1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 1994 Commission File Number 2-83542
FIRST CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of 62-1180360
incorporation or organization) (I.R.S. Employer Identification No.)
P. O. Box 370
Court Street, Dyersburg, Tennessee 38024
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (901) 285-4410
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 3 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Of the registrant's only class of common stock ($1.00 par value) there
were 708,693 shares outstanding as of June 30, 1994.
2
PART I -FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
3
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1994 1993
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 8,452,000 $ 8,408,000
Federal funds sold 1,400,000 5,200,000
Investment securities -
(Market value is $65,702,000
at June 30, 1994, and $61,789,000
at December 31, 1993)
Trading Investments-Stated at Market 100,000 0
Held to Maturity-Amortized Cost 48,065,000 60,747,000
Available for Sale-Stated at Market 18,429,000 0
Loans
(Excluding unearned income of
$1,093,000 at June 30, 1994, and
$1,066,000 at December 31, 1993) 165,306,000 149,322,000
Less: Allowance for loan losses 1,879,000 1,676,000
Net Loans 163,427,000 147,646,000
Premises and equipment 8,098,000 7,778,000
Other assets 4,109,000 5,113,000
TOTAL ASSETS $252,080,000 $234,892,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $201,042,000 $193,823,000
Securities sold under agreement to
repurchase 17,228,000 16,914,000
Federal funds purchased and Other
Short Term Borrowing 5,225,000 0
Long-term debt - Note 3 (Includes Long
Term FHLB) 4,250,000 30,000
Other liabilities 1,299,000 2,424,000
Total Liabilities 229,044,000 213,191,000
Contingent liabilities - See Note 5
Stockholders' Equity:
Common stock, $1 par value - 2,000,000
authorized; 708,694 issued and
outstanding at June 30, 1994;
706,656 issued and outstanding at
December 31, 1993 709,000 7,067,000
Surplus 8,780,000 2,356,000
Retained earnings 13,541,000 12,338,000
Net Unrealized Gains (Losses) on Available
for Sale 6,000 0
Total Common Stock and Retained Earnings 23,036,000 21,761,000
Less-Treasury 1 Share, at Cost at June 30,
1994 and 2,024 at December 31, 1993 0 (60,000)
Total Stockholders' Equity 23,036,000 21,701,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $252,080,000 $234,892,000
NOTE: The balance sheet at December 31, 1993, has been taken from the
audited financial statements at that date and condensed. The Par
value of the Stock was reduced in the second quarter of 1994 from
$10 to $1. The December 1993 balance sheet reflects a par value of
$10.
4
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Interest Income
Interest and fees
on loans $3,729,000 $3,470,000 $ 7,178,000 $ 6,835,000
Interest on investment
securities: Taxable 774,000 919,000 1,481,000 1,932,000
Tax-exempt 156,000 108,000 302,000 206,000
Other interest income 12,000 18,000 67,000 52,000
Lease financing income 1,000 1,000 2,000 3,000
Total Interest Income 4,672,000 4,516,000 9,030,000 9,028,000
Interest Expense
Interest on deposits 1,624,000 1,624,000 3,224,000 3,276,000
Other interest expense 222,000 168,000 369,000 345,000
Total Interest Expense 1,846,000 1,792,000 3,593,000 3,621,000
Net Interest Income 2,826,000 2,724,000 5,437,000 5,407,000
Provision for Loan
Losses 100,000 119,000 199,000 236,000
Net Interest Income
after Provision 2,726,000 2,605,000 5,238,000 5,171,000
Other Income
Securities gains
(losses) 0 1,000 0 13,000
Other income 523,000 543,000 1,297,000 1,089,000
Total Other Income 523,000 544,000 1,297,000 1,102,000
Other expenses
(Includes Franchise) 2,133,000 2,103,000 4,249,000 4,175,000
Net income before
income taxes 1,116,000 1,046,000 2,286,000 2,098,000
Provision for income taxes 364,000 353,000 707,000 651,000
Net income $ 752,000 $ 693,000 $ 1,579,000 $ 1,447,000
Earnings per share $ 1.06 $ 0.99 $ 2.23 $ 2.07
Weighted average number of
shares outstanding 706,905 699,155 706,905 699,155
The accompanying notes are an integral part of these financial
statements.
5
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
Six Months Ended June 30,
1994 1993 1992
Net Cash Provided by Operating
Activities $ 2,187,000 $ 2,398,000 $ 1,216,000
Investing Activities
Proceeds of Maturities of Securities 10,054,000 16,049,000 9,129,000
Proceeds from Sales of
Investment Securities 0 0 3,101,000
Purchase of Investment Securities (15,739,000) (9,033,000) (20,517,000)
Increase in Loans-Net (15,980,000) (7,386,000) (4,247,000)
Purchases of Premises and Equipment (692,000) (192,000) (697,000)
Net Cash Provided by
Investing Activities (22,357,000) (562,000) (13,231,000)
Financing Activities
Net increase (decrease) in Demand
and Savings Accounts (854,000) (1,530,000) 2,467,000
Increase (decrease) in Time Accounts 8,073,000 (3,031,000) (3,791,000)
Increase (decrease) in Long Term Debt 4,220,000 (66,000) (66,000)
Treasury Stock Transactions 60,000 0 0
Proceeds from Sale of Common Stock 66,000 72,000 0
Cash Dividends Paid (376,000) (338,000) (294,000)
Cash Paid in Lieu of Fractional Shares 0 0 0
Net increase (decrease) in
Short-term Borrowings 5,225,000 (2,517,000) 4,679,000
Net Cash Provided (used) by Financing
Activities 16,414,000 (7,410,000) 2,995,000
Increase (decrease) in Cash and Cash
Equivalents (3,756,000) (5,574,000) (9,020,000)
Cash and Cash Equivalents at
Beginning of Year 13,608,000 17,291,000 22,400,000
Cash and Cash Equivalents at
End of Year $ 9,852,000 $ 11,717,000 $13,380,000
The accompanying notes are an integral part of these financial
statements.
6
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1994
Note 1 - Consolidated Financial Statements
The consolidated balance sheet as of June 30, 1994, the consolidated
statements of income for the six month periods ended June 30, 1994, 1993
and 1992, and the consolidated statements of cash flows for the six month
periods then ended have been prepared by the company without an audit. The
accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S - X. Accordingly they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1994 and for all
periods presented have been made. Operating results for the reporting
periods presented are not necessarily indicative of the results that may be
expected for the year ended December 31, 1994. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the company's annual report on Form 10-K for the year ended
December 31, 1993.
Note 2 - Organization
First Citizens Bancshares, Inc., is a bank holding company chartered
on December 14, 1982, under the laws of the State of Tennessee. On
September 23, 1983, all of the outstanding shares of common stock of First
Citizens National Bank were exchanged for an equal number of shares in
First Citizens Bancshares, Inc.
Note 3 - 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 $3,000 remaining
to be paid as of June 30, 1994. Future minimum lease payments according to
these leases are as follows:
Years Ending
December 31, 1994 $ 3,000
Less: amount representing interest 3,000
Present value of net minimum lease payments $ 0
Note 4 - Statement of Cash Flows
June 30,
1994 1993 1992
Actual payments made during
the periods:
Income taxes $ 520,000 $ 708,866 $ 387,000
Interest 3,430,000 3,713,000 4,828,000
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Note 5 - Contingent Liabilities
There are no material pending litigations as of June 30, 1994.
Note 6 - Investment Securities
The differences between book values of investment securities and
market values at June 30, 1994 and June 30, 1993, total ($892,000) and
$1,042,000, respectively. FASB 115 requires a bank to classify securities
as either held to maturity, available for sale, or trading. First Citizens
has $100,000 in the trading account. Available for Sale securities values
are marked to market each quarter with corresponding adjustments made to
the appropriate capital account (net of taxs). As of June 30, 1994, year-
to-date adjustments to capital totaled ($6,000) (net of taxes). Held to
maturity securities are stated at amortized cost. It is reasonable to
asume that adjustments will continue to be made each quarter in direct
correlation with changes in interest rates.
Note 7 - Regulatory Capital Requirements
Regulatory agencies impose certain minimum capital requirements on
both First Citizens Bancshares, Inc. and First Citizens National Bank. On
December 16, 1988, The Federal Reserve Board approved the risk based
capital guidelines for bank holding companies. Presently, the holding
company and First Citizens National Bank exceed the required minimum
standards set by the regulators.
Note 8 - Deferred Income Taxes
First Citizens adopted FASB 109 as of January 1, 1993. The June, 1993
figures reflected a $56,000 credit to income tax expense and the adjustment
for June, 1994 reflected a credit to income tax expense of $24,000. The
timing differences mainly consist of Reserve for Loan Loss Deductions.
Note 9 - Stock Split
A 2.5 for 1 stock split was authorized by the Board for shareholders
of record as of October 15, 1993, payable November 15, 1993. The
outstanding shares and earnings per share for 1993 were adjusted to reflect
the 2.5 for 1 stock split.
Note 10 - Other Borrowings and Debt
Short term borrowings consists of Federal Home Loan Bank funds in the
amount of $4,225,000. Long term borrowings consist of Federal Home Loan
Bank funds in the amount of $4,247,000. Long term funds are maturity
matched with specific assets.
Note 10 - Other Income
The Jackson Tennessee property was sold for a gain of $297,000 with
the net of tax effect being $178,000 or $.25 per share.
Note 11 - Par Value
The Par Value of Bancshare's stock was reduced from $10 to $1 during
the second quarter. This action resulted in a re-classification of funds,
with no material effect to either the balance sheet or income statement.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of the following discussion is to address significant changes
in income and expense accounts when compared to the quarter ending June 30,
1993. Reference should be made to the financial statements included as
ITEM 1 for a more thorough understanding of the analysis. The discussion
relates mainly to activities of First Citizens National Bank (First
Citizens) in its banking business. However, the consolidated statements of
income reflect activities of both First Citizens and First Citizens
Bancshares Inc. (Bancshares). Limited activities to date by the Holding
Company do not materially affect the income report.
Earnings remained strong for the second quarter of 1994. Net income
increased $59,000.00 (8.5%) when compared to the second quarter of 1993.
Net income year-to-date reflects an increase of $132,000 or 9.1%. Second
quarter performance was enhanced by increased loan volume and rising
interest rates. First quarter net interest income decreased approximately
$72,000. This was more than offset by a second quarter gain of $102,000,
resulting in a year-to-date increase of $30,000. Net income through June,
1994 includes an after tax gain of $178,000 realized on the sale of a
parcel of Other Real Estate during the first quarter. Other income during
1994 continues to be impacted by a reduction in the demand for long term
mortgage loans and a slow down in refinancing of existing mortgages.
Earnings per share at quarter end were $2.23 compared to $2.07 at 6/30/93.
FASB 115 (accounting on investment securities) had a positive impact (net
of taxes) of $6,000 to the capital account.
Total Assets increased approximately $17 million when comparing 6/30/94 to
6/30/93. The loan portfolio increased $16 million during the first six
months of 1994 with the major portion of growth centered in the
agricultural segment. Deposit growth, a reduction in Federal Funds Sold
and an increase in borrowings from the Federal Home Loan Bank combined to
fund loan growth as well as an increase of $5,847,000 in the investment
portfolio. An agressive loan demand during the second quarter resulted in
a decision by management to solicit deposits from sources outside our trade
area. This effort increased time deposit totals by $2,600,000. Rates and
terms on these deposits were the same as those offered to local customers.
The pressure on deposit totals is expected to ease as interest rates
continue to move upward causing funds to flow into Bank CD's from stocks
and mutual funds. Through the asset/liability management process, earning
assets and costing liabilities are constantly monitored for unfavorable
trends. A conscious effort has been made to control growth in order to
remain within desired capital ratios and to maximize the Bank's return on
assets and equity. An increase of $1,335,000 in equity capital resulted in
a risk based capital ratio of 13.81% compared to 13.70% at year end.
The bank is well positioned, maintaining over 50% market share, to be
competitive with products and services offered by even the largest
institution in the servicing area. New products introduced to our
customers in 1994 are an Overdraft Line of Credit and a Free Checking
Account. Both products were designed to attract customers in the 30-45 age
group that have expressed a need for these product types. In November,
1993 an Automated Teller Machine was located in the Wal-Mart store at
Highway 78 North, Dyersburg, Tennessee. Construction of the Industrial
Park Branch located at 2211 St. John Avenue is well underway. The
projected completion date is October 15. The full service branch will
feature hours and services convenient to the needs of employees of local
industry. 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. Also,
a servicing agreement has been negotiated with Deluxe Data Systems to
provide servicing for the Visa Check Card Product that will be introduced
before year end.
9
The following table compares year-to-date non-interest income, and
expense of First Citizens as of June 30, 1994, 1993, and 1992:
Non-Interest Income
(in thousands)
June 30 June 30 June 30
1994 % of Change 1993 % of Change 1992
Service Charges
on Deposit Accts. $228 5.56% $216 4.85% $206
Other Income $791 21.69% $650 31.85% $493
Trust Income $278 17.80% $236 19.80% $197
TOTAL NON-INTEREST INCOME $1,297 17.70% $1,102 22.99% $896
Non Interest Income is up $195,000 or 17.70% when comparing to the previous
year. The increase can be attributed to a one time after tax credit of
$178,000 resulting from the sale of Other Real Estate during the first
quarter of 1994. Without this credit, other income would have decreased
$102,000 or 9.25%. Trust Income however, indicates a significant
improvement when comparing 1994 to 1993 and 1992. Under new management
since April, 1993, a strategic plan has been developed and implemented that
provides for Business Development, sustained growth and profit.
Non-Interest Expense
1994 % of Change 1993 % of Change 1992
Salaries & Employee Benefits $2,326 3.93% $2,238 .54% $2,226
Net Occupancy Expense $ 319 9.62% $ 291 (61.15%) $ 749
Other Operating Expense $1,604 (2.55%) $1,646 13.75% $1,447
TOTAL NON-INTEREST EXPENSE $4,249 1.77% $4,175 (5.59%) $4,422
Non-Interest Expense increased only $74,000 or 1.77% when comparing 1994 to
1993. A 61% decrease in net occupancy expense occurred from 1992 to 1993
due to a change in Data Processing Software and Hardware in September 1992.
The change resulted in a reduction of $226,000, excluding depreciation cost
of $59,000. Salaries and benefits increased only 3.93% reflecting a
continuous effort to increase salaries and benefits at a manageable level
while reducing FTE to be more in line with peer banks. Full-time equivalent
employees as of June 30, 1994 was 145 compared to 149 at June 30, 1993.
Deposits
The average daily amount of deposits and average rates paid on such
deposits is summarized for the quarter ending June 30 for the years
indicated:
COMPOSITION OF DEPOSITS
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 24,361 - $ 21,111 - $ 18,398 -
Savings Deposits $ 65,059 2.64% $ 65,136 2.57% $ 59,433 3.05%
Time Deposits $106,319 4.50% $103,820 4.65% $113,729 5.51%
TOTAL DEPOSITS $195,739 3.32% $190,067 3.42% $191,560 4.22%
10
Total Deposits grew approximately $5 Million during the first half of 1994,
when compared to the same time period in 1993. The increase is due to
rising interest rates and an aggressive program implemented to seek deposit
funds. During June, 1994 management made a decision to purchase Brokered
Deposits at the same rate of interest paid to other depositors for similar
investments, to aggressively bid on public funds and to seek deposits from
the banks' Trust Division. An analysis of prior years presented in the
table is reflective of customer response to the low interest rates paid on
deposits in '92 and '93. Deposit rate have slightly increased and are
projected to remain higher in '94 than previous years thereby enhancing the
appeal of the banks investment options.
Non-Interest bearing demand deposits have increased approximately
$3,500,000 for each year under review. One factor that is not evident when
reviewing deposit categories is funds invested in "Sweep Account Funds"
totaling $10,626,000. Large balance customers are offered a service which
provides for funds to automatically sweep daily from a demand deposit
account into an overnight repurchase agreement. This affords commercial
and 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. Also not included in total deposits are Fixed
Repurchase Agreements totaling $6,602,000.
The following tables set forth the maturity distribution of
Certificates of Deposits and other time deposits of $100,000 or more
outstanding on the books of First Citizens on June 30, 1994. The overall
total reflects an increase of $4,825,000 when comparing to June, 1993
total.
Maturity Distribution Of Time Certificates Of Deposit
In Amounts of $100,000.00 Or More As Of June 30, 1994
(in thousands)
Maturity Total Amount
3 3 months or less $ 6,073
3 through 6 months $ 5,043
6 through 12 months $ 3,298
over 12 months $ 6,218
Total $20,632
A summary of average interest earning assets and interest bearing
liabilities is set forth in the following table together with average
yields on the earning assets and average costs on the interest bearing
liabilities. Average rate on Total Interest Earning Assets at 6/30/94 was
8.09% compared to 8.16% and 8.78% at 6/30/93 and 6/30/92 respectively.
During 1993 and the first six months of 1994 rates charged on loans were
reduced from previous rates charged in 1992 due to customer demand and the
competitive loan environment in the bank's market place. The average rate
on Total Interest Bearing Liabilities was 3.78% at 6/30/94 slightly above
the average rate of 3.75% at 6/30/93 and .83% below the average rate of
4.61% at 6/30/92. Net Yield on Average Earning Assets ranged from 4.58% at
6/30/92 to 4.75% at 6/30/94. Sustained improvement in the annualized net
yield on average earning assets is attributable to success in growing
interest earning assets at a rate more favorable proportionately than
growth of interest bearing liabilities. Maintaining levels achieved in
1993 and 1994 could prove difficult in the current rising rate environment.
Sound asset/liability management guidelines should limit the impact to
earnings which could result from rising interest rates.
11
First Citizens National Bank
Quarter Ending June 30
Monthly Average Balances and Interest Rates
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST EARNING
ASSETS:
Loans (1)(2)(3) $156,607 $3,561 9.10% $140,335 $3,290 9.38% $134,889 $3,387 10.05%
Investment Securities:
Taxable $ 50,265 $ 757 6.02% $ 61,481 $ 932 6.06% $ 59,603 $1,032 6.93%
Tax Exempt (4) $ 13,725 $ 155 4.52% $ 8,306 $ 95 4.58% $ 5,866 $ 74 5.05%
Interest Earning
Deposits $ 102 $ 1 3.92% $ 185 $ 1 2.16% $ 135 $ 1 2.97%
Trading Account $ 100 $ 0 - - - - - - -
Federal Funds Sold $ 921 $ 10 4.34% $ 2,140 16 2.99% $ 7,436 $ 70 3.77%
Lease Financing $ 51 $ 1 7.84% $ 75 $ 2 10.67% $ 125 $ 3 9.60%
Total Interest
Earning Assets $221,771 $4,485 8.09% $212,522 $4,336 8.16% $208,054 $4,567 8.78%
NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 8,853 $ - - $ 7,898 $ - - $ 7,582 $ - -
Bank Premises and
Equipment $ 7,911 $ - - $ 7,921 $ - - $ 7,554 $ - -
Other Assets $ 3,246 $ - - $ 3,815 $ - - $ 3,312 $ - -
Total Assets $241,781 $ - - $232,156 $ - - $226,502 $ - -
12
Quarter Ending June 30
Monthly Average Balances and Interest Rates (Continued)
(in thousands)
1994 1993 1992
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 65,059 $ 430 2.64% $ 65,136 $ 418 2.57% $ 59,433 $ 453 3.05%
Time Deposits $106,319 $1,196 4.50% $103,820 $1,206 4.65% $113,729 $1,566 5.51%
Federal Funds
Purchased and
Other Interest
Bearing Liabilities $ 24,237 $ 224 3.70% $ 22,129 $ 168 3.04% $ 16,731 $ 167 4.00%
Total Interest
Bearing Liabilities $195,615 $1,850 3.78% $191,085 $1,792 3.75% $189,893 $2,186 4.61%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 24,361 $ - - $ 21,027 $ - - $ 18,398 $ - -
Other Liabilities $ 1,503 $ - - $ 1,837 $ - - $ 1,948 $ - -
Total Liabilities $221,479 $ - - $213,949 $ - - $210,239 $ - -
SHAREHOLDERS'
EQUITY $ 20,302 $ - - $ 18,207 $ - - $ 16,263 $ - -
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $241,781 $ - - $232,156 $ - - $226,502 $ - -
NET INTEREST
INCOME $ - $2,635 - $ - $ 2,544 - $ - $ 2,381 -
NET YIELD ON
AVERAGE EARNING
ASSETS
(ANNUALIZED) $ - $ - 4.75% $ - $ - 4.79% $ - $ - 4.58%
<FN>
(1) Loan totals are shown net of interest collected, not earned and
Loan Loss Reserve.
(2) Non-accrual loans are included in average total loans.
(3) Loan Fees are included in interest income and the computations of
the yield on loans.
(4) Interest and rates on securities which are non-taxable for
Federal Income Tax purposes are not presented on a taxable
equivalent basis.
13
COMPOSITION OF LOANS
Loan portfolio totals increased in excess of $22 million from June 30,
1993 to June 30, 1994. All categories listed within the comparison table
reflect substantial growth when comparing 1994 to 1993 with major growth
centered in Mortgage, Commercial and Agricultural Loans. Loans for
Agricultural production purposes are fully funded by June 30 of each year
resulting in seasonal growth in this category. Loan growth for the first
half of 1994 is well above budget projections. However, rising interest
rates are projected to result in a slow down in new loan volume. The local
economy continues to perform better than other areas in Tennessee as a
result of diversification.
Non performing loans were significantly improved when comparing June
30, 1994 to prior year as indicated in the chart of Non Performing Loans.
90 days or more past due loans increased $378,000, but remain well within
acceptable ratios when comparing to the total loan portfolio of $165
million. Past due loan totals are in line with peer group banks.
The aggregate amount of unused guarantees, commitments to extend
credit and standby letters of credit was $50,534,000 as of 6/30/94.
The average yield on loans of First Citizens National Bank for the
second quarter of the years indicated is as follows:
1994 - 9.10%
1993 - 9.38%
1992 - 10.05%
1991 - 11.70%
1990 - 12.29%
The following table sets forth loan totals net of unearned income by
category for the past five years:
June 30
(in thousands)
1994 1993 1992 1991 1990
Real Estate Loans:
Construction $ 8,681 $ 6,881 $ 4,712 $ 4,629 $ 5,027
Mortgage $ 91,510 $ 83,383 $ 79,695 $ 78,606 $ 73,084
Commercial, Financial
and Agricultural Loans $ 44,164 $ 35,433 $ 34,428 $ 35,306 $ 31,191
Installment Loans to
Individuals $ 16,953 $ 15,233 $ 15,579 $ 17,129 $ 17,083
Other Loans $ 3,998 $ 2,098 $ 2,459 $ 2,572 $ 3,365
TOTAL LOANS $165,306 $143,028 $136,873 $138,242 $129,750
14
Loan Maturities and Sensitivity to Changes in Interest Rates
Managing interest risk is a primary objective of asset liability
management. One tool utilized by First Citizens National Bank to ensure
market rate return is variable rate loans. Loans totaling $71,555,000
(43.37% of total portfolio) are subject to repricing within one year or
carry a variable interest rate. This total is up slightly from June 30,
1993. Loan maturities in the one to five year category increased
approximately $20,000,000 since 6/30/93 due to customer demand to lock in a
fixed rate for a longer period. While growth in the portfolio is an
objective, our first priority is ensuring credit quality. Management
considers the portfolio composition to be diversified with no
concentrations in any one industry.
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $17,928 $60,905 $21,358
Commercial, Financial
and Agricultural $14,722 $23,556 $ 5,886
All Other Loans $ 2,974 $15,778 $ 2,199
TOTAL $35,624 $100,239 $29,443
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $94,751
Interest Rates are Floating or Adjustable $34,931
NON-PERFORMING ASSETS
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 three months ending 6/30/94 if all loans
reported as non-accrual had been current in accordance with their original
terms and had been outstanding throughout the period is $20,000. Interest
income on loans reported as ninety days past due and on interest accrual
status was $12,000 for year-to-date 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. Restructured loan totals at June 30,
1994 was zero. Loans classified by regulatory examiners and not reported
under non-accrual, past due or restructured pose no significant credit
problems. Loan Officers are required to develop a "Plan of Action" for
each problem loan within their portfolio. Adherence to each established
plan is monitored by Loan Administration and reevaluated at regular
intervals for effectiveness. Non-Performing loans significantly increased
in 1991 due to one credit in the amount of $1,000,000 placed on non-accrual
status during the third quarter, 1990.
The portfolio contained no loans renegotiated to provide a reduction or
deferral of interest or principal because of a deterioration in the
financial position of the borrower as of June 30, 1994 for the years under
comparison.
15
The following table sets forth the balance of non-performing loans as
of June 30, for the years indicated:
Non-Performing Loans
June 30
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
1994 $ 889 $ 520 $1,409
1993 $1,466 $ 142 $1,608
1992 $2,239 $ 801 $3,040
1991 $2,167 $ 572 $2,739
1990 $ 391 $ 764 $1,155
LOAN LOSS EXPERIENCE AND
RESERVES FOR LOAN LOSSES
During the quarter just ended activity to the Reserve Account
consisted of (1) Loans charged off totaling $50,000, (2) Recovery of loans
previously charged off totaling $34,000, and (3) Additions to reserve
totaling $100,000. Charged off loan totals reflect a decrease when
comparing to previous years. This is evidence of fewer problem loans
within the portfolio. Efforts continue to ensure sound underwriting
principals and thereby reduce the potential for future loans losses.
Charge off projections for 1994 are $200,000 or .12% of the total
portfolio. The reserve balance at quarter end 1994 decreased from quarter
end 1993 reflecting improved loan quality while comparisons of 1993 to 1992
reflect a slight increase. The increase was caused by rapid loan growth
and managements decision to adequately allocate reserves for any potential
losses associated with growth. A significant increase in the reserve
balance in 1990 and 1991 reflected increased problem assets during that
period.
The book value of repossessed real property held by Bancshares was
$783,000 and $1,986,889 at 6/30/94 and 6/30/93. The balance was
significantly reduced as a result of the sale of property in December, 1993
valued at $1,055,000. The only other property held on the books of
Bancshares is a strip shopping center valued at $685,000. The remaining
balance represents other real estate which is held by First Citizens
National Bank. Efforts to market the property held by the Holding Company
are on-going.
Accounting for adjustments to the value of Other Real Estate when
recorded subsequent to foreclosure is accomplished on the basis of an
independent appraisal. The asset is recorded at the lesser of its
appraised value or the loan balance. Any reduction in value is charged to
the allowance for possible loan losses. All other real estate parcels are
appraised annually and the carrying value is adjusted to reflect the
decline, if any, in its realizable value. Such adjustments are charged
directly to expense.
An analysis of the allocation of the allowance for Loan Losses is made
on a fiscal quarter at the end of the month, (February, May, August, and
November) and presented to the board at its monthly meeting. More frequent
reports will be submitted as needed or requested by the Board. The primary
purpose of the analysis will be to assure that the existing allowance is
adequate for future losses.
Annual reviews of the loan portfolio to identify risks will cover a
minimum of 70% of the gross portfolio less installment loans. In addition,
any single note or series of notes directly or indirectly related to one
borrower which equals 25% of the Bank's legal lending limit will be
included in the annual review.
16
For analysis purposes the loan portfolio will be separated into four
classifications:
1. Pass - Loans that have been reviewed and graded high quality with no
major deficiencies.
2. Watch - Loans which, because of unusual circumstances, need to be
closely supervised to prevent a deterioration in quality.
3. Problem - Loans which require additional collection efforts to
liquidate both principal and interest.
4. Specific Allocation - Loans, in total or in part, in which a future
loss is possible.
Examples of factors taken into consideration during the review are:
Industry or geographic economic concerns, sale of business, change of or
disagreement among management, unusual growth or expansion of the business,
past due of either principal or interest for 90 days, placed on non-accrual
or renegotiated status, declining financial condition, adverse change in
personal life, frequent overdrafts, lack of cooperation by borrower,
decline in marketability or market value of collateral, insufficient cash
flow, and inadequate collateral values.
Since future losses cannot be identified with complete accuracy,
in addition to the specific allocation to individual loans, a minimum of
30% of the allowance for Loan and Lease Loss Reserve will be allocated to
general risk.
Management estimates charge-offs for period ending 12/31/94 to be as
follows:
Domestic Amount
Commercial, Financial & Agricultural $ 50,000
Real Estate-Construction -0-
Real Estate- Mortgage 70,000
Installment Loans to individuals & credit cards 80,000
Lease financing -0-
Foreign N/A
01/01/94 through 12/31/94 Total $200,000
The following table summarizes the monthly average of net loans
outstanding; changes in the reserve for loan losses arising from loans
charged off and recoveries on loans previously charged off; additions to
the reserve which have been charged to operating expenses; and the ratio of
net loans charged off to average loans outstanding.
17
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
Quarter ending June 30
(in thousands)
1994 1993 1992 1991 1990
Average Net Loans
Outstanding $156,658 $140,410 $135,014 $133,109 $125,568
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 1,795 $ 1,832 $ 1,798 $ 2,041 $ 1,434
Loan Charge-Offs $ (50) $ (69) $ (271) $ (151) $ (54)
Recovery of Loans
Previously Charged Off $ 34 $ 38 $ 100 $ 31 $ 30
Net Loans Charged Off $ (16) $ (31) $ (171) $ (120) $ (24)
Additions to Reserve
Charged to Operating
Expense $ 100 $ 119 $ 130 $ 132 $ 160
Balance at End of
Period $ 1,879 $ 1,920 $ 1,757 $ 2,053 $ 1,570
Ratio of Net Charge-
Offs during quarter
to Average Net Loans
Outstanding (.01%) (.02%) (.13%) (.09%) (.02%)
The following table will identify charge-offs by category for the
period ending 6/30/94.
Charge-Offs:
Domestic
Commercial, Financial and Agricultural $ 0
Real Estate - Construction 0
Real Estate - Mortgage 9
Installment Loans to Individuals 41
Lease Financing 0
Total $(50)
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 4
Real Estate - Construction 0
Real Estate - Mortgage 2
Installment Loans to Individuals 28
Lease Financing 0
Total $ 34
Net $(16)
18
Investment Securities
The book value of listed investment securities as of the dates
indicated are summarized as follows:
Composition of Investment Securities
June 30
(in thousands)
1994 1993 1992 1991 1990
U. S. Treasury &
Government Agencies $46,480 $53,792 $56,452 $49,001 $51,351
State & Political
Subdivisions $14,093 $ 8,496 $ 6,143 $ 6,389 $ 7,617
All Others $ 6,021 $ 5,144 $ 4,769 $ 6,052 $ 5,042
TOTALS $66,594 $67,432 $67,364 $61,442 $64,010
The Investment Portfolio serves a primary role in the overall context
of balance sheet management. It provides a stable, long-term income stream
and is managed in such a way as to enhance the company's asset/liability
management program. Investment Securities serve as collateral for
government and other 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 investments contained therein comprise
approximately 9.04% of the portfolio. Sound Asset/liability management
requires management to continuously monitor the need for tax free
investments as well as set guidelines for the term of investment
maturities. Tax Free Investments make up 21.16% of the investment
portfolio. This total has increased over 66% since 1992 as a conscious
effort to reduce the bank's tax liability. In light of current rising
interest rates, caution will be used when purchasing investments with
maturities longer than 7 years.
Investments for the first half of 1994 were curtailed by strong loan
demand and the implementation of the 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 6/30/94 approximately 29.50% of total investments were
booked in the Available-For-Sale portfolio. The remaining 70.5% was placed
in the Held-To-Maturity category. 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 investments are stated at
amortized cost on the balance sheet. Mark to Market had a positive after
tax impact on the capital account of the consolidated balance sheet at
6/30/94 of $6,000.
During the quarter just ended additions made to the portfolio included
$6,000,000 in U. S. Government Agencies, $2,000,000 in Municipals, and
$1,000,000 in Corporations. There were no sales from the investment
portfolio, however approximately $3,000,000 in U. S. Government Treasuries
matured and were reinvested in the loan portfolio. There were no transfers
between categories of the investment portfolio. The Trading Account as
reflected on the consolidated balance sheet maintained an average balance of
$100,000 for the quarter. Securities contained in the Trading Account
consist of U. S. Treasuries Bills and were purchased in the second quarter
by the bank's subsidiary Financial Plus, Inc.
As of June 30, 1994, the securities portfolio held $12,205,000 in
"Derivative" products which consisted of $6,340,000 CMO's (Collateralized
Mortgagee Obligations), $4,910,000 Step-Up Bonds, and $955,000 in CMT
(Constant Maturity Treasury) Bonds. "Derivatives" are non-traditional
securities that derive value from the price action of other assets. Total
investment in Derivative products constitutes 19% of the investment
portfolio. This does not represent a high level of concentration nor an
abnormal amount of market risk to the overall portfolio.
The portfolio currently contains the following unrealized gains and
losses in each investment category:
19
Investment Securities
Held to Maturity Available for Sale
June 30, 1994
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 7,043 $ 6,947 $ 6,068 $ 6,063
U.S. Government agency
and corporation obligations
(exclude mortgage-backed
securities):
Issued by U.S. Government
agencies (2) 351 351 0 0
Issued by U.S. Government-
sponsored agencies (3) 18,069 17,697 1,978 2,061
Securities issued by states
and political subdivisions
in the U.S.:
General obligations 6,018 5,923 1,534 1,555
Revenue obligations 4,374 4,282 1,470 1,470
Industrial development and
similar obligations 23 23 630 653
Mortgage-backed securities (MBS):
Pass-through securities:
Guaranteed by GNMA 669 662 1,255 1,204
Issued by FNMA and FHLMC 3,528 3,537 0 0
Privately-issued 0 0 0 0
CMOs and REMICs:
Issued by FNMA and FHLMC 5,105 4,890 886 830
Privately-issued and
collateralized by MBS
issued or guaranteed by
FNMA, FHLMC, or GNMA 600 620 0 0
All other privately-issued 0 0 0 0
Other debt securities:
Other domestic debt securities 2,285 2,290 1,076 1,096
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 2,047 2,040
All other equity securities (1) 0 0 0 0
Total 48,065 47,222 16,944 16,972
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
(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.
20
Investment Securities
Unrealized Gains/(Losses)
June 30, 1994
Unrealized Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury Securities 9 153 (144)
Obligations of U.S. Government
Agencies and Corp 94 659 (565)
Obligations of States and
Political Subdivisions 52 239 (187)
Fed Reserve & Corp Stock 14 10 4
Totals 169 1061 (892)
Maturity and Yield on Securities June 30, 1994
(in thousands)
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount % Amount % Amount % Amount %
6/30/94 $16,058 (24%) $31,208 (47%) $13,604 (20%) $ 5,724 (9%)
6/30/93 $17,023 (25%) $41,179 (61%) $ 1,407 (2%) $ 7,823 (12%)
6/30/92 $21,115 (31%) $33,229 (49%) $11,901 (18%) $ 1,119 (2%)
6/30/91 $18,882 (30.73%) $27,054 (44.03%) $ 9,905 (16.12%) $ 5,601 (9.12%)
6/30/90 $16,057 (25%) $37,776 (59%) $ 7,018 (11%) $ 3,159 (5%)
Maturity and Yield on Securities June 30, 1994
(in thousands)
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 $11,755 6.25% $20,012 6.74% $ 9,689 6.46% $ 5,024 6.15%
State and Political
Subdivisions* $ 2,203 6.80% $ 7,875 7.12% $ 3,915 6.28% $ 100 7.08%
All Others $ 2,100 7.26% $ 3,321 6.13% $ - - $ 600 9.14%
TOTALS $16,058 6.46% $31,208 6.77% $13,604 6.41% $ 5,724 6.48%
<FN>
*Yields on tax free investments are stated herein on a taxable equivalent
basis.
*Includes Holding Company's investments.
21
Return on Equity and Assets
Improved earnings is evident when comparing the periods presented in
the following table. Return on assets has increased from .37% in 1991 to
.65% in 1994 reflecting an ongoing effort to maintain earnings comparable
to peer banks. Budget projections for Return on Assets at 12/31/94 is a
minimum of one percent. The Bank's budget base incentive plan requires a
1.15% ROA at 12/31/94 if managers are to realize maximum benefits.
Percentage of Dividends declared per common share to net income per
common share decreased from 35.90% and 38.89% in 1991 and 1992 respectively
to 22.41% in 1993 and 22.73% in 1994. While dividends per share have
trended upward, improved earnings serve to reduce the comparative ratio. A
10 percent stock divided declared on October 21, 1992 was payable to
shareholders of record December 15, 1992, thereby increasing outstanding
shares. Earnings per share were adjusted accordingly.
During the third quarter, 1993, a 2.5 for 1 stock split was declared
to holders of record as of October 15, 1993 on the common capital stock of
Bancshares. The number of shares outstanding increased proportionately
with no effect to capital.
An amendment to the Company's Charter by the shareholders in April,
1994 approved an increase in the number of shares authorized from 750,000
to 2,000,000.
The table below presents for First Citizens Bancshares, Inc. certain
operating ratios year-to-date as of June 30: (not annualized)
1994 1993 1992 1991
Percentage of Net Income to:
Average Total Assets .65% .62% .35% .37%
Average Shareholders Equity 7.06% 7.24% 4.45% 5.03%
Percentage of Dividends Declared
Per Common Share to Net Income
Per Common Share 23.81% 23.36% 36.89% 34.02%
**Percentage of Average
Shareholders' Equity to
Average Total Assets 9.92% 8.53% 7.83% 7.38%
**Represents primary capital - including reserve for loan losses account
22
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 ratio which is determined by a comparison of net liquid assets to
net liabilities remains around 10%. The average Loan to Deposit ratio for
the second quarter was 74%. The low interest rate environment placed
pressure on our customers to seek investment options such as annuities,
mutual funds and stocks while encouraging loan customers to refinance, make
purchases and expand their business thereby having an impact on the banks
liquidity and loan to deposit ratios. Deposits of $100,000 and over were
more volatile and interest sensitive than the smaller deposits that make up
the major portion of the bank's deposit base. Another factor which must be
considered in the current interest rate situation is the inclination of
customers to lock in loan rates for longer periods of time. However, the
stability of our deposit base, sound asset/liability management, a strong
capital base and quality assets assure us of adequate liquidity. Other
sources that are available to meet liquidity needs are (1) Loans in excess
of $35,624,000 and Investment Securities totaling $16,058,000 mature within
one year (2) Lines of Credit with correspondent banks totaling $7.5 Million
and (3) Membership with the Federal Home Loan Bank, thereby opening up and
additional liquidity source totaling $11.5 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 measurement of the interest sensitivity gap. Minimizing this gap is
a continual challenge in the present interest rate environment. This is
the 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 one year.
As evidenced by the following table, our current position is significantly
below this level, with annual income exposure determined to be $80,000 to
$90,000.
23
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
06/30/94
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- ----------------------------------------------------------------------------------------------
CASH AND DUE FROM
CURRENCY AND COIN 2,874 - - - - - - - 2,874
DUE FROM BANKS 1,134 - - - - - - - 1,134
CASH ITEMS 4,158 - - - - - - - 4,158
MONEY MARKET 102 102 - - - - - - -
TOTAL CASH & DUE FROM 8,268 102 - - - - - - 8,166
INVESTMENTS
U.S. TREASURIES 13,107 - - 3,000 - 1,000 - 2,000 7,107
U.S. AGENCIES 31,852 - 4,444 1,000 - 3,000 - 2,802 20,606
MUNICIPALS 14,092 - - 145 23 820 1,295 2,910 8,899
PREFERRED STOCK 592 - - - - - - - 592
CORP & OTHERS 4,138 - - - - 1,300 800 250 1,788
FEDERAL HOME LOAN BANK 1,256 - - - - - - - 1,256
TOTAL INVESTMENTS 65,037 - 4,444 4,145 23 6,120 2,095 7,962 40,248
LOANS
COMMERCIAL FIXED 21,578 - 2,105 569 1,010 4,108 3,007 1,567 9,212
COMMERCIAL VARIABLE 20,805 20,805 - - - - - - -
REAL ESTATE VARIABLE 18,859 18,859 - - - - - - -
REAL ESTATE FIXED 76,693 - 2,673 1,578 1,186 1,509 5,501 5,152 59,094
HOME EQUITY LOANS 4,523 4,523 - - - - - - -
SEC MORTGAGE 116 - 116 - - - - - -
INSTALLMENT LOANS 16,924 - 185 168 141 822 1,430 3,558 10,620
INSTALLMENT VARIABLE 29 29 - - - - - - -
FLOOR PLAN 892 892 - - - - - - -
CREDIT CARDS 1,571 - - - - - - - 1,571
OVERDRAFTS 228 - 228 - - - - - -
NON-ACCRUAL LOANS 889 - - - - - - - 889
FHLB LOANS 2,199 - - - - - - - 2,199
TOTAL LOANS 165,306 45,108 5,307 2,315 2,337 6,439 9,938 10,277 83,585
LOAN LOSS RESERVE 1,879 - - - - - - - 1,879
NET LOANS 163,427 45,108 5,307 2,315 2,337 6,439 9,938 10,277 81,706
FED FUNDS SOLD 1,400 1,400 - - - - - - -
TOTAL FED FUNDS SOLD 1,400 1,400 - - - - - - -
TOTAL EARNING ASSETS 229,864 46,508 9,751 6,460 2,360 12,559 12,033 18,239 121,954
OTHER ASSETS
TRADING ACCOUNT 100 - 100 - - - - - -
BUILDING, F&F AND LAND 7,930 - - - - - - - 7,930
OTHER REAL ESTATE 122 - - - - - - - 122
OTHER ASSETS 3,255 - - - - - - - 3,255
TOTAL OTHER ASSETS 11,407 - 100 - - - - - 11,307
TOTAL ASSETS 249,539 46,610 9,851 6,460 2,360 12,559 12,033 18,239 141,427
DEMAND DEPOSITS
BANKS 39 - - - - - - - 39
DEMAND DEPOSITS 23,914 - - - - - - - 23,914
TOTAL DEMAND 23,953 - - - - - - - 23,953
24
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
06/30/94
(in thousands)
DAILY 0-1 1-2 2-3 3-6 6-12 1-2 2+
TOTAL FLOATING MONTH MONTHS MONTHS MONTHS MONTHS YEARS YEARS
- ----------------------------------------------------------------------------------------------
SAVINGS ACCOUNTS
REGULAR SAVINGS 18,765 - - - - - - 18,765 -
NOW ACCOUNT 25,938 - - - - - - 25,938 -
IMF-MMDA 11,928 11,928 - - - - - - -
HIGH YIELD ACCOUNT 2,735 2,735 - - - - - - -
GENERATIONS GOLD 4,530 - - - - - - 4,530 -
TOTAL SAVINGS 63,896 14,663 - - - - - 49,233 -
TIME DEPOSITS
FLEX-CD 75,983 - 8,802 4,124 3,966 14,322 11,961 18,501 14,307
LARGE CD-FLEX 20,632 - 1,752 3,746 575 5,043 3,298 4,007 2,211
IRA-FLOATING 239 239 - - - - - - -
IRA-FIXED 16,159 - 380 604 557 1,049 2,245 3,920 7,404
CHRISTMAS CLUB 249 - - - - - - 249 -
TOTAL TIME 113,262 239 10,934 8,474 5,098 20,414 17,504 26,677 23,922
TOTAL DEPOSITS 201,111 14,902 10,934 8,474 5,098 20,414 17,504 75,910 47,875
SHORT TERM BORROWINGS
TT&L 1,000 1,000 - - - - - - -
SECURITIES SOLD-SWEEP 10,626 10,626 - - - - - - -
SECURITIES SOLD-FIXED 6,602 - 787 2,594 1,300 698 600 623 -
FHLB-SHORT TERM 4,225 4,225 - - - - - - -
FHLB LIBOR INVESTMENT 1,950 - - - - - - - 1,950
FHLB-LONG TERM LOANS 2,297 - - - - - - - 2,297
TOTAL SHORT TERM BORR. 26,700 15,851 787 2,594 1,300 698 600 623 4,247
OTHER LIABILITIES
ACCRUED INT PAYABLE 999 - - - - - - - 999
OTHER LIABILITIES 178 - - - - - - - 178
TOTAL OTHER LIABILITIES 1,177 - - - - - - - 1,177
TOTAL LIABILITIES 228,988 30,753 11,721 11,068 6,398 21,112 18,104 76,533 53,299
CAPITAL
COMMON STOCK 2,000 - - - - - - - 2,000
SURPLUS 4,000 - - - - - - - 4,000
UNREALIZED GAIN(LOSSES) 17 - - - - - - - 17
UNDIVIDED PROFITS 14,534 - - - - - - - 14,534
TOTAL CAPITAL 20,551 - - - - - - - 20 551
TOTAL LIAB. & CAPITAL 249,539 30,753 11,721 11,068 6,398 21,112 18,104 76,533 73,850
GAP (SPREAD) - 15,857 -1,870 -4,608 -4,038 -8,553 -6,071 -58,294 67,577
GAP % TOTAL ASSETS - 6.35 -0.75 -1.85 -1.62 -3.43 -2.43 -23.36 27.08
CUMULATIVE GAP - 15,857 13,987 9,379 5,341 -3,212 -9,283 -67,577 -
CUMM. GAP % TOTAL ASSETS - 6.35 5.61 3.76 2.14 -1.29 -3.72 -27.08 -
SENSITIVITY RATIO - 1.52 1.33 1.18 1.09 0.96 0.91 0.62 1.00
25
Capital Resources
First Citizens National Bank maintains a strong capital base well in
excess of the level required by regulators for bank's our size. Increasing
the capital base is considered a vital part of the bank's strategic plan.
Total shareholders' equity (excluding Loan Loss Reserve) as of June 30,
1994 was 23,036,000 compared to $20,650,000 at 6/30/93. Total capital
(excluding Reserve for Loan Losses) as a percentage of total assets for the
quarter just ended is presented as follows for the years indicated:
1994 1993 1992 1991 1990
9.14% 8.82% 7.92% 7.53% 7.26%
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. Effective January 1, 1993, 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' capital consists entirely of Tier
1 components, with the exception of the allowance for loan and lease
losses.
Bancshares has historically maintained capital in excess of minimum
levels established by the Federal Reserve Board. The risk-based capital
ratio reflects continuous improvement when reviewing the years included in
the above table. Risk-based capital ratio as of 6/30/94 was 13.81 percent,
significantly in excess of the 8.00 percent mandated by the Regulatory
Authorities. 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.
Effects of Inflation
Inflation has a significant impact on the growth of total assets in
the banking industry, resulting in a need to increase equity capital in
order to maintain an appropriate equity to asset ratio.
Operating expenses are directly affected by increases in salaries and
employee benefits, supplies, legal, audit and professional fees, utilities,
advertising and insurance. Now that interest rates have been deregulated,
inflation is a major key to the cost of acquiring and retaining deposits.
A well managed asset/liability management program can maximize net
interest income; and at the same time, reduce the impact of inflation on
earnings.
Part II - Other Information
Item 1. Legal Proceedings
Information dealing with legal proceedings as disclosed in Part I, Item 1,
in Footnote five (5) of the notes to financial statements is incorporated
herein by reference.
Item 2. Changes in Securities
Dividends paid to Shareholders of First Citizens Bancshares, Inc. are
funded by dividends to the Bank Holding Company from First Citizens
National Bank. Federal Reserve Bank regulators would be critical of a bank
holding company that pays cash dividends that are not covered by earnings
or that are funded from borrowings or unusual or non-recurring gains, such
as the sale of property or assets. Under rules set forth by the
Comptroller of the Currency in Interpretive Ruling 7.6100, the board of
directors of a national bank may declare dividends as it may judge to be
expedient, subject to statutory limitations which deal with the balance of
the surplus account, sufficiency of net profits, dividend payments on
preferred stock, and default of any assessment due to the Federal Deposit
Insurance Corporation.
Item 6(b) No reports on Form 8-K were filed for the quarter ended 6/30/94.
26
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
First Citizens Bancshares, Inc.
(Registrant)
Date: August 11, 1994 /s/Stallings Lipford
Stallings Lipford, Chairman & CEO
Date: August 11, 1994 /s/Jeff Agee
Jeff Agee, Vice President &
Chief Financial Officer
First Citizens National Bank
(Principal Subsidiary)