1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1995 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 731,371 (net of treasury) shares outstanding as of September 30,
1995.
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
3
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1995 1994
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 11,407,000 $ 9,784,000
Federal funds sold 0 2,900,000
Investment securities -
Trading Investments-Stated at Market 0 0
Held to maturity-amortized cost-fair
Value of $48,010,000 at September 30,
1995 and $45,151,000 at December 31,
1994. 47,328,000 47,295,000
Available for Sale-Stated at Market 20,092,000 16,874,000
Loans - (Excluding unearned income of
$1,789,000 at September 30, 1995
and $1,334,000 at December 31, 1994) 192,170,000 168,871,000
Less: Allowance for loan losses 2,247,000 2,054,000
Net Loans 189,923,000 166,727,000
Premises and equipment 8,841,000 8,392,000
Other assets 6,287,000 4,715,000
TOTAL ASSETS $283,878,000 $256,687,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $230,055,000 $209,480,000
Securities sold under
agreement to repurchase 17,414,000 16,950,000
Federal funds purchased
and other short term borrowing 275,000 0
Long-term debt - Note 3 (Includes
long term FHLB) 6,696,000 4,125,000
Notes payable of Employee Stock
Ownership Plan 0 0
Other liabilities 3,093,000 2,253,000
Total Liabilities 257,533,000 232,808,000
Contingent Liabilities
Stockholders' Equity
Common stock, $1 par value -
2,000,000 authorized; 731,371
issued and outstanding at
September 30, 1995; 714,824
issued and outstanding at
December 31, 1994 731,000 715,000
Surplus 9,634,000 9,000,000
Retained earnings 15,879,000 14,423,000
Obligation of Employee Stock
Ownership Plan 0 0
Net Unrealized Gains(Losses) on
available for Sale 101,000 (259,000)
Total Common Stock and Retained
Earnings 26,345,000 23,879,000
Less-Treasury 1 Share, At Cost
at September 30, 1995 and 3
at December 31, 1994 0 0
Total Stockholders' Equity 26,345,000 23,879,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $283,878,000 $256,687,000
NOTE: The balance sheet at December 31, 1994, has been taken from the
audited financial statements at that date and condensed.
The accompanying notes are an integral part of these financial
statements.
4
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
Interest Income
Interest and fees on loans $ 4,646,000 $ 3,857,000 $13,059,000 $10,692,000
Interest on investment
securities:
Taxable 957,000 782,000 3,028,000 2,263,000
Tax-exempt 119,000 151,000 362,000 453,000
Other interest income 41,000 11,000 149,000 78,000
Lease financing income 0 1,000 2,000 3,000
Total Interest Income 5,763,000 4,802,000 16,600,000 13,489,000
Interest Expense
Interest on deposits 2,635,000 1,863,000 7,466,000 5,087,000
Other interest expense 315,000 277,000 902,000 646,000
Total Interest Expense 2,950,000 2,140,000 8,368,000 5,733,000
Net Interest Income 2,813,000 2,662,000 8,232,000 7,756,000
Provision for loan losses 107,000 102,000 258,000 301,000
Net interest income after
provision 2,706,000 2,560,000 7,974,000 7,455,000
Other Income
Securities gains (losses) 36,000 0 60,000 0
Other income 686,000 674,000 2,007,000 2,314,000
Total Other Income 722,000 674,000 2,067,000 2,314,000
Other expenses 2,267,000 2,100,000 6,826,000 6,349,000
Net income before
income taxes 1,161,000 1,134,000 3,215,000 3,420,000
Provision for income
taxes 406,000 377,000 1,094,000 1,084,000
Net income 755,000 757,000 2,121,000 2,336,000
Earnings per share $ 1.04 $ 1.07 $ 2.93 $ 3.30
Weighted average number of
shares outstanding 724,185 707,876 724,185 707,876
The accompanying notes are an integral part of these financial statements.
5
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30
1995 1994 1993
Operating Activities
Net cash provided by
operating activities $ 2,043,000 $ 2,370,000 $ 3,274,000
Investing Activities
Proceeds of maturities of held to
maturity securities 12,968,000 15,544,000 18,035,000
Purchase of held to maturity
investments (13,000,000) (18,251,000)(12,109,000)
Proceeds from maturities of available
for sale securities 812,000 0 0
Proceeds from sales of available for
sale securities 1,206,000 0 4,178,000
Purchase of available for sale
securities (4,603,000) 0 0
Increase in Loans-Net (23,454,000) (24,155,000)(15,055,000)
Purchases of premises and equipment (1,119,000) (937,000) (272,000)
Net cash provided
by investing activities (27,190,000) (27,799,000) (5,223,000)
Financing Activities
Net increase (decrease) in demand
and savings accounts (3,355,000) (2,337,000) (2,950,000)
Increase (decrease) in time accounts 23,930,000 11,386,000 (1,583,000)
Increase (decrease) in long-term debt 2,571,000 4,153,000 (99,000)
Treasury stock transactions 0 60,000 (3,000)
Proceeds from sale of common stock 650,000 198,000 145,000
Cash dividends paid (665,000) (565,000) (524,000)
Net increase (decrease) in short
term borrowings 739,000 7,591,000 (1,047,000)
Net cash provided (used) by
financing activities 23,870,000 20,486,000 (6,061,000)
Increase (decrease) in cash and cash
equivalents (1,277,000) (4,943,000) (8,010,000)
Cash and cash equivalents at
beginning of year 12,684,000 13,608,000 17,291,000
Cash and cash equivalents,
end of year 11,407,000 8,665,000 9,281,000
The accompanying notes are an integral part of these financial statements.
6
FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1995
Note 1 - Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1995, the
consolidated statements of income for the three month periods ended
September 30, 1995, 1994, and 1993, and the consolidated statements of
cash flows for the nine 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 September 30, 1995 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, 1995. 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, 1994.
Note 2 - Organization
First Citizens Bancshares, Inc., is a bank holding company chartered on
December 14, 1982, under the laws of the State of Tennessee. On
September 23, 1983, all of the outstanding shares of common stock of
First Citizens National Bank were exchanged for an equal number of
shares in First Citizens Bancshares, Inc.
Note 3 - Short-Term Borrowings
9/30/95 9/30/94
Amount Outstanding-End of Period $17,689,000 $16,950,000
Weighted Average Rate of Outstanding 4.60% 4.40%
Maximum Amount of Borrowings at Month End 18,624,000 24,533,000
Average Amounts Outstanding for Period 17,227,000 19,236,000
Weighted Average Rate of Average Amounts 4.69% 3.77%
Note 4 - Long-Term Debt
The long term debt is comprised of Federal Home Loan Bank Borrowings.
The average life is as presented and these funds are matched with loans
and securities. The FHLB Funds were closely matched with these assets
to produce a positive spread relationship. The average for 1995 are as
follows:
Average Average Average
Volume Rate Maturity
FHLB Borrowings $2,289,000 5.71% 10 Years
FHLB Borrowings 4,407,000 5.71% 4 Years
Note 5 - Statement of Cash Flows
September September September
1995 1994 1993
Actual payments made
during the periods:
Income taxes $1,141,000 $ 705,000 $ 678,000
Interest $7,706,000 $5,835,000 $5,453,000
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Note 6 - Contingent Liabilities
There are no material pending litigations as of the current reportable
date that would result in a liability.
Note 7 - Investment Securities
The differences between book values of investment securities and market
values at September 30, 1995 and September 30, 1994, total $682,000 and
($1,297,000) respectively. FASB 115 mandates that banks must classify
all securities within the investment portfolio as (1) Held to Maturity,
(2) Available for Sale, or (3) Trading Account. For the periods covered
by this report, there was no activityin the trading account, thus the
balance remains at $0. Securities held in the Available For Sale
segment of the portfolio are marked to market quarterly, with
adjustments made net of taxes to the capital account. For the quarter
ended 9/30/95, this adjustment was a positive $101,000. Changes in the
market value of securities are a direct result of interest rate
fluctuations in the bond market. Held to Maturity securities are stated
at amortized cost with no adjustments being made as a result of changes
in market values.
First Citizens has not engaged in derivative activities (as defined by
paragraphs 5-7 of FASB 119) for any of the reported periods.
Note 8 - Regulatory Capital Requirements
Regulatory agencies impose certain minimum capital requirements on both
First Citizens Bancshares, Inc., and First Citizens National Bank.
Effective 1/1/91 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 9 - Deferred Income Taxes
First Citizens adopted FASB 109 as of January 1, 1993. The deferred tax
liability account reflects a total balance of $1,000. The timing
differences mainly consist of reserve for loan loss deductions.
Note 10-Other Income
Property held in Other Real Estate was sold for a gain of $297,000
during the quarter ending 3/31/94, and the net of tax effect of this
sale was $178,000 or $.25 per share.
Note 11 - Reserve for Loan Losses
FASB 114 and 118 were implemented during the first quarter of 1995.
This standard requires companies to set aside reserves for impaired
loans.
The following data reflects impaired totals for the reportable periods:
Impaired Loan Balance or Recorded Balance $975,000
Amount of Recorded Balance with a Related Allowance 281,000
Amount of Recorded Balance with a No Related Allowance 694,000
Interest income on impaired loans will be recognized on a cash basis
consistent with OCC Regulations. Cash receipts will be applied as cost
or principal recovery first. This is consistent with OCC Regulations.
A quarterly review of the adequacy of the loan loss reserve by the Board
of Directors will ensure the sufficiency of said reserve for both losses
and impairment.
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 September 30, 1995. 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
8
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.
1995 is proving to be a time of planning and implementation, laying the
foundation for growth and profitability in future years. In January,
the purchase of our Ripley Branch was finalized, adding $8,000,000 to
deposit totals and providing a physical presence in Lauderdale County.
Total Assets as of 9/30/95 were $10,609,000 with a loan to deposit ratio
of 17.03%. The Industrial Park Branch, constructed and opened in 1994,
continues to expand in development of new and existing business. Total
Assets at September 30, 1995 was $2,861,000 with a loan to deposit ratio
of 41.49%. In June, 1995 a contract was signed with Internet/Most,
Reston, VA. for ATM and Point of Sale Processing. A business
partnership with Internet/Most will offer First Citizens National Bank
an innovative network for electronic and remote banking services.
Electronic services provided by the network are ATM and POS processing
while remote banking products include home banking programs using
Personal Computer and Screen Phone devices as well as bill payments
services. The bank's management believes that a successful
electronic/homebanking program is a key part to accomplishing strategic
planning goals set for the bank's future service delivery systems. The
ATM switch from Deluxe, Inc. (current ATM network provider) is expected
to be completed by second quarter 1996, with the introduction of the
bank's debit card product within 90 to 120 days thereafter. The bank
has selected the Visa Check Card offered by Visa, U.S.A., Inc. as its
debit card (POS) solution. Application to Visa is in process. The Visa
Check Card is considered to be the most widely accepted debit card by
consumers in todays market. Another strategic element included in the
decision to add POS (Debit) card services was the selection of an online
debit system. The online debit system is the most common means of
communication between the bank and retailer. When debit transactions
are authorized online, funds are automatically transferred from the
customer's account eliminating preapproval risk to the bank. If funds
are not available at time of transaction approval, the transaction is
void. Installation of an automated Teller Platform "TellerPro Plus"
application purchased from Southern Data Systems, Roswell Georgia is
scheduled for completion during the fourth quarter of 1995. Online
Signature Verification, considered to be another critical electronic
identification device, was also purchased from Southern Data Systems and
will be installed concurrently with TellerPro. Signature Verification
will reduce risk in transaction approval as well as speed up service
delivery to the customer. Item and Statement Imaging installation
project continues to be a primary focus of the bank's Information
Systems division. Imaged statements are scheduled to go out to
customers in November, 1995 following numerous focus group meetings
designed to address customer concerns.
Operating results for third quarter, 1995 reflected improvement when
compared to both second quarter, 1995 and third quarter, 1994. Net
interest income increased $151,000 (5.67%) when comparing to the same
period in 1994. The increase in net interest income was accomplished
inspite of an upward trend in the cost of funds which began in late 1994
and continued through July, 1995.
An increase in other income is the result of account growth in
Investment Management and Trust Services Division and enhanced fee
income generated by deposit accounts. A material investment in
technology, Image Statements, TellerPro, Signature Pro, Branch Banking,
and a upgrade to the bank's AS/400 data processing system is reflected
in the increase in other expenses. The decision to invest substantially
in technology is a direct result of our commitment to remain an
independent community bank.
A comparison of Total Assets for the quarter ending September 30, 1995,
1994 and 1993 reflects significant growth. Total assets increased
approximately $27 Million when comparing September 30, 1995 to December
31, 1994. Loans increased approximately $23 Million, while investments
remained relatively flat when comparing the same time period. Federal
Funds Sold decreased from $2,900,000 to zero from year end '95 to the
third quarter due to loan demand that exceeded budget projections as
well as the national average.
9
Total Liabilities net of equity were up approximately $23 million when
comparing quarter end with December, 1994. The substantial growth
reflected when reviewing total liabilities is attributed to (1)
Acquisition of Ripley Branch, Ripley, TN, having total assets of $8.7
million and Aggressive growth in time deposits brought about by
increased interest rates. Interest rates paid on time deposits declined
during the third quarter bringing deposit growth more in proportion to
the bank's capital plan.
A comparison of net income for quarter ending September, 1995 and 1994
reflect a decline of approximately $200,000. Net income total at
9/30/94 is distorted due to an after tax profit of $178,000 derived from
the sale of other real estate in Madison County, Tennessee. Excluding
this profit, third quarter earnings in 1995 is more comparable to that
of 1994. Other factors affecting net income were increases in other
expenses totaling $477,000 in the categories of salaries and benefits,
depreciation and start up cost for POD and Statement Imaging, TellerPro,
Signature Pro, and AS/400 upgrade.
Earnings per share at 9/30/95 were $2.93 compared to $3.30 at 9/30/94.
1994 earnings per share includes income received from the sale of the
Madison County Property. Weighted Average Number of Shares changed from
707,876 to 724,185. Shares were issued from previously authorized
unissued stock to satisfy the requirements of the Dividend Reinvestment
Plan.
There are no known trends, events or uncertainties that are likely to
have a material effect on First Citizens liquidity, capital resources or
results of operation. There currently exists no recommendation by
regulatory authorities which if implemented, would have such an effect.
There are no matters which have not been disclosed. Interstate
Banking/Branching became a reality by legislation passed September 13,
1994. The act permits full nationwide interstate branching after June
1, 1997. First Citizens Bancshares, Inc. and First Citizens National
Bank are located in a highly competitive market place. There are
presently four banks competing for deposit dollars and earning assets,
two of whom are branches of large regional competitors. First Tennessee
Bank and Union Planters National Bank are two of the largest financial
institutions in the state. While First Citizens has historically
maintained in excess of 50% of local market share, statistics reflect a
loss of approximately 2% over the past five years by both First Citizens
and First Tennessee. This is reflective of increased competition
brought about by the location of two branch banks into the market place,
both of whom have been bought by Union Planters National Bank.
Interstate banking could possibly bring about the location of large out
of state banks to the area. If so, First Citizens would continue to
operate as it has in the past, focusing on the wants and needs of
existing and potential customers. The quality of service and individual
attention afforded by an independent community bank cannot be matched by
large regional competitors, managed by a corporate team unfamiliar to
the area. First Citizens is a forward moving bank offering products and
services that are required for maintaining a satisfactory customer
relationship moving into the next decade and beyond. A recent market
analysis completed in September, 1995 indicates a remarkably strong
performance by First Citizens in satisfying customer expectations in the
areas of personnel, service and convenience.
The following table compares year to date non-interest income and
expense of First Citizens as of September 30, 1995, 1994 and 1993:
Non-Interest Income
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1995 % of Change 1994 % of Change 1993
Service Charges on
Deposit Accounts $ 946 11.29% $ 850 8.28% $ 785
Trust Income $ 464 14.56% $ 405 18.42% $ 342
Other Income $ 657 (37.96%) $1,059 9.51% $ 967
TOTAL NON-INTEREST INCOME $2,067 (10.67%) $2,314 10.50% $2,094
10
Non Interest Income is down by 10.67% when comparing 1995 to 1994 after
posting a 10.50% increase in 1994 when compared to the previous year.
The decrease is primarily 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 and a decrease in fee income of $130,000 received from
the Banks' subsidiary, Financial Plus, Inc. The broker/dealer
subsidiary has undergone a management change, following the abrupt
resignation of its president. Arbitration hearings have been scheduled
to address charges filed against the former president and his new
employer alleging a breach of fiduciary duty and a violation of
confidentiality. A decrease is also noted in fee income derived from
the mortgage loan division, however the last 60 days of September
reflected higher volumes. Overdraft income was reclassified from
Interest and Fees on Loans into other income for prior years and
restated within the table. Trust Income continues to improve when
comparing September, 1995 to previous years. Income received from
Accounts Receivable Factoring is projected to increase in subsequent
quarters as a result of the introduction of a new program during the
second quarter of '95.
Non-Interest Expense
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1995 % of Change 1994 % of Change 1993
Salaries & Employee
Benefits $3,643 4.92% $3,472 3% $3,363
Net Occupancy Expense $ 411 (15.95%) $ 489 1% $ 486
Other Operating Expense $2,772 16.08% $2,388 (4%) $2,486
TOTAL NON-INTEREST EXPENSE $6,826 7.51% $6,349 1% $6,335
Non-Interest Expense increased 7.51% when comparing 9/30/95 to 9/30/94
after only increasing 1.00% the previous years under comparison. A
review of the above table reflects a 4.92% and 16.08% increase in the
categories of salaries and benefits and other operating expenses. Full
time equivalent employees as of September 30, 1995 was 151 compared to
149 at 9/30/94 and 151 at 9/30/93. FTE increased due to (1) the
employment of 4 fulltime employees to staff the Ripley Branch and 4
fulltime and 2 parttime employees to staff the Industrial Park Branch;
and the addition of 6 Tellers On the Shelf hired during July, 1995. The
decision to expand our branch network increased operating cost short
term, however long term growth in loans and deposits will enhance future
profitability of the bank. Tellers on the Shelf are trained in a one
month training program, then utilized to fill vacancies created by
absence or special projects. Procedures are in place to continuously
monitor the number of fulltime equivalent employees in order to maintain
staffing levels comparable to that of peer banks. However, it is
conceivable that the FTE ratio will remain higher than peer banks
because of increased staff necessary to support extended banking hours
and additional services offered to our customers that are not offered by
many peer group banks. Additional services include a Trust department,
In-house data processing, and mortgage lending. Fulltime equivalent
employees per one million in assets is 1.80 at 9/30/95 compared to 1.46
for peer banks.
11
Deposits
The average daily amount of deposits and average rates paid on such
deposits is summarized for the quarter ending September 30 for the years
indicated:
COMPOSITION OF DEPOSITS
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 25,063 - $ 24,700 - $ 21,776 -
Savings
Deposits $ 64,920 3.08% $ 63,315 2.74% $ 66,939 2.61%
Time Deposits $140,396 6.07% $116,329 4.97% $103,608 4.69%
TOTAL DEPOSITS $230,379 4.57% $204,344 3.68% $192,323 3.43%
A review of Composition of Deposits for the years of 1995, 1994 and 1993
reflect total deposit growth of $26 million and $12 million
respectively. Approximately $26 million in deposit growth in 1995 is
centered primarily in the time deposit category. Factors contributing
to substantial growth in 1995 were rising interest rates; the purchase
of approximately $8 million in deposits held by the newly acquired
Ripley, Tennessee Branch; and deposits acquired as a result of opening
both the Ripley and Industrial Park Branch. An analysis of prior years
(1994 and 1993) is reflective of customer response to low interest rates
paid on deposits and their reluctance to recommit funds into bank
certificates of deposits. The average rate paid on time deposits during
the quarter was 6.07% compared to 4.97% for the same time period in 1994
and 4.69% in 1993. The average rate paid on deposits was 4.57% as of
9/30/95 compared to 3.68% and 3.43% for previous years.
Demand Deposits accounts have remained relatively flat when reviewing
the composition of deposits. However, Sweep Account funds, totaling
$11,382,000 are not included in average balances for Non-Interst Bearing
Demand Deposits. The "Sweep" total however, is included on the balance
sheet in the category of short term borrowings. For further information
refer to footnote NO. 3 "short term borrowings". Repurchase Agreement
"Sweep Account" is a product offered to large balance customers which
provides for funds to automatically sweep daily from a demand deposit
account into an overnight repurchase agreement. This affords commercial
customers the opportunity to earn interest on excess collected
funds while providing availability of adequate funds to clear large
denomination checks as presented for payment. Sweep account totals as
of 9/30/94 were $9,980,000. Also not included in total deposits are
Fixed Repurchase Agreements totaling $6,032,000, also included in the
category total for short term borrowings.
The following table sets forth the maturity distribution of Certificates
of Deposit and other time deposits of $100,000.00 or more outstanding on
the books of First Citizens on September 30, 1995. The overall total
increased over $6 million when comparing to September, 1994.
Maturity Distribution of Time Deposits
In Amounts of $100,000 Or More As Of September 30, 1995
(in thousands)
Maturity Total Amount
3 months or less $ 6,534
3 through 6 months $ 2,869
6 through 12 months $ 5,696
over 12 months $ 9,731
Total $24,830
12
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 9/30/95
was 8.93% compared to 8.27% and 8.37% at 1994 and 1993 respectively.
During 1993 and first nine months of 1994 rates charged on loans were
lower than rates charged in 1995 as a result of market conditions and
the competitive loan environment in the bank's market place. The
average rate on total interest bearing liabilities was 5.13%, 4.19% and
3.81% at 9/30/95, '94 and '93. Net yield on average earning assets
(annualized) was 4.35%, 4.56%, and 4.96%, reflecting an upward
swing in interest rates beginning in 1994 and continuing into 1995.
Maintaining interest rate margins achieved in prior years is proving
more difficult in the current interest rate environment. Asset/
Liability policies are in place to protect the company from the negative
effects of volatile swings in interest rates. Interest margins are well
managed to achieve acceptable profits and a return on equity within
policy guidelines.
First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST EARNING
ASSETS:
Loans (123)
& Leases $187,478 $4,646 9.91% $167,373 $ 3,859 9.22% $145,567 $ 3,486 9.58%
Investment
Securities:
Taxable $ 57,272 $ 951 6.64% $ 49,535 $ 764 6.19% $ 57,106 $ 863 6.04%
Tax Exempt (4) $ 10,383 $ 119 4.58% $ 13,844 $ 151 4.36% $ 8,992 $ 103 4.58%
Interest Earning
Deposits $ 146 $ 2 5.47% $ 133 $ 1 3.01% $ 324 $ 2 2.47%
Federal Funds
Sold & Securities
Purchased Under
an Agreement
to Resell $ 2,038 $ 32 6.28% $ 25 $ 1 16% $ 1,407 $ 11 3.13%
Total Interest
Earning Assets $257,317 $5,750 8.93% $230,910 $ 4,776 8.27% $213,396 $ 4,465 8.37%
NON-INTEREST
EARNING ASSETS:
Cash and Due
From Banks $ 9,048 $ - - $ 8,822 $ - - $ 8,449 $ - -
Bank Premises &
Equipment $ 8,840 $ - - $ 7,935 $ - - $ 7,805 $ - -
Other Assets $ 5,338 $ - - $ 4,069 $ - - $ 4,042 $ - -
Total Assets $280,543 $ - - $251,736 $ - - $233,692 $ - -
13
First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 64,920 $ 501 3.08% $ 63,315 $ 434 2.74% $ 66,939 $ 436 2.61%
Time Deposits $140,396 $2,134 6.07% $116,329 $1,446 4.97% $103,608 $1,214 4.69%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities(5) $ 24,598 $ 315 5.12% $ 24,856 $ 263 4.23% $ 20,782 $ 171 3.29%
Total Interest
Bearing
Liabilities $229,914 $2,950 5.13% $204,500 $2,143 4.19% $191,329 $1,821 3.81%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 25,063 $ - - $ 24,700 $ - - $ 21,776 $ - -
Other Liabilities $ 2,116 $ - - $ 1,696 $ - - $ 1,817 $ - -
Total Liabilities $257,093 $ - - $230,896 $ - - $214,922 $ - -
SHAREHOLDERS'
EQUITY $ 23,450 $ - - $ 20,840 $ - - $ 18,770 $ - -
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $280,543 $ - - $251,736 $ - - $233,692 $ - -
NET INTEREST
INCOME $ - $ 2,794 - $ - $ 2,633 - $ - $2,644 -
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.35% $ - $ - 4.56% $ - - 4.96%
(ANNUALIZED)
(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.
(5) The 1994 yield on Federal Funds Sold is distorted due
to rounding of interest income.
14
COMPOSITION OF LOANS
The loan portfolio is First Citizens National Bank's largest earning
asset. Total loans at 9/30/95 was $192,170,000 consisting of
$117,970,000 Mortgage and Construction loans; $50,212,000, Commercial,
Financial and Agricultural; $21,564,000 installment loans to
individuals; and $2,424,000 other loans. A comparison of the
composition of the loan portfolio indicates the largest percentage of
growth is centered in the Real Estate category. Mortgage and
construction loan totals increased $13.7 million, $12 million and $5.5
million when comparing the years of 1995, 1994 and 1993. The upward
trend is attributed to substantial growth in both population and number
of households recorded in Dyer County over the past decade. First
Citizens is located in the Dyersburg/Dyer County Trade Area, having a
population of 40,000. The entire trade area has outpaced both the
state and the nation in per capita personal income growth since the
early 1980's. The State of Tennessee projects that per capita income in
the area will be greater than the national average by the year of 2000.
The mix of industry in the local economy has provided stable, growing
employment opportunities for residents under all economic conditions.
The Dyer County distribution of employment consists primarily of service
employers 14.9%, government 14.7%, trade 19.3%, and manufacturing of
40.5%. Dyer County's unemployment rate at quarter end was 4.4% up from
April, 1995 at 3.8%, but significantly less than the State of
Tennessee's rate of 5.5%. Based on a market study completed during the
second quarter of 1995, First Citizens National Bank was the bank of
choice for providing financing for personal residence of new and
existing customers. The loan portfolio is made up of quality loans, and
is well diversified with no concentrations of credit in any one
industry. A reduction was made in the provision to loan losses despite
loan growth due to a continued reduction in problem and watch loans.
Problem loans totaled $2,664,674 at 9/30/95, while watch loan total was
slightly above $1,000 (consisting of one loan). Past due loan totals
are slightly above peer group levels. Experience of the lending staff
and adherence to policy lends a comfort level to the portfolio that
supports the Loan Loss Allowance at the present level.
Loan Administration sets policy guidelines approved by the Board of
Directors regarding portfolio diversification and underwriting
standards. Loan policy also includes board approved guidelines for
collateralization, loans in excess of loan to value limits, maximum loan
amount, maximum maturity and amortization period for each loan type.
Policy guidelines for loan to value ratio and maturities related to
various collateral are as follows:
Collateral Max. Amortization Max. LTV
Real Estate Amort. discussed herein Amort. discussed herein
Equipment 5 Years 75%
Inventory 5 Years 50%
A/R 5 Years 75%
Livestock 5 Years 80%
Crops 1 Year 50%
*Securities 10 Years 75% (Listed)
50% (Unlisted)
*Maximum LTV on margin stocks (stocks not listed on a national exchange)
when proceeds are used to purchase or carry same, shall be 50%.
Diversification of the banks' real estate portfolio is a necessary and
desirable goal of the bank's real estate loan policy. In order to
achieve and maintain a prudent degree of diversity, given the
composition of the bank's market area and the general economic state of
the market area, the bank will strive to maintain a real estate loan
portfolio diversification based upon the following:
* Agricultural loans totaling in the aggregate no more than 20% of the
Bank's total loans.
* Land acquisition and development loans totaling in the aggregate no
more than 10% of the Bank's total loans.
* Commercial construction loans totaling in the aggregate no more than
10% of the Bank's total loans.
15
* Residential construction loans totaling in the aggregate no more
than 10% of the Bank's total loans.
* Residential mortgage loans totaling in the aggregate no more than
40% of the Bank's total loans.
* Commercial loans totaling in the aggregate no more than 30% of the
Bank's total loans.
It is the policy of FCNB that no real estate loan will be made (except
in accordance with the provisions for certain loans in excess of
supervisory limits provided for hereinafter) that exceed the loan-to-
value percentage limitations ("LTV limits") designated by category as
follows:
Loan Category LTV Limit (%)
Raw Land 65
Land Development or Farmland 75
Construction:
Commercial, multi-family, and
other non-residential 80
1-to-4 family residential 80
Improved Property 80
Owner-occupied 1-to-4 family
and home equity 80
Multi-family construction loans include loans secured by cooperatives
and condominiums. Owner-occupied 1-to-4 family and home equity loans
which equal or exceed 90% LTV at origination must have either private
mortgage insurance or other readily marketable collateral pledged in
support of the credit.
On occasion, the Loan Committee may entertain and approve a request to
lend sums in excess of the LTV limits as established by policy, provided
that:
a. The request is fully documented to support the fact that other
credit factors justify the approval of that particular loan as an
exception to the LTV limit;
b. The loan, if approved, is designated in the Bank's records and
reported as an aggregate number with all other such loans
approved by the full Board of Directors on at least a quarterly
basis;
c. The aggregate total of all loans so approved,
including the extension of credit then under consideration, shall
not exceed 50% of the Bank's total capital; and
d. Provided further that the aggregate portion of these loans in
excess of the LTV limits that are classified as commercial,
agricultural, multi-family or non-1-to-4 family residential
property shall not exceed 30% of the Bank's total capital.
Amortization Schedules. Every loan must have a documented repayment
arrangement. While reasonable flexibility is necessary to meet the
credit needs of the Bank's customers, in general all loans should be
repaid within the following time frames:
Loan Category Amortized Period
Raw Land 10 years
Construction:
Commercial, multi-family, and
other non-residential 20 years
1-to-4 family residential 20 years
Improved Property Farmland 20 years
Owner-occupied 1-to-4 family
and home equity 20 years
16
The average yield on loans of First Citizens National Bank for the third
quarter of the years indicated is as follows:
1995 - 9.91%
1994 - 9.22%
1993 - 9.58%
1992 - 9.97%
1991 - 11.42%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $23,352,000 as of 9/30/95.
The following table sets forth loan totals net of unearned income by
category for the past five years:
September 30 (in thousands)
1995 1994 1993 1992 1991
Real Estate Loans:
Construction $ 12,330 $ 9,748 $ 7,642 $ 4,603 $ 4,966
Mortgage $105,640 $ 94,501 $ 84,540 $ 82,035 $ 79,364
Commercial, Financial
and Agricultural Loans $ 50,212 $ 47,382 $ 37,339 $ 36,974 $ 39,793
Installment Loans to
Individuals $ 21,564 $ 17,868 $ 15,545 $ 15,425 $ 16,712
Other Loans $ 2,424 $ 3,986 $ 5,642 $ 2,663 $ 2,548
TOTAL LOANS $192,170 $173,485 $150,708 $141,700 $143,383
Loan Maturities and Sensitivity to Changes in Interest Rates
The degree of risk to which a bank is subjected can be controlled
through a well managed asset/liability program. First Citizens controls
interest rate risk by employing interest sensitive liabilities in assets
that are also interest sensitive. One tool used to ensure market rate
return is variable rate loans. Loans totaling $77,448,000 or 40.03% of
the total portfolio are subject to repricing within one year or carry a
variable rate of interest. The ratio is down from 43.68% at 9/30/94
reflecting efforts of the customer base to lock in lower interest rates
available in those time periods. Maturities in the one to five year
category total $107,512,000 reflects a slight decrease when compared to
9/30/94. The trend exhibited by consumers in recent years to lock in
interest rates is projected to continue in 1995.
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $21,706 $ 74,485 $21,779
Commercial, Financial
and Agricultural $30,760 $ 14,794 $ 4,658
All Other Loans $ 5,615 $ 18,233 $ 140
TOTAL $58,081 $107,512 $26,577
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $107,487
Interest Rates are Floating or Adjustable $ 26,602
NON-PERFORMING ASSETS
A review of Non-performing assets as of 9/30/95 reflects a slight
increase when comparing to 9/30/94. However, the increase is
insignificant when considering growth levels in the loan portfolio. A
comparison of non-performing assets for the years 1994, 1993 and 1992
reflect a continuing reduction. Total non performing loans at 9/30/95
were $1,208,000 or .63% of total loans in line with Peer Group banks who
reported .62%.
17
Categorization of a loan as non-performing is not in itself a reliable
indicator of potential loan loss. The banks' policy states that the
Bank shall not accrue interest or discount on (1) any asset which is
maintained on a cash basis because of deterioration in the financial
position of the borrower, (2) any asset for which payment-in-full of
interest or principal is not expected, or (3) any asset upon which
principal or interest has been in default for a period of 90 days or
more unless it is both well secured and in the process of collection.
For purposes of applying the 90 day due test for the non-accrual of
interest discussed above, the date on which an asset reaches non-accrual
status is determined by its contractual term. A debt is well secured if
it is secured (1) by collateral in the form of liens or pledges or real
or personal property, including securities that have a realizable value
sufficient to discharge the debt (including accrued interest) in full,
or (2) by the guaranty of a financially responsible party. A debt is
considered to be proceeding in due course either through legal action,
including judgement enforcement procedures, or, in appropriate
circumstances, through collection efforts not involving legal action
which are reasonably expected to result in repayment of the debt or in
its restoration to a current status. Loans that represent a potential
loss to First Citizens are adequately reserved for in the provision for
loan losses.
Interest income on loans is recorded on an accrual basis. The accrual
of interest is discontinued on all loans, except consumer loans, which
become 90 days past due, unless the loan is well secured and in the
process of collection. Consumer loans which become past due 90 to 120
days are charged to the allowance for loan losses. The gross interest
income that would have been recorded for the six months ending 9/30/95
if all loans reported as non-accrual had been current in accordance with
their original terms and had been outstanding throughout the period is
$66,000. Interest income on loans reported as ninety days past due and
on interest accrual status was $23,000 for year-to-date 1995. 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 total at September 30, 1995 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.
The following table sets forth the balance of non-accrual loans as of
September 30, for the years indicated:
Non Performing Loans
September 30
(in thousands)
90 Days Past Due
Year Non-Accrual Accruing Interest Total
9/30/95 $ 893 $ 315 $1,208
9/30/94 $ 816 $ 150 $ 966
9/30/93 $1,399 $ 545 $1,944
9/30/92 $1,845 $ 566 $2,411
9/30/91 $2,255 $1,022 $3,277
18
Loan Loss Experience and
Reserves for Loan Losses
An analysis of the allocation of the allowance for Loan Losses is made
on a fiscal quarter at the end of the month, (February, August, and
November) and reported to the board at its meeting immediately preceding
quarter-end. Requirements of FASB 114 & 118 have been incorporated into
the policy for Accounting by Creditor for Impairment of a loan. A loan
is impaired when it is probable that a creditor will be unable to
collect all amounts due of principal and interest according to the
original contractional terms of the loan. First Citizens adopted the
following as a measure of impairment: (1) Impairment of a loan at First
Citizens shall exist when the present value of expected future cash
flows discounted at the loans effective interest rate impede full
collection of the contract; and (2) Fair Value of the collateral, if the
loan is collateral dependent, indicates unexpected collection of full
contract value. The Impairment decision will be reported to the Board
of Directors and other appropriate regulatory agencies as specified in
FASB 114 and 118. The bank will continue to follow regulatory
guidelines for income recognition for purposes of generally accepted
accounting principles, as well as regulatory accounting principles.
An annual review of the loan portfolio to identify the risks will cover
a minimum of 70% of the gross portfolio less installment loans. In
addition, any single note or series of notes directly or indirectly
related to one borrower which equals 25% of the bank's legal lending
limit will be included in the review automatically.
For analysis purposes, the loan portfolio is separated into four
classifications:
1. Pass - Loans that have been reviewed and graded high quality or no
major deficiencies.
2. Watch - Loans which, because of unusual circumstances, need to be
supervised with slightly more attention than is common.
3. Problem - Loans which require additional collection efforts to
liquidate both principal and interest.
4. Specific Allocation - Loans, in total or in part, in which a future
loss is possible.
Examples of factors taken into consideration during the review are:
Industry or geographic economic problems, sale of business, change of or
disagreement among management, unusual growth or expansion of the
business, past due status of either principal or interest for 90 days,
placed on non-accrual or renegotiated status, declining financial
condition, adverse change in personal life, frequent overdrafts, lack of
cooperation by borrower, decline in marketability or market value of
collateral, insufficient cash flow, and inadequate collateral values.
Identification of impaired loans from non-performing assets as well as
bankrupt and doubtful loans is paramount to the reserve analysis.
Special Allocations shall support these loans found to be collateral or
interest cash flow deficient. In addition an allowance shall be
determined for pools of loans including all other criticized assets as
well as small homogeneous loans managed by delinquency. In no
circumstance shall the reserve fall below 1% of total loans less
government guarantees. The following is a sample of information
analyzed quarterly to determine the allowance for loan losses.
19
LOAN LOSS ALLOWANCE ANALYSIS
DATE
AVERAGE AVERAGE PERCENT CURRENT RESERVE
LOSS 3 YRS. BALANCE 3 YRS. BALANCE REQUIRED
I. CREDIT $ GROSS $ % $ $
CARDS
II. INSTALL. $ NET $ % $ $
LOANS
III. IMPAIRED WITH ALLOCATIONS $ $
IMPAIRED WITHOUT ALLOCATIONS $ $
ALLOWANCE
IV. DOUBTFUL 50% $ $
SUBSTANDARD 10%
WATCH 5%
OTHER LOANS NOT LISTED PREVIOUSLY .75%
LESS SBA/FMHA GUARANTEED PORTIONS
TOTAL LOANS $
V. LETTERS OF CREDIT .75% $ $
VI. OTHER REAL ESTATE OWNED $
RESERVE REQUIRED $
RESERVE BALANCE $
EXCESS (DEFICIT) $
RESERVE AS % OF TOTAL LOANS %
PEER GROUP %
LOSS EXPERIENCE III & IV AVERAGE LAST 3 YEARS
.% OR $
The book value of repossessed real property held by Bancshares and First
Citizens National Bank is $1,181,000 at 9/30/95 compared to $956,000 at
9/30/94. The balance increased $225,000 due to the addition of
foreclosed property placed on the books of the bank. Property held on
the books of Bancshares is a strip shopping center valued at $655,000
and a parcel of land purchased for expansion of the Midtown Branch in
1988. Expansion plans were abandoned after a decision was made to
construct the Industrial Park Branch. This property valued at $151,000
has been classified as ORE and is being offered for sale. The remaining
balance represents other real estate 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.
Management estimates of approximate charge-offs for period ending
12/31/95:
Domestic Amount (in thousands)
Commercial, Financial & Agricultural $ 50
Real Estate-Construction 0
Real Estate- Mortgage 30
Installment Loans to individuals & credit cards 120
Lease financing 0
Foreign N/A
01/01/95 through 12/31/95 Total $200
20
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. Changes to the
Reserve Account for the quarter just ended consisted of (1) Loans
Charged-off - $80,000; (2) Recovery of loans previously charged-off -
$34,000; and (3) Additions to reserve totaling $107,000.
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
Quarter ending September 30
(in thousands)
1995 1994 1993 1992 1991
Average Net Loans
Outstanding Net of ICNE $187,478 $167,373 $145,567 $138,633 $139,560
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 2,186 $ 1,879 $ 1,920 $ 1,757 $ 2,053
Loan Charge-Offs $ (80) $ (44) $ (56) $ (112) $ (121)
Recovery of Loans
Previously Charged Off $ 34 $ 48 $ 67 $ 138 $ 30
Net Loans Charged Off $ (54) $ 4 $ 11 $ 26 $ (91)
Additions to Reserve
Charged to Operating
Expense $ 107 $ 102 $ 119 $ 104 $ 158
Balance at End of
Period $ 2,247 $ 1,985 $ 2,050 $ 1,887 $ 2,120
Ratio of Net Charge-
Offs during quarter
to Average Net Loans
Outstanding (.029%) .002% .008% (.19%) (.07%)
The following table will identify charge-offs by category for the
period ending 9/30/95 and 9/30/94.
Charge-Offs: 1995 1994
Domestic
Commercial, Financial and Agricultural $ 0 $ 15
Real Estate - Construction 0 0
Real Estate - Mortgage 39 1
Installment Loans to Individuals 25 23
Lease Financing 0 0
Credit Cards 16 5
Total $(80) $(44)
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 8 $ 4
Real Estate - Construction 0 0
Real Estate - Mortgage 1 3
Installment Loans to Individuals 18 35
Lease Financing 0 0
Credit Cards 7 6
Total 34 48
Net $ 46 $ 4
21
Investment Securities
The book value of listed investment securities as of the dates
indicated are summarized as follows:
Composition of Investment Securities
September 30
(in thousands)
1995 1994 1993 1992 1991
U. S. Treasury &
Government Agencies $53,336 $43,457 $47,317 $45,805 $43,162
State & Political
Subdivisions $10,516 $12,644 $11,259 $ 7,523 $ 4,871
All Others $ 3,568 $ 7,245 $ 5,459 $ 4,241 $ 4,852
TOTALS $67,420 $63,346 $64,035 $57,569 $52,885
A major goal of the bank's investment portfolio management is to maximize
returns from investments while controlling the basic elements of risk. The
second goal is to provide liquidity and meet financial needs of the
community. Investment Securities also serve as collateral for government
and public fund deposits. Investments for the third quarter, 1995
increased slightly when compared to the same time period in 1994. The
investment portfolio, which currently totals $66 million, is primarily
comprised of U. S. Treasury and U. S. Agency obligations, as well as
Municipal obligations. Fixed rate holdings comprise 90% of the portfolio,
while adjustable rates comprise the remaining 10%.
The fixed rate holdings currently have an expected average life of 2.6
years. It is estimated that this average life would extend to 3.2 years at
rates up 100 basis points and 3.5 years at rates up 200 basis points. This
is a result of some extension occurring in the callable bonds and mortgage-
backed holdings as rates rise. For rates down 100 basis points the average
life would decrease to 2.4 years.
In terms of price sensitivity, we estimate that at rates up 100 basis
points the market value of the portfolio would fall by 2.5%, while at rates
up 200 basis points the market value would fall by 5.4%. This is equal to
the price sensitivity of the 3-year Treasury bond, which is consistent with
the current average life of the portfolio. For rates down 100 basis points
we estimate that the market value would increase by 2.2%.
The adjustable rate holdings all reprice on an annual or more frequent
basis and currently have an average life of 7.2 years. Due to the
structure of these holdings, we would expect very little extension to occur
in average life should interest rates rise, but could see some shortening
should rates fall. We estimate that the adjustable rate holdings also have
the price sensitivity of about a 3-year Treasury, although this is more
difficult to project on adjustable rate holdings than on fixed rate
holdings.
Purchases made during the quarter total $500,000 consisting of a Government
backed securities placed in the Available for Sale Account. Sale of
Investments totaled $1,750,000 consisting of (1) Fannie Mae par value of
$1,500,000 sold September 27, 1995 with a profit of $6,041.25; (2) Federal
Home Loan Bank par value of $250,000, sold September 27, 1995 with a profit
of $1,250.00. All investments were sold prior to maturity from the
Available for Sale account to meet liquidity needs.
FASB 115 required banks to maintain separate investment portfolios for
Held-to-Maturity, Available for Sale, and Trading account investments. As
of 9/30/95 approximately 75% of the total portfolio 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 positive
capital entry of $101,000 as reflected on the 9/30/95 balance sheet. Mark
to Market impact to capital on 9/30/94 was a negative $130,000.
22
Maturities in the portfolio are made up of 4.07% within one year, 69.81%
after one year and within five years, and 21.59% after 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 liquidity needs as well as
projected changes in interest rates.
During the quarter just ended there were no transfers between the
investment portfolio accounts. The trading account for the entire quarter
maintained a zero balance.
First Citizens National Bank has not engaged in any Derivative activities
as defined by paragraphs 5 thru 7 of FASB 119 (Reference footnote 7).
The portfolio currently contains the following unrealized gains and
unrealized losses in each investment category:
Investment Securities
Unrealized Gains/(Losses)
September 30, 1995
Unrealized Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury Securities 184 47 137
Obligations of U.S. Government
Agencies and Corp 720 231 489
Obligations of States and
Political Subdivisions 82 29 53
Other Securities 4 1 3
Totals 990 308 682
Yields on Investment Securities decreased the twelve month period
ending 9/30/94 from 5.84% to 5.78%. This is reflective of the overall
interest rate market. Also reflected in the following table is the results
of efforts to shorten maturities within the portfolio:
Maturing and Portfolio Percentages on Securities September 30, 1995
(in thousands)
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount % Amount % Amount % Amount %
9/30/95 $ 2,746 4.07% $47,071 69.81% $14,547 21.59% $ 3,056 4.53%
9/30/94 $ 9,368 14.74% $39,502 62.36% $12,876 20.33% $ 1,600 2.52%
9/30/93 $13,182 20.59% $35,432 80.72% $ 6,693 11.67% $ 8,728 10.35%
9/30/92 $17,230 29.93% $37,131 64.50% $ 2,717 4.72% $ 491 .85%
Maturity and Yield on Securities September 30, 1995
(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 $ 1,122 8.09% $38,869 6.67% $10,289 6.54% $3,056 6.02%
State and Political
Subdivisions* $ 1,374 7.02% $ 7,106 6.59% $ 2,036 6.86% $ - -
All Others $ 250 8.00% $ 1,096 6.16% $ 2,222 5.61% $ %
TOTALS $ 2,746 7.54% $47,071 6.64% $14,547 6.44% $ 3,056 6.02%
*Yields on tax free investments are stated herein on a
taxable equivalent basis.
23
Investment Securities
September 30, 1995
(in thousands)
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 6,445 $ 6,573 $5,508 $ 5,518
U.S. Government Agency
and corporation obligations
(exclude mortgage-backed
securities):
Issued by U.S. Government
agencies (2) 200 199 0 0
Issued by U.S. Government-
sponsored agencies (3) 23,655 24,052 8,331 8,449
Securities issued by states
and political subdivisions
in the U.S.:
General obligations 6,613 6,658 320 321
Revenue obligations 2,752 2,758 330 330
Industrial development
and similar obligations 0 0 500 500
Mortgage-backed securities
(MBS):
Pass-through securities:
Guaranteed by GNMA 487 500 1,103 1,131
Issued by FNMA and FHLMC 1,128 1,138 449 481
Other pass-through
securities 0 0 0 0
Other mortgage-backed
securities (include CMOs,
REMICs, and stripped MBS):
Issued or guaranteed by
FNMA, FHLMC, or GNMA 5,054 5,054 812 787
Collateralized by MBS
issued or guaranteed
by FNMA, FHLMC, or GNMA 0 0 0 0
All other mortgage-backed
securities 0 0 0 0
Other debt securities:
Other domestic debt
securities 994 994 250 253
Foreign debt securities 0 0 0 0
Equity securities:
Investment in mutual funds 0 0
Other equity securities with
readily determinable fair
values 749 769
All other equity securities(1) 1,553 1,553
Total (sum of items 1 through 6)
(total of column A must equal
Schedule RC, item 2.a)
(total of column D must
equal Schedule RC, item e.b) 47,328 47,916 19,905 20,092
(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 Certi-
ficates," U. S. Maritime Administration obligations, and Export-
Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued
by the Farm Credit System, the Federal Home Loan Bank System, the
Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Financing Corporation, Resolution Funding
Corporation, the Student Loan Marketing Association, and the
Tennessee Valley Authority.
24
Return on Equity and Assets
Return on Assets at 9/30/95 posted levels slightly below those recorded
at 9/30/94. Efforts continue to focus on positioning the company for
future growth and profitability through improvements in technology,
solid growth in the deposit base and efficient utilization of the branch
distribution system. Accelerated asset growth over the past twelve
months coupled with rising rates paid on interest bearing deposits had a
significant impact on earnings the first half of '95. Rates paid on
deposits have dropped since June, 1995. A comparison of total assets at
9/30/95 and 12/31/94 reflect asset growth in excess of $27 Million or
10.6%. Operating expenses increased due to the addition of two branch
banks opened in November, 1994 and January, 1995 as well as the
installation cost of Item Capture and Statement Imaging software and a
Teller Platform System.
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 1.25%
is required if maximum benefits are to be realized.
Total Shareholders's equity (Including Loan Loss Reserve) of First
Citizens Bancshares, as of 9/30/95 was $26,345,000 compared to
$23,879,000 at 12/31/94.
Percentage of Dividends declared per common share to net income per
common share has trended upward since 1993. Number of shares
outstanding continues to increase due to shares of stock issued on a
quarterly basis to service the Dividend Reinvestment Program. A stock
repurchase program, approved by the Board of Directors in 1994 for the
purpose of acquiring shares on the open market to service the Dividend
Reinvestment Program continues to be ineffective. Shareholders continue
to express an interest in buying additional stock rather than selling
shares. Under the terms of the repurchase program, the company will
repurchase up to $200,000 of Bancshares' stock in a calendar quarter on
a first come, first served basis.
A 10% stock dividend 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 of 1993, a 2.5 for 1 stock split was declared to holders of
record as of October 15, 1993 on the common capital stock of Bancshares.
The numbers of shares outstanding increased proportionately with no
effect on 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 operating ratios for First Citizens Bancshares,
Inc. for the quarter ending September 30 (not annualized):
1995 1994 1993 1992 1991
Percentage of Net Income to:
Average Total Assets .78% .95% .93% .65% .63%
Average Shareholders Equity 8.45% 10.29% 10.78% 7.92% 8.17%
Percentage of Dividends
Declared Per Common Share to
Net Income Per Common Share 31.35% 24.19% 23.96% 30.21% 30.51%
Percentage of Average Shareholders'
*Equity to Average Total Assets 10.09% 9.98% 9.40% 8.91% 8.61%
*Includes Average Reserve for Loan Loss Account
25
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 between 10% and 15%. The
stability of our deposit base, sound asset/liability management, a
strong capital base, and quality assets assure adequate liquidity. The
low interest rates during 1993 and the first 9 months of 1994 placed
pressure on the bank's 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
are more volatile and interest sensitive than smaller consumer deposits
which make up the major portion of our deposit base. During the last
half of 1994 interest rates started to climb upward, causing consumers
to move funds from Annuities and Mutual Funds into bank Certificates of
Deposits.
The following condensed gap report provides an analysis of interest
rate sensitivity of earning assets and interest bearing liabilities.
First Citizens Asset/Liability Management policy provides that the
cumulative gap as a percent of assets shall not exceed 10% for the three
to six months, six to twelve months. The Cumulative Gap position in the
one to five year category shall not exceed 20%. As evidenced by the
following table, our current position is significantly below this level,
with annual income exposure determined to be less than $100,000.
26
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
(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 10,917 - - - - - - - 10,917
MONEY MARKET 107 107 - - - - - - -
TOTAL CASH & DUE FROM 11,024 107 - - - - - - 10,917
INVESTMENTS 65,920 - 1,500 1,500 1,500 5,259 2,854 11,446 41,861
TOTAL INVESTMENTS 65,920 - 1,500 1,500 1,500 5,259 2,854 11,446 41,861
LOANS
COMMERCIAL FIXED 137,333 - 5,032 3,403 3,225 8,873 9,809 16,052 90,939
COMMERCIAL VARIABLE 36,603 36,603 - - - - - - -
HOME EQUITY LOANS 4,539 4,539 - - - - - - -
SEC MORTGAGE 150 - - - - - - - 150
FLOOR PLAN 903 903 - - - - - - -
CREDIT CARDS 1,734 - - - - - - 1,734 -
FACTORING REC 310 - - - - - - - 310
OVERDRAFTS 393 - - - - - - - 393
NON-ACCRUAL LOANS 893 - - - - - - - 893
INTERNAL BASE RATE LOANS 9,311 9,311 - - - - - - -
TOTAL LOANS 192,169 51,356 5,032 3,403 3,225 8,873 9,809 17,786 92,685
LOAN LOSS RESERVE 2,247 - - - - - - - 2,247
NET LOANS 189,922 51,356 5,032 3,403 3,225 8,873 9,809 17,786 90,438
FED FUNDS SOLD 1 1 - - - - - - -
TOTAL FED FUNDS SOLD 1 1 - - - - - - -
TOTAL EARNING ASSETS 255,843 51,357 6,532 4,903 4,725 14,132 12,663 29,232 132,299
OTHER ASSETS
BUILDING, F&F AND LAND 8,841 - - - - - - - 8,841
OTHER REAL ESTATE 368 - - - - - - - 368
OTHER ASSETS 5,031 - - - - - - - 5,031
TOTAL OTHER ASSETS 14,240 - - - - - - - 14,240
TOTAL ASSETS 281,107 51,464 6,532 4,903 4,725 14,132 12,663 29,232 157,456
DEMAND DEPOSITS 24,163 - - - - - - - 24,163
TOTAL DEMAND 24,163 - - - - - - - 24,163
27
CONDENSED GAP REPORT
--------------------
CURRENT BALANCES
--------------------
(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 18,227 - - - - - - - 18,227
NOW ACCOUNT 23,387 - - - - - - - 23,387
BUSINESS CHECKING 58 - - - - - - - 58
IMF-MMDA 11,331 11,331 - - - - - - -
HIGH YIELD ACCOUNT 8,498 8,498 - - - - - - -
DOGWOOD CLUB 4,185 - - - - - - - 4,185
TOTAL SAVINGS 65,686 19,829 - - - - - - 45,857
TIME DEPOSITS
FLEX-CD 94,752 - 9,286 8,756 6,726 17,772 15,553 29,898 6,761
LARGE CD-FLEX 24,830 - 3,091 2,549 894 2,869 5,696 5,431 4,300
IRA-FLOATING 170 170 - - - - - - -
IRA-FIXED 20,380 - 1,445 630 425 2,299 2,678 4,434 8,469
CHRISTMAS CLUB 388 - - - - - 388 - -
TOTAL TIME 140,520 170 13,822 11,935 8,045 22,940 24,315 39,763 19,530
TOTAL DEPOSITS 230,369 19,999 13,822 11,935 8,045 22,940 24,315 39,763 89,550
SHORT TERM BORROWINGS
FED FUNDS PURCHASED 275 275 - - - - - - -
TT&L 1,000 1,000 - - - - - - -
SECURITIES SOLD-SWEEP 11,382 11,382 - - - - - - -
SECURITIES SOLD-FIXED 6,032 - 650 1,027 250 3,371 734 - -
FHLB-LIBOR INVESTMENT 4,407 4,407 - - - - - - -
FHLB-LONG TERM 2,289 - - - - - - - 2,289
TOTAL SHORT TERM BORR. 25,385 17,064 650 1,027 250 3,371 734 - 2,289
OTHER LIABILITIES
OTHER LIABILITIES 2,030 - - - - - - - 2,030
TOTAL OTHER LIAB. 2,030 - - - - - - - 2,030
TOTAL LIABILITIES 257,784 37,063 14,472 12,962 8,295 26,311 25,049 39,763 93,869
CAPITAL
COMMON STOCK 2,000 - - - - - - - 2,000
SURPLUS 4,000 - - - - - - - 4,000
UNREALIZED GAIN (LOSSES) 101 - - - - - - - 101
UNDIVIDED PROFITS 17,498 - - - - - - - 17,498
TOTAL CAPITAL 23,599 - - - - - - - 23,599
TOTAL LIAB. & CAPITAL 281,383 37,063 14,472 12,962 8,295 26,311 25,049 39,763 117,468
GAP (SPREAD) - 14,401 -7,940 -8,059 -3,570 -12,179 -12,386 -10,531 39,988
GAP % TOTAL ASSETS - 5.12 -2.82 -2.87 -1.27 -4.33 -4.41 -3.75 14.23
CUMULATIVE GAP - 14,401 6,461 -1,598 -5,168 -17,347 -29,733 -40,264 -276
CUMM. GAP % TOTAL ASSETS - 5.12 2.30 -0.57 -1.84 -6.17 -10.58 -14.32 -0.10
SENSITIVITY RATIO - 1.39 1.13 0.98 0.93 0.82 0.76 0.75 1.00
28
NOTES TO THE GAP REPORT
1. This snap shot picture or gap report reflects the
interest sensitivity positions during a flat rate
environment. These time frames could change if rates
rise or fall.
2. Repricing over-rides maturity in various time frames.
3. Demand deposits are placed in the last time frame due
to its lack of interest sensitivity. Our demand
deposits are for the most part core deposits.
4. The savings accounts are placed into the +2 year time
frame. In a flat rate environment, saving accounts
will not reprice or liquidate. Savings deposits are
price sensitive, for the most part, after a major
increase in 6 month CD rate. We place these accounts
in this area instead of the variable position due to
history and characteristics. These accounts are
considered core deposits.
5. The policy for cumulative gap positions at FCNB are:
Intervals less than 1 year 4% - 10%, and the period of
1-5 years 4% - 20%. Approximately 40% - 50% of CD
customers have maturities of 6 months or less. The
banks net interest income exposure limit is $150,000.
The net interest income exposure or limit as a percent
of unimpaired capital is .76%. Currently, the bank's
exposure is less than the limits.
6. FCNB would benefit more if rates stay flat. If
interest rates rise rapidly, net interest income would
be negatively effected. First Citizens Liquidity would
negatively be affected if interest rates drop due to
the probability of increased loan demand. Adequate
lines of credit are available to handle liquidity
needs.
Capital Resources
Total capital (including Reserve for Loan Losses) as a
percentage of total assets for the quarter ending September
30 is presented in the following table for the years
indicated:
1995 1994 1993 1992 1991
9.28% 9.97% 9.01% 9.13% 8.72%
Increasing the capital base of First Citizens is a vital
part of strategic planning. Although the present capital to
asset ratio remains in excess of the level required by
Regulators for banks our size, management is aware of the
importance of strengthening this base.
The Federal Reserve Bank adopted a risk-based capital
measure for use in evaluating the capital adequacy of bank
holding companies effective January 1, 1991. The risk-based
capital measure focuses primarily on broad categories of
credit risk and incorporates elements of transfer, interest
rate and market risk. The calculation of risk-based capital
is accomplished by dividing qualifying capital by weighted
risk assets. The minimum risked based capital ratio is 8%,
at least one-half or 4.00% must consist of core capital
(Tier 1), and the remaining 4.00% may be in the form of core
(Tier 1) or supplemental capital (Tier 2). Tier 1
capital/core capital consists of common stockholders equity,
qualified perpetual stock and minority interests in
consolidated subsidiaries. Tier 2 capital/supplementary
capital consists of the allowance for loan and lease losses,
perpetual preferred stock, term subordinated debt, and other
debt and stock instruments.
29
Bancshares has historically maintained capital in excess of
minimum levels established by the Federal Reserve Board.
The risked-based capital ratio as of 9/30/95 was 13.84%,
significantly above the 8.00% required by regulation. With
the exception of the Reserve for Loan and Lease Losses, all
capital is Tier 1 level. Growth in capital will be
maintained through retained earnings. There is no reason to
assume that income levels will not be sufficient to maintain
an adequate capital ratio.
Common Stock
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.
Effects of Inflation
Inflation has a significant impact on the growth of total
assets in
the banking industry, resulting in a need to increase equity
capital in order to maintain an appropriate equity to asset
ratio.
Operating expenses are directly affected by increases in
salaries and employee benefits, supplies, legal, audit and
professional fees, utilities, advertising and insurance.
Inflation is the major key to the cost of acquiring and
retaining deposits.
A well managed asset/liability management program can
maximize net interest income; and at the same time, reduce
the impact of inflation on earnings.
Part II - Other Information
Item 1. Legal Proceedings
There are no legal proceedings that would result in a
significant impact to the bank's financial statement as of
this date.
Item 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 9/30/95.
30
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
First Citizens Bancshares, Inc.
(Registrant)
Date: November 14, 1995 /s/Stallings Lipford
Stallings Lipford,
Chairman, CEO
Date: November 14, 1995 /s/Jeff Agee
Jeff Agee,
Vice President &
Chief Financial Officer
First Citizens National Bank
(Principal Subsidiary)
1
First Citizens Bancshares, Inc.
P. O. Box 370
Dyersburg, TN 38025-0370
November 14, 1995
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
ATTN: Document Control - EDGAR
Greetings:
Please consider this as a cover letter for submission of Form 10-Q
for the period ending 9/30/95.
Any questions concerning information filed herein should be
directed to my attention. You may contact me by phone at (901) 285-
4410, ext. 254.
Respectfully yours,
Judy Long
Secretary
1
DATA STATED IN THOUSANDS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
THIRD THIRD YEAR
REGULATION STATEMENT CAPTION QTR. QTR. TO DATE
1995 1994 1995 1994
5-02 (1) Cash and Cash Items 11407 8665 11407 8665
5-02 (2) Marketable Securities 67420 63346 67420 63346
5-02 (3)(b)(1) Notes Receivable 192170 173485 192170 173485
5-02 (4) Allowance for Doubtful
Accounts 2247 1985 2247 1985
5-02 (15) Total Assets 283878 256582 283878 256582
5-02 (24) Other Liabilities 257533 232982 257533 232982
5-02 (30) Common Stock 731 712 731 712
5-02 (31)(a)(2) Additional Capital Other 9634 8909 9634 8909
5-02 (31)(a)(3)(ii) Retained Earnings -
Unappropriated 15980 13979 15980 13979
5-03 (b)(1)(e) Other Revenues 6485 5476 18667 15803
5-03 (b)(2)(e) Cost of Other Revenues 2374 2202 7084 6650
5-03 (b)(8) Interest and Amortization
of Debt Discount 2950 2140 8368 5733
5-03 (b)(10) Income Before Taxes and
Other Items 1161 1134 3215 3420
5-03 (b)(11) Income Tax Expense 406 377 1094 1084
5-03 (b)(14) Income/Loss from
Continuing Operations 755 757 2121 2336
5-03 (b)(19) Net Income or Loss 755 757 2121 2336