Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL
First Citizens Bancshares, Inc. ("Bancshares") was organized December, 1982 as a Tennessee Corporation and commenced operations in September, 1983, with the acquisition of all Capital Stock of First Citizens National Bank of Dyersburg ("First Citizens").
First Citizens was chartered as a national bank in 1900 and presently operates a general retail banking business in Dyersburg and Dyer County, Tennessee providing customary banking services. First Citizens operates under the supervision of the Comptroller of the Currency, is insured up to applicable limits by the Federal Deposit Insurance Corporation and is a member of the Federal Reserve System. First Citizens operates under the day-to-day management of its own officers and directors; and formulates its own policies with respect to lending practices, interest rates, service charges and other banking matters.
Bancshares' primary source of income is dividends received from First Citizens. Dividend payments are determined in relation to First Citizens' earnings, deposit growth and capital position in compliance with regulatory guidelines. Management anticipates that future increases in the capital of First Citizens will be accomplished through earnings retention or capital injection.
The following table sets forth a comparative analysis of Assets, Deposits, Net Loans, and Equity Capital of Bancshares as of December 31, for the years indicated: December 31 (in thousands) 1994 1993 1992 Total Assets $256,685 $234,892 $239,897 Total Deposits 209,481 193,823 193,459 Total Net Loans 166,727 147,646 133,957 Total Equity Capital 23,879 21,700 19,309
Individual bank performance is compared to industry standards through utilization of the Uniform Bank Performance Report (UBPR), published quarterly by the Federal Financial Institution's Examination Council. This report provides comparisons of significant operating ratios of First Citizens with peer group banks. Presented in the following chart are comparisons of First Citizens with peer group banks for the periods indicated:
12/31/94 12/31/93 12/31/92 FCNB PEER GRP FCNB PEER GRP FCNB PEER GRP
Average Assets/ Net Interest Income 4.34% 4.41% 4.46% 4.46% 4.51% 4.45%
Average Assets/ Net Operating Income 1.15% 1.28% 1.16% 1.30% .91% 1.29%
Net loan losses/ Average total loans -.01% .09% .30% .18% .47% .25%
Primary Capital/ Average Assets 8.37% 9.05% 8.32% 8.72% 7.29% 8.48%
Cash Dividends/ Net Income 24.29% 33.32% 20.20% 38.83% 32.73% 30.49%
*Performance as of 12/31/94 is compared to peer group totals as of 09/30/94 (Most recent UBPR available)
EXPANSION
Bancshares may, subject to regulatory approval, acquire existing banks or organize new banks. The Federal Reserve Board permits bank holding companies to engage in non-banking activities closely related to banking or managing or controlling banks, subject to Board approval. In making such determination, the Federal Reserve Board considers whether the performance of such activities by a bank holding company would offer advantages to the public which outweigh possible adverse effects. Approval by the Federal Reserve Bank of a Bank Holding Company's application to participate in a proposed activity is not a determination that the activity is a permitted non-bank activity for all bank holding companies. Approval applies only to the applicant, although it suggests the likelihood of approval in a similar case.
First Citizens National Bank through its strategic planning process has stated its intention to acquire other financial institutions within the West Tennessee Area. The Bank's objective in acquiring other banking institutions would be for asset growth and diversification into other market areas. Acquisitions would afford the bank increased economies of scale within the data processing function and better utilization of human resources. Any acquisition approved by the Board of Bancshares, Inc. would provide a profitable investment for shareholders. On September 1, 1994 a bid from First Citizens National Bank was accepted to purchase the Ripley Branch of Merchants State Bank, Humboldt, Tennessee, a subsidiary of Union Planters National Bank. The purchase of the branch located in Ripley, Tennessee resulted in a deposit increase of approximately $8 Million. On January 16, 1995 the Ripley Branch was successfully converted to the books of First Citizens National Bank.
On September 29, 1994, President Clinton signed into law the Riegel- Neal Interstate Banking and Branching Efficiency Act of 1994. The Act provides for nationwide interstate Banking and branching within certain limitations. A more detailed description of the act is discussed within the section entitled "Usury, Recent Legislation and Economic Environment."
SUPERVISION AND REGULATION
Bancshares is a one-bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to supervision and examination by the Board of Governors of the Federal Reserve System.
As a bank holding company, Bancshares is required to file with the Federal Reserve Board annual reports and other information regarding the business obligations of itself and its subsidiaries. Board approval must be obtained before Bancshares may:
(1) Acquire ownership or control of any voting securities of a bank or Bank Holding Company where the acquisition results in the BHC owning or controlling more than 5 percent of a class of voting securities of that bank or BHC;
(2) Acquire substantially all assets of a bank or BHC or merge with another BHC.
Federal Reserve Board approval is not required for a bank subsidiary of a BHC to merge with or acquire substantially all assets of another bank if prior approval of a federal supervisory agency, such as the Comptroller of the Currency is required under the Bank Merger Act. Relocation of a subsidiary bank of a BHC from one state to another requires prior approval of the Federal Reserve Board and is subject to the prohibitions of the Douglas Amendment.
The Bank Holding Company Act provides that the Federal Reserve Board shall not approve any acquisition, merger or 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 Board 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 the convenience and needs of the community to be served. An amendment effective February 4, 1993 further provides that an application may be denied if the applicant has failed to provide the Federal Reserve Board with adequate assurances that it will make available such information on its operations and activities, and the operations and activities of any affiliate, deemed appropriate to determine and enforce compliance with the Bank Holding Company Act and any other applicable federal banking statutes and regulations. In addition, consideration is given to the competence, experience and integrity of the officers, directors and principal shareholders of the applicant and any subsidiaries as well as the banks and bank holding companies concerned. The Board also considers the record of the applicant and its affiliates in fulfilling commitments to conditions imposed by the Board in connection with prior applications.
A bank holding company is prohibited with limited exceptions from engaging directly or indirectly through its subsidiaries in activities unrelated to banking or managing or controlling banks. One exception to this limitation permits ownership of a company engaged solely in furnishing services to banks; another permits ownership of shares of the company, all of the activities of which the Federal Reserve Board has determined after due notice and opportunity for hearing, to be so closely related to banking or managing or controlling banks, as to be a proper incident thereto. Moreover, under the 1970 amendments to the Act and to the Board's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain "tie-in" arrangements in connection with any extension of credit or provision of any property or service. Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extension of credit to the bank holding company or to any of its other subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower.
Bank holding companies are required to file an annual report of their operations with the Federal Reserve Board, and they and their subsidiaries are subject to examination by the Board.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information relates to the principal executive officers of Bancshares and its principal subsidiary, First Citizens National Bank as of December 31, 1994.
Name Age Position and Office
Stallings Lipford 64 Chairman of the Board and CEO of First Citizens and Bancshares. Mr. Lipford joined First Citizens in 1950. He became a member of the Board of Directors in 1960 and President in 1970. He was made Vice Chairman of the Board in 1982. He served as Vice Chairman of the Board of Bancshares from September, 1983 to February, 1984. The Board elected Mr. Lipford Chairman of both First Citizens and Bancshares on February 14, 1984. He served as President of First Citizens and Bancshares from 1983 to 1992.
Katie Winchester 54 President of First Citizens and Bancshares; employed by First Citizens National Bank in 1961; served as Executive Vice President and Secretary of the Board from 1986 to 1992. She was made President of Bancshares and First Citizens in 1992. Ms. Winchester was elected to the Board of both First Citizens and Bancshares in 1990.
H. Hughes Clardy 52 Vice President of First Citizens Bancshares, Inc.; Senior Vice President and Senior Trust Officer of First Citizens National Bank. Employed by First Citizens National Bank in 1993. Mr. Clardy was employed as Vice President and Senior Trust Officer at Crestar Bank from January, 1987 to January, 1991 and as a Vice President of Dominion Trust Company of Tennessee from 1991 to 1993.
Ralph Henson 53 Vice President of First Citizens Bancshares, Inc.; Executive Vice President of Loan Administration of First Citizens National Bank. Employed by First Citizens National Bank in 1964. Mr. Henson served the Bank as Senior Vice President and Senior Lending Officer until his appointment as Executive Vice President of Loan Administration in February, 1993.
Jeffrey Agee 34 Vice President and Chief Financial Officer of Bancshares, Inc. and First Citizens as of April, 1994. Employed by First Citizens National Bank in 1982. Served the bank previous to April, 1994 as Vice President and Accounting Officer.
Barry Ladd 54 Senior Vice President and Senior Lending Officer of First Citizens National Bank as of 4/20/94. Employed by the Bank in 1972. Mr. Ladd served First Citizens as Vice President and Lending Officer previous to his appointment as Senior Vice President.
Bennett Ragan, Jr. 46 Senior Vice President and Senior Lending Officer of First Citizens National Bank as of 4/20/94. Employed by the Bank in 1970. Mr. Ragan has served the Bank as Vice President and Lending Officer since 1986. BANKING BUSINESS
First Citizens operates a general retail banking business in Dyer County, Tennessee. An agreement signed September 29, 1994 to purchase a branch bank in Lauderdale County will expand the bank's retail service area effective in January, 1995. All persons who live in either community or who work in or have a business or economic interest in either community are considered as forming a part of the area serviced by the Bank. First Citizens provides customary banking services, such as checking and savings accounts, funds transfers, various types of time deposits, and safe deposit facilities. It also finances commercial transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. Commercial lending operations include various types of credit services for its customers. Agricultural services are provided that include operating loans as well as financing for the purchase of equipment and farm land. The installment lending department makes direct loans to individuals for personal, automobile, real estate, home improvement, business and collateral needs. Mortgage lending makes available long term fixed and variable rate loans to finance the purchase of residential real estate. These loans are sold in the secondary market without retaining servicing rights. Credit cards and open-ended credit lines are available to both commercial customers and consumers.
First Citizens Financial Plus, Inc., a Bank Service Corporation wholly owned by First Citizens National Bank is a licensed Brokerage Service. This allows the bank to compete on a limited basis with numerous non-bank entities who pose a continuing threat to our customer base, and are free to operate outside regulatory control.
First Citizens was granted trust powers in 1925 and has maintained an active Trust Department since that time. Assets as of December 31, 1994 were in excess of $107,464,000. Services offered by the Investment Management and Trust Services Division include but are not limited to estate settlement, trustee of living trusts, testamentary trustee, court appointed conservator and guardian, agent for investment accounts, and trustee of pension and profit sharing trusts.
The business of providing financial services is highly competitive. The competition involves not only other banks but non- financial enterprises as well. In addition to competing with other commercial banks in the service area, First Citizens competes with savings and loan associations, insurance companies, savings banks, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit card organizations, and other enterprises.
The following tabular analysis sets forth the competitive position of First Citizens when compared with other financial institutions in the service area for the period ending June 30, 1994.
Dyer County Market (All Financial Institutions) (in thousands)
Total Deposits % of Market Share Bank Name 06/30/94 06/30/94
First Citizens National Bank $201,111* 48.88%
First Tennessee Bank 91,084 22.14%
Security Bank 56,299 13.68%
Union Planters, FSB 30,336 7.37%
First Exchange Bank 21,756 5.29%
Union Planters 8,172 1.99%
Dyersburg City Employees Credit Union 2,667 .65%
Total 411,425
*Does not include deposits of $16,950,086 categorized as Overnight and fixed term Repurchase Agreements.
At December 31, 1994 Bancshares and its subsidiary, First Citizens National Bank, employed a total of 150 full time equivalent employees. Having been a part of the local community in excess of 100 years, First Citizens has been privileged to enjoy a major share of the financial services market. Dyersburg and Dyer County are growing and with this growth come demands for more sophisticated financial products and services. Strategic planning has afforded the Company both the physical resources and data processing technology necessary to meet the financial needs generated by this growth.
USURY, RECENT LEGISLATION AND ECONOMIC ENVIRONMENT
Tennessee usury laws limit the rate of interest that may be charged by banks. Certain Federal laws provide for preemption of state usury laws. Legislation enacted in 1983 amends Tennessee usury laws to permit interest at an annual rate of interest four (4) percentage points above the average prime loan rate for the most recent week for which such an average rate has been published by the Board of Governors of the Federal Reserve System, or twenty-four percent (24%), whichever is less (TCA 47-14-102(3)). The "Most Favored Lender Doctrine" permits national banks to charge the highest rate permitted by any state lender.
Specific usury laws may apply to certain categories of loans, such as the limitation placed on interest rates on single pay loans of $1,000.00 or less for one year or less. Rates charged on installment loans, including credit cards, are governed by the Industrial Loan and Thrift Companies Act.
On September 29, 1994, President Clinton signed into law the Reigle- Neal Interstate Banking and Branching Efficiency Act of 1994 ("Act"). The Act provides for nationwide interstate banking and branching with certain limitations. The Act permits bank holding companies to acquire banks without regard to state boundaries after September 29, 1995. The Federal Reserve may approve an interstate acquisition only if, as a result of the acquisition, the bank holding company would control less than 10% of the total amount of insured deposits in the United States or 30% of the deposits in the home state of the bank being acquired. The home state can waive the 30% limit as long as there is no discrimination against out-of- state institutions.
Pursuant to the Act, interstate branching will take effect on June 1, 1997, except under certain circumstances. Once a bank has established branches in a host state (a state other than its headquarters state) through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the host state where any bank involved in the interstate merger transaction could have established
or acquired branches under applicable federal or state law. The Act further provides that individual states may opt out of interstate branching. If a state does not opt out of interstate branching prior to May 31, 1997, then a bank in that state may merge with a bank in another state provided that neither of the states have opted out. States may either enact laws opting out of interstate branching before June 1, 1997 or permit interstate merges transactions earlier than June 1, 1997, by statute at their option. A state also may impose conditions on any interstate merger transaction that occurs before June 1, 1997 if the conditions do not discriminate against out-of-state banks, are not preempted by federal law, and do not apply or require performance after May 31, 1997.
Monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of bank holding companies and their subsidiary banks. The Federal Reserve Board regulates the national supply of bank credit by open market operations in United States Government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. A tool once extensively used by the Federal Reserve Board to control growth and distribution of bank loans, investments and deposits has been eliminated through deregulation. Competition, not regulation, dictates rates which must be paid and/or charged in order to attract and retain customers.
Federal Reserve Board monetary policies have materially affected the operating results of commercial banks in the past and are expected to do so in the future. The nature of future monetary policies and the effect of such policies on the business and earnings of the company and its subsidiaries cannot be accurately predicted.
ITEM 2.



ITEM 2. PROPERTIES
First Citizens owns and occupies a six-story building in Dyersburg, Tennessee containing approximately 50,453 square feet of office space, bearing the municipal address of First Citizens Place (formerly 200 West Court). An expansion program completed during 1988 doubled the available floor space of the existing facility. The space was utilized to combine all lending and loan related functions. First Citizens owns the Banking Annex containing total square footage of 12,989, of which approximately 3,508 square feet is rented to various tenants. The municipal address of the bank occupied portion of the Annex is 215-219 Masonic Street.
The land and building occupied by the Downtown Drive-In Branch located at 113 South Church Street, Dyersburg, Tennessee is owned by First Citizens. The building, containing approximately 1,250 square feet, is located on a lot which measures 120 feet square. Also located at this address is a separate ATM facility wholly owned by the Bank.
The Midtown Branch of First Citizens is located at 620 U.S. 51 By-Pass adjacent to the Green Village Shopping Center. The building contains 1,920 square feet and has been owned by First Citizens since construction. The land on which this Branch is located, having previously been leased, was purchased during 1987. In June of 1992 an additional 1.747 acres adjoining the Midtown Branch property was purchased to accommodate future growth and expansion. During 1993, the Board of Directors made a decision to locate a branch office at 2211 St. John Avenue near the Industrial Park, eliminating the need to expand the Midtown Branch. The 1.747 acres is now offered for sale.
In addition, the Midtown Branch Motor Bank is located on .9 acres adjoining the Midtown Branch. This property consists of a servicing facility and six remote teller stations and is owned in its entirety by the Bank. A drive-through ATM was located at this facility during 1994.
The Newbern Branch, also owned by First Citizens, is located on North Monroe Street, Newbern, Tennessee. The building contains approximately 4,284 square feet and occupies land which measures approximately 1.5 acres. A separate facility located in Newbern on the corner of Highway 51 and RoEllen Road houses an ATM. Both land and building are owned by the Bank.
The Super Money Market Branch in the Kroger Supermarket on Highway 78 is operated under a franchise obtained through National Bank of Commerce, Memphis, Tennessee. While the fixtures are owned by First Citizens, space is made available from the Kroger Company through the franchise agreement. An ATM is also located near the branch in the Kroger facility.
The Industrial Park Branch located at 2211 St. John Avenue is a full service banking facility that offers drive-thru Teller and ATM services. The building owned by First Citizens National Bank contains approximately 2,773 square feet and is located on 1.12 acres of land. The Industrial Park Branch, became operational In November, 1994.
In November, 1993 First Citizens National Bank leased space in the Wal-Mart Store #677 located at 2650 Lake Road in Dyersburg, Tennessee to locate an Automatic Teller Machine (ATM). The ATM was installed in December, 1993. In January, 1995 the ATM was relocated in the newly constructed Super Wal-Mart Store located at the same address.
The Ripley Branch of First Citizens National Bank, purchased January 16, 1995, is located at 292 South Washington Street in Ripley, Tennessee (Lauderdale County). The Branch contains approximately 1,450 square feet and was built in 1984 on a quarter acre of land. The Ripley Branch is a full service banking facility that also offers drive-up teller and twenty four hour ATM services.
There are no liens or encumbrances against any of the properties owned by First Citizens.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1994 there are no material legal proceedings pending other than ordinary routine litigation incidental to the business of First Citizens National Bank. During the fourth quarter of 1994 there were no legal proceedings pending or terminated of a reportable nature.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ending December 31, 1994, 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.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of December 31, 1994 there were 620 active holders of Bancshares' stock. Bancshares common stock is not actively traded on any market. Per share prices reflected in the following table are based on records of actual sales during stated time periods. These records may not include all sales during these time periods if sales were not reported to First Citizens for transfer.
Quarter Ended High Low
March 31, 1994 $35.00 $30.00 June 30, 1994 $35.00 $33.10 September 30, 1994 $37.50 $35.00 December 31, 1994 $38.00 $37.40
March 31, 1993 $57.65 $52.50 June 30, 1993 $68.00 $61.00 September 30, 1993 $69.10 $68.00 December 31, 1993 $30.00 $27.64*
*Declared 2.5 for 1 stock split.
Dividends paid each quarter of 1994 were 26 cents per share. In addition, a special dividend of 15 cents per share was paid during fourth quarter, bringing total dividends paid per share during 1994 to $1.19. Dividends paid per share during 1993 were 60 cents (first and second quarters) 65 cents (third quarter) and 25 cents (fourth quarter). The fourth quarter dividend was adjusted to account for a 2.5 for 1 stock split effective October 15, 1994.
Future dividends will depend on Bancshare's earnings and financial condition and other factors which the Board of Directors of Bancshares considers relevant.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table presents information for Bancshares effective December 31 for the years indicated. (in thousands) (except per share data)
1994 1993 1992 1991 1990
Net Interest & Fee Income $ 11,094 $ 10,895 $ 10,389 $ 9,882 $ 9,991
Gross Interest Income $ 19,087 $ 18,156 $ 18,893 $ 21,074 $ 22,261
Income From Continuing Operations $ 2,946 $ 2,638 $ 2,175 $ 1,961 $ 1,314
Long Term Obligations(4) $ 4,125 $ 0 $ 0 $ 0 $ 0
Income Per Share from Continuing Operation(1) $ 4.15 $ 3.76 $ 3.39 $ 3.06 $ 2.05
Net Income per Common Share(2)(3) $ 4.15 $ 3.94 $ 3.39 $ 3.06 $ 2.05
Cash Dividends Declared per Common Share(2)(3) $ 1.19 $ .99 $ .94 $ .89 $ .88
Total Assets at Year End $256,685 $234,892 $239,897 $227,017 $218,378
(1)Restated to reflect 10% stock dividend on December 15, 1992. (2)Restated to reflect 2.5 for 1 Stock Split on October 15, 1993. (3)The $1.19 dividend for 1994 reflects $.26 x 4 plus a special dividend of $.15. (4)Long Term Obligations is FHLB Borrowings matched with Loans & Investments.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
To understand the following analysis, reference should be made to the consolidated financial statements and other selected financial data presented elsewhere in this report. For purposes of the following discussion, net interest income and net interest margins are presented on a fully taxable equivalent basis. Per share data is adjusted to reflect all stock dividends declared through December 31, 1994.
Multiple changes in the financial services industry continue to offer both opportunity and challenge. Interstate banking/branching became a reality by legislation passed September, 1994. The Act permits full nationwide interstate banking one year from enactment and authorized interstate branching after June 1, 1997. Methods by which Regulators measure bank's compliance with the Community Reinvestment Act will be changing in the coming year. First Citizens takes pride in having received an "Outstanding" rating on the most recent CRA examination and has every intention of maintaining this designation. The Board, Management and Staff are committed to providing products and services which meet the financial needs of all segments of the communities we serve.
On August 29, 1994 the bank submitted a bid to purchase the Ripley Branch of Union Planters Bank of West Tennessee, formerly Merchants State Bank. In January, 1995 the acquisition was finalized resulting in an increase to deposit totals of $8 Million. The acquisition provided additional funding for future loan growth while providing a physical presence in the Lauderdale County Market.
The Industrial Park Branch, constructed in 1994, held its grand opening November, 1994. The full service branch located near the Dyersburg/Dyer County Industrial Park provides a more convenient outlet of service for employees of local industry and residents of the area.
In 1993 Sharon Younger and Associates were contracted to perform a Market Perception Study within the Bank's market place. The purpose of the study was to determine how customers across the market perceive bank products and services and to assess how well their credit needs are being met. 52.9% of customers included in the survey considered First Citizens National Bank as their primary Banking Institution and over 85.3% indicated they were satisfied with current products and services offered by their bank. In 1994 the contract with Sharon Younger was amended to included focus group meetings with various demographic groups to determine customer satisfaction with products and services offered by First Citizens National Bank. As a result of these meetings several new products were introduced to our customers to improve their banking relationship with First Citizens. An Overdraft Line of Credit, Free Checking Account, and a low rate credit card with no annual fee was designed to attract customers in the 30-45 age group that expressed a need for these product types.
In June, 1994 the bank entered into an agreement with the accounting firm of Reynolds, Bone & Griesbeck to conduct a cost/benefit analysis for the installation of a check/statement imaging product. In November, 1994 the Board of Directors approved the signing of a contract with Systematics, Inc., Orlando, Florida to install an Item Capture and Deposit Statement Imaging Application. Image Statements are expected to be available to our customer's by June, 1995. In October, 1994 additional services were contracted with Reynolds, Bone & Griesbeck that included the selection of a Debit Card product and processor as well as acting as an advisor on the bank's Information System Strategic Planning Team. It is expected the bank will announce the selection of a Debit Card product during the second quarter, of 1995. First Citizens also signed a contract with Southern Data Systems, Roswell, Georgia to install a Teller Platform "TellerPro Plus" Application in July, 1995. TellerPro Plus will fully automate Teller transaction processing, expand supervisor capabilities, provide management information and insure bank wide audit controls.
First Citizens Bancshares, Inc. and First Citizens National Bank are pleased to report excellent operating results for the year ending 12/31/94. Enhanced earnings and strong loan growth continued the trend exhibited in 1993. Net Income for 1994, 1993 and 1992 was $2,946,249, $2,763,737, and $2,174,710 respectively. Earnings per common share were $4.15 in 1994, $3.76 in 1993, and $3.39 in 1992 reflecting a continuous increase. Earnings per share were adjusted in 1993 to reflect a 2.5 stock split approved by the Board of Directors in September, 1993. Dividends declared per common share were $1.19, $.99 and $.94 for the three years ranging from 1994 to 1992. Weighted average number of shares outstanding changed from 700,958 (1993) to 709,434 (1994). Shares were issued from previously authorized unissued stock to satisfy demands of the Dividend Reinvestment and Quarterly Optional Stock Purchase Plans. Improvement reflected in earnings ratios can be attributed to strategic planning efforts to shift the focus from asset growth to profitability; sound asset/liability management; and tight controls and monitoring procedures placed on non-interest expense categories. Total Assets increased approximately $21,794,000 when comparing 1994 to 1993. The Loan Portfolio excluding Allowance for Loan Losses increased $19,081,000 or 87.55% of total asset growth. Stockholders' Equity increased $2,178,000, a 10.04% of increase from 12/31/93.
Net Interest Income as a percent of average assets was 4.72% for twelve months ended December 31, 1994, a decrease from 4.91% at 12/31/93. The decrease reflects the current rising rate environment. As Interest rates move upward it is expected that funds will continue to flow into Bank Certificate of Deposits from stocks and mutual funds. First Citizens through its Asset/Liability program has adequately matched deposit and loan maturities to protect the bank from risk created by volatile changes in interest rates.
Changes in Financial Accounting Standards
FASB NO. 114 (Accounting by creditors for impairments of loans). Effective date is fiscal years beginning after December 15, 1994. FASB 114 requires a bank to recognize impairment of a loan if the present value of expected future cash flows discounted at the loan's effective interest rate (or alternatively, the observable market price of the loan or the fair value of the collateral) is less than the recorded investment. If the fair value used is at least equal or greater than the recorded amount, there is no impairment. Impaired loans are usually considered loans in non-accrual status, 90 days or more past due that will not pay full interest and principal due, or have been classified as a problem loan. First Citizens National Bank has implemented procedures that capture average balances of impaired loans, interest income associated with impaired loans, and allocations made to the reserve for loan losses associated with impaired loan. No material affect is projected for Bancshares or the Bank as a result of the implementation of FASB 114.
FASB NO. 115 (Accounting for certain investments in Debts and Equity Securities). Effective January 1, 1994, the Company adopted FASB 115 and classified securities contained in its investment portfolio according to stated specifications: Held-to-maturity (includes securities which the company has the intent and the ability to hold to maturity); Trading securities (includes investment securities which are held for short-term resale); and Available-for-sale (includes all other investment securities). The cumulative effect of FASB 115 on the investment portfolio for 1994 was $259,543.
FASB 118 (Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures) amends FASB Statement 114 to allow a creditor to use exiting methods for recognizing interest income on impaired loans. Implementation of procedures discussed in FASB 114 includes accounting requirements for income recognition on impaired loans.
FASB 119 (Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments) amends FASB 105 (Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk), and FASB 107 (Disclosures about Fair Value of Financial Instruments). Effective for years after December 15, 1994. Statement No. 119 requires disclosures about the amounts, nature, and terms of derivatives that are not subject to statement 105 because they do not result in off-balance-sheet risk of accounting loss. It requires banks to make a distinction between financial instruments held or issued for trading purposes and for purposes other than trading. Derivative products held in the banks investment portfolio are reported on a quarterly basis to the banks investment committee and Board of Directors. The reports presented include disclosure requirements stated in FASB 119.
NON-INTEREST INCOME
The following table reflects non-interest income for the years ending December 31, 1994, 1993 and 1992:
Non Interest Income is up by 4.86% and 4.10% respectively when comparing 1994, 1993 and 1992. Other Service Charges, Commissions and Fees reflect a decrease of 8.6% attributed to a slowdown in mortgage lending and refinancing of existing mortgages; reduced income received from the Bank's brokerage services and the sale of annuities. Other categories listed within the table reflect a significant increase with the largest percentage reflected in Trust Income. The Investment Management and Trust Services Division posted improved income and profits each quarter of 1994. Another factor contributing to above peer group levels in Non-Interest Income is the sale of a parcel of other real estate during the first quarter of 1994, resulting in a before tax profit of $297,000.
NON-INTEREST EXPENSE
A review of Non-Interest Expense reflects that all categories have been well managed. Total Non-Interest Expense only increased 1.06% when comparing 1994 to 1993 after posting a slight decline (.16%) in 1992. Included in this category is FDIC Insurance premiums of $440,000 in 1994, $430,000 in 1993,and $430,000 in 1992. Under current funding levels, the fund will be restored to mandated levels during the third quarter of 1994, at which time premium levels are scheduled to be reduced. FDIC Chairman Helper has indicated that premiums which average 25.5 cents per $100.00 of deposits could be reduced as low as 4.5 cents on average. This would serve to drastically improve bank earnings nationwide.
Salaries and Employee Benefits increased approximately $220,000 or 4.63% when comparing to the previous year. A comparison of assets per employee for the years of 1990 to 1994 is reflected in the table below:
(in thousands) December 31 Assets Per Employee 1994 $1,695 1993 $1,563 1992 $1,643 1991 $1,393 1990 $1,380
One measure of efficient staffing in the banking industry is the dollar amount of assets per employee. Peer group banks average $2,000,000 in 1995 compared to the banks total of $1,695,000. Full time equivalent employees was 150, 149, 146 respectively as of 12/31/94, 93, and 92. It is conceivable that our ratios will remain higher than peer group banks because of increased staff necessary to support extended banking hours and non-banking services to our customers. First Citizens provides banking hours that are convenient to our customers by opening drive-in windows at 7AM and certain of our branches on Saturdays. The Super Money Market Branch located in the Kroger Supermarket allows banking until 8 PM on weekdays and 6 PM on Saturday. Non-banking services include Trust and Brokerage services staffed by a total of 13.5 employees. In 1994 First Citizens opened one full service branch with a total of 4 full time and 3 part time employees. The bank also employed 2 other full time employees to place in a training program for future placement at the Ripley Branch. It should be noted that the full time equivalent ratio only increased by 4 employees including these additions.
COMPOSITION OF DEPOSITS
The average daily amounts of deposits and rates paid on such deposits are summarized for the periods indicated:
December 31 (in thousands) 1994 1993 1992 Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate Non-Interest Bearing Demand Deposits $ 24,989 - $ 21,922 - $18,695 - Savings Deposits $ 64,912 2.69% $ 65,612 2.58% $60,006 2.98% Time Deposits $111,268 4.79% $104,166 4.70% $111,771 5.42% TOTAL DEPOSITS $201,169 3.52% $191,700 3.44% $190,472 4.12%
Total deposits grew approximately $10 Million or 3.52% when comparing 1994 to 1993 and 1992. The increase is due to rising interest rates and an aggressive program implemented to seek deposit funds. An active officer call program was established that required participants to aggressively seek deposit funds as well as loans. Increased Time Deposit totals of $9,469,000 is reflective of our customer preference to invest in bank certificate of deposits rather than stocks and mutual fund investments when interest rates are comparable for each type. Deposit rates increased in 1994 and are projected to remain higher than levels paid in 1992 and 93.
Non Interest Bearing Demand Deposits have also increased over $3 Million for each year under review. Deposit funds that are excluded from Total Deposits are "Sweep Account" funds and Fixed Repurchase Agreements totaling $10,956,000 and $5,994,000 respectively. The "Sweep" account is a product that allows funds from a checking account to automatically sweep daily into an overnight repurchase agreement. This affords commercial or large balance customers (amounts of $25,000 or more per depositor) the opportunity to earn interest on excess collected funds while providing availability of adequate funds to clear large denomination checks when presented for payment.
Pricing of deposit products is based on local market conditions and Treasury Bill rates. The average rate paid on deposits in 1994 was 4.02% compared to 3.80% in 1993.
MATURITY DISTRIBUTION OF TIME DEPOSITS IN AMOUNTS OF $100,000 AND OVER
December 31 (in thousands)
1994 1993 Amount Percent Amount Percent Maturing in:
3 months or less $ 3,874 22.78% $ 6,770 39.48%
Over 3 through 6 months $ 3,302 19.42% $ 5,200 30.32%
Over 6 through 12 months $ 5,550 32.64% $ 2,388 13.92%
Over 12 months $ 4,278 25.16% $ 2,792 16.28%
TOTAL $17,004 100.00% $17,150 100.00%
SOURCES AND USES OF FUNDS (in thousands)
1994 1993 1992 FUNDING USES Average Increase Average Increase Average Balance (Decrease) % Balance (Decrease) % Balance Amount Amount Amount INTEREST-EARNING ASSETS:
Loans (Net of Unearned Discounts & Reserve) $160,254 $18,590 13.12% $141,664 $ 7,150 5.32% $134,514 Taxable Investment Securities $ 48,767 ($10,357) (17.52%) $ 59,124 $ 614 1.05% $ 58,510 Non-Taxable Investment Securities $ 13,284 $ 3,484 35.55% $ 9,800 $ 3,385 52.77% $ 6,415 Federal Funds Sold $ 2,687 $ 300 12.57% $ 2,387 $(4,632)(65.99%)$ 7,019 Interest Earning Deposits In Banks $ 156 $ (42)(21.21%) $ 198 $ 198 100% $ 0
TOTAL INTEREST- EARNING ASSETS $225,148 $11,975 5.62% $213,173 $ 6,715 3.25% $206,458
Other Uses $ 20,751 $ 646 3.21% $ 20,105 $ (17) (.08%) $20,122
TOTAL FUNDING USES $245,899 $12,621 5.41% $233,278 $ 6,698 2.96% $226,580
SUMMARY - AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
1994 1993 1992 FUNDING SOURCES Average Increase Average Increase Average Balance (Decrease) % Balance (Decrease) % Balance Amount Amount Amount INTEREST-BEARING LIABILITIES:
Savings Deposits $ 64,912 $ (700)(1.07%)$ 65,612 $ 5,606 9.34% $ 60,006
Time Deposits $111,268 $ 7,102 6.82% $104,166 $(7,605) (6.80%)$111,771
Federal Funds Purchased and Other Interest Bearing Liabilities $ 22,646 $ 1,442 6.80% $ 21,204 $ 3,418 19.22% $17,786
TOTAL INTEREST- BEARING LIABILITIES $198,826 $ 7,844 4.11% $190,982 $ 1,419 .75% $189,563
Demand Deposits $ 24,989 $ 3,067 13.99% $ 21,922 $ 3,227 17.26% $ 18,695
Other Sources $ 22,084 $ 1,710 8.39% $ 20,374 $ 2,052 11.20% $ 18,322
TOTAL FUNDING SOURCES: $245,899 $ 12,621 5.41% $233,278 $ 6,698 2.96% $226,580
(1) Loan totals are shown net of interest collected, not earned and loan loss reserves.
(2) Fee Income is included in interest income and the computations of the yield on loans. Overdraft Fee Income is excluded from the totals.
(3) Includes loans on nonaccrual status.
(4) Interest and rates on securities which are non-taxable for Federal Income Tax purposes are presented on a taxable equivalent basis.
(5) Includes Insured Money Fund, NOW, club accounts, and other savings.
VOLUME/RATE ANALYSIS (First Citizens 1994 Compared to 1993 1993 Compared to 1992 National Bank) Due to Changes in: Due to Changes in:
Total Total Average Average Increase Average Average Increase Volume Rate (Decrease) Volume Rate (Decrease)
(in thousands)
Interest Earned On:
Loans $ 1,762 $ (532) $ 1,230 $ 721 $ (843) $ (122)
Taxable Investments $ (626)$ 33 $ (593) $ 42 $ (485) $ (443)
Tax Exempt Investment Securities $ 241 $ (10) $ 231 $ 258 $ (69) $ 189
Interest Bearing Deposits with Other Banks (1) 0 (1) 6 0 6
Federal Funds Sold and Securities purchased under agreements to resell 9 29 38 (170) (12) (182)
Lease Financing (3) 1 (2) (3) (2) (5)
TOTAL INTEREST EARNING ASSETS $ 1,382 $ (479) $ 903 $ 854 (1,411) (557)
Interest Paid On:
Savings Deposits (18) 69 51 167 (261) (94)
Time Deposits 334 106 440 (412) (751) (1,163)
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase 46 195 241 126 (112) 14
TOTAL INTEREST BEARING LIABILITIES $ 362 $ 370 $ 732 $ (119) (1,124) (1,243)
INTEREST EARNINGS $ 1,020 $ (849) $ 171 $ 973 (287) 686
A summary of average interest earning assets and interest bearing liabilities is set forth in the preceding table together with average yields on the earning assets and average costs on the interest bearing liabilities. Interest Earning Assets at 12/31/94 total $225,148,000 at an average rate of 8.27% compared to $213,173,000 average rate of 8.31% at 12/31/93 and $206,458.000 average rate of 8.85% at 12/31/92. Interest Bearing Liabilities totaled $198,826,000 with an average rate of 4.02% at 12/31/94 compared to $190,982,000 average rate of 3.80% and $189,563,000 average rate of 4.49%. Net Yield on Average Earning Assets (annualized) 4.72%, 4.91%, and 4.74% for the same time periods. During 1993 and the first six months of 1994 loan rates reflected a decrease as a result of low interest rates set by the economic environment and a highly competitive local market. Rates paid on deposits decreased more significantly during the same time period. During the last half of 1994 interest rates started to climb causing net interest margins to shrink. Maintaining net interest margins achieved in prior years could prove difficult if interest rates continue to rise in 1995.
LOAN PORTFOLIO ANALYSIS
COMPOSITION OF LOANS December 31 (in thousands) 1994 1993 1992 1991 1990
Real Estate Loans: Construction $ 10,511 $ 7,675 $ 5,272 $ 4,879 $ 5,526
Mortgage $ 97,310 $ 87,314 $ 79,376 $76,500 $74,039
Commercial, Financial and Agricultural Loans $ 38,843 $ 35,626 $ 33,931 $33,089 $29,786
Installment Loans to Individuals $ 19,117 $ 15,901 $ 15,077 $15,901 $17,130
Other Loans $ 3,000 $ 2,806 $ 2,005 $ 2,697 $ 3,835
TOTAL LOANS $168,781 $149,322 $135,661 $133,066 $130,316
CHANGES IN LOAN CATEGORIES
December 31, 1994 as compared to December 31, 1993 (in thousands)
% of Increase Amount of Increase Loan Category (Decrease) (Decrease)
Real Estate 13.51% $12,832
Commercial, Financial and Agricultural 9.03% $ 3,217
Installment Loans to Individuals 20.23% $ 3,216
Other Loans 6.91% $ 194
TOTAL LOANS 13.03% $19,459
LOAN PORTFOLIO ANALYSIS
The Loan Portfolio remained diversified in 1994 with real estate loans comprising 63.88%, commercial and agriculture 23.01% and installment loans and all others 13.01%. Total Loans grew in excess of $19 Million and $13 Million in 1994 and 1993 with the largest portion of growth centered in real estate loans. Low interest rates prompted consumer refinancing of existing mortgages, as well as new home purchases in 1993 and the first six months of 1994. In addition, commercial customers secured outstanding debt with real estate to take advantage of the lower rates and to provide longer repayment terms. Loans for Agricultural purposes continue to increase each year as well as Installment Loans to individuals. In 1994 a strategic decision was made to aggressively seek installment loans and credit cards after suppressing growth in this area for the years of 1991 to 1993. The decision was made as a strategy to improve earnings by increasing consumer loans. Growth in the loan portfolio is an objective, however ensuring credit quality is our first priority. Management considers the portfolio composition to be diversified with no concentrations of credit.
The book value of repossessed real property held by Bancshares was $1,119,000 at 12/31/94 and $2,108,000 at 12/31/93. The balance was significantly reduced as a result of the sale of property in December, 1993 valued at $1,055,000. The only property held on the books of Bancshares is a strip shopping center valued at $689,000. The remaining balance held in repossessed real property represents real estate held by First Citizens National Bank with exception to property purchased for expansion of the branch located on Highway 51 Bypass valued at $151,000. Accounting for adjustments to the value of Other Real Estate when recorded subsequent to foreclosure is accomplished on the basis of an independent appraisal. The asset is recorded at the lesser of its appraised value or the loan balance. Any reduction to value is charged to the allowance for possible loan losses. All other real estate parcels are appraised annually and the carrying value is
adjusted to reflect the decline, if any, in its realizable value. Such adjustments are charged directly to expense.
The average yield on loans of First Citizens National Bank for the years indicated are as follows:
1994 - 9.12% 1993 - 9.46% 1992 - 10.05% 1991 - 11.34% 1990 - 12.82%
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Due after Due in one one year but Due after year or less within five years five years (in thousands)
Real Estate $18,658 $70,125 $19,038
Commercial, Financial and Agricultural $20,072 $13,927 $4,844
All Other Loans $ 4,170 $17,927 $ 20
TOTALS $42,900 $101,979 $23,902
Loans with Maturities After One Year for which: (in thousands) Interest Rates are Fixed or Predetermined $98,705 Interest Rates are Floating or Adjustable $27,176
The degree of interest rate risk that a bank is subject to can be controlled through a well managed asset/liability management program. First Citizens controls interest rate risk by matching assets and liabilities, that is by employing interest-sensitive funds in assets that are also interest sensitive. One tool used to ensure market rate return is variable rate loans. Loans totaling $70,076,000 or 42% of the total portfolio are subject to repricing within one year or carry a variable rate of interest. Loan maturities in the one to five year category increased from $99,133,000 at 12/31/93 to $101,979,000 at 12/31/94 due to customers demand to lock in fixed rates for a longer period of time. This strategy is projected to change in 1995 in light of higher rates being charged on loans.
NON-PERFORMING LOANS
Nonaccrual, Restructured and Past Due Loans and Foreclosed Properties (First Citizens National Bank) December 31 (in thousands)
1994 1993 1992 1991 1990
Nonaccrual Loans $ 945 $1,079 $1,743 $2,058 $1,958
Restructured Loans 0 0 0 0 0
Foreclosed Property Other Real Estate, 148 98 550 884 1,247 Other Repossessed Assets 0 0 0 0 13 Total Nonperforming Assets $1,093 $1,177 $2,293 $2,942 $3,218 Loans and leases 90 days Past due and still accruing interest $1,044 $ 322 $ 176 $1,029 $ 877 Nonperforming assets as a percent of loans and leases plus foreclosed property at end of year* .71% .79% 1.71% 2.20% 2.45% Allowance as a percent of: Nonperforming assets 187.92% 142.40% 74.27% 65.81% 59.48% Nonperforming assets and loans 90 days past due 96.12% 111.81% 68.98% 48.76% 46.74% Gross Loans 1.22% 1.12% 1.27% 1.46% 1.47% Addition to Reserve as a percent of Net Charge-Offs 1,675.00% 93.69% 63.82% 103.86% 142.49% Loans and leases 90 days past due as a percent of loans and leases at year end* .62% .22% .13% .78% .67% Recoveries as a percent of Gross Charge-Offs 87.10% 28.79% 36.17% 26.64% 10.75% *Net of unearned income
Interest income on loans is recorded on an accrual basis. The accrual of interest is discontinued on all loans, except consumer loans, which become 90 days past due, unless the loan is well secured and in the process of collection. Consumer loans which become past due 90 to 120 days are charged to the allowance for loan losses. The gross interest income that would have been recorded for the twelve months ending 12/31/94 if all loans reported as non-accrual had been current in accordance with their original terms and had been outstanding throughout the period is $86,000. Interest income on loans reported as ninety days past due and on interest accrual status was $95,000 for 1994. Loans on which terms have been modified to provide for a reduction of either principal or interest as a result of deterioration in the financial position of the borrower are considered to be "Restructured Loans". First Citizens has no Restructured Loans for the period being reported. Total Non-Performing Assets have consistently decreased since 1990. As of December, 1994, non-performing loans are at the lowest level since 1985. Total assets in this category as a percent of loans and leases plus foreclosed property was .71% in 1994, .79% in 1993, and 1.71% in 1992.
Certain loans contained on the bank's Internal Problem Loan List are not included in the listing of non-accrual, past due or restructured loans. Management is confident that, although certain of these loans may pose credit problems, any potential for loss has been provided for by specific allocations to the Loan Loss Reserve Account. Loan officers are required to develop a "Plan of Action" for each problem loan within their portfolio. Adherence to each established plan is monitored by Loan Administration and re-evaluated at regular intervals for effectiveness.
LOAN LOSS EXPERIENCE & RESERVE FOR LOAN LOSSES (in thousands)
1994 1993 1992 1991 1990
Average Net Loans Outstanding $160,254 $141,664 $134,514 $134,230 $126,083 Balance of Reserve for Loan Losses at Beginning of Period $ 1,676 $ 1,703 $ 1,936 $ 1,914 $ 1,371 Loan Charge-Offs $ (186) $ (601) $ (1,009) $ (777) $(1,432) Recovery of Loans Previously Charged Off $ 162 $ 173 $ 365 $ 207 $ 154
Net Loans Charged Off $ (24) $ (428) $ (644) $ (570) $(1,278)
Additions to Reserve Charged to Operating Expense $ 402 $ 401 $ 411 $ 592 $ 1,821 Balance at End of Period $ 2,054 $ 1,676 $ 1,703 $ 1,936 $ 1,914
Ratio of Net Charge- Offs to Average Net Loans Outstanding .01% .30% .48% .43% 1.01%
The allowance for possible loan losses is determined by management and approved by the Board based on previous loan loss experience, existing and anticipated economic conditions, composition and volume of the loan portfolio and the level of non-performing assets. A quarterly analysis is presented to the Board in order that a determination may be made concerning the sufficiency of the reserves.
Activity posted to the Reserve Account during 1994 consisted of (1) Loan Charge Offs $186,000, (2) Recovery of Loans Previously Charged Off $162,000, and (3) Additions to the Reserve Account $402,000. Net loans charged off have consistently decreased when comparing the years listed in the table. Additions to the Reserve Account have decreased significantly since 1990 and are below peer group levels. Problem Loans, as a percentage of total portfolio were 2.30% at 12/31/94, 2.92% at 12/31/93 and 4.10% at 12/31/92. Internal Loan Review performs an analysis on an annual basis of approximately 75% of the loan portfolio. Based on this review, each loan is classified as Pass, Substandard, Doubtful, or Loss. Loans classified as loss are charged monthly against the Loan Loss Reserve account. Quarterly reports are provided directly to the Board of Directors by the Loan Review Officer which summarize results of the reviews. FASB 114 (Accounting by creditors for impairment of loans) will cause minor changes to the formula used for the calculation of the allowance for loan losses. However, no material affect is expected to Bancshares, Inc. or its subsidiary, First Citizens National Bank.
Management estimates the approximate amount of charge-offs for the 12 month period ending 12/31/95 to be as follows:
Domestic Amount Commercial, Financial & Agricultural $150,000 Real Estate-Construction 0 Real Estate-Mortgage 50,000 Installment Loans to individuals & credit cards 50,000 Lease financing 0
01/01/95 through 12/31/95 Total $250,000
The following table will identify charge-offs by category for the periods ending December 31 as indicated:
Year Ending December 31 (in thousands) 1994 1993 1992
Charge-offs: Domestic: Commercial, Financial & Agricultural $ 32 $ 415 $ 649
Real Estate-Construction 0 0 0 Real Estate-Mortgage 22 27 115 Installment Loans to individuals & credit cards 132 159 245 Lease financing 0 0 0 Total $ 186 $ 601 $1,009
Recoveries: Domestic: Commercial, Financial & Agricultural $ 30 $ 53 $ 66
Real Estate-Construction 0 0 0 Real Estate-Mortgage 12 11 148 Installment Loans to individuals & credit cards 120 109 151
Lease financing 0 0 0 Total $ 162 $ 173 $ 365 Net Charge-offs $ 24 $ 428 $ 644
COMPOSITION OF INVESTMENT SECURITIES December 31 (in thousands)
1994 1993 1992 1991 1990
U. S. Treasury & Government Agencies $47,042 $42,502 $59,019 $50,919 $43,337
State & Political Subdivisions $10,883 $12,774 $ 9,300 $ 3,239 $7,484
All Others $ 4,801 $ 5,471 $ 6,129 $ 4,944 $5,251
TOTALS $62,726 $60,747 $74,448 $59,102 $56,072
MATURITY AND YIELD ON SECURITIES - DECEMBER 31, 1994 (in thousands)
Maturing Maturing Maturing Maturing After One Year After Five Years After Within One Year Within Five Years Within Ten Years Ten Years Amount Yield Amount Yield Amount Yield Amount Yield U. S. Treasury and Government Agencies $ 2,000 6.40% $31,986 6.43% $ 5,916 7.05% $7,140 6.45%
State and Political Subdivisions* $ 1,320 6.82% $ 6,075 7.26% $ 3,488 5.36% --- --
All Others $ 800 6.50% $ 1,250 6.56% $ 2,151 5.50% $ 600 9.14%
TOTALS $ 4,120 6.55% $39,311 6.56% $11,555 6.25% $7,740 6.65%
*Yields on tax free investments are stated herein on a taxable equivalent basis.
HELD TO MATURITY & AVAILABLE FOR SALE SECURITIES - DECEMBER 31, 1994
Held to Maturity Available for Sale (in thousands) Amortized Fair Amortized Fair Cost Value Cost Value
U.S. Treasury Securities 6,435 6,208 5,515 5,315 U.S. Government Agency & Corporation obligations (exclude mortgage-backed securities): Issued by U.S. Govt. Agencies (2) 301 293 0 0 Issued by U.S. Govt.-Sponsored Agencies (3) 22,554 21,554 3,602 3,583 Securities issued by states & political subdivisions in the U.S.: General Obligations 6,335 6,066 50 50 Revenue Obligations 3,091 2,926 770 767 Industrial development & similar obligations 0 0 625 640 Mortgage-backed Securities (MBS): Pass-through securities: Guaranteed by GNMA 618 604 1,192 1,129 Issued by FNMA & FHLMC 1,319 1,276 0 0 Privately-issued 0 0 0 0 CMOs & REMICs: Issued by FNMA & FHLMC 5,050 4,652 812 736 Privately-issued & collateralized by MBS issued or guaranteed by FNMA, FHLMC or GNMA 600 617 0 0 All other privately-issued 0 0 0 0 Other Debt Securities 0 0 0 0 Other domestic debt securities 989 952 1,051 1,053 Foreign debt securities 0 0 0 0 Equity Securities: Investments in Mutual Funds 0 0 0 0 Other equity securities with readily determinable fair values 0 0 2,161 2,161 All other equity securities (1) 0 0 0 0 Total 47,292 45,148 15,778 15,434
(1) Includes equity securities without readily determinable fair values at historical cost. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than pass-through securities, CMOs, and REMICs) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
A major goal of the bank's investment portfolio management is to maximize returns from investments while controlling the basic elements of risk. The second goal is to provide liquidity and meet financial needs of the community. Investment Securities also serve as collateral for government and public fund deposits. Securities contained within the portfolio consist primarily of U. S. Treasury, and other U. S. Government Agency securities and tax exempt obligations of States and Political Subdivisions. All other securities comprise approximately 7.65% of the portfolio. Tax Free Investments make up approximately 17% of the portfolio.
Investments for the first half of 1994 were curtailed by strong loan demand and the implementation of Financial Accounting Standard No. 115 which addresses Accounting for Certain Investments in Debt and Equity Securities. FASB 115 requires that banks maintain separate investment portfolios for Held-To- Maturity, Available-For-Sale, and Trading Account investments. As of 12/31/94 approximately 24.61% of total investments were booked in the Available For Sale portfolio. The remaining 75.39% was placed in the Held to Maturity account. FASB 115 also requires banks to mark to market the Available for Sale and Trading account investments at the end of each calendar quarter. Held-To-Maturity account investments are stated at amortized cost on the balance sheet. Mark to Market resulted in a negative after tax impact on the capital account of the consolidated balance sheet at 12/31/94 of $259,543. All purchases and sale transactions in 1994 were made according to specifications set forth in FASB 115. During the fourth quarter, 1994, there were no transfers between the trading, held for sale, or held to maturity accounts.
As of 12/31/94, the securities portfolio held $13,940,968 in "Derivative" products which consisted of $6,462,128 CMO's (Collateralized Mortgage Obligations), $483,745 Strip Coupon, and $6,995,095 in Structured Notes. "Derivative" are non-traditional securities that derive value from the price action of other assets. Total investment in Derivative products constitutes 22% of the investment portfolio and are Government Backed securities bearing short maturities. These investments do no represent a high level of concentration or an abnormal amount of market risk to the overall portfolio.
Maturities in the portfolio are made up of 6.55% within one year, and 62.67% after one year and within five years. Policy provides for 20% maturities on an annual basis. Management made a conscious effort to shorten maturities in 1994 based on volatility in interest rates and mark to market rules. Maturities on investments purchased In 1995 will be structured to meet loan demand as well as projected changes in interest rates.
Gains/Losses reflected in year-end income statements attributable to trading account securities:
Year Ended 12/31 Gains Losses Net
1994 $ 0.00 $ 0.00 $ 0.00 1993 $ 0.00 $ 0.00 $ 0.00 1992 $ 0.00 $ 0.00 $ 0.00
The following table allocates by category unrealized Gains/Losses within the portfolio as of December 31, 1994 (in thousands):
UNREALIZED NET GAINS LOSSES GAINS/LOSSES
U.S. TREASURY SECURITIES $ 0 $ 227 $ (227)
OBLIGATIONS OF U.S. GOVERNMENT AGENCIES AND CORPORATIONS $ 4 $1,467 $(1,463)
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS $ 5 $ 438 $ (433)
FEDERAL RESERVE AND CORPORATE STOCK $ 0 $ 21 $ (21)
TOTALS $ 9 $2,153 $(2,144)
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is the ability to meet the needs of our customer base for loans and deposit withdrawals by maintaining assets which are convertible to cash equivalents with minimal exposure to interest rate risks. The liquidity which is determined by a comparison of net liquid assets to net liabilities remains between 10% and 15%. The stability of our deposit base, sound asset/liability management, a strong capital base and quality assets assure adequate liquidity. Low interest rates during 1993 and the first 9 months of 1994 placed pressure on the banks' ability to retain funds in maturing certificates of deposit. Many of our customers were seeking alternate investment options in annuities, mutual funds, and stocks. Deposits over $100,000 were more volatile and interest sensitive than smaller consumer deposits which make up the major portion of our deposit base. Another factor that affected the liquidity ratio was the demand to lock in low interest rates for longer periods of time. In excess of 71,000,000 in loans shifted from the adjustable rates to fixed or predetermined rates. However, this trend was shifting in the fourth quarter, along with upward moves in interest rates.
To address liquidity concerns the bank became a member of the Federal Home Loan Bank, thereby opening up an additional liquidity source totaling $11.5 Million should the need arise. In 1994 Federal Home Loan Bank Borrowings totaled $4,124,170. These borrowings are maturity matched with specific loans and investments on the books of the bank. The average Federal Home Loan Borrowings for 1994 was $2,889,000. Other sources that are available to meet liquidity needs are (1) Loans in excess of $42,900,000 and Investment Securities totaling $4,120,000 maturing within one year and (2) Lines of Credit with correspondent banks totaling 7.5 million.
Interest rate sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds, on which rates change daily, and loans which are tied to the prime rate are much more sensitive than long-term investment securities and fixed rate loans. The shorter term interest sensitive assets and liabilities are the key to measure- ment of the interest sensitivity gap. Minimizing this gap is a continual challenge and is a primary objective of the asset/liability management program.
The following condensed gap report provides an analysis of interest rate sensitivity of earning assets and costing liabilities. First Citizens Asset/Liability Management Policy provides that the cumulative gap as a percent of assets shall not exceed 10% for categories up to 12 months and one to two year categories and 20% for categories in excess of two years. As evidenced by the following table, our current position is significantly below this level, with annual income exposure determined to be less than the $150,000 exposure limitation set by policy.
CONDENSED GAP REPORT 12/31/94 CURRENT BALANCES (in thousands)
1-2 2+ YEARS YEARS CASH AND DUE FROM: CURRENCY AND COIN - 2,450 DUE FROM BANKS - 1,275 CASH ITEMS - 5,763 MONEY MARKET - -
TOTAL CASH & DUE FROM - 9,488
INVESTMENTS: US TREASURIES 3,000 8,750 US AGENCIES 2,729 22,642 VARIABLE AGENCIES 500 - MUNICIPALS 220 9,343 CORP & OTHERS 750 1,977 FEDERAL HOME LOAN BANK - 1,275
TOTAL INVESTMENTS 7,199 43,987
LOANS: COMMERCIAL FIXED 1,592 8,248 COMMERCIAL VARIABLE - - REAL ESTATE-VARIABLE - - REAL ESTATE FIXED 5,784 62,320 HOME EQUITY LOANS - - SEC MORTGAGE - - INSTALLMENT LOANS 3,636 12,315 INSTALLMENT VARIABLE - - FLOOR PLAN - - CREDIT CARDS - - OVERDRAFTS - - NON-ACCRUAL LOANS - 945 FHLB LOANS - 2,123 TOTAL LOANS 11,012 85,951 LOAN LOSS RESERVE - 2,054
NET LOANS 11,012 83,897
FED FUNDS SOLD - -
TOTAL FED FUNDS SOLD - -
TOTAL EARNING ASSETS 18,211 127,884
OTHER ASSETS: BUILDING, F&F & LAND - 8,392 OTHER REAL ESTATE - 148 OTHER ASSETS - 3,641
TOTAL OTHER ASSETS - 12,181
TOTAL ASSETS 18,211 149,553
DEMAND DEPOSITS: BANKS - 39 DEMAND DEPOSITS - 26,744
TOTAL DEMAND - 26,783
SAVINGS ACCOUNTS: REGULAR SAVINGS - 18,249 NOW ACCOUNT - 27,261 IMF-MMDA - - HIGH YIELD ACCOUNT - - DOGWOOD CLUB - 4,642
TOTAL SAVINGS - 50,152
CONDENSED GAP REPORT 12/31/94 CURRENT BALANCES (in thousands)
1-2 2+ YEARS YEARS TIME DEPOSITS: FLEX-CD 11,041 16,437 LARGE CD-FLEX 1,878 2,400 IRA-FLOATING - - IRA-FIXED 3,397 8,995 CHRISTMAS CLUB - -
TOTAL TIME 16,316 27,832
TOTAL DEPOSITS 16,316 104,767
SHORT TERM BORROWINGS: TT&L - - SECURITIES SOLD-SWEEP - - SECURITIES SOLD-FIXED 165 393 FHLB-LIBOR INVESTMENT - - FHLB-LONG TERM - 2,218
TOTAL SHORT TERM BORR. 165 2,611
OTHER LIABILITIES: ACCRUED INT. PAYABLE - 1,432 OTHER LIABILITIES - 51
TOTAL OTHER LIABILITIES - 1,483
TOTAL LIABILITIES 16,481 108,861
CAPITAL: COMMON STOCK - 2,000 SURPLUS - 4,000 UNREALIZED GAIN (LOSSES) -240 UNDIVIDED PROFITS - 15,668
TOTAL CAPITAL - 21,428
TOTAL LIAB'S & CAPITAL 16,481 130,289
GAP (SPREAD) 1,730 19,264 GAP % TOTAL ASSETS 0.68 7.58 CUMULATIVE GAP -19,264 - CUM. GAP % TOTAL ASSETS -7.58 - SENSITIVITY RATIO 0.84 1.00
CONDENSED GAP REPORT 12/31/94 CURRENT BALANCES (in thousands)
1-2 2+ YEARS YEARS CASH AND DUE FROM: CURRENCY AND COIN - - DUE FROM BANKS - - CASH ITEMS - - MONEY MARKET - - TOTAL CASH & DUE FROM - -
INVESTMENTS: US TREASURIES 5.49 6.34 US AGENCIES 7.22 6.38 VARIABLE AGENCIES 6.60 - MUNICIPALS 5.56 7.12 CORP & OTHERS 6.87 6.95 FEDERAL HOME LOAN BANK - 6.05
TOTAL INVESTMENTS 6.36 6.54
LOANS: COMMERCIAL FIXED 8.03 7.78 COMMERCIAL VARIABLE - - REAL ESTATE-VARIABLE - - REAL ESTATE FIXED 8.84 7.98 HOME EQUITY LOANS - - SEC MORTGAGE - - INSTALLMENT LOANS 10.80 9.35 INSTALLMENT VARIABLE - - FLOOR PLAN - - CREDIT CARDS - - OVERDRAFTS - - NON-ACCRUAL LOANS - - FHLB LOANS - 7.60 TOTAL LOANS 9.37 8.06 LOAN LOSS RESERVE - -
NET LOANS 9.37 8.26
FED FUNDS SOLD - -
TOTAL FED FUNDS SOLD - -
TOTAL EARNING ASSETS 8.18 7.67
OTHER ASSETS: BUILDING, F&F & LAND - - OTHER REAL ESTATE - - OTHER ASSETS - -
TOTAL OTHER ASSETS - -
TOTAL ASSETS 8.18 6.56
DEMAND DEPOSITS: BANKS - - DEMAND DEPOSITS - -
TOTAL DEMAND - -
SAVINGS ACCOUNTS: REGULAR SAVINGS - 3.01 NOW ACCOUNT - 2.45 IMF-MMDA - - HIGH YIELD ACCOUNT - - DOGWOOD CLUB - 2.15
TOTAL SAVINGS - 2.62
CONDENSED GAP REPORT 12/31/94 CURRENT BALANCES (in thousands)
1-2 2+ YEARS YEARS TIME DEPOSITS: FLEX-CD 5.45 6.13 LARGE CD-FLEX 6.08 6.21 IRA-FLOATING - - IRA-FIXED 5.84 6.07 CHRISTMAS CLUB - -
TOTAL TIME 5.60 6.12
TOTAL DEPOSITS 5.60 2.88
SHORT TERM BORROWINGS: TT&L - - SECURITIES SOLD-SWEEP - - SECURITIES SOLD-FIXED 5.29 6.05 FHLB-LIBOR INVESTMENT - - FHLB-LONG TERM - 5.50
TOTAL SHORT TERM BORR. 5.29 5.58
OTHER LIABILITIES: ACCRUED INT. PAYABLE - - OTHER LIABILITIES - -
TOTAL OTHER LIABILITIES - -
TOTAL LIABILITIES 5.60 2.90
CAPITAL: COMMON STOCK - - SURPLUS - - UNREALIZED GAIN (LOSSES) UNDIVIDED PROFITS - -
TOTAL CAPITAL - -
TOTAL LIAB'S & CAPITAL 5.60 2.43
GAP (SPREAD) 2.58 4.13 GAP % TOTAL ASSETS CUMULATIVE GAP CUM. GAP % TOTAL ASSETS SENSITIVITY RATIO
RETURN ON EQUITY AND ASSETS FIRST CITIZENS BANCSHARES, INC. 1994 1993 1992 1991 1990 Percentage of Net Income to: Average Total Assets 1.20% 1.17% .95% .89% .60% Average Shareholders Equity 12.93% 13.48% 11.79% 11.65% 8.43%
Percentage of Dividends Declared Per Common Share to Net Income Per Common Share 29.23% 25.62% 27.67% 28.86% 42.57%
Percentage of Average Shareholders' Equity to Average Total Assets 9.27% 8.71% 8.07% 7.60% 7.27%
An analysis of Bancshares Return on Assets reflects sustained improvement in earnings when comparing 1990 thru 1994. Return on Assets as of 12/31/94 were 1.20% compared to 1.17%, .95%, .89%, and .60% for the previous four years respectively. Improved earnings are reflective of an ongoing effort to control expenses and maximize earnings to achieve earnings comparable to peer group banks. The company's strategic plan addresses objectives to sustain improved earnings, maintain a quality loan and investment portfolio and to maintain market share by providing quality customer service. The Bank's management and employees are rewarded with incentive compensation based on the level of ROA achieved at year end. A return on assets of 1.15% is required if maximum benefits are to be realized.
Total Shareholders' equity (including Loan Loss Reserve) of First Citizens Bancshares as of 12/31/94 was $23,879,000 compared to $21,700,000 at 12/31/93. Total Capital (excluding Reserve for Loan Losses) as a percentage of total assets is presented in the following table for years indicated:
CAPITAL RESOURCES/TOTAL ASSETS - YEAR-END TOTALS FIRST CITIZENS BANCSHARES, INC.
1994 1993 1992 1991 1990
9.30% 9.24% 8.05% 7.75% 7.34%
Cash Dividends to Shareholders for 1994, 1993 and 1992 respectively were $1.19, $2.10, and $2.30. Total shares outstanding was 714,821 at 12/31/94 and 706,656 at 12/31/93. An Amendment to the Articles of Association ratified by the Shareholders in April, 1993 approved an increase in number of shares authorized from 750,000 to 2,000,000. In September, 1993 a 2.5 for l stock split on the Common Capital Stock of Bancshares was declared to holders of record as of October 15, 1993. The number of shares outstanding increased proportionately with changes to the capital account. In addition a 10% stock dividend was declared payable December 15, 1992 which provided for issuance of one share of stock for each 10 shares owned, with payment of fractional shares being made in cash. 25,158 shares were issued as a result of the dividend.
A stock repurchase program has been approved by the Board of Directors effective the fourth quarter of 1994. The purpose of this action is to acquire shares to service the Dividend Reinvestment and Optional Stock Purchase programs. Under the terms of the program, the Company will repurchase up to $200,000 of Bancshares' stock in a calendar quarter on a first come, first served basis.
Risk-based capital focuses primarily on broad categories of credit risk and incorporates elements of transfer, interest rate and market risks. The calculation of risk-based capital ratio is accomplished by dividing qualifying capital by weighted risk assets. The minimum risk-based capital ratio is 8.00%. At least one-half or 4.00% must consist of core capital (Tier 1), and the remaining 4.00% may be in the form of core (Tier 1) or supplemental capital (Tier 2). Tier 1 capital/core capital consists of common stockholders equity, qualified perpetual stock and minority interests in consolidated subsidiaries.
Tier 2 Capital/Supplementary capital consists of the allowance for loan and lease losses, perpetual preferred stock, term subordinated debt, and other debt and stock instruments.
Bancshares has historically maintained capital in excess of minimum levels established by the Federal Reserve Board. The risk-based capital ratio for Bancshares and First Citizens National Bank as of 12/31/94 and 12/31/93 was 14.06 percent and 12.96 percent respectively, significantly above the 8.0 percent level required by regulation. With the exception of the Reserve for Loan and Lease Losses, all capital is Tier 1 level. Growth in capital will be maintained through retained earnings. There is no reason to assume that income levels will not be sufficient to maintain an adequate capital ratio.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Board of Directors First Citizens Bancshares, Inc. Dyersburg, Tennessee 38024
We have audited the accompanying consolidated balance sheets of First Citizens Bancshares, Inc., and Subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years ended December 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Citizens Bancshares, Inc., and Subsidiary as of December 31, 1994 and 1993, and their results of operations and cash flows for the three years ended December 31, 1994, in conformity with generally accepted accounting principles.
Dyersburg, Tennessee January 27, 1995
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993
1994 1993 ASSETS
Cash and due from banks - Note 13 $ 9,784,155 $ 8,407,663 Federal funds sold 2,900,000 5,200,000 Investment securities - Notes 1 and 2 (market value $61,789,052 at December 31, 1993) 60,747,040 Investment securities - Notes 1 and 2 Securities held-to-maturity (fair value of $45,151,062 at December 31, 1994) 47,294,807 Securities available-for-sale, at fair value 16,873,500 Loans - Notes 1 and 3 (net of unearned income of $1,333,952 in 1994 and $1,065,608 in 1993) 168,781,491 149,322,178 Less: Allowance for loan losses - Notes 1 and 4 2,053,843 1,676,133 Net Loans 166,727,648 147,646,045 Premises and equipment - Notes 1 and 5 8,392,199 7,778,246 Accrued interest receivable 3,001,337 2,572,669 Other assets - Notes 1 and 6 1,712,888 2,540,369
TOTAL ASSETS $256,686,534 $234,892,032
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits: Note 7 Demand $ 26,540,953 $22,324,092 Time 116,590,688 105,189,285 Savings 66,348,610 66,309,872 Total Deposits 209,480,251 193,823,249 Securities sold under agreement to repurchase 16,950,086 16,914,142 Long-term debt - Note 16 4,124,730 30,021 Other liabilities 2,252,719 2,424,143 Total Liabilities 232,807,786 213,191,555
Stockholders' Equity Common stock, par value $1 in 1994 and $10 in 1993 - Note 11 Authorized - 2,000,000 in 1994 and 750,000 in 1993 Issued and outstanding - 714,824 shares in 1994 706,656 shares in 1993 714,824 7,066,560 Surplus 9,000,485 2,356,082 Retained earnings 14,423,084 12,338,242 Unrealized gain (loss) on securities available-for sale, net of applicable deferred income taxes (259,543) Less treasury stock, at cost 3 shares in 1994 and 2,024 shares in 1993 (102) (60,407) Total Stockholders' Equity 23,878,748 21,700,477
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $256,686,534 $234,892,032
See accompanying notes and accountant's report.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992 Interest Income
Interest and fees on loans $15,309,792 $14,029,313 $14,289,129 Interest and dividends on investment securities: Taxable 2,950,541 3,499,964 3,994,589 Tax-exempt 598,515 447,114 321,501 Dividends 160,085 91,738 19,245 Other interest income 113,435 81,203 257,470 Lease financing income 4,271 6,426 11,182 Total Interest Income 19,136,639 18,155,758 18,893,116
Interest Expense Interest on deposits 7,106,421 6,588,376 7,846,697 Interest on long-term debt 233,659 26,557 27,836 Other interest expense 631,006 646,021 629,606 Total Interest Expense 7,971,086 7,260,954 8,504,139 Net Interest Income 11,165,553 10,894,804 10,388,977 Provision for loan losses - Note 4 402,000 401,273 411,001 Net interest income after provision for loan losses 10,763,553 10,493,531 9,977,976
Other Income Income from fiduciary activities 625,293 521,284 522,540 Service charges on deposit accounts 426,348 439,756 434,058 Other service charges, commissions, and fees 703,599 771,024 559,284 Securities gains (losses) - net - Note 2 (69,534) 31,758 159,820 Other income 494,996 316,496 322,311 Total Other Income 2,180,702 2,080,318 1,998,013
Other Expenses Salaries and employee benefits - Note 8 4,970,061 4,750,184 4,510,654 Net occupancy expenses 317,614 348,702 309,921 Furniture and equipment expense 144,805 135,895 148,616 Depreciation 823,599 798,220 596,221 Data processing expense 177,288 154,670 802,398 Legal and professional fees 86,818 128,574 116,959 Stationery and office supplies 146,685 161,796 172,542 Other expenses 2,143,276 2,254,641 2,089,716 Total Other Expenses 8,810,146 8,732,682 8,747,027
Net income before income taxes $4,134,109 $3,841,167 $ 3,228,962
Provision for income tax expense - Note 9 1,187,860 1,202,708 1,054,252
Net income from operations 2,946,249 2,638,459 2,174,710
Cumulative change in accounting principle - Note 9 125,278
Net Income $2,946,249 $2,763,737 $ 2,174,710
Earnings Per Common Share - Note 10: Net income from operations $ 4.15 $ 3.76 $ 3.40
Net income $ 4.15 $ 3.94 $ 3.40
Weighted average shares outstanding 709,434 700,958 640,363
See accompanying notes and accountants' report.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1994, 1993, and 1992
Common Stock Shares Amount Surplus
Balance, January 1, 1992 254,089 $ 2,540,890 $ 5,324,833
Net income, year ended December 31, 1992 Cash dividends paid - $2.30 per share Ten percent stock dividend - December, 1992 - Note 10 25,158 251,580 1,069,215 Payment of principal on note
Balance, December 31, 1992 279,247 2,792,470 6,394,048
Net income, year ended December 31, 1993
Cash dividends paid - $2.10 per share Sale of common stock 4,711 47,110 189,014 Stock split - Note 10 422,698 4,226,980 (4,226,980) Payment of principal on note Treasury stock transactions-net
Balance, December 31, 1993 706,656 7,066,560 2,356,082
Net income, year ended December 31, 1994 Cash dividends paid - $1.19 per share Conversion of par value of common stock from $10 to $1 - Note 11 (6,378,246) 6,378,246 Sale of common stock 8,168 26,510 265,710 Adjustment to record unrealized gain (loss) in securities available-for-sale, net of applicable deferred income taxes effective January 1, 1994 - Note 2
Adjustment of unrealized gain (loss) on securities available-for-sale, net of applicable deferred income taxes during the year - Note 2
Treasury Stock transactions - net 447
Balance, December 31, 1994 714,824 $ 714,824 $ 9,000,485
See accompanying notes and accountants' report.
Unrealized Gain (Loss) on Securities Available-for- Obligation Sale, Net of of employee Applicable Retained Stock Ownership Deferred Income Treasury Earnings Plan Taxes Stock $10,030 ,420 $(320,000) $ -0- $ -0-
2,174,710 (601,878)
(1,320,795) 160,000
10,282,457 (160,000) -0- -0-
2,763,737 (707,952)
160,000 (60,407)
12,338,242 -0- -0- (60,407)
2,946,249 (861,407)
94,696
(354,239)
60,305
$14,423,084 $ -0- $(259,543) $ (102)
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW Years Ended December 31, 1994, 1993, and 1992
1994 1993 1992 Operating Activities
Net income $ 2,946,249 $ 2,763,737 $ 2,174,710 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 402,000 401,273 411,001 Provision for losses on other real estate 3,000 7,600 Provision for depreciation 823,599 798,220 596,221 Amortization of investment security discounts (25,919) (31,849) Deferred income taxes (31,737) (175,989) (Gains) losses on sales of other real estate (4,289) (13,903) Realized and unrealized investment security (gains) losses 69,534 (31,758) (159,820) (Increase) decrease in accrued interest receivable (428,668) 284,995 469,832 Increase (decrease) in accrued interest payable 29,159 (471,601) (Increase) decrease in other assets 1,151,106 765,721 669,033 Increase (decrease) in other liabilities (171,424) 722,887 (757,368)
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,760,659 5,531,037 2,893,856
Investing Activities Proceeds of maturities of investment securities 10,826,000 17,618,000 Proceeds from sales of trading and investment securities 5,300,252 10,096,833 Purchases of trading and investment securities (2,367,925) (42,868,559) Proceeds of maturities of held-to- maturity investment securities 19,405,141 Purchases of held-to-maturity investment securities (17,780,040) Proceeds of sales of available- for-sale investment securities 5,109,625 Purchases of available-for-sale investment securities (10,625,663) Increase in loans - net (19,483,603) (14,089,936) (3,237,807) Purchases of premises and equipment (1,588,847) (362,041) (1,545,185)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (24,963,387) (693,650) (19,936,718)
See accompanying notes and accountants' report.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED) Years Ended December 31, 1994, 1993, and 1992
1994 1993 1992 Financing Activities Net increase (decrease) in demand deposits, NOW accounts and savings accounts $ 4,255,599 $ 450,967 $12,169,387 Increase (decrease) in time deposits - net 11,401,403 (87,052) (11,773,657) Increase in long-term borrowing 4,124,730 Payment of principal on long-term debt (30,021) (132,943) (130,906) Proceeds from sale of common stock 292,220 236,124 Cash dividends paid (861,407) (707,952) (601,878) Net increase (decrease) in short- term borrowings 35,944 (8,219,777) 12,271,124 Treasury stock transactions - net 60,752 (60,407)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 19,279,220 (8,521,040) 11,934,070
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (923,508) (3,683,653) (5,108,792)
Cash and cash equivalents at beginning of year 13,607,663 17,291,316 22,400,108
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,684,155 $13,607,663 $17,291,316
Cash payments made for interest and income taxes during the years presented are as follows:
1994 1993 1992 Interest $7,838,662 $ 7,231,795 $ 8,975,740 Income taxes 1,260,380 1,131,310 912,156
See accompanying notes and accountants' report.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS December 31, 1994
Note 1 - Summary of Significant Accounting and Reporting Policies
The accounting and reporting policies of First Citizens Bancshares, Inc., and Subsidiary conform to generally accepted accounting principles. The significant policies are described as follows:
BASIS OF PRESENTATION The consolidated financial statements include all accounts of First Citizens Bancshares, Inc., and First Citizens National Bank. First Citizens Bancshares, Inc.'s, investment in its Subsidiary shown on the Parent Company Balance Sheet, is stated at equity in the underlying assets. All inter-company items are eliminated in consolidation.
BASIS OF ACCOUNTING The consolidated financial statements are presented using the accrual basis of accounting.
CASH EQUIVALENTS Cash equivalents include amounts due from banks which do not bear interest and federal funds sold. Generally, federal funds are purchased and sold for one day periods.
SECURITIES Effective January 1, 1994, the Company adopted Statement No. 115 of the Financial Accounting Standards Board according to which investment securities are classified as follows:
Held-to-maturity which includes those investment securities which the Company has the intent and the ability to hold until maturity; Trading securities which includes those investment securities which are held for short-term resale; and Available-for-sale which includes all other investment securities.
Securities which are held-to-maturity are reflected at cost, adjusted for amortization of premiums and accretion of discounts using methods which approximate the interest method. Securities which are available-for-sale are carried at fair value, and unrealized gains and losses are recognized as direct increases or decreases in stockholders' equity. Trading securities, where applicable, are carried at fair value, and unrealized gains and losses on these securities are included in net income. During the years presented, First Citizens Bancshares, Inc. had no trading security transactions.
Realized gains and losses on investment securities transactions are also included in net income.
ALLOWANCE FOR LOAN LOSSES The provision for loan losses which is charged to operations is based on management's assessment of the quality of the loan portfolio, current economic conditions and other relevant factors. In management's judgment, the provision for loan losses will maintain the allowance for loan losses at adequate level to absorb potential loan losses which may exist in the portfolio.
PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using straight-line and accelerated methods for both financial reporting and income tax purposes. Expenditures for maintenance and repairs are charged against income as incurred. Cost of major additions and improvements are capitalized and depreciated over their estimated useful lives.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 1 - Summary of Significant Accounting and Reporting Policies(Continued) REAL ESTATE ACQUIRED BY FORECLOSURE Real estate acquired through foreclosure is reflected in other assets and is recorded at the lower of the related outstanding loan amount or estimated net realizable value at the date of acquisition. 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.
LOANS AND INTEREST INCOME ON LOANS Interest income on commercial and real estate loans is computed on the basis of the daily principal balance outstanding using the accrual method. Interest on installment loans is credited to operations by the rule of 78ths method, which does not represent a significant financial deviation from the interest method.
NET INCOME PER SHARE OF COMMON STOCK Net income per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, after giving retroactive effect to stock dividends and stock splits.
INCOME FROM FIDUCIARY ACTIVITIES Income from fiduciary activities is recorded on the accrual basis.
Note 2 - Investment Securities
As specified in Note 1, First Citizens Bancshares, Inc. adopted Statement No. 115 of the Financial Accounting Standards Board, effective January 1, 1994. The following tables reflect amortized cost, unrealized gains, unrealized losses and fair value of investment securities at December 31, 1994, segregated into held-to-maturity and available-for-sale categories:
Held-To-Maturity Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U. S. Treasury securities and obligations of U. S. government corporations and agencies $36,280,060 $ 2,933 $1,692,832 $34,590,161
Obligations of states and political subdivisions 9,425,893 4,640 437,806 8,992,727
Other debt securities 1,588,854 16,692 37,372 1,568,174 Total Securities Investments $47,294,807 $24,265 $2,168,010 $45,151,062
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 2 - Investment Securities (Continued)
Available-For-Sale Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U. S. Treasury securities and obligations of U. S. government corporations and agencies $12,595,786 $13,791 $405,474 $12,204,103
Obligations of states and political subdivisions 1,444,561 16,235 3,289 1,457,507
Other debt securities 1,050,574 3,429 1,013 1,052,990 Total Debt Securities 15,090,921 33,455 409,776 14,714,600
Other securities investments 2,215,150 56,250 2,158,900 Total $17,306,071 $33,455 $466,026 $16,873,500
The following tables reflect amortized cost, unrealized gains and losses, and approximate market value for investment securities at December 31, 1993:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value U. S. Treasury securities and obligations of U. S. government corporations and agencies $38,515,709 $ 718,878 $ 24,379 $39,210,208
Obligations of states and political subdivisions 12,773,676 203,304 25,273 12,951,707
Other debt securities 7,442,655 148,426 10,444 7,580,637 Total debt securities 58,732,040 1,070,608 60,096 59,742,552
Other securities investments 2,015,000 31,500 2,046,500 Total Investment Securities $60,747,040 $1,102,108 $ 60,096 $61,789,052
The following is a summary of maturities of debt securities held-to- maturity and available-for-sale as of December 31, 1994:
Securities Securities Amounts Maturing In: Held-To-Maturity Available-for-Sale Amortized Fair Amortized Fair Cost Value Cost Value One year or less $15,843,293 $15,098,601 $ 5,099,124 $ 4,967,073 After one year through five years 25,683,274 24,669,699 12,164,447 11,906,427 After five years through ten years 4,168,308 3,878,041 After ten years 1,599,932 1,504,721 $47,294,807 $45,151,062 $17,263,571 $16,873,500
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 2 - Investment Securities (Continued)
A comparison of amortized cost and market value for investment debt securities held at December 31, 1993 is shown below:
Estimated Amortized Market Cost Value Due in one year or less $18,386,816 $18,630,689 Due after one year through five years 26,669,724 27,298,941 Due after five years through ten years 8,540,010 8,725,285 Due after ten years 5,135,490 5,087,637 $58,732,040 $59,742,552
Securities gains (losses) presented in the consolidated statements of income consist of the following:
Gross Year Ended December 31 Sales Gains Losses Net
1994 - Securities available- for sale $ 5,109,625 $ $69,534 $(69,534) 1993 - Investment securities 5,300,252 35,038 3,280 31,758 1992 - Investment securities 10,096,833 182,301 22,481 159,820
At December 31, 1994 and 1993, investment securities were pledged to secure government, public and trust deposits as follows:
Amortized December 31 Cost Fair Value
1994 $41,588,244 $39,959,186 1993 35,310,879 36,010,041
Note 3 - Loans
Loans outstanding at December 31, 1994 and 1993 were comprised of the following:
1994 1993 (In Thousands) Commercial, financial and agricultural $ 38,843 $ 34,547 Real estate - construction 10,511 7,675 Real estate - mortgage 97,310 84,801 Installment 19,118 15,901 Other loans 3,000 6,398 168,782 149,322 Less: Allowance for possible loan losses 2,054 1,676 $166,728 $147,646
Note 4 - Allowance for Possible Loan Losses
An analysis of the allowance for possible loan losses during the three years ended December 31, 1994 is as follows: 1994 1993 1992 Balance, beginning of period $1,676,133 $1,703,349 $1,935,544 Provision for loan losses charged to operations 402,000 401,273 411,001 Loans charged to allowance, net of loan loss recoveries of $162,474, $173,875 and $365,677 (24,290) (428,489) (643,196) Balance, end of period $2,053,843 $1,676,133 $1,703,349
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
For tax purposes, the Corporation deducts the maximum amount allowable. During the year ended December 31, 1994, the deduction taken was $13,182. The deductions for tax purposes in 1993 and 1992 were $418,577 and $448,003, respectively.
Note 5 - Premises and Equipment
The fixed assets used in the ordinary course of business are summarized as follows:
Useful Lives in Years 1994 1993 Land $ 862,472 $ 670,743 Buildings 5 to 50 7,608,266 7,051,184 Furniture and equipment 3 to 20 5,720,763 5,369,850 14,191,501 13,091,777 Less: Accumulated depreciation 5,799,302 5,313,531 $ 8,392,199 $ 7,778,246
During 1994, First Citizens National Bank acquired real estate in Dyersburg, Tennessee, as a site for a new branch banking facility at a cost of $337,023. The new branch was constructed during the year and placed in service at a total cost of building and equipment of $680,406.
Note 6 - Repossessed Real Property
The book value of repossessed real property on the balance sheet is $816,866 at December 31, 1994 and $1,942,305 at December 31, 1993. The balance as of December 31, 1993, includes unimproved commercial property carried at a book value of $1,161,627 which was acquired through foreclosure by First Citizens Bancshares, Inc. in 1987. This property was sold in 1994 at a gain of $297,284.
In addition, as of December 31, 1991, First Citizens National Bank sold to First Citizens Bancshares, Inc., a local shopping center which had been acquired through foreclosure and which is carried on the books of the Holding Company at $650,000. The property is occupied and during the years ended December 31, 1994 and 1993, the Company recognized rental income from its tenants in the amount of $129,429 and $128,272 respectively.
The balance of repossessed real property is reflected on the balance sheet of First Citizens National Bank and is carried in "other assets."
Note 7 - Deposits
Included in the deposits shown on the balance sheet are the following time deposits and savings deposits in denominations of $100,000 or more: 1994 1993 (In Thousands) Time Deposits $17,004 $17,150 Savings Deposits 21,941 21,710
NOW accounts, included in savings deposits on the balance sheet, totaled $27,260,734 at December 31, 1994 and $27,153,922 at December 31, 1993.
Note 8 - Employee Stock Ownership Plan
First Citizens National Bank maintains the First Citizens National Bank of Dyersburg Employee Stock Ownership Plan as an employee benefit. The plan provides for a contribution annually not to exceed twenty-five percent of the total compensation of all participants and affords eligibility for participation to all full-time employees who have completed at least one year of service. Contributions to the Employee Stock Ownership Plan totaled $375,914 in 1994, $337,541 in 1993, and $333,159 in 1992.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 9 - Income Taxes
Provision for income taxes is comprised of the following:
1994 1993 1992 Federal income tax expense (benefit) Current $1,081,655 $1,015,549 $ 760,234 Deferred (137,851) (174,849) 108,529
State income tax expense (benefit) Current 314,088 230,470 166,337 Deferred (70,032) 6,260 19,152
$1,187,860 $1,077,430 $1,054,252
The ratio of applicable income taxes to net income before income taxes differed from the statutory rates of 34%. The reasons for these differences are as follows:
1994 1993 1992 Tax expense at statutory rate $1,405,597 $1,305,997 $1,097,847 Increase (decrease) resulting from: State income taxes, net of federal income tax benefit 143,500 155,932 122,423 Tax exempt interest (212,477) (159,408) (110,136) Other differences (148,760) (49,102) (55,882) 1,187,860 1,253,419 1,054,252 Cumulative effect of adoption of SFAS No. 109, "Accounting for Income Taxes" (175,989)
$1,187,860 $1,077,430 $1,054,252
Deferred tax liabilities have been provided for taxable temporary differences related to depreciation, accretion of securities discounts and other minor items. Deferred tax assets have been provided for deductible temporary differences related primarily to the allowance for loan losses and adjustments for loss on repossessed real estate. The net deferred tax assets in the accompanying consolidated balance sheets include the following components: December 31 1994 1993 Deferred tax liabilities $(321,752) $(398,383) Deferred tax assets 554,195 458,496 Net deferred tax assets $ 232,443 $ 60,113
Effective January 1, 1994, First Citizens Bancshares, Inc. and its subsidiary adopted SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, the difference between the financial statement and tax bases of assets and liabilities is determined periodically. Deferred income tax assets and liabilities are then computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if appropriate, to reduce the deferred tax asset to the amount which is actually expected to be realized. Income tax expense is the current tax payable or refundable for the period plus or minus the net change in the deferred tax assets or liabilities.
The effect of adopting SFAS No. 109 on 1993 net income from operations was an increase of $50,711. The cumulative effect of the accounting change on years prior to January 1, 1993, of $125,278 is included in 1993 income.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 10 - Stock Dividends
In December, 1992, First Citizens Bancshares, Inc., declared a ten percent stock dividend. The transaction was recorded by transferring par value ($10 per share) from retained earnings to the capital stock account and the balance of market value per share ($52.50) from retained earnings to surplus.
On October 20, 1993, the Board of Directors declared a 2.5 for 1 stock split, which was paid on November 15, 1993, in the form of a dividend of one and one-half additional shares of the Company's common stock for each share owned by the Stockholders of record on October 15, 1993. Par value remained at $10 per share. The split resulted in the issuance of 422,698 additional shares of common stock from authorized but unissued shares and in the transfer of $4,226,980 from surplus to common stock, representing the par value of the shares issued.
All references to earnings per share and to weighted average shares outstanding have been restated to give retroactive recognition to an equivalent change in capital structure in those periods.
Note 11 - Common Stock Par Value
During the year ending December 31, 1994, the Company's Board of Directors voted to reduce par value of the Company's capital stock from $10 to $1. The transaction was recorded on June 30, 1994, and involved a transfer from capital stock to surplus in the amount of $6,378,246.
The Board of Directors also voted to increase the Company's number of shares authorized from 750,000 to 2,000,000.
Note 12 - Regulatory Capital Requirements
First Citizens Bancshares, Inc., is subject to minimum capital requirements imposed by the Federal Reserve Bank and which are designed to measure capital adequacy in terms of credit risk. The regulations require that total capital equal at least 8.0% of weighted risk assets as of December 31, 1994.
In the case of First Citizens Bancshares, Inc., capital consists of common stockholders' equity and the allowance for loan losses of which in excess of 90% is stockholders' equity or Tier I capital. At December 31, 1994, the Corporation's risk-based capital ratio is 12.96%.
Note 13 - Restrictions on Cash and Due From Bank Accounts
The Corporation's bank subsidiary maintains cash reserve balances as required by the Federal Reserve Bank. Average required reserve balances during 1994 and 1993 were $160,000 and $362,000, respectively.
Note 14 - Restrictions on Capital and Payment of Dividends
The Corporation is subject to capital adequacy requirements imposed by the Federal Reserve Bank. In addition, the Corporation's National Bank Subsidiary is restricted by the Office of the Comptroller of the Currency from paying dividends in any years which exceed the net earnings of the current year plus retained profits of the preceding two years. As of December 31, 1994, approximately $6.15 million of retained earnings was available for future dividends from the subsidiary to the parent corporation.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 15 - Condensed Financial Information
First Citizens Bancshares, Inc. (Parent Company Only)
December 31 1994 1993 BALANCE SHEETS ASSETS Cash $ 258,698 $ 109,175 Investment securities, available-for- sale-at fair value 1,442,085 Investment in subsidiary 21,428,585 19,506,591 Real estate owned 820,402 1,995,500 Other assets 84,060 161,552 TOTAL ASSETS $24,033,830 $21,772,818
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accrued expenses $ 155,082 12,341 Option deposit 60,000 TOTAL LIABILITIES 155,082 72,341
STOCKHOLDERS' EQUITY 23,878,748 21,700,477 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,033,830 $21,772,818
STATEMENTS OF INCOME
December 31 1994 1993 INCOME Dividends from bank subsidiary $ 508,000 $ 546,000 Other income 547,553 159,923 TOTAL INCOME 1,055,553 705,923
EXPENSES Other expenses 113,797 153,978 TOTAL EXPENSES 113,797 153,978
Income before income taxes and equity in undistributed net income of bank subsidiary 941,756 551,945
Income tax expense (benefit) 157,583 (54,542) 784,173 606,487 Equity in undistributed net income of bank subsidiary 2,162,076 2,157,250
NET INCOME $ 2,946,249 $2,763,737
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 15 - Condensed Financial Information (Continued) (Parent Company Only)
STATEMENTS OF CASH FLOW
December 31 1994 1993 Operating Activities Net income $ 2,946,249 $2,763,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 25,487 23,443 Undistributed income of subsidiary (2,162,076) (2,157,250) Gain on sale of other real estate (297,284) (Increase) decrease in other assets 77,492 (56,683) Increase (decrease) in other liabilities 95,715 63,675
NET CASH PROVIDED BY OPERATING ACTIVITIES 685,583 636,922
Investing Activities
Purchase of other real estate (12,016) 38,403 Proceeds of sale of other real estate 1,458,911 Investment in securities (1,474,520)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (27,625) (38,403)
Financing Activities
Payment of dividends and payments in lieu of fractional shares (861,407) (707,952) Sale of Common Stock 292,220 236,124 Treasury Stock transactions - net 60,752 (60,407)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (508,435) (532,235)
INCREASE (DECREASE) IN CASH 149,523 66,284
Cash at beginning of year 109,175 42,891
CASH AT END OF YEAR $ 258,698 $ 109,175
Note 16 - Long Term Debt
During the year ended December 31, 1989, First Citizens National Bank placed in service furniture, fixtures, and equipment with a total cost of $520,964 which were acquired through capital leases. These leases became effective at various dates ranging from January, 1989 through October, 1989, and each lease extends for a term of sixty months. The total liability on these leases as originated was $655,232 with $30,021 remaining to be paid as of December 31, 1993. The obligation in regard to these leases was completely retired during 1994.
Long term debt for the year ending December 31, 1994 consists of Federal Home Loan Bank borrowings. These borrowings are maturity matched with specific loans and investments. The average for 1994 are as follows:
Average Volume Average Rate Average Maturity FHLB Borrowings $2,889,000 5.45% 11 years
Note 17 - Non-cash Investing and Financing Activities
During the periods presented, the Corporation engaged in the following non- cash investing and financing activities:
Investing 1994 1993 1992 Other real estate acquired in satisfaction of loans $188,431 $61,729 $542,510
Note 18 - Financial Instruments with Off-Balance Sheet Risk
First Citizens National Bank is a party to financial instruments with off- balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk which are not recognized in the statement of financial position.
The Bank's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The same policies are utilized in making commitments and conditional obligations as are used for creating on-balance sheet instruments. Ordinarily, collateral or other security is not required to support financial instruments with off-balance sheet risk.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer's credit-worthiness is evaluated on a case-by-case basis, and collateral required, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counter party. At December 31, 1994, First Citizens National Bank had outstanding loan commitments of $26,472,000. 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 the performance of a customer to a third party. Those guarantees are issued primarily to support public and private borrowing arrangements, and the credit risk involved is essentially the same as that involved in extending loans to customers. The bank requires collateral to secure these commitments when it is deemed necessary. At December 31, 1994, outstanding standby letters of credit totaled $2,394,000.
In the normal course of business, First Citizens National Bank extends loans which are subsequently sold to other lenders, including agencies of the U. S. government. Certain of these loans are conveyed with recourse creating off-balance sheet risk with regard to the collectibility of the loan. At December 31, 1994, however, the Bank had no loans sold.
Note 19 - Significant Concentrations of Credit Risk
First Citizens National Bank grants agribusiness, commercial, residential and personal loans to customers throughout a wide area of the mid-southern United States. A large majority of the Bank's loans, however, are concentrated in the immediate vicinity of the Bank or northwest Tennessee. Although, the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their obligations is dependent upon the agribusiness and industrial economic sectors of that geographic area.
Note 20 - Disclosure of Fair Value of Financial Instruments
The following assumptions were made and methods applied to estimate the fair value of each class of financial instruments reflected on the balance sheet of the Corporation:
Cash and Cash Equivalents
For instruments which qualify as cash equivalents, as described in Note 1 of Notes to Financial Statements, the carrying amount is assumed to be fair value.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Investment Securities
Fair value for investment securities is based on quoted market price, if available. If quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans Receivable
Fair value of variable-rate loans with no significant change in credit risk subsequent to loan origination is based on carrying amounts. For other loans, such as fixed rate loans, fair values are estimated utilizing discounted cash flow analyses, applying interest rates currently offered for new loans with similar terms to borrowers of similar credit quality. Fair values of loans which have experienced significant changes in credit risk have been adjusted to reflect such changes.
The fair value of accrued interest receivable is assumed to be its carrying value.
Deposit Liabilities
Demand Deposits
The fair values of deposits which are payable on demand, such as interest- bearing and non-interest-bearing checking accounts, passbook savings and certain money market accounts are equal to the carrying amount of the deposits.
Variable-Rate Deposits
The fair value of variable-rate money market accounts and certificates of deposit approximate their carrying value at the balance sheet date.
Fixed-Rate Deposits
For fixed-rate certificates of deposit, fair values are estimated using discounted cash flow analyses which apply interest rates currently being offered on certificates to a schedule of aggregated monthly maturities on time deposits.
Short-Term Borrowings
Carrying amounts of short-term borrowings, which include securities sold under agreement to repurchase approximate their fair values at December 31, 1993 and 1994.
Long-Term Debt
The fair value of the Corporation's long-term debt is estimated using the discounted cash flow approach, based on the institution's current incremental borrowing rates for similar types of borrowing arrangements. At December 31, 1994, the long-term debt interest rate equals the fair market rate and, as a result, the carrying value of long-term debt approximates its fair value.
Other Liabilities
Other liabilities consist primarily of accounts payable, accrued interest payable and accrued taxes. These liabilities are short-term and their carrying values approximate their fair values.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 20 - Disclosure of Fair Value of Financial Instruments (Continued)
The estimated fair values of the Corporation's financial instruments are as follows:
1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets
Cash and cash equivalents $ 12,684,155 $ 12,684,155 $ 13,607,663 $ 13,607,663
Investment securities 64,168,307 62,340,388 60,747,040 61,789,052
Loans 168,781,491 149,322,178 Less: Allowance for loan losses (2,053,843) (1,676,133)
Loans, net of allowance 166,727,648 163,079,141 147,646,045 143,637,321
Accrued interest receivable 3,001,337 3,001,337 2,572,669 2,572,669
Financial Liabilities
Deposits $209,480,251 $209,349,222 $193,823,249 $184,104,215
Short-term borrowings 16,950,086 16,950,086 16,914,142 16,914,142
Long-term debt 4,124,730 4,143,315 30,021 30,021
Other liabilities 2,252,719 2,252,719 2,424,143 2,424,143
Unrecognized Financial Instruments
Commitments to extend credit 26,472,000 26,472,000 46,655,000 46,655,000 Standby letter of credit 2,394,000 2,394,000 2,144,000 2,144,000
Note 21 - Commitments and Contingencies
During the year ended December 31, 1994, the Board of Directors approved a stock repurchase plan whereby the Company is authorized to acquire up to a maximum of $200,000 of its outstanding capital stock per calendar quarter. The stock repurchase plan is designed to enable First Citizens Bancshares, Inc. to meet the requirements of the Employee Stock Ownership Plan and the Dividend Reinvestment Plan in place.
FIRST CITIZENS BANCSHARES, INC., AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1994
Note 22 - Amounts Receivable From Certain Persons
Year Ended December 31, 1994 (In Thousands)
Column A Column B Column C Column D Column E Balance at Balance at Beginning End of of Period Additions Deductions Period Amounts Amounts Written Not Collected Off Current Current Aggregate indebtedness to First Citizens National Bank of Directors and Executive Officers of First Citizens Bancshares, Inc. (21) $2,796 $1,451 $1,804 $-0- $2,443 $-0-
Aggregate indebtedness to First Citizens National Bank of Directors and Executive Officers of First Citizens National Bank (23) $2,847 $1,363 $1,675 $-0- $2,535 $-0-
Year Ended December 31, 1993
Aggregate indebtedness to First Citizens National Bank of Directors and Executive Officers of First Citizens Bancshares, Inc. (20) $2,708 $1,310 $1,222 $-0- $2,796 $-0-
Aggregate indebtedness to First Citizens National Bank of Directors and Executive Officers of First Citizens National Bank (21) $2,732 $1,341 $1,226 $-0- $2,847 $-0-
Indebtedness shown represents amounts owed by directors and executive officers of First Citizens Bancshares, Inc., and First Citizens National Bank and by businesses in which such persons are general partners or have at least 10% or greater interest and trust and estates in which they have a substantial beneficial interest. All loans have been made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with others and do not involve other than normal risks of collectibility.
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Bancshares had no disagreements regarding accounting procedures.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information appearing in Bancshares' 1995 Proxy Statement regarding directors and officers is incorporated herein by reference in response to this Item (See pages 4 through 6 of the Proxy Statement).
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is set forth in the 1995 Proxy Statement, and is incorporated by reference. (See page 7 of the Proxy Statement).
ITEM 12.

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' 1995 Proxy Statement for the Annual Meeting of Shareholders to be held April 19, 1995, in the sections entitled Voting Securities and Election of Directors and is incorporated herein by reference. (See pages 1 through 3 of the Proxy Statement).
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Officers, Directors and principal shareholders of the holding company (and their associates) have deposit accounts and other transactions with First Citizens National Bank. These relationships are covered in detail on page 11 of the Proxy Statement under "Certain Relationships and Related Transactions" and incorporated herein by reference. Additional information concerning indebtedness to Bancshares and First Citizens by Directors and/or their affiliates is included herein under Part III, Page 57 "Amounts Receivable from Certain Persons".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
FIRST CITIZENS BANCSHARES, INC.
By /s/Stallings Lipford Stallings Lipford, Chairman & CEO
By /s/Jeff Agee Jeff Agee Vice President & Principal Financial Officer
Dated: 03/6/95
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 6, 1995.
/s/ Eddie Anderson /s/Milton E. Magee Eddie Anderson Milton E. Magee Director Director
/s/Mary Frances McCauley /s J. Walter Bradshaw Mary Frances McCauley J. Walter Bradshaw Director Director
/s/James Daniel Carpenter /s/L. D. Pennington James Daniel Carpenter L. D. Pennington Director Director
/s/William C. Cloar /s/G.W. Smitheal, III William C. Cloar G.W. Smitheal, III Director Director
/s/Richard Donner /s/H.P. Tigrett, Jr. Richard W. Donner H. P. Tigrett, Jr. Director Director
/s/J.E. Heckethorn /s/P. H. White, Jr. John E. Heckethorn P. H. White, Jr. Director Director
/s/ E.H. Lannom, Jr. /s/Dwight Steven Williams E.H. Lannom, Jr. Dwight Steven Williams Director Director
/s/Stallings Lipford /s/Katie Winchester Stallings Lipford Katie Winchester Director Director
/s/Billy S. Yates Billy S. Yates Director