an option of an additional five-year term at the original
monthly payment of $1,850 and then another five-year option at a monthly rate
of $2,460.  Future minimum lease
payments for this related party lease are $22,200 per year for each of the next
five years.

NOTE 18 - FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK

First Citizens National Bank is a
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk, not recognized
in the statement of financial position.

The Bank's exposure to credit
loss in the event of non-performance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The same policies
are utilized in making commitments and conditional obligations as are used for
creating on-balance sheet instruments. Ordinarily, collateral or other security
is not required to support financial instruments with off-balance sheet risk.

Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Loan commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many commitments are expected to expire without being drawn upon, total
commitment amounts do not necessarily represent future cash requirements. Each
customer's credit-worthiness is evaluated on a case-by-case basis, and
collateral required, if deemed necessary by the Bank upon extension of credit,
and is based on management's credit evaluation of the counter party. At
December 31, 2005 and 2004, First Citizens National Bank had outstanding loan
commitments of $104,249,000 and $89,266,000, respectively.  As of year-end 2005, variable rate
commitments were $84,223,000 and fixed rate commitments were $20,026,000.  As of year-end 2004, variable rate
commitments were $66,614,000 and fixed rate commitments were $22,652,000.  Of these commitments, none had an original
maturity in excess of one year.

Standby letters of credit and
financial guarantees are conditional commitments issued by the Bank to
guarantee performance of a customer to a third party. Those guarantees are
issued primarily to support public and private borrowing arrangements, and the
credit risk involved is essentially the same as that involved in extending
loans to customers. The Bank requires collateral to secure these commitments
when deemed necessary. At December 31, 2005 and 2004, outstanding standby
letters of credit totaled $3,350,000 and $5,158,000, respectively.

In the normal course of business,
First Citizens National Bank extends loans, which are subsequently sold to
other lenders, including agencies of the U. S. government.  Certain of these loans are conveyed with
recourse creating off-balance sheet risk with regard to the collectibility of
the loan.  At December 31, 2005 and
2004, however, the Bank had no loans sold with recourse.

-54-

---

NOTE 19 -
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

First Citizens National Bank
grants agribusiness, commercial, residential, and personal loans to customers
throughout a wide area of the mid-southern United States.  A large majority of the Bank's loans, however,
are concentrated in the immediate vicinity of the Bank or West Tennessee.  Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
obligations is dependent upon the agribusiness and industrial economic sectors
of that geographic area.

NOTE 20 - DISCLOSURE
OF FAIR VALUE OF FINANCIAL INSTRUMENTS

The
following assumptions were made and methods applied to estimate the fair value
of each class of financial instruments reflected on the balance sheets of the
Corporation:



CASH
AND CASH EQUIVALENTS



For instruments, which qualify as
cash equivalents, as described in Note 1 of Notes to Consolidated Financial
Statements, the carrying amount is assumed to be fair value.



INVESTMENT SECURITIES



Fair value for investment
securities is based on quoted market price, if available.  If quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.  The carrying values of Federal Reserve Bank
and Federal Home Loan Bank stock approximate fair value based on the redemption
provisions of each bank.



LOANS RECEIVABLE



Fair value of variable-rate loans
with no significant change in credit risk subsequent to loan origination is
based on carrying amounts.  For other
loans, such as fixed rate loans, fair values are estimated utilizing discounted
cash flow analyses, applying interest rates currently offered for new loans
with similar terms to borrowers of similar credit quality.  Fair values of loans which have experienced
significant changes in credit risk have been adjusted to reflect such changes.

The fair values of accrued
interest receivable and other assets are assumed to be its carrying value.

DEPOSIT
LIABILITIES



Demand Deposits



The fair values of
deposits which are payable on demand, such as interest-bearing and
non-interest-bearing checking accounts, passbook savings, and certain money
market accounts are equal to the carrying amount of the deposits.



Variable-Rate Deposits



The fair value of
variable-rate money market accounts and certificates of deposit approximate
their carrying value at the balance sheet date.



Fixed-Rate
Deposits



For fixed-rate certificates
of deposit, fair values are estimated discounted cash flow analyses, which
apply interest rates currently being offered on certificates to a schedule of
aggregated monthly maturities on time deposits.



2005
2004Carrying
Fair
Carrying
FairFinancial Assets

  

Amount
Value
Amount
Value(In Thousands)Cash and Cash
Equivalents
$   40,686
$   40,686
$   33,386
$ 33,386Investment Securities
161,168
161,174
147,137
147,162Loans
547,217



  





534,682

Less: Allowance for Loan Losses
  
(6,830)
-
(6,239)
---Loans,
Net of
Allowance
540,387
529,450
528,443
529,976Loans
Held for Sale
3,043
3,043
1,330
1,330Accrued Interest Receivable
5,478
5,478
4,559
4,559Federal Reserve Bank and Federal Home
Loan
    Bank Stock
5,258
5,258
5,056
5,056Other Assets
59,729
59,729
53,293
53,293Financial Liabilities

Deposits
$ 635,509
$ 635,210
$ 592,382
$ 593,256Short-term Borrowings
35,753
36,387
31,611
31,796Long-term Debt
  
78,128
  78,891
84,481
  88,764Other Liabilities
2,713
2,713
3,522
3,522Unrecognized Financial Instruments
Commitments to Extend Credit
$ 104,249

$ 104,249

$ 
89,266

$ 
89,266Standby Letters of Credit

3,350

3,350

5,158

5,158




-55-

---

NOTE 21 - EMPLOYEE STOCK OWNERSHIP AND 401(K) PLANS

First Citizens National Bank
maintains the First Citizens National Bank of Dyersburg Employee Stock
Ownership Plan and the First Citizens National Bank 401(k) Plan as employee
benefits. The 401(k) plan was adopted October 1, 2000.  The plans provide for a contribution
annually not to exceed 25 percent of the total compensation of all participants
and affords eligibility for participation to all full-time employees who have
completed at least one year of service. During the year 2005, the Company
contributed amounts equal to three percent (3%) of total eligible compensation
to the 401(k) plan and seven percent (7%) of eligible compensation to the
employee stock ownership plan. Contributions to the plans totaled approximately
$1,095,000 in 2005, $968,000 in 2004, and $866,000 in 2003.



NOTE 22 - CONDENSED FINANCIAL
INFORMATION

FIRST CITIZENS BANCSHARES, INC.
(Parent Company Only)
Balance Sheets
  December 31, 2005 and 2004
(In Thousands)

2005
2004ASSETSCash
$        147
$        237Investment in Subsidiaries
76,236
74,034Due from Subsidiaries
100
415Other Assets
170
368TOTAL ASSETS
$    76,653
$    75,054========
========LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESLong-term Debt
$      12,967
$      13,831Accrued Expenses
40
15TOTAL LIABILITIES
$13,007
$13,846STOCKHOLDERS' EQUITY
63,646
61,208TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$     76,653
$     75,054========
========


-56-

---

FIRST CITIZENS BANCSHARES, INC.
(Parent Company Only)
Condensed Income Statements
December 31, 2005 and 2004(In Thousands)

|INCOME                                                                               | 2005        | 2004       
|------------------------------------------------------------------------------------ | ----------- | -----------
|Dividends from Bank
Subsidiary                                                       | $    5,551  | $    4,851 
|Other Income                                                                         | 30          | 39         
|TOTAL
INCOME                                                                         | 5,581       | 4,890      
|                                                                                     |             |            
|EXPENSES                                                                            
|Interest Expense                                                                     | 792         | 569        
|Other Expenses                                                                       | 168         | 164        
|TOTAL EXPENSES                                                                       | 960         | 733        
|                                                                                     |             |            
|Income Before Income Taxes and Equity in
Undistributed Net Income of Bank Subsidiary | 4,621       | 4,157      
|Income Tax Expense (Benefit)                                                         | (312)       | (266)      
|                                                                                     | 4,933       | 4,423      
|Equity in Undistributed Net Income of
Bank Subsidiary                                | 3,732       | 3,626      
|NET INCOME                                                                           | $    
8,665 | $    
8,049
|                                                                                     | ========    | ========   

-57-

---

FIRST CITIZENS BANCSHARES, INC.
(Parent Company Only)
Condensed Statements of Cash Flows
December 31, 2005 and 2004(In Thousands)

|Operating Activities                                                              | 2005           | 2004          
|--------------------------------------------------------------------------------- | -------------- | --------------
|Net Income                                                                        | $     8,665    | $     8,049   
|Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities: |                |               
|Undistributed Income of
Subsidiary                                                | (3,732)        | (3,626)       
|(Increase) Decrease in Other
Assets                                               | 25             | 4             
|Increase (Decrease) in
Other Liabilities                                          | 43             | 14            
|NET CASH
PROVIDED BY OPERATING ACTIVITIES                                         | $   
    5,001 | $   
    4,441
|                                                                                  |                |               
|Investing Activities                                                             
|Investment in Subsidiaries                                                        | 315            | 207           
|                                                                                 
|Financing Activities                                                             
|Payment of Dividends and Payments in Lieu
of Fractional Shares                    | (4,075)        | (4,091)       
|Long Term Borrowings Issued                                                       | 5,155          | -             
|Payment of Principal on Long Term Debt                                            | (6,019)        | (314)         
|Treasury Stock Transactions - Net                                                 | (467)          | (173)         
|NET CASH
PROVIDED BY FINANCING ACTIVITIES                                         | (5,406)        | (4,578)       
|                                                                                  |                |               
|INCREASE (DECREASE) IN CASH                                                       | (90)           | 70            
|Cash at Beginning of Year                                                         | 237            | 167           
|CASH AT END OF YEAR                                                               | $        
147  | $        
237 
|                                                                                  | ========       | ========      

-58-

---

NOTE 23 - QUARTERLY SELECTED FINANCIAL DATA (UNAUDITED)

InterestIncome
    
    Net InterestIncome
    NetIncome
    E.P.S.Basic
    E.P.S.Diluted2005First Quarter
      $  
        8,713
      $  
        6,362
      $  
        2,070
      $  0.57
      $  0.57Second Quarter
      9,270
      6,618
      2,306
      0.63
      0.63Third Quarter
      9,884
      6,945
      2,205
      0.61
      0.61Fourth Quarter
      10,124
      6,997
      2,084
      0.57
      0.57Total
      $ 37,991
      $ 26,922
      $  
        8,665
      $  2.38
      $  2.38====
      =====
      =====
      ====
      ====2004First Quarter
      $   9,416
      $   6,265
      $   1,967
      $  0.54
      $  0.54Second Quarter
      9,662
      6,518
      2,021
      0.55
      0.55Third Quarter
      9,779
      6,451
      1,966
      0.54
      0.54Fourth Quarter
      10,160
      6,434
      2,095
      0.57
      0.57Total
      $ 39,017
      $ 25,668
      $   8,049
      $  2.20
      $  2.20====
      =====
      =====
      ====
      ====


ITEM
9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.

ITEM
9A.   CONTROLS AND PROCEDURES

The Company, under
supervision of and with the participation of its management, including the
Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Annual Report.  Disclosure controls and procedures are
defined in accordance with Rule 13a-15(e) under the Securities Exchange
Act.  As of the end of the period covered
by this Annual Report, disclosure controls and procedures are considered to be
effective. There have been no changes in internal control during the quarter
ending December 31, 2005, that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.

See Item 8 for Management's Annual
  Report on Internal Control over Financial Reporting and the related
  Independent Auditor's attestation opinion.

-59-

---

PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information appearing in
Bancshares' 2006 Proxy Statement regarding directors, officers and audit
committee expert is incorporated herein by reference in response to this Item.



A description of The
Code of Ethics (Conduct) for Bancshares included in the 2006 Proxy Statement is
incorporated herein by reference in response to this item.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information relates to the principal executive officers of Bancshares and its
subsidiary, as
of December 31, 2005:

Name
      Age
      Position and OfficeKatie S. Winchester
  
      65
      Chairman
        of the Board of Bancshares and First Citizens National Bank since April
        2005. Vice Chairman of Board from 2000 to 2005. President and CEO of
        Bancshares and Bank. Employed by First Citizens in 1961. Served as
        Executive Vice President and Secretary of Board from 1986 to 1992. She
        was appointed CEO of Bancshares and Bank in 1996 and President in 1992.
        Ms. Winchester was elected to the Bank and Bancshares Boards in 1990.Ralph Henson
  
      64
      Vice President of Bancshares; Executive Vice
President of Loan Administration of First Citizens National Bank. Employed by First Citizens
in 1964. Mr. Henson served as Senior Vice President and Senior
Lending Officer until his appointment of Executive Vice President in February 1993. 
        Elected
to Board of Directors in 1997.Jeffrey D. Agee
  
      45
      Appointed
Vice President and successor designee to the President of Bancshares and First
Citizens in June 2004. Mr. Agee is a Certified Public Accountant and served as
Executive Vice President and Chief Financial Officer of First Citizens from August 1999 to June 2004. 
        Employed by First Citizens since 1982. Appointed to the Board in July
        2005. Barry T. Ladd
    
      65
      Appointed
Executive Vice President and Chief Administrative Officer of First Citizens and
Bancshares in 1996.  Senior Vice
President and Senior Lending Officer of First Citizens from April 20, 1994 to
January 17, 1996.  Employed by First
Citizens in 1972.  Mr. Ladd served First
Citizens as Vice President and Lending Officer previous to his appointment as
Senior Vice President. Appointed to Board of Directors in 1996.Judy Long
  
      51
      Vice President and Secretary to the Board of
First Citizens Bancshares.  Appointed
Executive Vice President and Chief Operations Officer and Secretary of the
Board of both First Citizens National Bank and Bancshares in August 1999.  Ms. Long served as Senior Vice President and
Chief Operations Officer and Secretary to First Citizens prior to this
appointment.  She served as Senior Vice
President and Administrative Officer previous to November 1997, Vice President
and Loan Operations Manager (1992-1996). 
Employed by First Citizens in July 1974.John S. Bomar
  
      57
      Appointed Regional President and Chief
Executive Officer for the Southwest Region. 
Mr. Bomar served as President of Munford Union Bank from 1994 until
acquisition by First Citizens in 2002. 
Mr. Bomar served as Executive Vice President of Munford Union Bank from
1982 until promoted to President in 1994.Laura Beth Butler
  
      30
      Appointed Senior Vice President
and Chief Financial Officer of First Citizens National Bank and Bancshares June
2004.  Ms. Butler is a Certified Public
Accountant and prior employment consisted of positions as Senior Audit Manager
of the Banking practice of a local accounting firm from 2000 to 2004 and as a
Staff Accountant with KPMG, LLP from 1998 to 1999.


-60-

---

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item is set forth in the
2006 Proxy Statement, and is incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Ownership of Bancshares'
common stock by certain beneficial owners and by management is set forth in
Bancshares' 2006 Proxy Statement for the Annual Meeting of Shareholders to be
held April 19, 2006, in the sections entitled Voting Securities and Election of
Directors and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

Officers, Directors and
principal shareholders of Bancshares (and their associates) have deposit
accounts and other transactions with First Citizens National Bank. These
relationships are covered in detail under the section titled "Certain Relationships and Related Transactions"
of the 2006 Proxy Statement under and incorporated
herein by reference.

ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES

The Audit Committee information is incorporated by the
reference to the 2006 Proxy Statement.

-61-

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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,
hereunto duly authorized.

First Citizens Bancshares, Inc.
(Registrant)



Date: March 15, 2006                          /s/ 
KATIE WINCHESTER                                                                                   
                                 
CHAIRMAN,
                                                                                       
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Date: March 15, 2006                 /s/    LAURA BETH BUTLER                                   
                                              
               SENIOR
VICE PRESIDENT &
PRINCIPAL 
                                                                                                           
FINANCIAL OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the Registrant and in the capacities
indicated on March 15, 2006.

/s/
        JEFFREY D. AGEE
      
      
      /s/
        RALPH E. HENSON
      
      
      /s/
        DWIGHT S. WILLIAMSDirector
      
      
      Director
      
      
      Director/s/
        EDDIE E. ANDERSON
      
      
      /s/
        BARRY T. LADD
      
      
      /s/
        KATIE S. WINCHESTERDirector
      
      
      Director
      
      
      Director/s/
        JOHN S. BOMAR
      
      
      /s/
        JOHN M. LANNOM
      
      
      /s/
        JOSEPH S. YATESDirector
      
      
      Director
      
      
      Director/s/
        J. WALTER BRADSHAW
      
      
      /s/
        STALLINGS LIPFORDDirector
      
      
      Director/s/
        J. DANIEL CARPENTER
      
      
      /s/
        MILTON E. MAGEEDirector
      
      
      Director/s/
        WILLIAM C. CLOAR
      
      
      /s/
        ALLEN SEARCYDirector
      
      
      Director/s/
        RICHARD W. DONNER
      
      
      /s/
        GREEN SMITHEAL, IIIDirector
      
      
      Director/s/
        BENTLEY F. EDWARDS
      
      
      /s/
        DAVID R. TAYLORDirector
      
      
      Director/s/
        LARRY W. GIBSON
      
      
      /s/
        LARRY S. WHITEDirector
      
      
      Director/s/
        P. H. WHITE, JR.Director


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ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Documents filed as a part of this report:

Financial Statements:
      Page NumberReports of Independent
        Accountants
      36Consolidated Balance Sheets as
        of December 31, 2005 & 2004
      38Consolidated Statements of
        Income for the years ended December 31, 2005, 2004
            and 2003
      39Consolidated Statements of
        Changes in Shareholders' Equity and Other
            Comprehensive Income for the years ended December 31,
        2005, 2004 and 2003
      40-41Consolidated Statements of Cash
        Flows for the years ended December 31,
           2005, 2004, and 2003
      42Notes to Consolidated Financial
        Statements
      43-59


All other schedules have been omitted
because of the absence of conditions under which they are required or because
the required information is given in the above-listed financial statements or notes thereto.

Exhibits

The following Exhibits are filed
herewith or incorporated herein by reference:

Exhibit Number
      
      Description3.1
      
      Charter of First Citizens Bancshares, Inc.*3.2
      
      Bylaws of First Citizens Bancshares, Inc.*21
      
      Subsidiaries of the Registrant31 (a)
      
      Certification Pursuant to Section 302 of
        the Sarbanes-Oxley Act31 (b)
      
      Certification Pursuant to Section 302 of
        the Sarbanes-Oxley Act32 (a)
      
      Certification Pursuant to Section 906 of
        the Sarbanes-Oxley Act32 (b)
      
      Certification Pursuant to Section 906 of
        the Sarbanes-Oxley Act


* Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

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