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, 1996 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 738,518 (net of treasury) shares outstanding as of September 30,
1996.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1996 1995
(Unaudited) (Note)
ASSETS
Cash and due from banks $ 11,624,000 $ 11,694,000
Federal funds sold 0 1,850,000
Investment securities -
Trading Investments-Stated at Market 0 0
Held to maturity-amortized cost-fair
Value of $31,041,000 at September 30,
1996 and $34,258,000 at December 31,
1995. 31,194,000 33,947,000
Available for Sale-Stated at Market 43,788,000 39,944,000
Loans - (Excluding unearned income of
$1,565,000 at September 30, 1996
and $1,657,000 at December 31, 1995) 215,541,000 191,906,000
Less: Allowance for loan losses 2,511,000 2,216,000
Net Loans 213,030,000 189,690,000
Premises and equipment 8,333,000 8,831,000
Other assets 6,902,000 5,456,000
TOTAL ASSETS $314,871,000 $291,412,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $252,407,000 $237,160,000
Securities sold under
agreement to repurchase 21,146,000 19,745,000
Federal funds purchased
and other short term borrowing 5,075,000 0
Long-term debt - Note 3 (Includes
long term FHLB) 4,015,000 4,652,000
Notes payable of Employee Stock
Ownership Plan 0 0
Other liabilities 3,442,000 2,752,000
Total Liabilities 286,085,000 264,309,000
Contingent Liabilities
Stockholders' Equity
Common stock, $1 par value -
2,000,000 authorized; 738,644
issued and outstanding at
September 30, 1996; 733,399
issued and outstanding at
December 31, 1995 739,000 733,000
Surplus 9,947,000 9,720,000
Retained earnings 18,424,000 16,167,000
Net Unrealized Gains(Losses) on
available for Sale (318,000) 485,000
Total Common Stock and Retained
Earnings 28,792,000 27,105,000
Less-126 Treasury Shares, at Cost
at September 30, 1996 and 40
Shares at cost at December 31, 1995 (6) (2)
Total Stockholders' Equity 28,786,000 27,103,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $314,871,000 $291,412,000
NOTE: The balance sheet at December 31, 1995, has been taken from the
audited financial statements at that date and condensed.
The accompanying notes are an integral part of these financial
statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Interest Income
Interest and fees on loans $ 5,189,000 $ 4,646,000 $14,705,000 $13,059,000
Interest on investment
securities:
Taxable 1,124,000 957,000 3,331,000 3,028,000
Tax-exempt 124,000 119,000 374,000 362,000
Other interest income 16,000 41,000 64,000 149,000
Lease financing income 0 0 1,000 2,000
Total Interest Income 6,453,000 5,763,000 18,475,000 16,600,000
Interest Expense
Interest on deposits 2,679,000 2,635,000 7,860,000 7,466,000
Other interest expense 424,000 315,000 1,053,000 902,000
Total Interest Expense 3,103,000 2,950,000 8,913,000 8,368,000
Net Interest Income 3,350,000 2,813,000 9,562,000 8,232,000
Provision for loan losses 163,000 107,000 402,000 258,000
Net interest income after
provision 3,187,000 2,706,000 9,160,000 7,974,000
Other Income
Securities gains (losses) 13,000 36,000 192,000 60,000
Other income 741,000 686,000 2,298,000 2,007,000
Total Other Income 754,000 722,000 2,490,000 2,067,000
Other expenses 2,334,000 2,267,000 7,069,000 6,826,000
Net income before
income taxes 1,607,000 1,161,000 4,581,000 3,215,000
Provision for income
taxes 565,000 406,000 1,595,000 1,094,000
Net income 1,042,000 755,000 2,986,000 2,121,000
Earnings per share $ 1.42 $ 1.04 $ 4.06 $ 2.93
Weighted average number of
shares outstanding 735,344 724,185 735,344 724,185
The accompanying notes are an integral part of these financial statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(STATED IN THOUSANDS)
Nine Months Ended September 30
1996 1995 1994
Operating Activities
Net cash provided by
operating activities $3,224 $ 2,043 $2,370
Investing Activities
Proceeds of maturities of held to
maturity securities 4,405 12,968 15,544
Purchase of held to maturity
investments (1,500) (13,000) (18,251)
Proceeds from maturities of available
for sale securities 3,876 812 0
Proceeds from sales of available for
sale securities 8,600 1,206 0
Purchase of available for sale
securities (17,125) (4,603) 0
Increase in Loans-Net (23,742) (23,454) (24,155)
Purchases of premises and equipment (245) (1,119) (937)
Net cash provided
by investing activities (25,731) (27,190) (27,799)
Financing Activities
Net increase (decrease) in demand
and savings accounts 4,754 (3,355) (2,337)
Increase (decrease) in time accounts 10,493 23,930 11,386
Increase (decrease) in long-term debt (637) 2,571 4,153
Treasury stock transactions (4) 0 60
Proceeds from sale of common stock 233 650 198
Cash dividends paid (728) (665) (565)
Net increase (decrease) in short
term borrowings 6,476 739 7,591
Net cash provided (used) by
financing activities 20,587 23,870 20,486
Increase (decrease) in cash and cash
equivalents (1,920) (1,277) (4,943)
Cash and cash equivalents at
beginning of year 13,544 12,684 13,608
Cash and cash equivalents,
end of year 11,624 11,407 8,665
Cash payments made for interest and income taxes during the years
presented are as follows:
1996 1995 1994
Interest $9,065 $7,706 $5,835
Income Taxes $1,329 $1,141 $ 705
The accompanying notes are an integral part of these financial statements.
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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Stated in Thousands)
September 30, 1996
Note 1 - Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1996, the
consolidated statements of income for the three month periods ended
September 30, 1996, 1995, and 1994, 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, 1996 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, 1996. 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, 1995.
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
9/30/96 9/30/95
Amount Outstanding-End of Period $26,221 $17,689
Weighted Average Rate of Outstanding 4.40% 4.60%
Maximum Amount of Borrowings at Month End 32,902 18,624
Average Amounts Outstanding for Period 30,255 17,227
Weighted Average Rate of Average Amounts 4.75% 4.69%
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 averages are as follows:
Average Average Average
Volume Rate Maturity
FHLB Borrowings $1,907 5.59% 11 Years
FHLB Borrowings 2,123 5.69% 8 Years
Note 5 - Statement of Cash Flows
September September September
1996 1995 1994
Actual payments made
during the periods:
Interest $9,065 $7,706 $5,835
Income taxes $1,329 $1,141 $ 705
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Note 6 - Contingent Liabilities
There is no material pending litigation 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, 1996 and September 30, 1995, total ($153 and
($311) respectively. FASB 115 states that a bank has to classify
securities into Held to Maturity, Available for Sale, and Trading.
First Citizens has $0 in the Trading Account. The Available for Sale
Securities values are adjusted to market each quarter and the
adjustments flow to the Capital section (Net of Tax). The Held to
Maturity securities are stated at amortized cost. The available for sale
securities reflects a negative $312 increase for the quarter just ended
(net of tax). $187 flowed to capital. These movements fluctuate with
the bond market.
First Citizens has not engaged in derivative activities (as defined by
paragraphs 5-7 of FASB 119) for any of the reporting periods.
Note 8 - Regulatory Capital Requirements
Regulatory agencies impose certain minimum capital requirements on both
First Citizens Bancshares, Inc., and First Citizens National Bank. On
December 16, 1988, the Federal Reserve Board approved risk based
capital guidelines for bank holding companies. Presently, the holding
company and First Citizens National Bank exceed the required minimum
standards established by the regulators. Tier 1 Ratio and Tier 2 Ratio
are 13.31% and 14.46% respectively.
Note 9 - Deferred Income Taxes
First Citizens adopted FASB 109 as of January 1, 1993. The deferred tax
account reflects an asset totaling $530. The timing differences mainly
consist of reserve for loan loss deductions and FASB 115.
Note 10 - Reserve for Loan Losses
FASB 114 and 118 was implemented during the first quarter of 1995. This
new FASB 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 $1,676
Amount of Recorded Balance with a Related Allowance 1,191
Amount of Recorded Balance with a No Related Allowance 485
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.
First Citizens will continue to ensure the overall reserve is adequate
over and above the allocation for impaired loans.
Note 11 - Asset Impairment
The financial standards board issued statement 121 addressing the
accounting for the impairment of long-lived assets that will be held and
used, including certain identifiable intangibles, and the good-will
related to those assets. The statement, which is effective for calendar
year 1996 financial statements, also addresses accounting for long lived
assets and certain identifiable assets to be disposed.
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The statement requires that assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable.
As of the reportable date, there are no FASB 121 adjustments.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
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
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.
Intense Strategic planning efforts resulted in record earnings for
Bancshares' for the first 9 months of 1996. Net income rose $865,000 or
40.8% when compared to September 30, 1995. Net interest income of
$6,453,000 at 9/30/95 was up from $5,763,000 in 1995, an increase in
excess of 12 percent. Net interest margins improved from 4.06% at
9/30/95 to 4.21% for the quarter ending 9/30/96. Return on average
assets of 1.31% is up from 1.05% for the same quarter in 1995. Per
share earnings of $1.42 compares to $1.36 in the second quarter of 1996
and $1.04 for the same quarter one year ago. The strong earnings
performance was driven by excellent loan demand as well as improved
operating efficiencies. Improved operating performance can also be
attributed to intense strategic planning that set goals (1) To remain an
independent community bank serving the needs of individuals, small
businesses, corporations and agriculture customers; (2) To maximize the
value of First Citizens to its shareholders by providing the highest
level customer service and the widest selection of quality products and
services; (3) To consistently generate earnings that are at a minimum
equal to that of peer banks; (4) To attract and retain high quality
personnel, while right sizing staffing levels to be more in line with
peer banks; and (5) To continuously evaluate and invest in a product and
service distribution system that will provide our customers with
personal access as well as electronic delivery of products and services.
The bank made great strides in accomplishing these goals in 1995 and the
first nine months of 1996. Two new branches were opened to expand in
the development of new business; Full-time equivalent employees were
further reduced from 151 at 9/30/95 to 147 at 9/30/96. POD and Item
imaging was introduced to the market; An automated Teller system,
"TellerPro" was installed; The bank's Automated Teller Machine network
was converted from Deluxe, Inc. To Internet/Most, Reston, Virginia in
June, 1996. The switch to Internet/Most can provide the bank with an
innovative network for electronic and remote banking services.
Electronic services provided by the network are ATM and POS servicing.
Remote banking products include home banking programs using personal
computer and screen phone devices as well as bill payment services. The
bank contracted with Sharon Younger and Associates, Jackson, Tennessee
to perform a home banking market survey. A decision for home banking
options will be made at the conclusion of the survey. The bank's
management believes that a successful electronic/home banking program is
a key factor in accomplishing future strategic planning goals set for
the bank's future service delivery system. A Visa Check Card referred
to as "Check Connection" was developed and is in the final stages of
testing. Introduction of the "Check Connection" was delayed from
September 1, 1996 to December 1, 1996 due to technical problems in the
card activation process. Card Activation is to be corrected and
throughly tested before introducing the product to the market in
December. The 1996 strategic planning process not only resulted in
retaining the goals listed within this section, but also accomplished
the development of a Technology Strategic Plan. Brintech, Inc. New
Smyrna Beach, FL. was contracted in May 1996, to perform a technology/
9
productivity assessment of First Citizens National Bank. Strategic
action goals were adopted that includes, but not limited to the
following: (1) Install Document Imaging in the loan department of the
bank; An evaluation of document imaging software is currently in
process; (2) Evaluate a Marketing CIF system which will allow us to
identify needs and opportunities which exist in the current and
potential customer base. (3) To maintain the IBM AS/400 as the bank's
technology infrastructure; (4) To evaluate existing system interfaces as
well as develop new system interfaces to eliminate redundant manual
labor cost; and (5) To survey the market to identify the potential for
Home Banking and Corporate Cash Management.
In a conscious effort to improve our return on assets and equity, the
cost of funds was reduced from 4.57% at 9/30/95 to 4.36% at 9/30/96.
Interest margins are projected to increase with continued reductions in
cost of funds. Total assets increased approximately $23,459,000 when
comparing the quarters ended 9/30/96 and 9/30/95. Loan growth exceeded
12%, while deposit growth was slightly less at 8.28 percent. Liquidity
ratio at 6/30/96 was 13.42% including approved lines of credit totaling
$20 million. Loan to deposit ratio is 85.38 percent, excluding
Repurchase Agreements and loans funded with Federal Home Loan Bank
borrowings. When including these items the ratio is 76.60 percent.
Short term borrowings averaging $32,902,000 at 4.75% were used to fund
financing activities for the quarter compared to $18,624,000 at 4.69% at
9/30/95. A more thorough report of liquidity is included in this
report in the Liquidity and Interest Rates Sensitivity Section.
Bad debt allocations increased approximately $560,000 or 52.30% when
reviewing the periods under comparison. The percentage of loan loss
reserve to total loans is well within policy range of one percent. The
reserve was increased to support loan growth and the addition of one
credit line in the amount of $991,000 to the problem list. For more
information reference the Analysis of the Loan Loss Reserve section of
this report.
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 the two 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 result in 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 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.
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The following table compares year to date non-interest income and
expense of First Citizens as of September 30, 1996, 1995 and 1994:
Non-Interest Income
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1996 % of Change 1995 % of Change 1994
Service Charges on
Deposit Accounts $1,049 10.89% $ 946 11.29% $ 850
Trust Income $ 531 14.44% $ 464 14.56% $ 405
Other Income $ 910 38.51% $ 657 (37.96%) $1,059
TOTAL NON-INTEREST INCOME $2,490 20.47% $2,067 (10.67%) $2,314
Total Non-Interest Income is up over 20.47% when comparing September 30,
1996 to September 30, 1995 after declining 10.67% when comparing the
same time periods in 1995 to 1994. The increase in 1996 is attributed
to a 38.51% increase in other income; a 14.44% increase in trust income;
and 10.89% increase in service charge on deposits accounts. Other
income increased due to a one time refund of $70,705 from bankruptcy
trustees of Southeast Fort Worth Ltd. Increased fee income received from
the bank's subsidiary, Financial Plus, Inc. and security gains realized
from the sale of investment portfolio securities. The Southeast refund
partially reimbursed the bank for settlement made to trust customers in
December 1989. In April, 1995 the per item overdraft fee increased from
$17.50 to $20.00. In addition, a daily overdraft charge of $3.00 for
each day the account is overdrawn after a 5 day grace period was raised
to $5.00 per day. Non-Interest Income decreased in 1995 when compared
to 1994 for two reasons: (1) a one time after tax credit of $178,000
resulting from the sale of other real estate was realized in the first
quarter of 1994; and (2) a decline in fee income received from the
Bank's subsidiary, Financial Plus, Inc.
Non-Interest Expense
(in thousands)
Sept. 30 Sept. 30 Sept. 30
1996 % of Change 1995 % of Change 1994
Salaries & Employee
Benefits $3,798 4.26% $3,643 4.92% $3,472
Net Occupancy Expense $1,424 34.60% $1,058 0% $1,058
Other Operating Expense $1,847 (13.09%) $2,125 16.83% $1,819
TOTAL NON-INTEREST EXPENSE $7,069 3.56% $6,826 7.51% $6,349
Total Non-Interest Expense reflects a marginal 3.56% increase when
comparing 9/30/96 to 9/30/95. A comparison of Non-Interest Expense for
9/30/95 and 9/30/94 reflects a 7.51% increase. Salaries and employees
benefits posted an increase of 4.26% in 1996 reflecting salary increases
rather than addition to staff. Full-time equivalent employees as of
9/30/96 was 147 compared to 151 and 149 for the same time periods in
previous years. The bank is currently in the process of employing 6
part-time tellers to complete the bank's teller training program. Part-time
tellers are trained in a one month training program, then utilized
to meet additional staffing needs during peak time hours and to support
extended banking hours. The bank also employs approximately 16.5
employees to support non-traditional bank services. These services
include Trust Department 10 employees, Mortgage Lending 3.5 employees;
and Brokerage service, 3 employees. Full time equivalent employees per
one million in assets is 2.14 at 9/30/96 compared to 2.31 for peer
11
banks. Net Occupancy expense is up 34.60% due to increased computer
services totaling $90,000 and depreciation totaling $75,000. Net
Occupancy Expenses are projected to continue to increase due to purchase
and installation of technology required to meet future customer service
needs. Controls on Other Operating Expense continue to reduce expenses
in this area. Other Operating Expense reduced 13.09% from 1995 after
increasing 16.83% when comparing 1995 to 1994. Reductions in the cost
of FDIC Insurance as well as professional services, bad check
chargeoffs, and other real estate expenses are reflected in the
reduction from 1995 to 1996.
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)
1996 1995 1994
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 26,180 - $ 25,063 - $ 24,700 -
Savings
Deposits $ 73,121 3.24% $ 64,920 3.08% $ 63,315 2.74%
Time Deposits $148,519 5.62% $140,396 6.07% $116,329 4.97%
TOTAL DEPOSITS $247,820 4.32% $230,379 4.57% $204,344 3.68%
Growth in total deposits continues to be a challenge for First Citizens
National Bank. The Company's marketplace is described as highly
competitive, with a fairly sophisticated customer base. Competition is
aggressive for loans and deposits. According to a market share
analysis, Bancshares holds approximately 50% (excluding overnight and
fixed term repurchase agreements) of the bank deposits domiciled in Dyer
County. The bank competes with First Tennessee Bank, N.A. (22% of total
county deposits), and Security Bank (14%). Union Planters, another
regional bank also holds market share of 13 percent. First Citizens
also competes with Dyersburg City Employees Credit Union and other types
of financial services providers in this area. In spite of aggressive
competition, total deposits increased only $17 million after increasing
$26 million when comparing 1995 to 1994. A review of the composition of
deposits in 1996 reflects growth of $8 million each in savings and time
deposits. Approximately $24 million in deposit growth in 1995 was
centered primarily in time deposits. Other factors contributing to the
substantial growth in 1995 were rising interest rates and the purchase
of $8 million in deposits in the Ripley branch acquisition. An analysis
of 1994 reflects customer response to low interest rates paid on
deposits and their reluctance to recommit funds into bank certificates
of deposits. Demand deposits have remained relatively flat when
reviewing the years under comparison. However sweep account funds are
not included in the average balances for non-interest bearing demand
deposits. The "Sweep" total is included in the balance sheet category
of securities sold under an agreement to repurchase totaling $21,146,000
and represent funds transferred nightly from demand deposit accounts
into overnight repurchase agreements. The average rate paid on deposits
has continued to drop when reviewing each quarter end from 1995 to 1996.
The average rate was 4.32% at 9/30/96 compared to 4.57% at 9/30/95.
There were no significant changes to products or services during the
nine months of 1996.
12
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, 1996. The overall total
increased in excess of $6 million when comparing to September, 1995.
Maturity Distribution of Time Deposits
In Amounts of $100,000 Or More As Of September 30, 1996
(in thousands)
Maturity Total Amount
3 months or less $16,287
3 through 12 months $16,008
1 year through 5 years $ 5,753
over 5 years $ 0
Total $38,048
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. Total interest earnings assets for the three years under
comparison are $310 Million, $280 Million and $251 Million respectively.
Average yields on interest earning assets dropped slightly from 9.07% to
9.02%. Rates paid on total interest bearing liabilities declined
approximately 29 basis points when comparing September, 1996 to
September, 1995. The rate paid on total interest bearing liabilities
was 4.84% at 9/30/96. Net yield on interest earning assets increased to
4.72% at 6/30/96 from 4.47% at 6/30/95 and falling slightly below 4.74%
at 6/30/94. The bank set a goal at the end of the second quarter of
1995 to reduce cost of funds. Reductions in interest expense have
resulted in an annualized savings of $699,000. The average rate paid on
deposits in 1996 was 4.32% compared to 4.57% in 1995, reducing
annualized interest expense by approximately $550,000. First Citizens
has historically outperformed peer banks with the average rate earned on
the loan portfolio. Asset/Liability policies are in place that
effectively monitor interest rate sensitivity. Interest margins are
managed to achieve acceptable profits and a return on equity within
policy guidelines.
13
First Citizens National Bank
Quarter Ending September 30
Monthly Average Balances and Annualized Interest Rates
(in thousands)
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
INTEREST EARNING
ASSETS:
Loans (123)
& Leases $212,718 $5,184 9.75% $187,478 $4,646 9.91% $167,373 $ 3,859 9.22%
Investment
Securities:
Taxable $ 65,323 $1,116 6.84% $ 57,272 $ 951 6.64% $ 49,535 $ 764 6.19%
Tax Exempt (4) $ 10,759 $ 207 7.70% $ 10,383 $ 198 7.63% $ 13,844 $ 252 7.29%
Interest Earning
Deposits $ 146 $ 2 5.48% $ 146 $ 2 5.47% $ 133 $ 1 3.01%
Federal Funds
Sold & Securities
Purchased Under
an Agreement
to Resell $ 19 $ 1 21.06% $ 2,038 $ 32 6.28% $ 25 $ 1 16%
Total Interest
Earning Assets $288,965 $6,510 9.02% $257,317 $5,829 9.07% $230,910 $ 4,877 8.45%
NON-INTEREST
EARNING ASSETS:
Cash and Due
From Banks $ 10,415 $ - - $ 9,048 $ - - $ 8,822 $ - -
Bank Premises &
Equipment $ 8,421 $ - - $ 8,840 $ - - $ 7,935 $ - -
Other Assets $ 2,715 $ - - $ 5,338 $ - - $ 4,069 $ - -
Total Assets $310,516 $ - - $280,543 $ - - $251,736 $ - -
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
INTEREST BEARING
LIABILITIES:
Savings Deposits $ 73,121 $ 592 3.24% $ 64,920 $ 501 3.08% $ 63,315 $ 434 2.74%
Time Deposits $148,519 $2,085 5.62% $140,396 $2,134 6.07% $116,329 $1,446 4.97%
Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 34,890 $ 426 4.89% $ 24,598 $ 315 5.12% $ 24,856 $ 263 4.23%
Total Interest
Bearing
Liabilities $256,530 $3,103 4.84% $229,914 $2,950 5.13% $204,500 $2,143 4.19%
NON-INTEREST
BEARING
LIABILITIES:
Demand Deposits $ 26,180 $ - - $ 25,063 $ - - $ 24,700 $ - -
Other Liabilities $ 1,807 $ - - $ 2,116 $ - - $ 1,696 $ - -
Total Liabilities $284,517 $ - - $257,093 $ - - $230,896 $ - -
SHAREHOLDERS'
EQUITY $ 25,999 $ - - $ 23,450 $ - - $ 20,840 $ - -
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $310,516 $ - - $280,543 $ - - $251,736 $ - -
NET INTEREST
INCOME $ - $ 3,407 - $ - $ 2,873 - $ - $2,734 -
NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.72% $ - $ - 4.47% $ - - 4.74%
(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 presented on a
taxable equivalent basis.
14
COMPOSITION OF LOANS
Loan growth for the past twelve months represents $23 Million or a 12.20
percent increase. Total loans as of 9/30/96 were $215,543,000 compared
to $192,170,000 and $173,485,000 at 9/30/95 and 9/30/94. Internal Loan
Review Reports presented quarterly to the Board of Directors indicate
that the loan portfolio is in good condition based on the percentage of
Problem loans to gross capital funds as of August 31, 1996. Problem
loans total $3,580,681 and represent 12.52% of gross capital funds.
Problem loans increased $862,860 or 31.75% within the last twelve
months. Watch list loans total $6,049, decreasing approximately $2,000
from the last quarterly report. Loans more than 30 days past due total
$1,605,000 or .86% of the commercial loan portfolio, while installment
loans more than 30 days past due total $584,593 or 2.31% of the
installment loan portfolio. Non-accrual loans of $1,625,357 decreased
24% since the last quarterly report was issued. The Loan Loss Reserve
was determined to be within policy and is adequate to cover any expected
future losses. The Loan Loss Reserve is discussed in more detail within
this report in the section Loan Loss Experience and Reserve for Loan
Losses. Credit and collateral exceptions remain at acceptable levels.
The loan portfolio is made up of quality loans and is well diversified
with no concentrations of credit. Real Estate loans comprise
$140,324,000 or approximately 65 percent of total loans. The upward
trend in both construction and mortgage loans 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
Dyersburg/Dyer County trade area, having a population of approximately
40,000. The entire trade area has out paced both the state and nation
in per capital personal income growth since the early 1980's. The State
of Tennessee projects that per capital income in the area will be
greater than the national average by the year of 2000. The mix of
Industry/Agriculture in the local economy has provided stable, growing
employment opportunities for residents. The Dyer County distribution of
employment consists primarily of service employers 14.9%, government
14.7%, trade 19.3%, and manufacturing 40.5%. Dyer County's unemployment
rate for July, 1996 decreased 1.3% to 5.9% from April's rate of 7.2%
according to the Tennessee Department of Employment Security. This
compares to Tennessee's unemployment rate of 4.9% for July, 2% lower
than the county's rate. During the last half of 1995 a local factory
was closed resulting in the loss of 400 jobs. Since that time one
manufacturer has located to the area and another has expanded its
facilities, absorbing most of the displaced employees. Layoffs were
more prevalent in the first quarter of 1996 than in 1995, but are not
considered to be a serious problem overall. Retailers reported that
sales appear to be gaining strength. Local economic conditions are
stable and represent no immediate threat to the loan portfolio. Loans
for Agricultural purposes are considered to be a quality asset. The
Dyer County Agriculture economy is poised for a banner year with both
yields and prices at record levels. Yellow corn, soybeans, and cotton
all reflect better than average yields with increases county wide in
excess of 20%. In summary a good business climate coupled with a record
year in agricultural production should make 1996 a banner year for Dyer
County and West Tennessee.
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 periods for each loan type.
Policy guidelines for loan to value ratio and maturities related to
various collateral are as follows:
15
Collateral Max. Amortization Max. LTV
Real Estate Discussed herein 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.
* 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;
16
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
The average yield on loans of First Citizens National Bank for the third
quarter of the years indicated is as follows:
1996 - 9.75%
1995 - 9.91%
1994 - 9.22%
1993 - 9.58%
1992 - 9.97%
The aggregate amount of unused guarantees, commitments to extend credit
and standby letters of credit was $27,629,000 as of 9/30/96.
The following table sets forth loan totals net of unearned income by
category for the past five years:
September 30 (in thousands)
1996 1995 1994 1993 1992
Real Estate Loans:
Construction $ 16,712 $ 12,330 $ 9,748 $ 7,642 $ 4,603
Mortgage $123,612 $105,640 $ 94,501 $ 84,540 $ 82,035
Commercial, Financial
and Agricultural Loans $ 49,822 $ 50,212 $ 47,382 $ 37,339 $ 36,974
Installment Loans to
Individuals $ 23,290 $ 21,564 $ 17,868 $ 15,545 $ 15,425
Other Loans $ 2,107 $ 2,424 $ 3,986 $ 5,642 $ 2,663
TOTAL LOANS $215,543 $192,170 $173,485 $150,708 $141,700
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 $91,844,000 or 42.60% of
the total portfolio are subject to repricing within one year or carry a
variable rate of interest. The ratio is up from 40.03% at 9/30/95
reflecting efforts of the customer base to lock in lower interest rates.
Maturities in the one to five year category total $124,182,000,
17
reflecting a slight increase when compared to $107,512,000 at 9/30/95.
The trend exhibited by consumers in recent years to lock in interest
rates is projected to continue.
Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)
Real Estate $35,296 $ 89,673 $15,355
Commercial, Financial
and Agricultural $33,387 $ 15,624 $ 811
All Other Loans $ 6,259 $ 18,885 $ 253
TOTAL $74,942 $124,182 $16,419
Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $123,699
Interest Rates are Floating or Adjustable $ 16,902
NON-PERFORMING ASSETS
A review of Non-Performing assets as of 9/30/96 reflects an increase of
$486,000 or 40.23%. However, the increase is insignificant when
considering growth levels in the loan portfolio. Non-performing assets
for other years under comparison (1995-1992) reflect a continuous
reduction when compared to the percentage of loan growth for each of
those time periods. Non-Performing loans increased the second quarter
of 1996 as a result of the addition of one loan totaling approximately
$991,000.
The provision of loan losses increased in proportion to loan growth as
required by loan policy. Experience of the lending and loan review
staff as well as adherence to policy lends a comfort level to the
portfolio and supports the Loan Loss Allowance at the present level. In
April 1996, First Citizens was made aware that Bennett Funding Group,
Inc., Syracuse, New York had filed Chapter 11 Bankruptcy and that legal
claims had been filed against the company's CEO claiming among other
things the selling of fictitious leases. Assets of the corporation have
been frozen as a result of the bankruptcy filing. First Citizens
National Bank is a holder of outstanding debt on Benentt Funding Group,
Inc. in the principal balance of $991,029 down from the beginning
balance of $1,699,880. The bank holds 176 outstanding leases securing
this debt. Of the total, 25 have been contacted using the acceptable
language provided by Bennett. Response received indicate that the
equipment securing the leases is in place and in working order. All
leases have been inspected and we have no reason to believe there are
fictitious or fraudulent leases in our portfolio. First Citizens has
joined with other banks, also purchasers of leases from Bennett Funding,
to employ legal representation as a group until all facts can be sorted
out. The Kansas Bankers Surety Company, holder of the bank's blanket
bond insurance policy has been notified. The loan has been added to the
problem list and an allocation made to the loan loss reserve in the
amount of $400,000 to cover any exposure to the bank.
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 considered 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
18
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 nine months ending 9/30/96
if all loans reported as non-accrual had been current in accordance with
their original terms and had been outstanding throughout the period is
$198,000. Interest income on loans reported as ninety days past due and
on interest accrual status was $12,000 for year-to-date 1996. Loans on
which terms have been modified to provide for a reduction of either
principal or interest as a result of deterioration in the financial
position of the borrower are considered to be Restructured Loans.
Restructured loans as of September 30, 1996 are 0.
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
9/30/96 $1,523 $ 171 $1,694
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
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.
19
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 annual review.
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.
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) $
20
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 $687,000 at 9/30/96 compared to $1,181,000 at
9/30/95. 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. An option to purchase the strip shopping center has been
negotiated and the sale is expected to close by December 1, 1996.
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
12/31/96:
Domestic Amount (in thousands)
Commercial, Financial & Agricultural $300
Real Estate-Construction 0
Real Estate- Mortgage 50
Installment Loans to individuals & credit cards 150
Lease financing 0
Foreign 0
01/01/96 through 12/31/96 Total $500
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 - $50,000; (2) Recovery of loans previously charged-off -
$39,000; and (3) Additions to reserve totaling $163,000.
First Citizens National Bank
Loan Loss Experience and Reserve for Loan Losses
Quarter ending September 30
(in thousands)
1996 1995 1994 1993 1992
Average Net Loans
Outstanding
Net of ICNE $212,718 $187,478 $167,373 $145,567 $138,633
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 2,359 $ 2,186 $ 1,879 $ 1,920 $ 1,757
Loan Charge-Offs $ (50) $ (80) $ (44) $ (56) $ (112)
Recovery of Loans
Previously
Charged Off $ 39 $ 34 $ 48 $ 67 $ 138
Net Loans Charged Off $ (11) $ (54) $ 4 $ 11 $ 26
21
Additions to Reserve
Charged to Operating
Expense $ 163 $ 107 $ 102 $ 119 $ 104
Balance at End of
Period $ 2,511 $ 2,247 $ 1,985 $ 2,050 $ 1,887
Ratio of Net Charge-
Offs during quarter
to Average Net Loans
Outstanding (.01%) (.029%) .002% .008% (.19%)
The following table will identify charge-offs by category for the
period ending 9/30/96 and 9/30/95.
Charge-Offs: 1996 1995
Domestic
Commercial, Financial and Agricultural $ 4 $ 0
Real Estate - Construction 0 0
Real Estate - Mortgage 1 39
Installment Loans to Individuals 40 25
Lease Financing 0 0
Credit Cards 5 16
Total $(50) $(80)
Recoveries:
Domestic:
Commercial, Financial and Agricultural $ 14 $ 8
Real Estate - Construction 0 0
Real Estate - Mortgage 0 1
Installment Loans to Individuals 21 18
Lease Financing 0 0
Credit Cards 4 7
Total 39 34
Net $(11) $(46)
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)
1996 1995 1994 1993 1992
U. S. Treasury &
Government Agencies $60,718 $53,336 $43,457 $47,317 $45,805
State & Political
Subdivisions $10,807 $10,516 $12,644 $11,259 $ 7,523
All Others $ 3,457 $ 3,568 $ 7,245 $ 5,459 $ 4,241
TOTALS $74,982 $67,420 $63,346 $64,035 $57,569
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, 1996
increased approximately $7 million when compared to the same time period in
1995. The investment portfolio, which currently totals $75 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 2.8
years. It is estimated that this average life would extend to 4.5 years at
rates up 100 basis points and 5.2 years at rates up 200 basis points. This
is a result of some extension occurring in the callable bonds and mortgage-
22
backed holdings as rates rise. For rates down 100 basis points the average
life would decrease to 1.9 years.
In terms of price sensitivity, we estimate that at rates up 100 basis
points the market value of the portfolio would fall by 3.0%, while at rates
up 200 basis points the market value would fall by 6.8%. This is equal to
the price sensitivity of the 3-4 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 2.3%.
The adjustable rate holdings all reprice on an annual or more frequent
basis and currently have an average life of 5.6 years. Due to the
structure of these holdings, we would expect only modest 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.
There were no purchases made during the quarter. Sale of Investments
totaled $1,000,000 consisting of a Federal Home Loan Mortgage Corporation
sold September 27, 1996 at a profit of $12,500.00. The security was sold
from the Available for Sale account.
FASB 115 required banks to maintain separate investment portfolio accounts
for Held-to-Maturity, Available for Sale, and Trading Account Investments.
As of June 30, 1996 approximately 59.47% of the total portfolio was placed
in the Available-for-Sale account. The remaining 40.53% was booked in the
Held-to-Maturity account. FASB 115 also requires banks to Mark to Market
the Available for Sale and Trading Account investments at the end of each
calendar quarter. Held-to-Maturity account investments are stated at
amortized cost on the balance sheet. Mark to Market resulted in a negative
capital entry of $148,351.82 as reflected on the 9/30/96 balance sheet.
Mark to Market impact to capital on 9/30/95 was a negative $101,000.
Maturities in the portfolio are made up of 9.41% within one year, 50.11%
after one year and within five years, and 40.48% after five years. Policy
provides for 20% maturities on an annual basis. Management made a
conscious effort to shorten maturities in 1995 based on volatility in
interest rates and mark to market rules. Maturities on investments
purchased in 1996 are 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, 1996
Unrealized Unrealized Net
Gains Losses Gains/Losses
U.S. Treasury Securities 78 90 12
Obligations of U.S. Government
Agencies and Corp 344 995 651
Obligations of States and
Political Subdivisions 32 51 19
Other Securities 0 0 0
Totals 454 1136 682
23
Yields on Investment Securities increased the twelve month period
ending 9/30/96 from 5.84% to 6.38%. This is reflective of the overall
interest rate market. Also reflected in the following table is the result
of efforts to shorten maturities within the portfolio:
Maturing and Portfolio Percentages on Securities September 30, 1996
(in thousands)
After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount % Amount % Amount % Amount %
9/30/96 $ 7,050 9.41% $37,574 50.11% $21,351 28.48% $ 9,007 12.00%
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%
Maturity and Yield on Securities September 30, 1996
(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 $ 4,399 6.42% $30,619 6.57% $17,218 6.81% $8,482 7.09%
State and Political
Subdivisions* $ 1,650 7.08% $ 6,955 6.47% $ 1,697 7.24% $ 525 7.65%
All Others $ 1,021 6.16% $ - -% $ 2,436 5.60% $ - -%
TOTALS $ 7,050 6.53% $37,574 6.56% $21,351 6.71% $9,007 7.12%
*Yields on tax free investments are stated herein on a
taxable equivalent basis.
Investment Securities
September 30, 1996
(in thousands)
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
U.S. Treasury Securities $ 3,009 $ 2,993 $6,957 $ 6,962
U.S. Government Agency
and corporation obligations
(exclude mortgage-backed
securities):
Issued by U.S. Government
agencies (2) 100 100 0 0
Issued by U.S. Government-
sponsored agencies (3) 18,524 18,388 23,239 22,789
Securities issued by states
and political subdivisions
in the U.S.:
General obligations 3,749 3,755 3,678 3,660
Revenue obligations 2,497 2,490 901 901
Industrial development
and similar obligations 0 0 0 0
Mortgage-backed securities
(MBS):
Pass-through securities:
Guaranteed by GNMA 326 334 2,961 2,914
Issued by FNMA and FHLMC 845 844 380 396
Other pass-through
securities 0 0 0 0
24
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Other mortgage-backed
securities (include CMOs,
REMICs, and stripped MBS):
Issued or guaranteed by
FNMA, FHLMC, or GNMA 1,143 1,137 3,753 3,708
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 1,001 1,000 0 0
Foreign debt securities 0 0 0 0
Equity securities:
Investments in mutual funds 0 0
Other equity securities with
readily determinable fair
values 749 757
All other equity securities(1) 1,701 1,701
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 2.b) 31,194 31,041 44,319 43,780
(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.
Return on Equity and Assets
Improved earnings are reflected when reviewing financial ratios for the
years 1992 to 1996. Management has made an ongoing effort to control
expenses and maximize earnings to achieve levels comparable to peer
group banks. An analysis of return on assets at September 30, 1996
reflects a upward swing when compared to previous years. Accelerated
asset growth coupled with rising interest rates paid on interest bearing
deposits had a significant impact on earnings the first quarter of 1995.
A comparison of total assets as of 9/30/96 and 9/30/95 reflects growth
in excess of 8 percent. Return on Assets for 1996 annualized is 1.31%.
Increased expenses during 1995 can be attributed to the addition of two
branch banks opened in November, 1994 and January, 1995 and the
installation cost of Proof of Deposit & Statement Imaging, and a Teller
Platform System.
The company's strategic plan address objectives to sustain improved
earnings, maintain a quality loan 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. As a result of the 1996 Strategic
Planning a bank owned Finance Company will be established as a
subsidiary of First Citizens National Bank. Approval has been acquired
from State of Tennessee Commission of Banking. The Bank is currently
awaiting approval from other regulatory authorities.
25
Total shareholder's equity (including Loan Loss Reserve) of First
Citizens Bancshares as of 9/30/96 was $28,786,000 compared to
$27,103,000 at year end 1995.
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 was declared on October 21, 1992 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 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 operating ratios for First Citizens Bancshares,
Inc. for the quarter ending September 30 (not annualized):
1996 1995 1994 1993 1992
Percentage of Net Income to:
Average Total Assets .99% .78% .95% .93% .65%
Average Shareholders Equity 10.69% 8.45% 10.29% 10.78% 7.92%
Percentage of Dividends
Declared Per Common Share to
Net Income Per Common Share 24.38% 31.35% 24.19% 23.96% 30.21%
Percentage of Average Shareholders'
*Equity to Average Total Assets 10.02% 10.09% 9.98% 9.40% 8.91%
*Includes Average Reserve for Loan Loss Account
*Decrease in Equity to Assets due to FASB 115
Liquidity and Interest Rate Sensitivity
Liquidity is the ability to meet the needs of our customer base for
loans and deposit withdrawals by maintaining assets which are
convertible to cash equivalents with minimal exposure to interest rate
risks. Liquidity is determined by a comparison of net liquid assets to
net liabilities and consistently remains between 10 and 15 percent. The
stability of our deposit base, sound asset/liability management, a
strong capital base and quality assets assure adequate liquidity.
Strong loan demand and seasonal growth in agricultural lines of credit
will place the bank in a tight liquidity position May through October,
1996. Loan to deposit ratio including repurchase agreements and Federal
Home Loan Bank Borrowings is approximately 76% at 9/30/96. Deposit
growth at quarter end was slightly over 8%, while loan growth exceeded
12 percent.
To address liquidity concerns the bank has the following sources
available: (1) Approved lines of credit with the Federal Home Loan Bank
totaling $11.5 million and correspondent banks totaling $9 million; (2)
Loans in excess of $74 million maturing in one year or less; and (3)
Investment Securities of $7 million with maturity dates of one year or
less. At June 30, 1996 Federal Home Loan Borrowings (short and long
term) totaled $4 million. These borrowings are maturity matched with
specific loans and investments on the books of the bank. In May, 1996,
the bank purchased $5 million in State of Tennessee Certificates of
26
Deposits. $2 million was purchased at 5.30% for a period of 6 months and
$3 million was purchased at 5.50% for 1 year. These State of Tennessee
certificates will mature in November, 1996 and will be renewed for 3
months at 5.25%.
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 more
interest rate sensitive than long-term investment securities and fixed rate
loans. The shorter term interest sensitive assets and liabilities are the key
to measurement of the interest sensitivity gap. Minimizing this gap is a
continual challenge and is a primary objective of the Asset/Liability
Management Program.
First Citizens will attempt to minimize interest rate risks by
increasing the volume of variable rate loans within the portfolio. This
should limit the net interest income exposure to a maximum of .065% of
total assets (Example .00065 X $310,000,000=$201,500). Sound
Asset/Liability management will work to improve net interest income
through volume increases and pricing policies. Long term fixed rate gap
position (5 years or over) will be held to a minimum by funding loans
in this category with maturity matched Federal Home Loan Bank funds.
The net interest exposure as a percent of un-impaired capital should be
less than .76 percent. Annual income exposure will be limited to
$150,000 as set by policy. Annual income exposure at 9/30/96 was in a
range of $115,000 to $148,000.
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
- ------------------------------------------------------------------------------------------------
CASH AND DUE FROM
CURRENCY AND COIN 10,368 - - - - - - - 10,368
MONEY MARKET 157 157 - - - - - - -
TOTAL CASH & DUE FROM 10,525 157 - - - - - - 10,368
INVESTMENTS
US TREASURIES 9,971 - - - 1,000 - 1,494 3,443 4,034
US AGENCIES 50,568 - - - 3,781 4,308 4,132 7,486 30,861
MUNICIPALS 10,807 - - - 1,630 - - 1,158 8,019
CORP & OTHERS 1,000 - - - - 1,000 - - -
EQUITIES 2,458 - - - - - - - 2,458
TOTAL INVESTMENTS 74,804 - - - 6,411 5,308 5,626 12,087 45,372
LOANS
COMMERCIAL FIXED 30,013 - 1,797 811 1,339 8,861 4,396 4,478 8,331
COMMERCIAL VARIABLE 19,005 - 18,994 - - 11 - - -
REAL ESTATE-VARIABLE 20,044 - 18,703 - 1,141 200 - - -
REAL ESTATE FIXED 115,063 - 3,249 3,999 942 8,194 6,929 17,493 74,257
HOME EQUITY LOANS 4,875 - 4,526 - - 1 347 - 1
SEC MORTGAGE 340 - 340 - - - - - -
INSTALLMENT LOANS 23,182 - 645 213 304 880 2,002 4,038 15,100
INSTALLMENT VARIABLE 108 - 108 - - - - - -
FLOOR PLAN 804 804 - - - - - - -
CREDIT CARDS 1,677 - - - - - 1,677 - -
FACTORING REC 230 - 230 - - - - - -
OVERDRAFTS 200 - 200 - - - - - -
TOTAL LOANS 215,541 804 48,792 5,023 3,726 18,147 15,351 26,009 97,689
LOAN LOSS RESERVE 2,511 - - - - - - - 2,511
NET LOANS 213,030 804 48,792 5,023 3,726 18,147 15,351 26,009 95,178
FED FUNDS SOLD - - - - - - - - -
TOTAL EARNING ASSETS 287,834 804 48,792 5,023 10,137 23,455 20,977 38,096 140,550
OTHER ASSETS
BUILDING, F&F AND LAND 8,333 - - - - - - - 8,333
OTHER REAL ESTATE 19 - - - - - - - 19
OTHER ASSETS 5,940 - - - - - - - 5,940
TOTAL OTHER ASSETS 14,292 - - - - - - - 14,292
_______ ______ ______ ______ _____ _____ ______ ______ _______
TOTAL ASSETS 312,651 961 48,792 5,023 10,137 23,455 20,977 38,096 165,210
DEMAND DEPOSITS 26,370 - - - - - - - 26,370
_______ _____ ______ ______ ______ ______ ______ ______ ______
TOTAL DEMAND 26,370 - - - - - - - 26,370
28
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 18,030 - - - - - - - 18,030
NOW ACCOUNT 24,585 - - - - - - - 24,585
BUSINESS CHECKING 250 - - - - - - - 250
IMF-MMDA 12,478 - - - - - - - 12,478
FIRST RATE ACCOUNT 14,619 14,619 - - - - - - -
DOGWOOD CLUB 4,921 - - - - - - - 4,921
TOTAL SAVINGS 74,883 14,619 - - - - - - 60,264
TIME DEPOSITS
CD 1-2 MONTHS 5,736 - 703 5,033 - - - - -
CD 3 MONTHS 1,757 - 430 1,061 224 26 15 1 -
CD 4-5 MONTHS 2,290 - 25 2,206 - 59 - - -
CD 6 MONTHS 24,635 - 2,953 4,126 5,415 11,971 170 - -
CD 7-11 MONTHS 1,959 - 196 83 28 1,505 147 - -
CD 12 MONTHS 15,397 - 1,213 2,731 377 2,097 8,972 7 -
CD 13-17 MONTHS 289 - - 14 - 3 161 111 -
CD 18-23 MONTHS 714 - 93 5 94 230 37 255 -
CD 24 MONTHS 10,161 - 52 196 110 3,170 4,007 2,626 -
CD 25-30 MONTHS 2,492 - 20 94 23 102 52 1,443 758
CD 31-59 MONTHS 15,617 - 149 127 85 662 8,327 5,705 562
CD 31-59 MONTHS VARIABLE 87 - - - - - 12 75 -
CD 60 MONTHS 7,178 - 70 37 530 280 980 1,955 3,326
CD 60 MONTHS VARIABLE 1,099 - - - - 47 38 233 781
CD SWEET 16 37,900 - 1,838 2,316 3,211 11,826 14,128 4,581 -
CD 7 MONTH 2,450 - - - 263 2,129 58 - -
IRA-FLOATING 159 159 - - - - - - -
IRA-FIXED 20,897 - 436 772 328 2,788 4,888 3,972 7,713
CHRISTMAS CLUB 389 - - - - - 389 - -
TOTAL TIME 151,206 159 8,178 18,801 10,688 36,895 42,381 20,964 13,140
_______ _____ ______ ______ ______ ______ ______ ______ ______
TOTAL DEPOSITS 252,459 14,778 8,178 18,801 10,688 36,895 42,381 20,964 99,774
SHORT TERM BORROWINGS
FED FUNDS PURCHASED 675 675 - - - - - - -
TT&L 1,000 1,000 - - - - - - -
SECURITIES SOLD-SWEEP 14,682 14,682 - - - - - - -
SECURITIES SOLD-FIXED 6,464 - 2,075 100 - 3,562 446 281 -
FHLB-SHORT TERM 4,400 4,400 -
FHLB-LIBOR INVESTMENT 1,907 - 1,907 - - - - - -
FHLB-LONG TERM 2,108 - - - - - - 2,108
TOTAL SHORT TERM BORR. 31,236 20,757 3,982 100 - 3,562 446 281 2,108
OTHER LIABILITIES
OTHER LIABILITIES 2,417 - - - - - - - 2,417
TOTAL OTHER LIAB. 2,417 - - - - - - - 2,417
TOTAL LIABILITIES 286,112 35,535 12,160 18,901 10,688 40,457 42,827 21,245 104,299
CAPITAL
STOCK, SURPLUS, P.I.C. 6,000 - - - - - - - 6,000
UNREALIZED GAIN (LOSSES) -318 - - - - - - - -318
UNDIVIDED PROFITS 20,857 - - - - - - - 20,857
TOTAL CAPITAL 26,539 - - - - - - - 26,539
_______ ______ ______ ______ _____ ______ ______ ______ ______
TOTAL LIAB. & CAPITAL 312,651 35,535 12,160 18,901 10,688 40,457 42,827 21,245 130,838
GAP (SPREAD) - -34,574 36,632 -13,878 -551 -17,002 -21,850 16,851 34,372
GAP % TOTAL ASSETS - -11.06 11.72 -4.44 -0.18 -5.44 -6.99 5.39 10.99
CUMULATIVE GAP - -34,574 2,058 -11,820 -12,371 -29,373 -51,223 -34,372 -
CUMM. GAP % TOTAL ASSETS - -11.06 0.66 -3.78 -3.96 -9.39 -16.38 -10.99 -
SENSITIVITY RATIO - 0.03 1.04 0.82 0.84 0.75 0.68 0.81 1.00
29
NOTES TO THE GAP REPORT
1. The 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 maturities in various time frames.
3. Demand deposits are placed in the last time frame due
to lack of interest sensitivity. Demand deposits are
considered to be core deposits.
4. 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 the 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 as a percent of
assets is less than 15% positive or negative in all
ranges presented in the Gap Report. The banks net
interest income exposure limit is $150,000. The net
interest income exposure as a percent of unimpaired
capital is established by policy to be no more than
.76%. Currently, the bank's exposure is within this
parameter.
6. FCNB would benefit from a flat rate environment. If
interest rates rise rapidly, net interest income would
be negatively impacted. First Citizens Liquidity would
negatively be affected if interest rates drop due to
the probability of increased loan demand and deposit
run-off. Adequate lines of credit are available to
handle liquidity needs should this occur.
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:
1996 1995 1994 1993 1992
9.94% 9.28% 9.97% 9.01% 9.13%
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
30
capital consists of the allowance for loan and lease losses,
perpetual preferred stock, term subordinated debt, and other
debt and stock instruments.
Bancshares has historically maintained capital in excess of
minimum levels established by the Federal Reserve Board.
The risked-based capital ratio as of 9/30/96 was 14.46%,
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 approved by the Board of
Directors in 1994 provides for the purchase of the company's
common stock to service the Dividend Reinvestment Program.
The Company may 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 and other cash available
at the holding company level. 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 9/30/96.
31
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 13, 1996 /s/Stallings Lipford
Stallings Lipford,
Chairman
Date: November 13, 1996 /s/Jeff Agee
Jeff Agee,
Senior Vice President &
Chief Financial Officer
First Citizens National Bank
(Principal Subsidiary)