UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark One)
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☑
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December
31, 2014
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
___to ___
Commission
file number 0-11709
FIRST CITIZENS BANCSHARES, INC.
(Exact name of
registrant as specified in its charter)
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Tennessee
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62-1180360
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(State or other
jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One First Citizens
Place
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Dyersburg,
Tennessee
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38024
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(Address of
principal executive offices)
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(Zip Code)
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Registrants
telephone number, including area code: (731) 285 - 4410
Securities registered pursuant to
Section 12(b) of the Act:
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Name of Each Exchange
on
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None.
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N/A
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Securities registered pursuant to
Section 12(g) of the Act:
None.
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
☐ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
☐ No þ
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
☑ No
☐
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
☑ No
☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
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Accelerated filer
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Non-accelerated filer þ
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Smaller reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o
No
☑
The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant on June 30, 2014 was approximately $129,315,510
based upon the last known sale price prior to such date.
As of
February 27, 2015, the registrant had 3,836,721 outstanding shares of common
stock and 140,202 outstanding shares of Class A common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS.
General
First Citizens Bancshares, Inc. (First Citizens or the Company) is a
financial holding company incorporated in Tennessee in 1982. Through its
principal bank subsidiary, First Citizens National Bank (FCNB), First
Citizens conducts commercial banking and financial services operations
primarily in West and Middle Tennessee. On October 1, 2014, First Citizens
acquired Southern Heritage Bank which continues to operate as a separate
depository institution. At December 31, 2014, First Citizens and its
subsidiaries had total assets of $1.48 billion and total deposits of $1.21 billion.
First Citizens principal executive offices are located at One First Citizens
Place, Dyersburg, Tennessee 38024 and its telephone number is (731) 285-4410.
First Citizens, headquartered in Dyersburg, Tennessee, is the holding
company for FCNB, Southern Heritage Bank (SHB and together with FCNB, the
Banks), First Citizens (TN) Statutory Trusts III and IV and Southern Heritage
Bancshares Statutory Trust I. The trusts hold the Banks trust preferred debt
and are not consolidated but are accounted for under the equity method in
accordance with generally accepted accounting principles (GAAP).
FCNB is a diversified financial services institution that provides
banking and other financial services to its customers. FCNB provides customary
banking services, such as checking and savings accounts, fund transfers,
various types of time deposits, safe deposit facilities, financing of
commercial transactions and making and servicing both secured and unsecured
loans to individuals, firms and corporations. FCNB is the only community bank
in Tennessee recognized as a preferred lender for the Farm Service Agency of
the U.S. Department of Agriculture (FSA), which provides emergency farm loans
to help producers recover from production and physical losses caused by natural
disasters or quarantine. FCNBs agricultural services include operating loans
as well as financing for the purchase of equipment and farmland. FCNBs
consumer lending department makes direct loans to individuals for personal,
automobile, real estate, home improvement, business and collateral needs. FCNB
typically sells long-term residential mortgages that it originates to the
secondary market without retaining servicing rights. FCNBs commercial lending
operations include various types of credit services for customers.
FCNB has the following subsidiaries:
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First Citizens Financial Plus, Inc., a Tennessee bank service
corporation wholly owned by FCNB, provides licensed brokerage services that
allow FCNB to compete on a limited basis with numerous non-bank entities that
provide such services to First Citizens customer base. The brokerage firm
operates three locations in West Tennessee.
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White and Associates/First Citizens Insurance, LLC was chartered
in the State of Tennessee and is a general insurance agency offering a full
line of insurance products including casualty, life and health, and crop
insurance. FCNB holds a 50% ownership interest in the agency, which is
accounted for using the equity method. The insurance agency operates nine
offices in Northwest Tennessee.
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First Citizens/White and Associates Insurance Company was
organized and existed under the laws of the State of Arizona. Its principal
activity is credit insurance. FCNB held a 50% ownership in the agency, which
was accounted for using the equity method until the entity was liquidated and dissolved
as of September 29, 2014. The dissolution and liquidation of assets did not
have a material impact to the Consolidated Financial Statements for the year
ended December 31, 2014 included in Item 8 of this Annual Report on Form 10-K.
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First Citizens Investments, Inc. was organized and exists under
laws of the State of Nevada. The principal activities of this entity are to
acquire and sell investment securities and to collect income from its
portfolio. First Citizens Investments, Inc. has the following subsidiaries:
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First Citizens Holdings, Inc., a Nevada corporation and
wholly-owned subsidiary of First Citizens Investments, Inc., acquires and sells
certain investment securities, collects income from its portfolio, and owns the
following subsidiary:
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First Citizens Properties, Inc. is a real estate investment trust
organized and existing under the laws of the State of Maryland, the principal
activity of which is to invest in participation interests in real estate loans
made by FCNB and provide FCNB with an alternative vehicle for raising capital.
First Citizens Holdings, Inc. owns 100% of the outstanding common stock and 60%
of the outstanding preferred stock of First Citizens Properties, Inc.
Directors, executive officers and certain employees and affiliates of FCNB own
approximately 40% of the preferred stock which is reported as Noncontrolling
Interest in Consolidated Subsidiaries in the Consolidated Balance Sheets of
First Citizens included in Item 8 of this Annual Report on Form 10-K.
Southern
Heritage Bank is a financial services institution that provides banking
services to its customers. Southern Heritage Bank conducts commercial banking
operations primarily in Bradley County in East Tennessee. Southern Heritage
Bank provides customary banking services, such as checking and savings
accounts, fund transfers, various types of time deposits, safe deposit
facilities, financing of commercial transactions and making and servicing both
secured and unsecured loans to individuals, firms and corporations. Southern
Heritage Banks consumer lending department makes direct loans to individuals
for personal, automobile, real estate, home improvement, business and
collateral needs. Southern Heritage Bank typically sells long-term residential
mortgages that it originates to the secondary market without retaining
servicing rights. Southern Heritage Banks commercial lending operations
include various types of credit services for customers.
The following table sets forth a comparative analysis of key balance
sheet metrics of First Citizens as of December 31, for the years indicated (in
thousands):
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2014
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2013
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2012
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Total assets
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$1,481,438
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$1,174,472
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$1,178,325
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Total deposits
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1,211,506
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968,530
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964,839
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Total net loans
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703,682
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572,418
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541,497
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Total equity capital
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144,510
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112,606
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114,140
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The table below
provides a comparison of First Citizens performance to industry standards
based on information provided by the Federal Reserve. According to the Bank
Holding Company Performance Report as of December 31, 2014 (the most recent
report available as of the date of this Annual Report on Form 10-K), First
Citizens peer group consisted of 343 bank holding companies with assets
totaling $1 billion to $3 billion. The following table presents comparisons of
First Citizens with its peers as indicated in Bank Holding Company Performance
(BHCP) Reports for the years ended December 31 for each of the years indicated:
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2014
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2013
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2012
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First Citizens
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Peer(1)
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First Citizens
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Peer(2)
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First Citizens
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Peer(2)
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Net interest income to average assets
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3.46%
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3.37%
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3.41%
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3.33%
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3.69%
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3.38%
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Net operating income to average assets
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1.08%
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0.91%
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1.19%
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0.88%
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1.27%
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0.79%
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Net loan losses to average total loans
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0.16%
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0.15%
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0.16%
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0.25%
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0.14%
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0.59%
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Tier 1 capital to average assets(3)
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8.92%
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10.11%
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9.40%
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9.94%
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9.17%
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9.74%
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Cash dividends to net income
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36.17%
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23.68%
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33.94%
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23.12%
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32.00%
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25.78%
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___________________
(1)
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Peer information is provided
for December 31, 2014, which is the most recent information available.
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(2)
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For the years ended December
31, 2013 and 2012, First Citizens peer group consisted of approximately 350
bank holding companies with total asset size of $1 to $3 billion.
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(3)
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Tier 1 capital to average
assets is the ratio of core equity capital components to average total
assets.
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First Citizens and
its subsidiaries employed a total of 348 full-time equivalent employees as of
December 31, 2014. First Citizens and its subsidiaries are committed to hiring
and retaining high quality employees to execute First Citizens strategic plan.
First Citizens website address is www.FirstCNB.com. First Citizens makes
its Annual Reports and all amendments to those reports available free of charge
by link on its website on the About Investor Relations webpage as soon as
reasonably practicable. Shareholders may request a copy of the annual report
without charge by contacting Laura Beth Butler, Secretary, First Citizens
Bancshares, Inc., P. O. Box 370, Dyersburg, Tennessee 38025-0370.
First Citizens is an emerging growth company as defined in the
Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply
with certain reduced public company reporting requirements.
Recapitalization
During a special meeting on July 16, 2014, First Citizens shareholders
voted on and approved the First Citizens Charter Amendment authorizing an
additional class of common stock (Class A common stock) to be issued to certain
shareholders of First Citizens. Upon the filing of the First Citizens Charter
Amendment, each share of First Citizens common stock outstanding immediately
prior to such filing owned by a shareholder of record who owned less than 300
shares of such common stock, was, by virtue of the filing of the First Citizens
Charter Amendment and without any action on the part of the holders,
reclassified as Class A common stock, on the basis of one share of Class A common
stock per each share of common stock so reclassified. Each share of First
Citizens common stock outstanding immediately prior to the filing of the First
Citizens Charter Amendment owned by a shareholder of record who owned 300 or
more shares of such common stock was not reclassified and continued to be
classified as common stock. The First Citizens common stock continues to have
unlimited voting rights. Each outstanding share of First Citizens Class A common
stock has no voting rights except as may be required by law.
Merger
On October 1, 2014, the Company completed its previously
announced acquisition of Southern Heritage pursuant to the terms of the Merger
Agreement. In accordance with the Merger Agreement, Southern Heritage merged
with and into the Company, with the Company continuing as the surviving
corporation.
Expansion
First Citizens, through its strategic planning process, intends to seek
profitable opportunities that utilize excess capital and maximize income in
Tennessee. In determining whether to acquire other banking institutions, First
Citizens objective is asset growth and diversification into other market
areas. Management believes acquisitions and de novo branches afford First
Citizens increased economies of scale within operation functions and better
utilization of human resources. First Citizens only pursues an acquisition or
opens a de novo branch if First Citizens board of directors determines it to
be in the best interest of First Citizens and its shareholders.
Competition
The business of
providing financial services is highly competitive. In addition to competing
with other commercial banks in the service area, both FCNB and SHB compete with
savings and loan associations, insurance companies, savings banks, small loan
companies, finance companies, mortgage companies, real estate investment
trusts, certain governmental agencies, credit card organizations, credit unions
and other enterprises. In 1998, federal legislation allowed credit unions to
expand their membership criteria. Expanded membership criteria coupled with
existing tax-exempt status give credit unions a competitive advantage compared
to banks.
Both Banks build
and implement strategic plans and commitments to address competitive factors in
the various markets served. The primary strategic focus is on obtaining and
maintaining profitable customer relationships in all markets the Banks serve.
The markets demand competitive pricing, but the Banks compete on high quality
customer service that will attract and enhance loyal, profitable customers.
Industry surveys have consistently revealed that 65-70% of customers leave
banks because of customer service issues. Accordingly, the Banks are committed
to providing excellent customer service in all markets that they serve as a
means of branding and distinguishing from other financial institutions. The
Banks utilize advertising, including both newspaper and radio, and promotional
activities to support strategic plans.
The Banks offer
a typical mix of interest-bearing transaction, savings and time deposit
products, as well as traditional non-interest bearing deposit accounts. FCNB is
a leader in deposit market share compared to competitors in the Counties of Dyer,
Fayette, Lauderdale, Obion, Tipton and Weakley in Tennessee. FCNB has
consistently been a leader in market share of deposits in its markets for
several years. FCNBs market share has been 19% to 20% in Dyer, Fayette,
Lauderdale, Obion, Tipton and Weakley Counties combined and in excess of 62% in
Dyer County for the last three years. The following market share information
for these counties (banks only, deposits inside of market) is from the Deposit
Market Share Report, as of June 30, 2014, prepared annually by the Federal
Deposit Insurance Corporation (the FDIC) (dollars in thousands):
Bank Name
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# of Offices
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Total Deposits
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Market Share %
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First State Bank
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15
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$ 864,395
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24.29%
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First Citizens National Bank
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13
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714,865
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20.09%
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Bank of Fayette County
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6
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255,155
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7.17%
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Regions Bank
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9
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207,414
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5.83%
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Trustmark National Bank
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5
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181,734
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5.11%
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Bank of Ripley
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4
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171,166
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4.81%
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BancorpSouth Bank
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5
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147,728
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4.15%
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Commercial Bank & Trust
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2
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127,915
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3.59%
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Security Bank
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6
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109,772
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3.08%
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Patriot Bank
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2
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102,465
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2.88%
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Reelfoot Bank
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4
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97,995
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2.75%
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INSOUTH Bank
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2
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89,817
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2.52%
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First South Bank
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2
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75,456
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2.12%
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Clayton Bank & Trust
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4
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75,049
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2.11%
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Bank of Gleason
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1
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66,832
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1.88%
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Bank of Halls
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2
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58,930
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1.66%
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The Lauderdale County Bank
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2
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45,454
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1.28%
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Greenfield Banking Co.
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2
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39,533
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1.11%
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Gates Banking & Trust
Co.
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1
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37,756
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1.06%
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Brighton Bank
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1
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33,695
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0.95%
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Bank Tennessee
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2
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17,294
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0.49%
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All others
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7
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38,165
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1.07%
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Total
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97
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$3,558,585
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100.00%
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FCNB also
competes in the Shelby County and Williamson County markets. Because the size
and composition of these two markets is much larger and more diverse than the
other markets in which FCNB operates, Shelby and Williamson Counties are
excluded from the above table. FCNBs market share in Shelby County was 1.05%
and 1.02% as of June 30, 2014 and 2013, respectively. FCNBs market
share in Williamson County was 0.97% and 1.25% as of June 30, 2014 and 2013,
respectively.
SHB competes in
Bradley County and has been 13% to 14% for the last three years. The following
market share information for this county (banks only, deposits inside of
market) is from the Deposit Market Share Report, as of June 30, 2014, prepared
annually by the FDIC (dollars in thousands):
Bank Name
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# of Offices
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Total Deposits
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Market Share %
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First Tennessee Bank
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4
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$ 265,848
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18.90%
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Southern Heritage Bank
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3
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209,024
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14.86%
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Regions Bank
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4
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200,879
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14.28%
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Bank of Cleveland
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5
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188,792
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13.42%
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Branch Banking & Trust
Co.
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3
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172,150
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12.24%
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SunTrust Bank
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2
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91,726
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6.52%
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CapitalMark Bank & Trust
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1
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79,108
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5.62%
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United Community Bank
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2
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68,511
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4.87%
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FSGBANK
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2
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35,341
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2.51%
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SouthEast Bank
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1
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31,284
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2.22%
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All others
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4
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64,237
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4.56%
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Total
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31
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$1,406,900
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100.00%
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Regulation and Supervision
The following
discussion sets forth certain material elements of the regulatory framework
applicable to the Corporation and the Banks. This discussion is a brief summary
of the regulatory environment in which the Corporation and its subsidiaries
operate and is not designed to be a complete discussion of all statutes and
regulations affecting such operations. Regulation of
financial institutions is intended primarily for the protection of depositors,
the deposit insurance fund and the banking system, and generally is not
intended for the protection of shareholders. Changes in applicable laws,
and their application by regulatory agencies, cannot necessarily be predicted,
but could have a material effect on the business and results of the Corporation
and its subsidiaries.
General
The
Corporation is subject to regulation and supervision by the Board of Governors
of the Federal Reserve System (the Federal Reserve). The Corporation is
required to file annual reports with the Federal Reserve and such other
information as the Federal Reserve may require. The Federal Reserve also
conducts examinations of the Corporation. The Banks are subject to regulation
and supervision by the Office of the Comptroller of the Currency (the OCC).
The Banks are required to file annual reports with the OCC and such other
information as the OCC may require. The OCC also conducts examinations of the
Banks.
The Bank Holding Corporation Act requires every bank
holding company to obtain the prior approval of the Federal Reserve before:
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it may acquire direct or indirect
ownership or control of any voting shares of any other bank holding company if,
after the acquisition, the bank holding company will directly or indirectly own
or control more than 5% of the voting shares of the other bank holding company;
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it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after the acquisition,
the bank holding company will directly or indirectly own or control more than
5% of the voting shares of the bank;
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it or any of its subsidiaries, other
than a bank, may acquire all or substantially all of the assets of any bank; or
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it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides
that the Federal Reserve may not approve any transaction that would result in a
monopoly or that would substantially lessen competition in the banking business, unless the
public interest in meeting the needs of the communities to be served outweighs
the anticompetitive effects. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding companies and
banks involved and the convenience and needs of the communities to be served.
Consideration of financial resources generally focuses on capital adequacy, and consideration of
convenience and needs issues focuses, in part, on the performance under the Community Reinvestment
Act of 1977, both of which are discussed below in more detail.
Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval
prior to any person or company acquiring
control of a bank holding company. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of a bank holding company. Control is also presumed to exist,
although rebuttable, if a person or company acquires 10% or more, but less than
25%, of any class of voting securities and either:
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the bank holding company has registered securities under Section
12 of the Exchange Act of 1934, as amended (Exchange Act); or
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no other person owns a greater percentage of that class of voting
securities immediately after the transaction.
The
Corporations common stock is registered under Section 12 of the Exchange Act.
The regulations provide a procedure for challenging rebuttable presumptions of
control.
The Bank Holding Company Act generally prohibits a bank
holding company from engaging in activities other than banking, managing or
controlling banks or other permissible subsidiaries and acquiring or retaining
direct or indirect control of any company engaged in any activities other than
activities closely related to banking or managing or controlling banks. In
determining whether a particular activity is permissible, the Federal Reserve
considers whether performing the activity can be expected to produce benefits
to the public that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Federal Reserve has the power to
order a bank holding company or its subsidiaries to terminate any activity or
control of any subsidiary when the continuation of the activity or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that bank holding company.
The Banks are
incorporated under the laws of the United States and is subject to the
applicable provisions of the National Bank Act and regulations promulgated by
the OCC. The Banks are subject to the supervision of the OCC and to regular
examinations by that department. Deposits in the Banks are insured by FDIC
and, therefore, the Banks are subject to the provisions of the Federal Deposit
Insurance Act.
Federal
Reserve policy historically has required bank holding companies to act as a
source of strength to their bank subsidiaries and to commit capital and
financial resources to support those subsidiaries. The Dodd-Frank Wall Street
Reform and Consumer Protection Act (the Dodd-Frank Act) codifies this policy
as a statutory requirement. This support may be required by the Federal Reserve
at times when the Corporation might otherwise determine not to provide it. In
addition, if a bank holding company commits to a federal bank regulator that it
will maintain the capital of its bank subsidiary, whether in response to the
Federal Reserves invoking its source-of-strength authority or in response to
other regulatory measures, that commitment will be assumed by the bankruptcy
trustee and the bank will be entitled to priority payment in respect of that
commitment, ahead of other creditors of the bank holding company.
In addition,
the Corporation is required to file certain reports with, and otherwise comply
with the rules and regulations of, the U.S. Securities and Exchange Commission
(the SEC) under federal securities laws.
The Dodd-Frank Act
The Dodd-Frank
Act, enacted in 2010, significantly restructured financial regulation in the
United States, including through the creation of a new resolution authority,
mandating higher capital and liquidity requirements, requiring banks to pay
increased fees to regulatory agencies, and through numerous other provisions
intended to strengthen the financial services sector.
The Dodd-Frank
Act established the Consumer Financial Protection Bureau (CFPB), which has
extensive regulatory and enforcement powers over consumer financial products
and services, and the Financial Stability Oversight Council, which has
oversight authority for monitoring and regulating systemic risk. In addition,
the Dodd-Frank Act altered the authority and duties of the federal banking and
securities regulatory agencies, implemented certain corporate governance
requirements for all public companies, including financial institutions, with
regard to executive compensation, proxy access by shareholders, and certain
whistleblower provisions, and restricted certain proprietary trading and hedge
fund and private equity activities of banks and their affiliates. The
Dodd-Frank Act also required the issuance of numerous implementing regulations,
many of which have not yet been issued.
In January
2013, the CFPB issued final regulations governing mainly consumer mortgage
lending. One rule imposes additional requirements on lenders, including rules
designed to require lenders to ensure borrowers ability to repay their
mortgage. The CFPB also finalized a rule on escrow accounts for higher priced
mortgage loans and a rule expanding the scope of the high-cost mortgage
provision in the Truth in Lending Act. The CFPB also issued final rules
implementing provisions of the Dodd-Frank Act that relate to mortgage
servicing. In November 2013, the CFPB issued a final rule on integrated
mortgage disclosures under the Truth in Lending Act and the Real Estate
Settlement Procedures Act, compliance with which is required by August 1,
2015.
The Dodd-Frank
Act authorizes national and state banks to establish de novo branches in other
states to the same extent as a bank chartered by that state would be so
permitted. Previously, banks could only establish branches in other states if
the host state expressly permitted out-of-state banks to establish branches in
that state. Accordingly, banks are now able to enter new markets more freely.
Recently, the
CFPB and banking regulatory agencies have increasingly used a general consumer
protection statute to address unethical or otherwise bad business practices
that may not necessarily fall directly under the purview of a specific banking
or consumer finance law. Prior to the Dodd-Frank Act, there was little formal
guidance to provide insight to the parameters for compliance with the unfair
or deceptive acts or practices (UDAP) law. However, the UDAP provisions have
been expanded under the Dodd-Frank Act to apply to unfair, deceptive or
abusive acts or practices, which has been delegated to the CFPB for
supervision.
Many aspects
of the Dodd-Frank Act are subject to further rulemaking and will take effect
over several years. The overall financial impact on the Corporation and its
subsidiaries or the financial services industry generally cannot be anticipated
at this time.
Dividends
The
Corporation is a legal entity that is separate and distinct from its
subsidiaries. The primary source of funds for dividends paid to the
Corporations shareholders are dividends paid to the Corporation by the Banks.
Federal law limits the amount of dividends that the Banks may pay to the
Corporation without regulatory approval. The Banks are required by to obtain
the prior approval of the OCC for payments of dividends if the total of all
dividends declared by its board of directors in any calendar year will exceed
(i) the total of the Banks retained net income for that year, plus (ii) the
Banks retained net income for the preceding two years. The OCC also has the
authority to prohibit the Banks from engaging in business practices that the
OCC considers to be unsafe or unsound, which, depending on the financial
condition of the Banks, could include the payment of dividends.
In addition,
the Federal Reserve has the authority to prohibit the payment of dividends by a
bank holding company if its actions constitute unsafe or unsound practices. The
Federal Reserve has issued a policy statement, Supervisory Release 09-4, on the
payment of cash dividends by bank holding companies, which outlines the Federal
Reserves view that a bank holding company that is experiencing earnings
weaknesses or other financial pressures should not pay cash dividends that
exceed its net income, that are inconsistent with its capital position, or that
could only be funded in ways that weaken its financial health, such as by
borrowing or selling assets. The Federal Reserve has indicated that, in some
instances, it may be appropriate for a bank holding company to eliminate its
dividends.
Capital
The Federal Reserve has issued risk-based capital ratio and
leverage ratio guidelines for bank holding companies. The risk-based capital
ratio guidelines establish a systematic analytical framework that:
-
makes regulatory capital requirements
sensitive to differences in risk profiles among banking organizations;
-
takes off-balance sheet exposures into
explicit account in assessing capital adequacy; and
-
minimizes disincentives to holding
liquid, low-risk assets.
Under
the guidelines and related policies, banks and bank holding companies must
maintain capital sufficient to meet both a risk-based asset ratio test and a
leverage ratio test on a consolidated basis. The risk-based ratio is determined
by allocating assets and specified off-balance sheet commitments into four weighted
categories, with higher weighting assigned to
categories perceived as representing greater risk. The risk-based ratio
represents capital divided by total risk-weighted assets. The leverage ratio is
core capital divided by total assets adjusted as specified in the guidelines.
Generally, under the applicable guidelines, a financial
institutions capital is divided into two tiers. Total capital is Tier 1 plus
Tier 2 capital. These two tiers are:
-
Tier 1, or core capital, that
includes total equity plus qualifying capital securities and minority
interests, excluding unrealized gains and losses accumulated in other
comprehensive income, and non-qualifying intangible and servicing assets; and
-
Tier 2, or supplementary capital,
includes, among other things, cumulative and limited-life preferred stock,
mandatory convertible securities, qualifying subordinated debt, and the
allowance for credit losses, up to 1.25% of risk-weighted assets.
The
Federal Reserve and the other federal banking regulators require that all
intangible assets (net of deferred tax), except originated or purchased
mortgage-servicing rights, non-mortgage servicing assets, and purchased credit
card relationships, be deducted from Tier 1 capital. However, the total amount
of these items included in Total capital cannot exceed 100% of an institutions
Tier 1 capital.
Under the risk-based capital guidelines existing prior to
January 1, 2015, financial institutions were required to maintain a risk-based
ratio of 8%, with 4% being Tier 1 capital. The appropriate regulatory authority
may set higher capital requirements when they believe an institutions
circumstances warrant.
Under the leverage guidelines existing prior to January 1,
2015, financial institutions are required to maintain a leverage ratio of at
least 3%. The minimum ratio is applicable only to financial institutions that
meet certain specified criteria, including excellent asset quality, high
liquidity, low interest rate risk exposure, and the highest regulatory rating.
Financial institutions not meeting these criteria are required to maintain a
minimum Tier 1 leverage ratio of 4%.
The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a tangible Tier 1 capital
leverage ratio (deducting all intangibles) and other indicators of capital
strength in evaluating proposals for expansion or new activities.
Failure to meet applicable capital guidelines could subject
the financial institution to a variety of enforcement remedies available to the
federal regulatory authorities. These include limitations on the ability to pay
dividends, the issuance of a capital directive to increase capital, and the
termination of deposit insurance by the FDIC. In addition, the financial
institution could be subject to the measures described below under Prompt
Corrective Action as applicable to under-capitalized institutions.
New
Capital Rules
On July 2,
2013, the Federal Reserve approved the final rule for BASEL III capital
requirements for all bank holding companies chartered in the United States and
banks that are members of the Federal Reserve System. The rule implements in
the United States certain of the Basel III regulatory capital reforms from the
Basel Committee on Banking Supervision and certain changes required by the
Dodd-Frank Act. The major provisions of the new rule applicable to the
Corporation and the Banks are:
-
The new rule implements higher minimum capital requirements,
includes a new common equity Tier 1 capital requirement, and establishes
criteria that instruments must meet in order to be considered common equity
Tier 1 capital, additional Tier 1 capital, or Tier 2 capital. These
enhancements both improve the quality and increase the quantity of capital
required to be held by banking organizations, better equipping the United
States banking system to deal with adverse economic conditions.
-
The new minimum capital to risk-weighted assets requirements are
a common equity Tier 1 capital ratio of 4.5% and a Tier 1 capital ratio of 6.0%
which is an increase from 4.0%, and a total capital ratio that remains at 8.0%.
The minimum leverage ratio (Tier 1 capital to total assets) is 4.0%.
-
The new rule improves the quality of capital by implementing
changes to the definition of capital. Among the most important changes are
stricter eligibility criteria for regulatory capital instruments that would
disallow the inclusion of instruments such as trust preferred securities in
Tier 1 capital going forward, and new constraints on the inclusion of minority
interests, mortgage-servicing assets, deferred tax assets, and certain
investments in the capital of unconsolidated financial institutions. In
addition, the new rule requires that most regulatory capital deductions be made
from common equity Tier 1 capital.
-
Under the new rule, in order to avoid limitations on capital
distributions, including dividend payments and certain discretionary bonus
payments to executive officers, a banking organization must hold a capital
conservation buffer composed of common equity Tier 1 capital above its minimum risk-based
capital requirements. This buffer will help to ensure that banking
organizations conserve capital when it is most needed, allowing them to better
weather periods of economic stress. The buffer is measured relative to risk
weighted assets. Phase-in of the capital conservation buffer requirements will
begin on January 1, 2016. A banking organization with a buffer greater than
2.5% would not be subject to limits on capital distributions or discretionary
bonus payments; however, a banking organization with a buffer of less than 2.5%
would be subject to increasingly stringent limitations as the buffer approaches
zero. The new rule also prohibits a banking organization from making
distributions or discretionary bonus payments during any quarter if its eligible
retained income is negative in that quarter and its capital conservation buffer
ratio was less than 2.5% at the beginning of the quarter. When the new rule is
fully phased in, the minimum capital requirements plus the capital conservation
buffer will exceed the prompt corrective action well-capitalized thresholds.
-
The new rule also increases the risk weights for past-due loans,
certain commercial real estate loans, and some equity exposures, and makes
selected other changes in risk weights and credit conversion factors.
The transition period
for implementation of Basel III is January 1, 2015, through December 31, 2018.
Prompt
Corrective Action
The Federal Deposit Insurance Corporation Improvement Act
of 1991, known as FDICIA, requires federal banking regulatory authorities to
take prompt corrective action with respect to depository institutions that do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well-capitalized, adequately-capitalized, under-capitalized,
significantly under-capitalized, and critically under-capitalized.
An institution is deemed to be:
-
well-capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio
of 6% or greater (8% after January 1, 2015), a Tier 1 leverage ratio of 5% or
greater, and, after January 1, 2015, a common equity Tier 1 capital ratio of
6.5% or greater, and is not subject to a regulatory order, agreement, or
directive to meet and maintain a specific capital level for any capital
measure;
-
adequately-capitalized if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater (6% after January 1, 2015), generally, a Tier 1 leverage
ratio of 4% or greater, and, after January 1, 2015, a common equity Tier 1
capital ratio of 4.5% or greater, and the institution does not meet the
definition of a well-capitalized institution;
-
under-capitalized if it does not meet
one or more of the adequately-capitalized tests;
-
significantly under-capitalized if it
has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% (less than 4% after January 1, 2015), a Tier
1 leverage ratio that is less than 3%, and, after January 1, 2015, a common
equity Tier 1 capital ratio that is less than 3%; and
-
critically under-capitalized if it
has a ratio of tangible equity, as defined in the regulations, to total assets
that is equal to or less than 2%.
Throughout
2014, the Banks regulatory capital ratios were in excess of the levels
established for well-capitalized institutions.
FDICIA generally prohibits a depository institution from
making any capital distribution, including payment of a cash dividend or paying
any management fee to its holding company, if the depository institution would
be under-capitalized after such payment. Under-capitalized institutions are
subject to growth limitations and are required by the appropriate federal
banking agency to submit a capital restoration plan. If any depository
institution subsidiary of a holding company is required to submit a capital
restoration plan, the holding company would be required to provide a limited
guarantee regarding compliance with the plan as a condition of approval of such
plan.
If an under-capitalized institution fails to submit an
acceptable plan, it is treated as if it is significantly under-capitalized.
Significantly under-capitalized institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately-capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks.
Critically under-capitalized institutions may not,
beginning 60 days after becoming critically under-capitalized, make any
payment of principal or interest on their subordinated debt. In addition,
critically under-capitalized institutions are subject to appointment of a
receiver or conservator within 90 days of becoming so classified.
Under FDICIA, a depository institution that is not
well-capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market. As previously stated, the Banks are well-capitalized and the FDICIA
brokered deposit rule did not adversely affect its ability to accept brokered
deposits. The Banks had approximately $4.9 million of such brokered deposits at
December 31, 2014.
Interstate
Banking and Branching Legislation
Federal law allows banks to establish and operate a de novo
branch in a state other than the banks home state if the law of the state
where the branch is to be located would permit establishment of the branch if
the bank were chartered by that state, subject to standard regulatory review
and approval requirements. Federal law also allows the Banks to acquire an
existing branch in a state in which the banks are not headquartered and does
not maintain a branch if the OCC approves the branch or acquisition, and if the
law of the state in which the branch is located or to be located would permit
the establishment of the branch if the banks were chartered by that state.
Once a bank has established branches in a state through an
interstate merger transaction or through de novo branching, the bank may then
establish and acquire additional branches within that state to the same extent
that a state chartered bank is allowed to establish or acquire branches within
the state.
Under the Bank Holding Company Act, a bank holding company
may not directly or indirectly acquire ownership or control of more than 5% of
the voting shares or substantially all of the assets of any bank holding
company or bank or merge or consolidate with another bank holding company without
the prior approval of the Federal Reserve. Current federal law authorizes
interstate acquisitions of banks and bank holding companies without geographic
limitation. Furthermore, a bank headquartered in one state is authorized to
merge with a bank headquartered in another state, as long as neither of the
states have opted out of such interstate merger authority prior to such date,
and subject to any state requirement that the target bank shall have been in
existence and operating for a minimum period of time, not to exceed five years,
and subject to certain deposit market-share limitations.
FDIC
Insurance
The deposits of the Banks are insured by the Deposit
Insurance Fund (the DIF), which the FDIC administers. The Dodd-Frank Act
permanently increased deposit insurance on most accounts to $250,000. To fund
the DIF, FDIC-insured banks are required to pay deposit insurance assessments
to the FDIC. For institutions like the Banks with less than $10 billion in
assets, the amount of the assessment is based on its risk classification. The
higher an institutions risk classification, the higher its rate of assessments
(on the assumption that such institutions pose a greater risk of loss to the
DIF). An institutions risk classification is assigned based on its capital
levels and the level of supervisory concern that the institution poses to the
regulators. In addition, the FDIC can impose special assessments in certain
instances.
In addition, all institutions with deposits insured by the
FDIC must pay assessments to fund interest payments on bonds issued by the
Financing Corporation, a mixed-ownership government corporation established as
a financing vehicle for the Federal Savings & Loan Insurance Corporation.
The assessment rate for the first quarter of fiscal 2015 is 1.28% of insured
deposits and is adjusted quarterly. These assessments will continue until the
bonds mature in 2019.
The FDIC may terminate the deposit insurance of any insured
depository institution, including the Banks, if it determines after a hearing
that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. If the FDIC terminates an institutions deposit insurance, accounts
insured at the time of the termination, less withdrawals, will continue to be
insured for a period of six months to two years, as determined by the FDIC.
Affiliate
Transactions
The Banks are subject to Regulation W, which
comprehensively implements statutory restrictions on transactions between a
bank and its affiliates. Regulation W combines the Federal Reserves
interpretations and exemptions relating to Sections 23A and 23B of the Federal
Reserve Act. Regulation W and Section 23A place limits on the amount of
loans or extensions of credit to, investments in, or certain other transactions
with affiliates, and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. In general, the Banks
affiliates are the Corporation and its non-bank subsidiaries.
Regulation W and Section 23B prohibit, among other
things, a bank from engaging in certain transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
the bank, as those prevailing at the time for comparable transactions with
non-affiliated companies.
The Banks are also subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders and their related interests. Such extensions of credit must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties
and must not involve more than the normal risk of repayment or present other
unfavorable features.
The
Community Reinvestment Act
The Community
Reinvestment Act of 1977 (CRA) and its implementing regulations provide an
incentive for regulated financial institutions to meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The regulations provide that the appropriate regulatory
authority will assess reports under CRA in connection with applications for
establishment of domestic branches, acquisitions of banks or mergers involving
bank holding companies. An unsatisfactory rating under CRA may serve as a basis
to deny an application to acquire or establish a new bank, to establish a new
branch or to expand banking services. As of December 31, 2014, the Banks had a
satisfactory rating under the CRA.
Patriot Act
The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as
extended and revised by the PATRIOT Improvement and Reauthorization Act of 2005
(the Patriot Act), requires each financial institution to: (i) establish an
anti-money laundering program; (ii) establish due diligence policies,
procedures and controls with respect to its private banking accounts and
correspondent banking accounts involving foreign individuals and certain
foreign financial institutions; and (iii) avoid establishing, maintaining,
administering or managing correspondent accounts in the United States for, or
on behalf of, foreign financial institutions that do not have a physical
presence in any country. The Patriot Act also requires that financial institutions
follow certain minimum standards to verify the identity of customers, both
foreign and domestic, when a customer opens an account. In addition, the
Patriot Act contains a provision encouraging cooperation among financial
institutions, regulatory authorities and law enforcement authorities with
respect to individuals, entities and organizations engaged in, or reasonably
suspected of engaging in, terrorist acts or money laundering activities. Federal banking regulators are required, when reviewing
bank holding company acquisition and bank merger applications, to take into
account the effectiveness of the anti-money laundering activities of the
applicants.
Consumer Privacy and Other Consumer Protection Laws
The Banks, like all other financial institutions,
are required to maintain the privacy of its customers non-public, personal
information. Such privacy requirements direct financial institutions to:
-
provide notice to
customers regarding privacy policies and practices;
-
inform customers
regarding the conditions under which their non-public personal information may
be disclosed to non-affiliated third parties; and
-
give customers an
option to prevent disclosure of such information to non-affiliated third
parties.
Under the Fair and Accurate Credit Transactions
Act of 2003, the Banks customers may also opt out of information sharing
between and among the Banks and its affiliates.
The Banks are also subject, in
connection with its deposit, lending and leasing activities, to numerous
federal and state laws aimed at protecting consumers, including the Home
Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Equal
Credit Opportunity Act, the Truth in Lending Act, the Truth-in-Savings Act, the Fair Housing Act, the
Fair Credit Reporting Act, the Electronic Funds Transfer Act, the Currency and
Foreign Transactions Reporting Act, the National Flood Insurance Act, the Flood
Protection Act, the Bank Secrecy Act, laws and regulations governing unfair,
deceptive, and/or abuse acts and practices, the Servicemembers Civil Relief
Act, the Housing and Economic Recovery Act, and the Credit Card Accountability
Act, among others, as well as various state laws.
Incentive Compensation
In 2010, the Federal Reserve issued guidance on
incentive compensation policies intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive risk-taking. The
guidance, which covers all employees that have the ability to materially affect
the risk profile of an organization, either individually or as part of a group,
is based upon the key principles that a banking organizations incentive
compensation arrangements should (i) provide incentives that do not encourage
risk-taking beyond the organizations ability to effectively identify and
manage risks, (ii) be compatible with effective internal controls and risk
management, and (iii) be supported by strong corporate governance, including
active and effective oversight by the organizations board of directors.
Any deficiencies in compensation practices that are
identified may be incorporated into the organizations supervisory ratings,
which can affect its ability to make acquisitions or perform other actions. The
guidance also provides that enforcement actions may be taken against a banking
organization if its incentive compensation arrangements or related risk-management
control or governance processes pose a risk to the organizations safety and
soundness and the organization is not taking prompt and effective measures to
correct the deficiencies.
The federal banking agencies have proposed
rule-making implementing provisions of the Dodd-Frank Act to prohibit
incentive-based compensation plans that expose covered financial institutions
to inappropriate risks. Covered financial institutions are institutions that
have over $1 billion in assets and offer incentive-based compensation programs.
If adopted, the proposed rules would require incentive-based compensation
plans:
-
to provide incentives that do
not encourage risk-taking beyond the organizations ability to effectively
identify and manage risks;
-
be compatible with effective
internal controls and risk management, and
-
be supported by strong corporate
governance, including active and effective oversight by the organizations
board of directors and appropriate policies, procedures and monitoring.
The scope and content of banking regulators policies on
executive compensation are continuing to develop and are likely to continue
evolving in the near future. It cannot be determined at this time whether
compliance with such policies will adversely affect the Corporations ability
to hire, retain and motivate its key employees.
Sarbanes-Oxley
The Sarbanes-Oxley Act of 2002 is applicable to all
companies with equity or debt securities registered under the Exchange. In
particular, the Sarbanes-Oxley Act established: (i) requirements for audit
committees, including independence, expertise and responsibilities; (ii)
certification and related responsibilities regarding financial statements for
the Chief Executive Officer and Chief Financial Officer of the reporting Corporation;
(iii) standards for auditors and regulation of audits; (iv) disclosure and
reporting obligations for the reporting Corporation and its directors and
executive officers; and (v) civil and criminal penalties for violation of the
securities laws.
Effect of Governmental Policies
The Corporation and the Banks are affected by the
policies of regulatory authorities, including the Federal Reserve, the FDIC,
and the OCC. An important function of the Federal Reserve is to regulate the
national money supply. Among the instruments of monetary policy used by the
Federal Reserve are: (i) purchases and sales of U.S. government and other
securities in the marketplace; (ii) changes in the discount rate, which is the
rate any depository institution must pay to borrow from the Federal Reserve;
(iii) changes in the reserve requirements of depository institutions; and (iv)
indirectly, changes in the federal funds rate, which is the rate at which
depository institutions lend money to each other overnight. These instruments are
intended to influence economic and monetary growth, interest rate levels, and
inflation.
The monetary policies of the Federal Reserve and
other governmental policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so
in the future. Because of changing conditions in the national and international
economy and in the money markets, as well as the result of actions by monetary
and fiscal authorities, it is not possible to predict with certainty future
changes in interest rates, deposit levels, loan demand, or the business and
results of operations of the Corporation and the Banks, or whether changing
economic conditions will have a positive or negative effect on operations and
earnings.
Other Proposals
Bills occasionally are introduced in the United
States Congress, and regulations occasionally are proposed by regulatory
agencies, any of which could affect the Companys businesses, financial
results, and financial condition. Generally it cannot be predicted whether or
in what form any particular proposals will be adopted or the extent to which
the Corporation and the Banks may be affected.
ITEM 1A. RISK FACTORS.
Information
contained herein includes forward-looking statements with respect to the
beliefs, plans, risks, goals and estimates of the Company. Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant banking, economic, and competitive
uncertainties, many of which are beyond managements control. When used in
this discussion, the words anticipate, project, expect, believe,
should, will, intend, is likely, going forward, could, may and
other expressions are intended to identify forward-looking statements. These
forward-looking statements are within the meaning of section 27A of the
Securities Act of 1933, as amended (the Securities Act), and section 21E of
the Exchange Act. Such statements may include, but are not limited to, capital
resources, strategic planning, acquisitions or de novo branching, ability to
meet capital guidelines, legislation and governmental regulations affecting
financial services companies, construction of new branch locations, dividends,
critical accounting policies, allowance for loan losses, fair value estimates,
goodwill, occupancy and depreciation expense, held-to-maturity securities,
available-for-sale securities, trading securities, cash flows, core deposit
intangibles, diversification in the real estate loan portfolio, interest
income, maturity of loans, loan impairment, loan ratings, charge-offs, other
real estate owned, maturity and re-pricing of deposits, borrowings with call
features, dividend payout ratio, off-balance sheet arrangements, the impact of
recently issued accounting standards, changes in funding sources, liquidity,
interest rate sensitivity, net interest margins, debt securities, non-accrual
status of loans, contractual maturities of mortgage-backed securities and
collateralized mortgage obligations, other-than-temporary impairment of
securities, amortization expense, deferred tax assets, independent appraisals
for collateral, property enhancement or additions, efficiency ratio, ratio of
assets to employees, net income, changes in interest rates, loan policies,
categorization of loans, maturity of Federal Home Loan Bank (FHLB) borrowings
and the effectiveness of internal control over financial reporting.
Forward-looking
statements are based upon information currently available and represent
managements expectations or predictions of the future. As a result of risks
and uncertainties involved, actual results could differ materially from such
forward-looking statements. The potential factors that could affect the
Companys results include but are not limited to:
-
Changes in general economic and business conditions;
-
Changes in market rates and prices of securities, loans, deposits
and other financial instruments;
-
Changes in legislative or regulatory developments affecting
financial institutions in general, including changes in tax, banking,
insurance, securities or other financial service related laws;
-
Changes in government fiscal and monetary policies;
-
The ability of the Company to provide and market competitive
products and services;
-
Concentrations within the loan portfolio;
-
Fluctuations in prevailing interest rates and the effectiveness
of the Companys interest rate hedging strategies;
-
The Companys ability to maintain credit quality;
-
The effectiveness of the Companys risk monitoring systems;
-
The ability of the Companys borrowers to repay loans;
-
The availability of and costs associated with maintaining and/or
obtaining adequate and timely sources of liquidity;
-
Geographic concentration of the Companys assets and
susceptibility to economic downturns in that area;
-
The ability of the Company to attract, train and retain qualified
personnel;
-
Changes in consumer preferences; and
-
Other factors generally understood to affect financial results of
financial services companies.
The Company undertakes no obligation to update its
forward-looking statements to reflect events or circumstances that occur after
the date of this Annual Report on Form 10-K.
Changes in
interest rates could have an adverse effect on First Citizens earnings.
First Citizens profitability is in part a function of interest rate
spread, or the difference between interest rates earned on investments, loans
and other interest-earning assets and the interest rates paid on deposits and
other interest-bearing liabilities. Interest rates are largely driven by
monetary policies set by the Federal Open Market Committee (FOMC) and trends
in the prevailing market rate of interest embodied by the yield curve. The FOMC
establishes target rates of interest to influence the cost and availability of
capital and promote national economic goals. Rates remained at a historical low
range of 0.00% to 0.25% through the end of 2014. In March 2015, the FOMC
indicated that rates of 0.00% to 0.25% remain appropriate. The yield curve is a
representation of the relationship between short-term interest rates to
longer-term debt maturity rates. Currently, the yield curve is fairly steep as
short-term rates continue at historic lows. As of December 31, 2014, FCNB was
liability sensitive in terms of interest rate risk exposure, meaning that FCNB
will likely experience margin compression when federal funds rates increase. In
other words, upward pressure on deposit interest rates will outpace increases
in the interest rates on interest-earning assets. Deposits are currently priced
at historically low levels and are likely to reprice at a faster pace than
interest-earning assets when the rate environment begins rising. The majority
of variable-rate loans are priced at floors that will require significant
increases in federal fund and prime rates before loan yields increase.
If the rate of interest paid on deposits and other borrowings increases
more than the rate of interest earned on loans and other investments, First
Citizens net interest income and, therefore, earnings could be adversely
affected. Earnings could also be adversely affected if the rates on loans and
other investments fall more quickly than those on deposits and other
borrowings. While management takes measures to guard against interest rate risk,
there can be no assurance that such measures will be effective in minimizing
the exposure to interest rate risk. A sudden and significant increase in the
market rate of interest could have a material adverse effect on the First
Citizens financial condition and earnings.
First Citizens is subject to credit quality risks and First Citizens
credit policies may not be sufficient to avoid losses.
First Citizens is subject to the risk of losses resulting from the
failure of borrowers, guarantors and related parties to pay interest and
principal amounts on loans. Although First Citizens maintains credit policies
and credit underwriting, monitoring and collection procedures that management
believes are sufficient to manage this risk, these policies and procedures may
not prevent losses, particularly during periods in which the local, regional or
national economy suffers a general decline. If a large number of borrowers fail
to repay their loans, First Citizens financial condition and results of
operations may be adversely affected.
If First Citizens allowance for loan losses
becomes inadequate, First Citizens financial condition and results of
operations could be adversely affected.
First Citizens maintains an allowance for loan losses that management
believes is a reasonable estimate of known and inherent potential losses in its
loan portfolio. Management uses various assumptions and judgments to evaluate
on a quarterly basis the adequacy of the allowance for loan losses in
accordance with GAAP as well as regulatory guidelines. The amount of future
losses is susceptible to changes in economic, operating and other conditions,
as well as changes in interest rates, most of which are beyond First Citizens
control, and these losses may exceed current estimates. Although First Citizens
believes the allowance for loan losses is a reasonable estimate of known and
inherent potential losses in its loan portfolio, First Citizens cannot fully
predict such potential losses or that its loan loss allowance will be adequate
in the future. Excessive loan losses could have an adverse effect on First
Citizens financial performance.
Federal and state regulators periodically review First Citizens
allowance for loan losses and may require First Citizens to increase its
provision for loan losses or recognize further loan charge-offs, based on
judgments different than those of its management. Any increase in the amount of
First Citizens provision or loans charged-off as required by these regulatory
agencies could have an adverse effect on First Citizens results of operations.
First Citizens no longer has reporting
obligations pursuant to the Exchange Act and it cannot be certain if the less
publicly available information will make First Citizens stock trade less
frequently and be less attractive to investors.
First Citizens no longer has reporting obligations pursuant to the
Exchange Act, which will result in less publicly available information about
First Citizens and could cause its stock to trade less frequently and be less
attractive to investors.
First Citizens is geographically concentrated
in West Tennessee, and changes in local economic conditions may impact its
profitability.
First Citizens operates primarily in West Tennessee and the majority of
all loan customers and most deposit and other customers live or have operations
in this area. Accordingly, First Citizens success depends significantly upon
growth in population, income levels, deposits, housing starts and continued
attraction of business ventures to this area. First Citizens profitability is
impacted by changes in general economic conditions in this market. First
Citizens management remains concerned about unemployment levels and economic
conditions in its rural markets. Additionally, unfavorable local or national
economic conditions could reduce First Citizens growth rate, affect the
ability of its customers to repay their loans and generally affect First
Citizens financial condition and results of operations.
First Citizens is less able than larger institutions to spread the risks
of unfavorable local economic conditions across a large number of diversified
economies. Moreover, First Citizens is unable to give assurance that it will
benefit from any market growth or favorable economic conditions in its primary
market areas if they do occur.
Earnings could be
adversely affected if values of other real estate owned decline.
First Citizens is subject to the risk of losses from the liquidation
and/or valuation adjustments on other real estate owned. First Citizens owns approximately
74 properties totaling $5.7 million in other real estate owned as of December
31, 2014. Other real estate owned is valued at the lower of cost or fair market
value less cost to sell. Fair market values are based on independent appraisals
for properties valued at $50,000 or greater and appraisals are updated
annually. First Citizens may incur future losses on these properties if
economic and real estate market conditions result in declines in the fair
market value of these properties.
If financial market conditions worsen or First Citizens loan demand
increases significantly, First Citizens liquidity position could be adversely
affected. First Citizens may be required to rely on secondary sources of
liquidity to meet withdrawal needs or fund operations, and there can be no
assurance that these sources will be sufficient to meet future liquidity
demands.
First Citizens relies on dividends from the Banks as its primary source
of funds. The Banks primary sources of funds are client deposits, loan
repayments and proceeds from the sale or maturity of securities. While
scheduled loan repayments have historically been a relatively stable source of
funds, they are susceptible to the inability of borrowers to repay the loans.
The ability of borrowers to repay loans can be adversely affected by a number
of factors, including changes in economic conditions, adverse trends or events
affecting business industry groups, reductions in real estate values or
markets, business closings or lay-offs, natural disasters and national or
international instability. Additionally, deposit levels may be affected by a
number of factors, including rates paid by competitors, general interest rate
levels, regulatory capital requirements, returns available to clients on
alternative investments and general economic conditions. Accordingly, First
Citizens may be required from time to time to rely on secondary sources of
liquidity to meet withdrawal demands or otherwise fund operations. Such sources
include FHLB advances, sales of securities and loans, and federal funds lines
of credit from correspondent banks, as well as out-of-market time deposits.
While First Citizens believes that these sources are currently adequate, there
can be no assurance they will be sufficient to meet future liquidity demands,
particularly if First Citizens continues to grow and experience increasing loan
demand. First Citizens may be required to slow or discontinue loan growth,
capital expenditures or other investments or liquidate assets should such
sources not be adequate.
Market conditions could adversely affect
First Citizens ability to obtain additional capital on favorable terms should
it need it.
First Citizens business strategy calls for continued growth. First
Citizens anticipates that it will be able to support this growth through the
generation of additional deposits at new branch locations, as well as through
returns realized as a result of investment opportunities. However, First
Citizens may need to raise additional capital in the future to support
continued growth and maintain adequate capital levels. First Citizens may not
be able to obtain additional capital in the amounts or on terms satisfactory to
it. Growth may be constrained if First Citizens is unable to raise additional
capital as needed.
Failure to remain competitive in an
increasingly competitive industry may adversely affect results of operations
and financial condition.
First Citizens encounters strong competition from other financial
institutions in its market areas. In addition, established financial
institutions not already operating in First Citizens market areas may open
branches in its market areas at future dates or may compete via the internet.
Certain aspects of First Citizens banking business also compete with savings
institutions, credit unions, mortgage banking companies, consumer finance
companies, insurance companies and other institutions, some of which are not
subject to the same degree of regulation or restrictions imposed on First
Citizens. Many of these competitors have substantially greater resources and
lending limits and are able to offer services that First Citizens does not
provide. While First Citizens believes that it competes effectively with these
other financial institutions in its market areas, First Citizens may face a
competitive disadvantage as a result of its smaller size, smaller asset base,
lack of geographic diversification and inability to spread its marketing costs
across a broader market. If First Citizens has to raise interest rates paid on
deposits or lower interest rates charged on loans to compete effectively, First
Citizens net interest margin and income could be negatively affected. Failure
to compete effectively to attract new or to retain existing clients may reduce
or limit First Citizens margins and its market share and may adversely affect
First Citizens results of operations and financial condition.
First Citizens and its subsidiaries are
subject to extensive government regulation and supervision. Changes
in laws, government regulation and monetary policy may have a material adverse
effect on our results of operations.
First Citizens and its subsidiaries are subject to extensive federal and
state regulation and supervision. Banking regulations are primarily intended to
protect depositors funds, federal deposit insurance funds and the banking
system as a whole, not First Citizens shareholders. These regulations affect
First Citizens lending practices, capital structure, investment practices and
dividend policy and growth, among other things. Future changes to statutes,
regulations or regulatory policies, including changes in interpretation or
implementation of statutes, regulations or policies, could affect First
Citizens in substantial and unpredictable ways. Such changes could subject
First Citizens to additional costs, limit the types of financial services and
products First Citizens may offer and/or increase the ability of non-banks to
offer competing financial services and products, or decrease the flexibility in
pricing certain products and services by the Banks, among other things. Failure
to comply with laws, regulations or policies could result in sanctions imposed
by regulatory agencies, civil money penalties, civil liability and/or
reputation damage, which could have a material adverse effect on First
Citizens financial condition and results of operations. While First Citizens
policies and procedures are designed to deter and detect any such violations,
there can be no assurance that such violations will not occur.
First Citizens stock is not listed or traded
on any established securities market and is less liquid than most securities
traded in those markets; First Citizens has filed to revert to non-reporting
status following the filing of this Annual Report on Form 10-K.
First Citizens stock is not listed or traded on any established
securities exchange or market and First Citizens has no plans to seek to list
its stock on any recognized exchange or qualify it for trading in any market.
Accordingly, First Citizens stock has substantially fewer trades than the
average securities listed on any national securities exchange. Most
transactions in First Citizens stock are privately negotiated trades and its
stock is very thinly traded. There is no dealer for First Citizens stock and no
market maker. First Citizens shares do not have a trading symbol. The lack
of a liquid market can produce downward pressure on First Citizens stock price
and can reduce the marketability of First Citizens stock. On January 5, 2015,
First Citizens filed a Form 15 with the SEC terminating First Citizens
reporting obligations pursuant to Section 15(d) of the Exchange Act, which will
result in less publicly available information about First Citizens and could
cause its stock to trade less frequently.
First Citizens ability to pay dividends may
be limited.
As a holding company, First Citizens is a separate legal entity from the
Banks and does not conduct significant income-generating operations of its own.
It currently depends upon the Banks cash and liquidity to pay dividends to its
shareholders. First Citizens cannot provide assurance that the Banks will have
the capacity to pay dividends to First Citizens in the future. Various statutes
and regulations limit the availability of dividends from the Banks. It is
possible that, depending upon the Banks respective financial condition and
other factors, the Banks regulators could assert that payment of dividends by the
Banks to First Citizens is an unsafe or unsound practice. In the event that the
Banks are unable to pay dividends to First Citizens, First Citizens may not be
able to pay dividends to its shareholders.
A failure or breach of First Citizens operational or security
systems or infrastructure, or those of First Citizens third party vendors and
other service providers or other third parties, including as a result of
cyber-attacks, could disrupt First Citizens businesses, result in the
disclosure or misuse of confidential or proprietary information, damage its
reputation, increase its costs, and cause losses.
First Citizens relies heavily on communications and information systems
to conduct its business. Information security risks for financial institutions
such as First Citizens have generally increased in recent years in part because
of the proliferation of new technologies, the use of the internet and
telecommunications technologies to conduct financial transactions, and the
increased sophistication and activities of organized crime, hackers,
terrorists, activists, and other external parties. As customer, public, and
regulatory expectations regarding operational and information security have
increased, First Citizens operating systems and infrastructure must continue
to be safeguarded and monitored for potential failures, disruptions, and
breakdowns. First Citizens business, financial, accounting, and data
processing systems, or other operating systems and facilities, may stop
operating properly or become disabled or damaged as a result of a number of
factors, including events that are wholly or partially beyond First Citizens
control. For example, there could be electrical or telecommunication outages;
natural disasters such as earthquakes, tornadoes, and hurricanes; disease
pandemics; events arising from local or larger scale political or social
matters, including terrorist acts; and, as described below, cyber-attacks.
As noted above, First Citizens business relies on its digital
technologies, computer and email systems, software and networks to conduct its
operations. Although First Citizens has information security procedures and
controls in place, First Citizens technologies, systems and networks and its
customers devices may become the target of cyber-attacks or information
security breaches that could result in the unauthorized release, gathering,
monitoring, misuse, loss, or destruction of First Citizens or its customers
or other third parties confidential information. Third parties with whom First
Citizens does business or that facilitate First Citizens business activities,
including financial intermediaries, or vendors that provide service or security
solutions for First Citizens operations, and other unaffiliated third parties,
could also be sources of operational and information security risk to First
Citizens, including from breakdowns or failures of their own systems or
capacity constraints.
While First Citizens has disaster recovery and other policies and
procedures designed to prevent or limit the effect of the failure, interruption
or security breach of its information systems, there can be no assurance that
any such failures, interruptions or security breaches will not occur or, if
they do occur, that they will be adequately addressed. First Citizens risk and
exposure to these matters remain heightened because of the evolving nature of
these threats. As a result, cyber security and the continued development and
enhancement of First Citizens controls, processes, and practices designed to
protect its systems, computers, software, data, and networks from attack,
damage or unauthorized access remain a focus for First Citizens. As threats
continue to evolve, First Citizens may be required to expend additional
resources to continue to modify or enhance its protective measures or to
investigate and remediate information security vulnerabilities. Disruptions or
failures in the physical infrastructure or operating systems that support First
Citizens businesses and clients, or cyber-attacks or security breaches of the
networks, systems or devices that First Citizens clients use to access First
Citizens products and services could result in client attrition, regulatory
fines, penalties or intervention, reputation damage, reimbursement or other
compensation costs, and/or additional compliance costs, any of which could have
a material effect on First Citizens results of operations or financial
condition.
Shares of First Citizens stock are not insured.
Shares of First Citizens stock are not deposits and are not insured by
the FDIC or any other entity.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Properties
First Citizens National Bank Properties
FCNB has 17 full-service bank financial centers, two
drive-through only branches and 28 ATMs spread over eight Tennessee counties. A
list of available banking locations and hours is maintained on FCNBs website
(www.firstCNB.com) under the Locations section. FCNB owns and occupies the
following properties:
-
FCNBs main branch and executive
offices are located in a six-story building at One First Citizens Place
(formerly 200 West Court), Dyersburg, Dyer County, Tennessee. This property
also includes the Banking Annex, which has an address of 215-219 Masonic
Street. The Banking Annex houses FCNBs operations, information technology,
call center, bank security and mail departments;
-
FCNBs downtown drive-through
branch is located at 117 South Church Street, Dyersburg, Dyer County,
Tennessee, and is a remote motor bank with six drive-through lanes and a
drive-up ATM lane;
-
The Green Village Financial
Center, located at 710 U.S. 51 Bypass adjacent to the Green Village Shopping
Center in Dyersburg, Dyer County, Tennessee, is a full-service banking
facility;
-
The Newbern Financial Center, a
full-service facility, is located at 104 North Monroe Street, Newbern, Dyer
County, Tennessee;
-
The Industrial Park Financial
Center located at 2211 St. John Avenue, Dyersburg, Dyer County, Tennessee is a
full-service banking facility;
-
The Ripley Financial Center is a
full-service facility located at 316 Cleveland Street in Ripley, Lauderdale
County, Tennessee;
-
The Troy Financial Center is a
full-service banking facility located at 220 East Harper Street in Troy, Obion
County, Tennessee;
-
The Union City Financial Center, a
full-service banking facility, is located 215 W. Lee Street, Union City,
Tennessee.
-
The Martin Financial Center is a
full-service facility located at 200 University Avenue, Martin, Weakley County,
Tennessee;
-
The Munford Financial Center is a
full-service facility located at 1426 Munford Avenue in Munford, Tipton County,
Tennessee. In addition, a drive-through facility is located at 1483 Munford
Avenue, also in Munford;
-
The Atoka Financial Center is a
full-service facility located at 123 Atoka-Munford Avenue, Atoka, Tipton
County, Tennessee;
-
The Millington Financial Center is
a full-service branch facility located at 8170 Highway 51 N., Millington,
Shelby County, Tennessee;
-
The Bartlett Financial Center is a
full-service facility located at 7580 Highway 70, Bartlett, Shelby County,
Tennessee;
-
The Arlington Financial Center is
a full-service facility located at 5845 Airline Road, Arlington, Shelby County,
Tennessee;
-
The Oakland Financial Center is a
full-service facility located at 7285 Highway 64, Oakland, Fayette County,
Tennessee;
-
The Collierville Financial Center
is a full-service facility located at 3668 South Houston Levee in Collierville,
Shelby County, Tennessee;
-
The Franklin Financial Center is a
full-service facility located at 1304 Murfreesboro Road in Franklin, Williamson
County, Tennessee;
-
The Cool Springs Financial Center
is a full-service facility located at 9045 Carothers Parkway, Franklin,
Williamson County, Tennessee;
-
The Jackson Financial Center is a
full-service facility located at 381 Walker Road in Jackson, Tennessee which
was opened October 1, 2014. The lot for this financial center is located on
the corner of Walker Road and Union University Drive and was originally
reported in prior filings as located on Union University Drive in Jackson,
Madison County, Tennessee. However, after construction, the address assigned
by 911 Authorities was 381 Walker Road rather than Union University Drive; and
-
A lot located on Christmasville
Cove in Jackson, Madison County, Tennessee, that was purchased in 2007 on which
First Citizens expects to construct a full-service facility in the next three
to five years.
FCNB owns all
properties and there are no liens or encumbrances against any properties owned
by FCNB. All facilities described above are adequate and appropriate to provide
banking services as noted and are adequate to handle growth expected in the
foreseeable future. As growth continues or needs change, individual property
enhancements or additional properties will be evaluated as necessary,
including, among other things, licensing and marketing and sales practices.
Southern Heritage Bank
Properties
Southern Heritage Bank has three full-service bank financial centers and
ATMs spread over two Tennessee counties. A list of available banking locations
and hours is maintained on Southern Heritage Banks website
(www.southernheritagebank.com) under the Locations & Hours section.
Southern Heritage Bank owns and occupies the following properties:
-
Southern Heritage Banks main
branch and executive offices are located in a two-story building at 3020 Keith
Street, Cleveland, Bradley County, Tennessee 37312. This property also houses
Southern Heritage Banks operations, information technology, call center, bank
security and mail departments;
-
Southern Heritage Banks
Waterville Springs office is located at 2530 Dalton Pike, Cleveland, Bradley
County, Tennessee 37323, and is a full-service banking facility with 3
drive-through lanes and a drive-up ATM lane;
-
The Georgetown Road office is
located at 3795 Georgetown Road, Cleveland, Bradley County, Tennessee 37312,
and is a full-service banking facility with 3 drive-through lanes and a
drive-up ATM lane; and
-
Southern Heritage Banks stand-alone
ATM location is located at the corner of Hwy 64 and 411, 116 White Water Drive,
Ocoee, Polk County, Tennessee 37361.
Southern
Heritage Bank owns all branch properties and there are no liens or encumbrances
against any properties owned by Southern Heritage Bank; the ATM location in
Polk County is leased. All facilities described above are adequate and
appropriate to provide banking services as noted and are adequate to handle
growth expected in the foreseeable future. As growth continues or needs change,
individual property enhancements or additional properties will be evaluated as
necessary.
ITEM 3. LEGAL PROCEEDINGS.
The Company and
its subsidiaries are defendants in various lawsuits arising out of the normal
course of business. In the opinion of management, the ultimate resolution of
such matters should not have a material adverse effect on the Companys
consolidated financial condition or results of operations. Litigation is,
however, inherently uncertain, and the Company cannot make assurances that it
will prevail in any of these actions, nor can it estimate with reasonable
certainty the amount of damages that it might incur.
PART II
ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Holders and Market Information
As of February 27,
2015, there were 786 shareholders of the Companys common stock and 792 holders
of the Companys Class A Common Stock. The Companys common stock and Class A common
stock are not listed or traded on any established public trading market. The
table below shows the quarterly range of high and low sale prices for the
Companys common stock and Class A common stock during the fiscal years 2014
and 2013. These sale prices represent known transactions reported to the
Company and do not necessarily represent all trading transactions for the
periods.
Year
|
Quarter
|
|
High
|
|
Low
|
2014
|
First
|
|
$44.00
|
|
$44.00
|
|
Second
|
|
45.00
|
|
44.00
|
|
Third
|
|
45.00
|
|
45.00
|
|
Fourth
|
|
47.00
|
|
45.00
|
2013
|
First
|
|
39.00
|
|
39.00
|
|
Second
|
|
42.60
|
|
39.00
|
|
Third
|
|
42.60
|
|
42.60
|
|
Fourth
|
|
42.60
|
|
42.60
|
Dividends
The Company paid
aggregate dividends per share of the Companys common stock of $1.30 in 2014,
$1.30 in 2013 an $1.20 per share in 2012. The following quarterly dividends
per share of common stock were paid for 2014, 2013 and 2012:
Quarter
|
2014
|
|
2013
|
|
2012
|
First Quarter
|
$0.25
|
|
$0.25
|
|
$0.25
|
Second Quarter
|
0.25
|
|
0.25
|
|
0.25
|
Third Quarter
|
0.25
|
|
0.25
|
|
0.25
|
Fourth Quarter
|
0.55
|
|
0.55
|
|
0.45
|
Total
|
$1.30
|
|
$1.30
|
|
$1.20
|
Future dividends
will depend on the Companys earnings, financial condition, regulatory capital
levels and other factors, which the Companys Board of Directors considers
relevant. See the section above entitled Item 1. Business Regulation and
Supervision and Note 17 to the Companys Consolidated Financial Statements included
in Item 8 of this Annual Report on 10-K for more information on restrictions
and limitations on the Companys ability to pay dividends.
Issuer Purchases of Equity
Securities
The Company had
no publicly announced plans or programs to purchase the Companys stock during
2014. There were no shares of Company common stock or Class A common stock
repurchased during the quarter ended December 31, 2014.
Unregistered Sale of Securities
None.
ITEM 6. SELECTED FINANCIAL DATA.
The following
table presents selected financial data of the Company for the 12 months ended
December 31, for the years indicated (dollars in thousands, except per share
data):
|
2014
|
2013
|
2012
|
2011
|
2010
|
Net interest income
|
$40,665
|
$37,133
|
$36,084
|
$36,150
|
$34,377
|
Gross interest income
|
46,934
|
44,122
|
44,111
|
45,506
|
46,347
|
Income from continuing
operations
|
13,545
|
13,808
|
13,515
|
11,862
|
8,875
|
Net income per common share
|
$3.72
|
$3.83
|
$3.75
|
$3.28
|
$2.45
|
Cash dividends declared per
common share
|
1.30
|
1.20
|
1.30
|
1.10
|
1.00
|
Total assets at year-end
|
$1,483,186
|
$1,174,472
|
$1,178,325
|
$1,053,549
|
$974,378
|
Long-term obligations (1)
|
59,326
|
46,362
|
32,594
|
43,976
|
42,296
|
Allowances for loan losses
as a % of total loans
|
1.06%
|
1.35%
|
1.45%
|
1.52%
|
1.47%
|
Allowances for loan losses
as a % of non-performing loans
|
96.40%
|
91.63%
|
89.25%
|
98.49%
|
76.40%
|
Loans 90 days past due as a
% of total loans
|
0.51%
|
0.60%
|
0.54%
|
1.39%
|
1.12%
|
________________
(1) Long-term obligations consist of FHLB advances that
mature after December 31, 2015, and trust-preferred securities.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Executive Overview
For the year ended December 31,
2014, the Companys financial condition, results of operations and key
performance metrics were significantly impacted by the acquisition of Southern
Heritage Bancshares, Inc. and its subsidiary Southern Heritage Bank which
occurred on October 1, 2014. Southern Heritage Bancshares, Inc. was merged
into the Company as of the acquisition date and Southern Heritage Bank (a
wholly owned subsidiary) continues to operate as a separate financial
institution and has not yet been merged into FCNB. Significant areas of impact
from the acquisition are summarized as follows:
-
Total assets increased approximately $250 million.
-
Total equity increased $17 million due to new equity issued as
merger consideration.
-
Total long-term debt increased due to $12 million correspondent
loan to finance cash portion of merger consideration.
-
Results of Operations for 2014 include three months (October to
December 2014) of net income from Southern Heritage Bank.
-
Results of Operations include transaction expenses of
approximately $1 million (pre-tax) charged to earnings related to investment
banker advisory, legal, accounting and other non-recurring expenses related to
the acquisition.
For the year ended December 31,
2014, net income of $13.5 million resulted in a return on equity (ROE) of 10.7%
compared to ROE of 12.1% and net income of $13.8 million for 2013. Return on
equity declined due to capital growth outpacing earnings growth during 2014.
Capital growth of 28.3% in 2014 consists primarily of $17.0 million in new
equity issued as merger consideration in the acquisition of Southern Heritage
Bancshares, Inc. Return on assets (ROA) was 1.08%, 1.19% and 1.25% for 2014,
2013 and 2012, respectively. For 2014, ROE of 10.7% and ROA of 1.08% exceeded
the same measures for the Southeast Public Bank Peer Report, as produced by
Mercer Capitals Financial Institutions Group
(the Peer Report), which reported an
average ROE of 7.9% and average ROA of 0.88% for 2014. The Peer Report
provides market pricing and performance data on publicly traded banks in
Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, Missouri, and
Tennessee.
Earnings per share were $3.72
for the year ended December 31, 2014, compared to $3.83 and $3.75 for the years
ended December 31, 2013 and 2012, respectively. Dividends per common share were
flat at $1.30 annually in 2014 and 2013. Dividends were held flat in 2014 as
part of overall capital growth and preservation strategy after the recent
acquisition. In 2014, the Companys dividend payout ratio was 35% compared to 34%
in 2013. The dividend payout ratio has trended in the range of 30-40% the past
three years. Dividend yield for 2014 was 3.05% compared to 3.33% in 2013 and
consistent with historical dividend yields in the range of 3% to 3.4%. The
Peer Report reported an average dividend yield of 1.68% for 2014.
During 2014, asset growth totaled
$307 million or 26.1% with the acquisition accounting for $250 million in total
asset growth. Capital growth was greater than asset growth at $31.9 million or
28.3% was attributable not only to new equity of $17.0 million but also to a $8.6
million increase in retained earnings and a $6.3 million increase in
accumulated other comprehensive income. Retained earnings increased 9.1% in 2014
as a result of undistributed net income and conservative dividend payout ratio
of 35%. Accumulated other comprehensive income increased due to increase of
$6.3 million in unrealized appreciation (net of tax) on the available-for-sale
securities portfolio compared to prior year.
Maintaining stable and strong
net interest margins is a top priority for the Company. The Companys net
interest margin had been stable at 3.83% in 2014 and 2013. As of December 31, 2014,
the Companys interest rate risk position was liability sensitive. For more
information, see Item 7A of this Annual Report on Form 10-K.
The efficiency ratio is a
measure of non-interest expense as a percentage of total revenue. The Company
computes the efficiency ratio by dividing non-interest expense by the sum of
net interest income on a tax equivalent basis and non-interest income. This is
a non-GAAP financial measure, which management believes provides investors with
important information regarding the Companys operational efficiency.
Comparison of the Companys efficiency ratio with those of other companies may
not be possible because other companies may calculate the efficiency ratio
differently. The efficiency ratio for the years ended December 31, 2014, 2013
and 2012 was 64.3%, 61.3%, and 60.2%, respectively.
The tangible common equity ratio
is a non-GAAP measure used by management to evaluate capital adequacy. Tangible
common equity is total equity less net accumulated other comprehensive income,
goodwill and deposit-based intangibles. Tangible assets are total assets less
goodwill and deposit-based intangibles. The tangible common equity ratio was 7.85%
as of year-end 2014 compared to 8.53% at year-end 2013 and 7.71% at year-end 2012.
A reconciliation of non-GAAP
measures of efficiency ratio and tangible common equity is provided as follows
(dollars in thousands):
|
At or for the Year Ended December
31,
|
|
2014
|
|
2013
|
|
2012
|
Efficiency ratio:
|
|
|
|
|
|
Net interest income(1)
|
$ 43,676
|
|
$ 40,332
|
|
$ 39,047
|
Non-interest income(2)
|
14,421
|
|
14,030
|
|
12,454
|
Total revenue
|
58,097
|
|
54,362
|
|
51,501
|
Non-interest expense
|
37,352
|
|
33,341
|
|
31,017
|
Efficiency ratio
|
64.29%
|
|
61.33%
|
|
60.23%
|
Tangible common equity
ratio:
|
|
|
|
|
|
Total equity capital
|
$ 144,510
|
|
$ 112,606
|
|
$ 114,140
|
Less:
|
|
|
|
|
|
Accumulated other
comprehensive income
|
5,955
|
|
(361)
|
|
10,291
|
Goodwill
|
22,340
|
|
13,651
|
|
13,651
|
Other intangible assets
|
1,800
|
|
384
|
|
426
|
Tangible common equity
|
$ 114,415
|
|
$ 98,932
|
|
$ 89,772
|
Total assets
|
$ 1,481,438
|
|
$ 1,174,472
|
|
$ 1,178,325
|
Less:
|
|
|
|
|
|
Goodwill
|
22,340
|
|
13,651
|
|
13,651
|
Other intangible assets
|
1,800
|
|
384
|
|
426
|
Tangible assets
|
$ 1,457,298
|
|
$ 1,160,437
|
|
$ 1,164,248
|
Tangible common equity ratio
|
7.85%
|
|
8.53%
|
|
7.71%
|
___________________
(1) |
Net
interest income includes interest and rates on securities that are non-taxable
for federal income tax purposes that are presented on a taxable equivalent
basis based on a federal statutory rate of 34%.
|
(2) |
Non-interest
income is presented net of any credit losses from other-than-temporary
impairment losses on available-for-sale securities recognized against earnings
for the years presented.
|
Critical Accounting Policies
The accounting
and reporting of the Company and its subsidiaries conform to GAAP and follow
general practices within the industry. Preparation of financial statements
requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Management
believes that the Companys estimates are reasonable under the facts and
circumstances based on past experience and information supplied from
professionals, regulators and others. Accounting estimates are considered
critical if (i) management is required to make assumptions or judgments about
items that are highly uncertain at the time estimates are made and (ii)
different estimates reasonably could have been used during the current period,
or changes in such estimates are reasonably likely to occur from period to
period, that could have a material impact on presentation of the Companys
Consolidated Financial Statements.
The development,
selection and disclosure of critical accounting policies are discussed and
approved by the Audit Committee of the Banks Boards of Directors. Because of
the potential impact on the financial condition or results of operations and
the required subjective or complex judgments involved, management believes its
critical accounting policies consist of the allowance for loan losses, fair
value of financial instruments and goodwill.
Allowance for Loan Losses
The allowance
for losses on loans represents managements best estimate of inherent losses in
the existing loan portfolio. Managements policy is to maintain the allowance
for loan losses at a level sufficient to absorb reasonably estimated and
probable losses within the portfolio. Management believes the allowance for
loan loss estimate is a critical accounting estimate because: (i) changes can
materially affect provision for loan loss expense on the income statement, (ii)
changes in the borrowers cash flows can impact the reserve, and (iii) management
makes estimates at the balance sheet date and also into the future in reference
to the reserve. While management uses the best information available to
establish the allowance for loan losses, future adjustments may be necessary if
economic or other conditions change materially. In addition,
as a part of their examination process, federal regulatory agencies
periodically review the Banks loans and allowances for loan losses and may
require the Banks to recognize adjustments based on their judgment about
information available to them at the time of their examination. See Note 1
of the Companys Consolidated Financial Statements included in Item 8 of this Annual
Report on Form 10-K for more information.
Fair Value of Financial Instruments
Certain assets
and liabilities are required to be carried on the balance sheet at fair value.
Further, the fair value of financial instruments must be disclosed as a part of
the notes to the consolidated financial statements for other assets and
liabilities. Fair values are volatile and may be influenced by a number of
factors, including market interest rates, prepayment speeds, discount rates,
the shape of yield curves and the credit worthiness of counterparties.
Fair values for
the majority of the Banks available-for-sale investment securities are based
on observable market prices obtained from independent asset pricing services
that are based on observable transactions but not quoted market prices.
Fair value of derivatives
(if any) held by the Company is determined using a combination of quoted market
rates for similar instruments and quantitative models based on market inputs
including rate, price and index scenarios to generate continuous yield or
pricing curves and volatility factors. Third party vendors are used to obtain
fair value of available-for-sale securities and derivatives (if any). For more
information, see Notes 1 and 21 in the Companys Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K.
Goodwill
The Companys
policy is to review goodwill for impairment at the reporting unit level on an
annual basis unless an event occurs that could potentially impair the goodwill
amount. Goodwill represents the excess of the cost of an acquired entity over
fair value assigned to assets and liabilities. Management believes accounting
estimates associated with determining fair value as part of the goodwill test
are critical because estimates and assumptions are made based on prevailing
market factors, historical earnings and multiples and other contingencies. For
more information, see Notes 1 and 9 in the Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K.
Financial Condition
Changes in the statement of financial
condition for the year ended December 31, 2014 reflect the Companys acquisition
of Southern Heritage Bancshares, Inc. as well as modest organic growth. Asset
growth in 2014 totaled $307 million or 26.1% and $58 million of the $307
million was attributable to organic growth. In 2014, loan growth of 22% was
outpaced by growth of 31.4% in cash and cash equivalents, 87.5% in interest
bearing deposits in banks and 27.8% in investments. Total deposit growth of
25.1% was driven by 27.0% growth in non-interest bearing deposits and 24.5%
growth in interest-bearing deposits. Other borrowings increased 30.6% in 2014
in relation to new debt associated with the acquisition of Southern Heritage
Bancshares, Inc.
Investment Securities Analysis
The following
table presents the composition of total investment securities as of December 31
for the last five years (in thousands):
|
|
|
|
|
|
U.S. Treasury and government
agencies
|
$384,990
|
$321,703
|
$ 346,452
|
$249,240
|
$191,443
|
State and political
subdivisions
|
198,302
|
134,751
|
119,143
|
115,634
|
102,450
|
All other
|
|
|
|
|
|
Total investment
securities
|
|
|
|
|
|
In 2014, total
investment securities portfolio growth of $126.8 million consisted of a $63.3
million increase in agency mortgage-backed securities (MBS) and
collateralized mortgage obligations (CMO) and a $63.6 million increase in
municipal securities. Growth in the overall portfolio of $77 million was attributable
to the acquisition of Southern Heritage Bancshares, Inc.
The allocation
to tax-exempt municipal securities as a percent of the total portfolio was 34%
as of December 31, 2014 compared to 30% and 25% as of December 31, 2013 and 2012,
respectively. This range of ratios is consistent with recent allocations, as
the Company typically strategically targets 25-35% of its portfolio in the
tax-exempt municipal sector.
Maturity
and Yield on Securities
Contractual
maturities on investment securities are generally over ten years. However, the
expected remaining lives of such bonds are expected to be much shorter due to
anticipated payments from U. S. Treasury and government agency securities. These
securities comprised 66% of the portfolio at December 31, 2014 and are
primarily amortizing payments that provide stable monthly cash inflows of
principal and interest payments. The following table presents contractual
maturities and yields by category for debt securities as of December 31, 2014
(dollars in thousands):
|
|
Maturing
After One
Year Within
Five Years
|
Maturing
After Five
Years Within
Ten Years
|
|
Total
|
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
Amount
|
Yield
|
U. S. Treasury and government agencies(1)
|
$ -
|
-%
|
$ 2,804
|
2.48%
|
$ 6,807
|
3.87%
|
$375,376
|
2.27%
|
$384,987
|
State and political subdivisions(2)
|
2,724
|
6.58%
|
15,141
|
6.12%
|
96,332
|
4.87%
|
84,108
|
5.35%
|
198,305
|
All other
|
|
|
-
|
|
|
|
|
-
|
|
Total debt securities
|
2,724
|
|
17,945
|
|
103,139
|
|
459,484
|
|
583,292
|
Equity securities
|
-
|
|
-
|
|
-
|
|
54
|
1.25%
|
54
|
Total
|
$2,724
|
|
$ 17,945
|
|
$ 103,139
|
|
$459,538
|
|
$ 583,346
|
________________
(1) |
Of this category, 99% of the total
consisted of MBS and CMO which are presented based on contractual maturities (with
98% of the total for this category in the Maturing After Ten Years category).
However, the remaining lives of such securities are expected to be much shorter
due to anticipated payments.
|
(2) |
Yields are presented on
a tax-equivalent basis using a federal statutory rate of 34%.
|
Held-To-Maturity and
Available-For-Sale Securities
The Company held
no securities in the held-to-maturity or trading categories as of December 31,
2014 or 2013. The following table presents amortized cost and fair value of
available-for-sale securities as of December 31, 2014 (in thousands):
|
Amortized
|
|
Fair
|
|
Cost
|
|
Value
|
U.S. government agencies and
corporate obligations
|
$384,456
|
|
$384,990
|
Obligations of states and
political subdivisions
|
189,264
|
|
198,302
|
U.S. securities:
|
|
|
|
Equity securities
|
10
|
|
54
|
Total
|
$573,730
|
|
$583,346
|
In addition to amounts presented
above, the Banks had $5.7 million in FHLB and Federal Reserve Bank stock at
both December 31, 2014 and 2013, recorded at cost.
Objectives of the
Companys investment portfolio management are to provide safety of principal,
provide adequate liquidity, insulate GAAP capital against excessive changes in
market value, insulate earnings from excessive change and optimize investment
performance. Investments also serve as collateral for government, public funds
and large deposit accounts that exceed FDIC-insured limits. Pledged
investments at December 31, 2014 and 2013 had a fair market value of $250
million and $204 million, respectively. The average expected life of the
investment securities portfolio was 4.6 years as of December 31, 2014 and 2013.
Portfolio yields (on a tax equivalent basis) were 3.25% as of December 31, 2014
compared to 3.35% as of December 31, 2013.
The Company
classifies investments, based on intent, into trading, available-for-sale and
held-to-maturity categories in accordance with GAAP. The Company held no
securities in the trading or held-to-maturity categories for any of the periods
presented in this Annual Report on Form 10-K and does not expect to hold any
such securities in 2014. The Companys investment strategy is to classify most
of the securities portfolio as available-for-sale, which are carried on the
balance sheet at fair market value. Classification of available-for-sale investments
allows flexibility to actively manage the portfolio under various market
conditions.
U.S. Treasury
securities and government agencies and corporate obligations consisted
primarily of MBSs and CMOs and accounted for 66.0% and 70.5% of the investment
portfolio for years ended December 31, 2014 and 2013, respectively. The credit
quality of the overall MBS and CMO portfolio was considered stable and
reflected a net unrealized gain (pre-tax) of approximately $534,000 as of
December 31, 2014. The unrealized loss positions are attributable to market
factors as values are heavily influenced by market rates and the yield curve,
including but not limited to the 10-year Treasury rates, which decreased
approximately 87 basis points from December 31, 2013 to December 31, 2014. Credit
quality factors on the bonds and related underlying mortgages are evaluated at
the time of purchase and on a periodic basis thereafter. These factors
typically include, but are not limited to, average loan-to-value ratios,
average FICO credit scores, payment seasoning (how many months of payment
history), geographic dispersion, average maturity and average duration.
Management believes that this level of amortizing securities provides steady
cash flows. Principal cash flows for 2015 are projected to be $70 million to
$75 million.
As of December
31, 2014, approximately 34% of the investment portfolio was invested in
municipal securities, which were geographically diversified, compared to 30% as
of December 31, 2013. The fair value of municipal securities totaled $198.3
million ($196.9 million tax-exempt and $1.4 million taxable) at December 30,
2014. Approximately 66% of municipal securities were general obligation
municipal bonds and the remaining 34% were revenue bonds at December 31, 2014.
The revenue bonds are primarily essential services bonds such as for water and
sewer, school systems and other public improvement projects. Overall credit
quality of the municipal portfolio was considered strong and reflected a net
unrealized gain of $9.0 million as of year-end 2014.
The following
table indicates by category gross unrealized gains and losses within the
available-for-sale portfolio as of December 31, 2014 (in thousands):
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Net
|
U.S. Treasury securities and obligations of U.S.
government agencies and corporations
|
$ 4,065
|
|
$(3,531)
|
|
$ 534
|
|
|
Obligations of states and
political subdivisions
|
9,273
|
|
(235)
|
|
9,038
|
All other
|
44
|
|
-
|
|
44
|
Total
|
$13,382
|
|
$(3,766)
|
|
$9,616
|
Unrealized gains and losses noted above were included in
Accumulated Other Comprehensive Income, net of tax.
Loan Portfolio Analysis
The following
table compares the portfolio mix of loans held for investment as of December 31
for each of the last five years (in thousands):
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
Commercial, financial and agricultural
|
$ 112,529
|
|
$ 81,757
|
|
$ 74,014
|
|
$ 72,174
|
|
$ 66,297
|
Real estate-construction
|
63,461
|
|
46,959
|
|
40,498
|
|
39,964
|
|
49,148
|
Real estate-mortgage
|
491,471
|
|
413,235
|
|
397,638
|
|
383,934
|
|
395,256
|
Installment loans to individuals
|
25,733
|
|
24,807
|
|
25,428
|
|
28,027
|
|
31,593
|
Other loans
|
18,029
|
|
13,477
|
|
11,874
|
|
3,600
|
|
5,409
|
Total loans
|
$711,223
|
|
$580,235
|
|
$549,452
|
|
$527,699
|
|
$547,703
|
For purposes of
the table above, loans do not include loans that are sold in the secondary
mortgage market. The Company classifies loans to be sold in the secondary
mortgage market separately in its consolidated financial statements. Secondary
market mortgages totaled $4.3 million, $3.1 million and $4.7 million as of
December 31, 2014, 2013 and 2012, respectively. For more information, see
Notes 4, 5 and 6 in the Companys Consolidated Financial Statements included in
Item 8 of this Annual Report on Form 10-K. Interest and fees earned on
secondary mortgage loans were included in mortgage banking income as reported
in other non-interest income in the Companys Consolidated Financial
Statements.
Changes In Loan Categories
Total loans at
December 31, 2014 were $711 million compared to $580 million at December 31,
2013 and $587 million at December 31, 2012. Loan growth in 2014 was primarily
as result of the acquisition but also includes modest organic loan growth of
$10 million. The following table details the breakdown of changes by category
for the year ended December 31, 2014 (dollars in thousands):
|
|
Increase (Decrease)
|
|
Percent Change
|
|
Commercial, financial and
agricultural
|
|
$30,772
|
|
37.64%
|
|
Real estate-construction
|
|
16,502
|
|
35.14%
|
|
Real estate-mortgage
|
|
78,236
|
|
18.93%
|
|
Installment loans to
individuals
|
|
926
|
|
3.73%
|
|
Other loans
|
|
4,552
|
|
33.78%
|
|
Net
change in loans
|
|
$130,988
|
|
22.57%
|
|
The loan
portfolio remains heavily weighted in real estate loans, which accounted for $555
million or 78% of total loans as of December 31, 2014 compared to $460 million
or 79% of total loans as of December 31, 2013. Commercial and residential
construction loans accounted for $63 million of the $555 million invested in
real estate loans. Within real estate loans, residential mortgage loans
(including residential construction) was the largest category, comprising 30%
of total loans as of December 31, 2014 and December 31, 2013. Diversification
of the real estate portfolio is a necessary and desirable goal of the Companys
real estate loan policy. In order to achieve and maintain a prudent degree of
diversity, given the composition of the market area and the general economic
state of the market area, the Company strives to maintain real estate loan
portfolio diversification. Risk monitoring of commercial real estate
concentrations is performed in accordance with regulatory guidelines and
includes assessment of risk levels of various types of commercial real estate
and review of ratios of various concentrations of commercial real estate as a
percentage of capital. The following table presents real estate loans as a
percent of total risk based capital as of December 31 for each of the last five
years:
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
As a percent of total
risk based capital*:
|
|
|
|
|
|
|
|
|
|
Construction and development
|
46.54%
|
|
40.49%
|
|
37.79%
|
|
40.06%
|
|
53.05%
|
|
Residential (one-to-four
family)
|
141.53%
|
|
147.13%
|
|
163.16%
|
|
163.40%
|
|
184.50%
|
|
Other real estate loans
|
218.87%
|
|
209.14%
|
|
207.93%
|
|
224.04%
|
|
245.15%
|
|
Total
real estate loans
|
406.94%
|
|
396.75%
|
|
408.89%
|
|
427.50%
|
|
482.70%
|
|
________________
* Total risk based capital is a non-GAAP measure used by regulatory
authorities and reported on quarterly regulatory filings. Total risk based
capital for the Banks was $136.3 million, $116.0 million, $107.2 million, $99.8
million and $92.6 million as of December 31, 2014, 2013, 2012, 2011 and 2010,
respectively.
Average Loan Yields
The average yield
on loans of the Banks has trended downward over the past five years, as loans
have repriced during the historically low interest rate environment. Average
yield on loans for the years indicated were as follows:
2014 - 5.45%
|
2013 - 5.67%
|
2012 - 6.11%
|
2011 - 6.32%
|
2010 - 6.42%
|
The aggregate
amount of unused guarantees, commitments to extend credit and standby letters
of credit was $101.2 million at year-end 2014. For more information regarding
commitments and standby letters of credit, see Note 18 in the Companys
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K.
Loan Maturities
As of December
31, 2014, contractual maturities of loans were as follows (in thousands):
|
Due in One
Year or Less
|
|
Due After
One Year but
Within Five Years
|
|
Due After
Five Years
|
Real estate
|
$114,581
|
|
$175,283
|
|
$265,068
|
Commercial, financial and
agricultural
|
62,258
|
|
42,465
|
|
7,806
|
All other loans
|
14,724
|
|
25,190
|
|
3,848
|
Total
|
$191,563
|
|
$242,938
|
|
$276,772
|
As of December
31, 2014, loans with a remaining maturity of more than one year consisted of
the following (in thousands):
Loans with maturities after
one year for which:
|
|
|
Interest
rates are fixed or predetermined
|
$433,124
|
|
Interest
rates are floating or adjustable
|
278,149
|
|
The degree of interest rate risk
to which a bank is subjected can be controlled through a well-defined funds
management program. The Company controls interest rate risk by matching
interest sensitive assets and liabilities. At December 31, 2014, the Company
was liability-sensitive, meaning that liabilities reprice at a faster rate than
assets. Therefore, in a rising rate environment (with a normal yield curve)
net interest income would decline. The majority of the Companys loan
portfolio will reprice or mature in less than five years. Approximately $255
million or 36% of total loans will either reprice or mature over the next 12
months, while $165 million or 23.0% of total loans will mature or reprice after
one year but less than three years. Approximately $230 million or 32% of total
loans will mature or reprice after three years but in less than five years.
The remaining 9% or $61 million reprices or matures in greater than five years.
Loan Policy Guidelines
Management has
established policies approved by the Companys Board of Directors regarding
portfolio diversification and underwriting standards. Loan policy also includes
Board-approved guidelines for collateralization, loans in excess of loan to
value (LTV) limits, maximum loan amount and maximum maturity and amortization
period for each loan type. Policy guidelines for LTV ratios and maturities
related to various types of collateral at December 31, 2014, were as follows:
|
|
|
Real estate
|
Various (see discussion below)
|
Various (see discussion below)
|
Equipment*
|
5 Years
|
75%
|
Inventory
|
5 Years
|
50%
|
Accounts receivable
|
5 Years
|
75%
|
Livestock
|
5 Years
|
75%
|
Crops
|
1 Year
|
50%
|
Securities**
|
10 Years
|
75% (Listed), 50% (Unlisted)
|
___________________________
* |
New farm equipment can be amortized over
seven years with a guaranty by the FSA. Farm irrigation systems may be
amortized over seven years without an FSA guaranty.
|
** |
When proceeds are used to purchase or
carry securities not listed on a national exchange, maximum LTV shall be 50%.
|
The Companys
policy manages risk in the real estate portfolio by adherence to regulatory
limits in regards to LTV percentages, as designated by the following
categories:
Loan Category
|
Maximum LTV
|
Raw land
|
65%
|
Farmland
|
80%
|
Real estate-construction:
|
|
Commercial acquisition and development
|
70%
|
Commercial, multi-family* and other non-residential
|
80%
|
One-to-four family residential owner occupied
|
80%
|
One-to-four family residential non-owner occupied
|
75%
|
Commercial (existing property):
|
|
Owner occupied improved property
|
85%
|
Non-owner occupied improved property
|
80%
|
Residential (existing property):
|
|
Home equity lines
|
80%
|
Owner occupied one-to-four family residential
|
90%
|
Non-owner occupied
one-to-four family residential
|
75%
|
____________________
* Multi-family
construction loans include loans secured by cooperatives and condominiums.
Loans may be
approved in excess of the LTV limits, provided that they are approved on a case
by case basis pursuant to the Banks loan policy as follows:
-
The request is fully documented to support the fact that other
credit factors justify the approval of that particular loan as an exception to
the LTV limit;
-
The loan, if approved, is designated in the Banks records and
reported as an aggregate number with all other such loans approved by the full
Board of Directors on at least a quarterly basis;
-
The aggregate total of all loans so approved, including the
extension of credit then under consideration, shall not exceed 65% of the
Banks total capital; and
-
The aggregate portion of these loans in excess of the LTV limits
that are classified as commercial, agricultural, multi-family or
non-one-to-four family residential property shall not exceed 30% of the Banks
total capital.
The Banks loan
policies additionally require every loan to have a documented repayment
arrangement. While reasonable flexibility is necessary to meet credit needs of
customers, in general, real estate loans are to be repaid within the following
time frames:
Loan Category
|
Amortization Period
|
Raw land
|
10 years
|
Real estate- construction
|
1.5 years
|
Real estate-commercial,
multi-family, and other non-residential
|
20 years
|
Real estate-one-to-four
family residential
|
25-30 years
|
Home equity
|
10 years
|
Farmland
|
20 years
|
Credit Risk Management and
Allowance for Loan Losses
Loan portfolio
quality was stable in 2014 compared to 2013 and 2012 and remains very stable
relative to prevailing market conditions, as is evidenced through improving
trends in impaired loans and changes to the allowance for loan losses. The
ratio of net charge-offs to average net loans outstanding was 0.16%, 0.16% and
0.14% for the years ended December 31, 2014, 2013 and 2012, respectively. Management
believes that the Companys strong credit risk management practices continue to
provide a means for timely identification and assessment of problem credits in
order to minimize losses. For additional information regarding the Companys
credit risk management procedures and practices and allowance for loan losses,
refer to Notes 1 and 5 in the Consolidated Financial Statements in Item 8 of
this Annual Report on Form 10-K.
Non-Performing Assets
Non-performing
assets consist of non-performing loans, Other Real Estate Owned (OREO) and
non-accrual debt securities. Non-performing loans consist of non-accrual loans,
loans 90 days or more past due and still accruing interest and restructured
loans. 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 aggregate of non-performing loans and OREO
as a percent of total loans plus OREO at December 31, 2014 totaled 2.03%
compared to 2.62% at December 31, 2013 and 3.14% at December 31, 2012. The
gross interest income that would have been recorded for the 12 months ended
December 31, 2014 if all loans reported as non-accrual had been current in
accordance with their original terms and had been outstanding throughout the
period was approximately $349,000 compared to approximately $473,000 and $596,000,
for the 12 months ended December 31, 2013 and 2012, respectively. 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, or troubled debt
restructurings (TDRs). First Citizens had TDRs totaling $8.0 million of
December 31, 2014, compared to $4.8 million as of December 31, 2013. For additional
discussion regarding non-performing assets, see Note 4 in the Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Other Real Estate Owned
The book value of OREO was $5.7 million as of December 31, 2014, compared
to $6.8 million and $8.6 million as of December 31, 2013 and 2012,
respectively. As of December 31, 2014, there were approximately 74 properties
accounted for as OREO consisting of vacant land, residential lots and other
residential and commercial properties. Approximately 83% of the $5.7 million
accounted for as OREO as of December 31, 2014, was located in Shelby County,
Tennessee and surrounding counties. Management continues efforts to market and
liquidate OREO.
Activity in OREO for the years ended December 31, 2014, 2013, and 2012
was as follows (in thousands):
|
|
2014
|
|
2013
|
|
2012
|
Beginning balance
|
|
$6,826
|
|
$8,580
|
|
$11,073
|
Acquisitions
|
|
2,847
|
|
541
|
|
1,261
|
Capitalized costs
|
|
19
|
|
-
|
|
159
|
Dispositions
|
|
(3,639)
|
|
(1,702)
|
|
(2,751)
|
Valuation adjustments
through earnings
|
|
(336)
|
|
(593)
|
|
(1,162)
|
Ending balance
|
|
$5,717
|
|
$6,826
|
|
$ 8,580
|
Capitalized costs
consist of costs to complete construction of homes partially complete at the
time of foreclosure, significant repairs or renovations or include costs to
complete certain phases of a development project for raw land. Capitalized
costs were incurred in order to improve marketability of certain properties.
Valuation adjustments through earnings reflected above includes write down of
properties subsequent to foreclosure and realized gains and losses on sale of
OREO.
OREO is recorded at the time of foreclosure at the lesser of its
appraised value (less cost to sell) or the loan balance. Any reduction in value
at the time of foreclosure is charged to the allowance for loan losses. All
other real estate parcels are appraised at least annually and carrying values
adjusted to reflect the decline, if any, in their realizable value. Such
adjustments made subsequent to foreclosure are charged against earnings.
Other non-interest expenses for property taxes, maintenance and other
costs related to acquisition or maintenance of OREO totaled approximately $333,000,
$415,000, and $455,000 for the years ended December 31, 2014, 2013 and 2012,
respectively. The positive trend in other non-interest expense and losses
related to OREO from 2011 through 2013 was attributable to the declining trend
in OREO volume.
Composition of Deposits
The average
balance of deposits and average interest rates paid on such deposits are
summarized in the following table for the years ended December 31, 2014, 2013
and 2012 (dollars in thousands):
|
2014
|
|
2013
|
|
2012
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
Non-interest bearing demand deposits
|
$147,174
|
|
%
|
|
$ 133,019
|
|
%
|
|
$ 125,364
|
|
%
|
Savings deposits
|
522,539
|
|
0.47%
|
|
465,847
|
|
0.48%
|
|
409,576
|
|
0.61%
|
Time deposits
|
358,624
|
|
0.67%
|
|
348,454
|
|
0.74%
|
|
341,005
|
|
1.01%
|
Total deposits
|
$1,028,337
|
|
0.47%
|
|
$947,320
|
|
0.51%
|
|
$875,945
|
|
0.68%
|
The decrease in average cost of deposits for the year ended December 31, 2014 compared to the prior two years was a result of the continued historically low interest rate environment and a result of the impact of the FOMC decision
to maintain low federal funds rates during that timeframe. It is expected that federal fund rates will remain at the current range of 0.00% to 0.25% through mid-2015. During 2014, the prevailing
market and competitive environment continued to yield strong competition in the pricing of interest-bearing
deposit products, but overall pricing remained very low compared to long-term historical trends. The
Company does not compete solely on price, as strategies are focused more on customer relationships that attract and retain core deposit customers rather than time deposits.
Total deposits grew 25% from December 31, 2013 to December 31, 2014. Savings deposit growth was $141.5 million or 29.0% and demand deposit balances
grew $38.9 million or 27.2% during 2014,
largely due to acquisition of Southern Heritage Bank. Time
deposit growth was 20.2%, or $66.4 million.
FCNB participates in the Certificate of Deposit Account Registry Service (CDARS), a deposit placement
service that allows FCNB to accept very large denomination (up to $50 million) certificates of deposit (CDs) from customers and ensures that 100% of those CDs are FDIC-insured. Participating in this network enhances FCNBs ability to attract and retain large-denomination depositors without having to place funds in a sweep or repurchase
agreement. The CDARS network provides a means to place reciprocal deposits for FCNBs customers, purchase time deposits (referred to as one-way buy deposits) or to sell excess deposits (referred to as one-way sell deposits).
One-way buy deposits are structured similarly to traditional brokered deposits. FCNB held reciprocal deposits and one-way buy deposits in the CDARS program totaling $4.9 million at year-end 2014 compared to $8.4 million at year-end 2013. CDARS accounts are classified
as brokered time deposits for regulatory reporting purposes.
Time deposits over $100,000 (including brokered time deposits) comprised 58.6% of total time deposits as of December 31, 2014 compared to 58.7% as of year-end
2013. As of December 31, 2014, 75.3% of time deposits, including
brokered time deposits,
will mature or reprice over the next 12 months as the prevailing competitive market and rate environment continued to exhibit strong demand for shorter terms during 2014.
Other Borrowings
In addition to deposits, First Citizens uses a combination of short-term
and long-term borrowings to supplement its funding needs. Short-term borrowings
are used to manage fluctuations in liquidity based on seasonality of
agricultural production loans and other factors. Short-term borrowings were
used on a very limited basis during the most recent two fiscal years because of
First Citizens strategic efforts to maintain a strong liquidity position,
modest loan demand, and steady growth in core deposits. In 2014, other
borrowings increased $15.7 million due to assumption of trust preferred debt
totaling $3.6 million and a new $12 million credit facility from a
correspondent bank associated with the acquisition. For more information about
short-term and long-term borrowings, see Notes 13 and 14 in the Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K.
The Companys junior subordinated debentures commonly referred to as
trust preferred debt totaled $13.9 million as of December 31, 2014 compared to
$10.3 million as of December 31, 2013. These debentures have 30-year terms and
variable rates with rates in the range of 1.99% to 2.29% as of December 31,
2014.
The Companys $12 million credit facility with a correspondent bank was
obtained as of October 1, 2014 as funding for cash consideration in the
acquisition of Southern Heritage Bancshares, Inc. The credit facility consists
of $6 million at a fixed rate of 3.76% for five years and $6 million at
variable rate based on 90-day LIBOR plus 2% that reprices quarterly. Principal
and interest payments are due quarterly based on a ten-year amortization.
FCNBs other borrowings consist of advances from the FHLB. The average
volume of FHLB advances for 2014 was $41.8 million at an average rate of 1.82%
compared to $46.1 million at an average rate of 1.93% in 2013. The average
remaining maturity for FHLB long-term borrowings was approximately three years at
December 31, 2014. As of December 31, 2014, FHLB borrowings were comprised
primarily of fixed rate positions ranging from 0.31% to 7.05% and maturities
from 2015 to 2023. Approximately 15% of total other borrowings or $6.4 million
will mature on or before December 31, 2015. As of December 31, 2014, advances
totaling $16 million require repayment if call features are exercised. Under
the existing and forecasted rate environments, borrowings with call features in
place are not likely to be called in the next 12 months and, therefore, were
not included in current liabilities. For more information about liquidity, see
the section below entitled Liquidity.
Aggregate Contractual
Obligations
At December 31, 2014,
contractual obligations were due as follows (in thousands):
|
Total
|
|
Less than
One Year
|
|
One-Three
Years
|
|
Three-Five
Years
|
|
Greater than
Five Years
|
Unfunded loan commitments
|
$119,669
|
|
$119,669
|
|
$ -
|
|
$ -
|
|
$ -
|
Standby letters of credit
|
2,902
|
|
2,902
|
|
-
|
|
-
|
|
-
|
Other borrowings*
|
66,831
|
|
7,505
|
|
19,936
|
|
22,970
|
|
16,420
|
Capital lease obligations
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Operating lease obligations
|
41
|
|
18
|
|
23
|
|
-
|
|
-
|
Purchase obligations
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Other long-term liabilities
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
$189,443
|
|
$130,094
|
|
$19,959
|
|
$22,970
|
|
$16,420
|
________________________
* Other borrowings presented as principal
only, excluding interest.
For more information about
long-term obligations, see Notes 14 and 19 in the Companys Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
Except for unfunded loan
commitments and standby letters of credit, the Banks do not materially engage
in off-balance sheet activities and does not anticipate material changes in
volume going forward.
For more
information about off-balance sheet risk, see Note 19 in the Companys
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K.
Results of Operations
The Company
reported consolidated net income of $13.5 million for the year ended December
31, 2014, compared to $13.8 million for the year ended December 31, 2013 and $13.5
million in 2012. Results of operations include three months of net income from
Southern Heritage Bank (which continues to operate as a separate entity but is
reported on a consolidated basis from the acquisition date forward). The 1.9%
decrease in net income from 2013 to 2014 was attributed to a 12.0% increase in
non-interest expense which was mostly offset by favorable variances in net
interest income, provision for loan losses, and total non-interest income. Earnings
per share were $3.72 for 2014 compared to $3.83 for 2013 and $3.75 for 2012. Return
on average assets was 1.08%, 1.19% and 1.25% for the years ended December 31, 2014,
2013 and 2012, respectively. Return on average equity was 10.7%, 12.1% and 12.2%
for 2014, 2013 and 2012, respectively.
Net yield on
average earning assets was 3.83% for both 2014 and 2013 and 4.01% for 2012. Stability
in net interest margin during 2014 and 2013 was attributable to the Companys
ability to maintain stable to slightly declining cost of interest bearing
liabilities while yields on loans and tax exempt-securities continued to
decline. The Banks are liability sensitive as of December 31, 2014 and are
expected to face margin compression in a rising rate environment. For more
information about the Companys interest rate sensitivity, see Item 7A of this
Annual Report on Form 10-K.
Total
non-interest income for the year ended December 31, 2014 increased approximately
$390,000 compared to the year ended December 31, 2013. The net increase was primarily
attributable to reduced losses recognized on OREO totaling approximately
$336,000 in 2014 compared to approximately $593,000 in 2013. Other
contributors to increased earnings were increased income from ATM and debit
card transactions of approximately $295,000 and increase in brokerage fees of
approximately $135,000.
There were no other-than-temporary
credit impairment losses on available-for-sale securities for the years ended
December 31, 2014, 2013 or 2012. Also, no impairment of goodwill was
recognized in any of the periods presented in this report.
The Companys
effective tax rates were in the range of 20% to 23% over the past three years.
Effective tax rates were impacted by fluctuations in certain factors including,
but not limited to, the volume of and related earnings on tax-free investments
within the Banks investment portfolios, tax-exempt earnings and expenses on bank-owned
life insurance (BOLI), certain tax benefits that result from dividends and
payouts under the Banks Employee Stock Ownership Plan (ESOP), and other
factors incidental to the financial services business. Fluctuations in the
deduction related to the ESOP dividends and payouts and tax-exempt interest
earned in the investment portfolio were the largest contributors to the various
effective rates for the past three years.
Interest earning
assets in 2014 averaged $1.14 billion at an average rate of 4.37% compared to $1.05
billion at an average rate of 4.42% in 2013 and $973 million at an average rate
of 4.77% in 2012. Interest bearing liabilities at December 31, 2014 averaged $981
million at an average cost of 0.64% compared to $912 million at an average cost
of 0.68% at December 31, 2013 and $836 million at an average cost of 0.88% at December
31, 2012. The declining asset yields and cost of funds are attributed to the
continued historical low rate environment.
The following
table presents the annual average balance sheet and net interest income
analysis for the years ended December 31, 2014, 2013 and 2012 (dollars in
thousands):
|
AVERAGE BALANCES AND RATES
|
|
|
|
|
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
Assets
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
Loans (1)(2)(3)
|
$623,760
|
$ 34,005
|
5.45%
|
$567,414
|
$ 32,156
|
5.67%
|
$ 528,024
|
$ 32,277
|
6.11%
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
319,832
|
7,229
|
2.26%
|
328,016
|
7,160
|
2.18%
|
283,244
|
7,222
|
2.55%
|
Tax exempt (4)
|
157,116
|
8,603
|
5.48%
|
124,922
|
7,129
|
5.71%
|
116,142
|
6,802
|
5.86%
|
Interest earning deposits
|
33,157
|
80
|
0.24%
|
29,657
|
85
|
0.29%
|
34,330
|
89
|
0.26%
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
1,141,842
|
49,945
|
4.37%
|
1,053,357
|
46,546
|
4.42%
|
972,581
|
46,424
|
4.77%
|
Non-interest earning assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
21,476
|
|
|
14,087
|
|
|
15,288
|
|
|
Premises and equipment
|
35,596
|
|
|
34,271
|
|
|
29,574
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
$522,539
|
$ 2,447
|
0.48%
|
$465,847
|
$ 2,250
|
0.48%
|
$ 409,576
|
$ 2,491
|
0.61%
|
Time deposits
|
358,624
|
2,415
|
0.74%
|
348,454
|
2,576
|
0.74%
|
341,005
|
3,428
|
1.01%
|
Federal funds purchased and other interest bearing
liabilities
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
980,648
|
6,269
|
0.68%
|
911,542
|
6,214
|
0.68%
|
836,013
|
7,377
|
0.88%
|
Non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
147,174
|
|
|
133,019
|
|
|
125,364
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
1,135,406
|
|
|
1,050,726
|
|
|
972,526
|
|
|
Total shareholders equity
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
|
|
|
Net yield on average earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
___________________
(1) |
Loan
totals are loans held for investments and net of unearned income and loan loss
reserves.
|
(2) |
Fee
income on loans held for investment is included in interest income and
computations of the yield.
|
(3) |
Includes
loans on non-accrual status.
|
(4) |
Interest
and rates on securities that are non-taxable for federal income tax purposes
are presented on a taxable equivalent basis based on the Companys statutory
federal tax rate of 34%.
|
Volume/Rate
Analysis
The following table provides an analysis of the impact of changes in
balances and rates on interest income and interest expense changes from 2014 to
2013 and 2013 to 2012 (in thousands):
|
2014 Compared to 2013 Due to Changes in
|
|
2013 Compared to 2012 Due to Changes in
|
|
Average Volume
|
|
Average Rate
|
|
Total Increase
(Decrease)
|
|
Average Volume
|
|
Average Rate
|
|
Total Increase
(Decrease)
|
Interest earned on:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$3,071
|
|
$(1,222)
|
|
$1,849
|
|
$2,233
|
|
$(2,354)
|
|
$ (121)
|
Taxable securities
|
(185)
|
|
254
|
|
69
|
|
976
|
|
(1,038)
|
|
(62)
|
Tax-exempt securities
|
1,764
|
|
(290)
|
|
1,474
|
|
501
|
|
(174)
|
|
327
|
Interest bearing deposits with other banks
|
8
|
|
(13)
|
|
(5)
|
|
(14)
|
|
10
|
|
(4)
|
Federal funds sold and securities purchased under
agreements to sell
|
16
|
|
(4)
|
|
12
|
|
(36)
|
|
18
|
|
(18)
|
Total interest earning assets
|
4,674
|
|
(1,275)
|
|
3,399
|
|
3,660
|
|
(3,538)
|
|
122
|
Interest expense on:
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
266
|
|
(69)
|
|
197
|
|
270
|
|
(511)
|
|
(241)
|
Time deposits
|
68
|
|
(232)
|
|
(164)
|
|
55
|
|
(904)
|
|
(849)
|
Federal funds purchased and securities sold under
agreements to repurchase and other borrowings
|
32
|
|
(10)
|
|
22
|
|
168
|
|
(241)
|
|
(73)
|
Total interest bearing liabilities
|
366
|
|
(311)
|
|
55
|
|
493
|
|
(1,656)
|
|
(1,163)
|
Net interest earnings
|
$4,308
|
|
$(964)
|
|
$3,344
|
|
$3,167
|
|
$(1,882)
|
|
$1,285
|
Non-Interest Income
The following
table compares non-interest income for the years ended December 31, 2014, 2013
and 2012 (dollars in thousands):
|
Total
|
|
Increase (Decrease)
|
|
Total
|
|
Increase (Decrease)
|
|
Total
|
|
2014
|
|
Amount
|
|
%
|
|
2013
|
|
Amount
|
|
%
|
|
2012
|
Mortgage banking income
|
$ 1,405
|
|
$ (40)
|
|
(2.77%)
|
|
$ 1,445
|
|
$ (52)
|
|
(3.47%)
|
|
$ 1,497
|
Income from fiduciary
activities
|
915
|
|
11
|
|
1.22%
|
|
904
|
|
68
|
|
8.13%
|
|
836
|
Service charges on deposit
accounts
|
4,680
|
|
(118)
|
|
(2.46%)
|
|
4,798
|
|
(98)
|
|
(2.00%)
|
|
4,896
|
Income from ATM and debit
cards
|
2,788
|
|
295
|
|
11.83%
|
|
2,493
|
|
102
|
|
4.27%
|
|
2,391
|
Brokerage fees
|
1,506
|
|
135
|
|
9.85%
|
|
1,371
|
|
111
|
|
8.81%
|
|
1,260
|
Earnings on bank owned life
insurance
|
621
|
|
(11)
|
|
(1.74%)
|
|
632
|
|
26
|
|
4.29%
|
|
606
|
Gain (loss) on sale of
foreclosed property
|
(336)
|
|
257
|
|
(43.34%)
|
|
(593)
|
|
569
|
|
(48.97%)
|
|
(1,162)
|
Gain on sale of
available-for-sale securities
|
1,294
|
|
38
|
|
3.03%
|
|
1,256
|
|
576
|
|
84.71%
|
|
680
|
Income from insurance
activities
|
867
|
|
9
|
|
1.05%
|
|
858
|
|
106
|
|
14.10%
|
|
752
|
Other non-interest income
|
681
|
|
(185)
|
|
(21.36%)
|
|
866
|
|
168
|
|
24.07%
|
|
698
|
Total non-interest income
|
$14,421
|
|
$391
|
|
2.79%
|
|
$14,030
|
|
$1,576
|
|
12.65%
|
|
$12,454
|
In 2014, total
non-interest income contributed 23.5% of total revenue in 2014 compared to 24.1%
and 22.0% for 2013 and 2012, respectively. Total non-interest income increased
2.7% in 2014 compared to 2013. Income from ATM and debit cards increased 11.83%
or approximately $295,000 in 2014 compared to 2013, largely due to increased transaction
volume. Brokerage fees increased 9.85% or approximately $135,000 in 2014
compared to 2013 also driven by increased volume. Mortgage banking income and
service charges on deposit accounts each declined less than 3% in 2014.
Mortgage banking income declined as the volume of mortgages originated and sold
on the secondary market was negatively impacted by the increased regulatory and
compliance burdens. Service charges on deposits decreased in 2014 primarily
due to declining trend in overdraft fee income.
Loss on sale
of foreclosed property includes write downs of OREO subsequent to foreclosure
and has had a favorable trend over the past three years due to declining volumes
of OREO and stabilization of real estate values. For more information
regarding OREO, see the section below entitled Financial Condition Other
Real Estate Owned and Note 10 in the Companys Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K.
Gain on sale
of available-for-sale securities totaled approximately $1.3 million per year in
2014 and 2013 as a result of specific strategies designed to realize
appreciation in the investment portfolio. See additional information regarding
sale of securities in Note 4 of the Companys Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K.
Other
non-interest income decreased approximately $185,000 due to the aggregate
effect of several small balance non-interest income streams that declined in
2014 such as service charges on letters of credit, check revenue, and other
fees.
Income from Insurance Activities in the Consolidated Statements of Income
totaled $867,000 and $858,000 in 2014 and 2013, respectively and includes income
from White and Associates/First Citizens Insurance, LLC, a full-service
insurance agency (WAFCI), accounted for under the equity method. Non-interest
income generated by WAFCI for 2014, 2013 and 2012 totaled approximately $874,000,
$859,000 and $730,000, respectively. Income from insurance activities also
includes commissions from sale of credit life policies and the Companys
proportionate share of income from FCNBs other 50% owned insurance agency, First
Citizens/White and Associates Insurance Company which was dissolved in late
2014.
Non-Interest Expense
The following
table compares non-interest expense for the years ended December 31, 2014, 2013
and 2012 (dollars in thousands):
|
Total
|
|
Increase (Decrease)
|
|
Total
|
|
Increase (Decrease)
|
|
Total
|
|
2014
|
|
Amount
|
|
%
|
|
2013
|
|
Amount
|
|
%
|
|
2012
|
Salaries and Employee
Benefits
|
$20,973
|
|
$2,067
|
|
10.93%
|
|
$18,906
|
|
$1,474
|
|
8.46%
|
|
$17,432
|
Net Occupancy Expense
|
1,900
|
|
204
|
|
12.03%
|
|
1,696
|
|
24
|
|
1.44%
|
|
1,672
|
Depreciation
|
2,073
|
|
88
|
|
4.43%
|
|
1,985
|
|
163
|
|
8.95%
|
|
1,822
|
Data Processing Expense
|
2,180
|
|
524
|
|
31.64%
|
|
1,656
|
|
(184)
|
|
(10.00%)
|
|
1,840
|
Legal and Professional Fees
|
1,153
|
|
686
|
|
146.90%
|
|
467
|
|
(239)
|
|
(33.85%)
|
|
706
|
Stationary and Office
Supplies
|
266
|
|
42
|
|
18.75%
|
|
224
|
|
4
|
|
1.82%
|
|
220
|
Amortization of Intangibles
|
80
|
|
38
|
|
90.48%
|
|
42
|
|
7
|
|
20.00%
|
|
35
|
Advertising and Promotions
|
1,013
|
|
(105)
|
|
(9.39%)
|
|
1,118
|
|
404
|
|
56.58%
|
|
714
|
Premiums for FDIC insurance
|
679
|
|
(125)
|
|
(15.55%)
|
|
804
|
|
234
|
|
41.05%
|
|
570
|
Expenses related to other
real estate owned
|
333
|
|
(82)
|
|
(19.76%)
|
|
415
|
|
(40)
|
|
(8.79%)
|
|
455
|
ATM and debit card related
fees and expenses
|
1,390
|
|
(106)
|
|
(7.09%)
|
|
1,496
|
|
391
|
|
35.38%
|
|
1,105
|
Other Expenses
|
5,312
|
|
780
|
|
17.21%
|
|
4,532
|
|
86
|
|
1.93%
|
|
4,446
|
Total non-interest expense
|
$37,352
|
|
$4,011
|
|
12.03%
|
|
$33,341
|
|
$2,324
|
|
7.49%
|
|
$31,017
|
Total non-interest expense increased 12.0% in 2014 compared to 2013. Total
non-interest expense includes three months of non-interest expense of Southern Heritage
Bank as well as approximately $1 million of costs associated with the
acquisition such as but not limited to legal, accounting, and investment banker
fees. The most significant component of non-interest expense was salaries and employee
benefits expense, which comprised 56.1% of total non-interest expense in 2014
compared to 56.8% in 2013 and 56.2% in 2012. Salary and employee benefits
expense increased 10.9% or $2.1 million in 2014 compared to 2013. Significant
expense associated with salaries and benefits is consistent with First
Citizens strategic plan to hire and retain high quality employees to provide
outstanding customer service and strive for exceptional shareholder returns. Increased
expense in 2014 is attributable to a combination of increased total number of
employees (including three months of expense associated with approximately 65
employees from the acquisition of Southern Heritage Bank), pay increases to
existing employees, increased cost of employee benefits, including health insurance,
and contributions to retirement plans and incentive plans. Over the past two
years, First Citizens also incurred additional salaries and benefits expense
for investments in new hires necessary to achieve expansion and growth goals,
absorb regulatory burdens and plan for succession. Personnel expense to
average assets was 1.67% compared to peer at 1.69% per the BHCP Report for the
year ended December 31, 2014.
From 2013 to
2014, net occupancy expense increased approximately $204,000 and depreciation
expense increased approximately $88,000. Increased net occupancy and
depreciation expense are consistent with expanded Depreciation expense
increased 8.95% in 2013 primarily due to the Cool Springs branch, which was
purchased in December 2012. Data processing expense decreased 10.0% in 2013
primarily due to effective contract management of expenses for core systems and
outsourced portions of the information technology functions of FCNB. First
Citizens continues to strive for efficiencies in the areas of expansion, data
integrity/security and customer service. However, strategies adopted by First
Citizens board of directors to provide superior customer service will continue
to exert pressure on occupancy, depreciation and other non-interest expenses going
forward.
Legal and
professional fees increased significantly in 2014 compared to 2013 as a result
of legal and other professional consulting and advisory expenses related to the
acquisition of Southern Heritage Bank. Increased expense in stationary and
supplies, amortization of intangibles, and other non-interest expenses are also
primarily attributable to the acquisition.
Advertising and
promotions expense decreased approximately $105,000 in 2014 compared to 2013. Advertising
and promotion costs are expensed as incurred and totaled $1.0 million in 2014, $1.1
million in 2013 and approximately $714,000 in 2012.
FDIC insurance
premiums totaled $679,000, $804,000, and $570,000 for the years ended December
31, 2014, 2013 and 2012, respectively. Fluctuations in this expense are
primarily attributable to fluctuations in deposit balances used to calculate
premiums.
Expenses related
to OREO totaled approximately $333,000 in 2014 compared to approximately $415,000
in 2013 and approximately $455,000 in 2012. The reduction in expense is
consistent with the declining trend in volume of OREO over the past three years.
For more information regarding OREO, see the section below entitled Financial
Condition Other Real Estate Owned and Note 10 in the Companys Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Expenses
associated with the Companys ATM and debit card program totaled approximately $1.4
million in 2014 compared to $1.5 million in 2013. Decreased expense for the
ATM and debit card program in 2014 compared to 2013 is a result of reduced
expense related to the debit card usage rewards program.
Capital Resources
The following
table presents key capital and earnings ratios for the years ended December 31:
|
2014
|
2013
|
2012
|
2011
|
2010
|
Net income to average total
assets
|
1.08%
|
1.19%
|
1.25%
|
1.18%
|
0.92%
|
Net income to average
shareholders equity
|
10.72%
|
12.06%
|
12.21%
|
12.22%
|
9.80%
|
Dividends declared to net
income
|
34.95%
|
33.94%
|
32.00%
|
33.54%
|
40.86%
|
Average equity to average total
assets
|
9.94%
|
9.83%
|
10.22%
|
9.62%
|
9.38%
|
Total equity to total assets
|
9.75%
|
9.58%
|
9.69%
|
9.82%
|
9.16%
|
In 2014, capital
growth of $31.9 million or 28.3% was achieved through new equity of $17.0
million, $8.6 million increase in retained earnings and a $6.3 million increase
in accumulated other comprehensive income. Retained earnings increased 9.1% in
2014 as a result of undistributed net income and conservative dividend payout
ratio of 35%. Accumulated other comprehensive income increased due to increase
of $6.3 million in unrealized appreciation (net of tax) on the
available-for-sale securities portfolio compared to prior year. Total capital
as a percentage of total assets has been maintained in the range of 9.0% to
10.0% for each of the past five years.
Risk-based
capital focuses primarily on broad categories of credit risk and incorporates
elements of transfer, interest rate and market risks. The calculation of
risk-based capital ratio is accomplished by dividing qualifying capital by
weighted risk assets in accordance with financial institution regulatory
guidelines. The minimum risk-based capital ratio is 8.00%. At least one-half
of this ratio or 4.00% must consist of core capital (Tier I), and the remaining
4.00% may be in the form of core (Tier I) or supplemental capital (Tier II).
Tier I capital or core capital consists of common shareholders equity,
qualified perpetual preferred stock and minority interests in consolidated
subsidiaries. Tier II capital or supplementary capital may consist of the
allowance for loan and lease losses, perpetual preferred stock,
term-subordinated debt and other debt and stock instruments. The Company has
historically maintained capital in excess of minimum levels established by
regulation. The total risk-based capital ratio was 16.5% as of December 31,
2014 and 17.6% as of December 31, 2013 were significantly in excess of the 8%
mandated by regulation. This ratio decreased during 2014 as a result of the
acquisition of Southern Heritage Bancshares, Inc.
Dividend
payments totaled $1.30 per share in 2014 compared to $1.30 per share in 2013 and
$1.20 per share in 2012. The Companys strategy continues to be to pay dividends
at a level that provides dividend payout ratio and dividend yield in excess of
average for peers as reported in the Peer Report. The dividend payout ratio
was 34.95% in 2014 compared to 33.94% in 2013 and 32.00% in 2012. The
projected payout ratio for 2015 is in the range of 30% to 40%. The Companys
dividend yield in 2014 was 3.05% compared to 3.33% per year in 2013 and 2012.
As of year-end
2014, there were approximately $21.7 million of retained earnings available for
the payment of future dividends from the subsidiary banks to the Company.
Banking regulations require certain capital levels to be maintained and may
limit dividends paid by a bank to its holding company or by the Company to its
shareholders. Historically, these restrictions have posed no practical limit
on the ability of the Company to receive dividends from its subsidiaries or to
pay dividends to shareholders.
As of December
31, 2014, the Company had repurchased approximately 111,001 shares of its common
stock; reported as treasury stock on the Consolidated Balance Sheets at
weighted average cost basis of $27.73 per share at December 31, 2014. During
2014, the Company repurchased 1,958 shares of its own common stock for an
aggregate cost of $86,592 and weighted average per share cost of $44.22. The
Company sold 795 shares of its common stock in 2014 at a weighted average per
share price of $44.45 per share for an aggregate price of $35,338. During 2013,
the Company did not repurchase or sell any shares of its common stock. There
are currently no publicly announced plans or programs to repurchase shares in
place.
Liquidity
The Company manages liquidity in
a manner to ensure the availability of ample funding to satisfy loan demand,
fund investment opportunities and fund large deposit withdrawals. Primary
funding sources for the Company include customer core deposits, and FHLB
borrowings as well as correspondent bank and other borrowings. The Companys
liquidity position is further strengthened by ready access to a diversified
base of wholesale borrowings, which includes lines of credit with the FHLB,
federal funds purchased, securities sold under agreements to repurchase,
brokered CDs and others.
The turmoil and events in
financial markets and across the banking industry during the recent economic
recession serve as proof that adequate liquidity is critical to the Companys
success and survival, especially during times of market turbulence. Therefore,
management maintains and regularly updates its strategic action plans related
to liquidity, including crisis and contingency liquidity plans to defend
against any material downturn in the liquidity position of the Company or any
of its subsidiaries.
As of December 31, 2014 and 2013,
deposits accounted for 91% of total liabilities. Borrowed funds from the FHLB totaled
3.1% ($41 million) of total liabilities as of December 31, 2014 compared to 3.8%
($41 million) as of December 31, 2013 and 3.6% ($38 million) at December 31, 2012.
As of December 31, 2014, FCNB had additional borrowing capacity of $100.4
million with the FHLB and Southern Heritage Bank had borrowing capacity of $4.7
million. The Company and its subsidiaries also had eight correspondent bank federal
fund lines of credit totaling $72.0 million as of December 31, 2014.
In each of the years ended
December 31, 2014 and 2013, FCNB held $23 million in short-term CDs with the
State of Tennessee. Brokered time deposits account for less than one percent
of total funding as of December 31, 2014 and 2013. Brokered deposits include
reciprocal and one-way buy deposits in the CDARS program. For more information
about CDARS, see the section above entitled Financial Condition Composition
of Deposits.
When evaluating
liquidity, funding needs are compared against the current level of liquidity,
plus liquidity that would likely be available from other sources. This comparison
provides a means for determining whether funds management practices are
adequate. Management should be able to manage unplanned changes in funding
sources, as well as react to changes in market conditions that could hinder the
Banks ability to quickly liquidate assets with minimal loss. Funds management
practices are designed and implemented to ensure that the Company does not
maintain liquidity by paying above market prices for funds or by relying unduly
on wholesale or credit-sensitive funding sources. The OCC has established
benchmarks to be used as guidelines in managing liquidity. The following areas
are considered liquidity red flags:
-
Significant increases in reliance on wholesale funding;
-
Significant increases in large CDs, brokered deposits or deposits
with interest rates higher than the market;
-
Mismatched funding funding long-term assets with short-term
liabilities or short-term assets with long-term liabilities;
-
Significant increases in borrowings;
-
Significant increases in dependence on funding sources other than
core deposits;
-
Reduction in borrowing lines by correspondent banks;
-
Increases in cost of funds;
-
Declines in levels of core deposits; and
-
Significant decreases in short-term investments.
Although the
Companys liquidity position remained strong during the periods presented and
is forecasted to remain strong, liquidity remains a critical component of the
overall strategic plan, which strives to maintain diverse funding sources
conducive to net interest margin strategies. The following table reflects key
liquidity metrics of the Company compared to the BHCP Report of December 31, 2014,
2013 and 2012:
|
2014
|
2013
|
2012
|
|
|
First Citizens
|
Peer(1)
|
First Citizens
|
Peer(2)
|
First Citizens
|
Peer(2)
|
Noncore funding to total
assets
|
3.46%
|
3.37%
|
3.41%
|
3.33%
|
3.69%
|
3.38%
|
Net noncore funding
dependence
|
1.08%
|
0.91%
|
1.19%
|
0.88%
|
1.27%
|
0.79%
|
Net loans and leases to
total deposits
|
0.16%
|
0.15%
|
0.16%
|
0.25%
|
0.14%
|
0.59%
|
Available-for-sale
securities appreciation (depreciation) to Tier 1 Capital(3)
|
8.92%
|
10.11%
|
9.40%
|
9.94%
|
9.17%
|
9.74%
|
Pledged securities to total
investment securities
|
36.17%
|
23.68%
|
33.94%
|
23.12%
|
32.00%
|
25.78%
|
|
|
|
|
|
|
|
|
|
|
|
___________________
(1)
|
Peer information is provided
for December 31, 2014, which is the most recent information available.
|
(2)
|
For the years ended December
31, 2013 and 2012, First Citizens peer group consisted of approximately 350
bank holding companies with total asset size of $1 to $3 billion.
|
(3)
|
Tier 1 capital to average
assets is the ratio of core equity capital components to average total
assets.
|
The above
comparison is one quantitative means of monitoring liquidity levels. However,
other quantitative and qualitative factors are considered in the overall risk
management process for liquidity. Such other factors evaluated by management
include, but are not limited to, forecasting and stress testing capital levels,
diversification of funding sources, degree of reliance on short-term volatile
funding sources, deposit volume trends and stability of deposits. There are no
known trends or uncertainties that are likely to have a material effect on the
Companys liquidity or capital resources. There currently exist no
recommendations by regulatory authorities, which, if implemented, would have
such an effect.
Recently
Issued Accounting Standards
ASU 2014-01, Investments -
Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in
Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues
Task Force).
ASU 2014-01
allows for use of the proportional amortization method for qualified affordable
housing projects if certain conditions are met. Under the proportional
amortization method, the initial cost of the investment is amortized in
proportion to the tax credits and other tax benefits received and the net
investment performance is recognized in the income statement as a component of income
tax expense. ASU 2014-01 provides for a practical expedient, which allows for
amortization of only expected tax credits over the period tax credits are
expected to be received. This method is permitted if it produces a measurement
that is substantially similar to the measurement that would result from using
both tax credits and other tax benefits. ASU 2014-01 is effective for fiscal
years and interim periods beginning after December 15, 2014 and is applied
retrospectively to all periods presented. The adoption of ASU 2014-01 did not
have a material impact on the Companys Consolidated Financial Statements.
ASU 2014-04, Receivables - Troubled Debt Restructurings
by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate
Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the
FASB Emerging Issues Task Force).
ASU 2014-04
clarifies that an in substance repossession or foreclosure occurs, and a
creditor is considered to have received physical possession of residential real
estate property collateralizing a consumer mortgage loan, upon either (1) the
creditor obtaining legal title to the residential real estate property upon
completion of a foreclosure or (2) the borrower conveying all interest in the
residential real estate property to the creditor to satisfy that loan through
completion of a deed in lieu of foreclosure or through a similar legal
agreement. ASU 2014-04 is effective for fiscal years and interim periods
beginning after December 15, 2014 and may be applied prospectively or through a
modified retrospective approach. The adoption of ASU 2014-04 did not have a
material impact on the Company's Consolidated Financial Statements.
ASU 2014-09, Revenue from Contracts with Customers.
ASU 2014-09 does
not change revenue recognition for leases, insurance contracts or financial
instruments. The core principle of ASU 2014-09 is that an entity should
recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The newly
established recognition principle is accomplished through a five-step framework
involving 1) the identification of contracts with customers, 2) identification
of performance obligations, 3) determination of the transaction price, 4)
allocation of the transaction price to the performance obligations and 5)
recognition of revenue as performance obligations are satisfied. Additionally,
qualitative and quantitative information is required for disclosure regarding
the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. ASU 2014-09 is effective for annual reporting
periods beginning after December 15, 2016, including interim periods within
that reporting period. Early application is not permitted. Transition to the
new requirements may be made by retroactively revising prior financial
statements or by a cumulative effect through retained earnings. The adoption of
ASU 2014-09 is not expected to have a material impact on the Company's
Consolidated Financial Statements.
ASU 2014-14, Receivables Troubled Debt Restructurings
by Creditors: Classification of Certain Government-Guaranteed Residential
Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task
Force).
Issued in August
2014, ASU 2014-14 requires that a mortgage loan be derecognized and that a
separate other receivable be recognized upon foreclosure if (1) the loan has a
government guarantee that is not separable from the loan before foreclosure;
(2) at the time of foreclosure, the creditor has the intent to convey the real
estate property to the guarantor and make a claim on the guarantee, and the
creditor has the ability to recover
under the claim; and (3) at the time of foreclosure, any amount of the claim
that is determined on the basis of the fair value of the real estate is fixed.
ASU 2014-14 also provides that upon foreclosure, the separate other receivable
would be measured based on the current amount of the loan balance (principal
and interest) expected to be recovered under the guarantee. The amendments of
ASU 2014-14 are effective for interim and annual periods beginning after
December 15, 2014, and may be applied using either a modified retrospective
transition method or a prospective transition method as described in ASU
2014-14. The adoption of ASU 2014-14 is not expected to have a material impact
on the Company's Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Interest Rate Sensitivity
Interest rate
sensitivity varies with different types of interest-earning assets and
interest-bearing liabilities. Overnight federal funds, on which rates change
daily, and loans which are tied to the prime rate are much more sensitive than
long-term investment securities and fixed rate loans. The shorter-term interest
sensitive assets and liabilities are key to measurement of the interest
sensitivity gap. Minimizing this gap is a continual challenge and a primary
objective of the asset/liability management program.
The Company
monitors and employs multiple strategies to manage interest rate risk and
liquidity continuously at acceptable levels. Such strategies include but are
not limited to use of FHLB borrowings, floors on variable rate loans, use of interest
rate swaps and investments in mortgage-backed investments that enable the
Company to have steady cash inflows.
Overall, the
Company maintained net interest margins at 3.83% in 2013 and 2014. Margins declined
from 2012 to 2013 and stabilized in 2013 and 2014. The ability to maintain a strong
net interest margin over the past three years has been challenged by the
historical low rate environment and weak loan demand resulting in a declining
loan-to-deposit trend. The impact of deposit growth primarily being used for
increased lower yielding cash balances and increased allocations to investment securities
purchases over the past three years will continue to place pressure on net
interest margins going forward.
Interest rate
risk is separated and analyzed according to the following categories of risk:
(1) re-pricing; (2) yield curve; (3) option risk; (4) price risk; and (5) basis
risk. Trading assets are utilized infrequently and are addressed in the
investment policy. Asset/liability strategies are reviewed and adjusted
perpetually in order to achieve or maintain a stable net interest margin
without taking on material risk in other key risk areas such as credit risk or
liquidity risk. The data schedule below reflects a summary of the Companys
interest rate risk using simulations. The projected 12-month exposure is based
on various rate scenarios which are primarily focused on rising rates given the
historically low current rate environment.
The following condensed
gap reports provide an analysis of interest rate sensitivity of earning assets
and costing liabilities in a flat rate environment at December 31, 2014 and 2013
(dollars in thousands):
CONDENSED GAP REPORT
CURRENT BALANCES
DECEMBER 31, 2014
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Over 5
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Total investments
|
$112,680
|
$69,615
|
$65,355
|
$61,385
|
$69,989
|
$204,322
|
$583,346
|
Total net loans
|
379,266
|
112,790
|
85,723
|
61,217
|
40,127
|
24,559
|
703,682
|
Other earnings assets
|
54,203
|
0
|
0
|
0
|
0
|
33,098
|
87,301
|
Non-earning assets
|
-
|
-
|
-
|
-
|
-
|
107,109
|
107,109
|
Total assets
|
$546,149
|
$182,405
|
$151,078
|
$122,602
|
$110,116
|
$369,088
|
$1,481,438
|
Liabilities:
|
|
|
|
|
|
|
|
Non-maturity deposits
|
309,766
|
16,936
|
16,348
|
15,781
|
15,236
|
436,557
|
810,624
|
Time deposits
|
309,424
|
44,321
|
22,832
|
14,670
|
9,559
|
76
|
400,882
|
Total deposits
|
619,190
|
61,257
|
39,180
|
30,451
|
24,795
|
436,633
|
1,211,506
|
Total borrowings
|
70,079
|
8,355
|
12,764
|
8,394
|
12,269
|
4,287
|
116,148
|
Other liabilities
|
0
|
0
|
0
|
0
|
0
|
9,274
|
9,274
|
Equity
|
-
|
-
|
-
|
-
|
-
|
144,510
|
144,510
|
Total liabilities and equity
|
$689,269
|
$69,612
|
$51,944
|
$38,845
|
$37,064
|
$594,704
|
$1,481,438
|
|
|
|
|
|
|
|
|
Period gap
|
($143,120)
|
$112,793
|
$99,134
|
$83,757
|
$73,052
|
($225,616)
|
-
|
Cumulative gap
|
-143,120
|
-30,327
|
68,807
|
152,564
|
225,616
|
-
|
-
|
% of Total Assets
|
-9.66%
|
-2.05%
|
4.64%
|
10.30%
|
15.23%
|
0.00%
|
0.00%
|
CONDENSED GAP REPORT
CURRENT BALANCES
DECEMBER 31, 2013
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
Over 5
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Total investments
|
$ 73,545
|
$ 50,835
|
$ 49,323
|
$47,477
|
$50,001
|
$185,344
|
$ 456,525
|
Total net loans
|
360,235
|
77,486
|
59,411
|
38,496
|
13,227
|
23,563
|
572,418
|
Other earnings assets
|
33,017
|
-
|
-
|
-
|
-
|
22,466
|
55,483
|
Non-earning assets
|
-
|
-
|
-
|
-
|
-
|
90,046
|
90,046
|
Total assets
|
$466,797
|
$128,321
|
$108,734
|
$85,973
|
$63,228
|
$321,419
|
$1,174,472
|
Liabilities:
|
|
|
|
|
|
|
|
Non-maturity deposits
|
248,313
|
12,319
|
11,872
|
11,443
|
11,032
|
335,761
|
630,740
|
Time deposits
|
280,659
|
31,051
|
11,316
|
11,875
|
2,822
|
67
|
337,790
|
Total deposits
|
528,972
|
43,370
|
23,188
|
23,318
|
13,854
|
335,828
|
968,530
|
Total borrowings
|
49,159
|
2,009
|
7,010
|
7,010
|
7,119
|
15,668
|
87,975
|
Other liabilities
|
-
|
-
|
-
|
-
|
-
|
5,361
|
5,361
|
Equity
|
-
|
-
|
-
|
-
|
-
|
112,606
|
112,606
|
Total liabilities and equity
|
$578,131
|
$45,379
|
$30,198
|
$30,328
|
$20,973
|
$469,463
|
$1,174,472
|
|
|
|
|
|
|
|
|
Period gap
|
$(111,334)
|
$82,942
|
$78,536
|
$55,645
|
$ 42,255
|
$(148,044)
|
$ -
|
Cumulative gap
|
(111,334)
|
(28,392)
|
50,144
|
105,789
|
148,044
|
-
|
-
|
% of Total Assets
|
-9.5%
|
-2.4%
|
4.3%
|
9.0%
|
12.6%
|
0.0%
|
-%
|
Notes
to the Gap Reports:
-
The gap report reflects the
interest sensitivity positions during a flat rate environment. Time frames
could change depending on whether rates rise or fall.
-
Re-pricing overrides maturities in
various time frames.
-
Other earning assets consist of
bank owned life insurance, interest bearing deposits in banks, fed funds sold,
and FHLB and Federal Reserve Bank stock.
-
Non-maturity deposits include both
non-interest bearing demand deposits and interest bearing savings and
transaction accounts. Non-maturity deposits are considered to be core and are
spread among the one-year, two-year, three-year and greater than five-year
categories for gap analysis based on characteristics of the various accounts
and pricing strategies related to those accounts. Regular savings accounts are
the least sensitive type of interest bearing account. First Rate, e-Solutions
and Wall Street deposit products are more sensitive to rate changes and,
therefore, are repriced more aggressively than regular savings and other less
sensitive type deposit accounts.
-
Simulations are utilized to reflect
the impact of multiple rate scenarios on net interest income at risk, net
income at risk and economic value of equity at risk. Strategies are implemented
to increase net interest income, while always considering the impact on
interest rate risk. Overall, the Company manages the gap between interest rate
sensitive liabilities to expand and contract with the rate cycle phase and to
keep exposures within policy limits. The Companys Funds Management Committee
is responsible for implementing and monitoring procedures to improve net
interest income through volume increases and efficient pricing techniques.
First Citizens
interest rate risk position is currently and has been liability sensitive for
the past three years. Therefore, net interest margins would be diluted slightly
by increases in rates over the next 12 months under a normal interest rate
environment. As of December 2014, federal funds rates remain at historical low
ranges of 0.00% to 0.25%. Federal funds rates at this level do not have the
capacity to decrease even 100 basis points. Therefore, in the interest rate
risk models, the rates on federal funds and prime hit a floor of zero and 3.0%,
respectively. The prime rate floor of 3% assumes that the normal spread between
federal funds rates and prime is maintained and remains fixed at 300 basis
points. While prime rate in the model reaches a floor of 3%, FCNBs variable
rate loan pricing carries an average floor in the range of 4.0% to 5.0%. As
rates in the model are shocked, loans will decrease only until the floor
position is reached while some liabilities continue to reprice downward.
However, the variance between the flat rate scenario and the down rate shocks
are negative as the current pricing of liabilities is historically low and has
little room to trend downward beyond its current position. With federal funds
rates currently between 0.00% to 0.25%, the down 100 basis points and down 200
basis point scenarios are the most unlikely scenarios. Scenarios for exposure
in the up 100 basis points and up 200 basis points are considered more
realistic. However, recent statements by the FOMC indicate that federal funds
rates will mostly remain flat or increase gradually over the next one to two
years.
These rate shock scenarios also indicate a negative variance because the
upward scenarios indicate that deposits will reprice faster than loans and investments,
especially given that most of the loans are currently at a floor and will
require a more than 200-basis point increase in federal funds rates and prime
rate before loan floors will increase.
The Companys
exposure to interest rate risk is within established policy limits. The
following table presents net interest income at risk as of December 31, 2014
projected over a 12-month exposure period and compared to the Companys
internal policy limits (dollars in thousands):
Scenarios:
|
|
Rate Moves in
Basis Points
|
|
Current Position
|
|
Possible Results
|
|
Variance
|
|
As % of Net
Interest Income*
|
|
Policy Limit
|
Declining 1%
|
|
-100
|
|
45,064
|
|
43,252
|
|
-1,812
|
|
-4.02%
|
|
-15.00%
|
Most Likely-Base
|
|
|
|
45,064
|
|
45,064
|
|
0
|
|
0
|
|
%
|
Rising 1%
|
|
100
|
|
45,064
|
|
43,909
|
|
-1,155
|
|
-2.56%
|
|
-7.00%
|
Rising 2%
|
|
200
|
|
45,064
|
|
42,651
|
|
-2,413
|
|
-5.35%
|
|
-15.00%
|
Rising 3%
|
|
300
|
|
45,064
|
|
41,177
|
|
-3,887
|
|
-8.63%
|
|
-20.00%
|
Rising 4%
|
|
400
|
|
45,064
|
|
39,565
|
|
-5,499
|
|
-12.20%
|
|
-25.00%
|
____________________________
* Net interest income assumes that interest rates would
change immediately within the total portfolio, a scenario which would reflect a
worst case position and is unlikely to happen.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Managements Annual Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control
system is designed to provide reasonable assurance to management and the
Companys Board of Directors regarding the preparation and fair presentation of
the Companys annual financial statements in accordance with generally accepted
accounting principles.
Inherent
limitations exist in the effectiveness of any internal control structure,
including the possibility of human error and circumvention of controls.
Accordingly, even effective internal control can only provide reasonable
assurance with respect to financial statement preparation.
Management
assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2014, based on criteria for effective internal
control over financial reporting described in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As permitted, management excluded from its assessment the
operations of Southern Heritage Bancshares, Inc. during 2014 which is more
fully described in Note 2 to the Consolidated Financial Statements. The assets
acquired in this transaction consist primarily of cash, investment securities,
loans and fixed assets which comprised approximately 17% of total consolidated
assets at December 31, 2014. Based on this assessment, management believes
that, as of December 31, 2014, the Companys internal control over financial
reporting was effective.
Alexander
Thompson Arnold, PLLC, the Companys independent registered public accounting
firm, has audited the Companys consolidated financial statements and issued an
attestation report on the Companys internal control over financial reporting.
The reports appear beginning on the next page.
Members of:
American Institute of Certified Public Accountants
AICPA Center for Public Company Audit Firms
AICPA Governmental Audit Quality Center
AICPA Employee Benefit Plan Audit Quality Center
Tennessee Society of Certified Public Accountants
Kentucky Society of Certified Public Accountants |
![](ata.jpg)
Offices in Tennessee &
Kentucky |
185 North Church St.
Dyersburg, TN 38024Phone 731.285.7900
fax 731.285.6221
www.atacpa.net |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders of
First Citizens Bancshares, Inc. and Subsidiaries
Dyersburg, Tennessee 38024
We have audited First Citizens
Bancshares, Inc. and subsidiaries internal control over financial reporting as
of December 31, 2014, based on criteria established in Internal
ControlIntegrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). As permitted by regulations
we have excluded Southern Heritage Bancshares, Inc. from the audit of internal
control over financial reporting. First Citizens Bancshares, Inc. and
subsidiaries management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Managements Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, First Citizens
Bancshares Inc. and subsidiaries excluding Southern Heritage Bancshares Inc.
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal
ControlIntegrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the balance sheets and the related statements of income,
comprehensive income, stockholders equity, and cash flows of First Citizens
Bancshares Inc. and subsidiaries, and our report dated March 3, 2015, expressed
an unqualified opinion.
Alexander Thompson Arnold, PLLC
Dyersburg, Tennessee
March 3, 2015
Members of:
American Institute of Certified Public Accountants
AICPA Center for Public Company Audit Firms
AICPA Governmental Audit Quality Center
AICPA Employee Benefit Plan Audit Quality Center
Tennessee Society of Certified Public Accountants
Kentucky Society of Certified Public Accountants |
![](ata.jpg)
Offices in Tennessee &
Kentucky |
185 North Church St.
Dyersburg, TN 38024Phone 731.285.7900
fax 731.285.6221
www.atacpa.net |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Shareholders of
First Citizens Bancshares, Inc. and Subsidiaries
Dyersburg, Tennessee 38024
We have audited the accompanying
consolidated balance sheets of First Citizens Bancshares, Inc., and
subsidiaries as of December 31, 2014 and 2013, and the related consolidated
statements of income, comprehensive income, stockholders equity, and cash
flows for each of the years in the three- year period ended December 31, 2014.
First Citizens Bancshares, Inc. and subsidiaries management is responsible for
these financial statements. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of First Citizens Bancshares, Inc. and subsidiaries as of December 31,
2014 and 2013, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2014, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
First Citizens Bancshares, Inc. and subsidiaries internal control over
financial reporting as of December 31, 2014, based on criteria established in Internal
ControlIntegrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 3,
2015, expressed an unqualified opinion.
Alexander Thompson Arnold PLLC
|
|
|
Dyersburg, Tennessee
|
March
3, 2015
|
|
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
ASSETS |
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
18,932 |
|
$ |
19,780 |
|
Federal funds sold |
|
|
14,250 |
|
|
5,469 |
|
Cash and cash equivalents |
|
|
33,182 |
|
|
25,249 |
|
Interest-bearing deposits in other banks |
|
|
40,993 |
|
|
21,865 |
|
Investment securities: |
|
|
|
|
|
|
|
Available-for-Sale, stated at market |
|
|
583,346 |
|
|
456,525 |
|
Loans (excluding unearned income of $423 at December 31, 2014 and $434 at December 31, 2013) |
|
|
711,223 |
|
|
580,236 |
|
Less: Allowance for loan losses |
|
|
7,541 |
|
|
7,818 |
|
Net loans |
|
|
703,682 |
|
|
572,418 |
|
Loans held-for-sale |
|
|
4,339 |
|
|
3,098 |
|
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost |
|
|
6,134 |
|
|
5,684 |
|
Premises and equipment |
|
|
41,006 |
|
|
34,152 |
|
Accrued interest receivable |
|
|
6,260 |
|
|
5,011 |
|
Goodwill |
|
|
22,340 |
|
|
13,651 |
|
Other intangible assets |
|
|
1,800 |
|
|
384 |
|
Other real estate owned |
|
|
5,717 |
|
|
6,826 |
|
Bank-owned life insurance policies |
|
|
25,924 |
|
|
22,466 |
|
Other assets |
|
|
6,715 |
|
|
7,143 |
|
TOTAL ASSETS |
|
$ |
1,481,438 |
|
$ |
1,174,472 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
$ |
181,195 |
|
$ |
142,673 |
|
Interest-bearing deposits |
|
|
1,030,311 |
|
|
825,857 |
|
Total deposits |
|
|
1,211,506 |
|
|
968,530 |
|
Securities sold under agreements to repurchase |
|
|
49,317 |
|
|
36,808 |
|
Long-term debt |
|
|
66,831 |
|
|
51,167 |
|
Other liabilities |
|
|
9,274 |
|
|
5,361 |
|
Total liabilities |
|
|
1,336,928 |
|
|
1,061,866 |
|
FIRST CITIZENS BANCSHARES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (cont’d)
DECEMBER 31, 2014 AND 2013
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
Equity |
|
|
|
|
|
|
|
Class A common stock, no par value – 1,000,000 authorized; 145,728 issued and outstanding at December 31, 2014 and no shares authorized, issued or outstanding at December 31, 2013 |
|
$ |
146 |
|
$ |
- |
|
Common stock, no par value - 10,000,000 authorized; 3,986,895 issued and 3,838,522 outstanding at December 31, 2014 and 10,000,000 authorized, 3,717,593 issued and 3,607,754 outstanding at December 31, 2013 |
|
|
3,950 |
|
|
3,718 |
|
Surplus |
|
|
31,946 |
|
|
15,331 |
|
Retained earnings |
|
|
103,536 |
|
|
94,889 |
|
Accumulated other comprehensive income (loss) |
|
|
5,955 |
|
|
(361 |
) |
Total common stock and retained earnings |
|
|
145,533 |
|
|
113,577 |
|
Less-111,001 treasury shares, at cost as of December 31, 2014 and 109,839 treasury shares, at cost as of December 31, 2013 |
|
|
3,078 |
|
|
3,026 |
|
Total shareholders’ equity |
|
|
142,455 |
|
|
110,551 |
|
Non-controlling (minority) interest in consolidated subsidiary |
|
|
2,055 |
|
|
2,055 |
|
Total equity |
|
|
144,510 |
|
|
112,606 |
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,481,438 |
|
$ |
1,174,472 |
|
Note: See accompanying notes to consolidated
financial statements.
FIRST CITIZENS BANCSHARES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
2012 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
34,005 |
|
$ |
32,156 |
|
$ |
32,277 |
|
Interest and dividends on investment securities: |
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
7,031 |
|
|
6,962 |
|
|
7,004 |
|
Tax-exempt |
|
|
5,592 |
|
|
4,705 |
|
|
4,489 |
|
Dividends |
|
|
198 |
|
|
198 |
|
|
218 |
|
Other interest income |
|
|
108 |
|
|
101 |
|
|
123 |
|
Total interest income |
|
|
46,934 |
|
|
44,122 |
|
|
44,111 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
4,862 |
|
|
4,829 |
|
|
5,919 |
|
Interest on borrowings |
|
|
1,164 |
|
|
1,102 |
|
|
1,126 |
|
Other interest expense |
|
|
243 |
|
|
283 |
|
|
332 |
|
Total interest expense |
|
|
6,269 |
|
|
6,214 |
|
|
7,377 |
|
Net interest income |
|
|
40,665 |
|
|
37,908 |
|
|
36,734 |
|
Provision for loan losses |
|
|
751 |
|
|
775 |
|
|
650 |
|
Net interest income after provision for loan losses |
|
|
39,914 |
|
|
37,133 |
|
|
36,084 |
|
Non-interest income |
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
4,680 |
|
|
4,798 |
|
|
4,896 |
|
Income from ATM and debit cards |
|
|
2,788 |
|
|
2,493 |
|
|
2,391 |
|
Brokerage fees |
|
|
1,506 |
|
|
1,371 |
|
|
1,260 |
|
Mortgage banking income |
|
|
1,405 |
|
|
1,445 |
|
|
1,497 |
|
Income from fiduciary activities |
|
|
915 |
|
|
904 |
|
|
836 |
|
Income from insurance activities |
|
|
867 |
|
|
858 |
|
|
752 |
|
Earnings on bank owned life insurance |
|
|
621 |
|
|
632 |
|
|
606 |
|
Loss on sale or write down of other real estate owned |
|
|
(336 |
) |
|
(593 |
) |
|
(1,162 |
) |
Gain on sale or call of available-for-sale securities |
|
|
1,294 |
|
|
1,256 |
|
|
680 |
|
Other non-interest income |
|
|
681 |
|
|
866 |
|
|
698 |
|
Total non-interest income |
|
|
14,421 |
|
|
14,030 |
|
|
12,454 |
|
Total other-than temporary impairment losses |
|
|
– |
|
|
– |
|
|
– |
|
Portion of loss recognized in other comprehensive income (before taxes) |
|
|
– |
|
|
– |
|
|
– |
|
Net impairment losses recognized in earnings |
|
|
– |
|
|
– |
|
|
– |
|
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (cont’d)
YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
2012 |
|
Other non-interest expense: |
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
20,973 |
|
$ |
18,906 |
|
$ |
17,432 |
|
Net occupancy expense |
|
|
1,900 |
|
|
1,696 |
|
|
1,672 |
|
Depreciation |
|
|
2,073 |
|
|
1,985 |
|
|
1,822 |
|
Data processing expense |
|
|
2,180 |
|
|
1,656 |
|
|
1,840 |
|
ATM and debit card fees and expenses |
|
|
1,390 |
|
|
1,496 |
|
|
1,105 |
|
Advertising and promotions |
|
|
1,013 |
|
|
1,118 |
|
|
714 |
|
Legal and professional fees |
|
|
1,153 |
|
|
467 |
|
|
706 |
|
Premiums for FDIC insurance |
|
|
679 |
|
|
804 |
|
|
570 |
|
Expenses related to other real estate owned |
|
|
333 |
|
|
415 |
|
|
455 |
|
Stationary and office supplies |
|
|
266 |
|
|
224 |
|
|
220 |
|
Amortization of intangibles |
|
|
80 |
|
|
42 |
|
|
35 |
|
Other non-interest expense |
|
|
5,312 |
|
|
4,532 |
|
|
4,446 |
|
Total other non-interest expense |
|
|
37,352 |
|
|
33,341 |
|
|
31,017 |
|
Net income before income taxes |
|
|
16,983 |
|
|
17,822 |
|
|
17,521 |
|
Provision for income tax expense |
|
|
3,438 |
|
|
4,014 |
|
|
4,006 |
|
Net income |
|
$ |
13,545 |
|
$ |
13,808 |
|
$ |
13,515 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
3.72 |
|
$ |
3.83 |
|
$ |
3.75 |
|
Weighted average common shares outstanding |
|
|
3,644 |
|
|
3,607 |
|
|
3,607 |
|
Note: See accompanying notes to consolidated
financial statements.
FIRST CITIZENS BANCSHARES,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Net income |
|
$ |
13,545 |
|
|
$ |
13,808 |
|
|
$ |
13,515 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale securities |
|
|
6,316 |
|
|
|
(10,652 |
) |
|
|
1,490 |
|
Total other comprehensive income (loss), net of tax |
|
|
6,316 |
|
|
|
(10,652 |
) |
|
|
1,490 |
|
Total comprehensive income |
|
$ |
19,861 |
|
|
$ |
3,156 |
|
|
$ |
15,005 |
|
Related tax effects allocated
to each component of other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax |
|
|
Tax Expense |
|
|
Net-of-tax |
|
|
|
Amount |
|
|
Or Benefit |
|
|
Amount |
|
Year ended December 31, 2014: |
|
|
|
|
|
|
|
|
|
Unrealized gains on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period |
|
$ |
10,830 |
|
|
$ |
(4,147 |
) |
|
$ |
6,683 |
|
Reclassification adjustments for net gains included in net income |
|
|
(595 |
) |
|
|
228 |
|
|
|
(367 |
) |
Net unrealized gains (losses) |
|
$ |
10,235 |
|
|
$ |
(3,919 |
) |
|
$ |
6,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses arising during the period |
|
$ |
(16,006 |
) |
|
$ |
6,129 |
|
|
$ |
(9,877 |
) |
Reclassification adjustments for net gains included in net income |
|
|
(1,256 |
) |
|
|
481 |
|
|
|
(775 |
) |
Net unrealized gains (losses) |
|
$ |
(17,262 |
) |
|
$ |
6,610 |
|
|
$ |
(10,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period |
|
$ |
3,095 |
|
|
$ |
(1,185 |
) |
|
$ |
1,910 |
|
Reclassification adjustments for net gains included in net income |
|
|
(680 |
) |
|
|
260 |
|
|
|
(420 |
) |
Net unrealized gains (losses) |
|
$ |
2,415 |
|
|
$ |
(925 |
) |
|
$ |
1,490 |
|
Note: See accompanying
notes to consolidated financial statements.
FIRST CITIZENS BANCSHARES,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated.
Other |
|
|
|
|
|
Non-
Controlling |
|
|
|
|
|
|
Common
Stock |
|
|
Common
Stock |
|
|
|
|
|
Retained |
|
|
Comprehensive. |
|
|
Treasury |
|
|
Minority |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Surplus |
|
|
Earnings |
|
|
Income |
|
|
Stock |
|
|
Interests |
|
|
Total |
|
|
|
|
(#) |
|
|
($) |
|
|
|
(#) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Balance January 1, 2012 |
|
|
- |
|
|
$ |
- |
|
|
|
3,718 |
|
|
$ |
3,718 |
|
|
$ |
15,331 |
|
|
$ |
76,586 |
|
|
$ |
8,801 |
|
|
$ |
(3,023 |
) |
|
$ |
2,055 |
|
|
$ |
103,468 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, year ended December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,515 |
|
Adjustment of unrealized gains on securities available-for-sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,490 |
|
|
|
|
|
|
|
|
|
|
|
1,490 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,515 |
|
|
|
1,490 |
|
|
|
|
|
|
|
|
|
|
|
15,005 |
|
Cash dividends paid - $1.20 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,330 |
) |
Treasury stock purchases – net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Balance December 31, 2012 |
|
|
- |
|
|
$ |
- |
|
|
|
3,718 |
|
|
$ |
3,718 |
|
|
$ |
15,331 |
|
|
$ |
85,771 |
|
|
$ |
10,291 |
|
|
$ |
(3,026 |
) |
|
$ |
2,055 |
|
|
$ |
114,140 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, year ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,808 |
|
Adjustment of unrealized losses on securities available-for-sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,652 |
) |
|
|
|
|
|
|
|
|
|
|
(10,652 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,808 |
|
|
|
(10,652 |
) |
|
|
|
|
|
|
|
|
|
|
3,156 |
|
Cash dividends paid - $1.30 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,690 |
) |
Balance December 31, 2013 |
|
|
- |
|
|
$ |
- |
|
|
|
3,718 |
|
|
$ |
3,718 |
|
|
$ |
15,331 |
|
|
$ |
94,889 |
|
|
$ |
(361 |
) |
|
$ |
(3,026 |
) |
|
$ |
2,055 |
|
|
$ |
112,606 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, year ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,545 |
|
Adjustment of unrealized gains on securities available-for-sale, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,316 |
|
|
|
|
|
|
|
|
|
|
|
6,316 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,545 |
|
|
|
6,316 |
|
|
|
|
|
|
|
|
|
|
|
19,861 |
|
Cash dividends paid - $1.30 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,898 |
) |
Reclassification of certain common shares to Class A Common Stock |
|
|
37 |
|
|
|
37 |
|
|
|
(37 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Issuance of common stock and Class A common stock in connection with acquisition of Southern Heritage Bancshares, Inc. |
|
|
109 |
|
|
|
109 |
|
|
|
269 |
|
|
|
269 |
|
|
|
16,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,993 |
|
Treasury stock purchases – net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
(52 |
) |
Balance December 31, 2014 |
|
|
146 |
|
|
$ |
146 |
|
|
|
3,950 |
|
|
$ |
3,950 |
|
|
$ |
31,946 |
|
|
$ |
103,536 |
|
|
$ |
5,955 |
|
|
$ |
(3,078 |
) |
|
$ |
2,055 |
|
|
$ |
144,510 |
|
Note: See accompanying
notes to consolidated financial statements.
FIRST CITIZENS BANCSHARES,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,545 |
|
|
$ |
13,808 |
|
|
$ |
13,515 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
751 |
|
|
|
775 |
|
|
|
650 |
|
Provision for depreciation |
|
|
2,073 |
|
|
|
1,985 |
|
|
|
1,822 |
|
Provision for amortization of intangibles |
|
|
80 |
|
|
|
42 |
|
|
|
35 |
|
Deferred income taxes |
|
|
400 |
|
|
|
(637 |
) |
|
|
(102 |
) |
Net gains on sale or call of available-for-sale securities |
|
|
(1,294 |
) |
|
|
(1,256 |
) |
|
|
(680 |
) |
Net losses on sale or write down of other real estate owned |
|
|
336 |
|
|
|
593 |
|
|
|
1,162 |
|
Net (increase) decrease in loans held-for-sale |
|
|
1,611 |
|
|
|
1,580 |
|
|
|
(2,062 |
) |
(Increase) decrease in accrued interest receivable |
|
|
(243 |
) |
|
|
10 |
|
|
|
285 |
|
Decrease in accrued interest payable |
|
|
(163 |
) |
|
|
(144 |
) |
|
|
(35 |
) |
Increase in cash surrender value of bank-owned life insurance policies |
|
|
(458 |
) |
|
|
(508 |
) |
|
|
(520 |
) |
Net (increase) decrease in other assets |
|
|
1,720 |
|
|
|
522 |
|
|
|
(2,502 |
) |
Net increase in other liabilities |
|
|
1,473 |
|
|
|
331 |
|
|
|
1,747 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
19,831 |
|
|
|
17,101 |
|
|
|
13,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in interest-bearing deposits in other banks |
|
|
(10,495 |
) |
|
|
19,984 |
|
|
|
(1,711 |
) |
Proceeds of paydowns and maturities of available-for-sale investment securities |
|
|
53,413 |
|
|
|
73,428 |
|
|
|
69,546 |
|
Proceeds of sales of available-for-sale investment securities |
|
|
30,152 |
|
|
|
41,861 |
|
|
|
34,615 |
|
Purchases of available-for-sale investment securities |
|
|
(118,535 |
) |
|
|
(122,382 |
) |
|
|
(203,237 |
) |
Increase in loans – net |
|
|
(7,204 |
) |
|
|
(31,769 |
) |
|
|
(22,306 |
) |
Net cash paid in acquisition |
|
|
(5,593 |
) |
|
|
- |
|
|
|
- |
|
Premiums paid for bank owned life insurance |
|
|
(3,000 |
) |
|
|
- |
|
|
|
- |
|
Proceeds from sale of other real estate owned |
|
|
1,973 |
|
|
|
1,235 |
|
|
|
1,309 |
|
Purchase of premises and equipment |
|
|
(3,653 |
) |
|
|
(1,821 |
) |
|
|
(6,063 |
) |
NET CASH USED BY INVESTING ACTIVITIES |
|
|
(62,942 |
) |
|
|
(19,464 |
) |
|
|
(127,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in noninterest-bearing deposits |
|
|
3,338 |
|
|
|
3,027 |
|
|
|
19,957 |
|
Net increase in interest bearing deposits |
|
|
28,124 |
|
|
|
664 |
|
|
|
89,210 |
|
Net increase (decrease) in short-term borrowings |
|
|
12,509 |
|
|
|
(2,036 |
) |
|
|
2,373 |
|
Issuance of long-term debt |
|
|
17,000 |
|
|
|
19,000 |
|
|
|
10,000 |
|
Payment of principal on long-term debt |
|
|
(4,977 |
) |
|
|
(16,552 |
) |
|
|
(8,609 |
) |
Cash dividends paid |
|
|
(4,898 |
) |
|
|
(4,690 |
) |
|
|
(4,330 |
) |
Treasury stock transactions – net |
|
|
(52 |
) |
|
|
- |
|
|
|
(3 |
) |
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES |
|
|
51,044 |
|
|
|
(587 |
) |
|
|
108,598 |
|
FIRST CITIZENS BANCSHARES,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT
OF CASH FLOWS (cont’d)
YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Increase (decrease) in cash and cash equivalents |
|
|
7,933 |
|
|
($ |
2,950 |
) |
|
($ |
5,934 |
) |
Cash and cash equivalents at beginning of year |
|
|
25,249 |
|
|
|
28,199 |
|
|
|
34,133 |
|
Cash and cash equivalents at end of year |
|
$ |
33,182 |
|
|
$ |
25,249 |
|
|
$ |
28,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
6,280 |
|
|
$ |
6,358 |
|
|
$ |
7,412 |
|
Income taxes paid |
|
|
4,475 |
|
|
|
4,412 |
|
|
|
4,250 |
|
Supplemental noncash disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from loans to other real estate owned |
|
|
2,301 |
|
|
|
541 |
|
|
|
1,261 |
|
Transfers from other real estate owned to loans |
|
|
1,666 |
|
|
|
468 |
|
|
|
1,442 |
|
Note: See accompanying
notes to consolidated financial statements.
FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING AND REPORTING POLICIES
The accounting and
reporting policies of First Citizens Bancshares, Inc., and subsidiaries (the “Company”) conform to generally accepted
accounting principles (“GAAP”). The significant policies are described as follows:
Basis of Presentation
The Consolidated Financial
Statements include all accounts of the Company and its wholly owned subsidiary depository financial institutions, First Citizens
National Bank (“FCNB”) and Southern Heritage Bank (“SHB” or collectively referred to the “Banks”).
The Company’s investment in these subsidiaries is reflected on the Company’s condensed balance sheets. See Notes 2
and 24 for more information.
FCNB has two wholly-owned
subsidiaries, First Citizens Financial Plus, Inc. and First Citizens Investments, Inc., which are consolidated into its financial
statements. The principal activity of First Citizens Investments, Inc. is to acquire and sell investment securities and collect
income from the securities portfolio. First Citizens Holdings, Inc., a wholly owned subsidiary of First Citizens Investments, Inc.,
acquires and sells certain investment securities, collects income from its portfolio, and owns First Citizens Properties, Inc.,
a real estate investment trust. First Citizens Properties, Inc. is a real estate investment trust organized and existing under
the laws of the state of Maryland, the principal activity of which is to invest in participation interests in real estate loans
made by the FCNB and provide the FCNB with an alternative vehicle for raising capital. First Citizens Holdings, Inc. owns 100%
of the outstanding common stock and 60% of the outstanding preferred stock of First Citizens Properties, Inc. Directors, executive
officers and certain employees and affiliates of the FCNB own approximately 40% of the preferred stock which is reported as Noncontrolling
Interest in Consolidated Subsidiary in the Consolidated Financial Statements of the Company. Net income attributable to the non-controlling
interest is included in Other Non-Interest Expense on the Consolidated Statements of Income and is not material for any of the
periods presented.
FCNB has a 50% ownership
in two insurance subsidiaries, both of which are accounted for using the equity method. White and Associates/First Citizens Insurance,
LLC is a general insurance agency offering a full line of insurance products. First Citizens/White and Associates Insurance Company’s
principal activity is credit insurance. The investment in these subsidiaries is included in Other Assets on the Consolidated Balance
Sheets presented in this report and earnings from these subsidiaries are recorded in Other Income on the Consolidated Statements
of Income.
The Company has three
additional wholly owned subsidiaries, First Citizens (TN) Statutory Trusts III and IV and Southern Heritage Bancshares Statutory
Trust I. These three subsidiaries are reported under the equity method in accordance with GAAP for Variable Interest Entities for
the periods presented. These investments are reported in Other Assets and the proportionate share of income (loss) is reported
in other non-interest income.
All significant inter-company
balances and transactions are eliminated in consolidation. Certain balances have been reclassified to conform to current year presentation.
Nature of Operations
The Company and its
subsidiaries provide a wide variety of commercial banking services to individuals and corporate customers in the mid-southern United
States with a concentration in West Tennessee. The Company’s primary products are checking and savings deposits and residential,
commercial and consumer lending.
Basis of Accounting
The Consolidated Financial
Statements are presented using the accrual method of accounting.
Use of Estimates
The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Material estimates
that are particularly susceptible to significant change relate to the fair value of investment securities, determination of the
allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans,
and determination of fair values associated with impairment testing of goodwill. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. Estimates
and assumptions used in goodwill impairment testing are made based on prevailing market factors, historical earnings and multiples
and other factors.
Business Combinations
Business combinations
are accounted for by applying the acquisition method in accordance with ASC 805, “Business Combinations” (“ASC
805”). Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at fair value as of
the acquisition date and are recognized separately from goodwill. Results of operations of the acquired entities are included in
the Consolidated Statements of Income from the date of acquisition.
Loans acquired in business
combinations with evidence of credit deterioration since origination and for which it is probable that all contractually required
payments will not be collected are considered to be credit impaired. Acquired credit-impaired loans are accounted for under the
accounting guidance for loan and debt securities acquired with deteriorated credit quality, in accordance with ASC 310-30, “Loans
and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), and initially measured at fair
value, which includes estimated future credit losses expected to be incurred over the life of the loans. Increases in expected
cash flows to be collected on these loans are recognized as an adjustment to the loan’s yield over its remaining life, while
decreases in expected cash flows are recognized as an impairment. Loans acquired through business combinations that do not meet
the specific criteria of ASC 310-30 but for which a discount is attributable, at least in part to credit quality, are also accounted
for under this guidance. As a result, related discounts are recognized subsequently through accretion based on expected cash flow
of the acquired loans.
Cash Equivalents
Cash equivalents include
cash on hand, cash items, clearings and exchanges as well as amounts due from correspondent banks which do not bear interest and
federal funds sold. Generally, federal funds are purchased or sold for one-day periods.
Interest-Bearing Deposits in Other Banks
Interest-bearing deposits
in other banks consist of excess balances above the minimum required balance at the Federal Reserve Bank and short-term certificates
of deposits (“CDs”) held at other banks. The CDs at other banks are held in increments of less than $250,000 and, therefore,
are covered by FDIC insurance. Interest income on deposits in banks is reported as Other Interest Income on the Consolidated Statements
of Income.
Securities
Investment securities
are classified as follows:
| ● | Held-to-maturity, which includes those investment securities which the Company has the intent and
the ability to hold until maturity; |
| ● | Trading securities, which include those investments that are held for short-term resale; and |
| ● | Available-for-sale, which includes all other investment securities. |
Held-to-maturity securities
are reflected at cost, adjusted for amortization of premiums and accretion of discounts using methods which approximate the interest
method. Available-for-sale securities are carried at fair value, and unrealized gains and losses are recognized as direct increases
or decreases to accumulated other comprehensive income except for other-than-temporary impairment losses that are required to be
charged against earnings. The credit portion of other-than-temporary impairment losses is recorded against earnings and is separately
stated on the Consolidated Statements of Income. Trading securities, where applicable, are carried at fair value, and unrealized
gains and losses on these securities are included in net income.
Realized gains and
losses on sale or call of investment securities transactions are determined based on the specific identification method and are
included in net income.
Loans Held-for-Sale
Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding
commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Servicing
rights are not retained when mortgage loans are sold. Income from loans held for sale is reported in Mortgage Banking Income, which
is included in Non-Interest Income in the Consolidated Financial Statements.
Loans
Loans that management
has the intent and ability to hold for the foreseeable future or until maturity or payoff are reflected on the Consolidated Balance
Sheets at the unpaid principal amount less the allowance for loan losses and unearned interest and fees. Interest on loans is recorded
on an accrual basis unless it meets criteria to be placed on non-accrual status. The Company’s policy is to not accrue interest
or discount on (i) any asset which is maintained on a cash basis because of deterioration in the financial position of the borrower,
(ii) any asset for which payment in full of interest or principal is not expected or (iii) 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 days past due test for non-accrual of interest, the date on which an asset reaches non-accrual status is determined
by its contractual term. A debt is deemed well-secured if it is secured by collateral in the form of liens or pledges of real or
personal property, including securities that have a realizable value sufficient to discharge the debt (including accrued interest)
in full, considered to be proceeding in due course either through legal action, including judgment enforcement procedures or, in
appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment
of the debt or in its restoration to a current status. Unpaid interest on loans placed on non-accrual status is reversed from income
and further accruals of income are not usually recognized. Subsequent collections related to impaired loans are usually credited
first to principal and then to previously uncollected interest.
Allowance for Loan Losses
The allowance for loan
losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries,
if any, are credited to the allowance.
The allowance for loan
losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability
of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect
the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation
is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists
of specific and general components. The specific component relates to loans evaluated on an individual basis for impairment. For
each loan evaluated individually that is determined to be impaired, a specific allocation to the allowance is established when
the discounted cash flows (or collateral value or observable market price) of the loan is lower than the carrying value of that
loan. The general component of the allowance is determined based on loans evaluated on a pooled basis which consist of non-impaired
loans and pools of loans with similar characteristics that are not evaluated individually for impairment.
Loans that meet the
criteria for individual impairment analysis are those loans or borrowing relationships with current outstanding principal balance
greater than or equal to $250,000 at the measurement date and have an internal rating of “Grade 6” or higher (generally
characterized as “Substandard” or worse). Once identified for individual analysis, then a loan is considered impaired
when, based on current information and events, it is probable that the Company will be unable to collect scheduled payments of
principal or interest when due according to contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all circumstances
surrounding the loan and the borrower, including the length of delay, reasons for the delay, the borrower’s prior payment
record, and the amount of the shortfall in relation to principal and interest owed. Impairment is measured on a loan by loan basis
for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or fair value of the collateral if the loan is collateral dependent.
The majority of the Company’s impaired loans is secured by real estate and considered collateral-dependent. Therefore, impairment
losses are primarily based on the fair value of the underlying collateral (usually real estate).
The general component
of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors. Loans are pooled together
based on the type of loans and internal risk ratings. Risk factors for each pool are developed using historical charge-offs for
the past three years. The risk factors are then adjusted based on current conditions of the loan portfolio and lending environment
that may result in future losses differing from historical patterns. Such factors include, but are not limited to:
| ● | Changes in underlying collateral securing the loans; |
| ● | Changes in lending policies and procedures including changes in underwriting, collection, charge-off
and recovery practices; |
| ● | Changes in economic and business conditions that affect the collectability of the portfolio; |
| ● | Changes in the nature and volume of the portfolio; |
| ● | Changes in the experience, ability and depth of lending management and other related staff; |
| ● | Changes in the volume and severity of past due loans, volume of non-accruals, and/or problem loans; |
| ● | Changes in the quality of the Company’s loan review system; |
| ● | Existence and effects of any concentration of credit and changes in the level of concentrations;
and |
| ● | The effects of other external factors such as competition, legal or regulatory requirements. |
The risk factors for
loans evaluated collectively are also adjusted based on the level of risk associated with the internal risk ratings of the loans.
Loans rated Grade 1 are considered low risk and have the lowest risk factors applied. Loans rated Grades 2 and 3 have an average
level of risk. Loans rated Grade 4 and 5 have a marginal level of risk slightly higher than Grades 2 and 3. Loans rated Grade 6
or higher have above average risk and therefore have higher risk factors applied to that portion of the portfolio.
Premises and Equipment
Bank premises and equipment
are stated at cost less accumulated depreciation. The provision for depreciation is computed using straight-line and accelerated
methods for both financial reporting and income tax purposes. Expenditures for maintenance and repairs are charged against income
as incurred. Cost of major additions and improvements are capitalized and depreciated over the estimated useful life of the addition
or improvement.
Other Real Estate Owned
Real estate acquired
through foreclosure is separately stated on the Consolidated Balance Sheets as Other Real Estate Owned and recorded at the lower
of cost or fair value less cost to sell. Adjustments made at the date of foreclosure are charged to the allowance for loan losses.
Expenses incurred in connection with ownership, subsequent adjustments to book value, and gains and losses upon disposition are
included in other non-interest expenses. Adjustments to net realizable value subsequent to acquisition are made at least annually
if necessary based on appraisal.
Securities Sold under Agreements to
Repurchase
Securities sold under
agreements to repurchase are accounted for as collateralized financing transactions, represent the purchase of interests in securities
by banking customers and are recorded at the amount of cash received in connection with the transaction. Daily repurchase agreements
are settled on the following business day and fixed repurchase agreements have various fixed terms. All securities sold under agreements
to repurchase are collateralized by certain pledged securities, generally U.S. government and federal agency securities, and are
held in safekeeping by the purchasing financial institution. These transactions are not deposits and, therefore, are not covered
by FDIC insurance. Securities sold under agreements to repurchase are reported separately on the Company’s Consolidated Balance
Sheets and interest expense related to these transactions is reported on the Company’s Consolidated Statements of Income
as Other Interest Expense.
Income Taxes
The Company uses the
accrual method of accounting for federal and state income tax reporting. Deferred tax assets or liabilities are computed for significant
differences in financial statement and tax bases of assets and liabilities, which result from temporary differences in financial
statement and tax accounting. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
Provision for income taxes is made on a separate income tax return basis for each entity included in the Consolidated Financial
Statements.
Interest Income and Fees on Loans
Interest income on
commercial and real estate loans is computed on the basis of daily principal balance outstanding using the accrual method. Interest
on installment loans is credited to operations by the level-yield method. Interest income on loans is discontinued at the time
the loan is 90 days delinquent unless the loan is well secured and in process of collection. Loans may be placed on non-accrual
status at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received
for loans placed on non-accrual status is reversed against interest income. Interest received on such loans is accounted for on
the cash-basis or cost-recovery method until qualifying to return to accrual status. Loans are returned to accrual status when
all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Fees on loans are generally
recognized in earnings at the time of origination as they are generally offset by related expenses also incurred at origination.
Certain fees such as commitment fees are deferred and amortized over the life of the loan using the interest method.
Net Income per Share of Common Stock
Net income per share
of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during
the period, after giving retroactive effect to stock dividends and stock splits.
Income from Fiduciary Activities
Income from fiduciary
activities is recorded on an accrual basis.
Advertising and Promotions
The Company’s
policy is to charge advertising and promotions to expenses as incurred.
Fair Value
Fair value measurements
are used to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company
measures fair value under guidance provided by the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC
820 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value
measurements. ASC 820 does not expand the use of fair value in any new circumstances but clarifies the principle that fair value
should be based on assumptions that market participants would use when pricing the asset or liability. ASC 820 outlines the following
three acceptable valuation techniques may be used to measure fair value:
- Market approach—The market approach uses prices and other relevant information
generated by market transactions involving identical or similar assets or liabilities. This technique includes matrix pricing that
is a mathematical technique used principally to value debt securities without relying solely on quoted prices for specific securities
but rather by relying on securities’ relationship to other benchmark quoted securities.
- Income approach—The income approach uses valuation techniques to convert future
amounts such as earnings or cash flows to a single present discounted amount. The measurement is based on the value indicated by
current market expectations about those future amounts. Such valuation techniques include present value techniques, option-pricing
models (such as the Black-Scholes formula or a binomial model), and multi-period excess earnings method (used to measure fair value
of certain intangible assets).
- Cost approach—The cost approach is based on current replacement cost which
is the amount that would currently be required to replace the service capacity of an asset.
Valuation techniques
are selected as appropriate for the circumstances and for which sufficient data is available. Valuation techniques are to be consistently
applied, but a change in a valuation technique or its application may be made if the change results in a measurement that is equally
or more representative of fair value under the circumstances. Revisions resulting from a change in valuation technique or its application
are accounted for as a change in accounting estimate which does not require the change in accounting estimate to be accounted for
by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma amounts
for prior periods.
ASC 820 also establishes
a hierarchy that prioritizes information used to develop those assumptions. The level in the hierarchy within which the fair value
measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement
in its entirety. The Company considers an input to be significant if it drives more than 10% of the total fair value of a particular
asset or liability. The hierarchy is as follows:
Level 1 Inputs (Highest
ranking): Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to
access at the measurement date.
Level 2 Inputs: Inputs
other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such
inputs may include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted market prices
that are observable for the assets and liabilities such as interest rates and yield curves that are observable at commonly quoted
intervals.
Level 3 Inputs (Lowest
ranking): Unobservable inputs for determining fair values of assets and liabilities that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing the assets and liabilities.
Assets and liabilities
may be measured for fair value on a recurring basis (daily, weekly, monthly or quarterly) or on a non-recurring basis in periods
subsequent to initial recognition. Recurring valuations are measured regularly for investment securities and derivatives (if any).
Loans held for sale, OREO and impaired loans are measured at fair value on a non-recurring basis and do not necessarily result
in a change in the amount recorded on the Consolidated Balance Sheets. Generally, these assets have non-recurring valuations that
are the result of application of other accounting pronouncements that require the assets be assessed for impairment or at the lower
of cost or fair value. Fair values of loans held for sale are considered Level 2. Fair values for OREO and impaired loans are considered
Level 3. See Note 21 for more information.
The Company obtains
fair value measurements for securities and derivatives (if any) from a third party vendor. The Company’s cash flow hedge
and the majority of the available-for-sale securities are valued using Level 2 inputs. Collateralized debt obligation securities
that are backed by trust preferred securities and account for less than 1% of the available-for-sale securities portfolio are valued
using Level 3 inputs. The fair value measurements reported in Level 2 are primarily matrix pricing that considers observable data
(such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and terms and conditions of bonds, and other factors). Fair value measurements
for pooled trust-preferred securities are obtained through the use of valuation models that include unobservable inputs which are
considered Level 3. See additional discussion of valuation techniques and inputs in Note 21.
Certain non-financial
assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value
in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as
well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.
The Company utilizes
ASC 820, which permits the Company to choose to measure eligible items at fair value at specified election dates. Unrealized gains
and losses on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting
date. The fair value option (i) may be applied instrument by instrument, with certain exceptions enabling the Company to record
identical financial assets and liabilities at fair value or by another measurement basis permitted under GAAP, (ii) is irrevocable
(unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments.
Subsequent Events
The Company has evaluated
subsequent events for recognition and disclosure through March 3, 2015, which is the date the financial statements were available
to be issued.
NOTE 2 – MERGERS AND ACQUISITIONS
Southern Heritage Bancshares, Inc.
On October 1, 2014,
the Company completed its acquisition by merger of Southern Heritage Bancshares, Inc. (“SH Bancshares”), a bank holding
company headquartered in Cleveland, Tennessee, and parent of Southern Heritage Bank (“SHB”), a Tennessee chartered
bank. SHB continues to operate as a Tennessee-chartered bank and has not been merged into FCNB. The operations of SHB have been
included in the consolidated financial statements since October 1, 2014. SHB operates three full-service financial centers in Cleveland,
Bradley County, Tennessee. The acquisition of SH Bancshares and SHB allowed the Company to further its strategic objectives by
expanding its geographic footprint across the State of Tennessee. The Company issued 269,302 shares of common stock and 108,356
shares of Class A common stock and paid $16.1 million in cash or $33.1 million in aggregate consideration for 100% of the equity
interests in SH Bancshares.
The Company recorded
intangible assets totaling $10.2 million which consist of $8.7 of goodwill and $1.5 million of core deposit intangible. Goodwill
resulted from a combination of revenue enhancements from expansion into new markets and efficiencies to be gained from operational
synergies. The fair value of the core deposit intangible is being amortized on a straight line basis over the estimated useful
life, currently expected to be approximately 10 years. The intangible assets are not deductible for income tax purposes.
The Company assumed
$5.155 million in floating rate junior subordinated deferrable interest debentures payable to Southern Heritage Statutory Trust
I that must be redeemed by December 2034. The acquired subordinated debentures require interest to be paid quarterly at a rate
of 90-day LIBOR plus 2.05%. The fair value adjustment on the junior subordinated debentures of $1.55 million will be amortized
on a straight line basis over the remaining expected life of 10 years which is when the securities are intended to be repaid.
At the acquisition
date of October 1, 2014, supplemental executive retirement plan (“SERP”) agreements became effective with certain key
executives of SHB as part of the Company’s long-term retention strategy. The SERPs provide for a nonqualified defined lifetime
post-retirement benefit. Vesting for the benefit occurs 50% after three years, 75% after four years and 100% after five years from
the effective date of the agreements. Expense for accrual of such benefits is reflected in Salaries and Employee Benefits on the
Statement of Income and totaled approximately $43,000 for the year ended December 31, 2014. The accrual liability for SERP benefits
is included in other liabilities on the Balance Sheet and totaled $43,000 as of December 31, 2014. No benefit payments are expected
to be paid over the next five years and benefit payments totaling approximately $82,000 annually are expected to be paid thereafter.
The following table
summarizes the allocation of purchase price to assets and liabilities acquired in connection with the Company’s acquisition
of SH Bancshares and SHB based on their fair values on October 1, 2014 (dollars in thousands except per share amounts).
Purchase Price: |
|
|
|
|
|
|
Total shares of SH Bancshares outstanding as of October 1, 2014 |
|
|
1,313,135 |
|
|
|
|
Fixed exchange ratio |
|
|
0.2876 |
|
|
|
|
Company common shares issued for SH Bancshares common shares |
|
|
269,302 |
|
|
|
|
Company Class A common shares issued for SH Bancshares Class A, Class B or Series A preferred shares |
|
|
108,356 |
|
|
|
|
Price per share based on Company shares as of October 1, 2014 |
|
$ |
45.00 |
|
|
|
|
Aggregate value of Company stock issued |
|
$ |
16,995 |
|
|
|
|
Aggregate cash consideration at $12.25 per SH Bancshares share |
|
|
16,087 |
|
|
|
|
Total purchase price |
|
|
|
|
|
$ |
33,082 |
|
|
|
|
|
|
|
|
|
|
Net assets acquired: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
10,493 |
|
|
|
|
|
Interest bearing deposits in banks |
|
|
8,633 |
|
|
|
|
|
Available-for-sale investment securities |
|
|
80,869 |
|
|
|
|
|
Loans, net of unearned income |
|
|
126,850 |
|
|
|
|
|
Mortgage loans held for sale |
|
|
2,852 |
|
|
|
|
|
Premises and equipment |
|
|
5,274 |
|
|
|
|
|
Other real estate owned |
|
|
546 |
|
|
|
|
|
Other intangible assets |
|
|
1,496 |
|
|
|
|
|
Other assets |
|
|
3,482 |
|
|
|
|
|
Total assets |
|
|
240,495 |
|
|
|
|
|
Non-interest bearing deposits |
|
|
35,275 |
|
|
|
|
|
Interest bearing deposits |
|
|
176,330 |
|
|
|
|
|
Total deposits |
|
|
211,605 |
|
|
|
|
|
Borrowings |
|
|
3,602 |
|
|
|
|
|
Other liabilities |
|
|
895 |
|
|
|
|
|
Total liabilities |
|
|
216,102 |
|
|
|
|
|
Net assets acquired |
|
|
|
|
|
|
24,393 |
|
Goodwill |
|
|
|
|
|
$ |
8,689 |
|
Cool Springs Financial Center
On December 7, 2012,
FCNB acquired one full-service financial center branch located at 9045 Carothers Parkway in Franklin, Tennessee from Community
First Bank & Trust. Through the acquisition, FCNB assumed $55 million in deposit liabilities and purchased $5 million in real
and personal property and $20 million in loans. Goodwill totaling $1.8 million and a core deposit intangible of approximately $426,000
was recorded in relation to the deposit premium paid and fair value adjustments recorded at the time of acquisition. The core deposit
intangible will be amortized over a ten-year period and goodwill will continue to be evaluated for impairment annually as noted
in Note 9 below.
NOTE 3 – CASH AND INTEREST-BEARING DEPOSITS IN OTHER
BANKS
Cash and cash equivalents
include deposit balances due from correspondent banks. Balances due from correspondent banks above FDIC insurance limits totaled
approximately $1.0 million and $863,000 as of December 31, 2014 and 2013, respectively.
The Company maintains
cash reserve balances as required by the Federal Reserve Bank. Average required balances during 2014 and 2013 were $1.1 million
and approximately $500,000, respectively. Balances held at the Federal Reserve Bank are reported as Interest-Bearing Deposits in
Other Banks on the Consolidated Balance Sheets. Balances in excess of required reserves held at the Federal Reserve Bank as of
December 31, 2014 and 2013 were $38.8 million and $19.8 million, respectively. Interest-bearing deposits in other banks also include
short-term CDs held in increments that are within FDIC insurance limits and totaled $2.2 million as of December 31, 2014 and $2.1
million as of December 31, 2013.
NOTE 4 – INVESTMENT SECURITIES
The following tables
reflect amortized cost, unrealized gains, unrealized losses and fair value of available-for-sale investment securities for the
dates presented (in thousands):
|
|
Amortized
Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
As of December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations |
|
$ |
384,456 |
|
|
$ |
4,065 |
|
|
$ |
(3,531 |
) |
|
$ |
384,990 |
|
Obligations of states and political subdivisions |
|
|
189,264 |
|
|
|
9,273 |
|
|
|
(235 |
) |
|
|
198,302 |
|
All Other |
|
|
10 |
|
|
|
44 |
|
|
|
- |
|
|
|
54 |
|
Total investment securities |
|
$ |
573,730 |
|
|
$ |
13,382 |
|
|
$ |
(3,766 |
) |
|
$ |
583,346 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations |
|
$ |
326,272 |
|
|
$ |
2,927 |
|
|
$ |
(7,496 |
) |
|
$ |
321,703 |
|
Obligations of states and political subdivisions |
|
|
130,813 |
|
|
|
5,338 |
|
|
|
(1,400 |
) |
|
|
134,751 |
|
All other |
|
|
23 |
|
|
|
48 |
|
|
|
- |
|
|
|
71 |
|
Total investment securities |
|
$ |
457,108 |
|
|
$ |
8,313 |
|
|
$ |
(8,896 |
) |
|
$ |
456,525 |
|
There were no securities
categorized as trading or held-to-maturity as of December 31, 2014 or 2013. At December 31, 2014 and 2013, investment securities
were pledged to secure government, public and trust deposits as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
Fair Value |
|
2014 |
|
$ |
248,221 |
|
$ |
250,363 |
|
2013 |
|
|
205,374 |
|
|
205,900 |
|
The following table
summarizes contractual maturities of available-for-sale securities as of December 31, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
Fair Value |
|
Amounts maturing in: |
|
|
|
|
|
|
|
One year or less |
|
$ |
2,680 |
|
$ |
2,724 |
|
After one year through five years |
|
|
17,082 |
|
|
17,945 |
|
After five years through ten years |
|
|
98,875 |
|
|
103,139 |
|
After ten years* |
|
|
455,083 |
|
|
459,484 |
|
Total debt securities |
|
|
573,720 |
|
|
583,292 |
|
Equity securities |
|
|
10 |
|
|
54 |
|
Total securities |
|
$ |
573,730 |
|
$ |
583,346 |
|
|
|
|
* |
Of the $574 million (amortized cost) in this category, $375 million (amortized cost) consisted of mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”), which are presented based on contractual maturities. However, the remaining lives of such securities are expected to be much shorter due to anticipated payments. |
Sales and realized
gains on sales of available-for-sale securities for the years ended December 31, 2014, 2013 and 2012 are presented as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales |
|
Gross Gains |
|
Gross Losses |
|
Net Gains |
|
2014 |
|
$ |
30,152 |
|
$ |
1,345 |
|
($ |
51 |
) |
$ |
1,294 |
|
2013 |
|
|
41,861 |
|
|
1,489* |
|
|
(233 |
) |
|
1,256 |
|
2012 |
|
|
34,615 |
|
|
680 |
|
|
- |
|
|
680 |
|
|
|
|
* |
Gross gains for 2013 also include approximately $12,000 in gains on called debt securities. |
The following table
presents information on available-for-sale securities with gross unrealized losses at December 31, 2014 and 2013, aggregated by
investment category and the length of time that the individual securities have been in a continuous loss position (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
Over 12 Months |
|
Total |
|
|
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies and corporations |
|
$ |
(171 |
) |
$ |
50,186 |
|
$ |
(3,360 |
) |
$ |
113,216 |
|
$ |
(3,531 |
) |
$ |
163,402 |
|
Obligations of states and political subdivisions |
|
|
(74 |
) |
|
6,684 |
|
|
(161 |
) |
|
8,675 |
|
|
(235 |
) |
|
15,359 |
|
Total securities with unrealized losses |
|
$ |
(245 |
) |
$ |
56,870 |
|
$ |
(3,521 |
) |
$ |
121,891 |
|
$ |
(3,766 |
) |
$ |
178,761 |
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. Government agencies and corporations |
|
$ |
(5,464 |
) |
$ |
167,616 |
|
$ |
(2,032 |
) |
$ |
33,863 |
|
$ |
(7,496 |
) |
$ |
201,479 |
|
Obligations of states and political subdivisions |
|
|
(1,336 |
) |
|
29,953 |
|
|
(64 |
) |
|
561 |
|
|
(1,400 |
) |
|
30,514 |
|
Total securities with unrealized losses |
|
$ |
(6,800 |
) |
$ |
197,569 |
|
$ |
(2,096 |
) |
$ |
34,424 |
|
$ |
(8,896 |
) |
$ |
231,993 |
|
In reviewing the investment
portfolio for other-than-temporary impairment of individual securities, consideration is given but not limited to (1) the length
of time in which fair value has been less than cost and the extent of the unrealized loss, (2) the financial condition of the issuer,
and (3) the positive intent and ability of the Company to maintain its investment in the issuer for a time that would provide for
any anticipated recovery in the fair value.
As of December 31,
2014, the Company had 80 debt securities with unrealized losses. The Company did not intend to sell any such securities in an unrealized
loss position and it was more likely than not that the Company would not be required to sell the debt securities prior to recovery
of costs. Of the 80 debt securities, 43 are obligations of state and political subdivisions and 37 are U.S. government agency collateralized
mortgage obligations (CMOs) or mortgage-backed securities (MBS). The securities in an unrealized loss position as of December 31,
2014, were evaluated for other-than-temporary impairment. In analyzing reasons for the unrealized losses, management reviews any
applicable industry analysts’ reports and considers various factors including, but not limited to, whether the securities
are issued by the federal government or its agencies, and whether downgrades of bond ratings have occurred. With respect to unrealized
losses on municipal and agency securities and the analysis performed relating to the securities, management believes that declines
in market value were not other-than-temporary at December 31, 2014. The unrealized losses on the agency and municipal securities
have not been recognized for other-than-temporary impairment. No impairment charges were recognized on these securities in 2014,
2013 or 2012.
GAAP includes accounting
and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts
and for hedging activities. These standards require that derivatives be reported either as assets or liabilities on the Consolidated
Balance Sheets and be reflected at fair value. The accounting for changes in the fair value of a derivative instrument depends
on the intended use of the derivative and the resulting designation.
NOTE 5 – LOANS
The following is a summary
of loans at December 31:
|
|
2014 |
|
|
2013 |
|
Commercial, financial and agricultural |
|
$ |
112,529 |
|
|
$ |
81,757 |
|
Real estate – construction |
|
|
63,461 |
|
|
|
46,959 |
|
Real estate – mortgage |
|
|
491,471 |
|
|
|
413,235 |
|
Installment loans to individuals |
|
|
25,733 |
|
|
|
24,807 |
|
All other loans |
|
|
18,029 |
|
|
|
13,478 |
|
Total |
|
$ |
711,223 |
|
|
$ |
580,236 |
|
Credit Quality
Credit risk management
procedures include assessment of loan quality through use of an internal loan rating system. Each loan is assigned
a rating upon origination and the rating may be revised over the life of the loan as circumstances warrant. The rating
system utilizes eight major classification types based on risk of loss with Grade 1 being the lowest level of risk and Grade 8
being the highest level of risk. Loans internally rated Grade 1 to Grade 4 are considered “Pass” grade
loans with low to average level of risk of credit losses. Loans rated Grade 5 are considered “Special Mention”
and generally have one or more circumstances that require additional monitoring but do not necessarily indicate a higher level
of probable credit losses. Loans rated Grade 6 or higher are loans with circumstances that generally indicate an above
average level of risk for credit losses. Loans by internal risk rating by category as of December 31, 2014 and 2013
were as follows (in thousands):
|
|
Pass |
|
|
Special Mention |
|
|
Substandard |
|
|
Total |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
111,724 |
|
|
$ |
147 |
|
|
$ |
658 |
|
|
$ |
112,529 |
|
Real estate – construction |
|
|
60,867 |
|
|
|
- |
|
|
|
2,594 |
|
|
|
63,461 |
|
Real estate – mortgage |
|
|
476,098 |
|
|
|
711 |
|
|
|
14,662 |
|
|
|
491,471 |
|
Installment loans to individuals |
|
|
25,635 |
|
|
|
- |
|
|
|
98 |
|
|
|
25,733 |
|
All other loans |
|
|
18,029 |
|
|
|
- |
|
|
|
- |
|
|
|
18,029 |
|
Total |
|
$ |
692,353 |
|
|
$ |
858 |
|
|
$ |
18,012 |
|
|
$ |
711,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
80,639 |
|
|
$ |
267 |
|
|
$ |
851 |
|
|
$ |
81,757 |
|
Real estate – construction |
|
|
42,486 |
|
|
|
611 |
|
|
|
3,862 |
|
|
|
46,959 |
|
Real estate – mortgage |
|
|
394,749 |
|
|
|
1,645 |
|
|
|
16,841 |
|
|
|
413,235 |
|
Installment loans to individuals |
|
|
24,662 |
|
|
|
- |
|
|
|
145 |
|
|
|
24,807 |
|
All other loans |
|
|
13,478 |
|
|
|
- |
|
|
|
- |
|
|
|
13,478 |
|
Total |
|
$ |
556,014 |
|
|
$ |
2,523 |
|
|
$ |
21,699 |
|
|
$ |
580,236 |
|
Past Due and Non-Performing
Loans
An aging analysis of
loans outstanding by category as of December 31, 2014 and 2013 was as follows (in thousands):
|
|
30-59
Days Past
Due |
|
|
60-89
Days Past
Due |
|
|
Greater
Than 90
Days |
|
|
Total
Past Due |
|
|
Current |
|
|
Total Loans |
|
|
Recorded
Investment > 90
Days and
Accruing |
|
As of December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
305 |
|
|
$ |
476 |
|
|
$ |
81 |
|
|
$ |
862 |
|
|
$ |
111,667 |
|
|
$ |
112,529 |
|
|
$ |
- |
|
Real estate – construction |
|
|
11 |
|
|
|
- |
|
|
|
170 |
|
|
|
181 |
|
|
|
63,280 |
|
|
|
63,461 |
|
|
|
- |
|
Real estate – mortgage |
|
|
3,610 |
|
|
|
227 |
|
|
|
3,369 |
|
|
|
7,206 |
|
|
|
484,265 |
|
|
|
491,471 |
|
|
|
385 |
|
Installment loans to individuals |
|
|
172 |
|
|
|
97 |
|
|
|
33 |
|
|
|
302 |
|
|
|
25,431 |
|
|
|
25,733 |
|
|
|
33 |
|
All other loans |
|
|
234 |
|
|
|
- |
|
|
|
- |
|
|
|
234 |
|
|
|
17,795 |
|
|
|
18,029 |
|
|
|
- |
|
Total |
|
$ |
4,332 |
|
|
$ |
800 |
|
|
$ |
3,653 |
|
|
$ |
8,785 |
|
|
$ |
702,438 |
|
|
$ |
711,223 |
|
|
$ |
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
305 |
|
|
$ |
117 |
|
|
$ |
596 |
|
|
$ |
1,018 |
|
|
$ |
80,739 |
|
|
$ |
81,757 |
|
|
$ |
- |
|
Real estate – construction |
|
|
263 |
|
|
|
25 |
|
|
|
53 |
|
|
|
341 |
|
|
|
46,618 |
|
|
|
46,959 |
|
|
|
53 |
|
Real estate – mortgage |
|
|
3,157 |
|
|
|
2,116 |
|
|
|
2,845 |
|
|
|
8,118 |
|
|
|
405,117 |
|
|
|
413,235 |
|
|
|
88 |
|
Installment loans to individuals |
|
|
99 |
|
|
|
3 |
|
|
|
13 |
|
|
|
115 |
|
|
|
24,692 |
|
|
|
24,807 |
|
|
|
8 |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,478 |
|
|
|
13,478 |
|
|
|
- |
|
Total |
|
$ |
3,824 |
|
|
$ |
2,261 |
|
|
$ |
3,507 |
|
|
$ |
9,592 |
|
|
$ |
570,644 |
|
|
$ |
580,236 |
|
|
$ |
149 |
|
Performing and non-performing
loans by category were as follows as of December 31, 2014 and 2013 (in thousands):
|
|
Performing |
|
|
Non- Performing* |
|
|
Total |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
112,294 |
|
|
$ |
235 |
|
|
$ |
112,529 |
|
Real estate – construction |
|
|
62,960 |
|
|
|
501 |
|
|
|
63,461 |
|
Real estate – mortgage |
|
|
484,454 |
|
|
|
7,017 |
|
|
|
491,471 |
|
Installment loans to individuals |
|
|
25,673 |
|
|
|
60 |
|
|
|
25,733 |
|
All other loans |
|
|
18,029 |
|
|
|
- |
|
|
|
18,029 |
|
Total |
|
$ |
703,410 |
|
|
$ |
7,813 |
|
|
$ |
711,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
81,089 |
|
|
$ |
668 |
|
|
$ |
81,757 |
|
Real estate – construction |
|
|
46,313 |
|
|
|
646 |
|
|
|
46,959 |
|
Real estate – mortgage |
|
|
406,082 |
|
|
|
7,153 |
|
|
|
413,235 |
|
Installment loans to individuals |
|
|
24,743 |
|
|
|
64 |
|
|
|
24,807 |
|
All other loans |
|
|
13,478 |
|
|
|
- |
|
|
|
13,478 |
|
Total |
|
$ |
571,705 |
|
|
$ |
8,531 |
|
|
$ |
580,236 |
|
* |
Non-Performing loans consist of loans that are on non-accrual status and loans 90 days past due and still accruing interest. |
Non-accrual loans as
of December 31, 2014 and 2013 by category were as follows (in thousands):
|
|
2014 |
|
|
2013 |
|
Commercial, financial and agricultural |
|
$ |
235 |
|
|
$ |
668 |
|
Real estate – construction |
|
|
501 |
|
|
|
593 |
|
Real estate – mortgage |
|
|
6,632 |
|
|
|
7,065 |
|
Installment loans to individuals |
|
|
27 |
|
|
|
56 |
|
All other loans |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
7,395 |
|
|
$ |
8,382 |
|
Troubled Debt Restructurings
Loans that were restructured
during the year ended December 31, 2014 consisted of the following (dollars in thousands):
|
|
2014 |
|
|
|
Number of Contracts |
|
|
Pre-Modification
Outstanding Recorded
Investment |
|
|
Post-Modification Outstanding Recorded
Investment |
|
Troubled debt restructurings: |
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
|
6 |
|
|
$ |
294 |
|
|
$ |
144 |
|
Real estate – construction |
|
|
10 |
|
|
|
1,196 |
|
|
|
1,027 |
|
Real estate – mortgage |
|
|
36 |
|
|
|
6,360 |
|
|
|
5,474 |
|
Installment loans to individuals |
|
|
15 |
|
|
|
132 |
|
|
|
55 |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
|
67 |
|
|
$ |
7,982 |
|
|
$ |
6,700 |
|
Modification of the
terms of the TDRs reported in the above table did not have a material impact on the consolidated financial statements or to the
overall risk profile of the loan portfolio. TDRs modified that re-defaulted in the year ended December 31, 2014 consisted
of the following (dollars in thousands):
|
|
Number of Contracts |
|
|
Recorded Investment |
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
|
2 |
|
|
$ |
120 |
|
Real estate – construction |
|
|
- |
|
|
|
- |
|
Real estate – mortgage |
|
|
2 |
|
|
|
381 |
|
Installment loans to individuals |
|
|
1 |
|
|
|
1 |
|
All other loans |
|
|
- |
|
|
|
- |
|
Total |
|
|
5 |
|
|
$ |
502 |
|
The allowance
for loan losses associated with the TDRs totaled approximately $244,000 and $402,000 as of December 31, 2014 and 2013, respectively.
Impaired Loans
Information regarding
the Company’s impaired loans for the years ended December 31, 2014 and 2013 is as follows (in thousands):
|
|
Recorded Investment |
|
|
Unpaid Principal Balance |
|
|
Specific Allowance |
|
|
Average Recorded Investment |
|
|
Interest Income Recognized |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allocation recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
62 |
|
|
$ |
203 |
|
|
|
N/A |
|
|
$ |
74 |
|
|
$ |
3 |
|
Real estate – construction |
|
|
165 |
|
|
|
273 |
|
|
|
N/A |
|
|
|
168 |
|
|
|
3 |
|
Real estate – mortgage |
|
|
2,975 |
|
|
|
3,363 |
|
|
|
N/A |
|
|
|
2,995 |
|
|
|
55 |
|
Installment loans to individuals |
|
|
- |
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
With allocation recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
81 |
|
|
$ |
81 |
|
|
$ |
15 |
|
|
$ |
81 |
|
|
$ |
7 |
|
Real estate –
construction(1) |
|
|
187 |
|
|
|
187 |
|
|
|
19 |
|
|
|
187 |
|
|
|
12 |
|
Real estate –
mortgage(2) |
|
|
1,895 |
|
|
|
1,949 |
|
|
|
232 |
|
|
|
1,895 |
|
|
|
18 |
|
Installment loans to individuals |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
143 |
|
|
$ |
284 |
|
|
$ |
15 |
|
|
$ |
155 |
|
|
$ |
10 |
|
Real estate – construction |
|
|
352 |
|
|
|
460 |
|
|
|
19 |
|
|
|
355 |
|
|
|
15 |
|
Real estate – mortgage |
|
|
4,870 |
|
|
|
5,312 |
|
|
|
232 |
|
|
|
4,890 |
|
|
|
73 |
|
Installment loans to individuals |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allocation recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
- |
|
|
$ |
- |
|
|
|
N/A |
|
|
$ |
28 |
|
|
$ |
- |
|
Real estate – construction |
|
|
430 |
|
|
|
430 |
|
|
|
N/A |
|
|
|
592 |
|
|
|
12 |
|
Real estate – mortgage |
|
|
1,361 |
|
|
|
1,361 |
|
|
|
N/A |
|
|
|
2,275 |
|
|
|
8 |
|
Installment loans to individuals |
|
|
15 |
|
|
|
15 |
|
|
|
N/A |
|
|
|
7 |
|
|
|
1 |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
- |
|
With allocation recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
500 |
|
|
$ |
500 |
|
|
$ |
50 |
|
|
$ |
757 |
|
|
$ |
- |
|
Real estate – construction |
|
|
88 |
|
|
|
88 |
|
|
|
90 |
|
|
|
222 |
|
|
|
- |
|
Real estate – mortgage |
|
|
5,105 |
|
|
|
5,105 |
|
|
|
847 |
|
|
|
5,548 |
|
|
|
- |
|
Installment loans to individuals |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30 |
|
|
|
- |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
500 |
|
|
$ |
500 |
|
|
$ |
50 |
|
|
$ |
785 |
|
|
$ |
- |
|
Real estate – construction |
|
|
518 |
|
|
|
518 |
|
|
|
90 |
|
|
|
814 |
|
|
|
12 |
|
Real estate – mortgage |
|
|
6,466 |
|
|
|
6,466 |
|
|
|
847 |
|
|
|
7,823 |
|
|
|
8 |
|
Installment loans to individuals |
|
|
15 |
|
|
|
15 |
|
|
|
- |
|
|
|
37 |
|
|
|
1 |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1) |
Impaired total for this category includes troubled debt restructurings with recorded investment totaling approximately $87,000 and a specific allowance of approximately $4,000. |
|
(2) |
Impaired total for this category includes troubled debt restructurings with recorded investment totaling approximately $1.3 million and a specific allowance of approximately $208,000. |
Acquired Loans with
Evidence of Credit Deterioration
Loans acquired in business
combinations that exhibited, at date of acquisition, evidence of credit deterioration since origination, such that it was probable
that all contractually required payments would not be collected, were as follows:
|
|
Impaired Loans |
|
|
Other Loans |
|
|
Total |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
45 |
|
|
$ |
2,171 |
|
|
$ |
2,216 |
|
Real estate – construction |
|
|
121 |
|
|
|
43 |
|
|
|
164 |
|
Real estate – mortgage |
|
|
1,733 |
|
|
|
9,456 |
|
|
|
11,189 |
|
Installment loans to individuals |
|
|
- |
|
|
|
14 |
|
|
|
14 |
|
All other loans |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
1,899 |
|
|
$ |
11,684 |
|
|
$ |
13,583 |
|
The following table presents
the fair value of loans determined to have evidence of credit deterioration at the time of acquisition as of the date presented:
December 31, 2014 |
|
|
|
Contractually-required principal |
|
$ |
16,533 |
|
Nonaccretable difference |
|
|
(2,532 |
) |
Cash flows expected to be collected |
|
|
14,001 |
|
Accretable yield |
|
|
(418 |
) |
Fair Value |
|
$ |
13,583 |
|
Changes in the accretable
yield of loans acquired with deteriorated credit quality were as follows:
Balance at January 1, 2014 |
|
$ |
- |
|
Additions through acquisition |
|
|
(471 |
) |
Reclasses from nonaccretable difference |
|
|
- |
|
Accretion |
|
|
53 |
|
Balance at December 31, 2014 |
|
$ |
(418 |
) |
NOTE 6 – ALLOWANCE
FOR LOAN LOSSES
The following table
presents the breakdown of the allowance for loan losses by category and the percentage of each category in the loan portfolio to
total loans at December 31 for the years indicated (dollars in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
Amount |
|
|
% to Total Loans |
|
|
Amount |
|
|
% to Total Loans |
|
|
Amount |
|
|
% to Total Loans |
|
Commercial, financial and agricultural |
|
$ |
999 |
|
|
|
15.82 |
% |
|
$ |
1,221 |
|
|
|
14.09 |
% |
|
$ |
1,588 |
|
|
|
13.47 |
% |
Real estate – construction |
|
|
1,281 |
|
|
|
8.92 |
% |
|
|
1,521 |
|
|
|
8.09 |
% |
|
|
1,563 |
|
|
|
7.37 |
% |
Real estate – mortgage |
|
|
4,679 |
|
|
|
69.10 |
% |
|
|
4,752 |
|
|
|
71.22 |
% |
|
|
4,486 |
|
|
|
72.37 |
% |
Installment loans to individuals |
|
|
274 |
|
|
|
3.62 |
% |
|
|
243 |
|
|
|
4.28 |
% |
|
|
285 |
|
|
|
4.63 |
% |
All other loans |
|
|
308 |
|
|
|
2.54 |
% |
|
|
81 |
|
|
|
2.32 |
% |
|
|
33 |
|
|
|
2.16 |
% |
Total |
|
$ |
7,541 |
|
|
|
100.0 |
% |
|
$ |
7,818 |
|
|
|
100.0 |
% |
|
$ |
7,955 |
|
|
|
100.0 |
% |
An analysis of the allowance
for loan losses during the years ended December 31 is as follows (in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Balance - beginning of year |
|
$ |
7,818 |
|
|
$ |
7,955 |
|
|
$ |
8,039 |
|
Provision for loan losses |
|
|
751 |
|
|
|
775 |
|
|
|
650 |
|
Loans charged to allowance |
|
|
(1,681 |
) |
|
|
(1,211 |
) |
|
|
(1,560 |
) |
Recovery of loans previously charged off |
|
|
653 |
|
|
|
299 |
|
|
|
826 |
|
Net charge-offs |
|
|
(1,028 |
) |
|
|
(912 |
) |
|
|
(734 |
) |
Balance - end of year |
|
$ |
7,541 |
|
|
$ |
7,818 |
|
|
$ |
7,955 |
|
An analysis of the activity
in the allowance for loan losses by category for the years ended December 31, 2014 and 2013 is as follows:
|
|
Beginning Balance |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Provision |
|
|
Ending Balance |
|
Year ended December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
1,221 |
|
|
$ |
(260 |
) |
|
$ |
114 |
|
|
$ |
(76 |
) |
|
$ |
999 |
|
Real estate – construction |
|
|
1,521 |
|
|
|
(40 |
) |
|
|
133 |
|
|
|
(333 |
) |
|
|
1,281 |
|
Real estate – mortgage |
|
|
4,752 |
|
|
|
(912 |
) |
|
|
107 |
|
|
|
732 |
|
|
|
4,679 |
|
Installment loans to individuals |
|
|
243 |
|
|
|
(105 |
) |
|
|
55 |
|
|
|
81 |
|
|
|
274 |
|
All other loans |
|
|
81 |
|
|
|
(364 |
) |
|
|
244 |
|
|
|
347 |
|
|
|
308 |
|
Total |
|
$ |
7,818 |
|
|
$ |
(1,681 |
) |
|
$ |
653 |
|
|
$ |
751 |
|
|
$ |
7,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
1,588 |
|
|
$ |
(636 |
) |
|
$ |
46 |
|
|
$ |
223 |
|
|
$ |
1,221 |
|
Real estate – construction |
|
|
1,563 |
|
|
|
(38 |
) |
|
|
142 |
|
|
|
(146 |
) |
|
|
1,521 |
|
Real estate – mortgage |
|
|
4,486 |
|
|
|
(408 |
) |
|
|
57 |
|
|
|
617 |
|
|
|
4,752 |
|
Installment loans to individuals |
|
|
285 |
|
|
|
(129 |
) |
|
|
54 |
|
|
|
33 |
|
|
|
243 |
|
All other loans |
|
|
33 |
|
|
|
- |
|
|
|
- |
|
|
|
48 |
|
|
|
81 |
|
Total |
|
$ |
7,955 |
|
|
$ |
(1,211 |
) |
|
$ |
299 |
|
|
$ |
775 |
|
|
$ |
7,818 |
|
The allowance for loan
losses is comprised of allocations for loans evaluated individually and loans evaluated collectively for impairment. In
addition, specific acquired loans were evaluated at time of acquisition and determined to have evidence of credit deterioration. The
allocations of the allowance for loan losses for outstanding loans by category evaluated individually and collectively were as
follows as of December 31, 2014 and 2013 (in thousands):
|
|
|
|
|
|
|
|
Acquired Loans with |
|
|
|
|
|
|
Evaluated |
|
|
Evaluated |
|
|
Evidence of |
|
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
Credit Deterioration |
|
|
Total |
|
As of December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
15 |
|
|
$ |
984 |
|
|
$ |
- |
|
|
$ |
999 |
|
Real estate – construction |
|
|
19 |
|
|
|
1,262 |
|
|
|
- |
|
|
|
1,281 |
|
Real estate – mortgage |
|
|
232 |
|
|
|
4,447 |
|
|
|
- |
|
|
|
4,679 |
|
Installment loans to individuals |
|
|
- |
|
|
|
274 |
|
|
|
- |
|
|
|
274 |
|
All other loans |
|
|
- |
|
|
|
308 |
|
|
|
- |
|
|
|
308 |
|
Total |
|
$ |
266 |
|
|
$ |
7,275 |
|
|
$ |
- |
|
|
$ |
7,541 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
98 |
|
|
$ |
112,431 |
|
|
$ |
2,216 |
|
|
$ |
112,529 |
|
Real estate – construction |
|
|
231 |
|
|
|
63,230 |
|
|
|
164 |
|
|
|
63,461 |
|
Real estate – mortgage |
|
|
3,137 |
|
|
|
488,334 |
|
|
|
11,189 |
|
|
|
491,471 |
|
Installment loans to individuals |
|
|
- |
|
|
|
25,733 |
|
|
|
14 |
|
|
|
25,733 |
|
All other loans |
|
|
- |
|
|
|
18,029 |
|
|
|
- |
|
|
|
18,029 |
|
Total |
|
$ |
3,466 |
|
|
$ |
707,757 |
|
|
$ |
13,583 |
|
|
$ |
711,223 |
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
50 |
|
|
$ |
1,171 |
|
|
|
N/A |
|
|
$ |
1,221 |
|
Real estate – construction |
|
|
90 |
|
|
|
1,431 |
|
|
|
N/A |
|
|
|
1,521 |
|
Real estate – mortgage |
|
|
847 |
|
|
|
3,905 |
|
|
|
N/A |
|
|
|
4,752 |
|
Installment loans to individuals |
|
|
- |
|
|
|
243 |
|
|
|
N/A |
|
|
|
243 |
|
All other loans |
|
|
- |
|
|
|
81 |
|
|
|
N/A |
|
|
|
81 |
|
Total |
|
$ |
987 |
|
|
$ |
6,831 |
|
|
|
N/A |
|
|
$ |
7,818 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
500 |
|
|
$ |
81,257 |
|
|
|
N/A |
|
|
$ |
81,757 |
|
Real estate – construction |
|
|
518 |
|
|
|
46,441 |
|
|
|
N/A |
|
|
|
46,959 |
|
Real estate – mortgage |
|
|
6,466 |
|
|
|
406,769 |
|
|
|
N/A |
|
|
|
413,235 |
|
Installment loans to individuals |
|
|
15 |
|
|
|
24,792 |
|
|
|
N/A |
|
|
|
24,807 |
|
All other loans |
|
|
- |
|
|
|
13,478 |
|
|
|
N/A |
|
|
|
13,478 |
|
Total |
|
$ |
7,499 |
|
|
$ |
572,737 |
|
|
|
N/A |
|
|
$ |
580,236 |
|
NOTE 7 – SECONDARY
MORTGAGE MARKET ACTIVITIES
Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding
commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. There
were no such losses for any of the years ended December 31, 2014, 2013 or 2012. There have been no material differences
between cost and fair market values of loans held-for-sale for any of the periods presented.
Servicing rights are
not retained on any mortgage loans held for sale. Mortgage banking income included in non-interest income was approximately
$1.4 million, $1.4 million, and $1.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.
NOTE 8 – PREMISES AND EQUIPMENT
Premises and equipment
used in the ordinary course of business at December 31 are summarized as follows (dollars in thousands):
|
Useful Lives in Years |
|
2014 |
|
|
2013 |
|
Land |
|
|
$ |
11,809 |
|
|
$ |
9,748 |
|
Buildings |
5 to 50 |
|
|
39,500 |
|
|
|
32,947 |
|
Furniture and equipment |
3 to 20 |
|
|
21,674 |
|
|
|
17,560 |
|
Total premises and equipment |
|
|
|
72,983 |
|
|
|
60,255 |
|
Less: accumulated depreciation |
|
|
|
31,977 |
|
|
|
26,103 |
|
Net premises and equipment |
|
|
$ |
41,006 |
|
|
$ |
34,152 |
|
NOTE 9 – GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill is not amortized
but tested at least annually for impairment. No impairment charges were recorded for any periods presented in the Consolidated
Financial Statements. Total goodwill as of December 31, 2014 was $22.3 million or 1.51% of total assets and 15.46% of
total capital. Total goodwill as of December 31, 2013 was $13.7 million or 1.16% of total assets and 12.12% of total
capital. Goodwill of $8.7 million was recorded in 2014 as a result of the acquisition of SHB. See also Note
2.
Other identifiable intangibles
consisted of core deposit intangibles being amortized over ten-year periods as of December 31 as follows (in thousands):
|
|
2014 |
|
|
2013 |
|
Core deposit intangible |
|
$ |
1,922 |
|
|
$ |
426 |
|
Accumulated amortization |
|
|
(122 |
) |
|
|
(42 |
) |
Net core deposit intangible |
|
$ |
1,800 |
|
|
$ |
384 |
|
Amortization expense
was approximately $80,000 in 2014 and $42,000 in 2013 and $35,000 in 2012. Amortization expense is expected to be approximately
$192,000 per year for each of the next five years. See also Note 2.
NOTE 10 – OTHER
REAL ESTATE OWNED
The carrying value of
other real estate owned on the Consolidated Balance Sheets was $5.7 million as of December 31, 2014 compared to $6.8 million as
of December 31, 2013. The value of OREO is based on the lower of cost or fair value less cost to sell. Fair
value is based on independent appraisals for significant properties and may be adjusted by management as discussed in Note 21.
NOTE 11 – BANK-OWNED
LIFE INSURANCE AND IMPUTED INCOME TAX REIMBURSEMENT AGREEMENTS
The Company has a significant
investment in bank-owned life insurance policies (“BOLI”) and provides endorsement split dollar life insurance to certain
employees in the position of Vice President and higher after one year of service. The cash surrender values of BOLI
were $25.9 million and $22.5 million as of December 31, 2014 and 2013, respectively. BOLI are initially recorded at
the amount of premiums paid and are adjusted to current cash surrender values. Changes in cash surrender values are
recorded in other non-interest income and are based on premiums paid less expenses plus accreted interest income. Earnings
on BOLI resulted in non-interest income of approximately $621,000, $632,000, and $606,000, for the years ended December 31, 2014,
2013 and 2012, respectively.
Post-retirement death
benefits for endorsement split dollar life insurance plans are accounted for in accordance with FASB ASC Subtopic 715-60, “Compensation
– Retirement Benefits – Defined Benefit Plans – Postretirement.” Expense for accrual of such
benefits is reflected in Salaries and Employee Benefits on the Consolidated Statements of Income and was approximately $224,000,
$143,000, and $169,000, for the years ended December 31, 2014, 2013 and 2012, respectively. The accrued liability for
post-retirement death benefits is included in Other Liabilities on the Consolidated Balance Sheet and totaled $2.8 million and
$2.6 million as of December 31, 2014 and 2013, respectively.
Because endorsement
split dollar life insurance plans create imputed income to each applicable participant without generating cash to pay the tax expense
associated with imputed income, the FCNB entered into Imputed Income Tax Reimbursement Agreements with certain officers. The Imputed
Income Tax Reimbursement Agreements provide for annual cash payments to the participants until death for the previous tax year
in amounts equal to a portion of federal income taxes attributable to (i) the income imputed to the applicable participant on the
benefit under the Amended and Restated Split Dollar Agreement and (ii) the additional cash payments under the Imputed Income Tax
Reimbursement Agreement. Each participant was 100% vested in benefits provided under Imputed Income Tax Reimbursement Agreements
as of January 1, 2008. Service costs are based on the net present value of the sum of payments in accordance with each participant’s
agreement. Interest accrues monthly at a rate of 7.0%.
Net other post-retirement
benefits expense for Imputed Income Tax Reimbursement Agreements was as follows for the years ended December 31 (in thousands):
|
|
2014 |
|
|
2013 |
|
Service cost |
|
$ |
- |
|
|
$ |
- |
|
Interest cost |
|
|
27 |
|
|
|
27 |
|
Net other post-retirement benefits expense |
|
$ |
27 |
|
|
$ |
27 |
|
The accumulated post-retirement
defined benefit obligation for Imputed Income Tax Reimbursement Agreements was as follows for the years ended December 31 (in thousands):
Accumulated other post-retirement benefit obligation: |
|
2014 |
|
|
2013 |
|
Beginning balance |
|
$ |
418 |
|
|
$ |
410 |
|
Service cost |
|
|
- |
|
|
|
- |
|
Interest cost |
|
|
27 |
|
|
|
27 |
|
Benefit payments |
|
|
(25 |
) |
|
|
(19 |
) |
Ending balance |
|
$ |
420 |
|
|
$ |
418 |
|
The accumulated post-retirement
benefit obligation was included in Other Liabilities as of December 31, 2014 and 2013 and was equal to the funded status of the
plan as of each applicable year-end, as there were no related assets recognized on the Consolidated Balance Sheet for the Imputed
Income Tax Reimbursement Agreements.
NOTE 12 – DEPOSITS
Included in interest-bearing
deposits shown at December 31 were the following time and savings deposits in denominations of $100,000 to $250,000 and greater
than $250,000 (in thousands):
|
|
2014 |
|
|
2013 |
|
Time deposits |
|
|
|
|
|
|
$100,000 or greater but less than $250,000 |
|
$ |
110,577 |
|
|
$ |
96,465 |
|
Greater than $250,000 |
|
|
124,444 |
|
|
|
101,734 |
|
Savings deposits |
|
|
|
|
|
|
|
|
$100,000 or greater but less than $250,000 |
|
$ |
122,933 |
|
|
$ |
114,570 |
|
Greater than $250,000 |
|
|
287,735 |
|
|
|
254,535 |
|
NOW accounts, included
in interest bearing deposits on the Consolidated Balance Sheets, totaled $135.8 million as of December 31, 2014 and $72.5 million
as of December 31, 2013. Demand deposit balances reclassified as loans consisted of overdrafts totaling approximately
$470,000 and $520,000 as of December 31, 2014 and 2013, respectively.
Time deposits were maturing
as follows at December 31, 2014 (in thousands):
On or before December 31, 2015 |
|
$ |
301,674 |
|
On or during year ended December 31, 2016 |
|
|
43,346 |
|
On or during year ended December 31, 2017 |
|
|
25,086 |
|
On or during year ended December 31, 2018 |
|
|
17,256 |
|
During or after year ended December 31, 2019 |
|
|
13,520 |
|
|
|
$ |
400,882 |
|
NOTE 13 – FEDERAL
FUNDS PURCHASED AND OTHER SHORT-TERM BORROWINGS
The Company has various
sources of short-term borrowings, which consist primarily of cash management advances from the Federal Home Loan Bank (“FHLB”)
and federal funds purchased from correspondent banks. Short-term borrowings are used to manage seasonal fluctuations
in liquidity.
Cash management advances
from FHLB are secured by one-to-four family first mortgages under the blanket collateral pledge agreement that also collateralizes
long-term advances from FHLB and have maturities of 90 days or less. See Note 14 for more information about maximum
borrowing capacity with FHLB. There were no short-term borrowings outstanding against this line as of December 31, 2014
or 2013.
The Company has eight
federal fund lines of credit available with various correspondent banks totaling $72.0 million as of December 31, 2014. There
were no federal funds purchased as of December 31, 2014 or 2013.
The following tabular
analysis presents short-term borrowing year-end balance, maximum month-end balance, annual average and weighted average interest
rates for the years ended December 31, 2014, 2013 and 2012 (dollars in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Amount outstanding at end of year |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Weighted average interest rate at end of year |
|
|
– |
% |
|
|
– |
% |
|
|
– |
% |
Maximum outstanding at any month end |
|
$ |
5,000 |
|
|
$ |
- |
|
|
$ |
5,000 |
|
Average outstanding during year |
|
|
2,477 |
|
|
$ |
11 |
|
|
$ |
1,230 |
|
Weighted average interest rate during year |
|
|
0.19 |
% |
|
|
– |
% |
|
|
– |
% |
NOTE 14 – LONG
TERM DEBT
Long-term debt as of
December 31, 2014 and 2013 is summarized as follows (in thousands):
|
|
2014 |
|
|
2013 |
|
FHLB advances |
|
$ |
41,164 |
|
|
$ |
40,857 |
|
Junior subordinated debentures |
|
|
13,951 |
|
|
|
10,310 |
|
Promissory notes |
|
|
11,716 |
|
|
|
- |
|
Total long-term debt |
|
$ |
66,831 |
|
|
$ |
51,167 |
|
FHLB advances
FCNB had secured advances
from FHLB totaling $41.2 million as of December 31, 2014 and $40.9 million as of December 31, 2013. FHLB borrowings
are comprised primarily of advances with principal due at call date or maturity date with fixed
interest rates ranging from 0.31% to 7.05%. Some FHLB borrowings have quarterly call features and maturities ranging
from 2015 to 2023. Advances totaling $16 million require repayment if the call feature is exercised. Under
the existing and forecasted rate environments, borrowings with call features in place are not likely to be called in the next 12
months. Obligations are secured by loans totaling $385 million consisting of the FCNB’s entire portfolio of fully
disbursed, one-to-four family residential mortgages, commercial mortgages, farm mortgages, second mortgages and multi-family residential
mortgages. FCNB had additional borrowing capacity with the FHLB of $100.4 million as of December 31, 2014.
SHB had no outstanding
secured or unsecured advances from FHLB as of December 31, 2014 or during the period from acquisition date of October 1, 2014 to
December 31, 2014. SHB has one-to-four family residential mortgages totaling $19.6 million pledged and borrowing capacity
of $4.7 million with FHLB as of December 31, 2014.
Junior subordinated
debentures
The Company owns 100%
of the outstanding common securities of three business trusts that issued corporation-obligated mandatorily redeemable preferred
capital securities to third-party investors. The trusts used the proceeds from the issuance of their preferred
capital securities and common securities (collectively referred to as “capital securities” to buy floating rate junior
subordinated debentures issued by the Company. The debentures are the trusts’ only assets and interest payments
from the debentures finance the distributions paid on the capital securities. Distributions are payable quarterly at
a rate per annum equal to the interest rate being earned by the trusts on the debentures held by the trusts. The capital
securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company has
entered into agreement which fully and unconditionally guarantees the capital securities subject to terms of the guarantee. Although
for accounting presentation the trust preferred securities are presented as long-term debt, the outstanding balance qualifies as
Tier I capital subject to the limitation that the amount of the securities included in Tier I Capital cannot exceed 25% of total
Tier I capital. The following table provides details on the debentures as of December 31, 2014:
|
|
Principal Amount |
|
|
Interest Rate |
|
|
Year of Maturity |
|
|
Amount included
in Tier I Capital |
|
First Citizens (TN) Statutory Trust III |
|
$ |
5,155 |
|
|
|
2.04 |
% |
|
|
2035 |
|
|
$ |
5,155 |
|
First Citizens (TN) Statutory Trust IV |
|
|
5,155 |
|
|
|
1.99 |
% |
|
|
2037 |
|
|
|
5,155 |
|
Southern Heritage Statutory Trust I |
|
|
5,155 |
|
|
|
2.29 |
% |
|
|
2034 |
|
|
|
3,951 |
|
In March 2005, the Company
formed First Citizens (TN) Statutory Trust III, a Delaware statutory trust for the sole purpose of issuing and selling trust preferred
securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. Proceeds
were used to reduce other debt at the Company. For the period beginning on (and including) the date of original issuance and ending
on (but excluding) June 17, 2005, the rate per annum equals the three-month LIBOR plus 1.80%. Interest payment dates
are March 17, June 17, September 17, and December 17 during the 30-year term.
In March 2007, the Company
formed First Citizens (TN) Statutory Trust IV, a Delaware statutory trust for the sole purpose of issuing and selling trust preferred
securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. Proceeds
were used to refinance other debt at the Company at a lower interest rate. For the period beginning on (and including)
the date of original issuance and ending on (but excluding) June 15, 2007, the rate per annum equals the three-month LIBOR plus
1.75%. Interest payment dates are March 15, June 15, September 15, and December 15 during the 30-year term.
Pursuant to the merger
with SH Bancshares on October 1, 2014, the Company assumed the debentures issued to Southern Heritage Statutory Trust I. The
discount associated with the Company’s assumption of the debentures issued to Southern Heritage Statutory Trust I had a carrying
value of $1.5 million as of December 31, 2014 and is being amortized through September 2024. Interest for Southern Heritage
Statutory Trust I reprices quarterly equal to the three-month LIBOR plus 2.05%.
Promissory Notes
On October 1, 2014, the
Company entered into a Loan Agreement, Pledge and Security Agreement, Promissory Note (Fixed Rate) and Promissory Note (Floating
Rate) (collectively, the “Promissory Notes”) with First Tennessee Bank, National Association (the “Lender”),
pursuant to which the Lender has agreed to extend to the Company two five-year term loans in the aggregate maximum principal amount
of $12,000,000 (the “Credit Facilities”). The Promissory Notes provide that the Credit Facilities will be repaid in
quarterly installments of principal and interest based on a ten-year amortization schedule consisting of a $6.0 million five-year
fixed rate loan at a fixed rate of 3.76% and a $6.0 million five-year floating rate loan at the 90 day rounded LIBOR plus 2% that
reprices quarterly. The current principal balance on the Promissory Notes is $11.7 million as of December 31, 2014.
The Credit Facilities
are secured by a pledge of 51% of the stock of FCNB, the Company’s wholly owned subsidiary. The Loan Documents
also contain a number of affirmative and negative covenants, including limitations on the incurrence of additional debt, liens
on property, guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect
of our capital stock, relocation of the Company’s principal office, principal banking office, or principal registered office,
and transactions with affiliates. The Company has used the proceeds of the Credit Facilities to finance part of the cash consideration
in the merger with SH Bancshares.
Annual average volume,
rates and maturities of long-term debt for the years ended December 31, 2014 and 2013 were as follows (dollars in thousands):
|
|
Average |
|
|
Volume |
|
|
Interest Rate |
|
Maturity |
2014(1) |
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
$ |
14,233 |
|
|
|
2.63 |
% |
18 years |
First Citizens National Bank |
|
|
46,096 |
|
|
|
1.82 |
% |
3 years |
2013 |
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
$ |
10,310 |
|
|
|
2.08 |
% |
22 years |
First Citizens National Bank |
|
|
46,096 |
|
|
|
1.93 |
% |
4 years |
(1) |
SHB had no borrowings during the periods presented therefore is not included in the table above. |
Maturities of principal
of long-term debt for the following five years were as follows as of December 31, 2014 (in thousands):
2015 |
|
$ |
7,505 |
|
2016 |
|
|
10,095 |
|
2017 |
|
|
9,841 |
|
2018 |
|
|
9,620 |
|
2019 |
|
|
13,350 |
|
Thereafter |
|
|
16,420 |
|
|
|
$ |
66,831 |
|
The Company is dependent
on the profitability of its subsidiaries and their ability to pay dividends in order to service its long-term debt.
NOTE 15 – INCOME
TAXES
Provision for income
taxes was comprised of the following for the years ended December 31 (in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
Current |
|
$ |
3,089 |
|
|
$ |
4,651 |
|
|
$ |
4,108 |
|
Deferred |
|
|
349 |
|
|
|
(637 |
) |
|
|
(102 |
) |
State income tax expense (benefit of operating loss carryforwards) |
|
|
66 |
|
|
|
313 |
|
|
|
84 |
|
Change in valuation allowance |
|
|
(66 |
) |
|
|
(313 |
) |
|
|
(251 |
) |
|
|
$ |
3,438 |
|
|
$ |
4,014 |
|
|
$ |
4,006 |
|
Effective tax rates
for the years ended December 31, 2014, 2013 and 2012 differed from federal statutory rate of 34% applied to income before income
taxes as a result of the following (in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Tax expenses at statutory rate |
|
$ |
5,774 |
|
|
$ |
6,060 |
|
|
$ |
5,957 |
|
(Decrease) increase resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest income |
|
|
(1,949 |
) |
|
|
(1,638 |
) |
|
|
(1,582 |
) |
Net earnings on bank-owned life insurance |
|
|
(211 |
) |
|
|
(148 |
) |
|
|
(132 |
) |
ESOP dividend |
|
|
(305 |
) |
|
|
(314 |
) |
|
|
(296 |
) |
Other items |
|
|
129 |
|
|
|
54 |
|
|
|
59 |
|
|
|
$ |
3,438 |
|
|
$ |
4,014 |
|
|
$ |
4,006 |
|
In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not that the Company will realize the benefit of these deductible
differences. However, the amount of deferred tax assets considered realizable could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced. Deferred tax assets and liabilities were
comprised of the following as of December 31 for the years indicated (in thousands):
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
2,613 |
|
|
$ |
2,659 |
|
|
$ |
2,706 |
|
Unrealized loss on other real estate owned |
|
|
1,076 |
|
|
|
999 |
|
|
|
1,050 |
|
State income tax benefit for net operating loss carryforwards |
|
|
845 |
|
|
|
911 |
|
|
|
1,224 |
|
Alternative Minimum Tax Credit |
|
|
659 |
|
|
|
- |
|
|
|
- |
|
Purchase accounting adjustments |
|
|
185 |
|
|
|
- |
|
|
|
- |
|
Net unrealized losses on available-for-sale debt securities |
|
|
- |
|
|
|
224 |
|
|
|
- |
|
Deferred loan fees |
|
|
138 |
|
|
|
136 |
|
|
|
91 |
|
Imputed income tax reimbursement plan |
|
|
139 |
|
|
|
142 |
|
|
|
139 |
|
Impairment loss on equity securities |
|
|
- |
|
|
|
618 |
|
|
|
618 |
|
Impairment loss on debt securities |
|
|
- |
|
|
|
- |
|
|
|
436 |
|
Other |
|
|
126 |
|
|
|
146 |
|
|
|
203 |
|
Total deferred tax assets |
|
|
5,781 |
|
|
|
5,835 |
|
|
|
6,467 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(3,210 |
) |
|
|
(2,692 |
) |
|
|
(2,473 |
) |
FHLB stock dividends |
|
|
(770 |
) |
|
|
(742 |
) |
|
|
(742 |
) |
Net unrealized gains on available-for-sale debt securities |
|
|
(3,660 |
) |
|
|
- |
|
|
|
(6,385 |
) |
Prepaid expenses |
|
|
(207 |
) |
|
|
(152 |
) |
|
|
(117 |
) |
Other |
|
|
(116 |
) |
|
|
(132 |
) |
|
|
(252 |
) |
Total deferred tax liabilities |
|
|
(7,963 |
) |
|
|
(3,718 |
) |
|
|
(9,969 |
) |
Valuation allowance for state income tax benefit |
|
|
(845 |
) |
|
|
(911 |
) |
|
|
(1,224 |
) |
Net deferred tax assets (liabilities) |
|
$ |
(3,027 |
) |
|
$ |
1,206 |
|
|
$ |
(4,726 |
) |
As of December 31, 2014,
the Company had a net operating loss carryforward for state tax purposes of $7.3 million expiring in 2022, $3.4 million expiring
in 2023 and $2.3 million expiring in 2025. As of December 31, 2014 and 2013, the Company had no unrecognized tax benefits. The
Company’s policy is to recognize penalties and interest on unrecognized tax benefits in Provision for Income Tax Expense
in the Consolidated Statements of Income. There were no amounts related to interest and penalties recognized for each
of the years ended December 31, 2014, 2013 and 2012. The tax years subject to examination by federal and state taxing
authorities are the years ended December 31, 2014, 2013, 2012 and 2011.
NOTE 16 – REGULATORY
MATTERS
The Company is subject
to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company and the Consolidated Financial Statements. Regulations require FCNB and
SHB to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. Capital classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures
established by regulation to ensure capital adequacy require banks to maintain minimum amounts and ratios (set forth in the table
below) of Tier I capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier I and
total risk-based capital (as defined) to risk-weighted assets (as defined). To be considered adequately capitalized
(as defined) under the regulatory framework for prompt corrective action, the minimums must be maintained for Tier I leverage,
Tier I risk-based and total risk-based ratios as set forth in the table. Actual capital amounts and ratios are presented
in the table below.
As of December 31, 2014,
the most recent notifications from primary regulatory authorities categorized FCNB, SHB and the Company as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below. There are no conditions or
events since notification that management believes have changed the institution’s category.
Actual and minimum capital
amounts and ratios are presented in the following table (dollars in thousands):
|
|
Actual |
|
|
For Capital
Adequacy Purposes |
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |
|
December 31, 2014: |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Total capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
$ |
135,107 |
|
|
|
16.3 |
% |
|
$ |
66,473 |
|
|
|
8.0 |
% |
|
|
N/A |
|
|
|
10.0 |
% |
First Citizens National Bank |
|
|
119,132 |
|
|
|
17.6 |
% |
|
|
54,028 |
|
|
|
8.0 |
% |
|
$ |
67,535 |
|
|
|
10.0 |
% |
Southern Heritage Bank |
|
|
26,632 |
|
|
|
17.3 |
% |
|
|
12,301 |
|
|
|
8.0 |
% |
|
|
15,376 |
|
|
|
10.0 |
% |
Tier I capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
|
127,546 |
|
|
|
15.4 |
% |
|
|
33,237 |
|
|
|
4.0 |
% |
|
|
N/A |
|
|
|
6.0 |
% |
First Citizens National Bank |
|
|
111,629 |
|
|
|
16.5 |
% |
|
|
27,012 |
|
|
|
4.0 |
% |
|
|
40,519 |
|
|
|
6.0 |
% |
Southern Heritage Bank |
|
|
26,574 |
|
|
|
17.3 |
% |
|
|
6,148 |
|
|
|
4.0 |
% |
|
|
9,222 |
|
|
|
6.0 |
% |
Tier I capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
|
127,546 |
|
|
|
8.8 |
% |
|
|
57,778 |
|
|
|
4.0 |
% |
|
|
N/A |
|
|
|
5.0 |
% |
First Citizens National Bank |
|
|
111,629 |
|
|
|
9.3 |
% |
|
|
48,220 |
|
|
|
4.0 |
% |
|
|
60,275 |
|
|
|
5.0 |
% |
Southern Heritage Bank |
|
|
26,574 |
|
|
|
11.1 |
% |
|
|
9,550 |
|
|
|
4.0 |
% |
|
|
11,938 |
|
|
|
5.0 |
% |
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
|
117,027 |
|
|
|
17.6 |
% |
|
|
53,255 |
|
|
|
8.0 |
% |
|
|
N/A |
|
|
|
10.0 |
% |
First Citizens National Bank |
|
|
115,990 |
|
|
|
17.4 |
% |
|
|
53,206 |
|
|
|
8.0 |
% |
|
|
66,508 |
|
|
|
10.0 |
% |
Tier I capital to risk weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
|
109,187 |
|
|
|
16.4 |
% |
|
|
26,615 |
|
|
|
4.0 |
% |
|
|
N/A |
|
|
|
6.0 |
% |
First Citizens National Bank |
|
|
108,150 |
|
|
|
16.3 |
% |
|
|
26,605 |
|
|
|
4.0 |
% |
|
|
39,908 |
|
|
|
6.0 |
% |
Tier I capital to average assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Citizens Bancshares, Inc. |
|
|
109,187 |
|
|
|
9.4 |
% |
|
|
46,463 |
|
|
|
4.0 |
% |
|
|
N/A |
|
|
|
5.0 |
% |
First Citizens National Bank |
|
|
108,150 |
|
|
|
9.3 |
% |
|
|
46,416 |
|
|
|
4.0 |
% |
|
|
58,080 |
|
|
|
5.0 |
% |
NOTE 17 – CAPITAL
The Company is subject
to capital adequacy requirements imposed by the Federal Reserve. In addition, the Banks are restricted by regulation
from paying dividends in an amount in excess of the net earnings of the current year plus retained profits of the preceding two
years. As of December 31, 2014, $21.7 million of retained earnings were available for future dividends from FCNB and
SHB to the Company.
During a special meeting
on July 16, 2014, First Citizens’ shareholders voted on and approved the First Citizens Charter Amendment authorizing 1,000,000
shares in an additional class of common stock (Class A common stock) and a reclassification of First Citizens’ outstanding
common stock. Upon the filing of the First Citizens Charter Amendment on July 17, 2014, each share of First Citizens common stock
outstanding immediately prior to such filing owned by a shareholder of record who owned between one and 299 shares of such common
stock was, by virtue of the filing of the First Citizens Charter Amendment and without any action on the part of the holders, reclassified
as Class A common stock, on the basis of one share of Class A common stock per each share of common stock so reclassified. In
aggregate, 37,372 shares of common stock were reclassified to Class A common stock. Each share of First Citizens common
stock outstanding immediately prior to the filing of the First Citizens Charter Amendment owned by a shareholder of record who
owned 300 or more shares of such common stock was not reclassified and continued to be classified as common stock. The First Citizens
common stock continues to have unlimited voting rights. The First Citizens Class A common stock has no voting rights, except as
may be required by law.
Accumulated Other Comprehensive
Income (Loss) as of December 31, 2014 and 2013 was as follows (in thousands):
|
|
2014 |
|
|
2013 |
|
Unrealized gains (losses) on available-for-sale securities without other-than-temporary impairment, net of tax |
|
$ |
5,955 |
|
|
$ |
(361 |
) |
Unrealized losses on available-for-sale securities with other-than-temporary impairment, net of tax |
|
|
- |
|
|
|
- |
|
Total accumulated other comprehensive income (loss) |
|
$ |
5,955 |
|
|
$ |
(361 |
) |
See also Note 2 regarding
changes to capital that occurred during the year ended December 31, 2014.
NOTE 18 – RELATED
PARTY TRANSACTIONS
The Company has loans
and deposits with certain executive officers, directors and their affiliates. The Company also enters into contracts
with certain related parties from time to time such as for construction of a branch. All related party transactions
are entered into under substantially the same terms as unrelated third-party transactions. All material contracts are
awarded based on competitive bids.
In 2013, the Bank contracted
with a related party for the construction of a new full service branch facility in Jackson, Tennessee. The contract
is for $1.6 million and was awarded on a competitive bid basis. Contract payments paid totaled approximately $1.6 million
and $60,000 in the years ended December 31, 2014 and 2013, respectively.
In 2014, the Company
also paid approximately $111,000 to another related party on a competitive bid basis for various renovations and repairs to the
Martin and Union City, Tennessee financial centers.
Activity in loans to
executive officers, directors and their affiliates was as follows for the years ended December 31, 2014 and 2013 (in thousands):
|
|
2014 |
|
|
2013 |
|
Balance at beginning of period |
|
$ |
6,892 |
|
|
$ |
5,689 |
|
New loans(1) |
|
|
16,925 |
|
|
|
4,664 |
|
Repayments |
|
|
(10,947 |
) |
|
|
(3,461 |
) |
Balance at end of period |
|
$ |
12,870 |
|
|
$ |
6,892 |
|
(1) |
The new loan total for 2014 includes $7,141 of related party loans acquired pursuant to the merger with SH Bancshares, Inc. |
There were no
charged-off, restructured or non-current loans to related parties for any of the periods presented. Loans to related
parties are made on substantially the same terms as third-party transactions.
Indebtedness shown represents
amounts owed by directors and executive officers of the Company and the Bank and by entities in which such persons are general
partners or have at least 10% or greater interest and trust and estates in which they have a substantial beneficial interest. All
loans have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others and do not involve other than normal risks of collectability.
The Bank routinely enters
into deposit relationships with its directors, officers and employees in the normal course of business. These deposits
bear the same terms and conditions as those prevailing at the time for comparable transactions with unrelated parties. Balances
of executive officers and directors on deposit as of December 31, 2014 and 2013 were $22.6 million and $19.3 million, respectively.
NOTE 19 – FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party
to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit risk not recognized in the statement of financial position.
The Company’s
exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual amount of those instruments. The same policies are utilized
in making commitments and conditional obligations as are used for creating on-balance sheet instruments. Ordinarily, collateral
or other security is not required to support financial instruments with off-balance sheet risk.
Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan
commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments
are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.
Each customer’s credit-worthiness is evaluated on a case-by-case basis, including the collateral required, if deemed necessary
by the Bank upon extension of credit, and is based on management’s credit evaluation of the counter party. At
December 31, 2014 and 2013, the Company had outstanding loan commitments of $119.6 million and $87.7 million, respectively. As
of year-end 2014, variable rate commitments were $78.7 million and fixed rate commitments were $40.9 million. As of
year-end 2013, variable rate commitments were $56.5 million and fixed rate commitments were $31.2 million. Of these commitments,
none had an original maturity in excess of one year.
Standby letters of credit
and financial guarantees are conditional commitments issued by the Company to guarantee performance of a customer to a third party.
Those guarantees are issued primarily to support public and private borrowing arrangements, and the credit risk involved is essentially
the same as that involved in extending loans to customers. The Company requires collateral to secure these commitments when deemed
necessary. At December 31, 2014 and 2013, outstanding standby letters of credit totaled $2.9 million and $4.3 million, respectively.
In the normal course
of business, the Company extends loans, which are subsequently sold to other lenders, including agencies of the U.S. government. Certain
of these loans are conveyed with recourse creating off-balance sheet risk with regard to the collectibility of the loan. At
December 31, 2014 and 2013, the Company had no loans sold with recourse.
NOTE 20 – SIGNIFICANT
CONCENTRATIONS OF CREDIT RISK
The Company grants agribusiness,
commercial, residential and personal loans to customers throughout a wide area of the mid-southern United States. A
large majority of the Company’s loans, however, are concentrated in the immediate vicinity of the Company, primarily in West
Tennessee. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability
to honor their obligations is dependent upon the agribusiness and industrial economic sectors of that geographic area.
NOTE 21 – FAIR
VALUE MEASUREMENTS
Recurring Basis
The following are descriptions
of valuation methodologies used for assets measured at fair value on a recurring basis. There are no liabilities measured
for fair value on a recurring basis for any of the periods presented.
Available-for-Sale
Securities
Fair values for available-for-sale
securities are obtained from a third party vendor and are valued using Level 2 inputs.
Assets as of December
31, 2014 and 2013 measured at estimated fair value on a recurring basis were as follows (in thousands):
|
|
Level 1 Inputs |
|
|
Level 2 Inputs |
|
|
Level 3 Inputs |
|
|
Total Fair Value |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
- |
|
|
$ |
583,346 |
|
|
$ |
- |
|
|
$ |
583,346 |
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
- |
|
|
$ |
456,525 |
|
|
$ |
- |
|
|
$ |
456,525 |
|
Non-Recurring Basis
Certain assets are measured
at fair value on a non-recurring basis as described below.
Impaired Loans
Impaired loans are evaluated
and valued at the time the loan is identified as impaired at the lower of cost or fair value. Fair value is measured
based on the value of the collateral securing these loans. Collateral may be real estate and/or business assets including
equipment, inventory and/or accounts receivable. Independent appraisals for collateral are obtained and may be discounted
by management based on historical experience, changes in market conditions from the time of valuation and/or management’s
knowledge of the borrower and the borrower’s business. As such discounts may be significant, these inputs are
considered Level 3 in the hierarchy for determining fair value. Values of impaired loans are reviewed on at least a
quarterly basis to determine if specific allocations in the reserve for loan losses are adequate.
Loans Held-for-Sale
Loans held-for-sale
are recorded at the lower of cost or fair value. Fair value of loans held-for-sale are based upon binding contracts
and quotes from third party investors that qualify as Level 2 inputs for determining fair value. Loans held for sale
did not have an impairment charge in 2014 or 2013.
Other Real Estate
Owned
OREO is recorded at
the lower of cost or fair value. Fair value is measured based on independent appraisals and may be discounted by management
based on historical experience and knowledge and changes in market conditions from time of valuation. As such discounts
may be significant, these inputs are considered Level 3 in the hierarchy for determining fair value. Values of OREO
are reviewed at least annually or more often if circumstances require more frequent evaluations.
Assets as of December
31, 2014 and 2013 measured at estimated fair value on a non-recurring basis were as follows:
|
|
Level 1 Inputs |
|
|
Level 2 Inputs |
|
|
Level 3 Inputs |
|
|
Total Fair Value |
|
December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,395 |
|
|
$ |
7,395 |
|
Loans held-for-sale |
|
|
- |
|
|
|
4,339 |
|
|
|
- |
|
|
|
4,339 |
|
Other real estate owned |
|
|
- |
|
|
|
- |
|
|
|
5,717 |
|
|
|
5,717 |
|
December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,499 |
|
|
$ |
7,499 |
|
Loans held-for-sale |
|
|
- |
|
|
|
3,098 |
|
|
|
- |
|
|
|
3,098 |
|
Other real estate owned |
|
|
- |
|
|
|
- |
|
|
|
6,826 |
|
|
|
6,826 |
|
Fair Value Estimates
ASC 820 requires disclosure
of the estimated fair value of financial instruments for interim and annual periods. The following assumptions were
made and methods applied to estimate the fair value of each class of financial instruments not measured at fair value on the Consolidated
Balance Sheets:
Cash and Cash Equivalents
For instruments that
qualify as cash equivalents, as described in Note 1, the carrying amount is assumed to be fair value.
Interest-Bearing Deposits
in Other Banks
Interest-bearing deposits
in other banks consist of excess balances held at the Federal Reserve Bank and short term CDs and the carrying amount is assumed
to be fair value.
Loans
Fair value of variable-rate
loans with no significant change in credit risk subsequent to loan origination is based on carrying amounts. For other
loans, such as fixed rate loans, fair values are estimated utilizing discounted cash flow analyses, applying interest rates currently
offered for new loans with similar terms to borrowers of similar credit quality. Fair values of loans that have experienced
significant changes in credit risk have been adjusted to reflect such changes.
Accrued Interest Receivable
The fair values of accrued
interest receivable and other assets are assumed to be the carrying value.
Federal Home Loan
Bank and Federal Reserve Bank Stock
Carrying amounts of
capital stock of the FHLB of Cincinnati and Federal Reserve Bank of St. Louis approximate fair value.
Bank-Owned Life Insurance
Carrying amount of bank-owned
life insurance is the cash surrender value as of the end of the periods presented and approximates fair value.
Deposit Liabilities
Demand Deposits
The fair values of deposits
which are payable on demand, such as interest bearing and non-interest bearing checking accounts, passbook savings, and certain
money market accounts are equal to the carrying amount of the deposits.
Variable-Rate Deposits
The fair value of variable-rate
money market accounts and CDs approximate their carrying value at the balance sheet date.
Fixed-Rate Deposits
For fixed-rate CDs,
fair values are estimated utilizing discounted cash flow analyses, which apply interest rates currently being offered on CDs to
a schedule of aggregated monthly maturities on time deposits.
Long-term debt
For securities sold
under repurchase agreements payable upon demand, the carrying amount is a reasonable estimate of fair value. For securities
sold under repurchase agreements for a fixed term, fair values are estimated using the same methodology as fixed rate time deposits
discussed above. The fair value of the advances from the FHLB and other long-term borrowings are estimated by discounting
the future cash outflows using the current market rates.
Other Liabilities
Fair value of other liabilities
is assumed to be the carrying values.
The carrying amount
and fair value of assets and liabilities as of December 31, 2014 and 2013 were as follows (in thousands):
|
|
Carrying Amount |
|
|
Level 1
Inputs |
|
|
Level 2
Inputs |
|
|
Level 3
Inputs |
|
|
Fair Value |
|
As of December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
33,182 |
|
|
$ |
33,182 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
33,182 |
|
Interest-bearing deposits in other banks |
|
|
40,993 |
|
|
|
40,993 |
|
|
|
- |
|
|
|
- |
|
|
|
40,993 |
|
Investment securities |
|
|
583,346 |
|
|
|
- |
|
|
|
583,346 |
|
|
|
- |
|
|
|
583,346 |
|
Loans, net of allowance |
|
|
703,682 |
|
|
|
- |
|
|
|
715,163 |
|
|
|
7,395 |
|
|
|
722,558 |
|
Loans held-for-sale |
|
|
4,339 |
|
|
|
- |
|
|
|
4,339 |
|
|
|
- |
|
|
|
4,339 |
|
Accrued interest receivable |
|
|
6,260 |
|
|
|
- |
|
|
|
6,260 |
|
|
|
- |
|
|
|
6,260 |
|
Federal Reserve Bank and Federal Home Loan Bank Stock |
|
|
6,134 |
|
|
|
- |
|
|
|
6,134 |
|
|
|
- |
|
|
|
6,134 |
|
Other real estate owned |
|
|
5,717 |
|
|
|
- |
|
|
|
- |
|
|
|
5,717 |
|
|
|
5,717 |
|
Bank owned life insurance |
|
|
25,924 |
|
|
|
- |
|
|
|
25,924 |
|
|
|
- |
|
|
|
25,924 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Deposits |
|
|
1,211,506 |
|
|
|
- |
|
|
|
1,212,162 |
|
|
|
- |
|
|
|
1,212,162 |
|
Short-term borrowings |
|
|
49,317 |
|
|
|
- |
|
|
|
49,317 |
|
|
|
- |
|
|
|
49,317 |
|
Other borrowings |
|
|
66,831 |
|
|
|
- |
|
|
|
67,234 |
|
|
|
- |
|
|
|
67,234 |
|
Other liabilities |
|
|
9,274 |
|
|
|
- |
|
|
|
9,274 |
|
|
|
- |
|
|
|
9,274 |
|
Off-balance sheet arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Commitments to extend credit |
|
|
119,669 |
|
|
|
- |
|
|
|
119,669 |
|
|
|
- |
|
|
|
119,669 |
|
Standby letters of credit |
|
|
2,902 |
|
|
|
- |
|
|
|
2,902 |
|
|
|
- |
|
|
|
2,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,249 |
|
|
$ |
25,249 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
25,249 |
|
Interest bearing deposits in other banks |
|
|
21,865 |
|
|
|
21,865 |
|
|
|
- |
|
|
|
- |
|
|
|
21,865 |
|
Investment securities |
|
|
456,525 |
|
|
|
- |
|
|
|
456,525 |
|
|
|
- |
|
|
|
456,525 |
|
Loans, net of allowance |
|
|
572,418 |
|
|
|
- |
|
|
|
570,862 |
|
|
|
7,499 |
|
|
|
578,361 |
|
Loans held for sale |
|
|
3,098 |
|
|
|
- |
|
|
|
3,098 |
|
|
|
- |
|
|
|
3,098 |
|
Accrued interest receivable |
|
|
5,011 |
|
|
|
- |
|
|
|
5,011 |
|
|
|
- |
|
|
|
5,011 |
|
Federal Reserve Bank and Federal Home Loan Bank Stock |
|
|
5,684 |
|
|
|
- |
|
|
|
5,684 |
|
|
|
- |
|
|
|
5,684 |
|
Other real estate owned |
|
|
6,826 |
|
|
|
- |
|
|
|
- |
|
|
|
6,826 |
|
|
|
6,826 |
|
Bank owned life insurance |
|
|
22,466 |
|
|
|
- |
|
|
|
22,466 |
|
|
|
- |
|
|
|
22,466 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Deposits |
|
|
968,530 |
|
|
|
- |
|
|
|
969,520 |
|
|
|
- |
|
|
|
969,520 |
|
Short-term borrowings |
|
|
36,808 |
|
|
|
- |
|
|
|
36,808 |
|
|
|
- |
|
|
|
36,808 |
|
Other borrowings |
|
|
51,167 |
|
|
|
- |
|
|
|
49,638 |
|
|
|
- |
|
|
|
49,638 |
|
Other liabilities |
|
|
5,361 |
|
|
|
- |
|
|
|
5,361 |
|
|
|
- |
|
|
|
5,361 |
|
Off-balance sheet arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Commitments to extend credit |
|
|
87,698 |
|
|
|
- |
|
|
|
87,698 |
|
|
|
- |
|
|
|
87,698 |
|
Standby letters of credit |
|
|
4,266 |
|
|
|
- |
|
|
|
4,266 |
|
|
|
- |
|
|
|
4,266 |
|
NOTE 22 – EMPLOYEE
STOCK OWNERSHIP AND 401(k) PLANS
The Company maintains
the First Citizens National Bank of Dyersburg Employee Stock Ownership Plan (the “ESOP”) and the First Citizens National
Bank 401(k) Plan (the “401(k) Plan”) as employee benefits. The plans provide for a contribution annually not to exceed
25% of the total compensation of all participants and afford eligibility for participation to all full-time employees who have
completed at least one year of service and are age 21 or older.
The Company annually
contributes amounts equal to 3% of total eligible compensation to the 401(k) Plan and a discretionary percentage of total eligible
compensation to the ESOP. The annual discretionary percentage of total eligible compensation was 7% for 2014 and 2013. Total
eligible compensation for both plans consists of total compensation subject to income tax. Total eligible compensation
includes any salary deferrals made through the 401(k) Plan and Section 125 Cafeteria Plan and is subject to maximum limits set
annually by the IRS. Each participant may also elect to defer up to 75% of his or her pay into the 401(k) Plan, subject
to dollar limitations imposed by law.
Employer cash contributions
to the 401(k) Plan totaled approximately $421,000 in 2014, $402,000 in 2013, and $382,000 in 2012. Employer cash contributions
to the ESOP totaled approximately $989,000 in 2014, $966,000 in 2013, and $895,000 in 2012. Cash contributions to the 401(k) Plan
and ESOP are reported in Salaries and Employee Benefits in Non-Interest Expenses on the Consolidated Statements of Income.
The ESOP is a non-leveraged
plan and all shares of Company common stock owned by the ESOP were allocated to participants as of December 31, 2013 and 2014. Cash
dividends paid by the Company on common stock held by the ESOP are charged to retained earnings. All shares owned by
the ESOP are considered outstanding for earnings per share computations. In the event a terminated or retired ESOP participant
desires to sell his or her shares of Company common stock, or if certain employees elect to diversify their account balances, the
Company may be required to purchase the shares from the participant at their fair market value. The ESOP owned 681,451
shares of Company common stock with an estimated fair value of $30.7 million as of December 31, 2014 and 703,393 shares of Company
common stock with an estimated fair value of $30.0 million as of December 31, 2013.
SHB has a 401(k) profit
sharing plan covering employees meeting certain age and service requirements. Employees of SHB may contribute up to
a certain dollar amount which is set by law. Participants vest immediately in their contributions plus the actual earnings
thereon. SHB contributions vested 20% per year over 5 years. Discretionary contributions from the acquisition
date through December 31, 2014 totaled approximately $23,000. This plan was terminated as of December 31, 2014 and employees
of SHB meeting eligibility requirements were enrolled in the Company’s 401(k) Plan and/or EOSP on January 1, 2015.
NOTE 23 – QUARTERLY
SELECTED FINANCIAL DATA (UNAUDITED)
The following table presents
quarterly selected financial data (unaudited) for 2014 and 2013 (in thousands, except per share data):
|
|
Interest |
|
|
Net Interest |
|
|
Net |
|
|
EPS |
|
|
EPS |
|
|
|
Income |
|
|
Income |
|
|
Income |
|
|
Basic |
|
|
Diluted |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
10,988 |
|
|
$ |
9,523 |
|
|
$ |
3,825 |
|
|
$ |
1.06 |
|
|
$ |
1.06 |
|
Second Quarter |
|
|
11,309 |
|
|
|
9,838 |
|
|
|
3,433 |
|
|
|
0.95 |
|
|
|
0.95 |
|
Third Quarter |
|
|
11,209 |
|
|
|
9,723 |
|
|
|
3,011 |
|
|
|
0.84 |
|
|
|
0.84 |
|
Fourth Quarter |
|
|
13,428 |
|
|
|
11,581 |
|
|
|
3,276 |
|
|
|
0.87 |
|
|
|
0.87 |
|
Total |
|
$ |
46,934 |
|
|
$ |
40,665 |
|
|
$ |
13,545 |
|
|
$ |
3.72 |
|
|
$ |
3.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
11,003 |
|
|
$ |
9,427 |
|
|
$ |
3,588 |
|
|
$ |
0.99 |
|
|
$ |
0.99 |
|
Second Quarter |
|
|
11,031 |
|
|
|
9,446 |
|
|
|
3,175 |
|
|
|
0.89 |
|
|
|
0.89 |
|
Third Quarter |
|
|
11,123 |
|
|
|
9,576 |
|
|
|
3,434 |
|
|
|
0.95 |
|
|
|
0.95 |
|
Fourth Quarter |
|
|
10,965 |
|
|
|
9,459 |
|
|
|
3,611 |
|
|
|
1.00 |
|
|
|
1.00 |
|
Total |
|
$ |
44,122 |
|
|
$ |
37,908 |
|
|
$ |
13,808 |
|
|
$ |
3.83 |
|
|
$ |
3.83 |
|
NOTE 24 – CONDENSED
FINANCIAL INFORMATION
FIRST CITIZENS BANCSHARES,
INC.
(Parent Company Only)
Balance Sheets
December 31, 2014 and
2013
(In thousands)
|
|
2014 |
|
|
2013 |
|
Assets |
|
|
|
|
|
|
Cash |
|
$ |
1,115 |
|
|
$ |
702 |
|
Investment in subsidiaries |
|
|
167,032 |
|
|
|
120,134 |
|
Other assets |
|
|
640 |
|
|
|
103 |
|
Total assets |
|
$ |
168,787 |
|
|
$ |
120,939 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Long term debt |
|
$ |
25,667 |
|
|
$ |
10,310 |
|
Accrued expenses |
|
|
665 |
|
|
|
78 |
|
Total liabilities |
|
|
26,332 |
|
|
|
10,388 |
|
Shareholders’ equity |
|
|
142,455 |
|
|
|
110,551 |
|
Total liabilities and shareholders’ equity |
|
$ |
168,787 |
|
|
$ |
120,939 |
|
FIRST CITIZENS BANCSHARES,
INC.
(Parent Company Only)
Condensed Statements
of Income
Years Ended December
31, 2014 and 2013
(In thousands)
|
|
2014 |
|
|
2013 |
|
Income |
|
|
|
|
|
|
Dividends from bank subsidiaries |
|
$ |
10,825 |
|
|
$ |
5,185 |
|
Other income |
|
|
7 |
|
|
|
6 |
|
Total income |
|
|
10,832 |
|
|
|
5,191 |
|
Expenses |
|
|
|
|
|
|
|
|
Interest expense |
|
|
375 |
|
|
|
214 |
|
Other expenses |
|
|
1,262 |
|
|
|
177 |
|
Total expenses |
|
|
1,637 |
|
|
|
391 |
|
Income before income taxes and equity in undistributed net income of bank subsidiary |
|
|
9,195 |
|
|
|
4,800 |
|
Income tax benefit |
|
|
(608 |
) |
|
|
(143 |
) |
|
|
|
9,803 |
|
|
|
4,943 |
|
Equity in undistributed net income of bank subsidiary |
|
|
3,742 |
|
|
|
8,865 |
|
Net income |
|
$ |
13,545 |
|
|
$ |
13,808 |
|
FIRST CITIZENS BANCSHARES,
INC.
(Parent Company Only)
Condensed Statements
of Cash Flows
Years ended December
31, 2014 and 2013
(In thousands)
|
|
2014 |
|
|
2013 |
|
Operating activities |
|
|
|
|
|
|
Net income |
|
$ |
13,545 |
|
|
$ |
13,808 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Undistributed income of subsidiary |
|
|
(3,742 |
) |
|
|
(8,865 |
) |
Increase in other assets |
|
|
(184 |
) |
|
|
(18 |
) |
Increase (decrease) in other liabilities |
|
|
24 |
|
|
|
(94 |
) |
Net cash provided by operating activities |
|
|
9,643 |
|
|
|
4,831 |
|
Investing activities |
|
|
|
|
|
|
|
|
Outlay for business acquisitions-net |
|
|
(15,995 |
) |
|
|
- |
|
Net cash used by investing activities |
|
|
(15,995 |
) |
|
|
- |
|
Financing activities |
|
|
|
|
|
|
|
|
Dividend payments to shareholders |
|
|
(4,899 |
) |
|
|
(4,690 |
) |
Issuance of long-term debt |
|
|
12,000 |
|
|
|
- |
|
Principal reductions on long-term debt |
|
|
(284 |
) |
|
|
- |
|
Treasury stock transactions -net |
|
|
(52 |
) |
|
|
- |
|
Net cash provided (used) by financing activities |
|
|
6,765 |
|
|
|
(4,690 |
) |
Increase in cash |
|
|
413 |
|
|
|
141 |
|
Cash at beginning of year |
|
|
702 |
|
|
|
561 |
|
Cash at end of year |
|
$ |
1,115 |
|
|
$ |
702 |
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been
no changes in the Companys independent registered public accounting firm for
the two most recent fiscal years.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company,
under supervision of and with the participation of its management, including
the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Companys disclosure controls
and procedures as of the end of the period covered by this Annual Report on
Form 10-K. Disclosure controls and procedures are defined in accordance with
Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based upon that
evaluation as of the end of the period covered by this Annual Report on Form
10-K, management concluded that the Companys disclosure controls and
procedures were effective in ensuring that information required to be disclosed
in the reports that the Company files with or submits to the SEC under the
Exchange Act is recorded, processed, summarized and reported on a timely basis.
There have been
no changes in internal control over financial reporting during the quarter
ended December 31, 2014 that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting. Managements
report and the attestation report of the Companys independent registered
public accounting firm regarding internal control over financial reporting are
included in Item 8 of this Annual Report on Form 10-K.
PART
III
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE.
Directors
Our board of
directors currently consists of 18 members. The terms are for three years with approximately
one-third of our board members expiring each year. Once elected, each director
shall serve the stated term or until his or her successor has met the necessary
qualifications and has been elected. Each member of the Companys board of
directors also serves as a director on the board of FCNB, a wholly owned
subsidiary of the Company.
Allen Searcy
retired from the board of directors effective February 10, 2015.
The information below sets forth
the name, age, length of service and a summary of specific experience, qualifications,
attributes or skills for each of our directors. No director holds a
directorship with any other public company or registered investment company.
Nominees
for Election at the 2015 Annual Meeting of Shareholders Whose Terms Will
Expire in 2018
Jeffrey D. Agee, Age 54,
Director Since 2005
See section
titled Executive Officers below.
Eddie E. Anderson, Age 67, Director
Since 1984
Mr. Anderson is
owner and operator of Anderson Farms and attended the University of Tennessee.
He is member and Chairman of the Board of Dyer County Fair Association and Vice
Chairman of Agriculture Dyersburg/Dyer Chamber of Commerce. He has also served
as past Chairman of Dyersburg/Dyer County Chamber of Commerce. Mr. Anderson
currently serves as Chairman of the Tennessee State Committee for Farm Service
Agency.
Christian E. Heckler, Age 47, Director
Since 2006
See section
titled Executive Officers below.
Barry T. Ladd, Age 74, Director
Since 1996
Mr. Ladd is
retired and previously served as Executive Vice President and Chief
Administrative Officer of the Company and FCNB from January 1996 to December
31, 2006. Prior to his service as Executive Vice President of FCNB, he also
served as Branch Manager and Lending Officer of FCNB and as Commercial Lending
Officer of FCNB. He earned a bachelors degree and masters degree in business
from the University of Tennessee. He is a graduate of School of Banking of the
South. He also previously served as Technical Representative for Shell Chemical
Company, Account Production Officer for Security Bank and as Partner in family
farming/cattle operation business. He has served as Chairman of Newbern
Industrial board of directors and on the boards of directors of Newbern Housing
Authority and Dyer County Community Housing.
John M. Lannom, Age 61, Director
Since 1999
Mr. Lannom is an
attorney in private legal practice in Dyersburg, Tennessee. He also serves as
Board Chairman and Chief Executive Officer of Forcum-Lannom, Inc. He earned a
bachelors degree from Vanderbilt University and his law degree from University
of Memphis School of Law. He also serves as Secretary of Forcum Lannom
Contractors, LLC and on the boards of directors for Dyer County Adult
Education, Dyersburg State Community College Foundation, Dyer County United Way
and Dyersburg/Dyer County Chamber of Commerce. He is also past Chairman of
Dyersburg/Dyer County Chamber of Commerce.
Milton E. Magee , Age 78, Director
Since 1969
Mr. Magee is
retired from Chic Farm Co., a general farming operation. He is Partner of Magee
and Taylor Family Limited Partnership and T&M FLP. He earned a bachelors
degree in agriculture from the University of Tennessee. He is a member of the
board of directors of Baptist Memorial Health Care Corporation in Memphis,
Tennessee and has served as past and incoming Chairman of that corporation.
Green W. Smitheal, Age 59, Director
Since 1993
Mr. Smitheal is
managing partner of Smitheal Farms. He earned a bachelors degree in
agriculture economics from University of Tennessee. He also serves as managing
partner of Biesel & Smitheal Farming Partnership. He served on the Advisory
Board for Boy Scout Troop 88 and participated in the Annual Fund Drive for West
Tennessee Area Council of Boy Scouts of America. He is also a member of Dyer
County Ag Committee.
J. Lee Stewart. Age 64, Director
Since 2014
Mr. Stewart
serves as President and Chief Executive Officer of Southern Heritage Bank, a
wholly owned subsidiary of the Company. Mr. Stewart has more than 40 years of
banking experience. He began his career in 1972 at American National Bank in
Chattanooga serving as Business Development Officer and Credit Officer. In
1980, he joined First National Bank of Columbus, GA, to organize that banks
internal loan review functions, and later he was promoted to Vice President of
Commercial Lending. In 1985, he joined First American National Bank in Bristol,
TN, as Senior Vice President for Commercial Lending and was promoted to City
President in 1988 before being transferred in early 1990 to the Cleveland
office of First American, where he served as City President until mid-1998. Mr.
Stewart is a graduate of Tennessee Wesleyan College, The National Commercial
Lending Graduate School at University of Oklahoma and Stonier Graduate School
of Banking. His civic activities include involvement with United Way of
Bristol, where he was awarded outstanding volunteer of the year in 1989, and
United Way of Bradley County, where he has served as Campaign Co-Chairman and
as Chairman of the Board. He was a member of the organizing committee of
Greater Cleveland Soccer Association and served as President of that group. He
has been active in the Cleveland/Bradley Chamber of Commerce, serving as
Treasurer and Chairman of the Board. He has served on the boards of Cleveland
Family YMCA, Junior Achievement and Cherokee Council of Boy Scouts.
Continuing Directors Whose
Terms Will Expire in 2017
J. Walter Bradshaw, Age 53, Director
Since 1993
Mr. Bradshaw is
Manager of Bradshaw & Company Insurors, an independent insurance agency.
Mr. Bradshaw holds a bachelors degree from University of Tennessee and law
degree from University of Memphis School of Law. He has served as past Chairman
of Dyersburg/Dyer County Chamber of Commerce and is on the board of directors
for Dyersburg Electric System. He is past President of Dyersburg Rotary Club, member
and past President of Dyer County Fair Association and past President of
Insurors of Tennessee.
Larry W. Gibson, Age 68, Director
Since 1995
Mr. Gibson is
owner and Chairman of Roberts-Gibson, Inc., a gasoline jobber company. He is
past President and Co-Chair of Executive Committee for Dyer County Fair Board
and has served on the Tennessee State Fair board of directors. He is past
President of Tennessee State Fair Association, past President of Dyer County
Young Farmers & Homemakers and past President of Dyer County Ducks
Unlimited. He has also previously served on Foundation Board of Dyersburg State
Community College and is former member of Dyersburg/Dyer County the Chamber of
Commerce board of directors. He also serves on Board of Crime Stoppers.
Dwight Steven Williams, Age 59,
Director Since 1991
Mr. Williams is
owner and President of Johnson-Williams Funeral Home, Inc. and a member of West
TN Golf, LLC. He holds a bachelors degree in agriculture business from
University of Tennessee and a B.A. in mortuary science from Northwest
Mississippi School of Mortuary Science. He has a State Board Certification as a
licensed Funeral Director and Embalmer. He is manager of a farming and land
management operation. Mr. Williams serves on the Workforce Development Board,
Dyer County High School Advisory Board, Newberns Lions Club, and as Chairman
of the Newbern Housing Authority. Mr. Williams also serves as President of the
Newbern Industrial Corporation.
Katie S. Winchester, Age
74, Director Since 1990
See section
titled Executive Officers below.
Joseph S. Yates, Age 52, Director
Since 2005
Mr. Yates is
President and Chief Executive Officer of General Appliance & Furniture Co.,
a retail furniture and appliance outlet. He earned a bachelors degree in business
from the University of Tennessee and is past Chairman of Dyersburg/Dyer County
Chamber of Commerce. He has also served as Chairman of Dyersburg City Schools
Board, member and Chairman of Dyersburg Downtown Association, and member of
board of directors for Dyersburg/Dyer County Chamber of Commerce.
Continuing Directors Whose
Terms Will Expire in 2016
James Daniel Carpenter, Age 66,
Director Since 1993
Mr. Carpenter
retired as Managing Partner of Flatt Heating & Air Conditioning in 2011. He
holds a bachelors degree from University of Tennessee. Mr. Carpenter
previously served as Lending and Credit Manager for Dyersburg Production Credit
Association and managed a farming operation for over 20 years. Mr. Carpenter
has served as member of Dyer County Community Housing Board and past President
of Newbern Rotary Club.
Richard W. Donner, Age
64, Director Since 1985
Mr. Donner is
President of Trenton Mills, a textile manufacturing facility, and attended
University of Tennessee. Mr. Donner previously served as Vice President of
Sales and Marketing at Dyersburg Fabrics. He is also the owner/operator of a
livestock farm in Dyer County. Mr. Donner has served as chair of annual fund
drives for Boy Scouts of America, Girl Scouts of America and West Tennessee Heart
Fund.
Ralph E. Henson, Age 73, Director
Since 1997
Mr. Henson
previously served as Chief Credit Officer of FCNB from February 1993 to
December 31, 2006, at which time he transitioned to part-time employment
through December 31, 2011. Mr. Henson holds a bachelors degree from University
of Tennessee and has approximately 50 years of experience in commercial
banking. He has served as managing partner of a commercial real estate company.
He has also served as member of the Northwest Tennessee Regional Port Authority
board of directors and as member of the Dyer County Industrial Development
Board.
Judy Long, Age 60, Director
Since 2011
See section
titled Executive Officers below.
Larry S. White, Age 66, Director
Since 1997
Mr. White is
President of White & Associates Insurance Agency, Inc., a general insurance
agency offering all lines of insurance, and Managing Partner of First
Citizens/White and Associates Insurance Company (50%- owned subsidiary of the FCNB).
He earned a bachelors degree in business from the University of Tennessee. He
is President of Home Health Company and serves on Dyersburg State Community
College Foundation Board and Dyersburg/Dyer County Chamber of Commerce Board.
He is past President and member of Dyersburg Rotary Club and past President of
Dyersburg Lions Club. He has also served as Chairman of Dyersburg Regional
Medical Center.
Committees of the Board of
Directors
Although the
Companys board of directors has no standing committees, FCNBs board of
directors has an Audit Committee and a Corporate
Governance/Nominating/Compensation Committee. FCNBs board of directors also
has an Executive Committee, Trust Committee, CRA Committee, Information
Technology Operations Committee and Risk Committee. On April 16, 2014, FCNBs board
appointed members of each of these committees to serve for a term of one year.
All members of
the Audit Committee and the Corporate Governance/Nominating/Compensation
Committee are independent as described above in the section entitled
Director Independence. The Audit Committee met five times during 2014 and
the Corporate Governance/Nominating/Compensation Committee met seven times
during 2014. The Audit Committee charter and the Corporate
Governance/Nominating/Compensation Committee charter can be found in the About
Investor Relations section of our website at www.FirstCNB.com.
Audit Committee
The Audit Committee charter
requires members of the committee to be financially literate. The Audit
Committee currently does not have an audit committee financial expert, as
defined by Item 407(d)(5)(i) of Regulation S-K. Because of our size and limited
resources, we have not been able to attract a director who qualifies as an
audit committee financial expert, but have focused on identifying directors
who have overall characteristics that are beneficial to the board of directors
as a whole. In the future, the board of directors hopes to attract an
independent director who qualifies as an audit committee financial expert. The
Audit Committees meetings include, whenever appropriate, sessions with our
independent registered public accounting firm and our senior internal auditor,
in each case without the presence of management.
Nominating Committee
The Corporate
Governance/Nominating/Compensation Committee assists the Companys board in
identifying individuals qualified to become directors and recommends to the
Companys board nominees to be voted upon at each annual meeting of
shareholders. The committee has responsibility for the selection and
composition of the Companys board. The process for shareholders to propose
nominees for election to the board is discussed in detail in the section below
entitled Proposals by Shareholders/Director Selection. The committee also has
the responsibility to review shareholder proposals, if any, including
shareholder nominations of directors, that are duly and properly submitted and
recommend appropriate action to the Companys board. Currently, neither the
committee nor the Companys board has a specific policy that takes diversity
into consideration in identifying nominees for director, except that the
committee seeks members from diverse professional backgrounds who combine a
broad spectrum of experience and expertise with a reputation for integrity. The
committee does consider diversity of the board, however, as part of its annual
evaluation of the effectiveness of board oversight.
Compensation Committee
The Corporate
Governance/Nominating/Compensation Committee addressed compensation issues
during four of the seven meetings of the committee in 2014. One purpose of the
committee is to discharge the boards responsibilities relating to compensation
of executive officers of the Company. The committee has overall responsibility
for evaluating and approving executive officer salary, benefits, bonus,
incentive compensation, severance, equity-based or other compensation plans, as
well as compensation policies and programs. The committee also annually reviews
the compensation of directors serving on the boards of the Company and the Banks
and the Banks respective committees. Based on its review, the committee
annually recommends director compensation to the Companys board for
consideration and approval. The committee does not delegate any of its
responsibilities to other officers or directors.
Executive Officers
The following
information relates to the executive officers of the Company as of December 31,
2014:
Name
|
Age
|
Position, Office and Background
|
Jeffrey D. Agee
|
54
|
Mr. Agee serves as President
and Chief Executive Officer of the Banks and the Company. He previously
served as Executive Vice President and Chief Financial Officer of the FCNB
and Vice President and Chief Financial Officer of the Company from August
1999 to June 2004. Mr. Agee holds a bachelors degree in accounting from the
University of Tennessee and is a graduate of ABA Stonier Graduate School of
Banking at Georgetown University and of BAI School of Bank Administration at
University of Wisconsin. He is also a Certified Public Accountant (Inactive)
and holds a Series 27 license issued by FINRA. He serves as Financial and
Operations Principal of First Citizens Financial Plus, Inc. (a wholly owned
subsidiary of FCNB) and possesses an understanding of SEC rules and
regulations, internal controls and financial reporting. He also currently
serves on boards of directors of 16 community and professional organizations,
including Tennessee Bankers Association (past chairman). In addition, he was
recently appointed to the St. Louis Federal Reserves Community Depository
Institutions Advisory Council.
|
|
|
|
Sherrell Armstrong
|
53
|
Mr. Armstrong has served as
Executive Vice President of the Company and Executive Vice President and
Chief Credit Officer of FCNB since January 1, 2007. Mr. Armstrong previously
served as Executive Vice President and Loan Administrator of FCNB from 2003
to 2007. He also served as Senior Vice President of FCNB from 2002 to 2003 as
well as a Vice President and Commercial Lender of FCNB from 1997 to 2002. Mr.
Armstrong has been employed by FCNB since June 1997.
|
|
|
|
Laura Beth Butler
|
39
|
Ms. Butler has served as
Executive Vice President and Chief Financial Officer for the Company and FCNB
since April 2009. Ms. Butler was appointed Corporate Secretary of FCNB and
the Company in September 2011. Ms. Butler previously served as Senior Vice
President and Chief Financial Officer of the Company and FCNB from June 2004
to April 2009. Ms. Butler is a Certified Public Accountant and previously
served as Senior Audit Manager of the banking practice of a local accounting
firm from 2000 to 2004.
|
|
|
|
Christian Heckler
|
47
|
Mr. Heckler was most recently
appointed Executive Vice President, Retail Banking of FCNB in April 2014. Mr.
Heckler previously served as the Southwest Regional President for FCNB from
2006 to April 2014 and Community Bank President and Commercial Lender from
2002 to April 2006. He has also served as Vice President/Commercial Lending
for Renasant Bank from 2000 to 2003 and Vice President/Commercial Lending of
Trustmark National Bank from 1998 2000. Mr. Heckler earned his bachelors
degree in business administration from the University of Tennessee and is a
graduate of the Louisiana State University Graduate School of Banking. He
has served on the board of directors for the Millington YMCA and the Memphis
YMCA Metro Board. He has chaired the Dyersburg State Community College South
Tipton County annual fundraising campaign. He is a current Board Member and Vice
President of CASA of Tipton County, and CoChair of the Dyersburg State
annual fundraising campaign.
|
|
|
|
Judy Long
|
60
|
Ms. Long has served as
Executive Vice President for the Company and Executive Vice President and
Chief Operating Officer of FCNB since August 1999. Ms. Long previously served
as Corporate Secretary of the Company from 1997 until September 2011, at
which time she was appointed to the board of directors of FCNB and the
Company. Ms. Long previously served as Senior Vice President and Chief
Operating Officer of FCNB and the Company from 1997 to 1999, Senior Vice
President and Administrative Officer of the Company and FCNB from 1996 to
1997 and Vice President and Loan Operations Manager of the Company and FCNB
from 1992 to 1996. Ms. Long has been employed by the Company since July 1974.
Ms. Long holds a bachelors degree in business administration with a major in
finance from Union University and is a graduate of the Mid-South School of
Banking, the School for Bank Administration, BAI Graduate School of Bank
Operations and Technology, and Dyersburg/Dyer County Leadership and Weststar
Leadership programs. In addition, she serves on the Board of Directors for
Fidelity National Information Systems (FNIS) Charter Bank Group, the Board of
Directors of NACHA The Electronic Payments Association and Chairperson of
Tennessee Bankers Technology Conference Advisory Committee. Ms. Long has also
served various civic organizations such as Rotary Past President, American
Cancer Society, Leukemia Society of Tennessee, Life Choices, Dyersburg State
Community College Annual Fund Campaign and Dyer County Agricultural
Committee.
|
|
|
|
Katie S. Winchester
|
74
|
Ms. Winchester serves as
Chairman of the Company and FCNB. She previously served as President of the
Company and FCNB from 1992 to 2006 and Chief Executive Officer and Vice
Chairman of the Company and FCNB from 1996 to April 2007. She served as Past
Chairman of the Tennessee Higher Education Commission and Past Chairman of
Baptist Memorial Health Care Corporation in Memphis, Tennessee. She served as
a Member of Federal Advisory Council for the Federal Reserve Board in
Washington, D.C. in 2000, 2001 and 2002. She is also a member of the boards
of directors for Dyersburg State Community College Foundation Board, United
Way of Dyer County, Dyer County Adult Education and Tennessee Vocational
Rehabilitation (Dyersburg).
|
Audit Committee Report
The role and
responsibilities of the Audit Committee are set forth in the committees
charter, a copy of which can be found in the About Us
Investor Relations section of our website at www.FirstCNB.com. In fulfilling
its responsibilities, the Audit Committee:
-
Has reviewed and discussed the audited financial statements with
management.
-
Has discussed with Alexander Thompson Arnold PLLC the matters
required to be discussed under Auditing Standard No. 16, both with and without
management present; and
-
Has received written disclosures and the letter from the
independent accountants required by applicable requirements of the Public
Company Accounting Oversight Board regarding the independent accountants
communications with the audit committee concerning independence, and has
discussed with the independent accountants the independent accountants
independence.
Based on the
review and discussions referred to above, the Audit Committee recommended to
the Companys board of directors that the audited financial statements be
included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2014 and for filing with the SEC.
Audit
Committee:
|
|
Barry Ladd,
Chairman
|
Eddie Anderson
|
Larry Gibson
|
John Lannom
|
Green Smitheal,
III
|
Code of Ethics
The Company has a
Code of Conduct applicable to all employees, including the principal executive
officer as well as all professionals serving in a finance, accounting,
treasury, tax or investor relations role. A separate Code of Ethics for
Financial Professionals contains provisions specific to professionals serving
in finance, accounting, treasury, tax or investor relations roles. Both the
Code of Conduct and the Code of Ethics for Financial Professionals are
available under the About Investor Relations section on our website at
www.FirstCNB.com. We also intend to post changes and amendments (if any) to our
Code of Conduct and Code of Ethics for Financial Professionals on our website.
Proposals by Shareholders/Director Selection
Shareholder proposals intended to be presented in proxy
materials to be mailed in 2016 must be submitted by certified or registered
mail to Laura Beth Butler, Corporate Secretary, First Citizens Bancshares,
Inc., P.O. Box 370, Dyersburg, Tennessee 38025-0370. Such proposals must
include proof of ownership of our common stock. We must receive all such
proposals no later than December 14, 2015 in order for the nomination or
proposal to be included in our proxy statement. Shareholder proposals submitted
after December 14, 2015 will not be included in our proxy statement, but may be
included in the agenda for our 2016 annual meeting if properly submitted to our
Corporate Secretary at the address listed above.
Names of nominees to be proposed for election to the
board of directors other than those made by the Nominating Committee must be
delivered in writing to the Corporate Secretary of the Company no later than
December 14, 2015. The written notice must include the full name of the
proposed director, age and date of birth, educational background and a list of
business experience and positions held by the proposed director for the preceding
five years. The notice must include home and business addresses and telephone
numbers. In addition, the submission must include a signed representation by
the nominee to timely provide all necessary information requested by the
Company in order that disclosure requirements may be met in the solicitation of
proxies for the election of directors. The name of each nominee for director
must be placed in nomination by a shareholder present in person at the annual
meeting. The nominee must also be present in person at the annual meeting for
the nomination to be made.
Section 16(a) Beneficial
Ownership Reporting Compliance
Because
the Company no longer has a class of equity securities registered pursuant to
Section 12 of the Exchange Act, our directors and executive officers are no
longer subject to the reporting requirements of Section 16(a) of the Exchange
Act.
ITEM 11. EXECUTIVE
COMPENSATION.
Executive Compensation
Executive Officers
First Citizens board of directors has the
authority to appoint officers of First Citizens. Each officer will hold office
for such term as may be prescribed by the board of directors and until such
persons successor is chosen and qualified or until such persons death,
resignation or removal. Each of Mr. Agee and Ms. Long has entered into an
employment agreement with First Citizens. Ms. Butler does not have an
employment agreement. The biographies of Mr. Agee and Mss. Butler and Long are
provided in the section above entitled Management of First Citizens.
Summary Compensation Table
The table below discloses compensation paid to each of the chief
executive officer and the two other most highly compensated executive officers
who were serving as executive officers at December 31, 2014 and whose total
compensation for 2014 exceeded $100,000 (the Named Executive Officers). This
tabulation is for the years ended December 31, 2014 and 2013.
Name and Principal Position
|
Year
|
Salary
|
Bonus(1)
|
Non-Equity Incentive
Plan Compensation
|
All Other Compensation (3)
|
Total
|
Jeffrey D. Agee
Chief Executive Officer
and President
|
2014
|
$386,250
|
$ -
|
$193,125
|
$47,223
|
$627,932
|
2013
|
375,000
|
37,500
|
131,250
|
36,021
|
579,771
|
Judy Long
Executive Vice President
and Chief Operating Officer
|
2014
|
212,000
|
-
|
106,000
|
46,778
|
366,863
|
2013
|
200,000
|
20,000
|
70,000
|
34,332
|
324,331
|
Laura Beth Butler
Executive Vice President,
Chief Financial Officer and Secretary
|
2014
|
174,900
|
-
|
87,450
|
42,317
|
304,667
|
2013
|
165,000
|
16,500
|
57,750
|
30,559
|
269,809
|
__________________________
(1)
|
Reflects
a discretionary cash bonus awarded by the Compensation Committee.
|
(2)
|
Reflects
cash bonus earned under non-equity incentive compensation plan.
|
(3)
|
Details
of the amounts reported as All Other Compensation for 2014 are as follows:
|
Name
|
Taxable Automobile
Fringe Benefit
|
Imputed Income for
Life Insurance Benefit
|
Retirement Plan
Contribution
|
Director Fees(a)
|
Jeffrey D. Agee
|
$1,145
|
$ 878
|
$26,000
|
$19,200
|
Judy Long
|
1,843
|
1,235
|
26,000
|
17,700
|
Laura Beth Butler
|
-
|
117
|
26,000
|
16,200
|
__________________________
(a)
|
Named
Executive Officers who are also directors or attend board meetings as
Corporate Secretary receive a retainer fee and fees for Company board
meetings they attend but not for FCNB board committee meetings. Compensation
for service by Named Executive Officers on the Companys board of directors
and FCNB board of directors during the year ended December 31, 2013 is
reflected in the following table:
|
Name
|
Fees Earned or
Paid in Cash
|
All Other
Compensation*
|
Total
|
Jeffrey D. Agee
|
$5,000
|
$14,200
|
$19,200
|
Judy Long
|
14,700
|
3,000
|
17,700
|
Laura Beth Butler
|
3,000
|
13,200
|
16,200
|
__________________________
* All Other Compensation consists of director fees paid
to charitable organizations.
Non-Equity Incentive Plan Compensation
Each of the Named Executive
Officers is eligible for a cash incentive bonus under a plan that provides an
incentive of 25% to 50% of base salary and is designed to ensure the
compensation program is competitive, comprehensive and properly reflective of
our strategic direction. The cash incentive bonus plan provides cash
compensation based on corporate, business unit and individual performance goals
established each year by the Compensation Committee. Incentive compensation for
each year is paid in January of the following year. The following bonuses were
paid to the Named Executive Officers in 2015 based on achievement of corporate
and individual performance goals for 2014:
|
Percentage of
Potential
Bonus Received
|
Incentive
Plan
Compensation
|
Jeffrey D. Agee
|
100%
|
$193,125
|
Judy Long
|
100%
|
106,000
|
Laura Beth Butler
|
100%
|
87,450
|
The incentive plans for our executives and other employees is designed to
promote efficient and effective individual job performance, provide
accountability for specific job responsibilities and is directly aligned with
our strategic plan to promote achievement of specific strategic initiatives and
objectives. Efficient and effective job performance and achievement of key
objectives of our strategic plan is in the interest of shareholders and creates
long-term shareholder value. The strategic plan is divided into four major
areas employees, shareholders, customers and risk management. The various
components of the incentive plan relate to these areas and each plan has
various components that balance risk and reward. Furthermore, executives and
other employees are shareholders of First Citizens through individual ownership
of shares and/or ownership through participation in our ESOP. Ownership in
First Citizens provides an incentive for executives and other employees to
pursue actions that drive long-term shareholder value rather than just pursuing
short-term goals that may expose the Company to material risk.
The 2014
performance metrics for the incentive plan applicable to the Named Executive
Officers are summarized below. Performance is measured using a balanced
scorecard matrix, which is aligned with our strategic goals of creating
long-term shareholder value and protecting the interests of the Banks
respective depositors. The balanced scorecard matrix for 2014 included
the following five, equally-weighted categories:
-
Employees (comprised of employee turnover rate and results of
corporate culture surveys);
-
Customers (comprised of results from mystery shopper surveys,
household retention and services per household goals);
-
Growth and Innovation (comprised of FCNBs Tier 1 Capital, growth
in total assets, growth in services per household, household retention and
innovation);
-
Shareholder Return (comprised of First Citizens return on equity,
total shareholder return and dividend yield); and
-
Regulatory Ratings.
Based on a
comparison of the 2014 performance to the target established by the
Compensation Committee for each category, an overall rating of 1-5 (i.e., low
to high) was assigned for each category. For 2014, the performance metrics,
targets, actual performance and resultant ratings were as follows:
|
|
|
|
Employee Turnover
|
<15%
|
9%
|
5(1)
|
Corporate Culture Survey Results
|
90%
|
94.0%
|
Customers(2)
|
Qualitative(2)
|
Achieved(2)
|
5(2)
|
Household Retention
|
94%
|
94%
|
Services per Household
|
3.15
|
3.36
|
Tier 1 Capital Leverage Ratio
|
>9.0%
|
9.26%
|
4.80(5)
|
Asset Growth
|
>7.80%(3)
|
26.1%
|
Innovation(4)
|
Qualitative(4)
|
Achieved(4)
|
Return on Equity
|
8.0%(6)
|
10.7%
|
3.40(7)
|
Total Shareholder Return
|
9%(6)
|
13.1%
|
Dividend Yield
|
1.6%(6)
|
3.05%
|
Regulatory Ratings
|
(8)
|
(8)
|
(8)
|
_____________
(1) |
This overall rating reflects an average
rating based on the achievement of both of the performance metrics related to
the Employees category.
|
(2) |
This performance metric was qualitative
and based on results of various customer surveys conducted throughout the year,
including independent mystery shopping results. The results of this component
were assigned a rating of 5 and overall rating for this component also
reflects a 5 as goals for household retention and services per household were
met or exceeded.
|
(3) |
This target was based on the average
asset growth for peer institutions (depository institutions with an asset size
of $1 billion to $3 billion), as set forth in the Uniform Bank Performance
Report, or the UBPR, as of September 30, 2014 (most recent available at the
time performance was measured).
|
(4) |
This performance metric was qualitative
and considered factors such as new strategic initiatives designed to improve
efficiencies of work flow and various recognitions received by First Citizens.
During 2014, we implemented strategies to, among other things, launch mobile deposit
capture, conversion of debit cards from Visa to MasterCard, opened full service
financial center in Jackson, Tennessee, implemented branch transformation strategy,
expanded use of video conferencing to improve efficiency and expanded fraud and
risk management infrastructure. We also received recognition as, among other
things, one of the top community bank investments, top community bank
performance measured by return on assets, best employers, and largest donors to
certain charitable organizations within the communities it serves.
|
(5) |
This overall rating reflects an average
rating based on a comparison of the 2014 performance compared to the targets
for each of the performance metrics related to the Growth and Innovation
category.
|
(6) |
This target was based on information set
forth in the Southeast Public Bank Peer Report, or the Peer Report, produced by
Mercer Capital with data provided by SNL Financial LC as of January 2, 2015,
except for total shareholder return. The target for total shareholder return
was established by the Compensation Committee.
|
(7) |
This overall rating reflects an average
rating based on a comparison of the 2014 performance to the targets for each of
the performance metrics related to the Shareholder Return category.
|
(8) |
First
Citizens believes disclosure of this information would cause material
competitive harm.
|
Based on the
results of the balanced scorecard matrix for 2014, each of the Named
Executive Officers received incentive pay totaling 50% of their respective base
salaries.
The
above-referenced categories and performance metrics are designed to incentivize
the Named Executive Officers with measurable goals. It is possible, however,
that certain of these metrics, taken alone, could encourage the executives to
take certain risks that could have a material adverse effect on First Citizens.
For example, with respect to the asset growth performance metric in the Growth
and Innovation category, the executives could attempt to grow assets in a
given year by increasing the loan portfolio without considering the ability of
borrowers to repay such loans, which could increase the amount of
non-performing loans in the future. The Compensation Committee believes,
however, that the balanced scorecard approach mitigates such risks because
risk-taking in one performance metric would likely negatively impact results
for another performance metric. For example, if executives increased the loan
portfolio without considering the ability of borrowers to repay in order to
increase his or her Growth and Innovation category rating, then ratings for
the Regulatory Ratings and Shareholder Return categories would likely
decrease in subsequent years. Because each of the categories in the balanced
scorecard matrix are weighted equally and address broad areas of overall
performance, the Compensation Committee believes that the executives are not incentivized
to take risks that might have a material adverse effect on First Citizens.
The Compensation
Committee believes that the overall balanced mixture of performance metrics in
the incentive plans for the Named Executive Officers are designed to reward
long-term, rather than short-term, shareholder value. The Employee
performance metric relates to maintaining strong employee retention rates and
strong favorable corporate culture survey results. Low employee turnover rates
and positive corporate culture help foster success with customers and
shareholder return, both long-term and short-term. The Customers performance
metric relates to strategic objectives to provide an exceptional level of
customer service, as measured by customer retention and customer surveys.
Incentivizing strong customer service levels helps create long-term shareholder
value by establishing a strong base of profitable customers, which is measured
by their satisfaction with our products and services. The Growth and
Innovation performance metric measures growth in assets and market share.
Strong performance in these areas helps create both short-term and long-term
value for First Citizens and shareholders. The other three factors in the
Growth and Innovation performance metric are designed to incentivize quality
growth that is in the best interest of First Citizens and its shareholders.
Growth without regard to quality is not fully rewarded, as it would likely
result in lower ratings or the failure to achieve goals in the other performance
metrics of the incentive plan. For example, if loan growth was pursued without
regard to quality, then target Regulatory Ratings and Shareholder Return
goals would likely not be met in the future. The Shareholder Return
performance metric measures dividend yield, return on equity and total
shareholder return against peer institutions. Dividend yield and return on
equity are short-term measures, but if participants focus on these metrics
without regard to the overall impact on our risk profile, then target
Regulatory Ratings goals would likely not be met in the future. Total
shareholder return is used to measure our performance over time and combines
share price appreciation and dividends paid to provide total return to the
shareholder. The Regulatory Ratings performance metric serves as an
independent measure of the overall risk level and risk management practices of
First Citizens. This is a key balancing factor in the incentive plan and is
designed to promote strong risk management practices as well as the overall
safety and soundness of First Citizens.
Employment Agreements
Employment agreements are currently in effect for each of Mr. Agee and
Ms. Long. Agreements for Mr. Agee and Ms. Long include severance provisions in
the event the executive voluntarily terminates his or her employment or the
executive is terminated under certain circumstances, including without cause
or in connection with a change in control, as specified below. Under the
employment agreements for Mr. Agee and Ms. Long, cause generally means (i)
the conviction of the executive or the rendering of a final non-appealable
judgment for the willful and continued failure to substantially perform his or
her duties under the agreement, our policies or federal or state law, which
breach of duty materially adversely affected the safety and soundness of First
Citizens or (ii) the non-appealable conviction of a felony. Further, change in
control generally means (i) the acquisition by any person or group of persons
of the shares of First Citizens or FCNB which, when added to any other shares
beneficially owned by such acquiror, results in ownership by any person(s) of
10% of such stock or which would require prior notification under federal or
state banking laws or regulations, or (ii) the occurrence of any merger,
consolidation or reorganization to which First Citizens or FCNB is a party and
to which First Citizens and FCNB is not a surviving entity, or the sale of
substantially all assets of First Citizens or FCNB.
Under the employment agreements for Mr. Agee and Ms. Long, if termination
by First Citizens for cause occurs before, coincident with or after a
change in control or termination by the executive occurs prior to a change in
control (including by reason of death, disability or retirement), the executive
is entitled to receive (a) his or her base salary at the annual rate in effect
through the last day of the month in which the termination occurs, (b) a
pro-rata portion of any bonus earned prior to the date of termination to the
extent not paid and (c) any amounts due under any other benefit plan in effect
at the date of termination. If termination by First Citizens without cause
occurs at least six months before a change in control, the executive is
entitled to receive payments under the agreement through the end of the term of
the agreement without further automatic extensions. Both of these employment
agreements are renewable annually in April.
In the event that either Mr. Agee or Ms. Long is terminated without cause
or terminates his or her employment coincident with or following a change of
control (including by reason of death, disability or retirement), the
employment agreements provide for compensation in addition to the amount
specified above that the executive would receive upon termination for cause. In
these circumstances, the executive would also receive a lump sum cash payment
in an amount equal to two times compensation paid in the preceding calendar
year, or scheduled to be paid to the executive during the year of the
termination, whichever is greater, plus an additional amount sufficient to pay
United States income tax on such lump sum amount; provided, however, that if
the lump sum payment, together with other payments that the executive is
entitled to receive from First Citizens, would constitute a parachute payment
under Section 280G of the Internal Revenue Code, the payment will be reduced to
the largest amount that would result in no portion of the lump sum payment
being subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code. For purposes of this calculation, compensation is equal to the amount of
total compensation reported or to be reported on the executives Form W-2 for
the applicable year.
These employment agreements were amended by Amended and Restated Split
Dollar Agreements. In connection therewith, we have purchased a life insurance
policy for each of Mr. Agee and Ms. Long with a face amount of $650,000. Upon
the death of Mr. Agee prior to separation of service, we will pay an amount
equal to $650,000 from the proceeds of the policy to the person(s) he properly
designated or the personal representative of his estate. Upon the death of Mr.
Agee after separation of service, we will pay an amount equal to $300,000 from
the proceeds of the policy to the person(s) he properly designated or the
personal representative of his estate. Upon the death of Ms. Long prior to or
after separation of service, we will pay an amount equal to $650,000 from the
proceeds of the policy to the person(s) she properly designated or the personal
representative of her estate. All proceeds received from the policies in excess
of these amounts will be retained by First Citizens to offset the cost of
providing these benefits.
Director
Compensation
The following table provides information with respect to director
compensation for directors who were not Named Executive Officers for the fiscal
year ended December 31, 2014:
|
Fees Earned or
Paid in Cash
|
|
|
Eddie E. Anderson
|
$34,700
|
$2,500
|
$ 37,200
|
J. Walter Bradshaw
|
18,700
|
8,500
|
27,200
|
James Daniel Carpenter
|
14,200
|
8,000
|
22,200
|
Richard W. Donner
|
30,200
|
7,000
|
37,200
|
Larry W. Gibson
|
30,200
|
2,000
|
32,200
|
Christian Heckler(1)
|
19,200
|
1,000
|
20,200
|
Ralph E. Henson
|
29,700
|
2,500
|
32,200
|
Barry T. Ladd
|
14,200
|
20,000
|
34,200
|
John M. Lannom
|
37,200
|
|
37,200
|
Milton E. Magee
|
39,200
|
|
39,200
|
Allen G. Searcy(2)
|
37,200
|
|
37,200
|
G. W. Smitheal
|
31,200
|
1,000
|
32,200
|
J. Lee Stewart(3)
|
4,050
|
|
4,050
|
Larry S. White
|
|
27,200
|
27,200
|
Dwight Steven Williams
|
24,200
|
8,000
|
32,200
|
Katie S. Winchester(1)
|
1,100
|
17,600
|
18,700
|
Joseph S. Yates
|
25,200
|
2,000
|
27,200
|
__________________________
(1) |
In addition to the
director fees listed above, Mr. Heckler and Ms. Winchester also receive
additional compensation from First Citizens as they are employees of FCNB.
|
|
|
(2) |
Mr. Allen Searcy
retired from the board of directors effective February 10, 2015.
|
|
|
(3) |
Mr. J. Lee Stewart was
appointed to the board of directors effective October 1, 2014.
|
The board of
directors establishes director fees on an annual basis. Directors who are
executive officers of FCNB or any of its subsidiaries receive fees for service
on the board, but do not receive additional compensation for service on a FCNB
board committee. In 2014, directors were paid $600 for each FCNB board meeting
attended as well as an annual retainer fee of $9,000. In addition, annual fees
were paid in the amount of $3,000 to each of Messrs. Heckler and Agee and in the
amount of $1,500 to each of Ms. Winchester and Ms. Long for service on our
Southwest Region Advisory Board. This Advisory Board considers issues specific
to customers in our southwest markets.
We pay additional amounts annually for service on various FCNB board
committees. In 2014, members of the Audit Committee (Messrs. Anderson, Gibson,
Ladd, Lannom and Taylor) and Corporate Governance/Nominating/Compensation
Committee (Messrs. Donner, Lannom, Magee, Searcy and Taylor) were each paid
$10,000 with an additional $2,000 paid to each committee chairman. Outside
directors serving on all other FCNB board committees (Trust, CRA, Information
Technology and Risk) were paid $5,000, except Executive Committee
members (Messrs. Anderson, Donner, Magee, Searcy and White) who received
$10,000.
All director
fees are paid in cash. Directors may choose to have their fees donated to a
charitable organization qualifying under Section 501(c)(3) of the Internal
Revenue Code.
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners
and Management of First Citizens
The table below sets forth, as of February 27, 2015, the beneficial
ownership of First Citizens common stock by (i) each person known by First
Citizens to be the beneficial owner of more than 5% of the outstanding shares
of First Citizens common stock, (ii) each director and nominee, (iii) each of
our Named Executive Officers identified in the section above entitled
Executive Compensation Summary Compensation Table and (iv) all directors
and executive officers as a group. As of February 27, 2015, there were 3,836,721
shares of First Citizens common stock outstanding. First Citizens relied on
information supplied by directors, executive officers and beneficial owners for
purposes of this table.
Name and Address of Beneficial
Owner(1)
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of Class
|
First
Citizens National Bank Employee
Stock Ownership Plan and Trust
|
681,451
|
|
17.76%
|
Jeffrey D. Agee
|
11,731
|
(2)
|
*
|
Eddie
E. Anderson
|
12,056
|
|
*
|
Sherrell
Armstrong
|
1,812
|
(2)
|
*
|
J.
Walter Bradshaw
|
32,273
|
|
*
|
Laura
Beth Butler
|
600
|
(2)
|
*
|
James
Daniel Carpenter
|
6,726
|
|
*
|
Richard
W. Donner
|
19,773
|
|
*
|
Larry
W. Gibson
|
10,200
|
|
*
|
Christian
E. Heckler
|
1,494
|
(2)
|
*
|
Ralph
E. Henson
|
15,404
|
(2)
|
*
|
Barry
T. Ladd
|
24,593
|
|
*
|
John
M. Lannom
|
26,840
|
|
*
|
Judy
Long
|
5,304
|
(2)
|
*
|
Milton
E. Magee
|
54,155
|
|
1.41%
|
G.
W. Smitheal
|
20,031
|
|
*
|
J.
Lee Stewart
|
4,619
|
|
*
|
Larry
S. White
|
66,182
|
|
1.72%
|
Dwight
Steven Williams
|
19,193
|
|
*
|
Katie
S. Winchester
|
1,702
|
(2)
|
*
|
Joseph
S. Yates
|
25,418
|
|
*
|
Directors
and executive officers as a group (20 persons)
|
360,106
|
(2)
|
9.39%
|
_________________________
*
|
Less
than one percent.
|
(1)
|
The
address for all listed beneficial owners is One First Citizens Place,
Dyersburg, Tennessee 38024.
|
(2)
|
Excludes
shares of First Citizens common stock held through the First Citizens
National Bank Employee Stock Ownership Plan and Trust (the ESOP). As of
December 31, 2014 (the most recent date available), the numbers of shares of
First Citizens common stock held by directors and Named Executive Officers
through the ESOP were as follows:
|
Name
|
Number
|
Jeffrey
D. Agee
|
23,565
|
Sherrell Armstrong
|
5,428
|
Laura Beth Butler
|
1,809
|
Christian
E. Heckler
|
2,367
|
Ralph
E. Henson
|
31,191
|
Judy
Long
|
19,207
|
Katie
S. Winchester
|
31,695
|
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Transactions
We conduct
certain transactions with executive officers, directors, principal shareholders
and their affiliates (collectively referred to hereafter as related persons).
Such transactions are conducted in the ordinary course of business and consist
primarily of loan and deposit activities. Extensions of credit to related
persons are governed by board-approved policies. Such policies are designed and
implemented to comply with applicable regulations including but not limited to
Regulation O (12 CFR 215). Our Code of Conduct provides guidance regarding
transactions with related persons. Written policies and procedures as well as
the Code of Conduct require related person transactions to be entered into
under substantially the same terms as unrelated person transactions. All
non-lending transactions with related persons of a material nature must be
approved by the board of directors.
Banking
transactions with related persons are made in the ordinary course of business on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the time for comparable loans with persons not related
to the Company. Loans to related persons do not involve more than a normal risk
of collectability or present other unfavorable features. These loans
aggregated $12.9 million and represented approximately 8.9% of total equity
capital as of December 31, 2011.
For additional information
regarding related party transactions, see Not 18 to the Consolidated Financial
Statements for the year ended December 31, 2014 included in Item 8 of this
Annual Report on Form 10-K.
Director Independence
The Corporate
Governance Committee of the board of directors of the Company has determined
that a majority of our directors are independent, as that term is defined
below. The Corporate Governance Committee has determined that Messrs. Agee,
Heckler and Stewart and Mss. Long and Winchester are not independent, because
each is an employee of FCNB or SHB. Although Mr. White meets the criteria
defined below for independence, the Corporate Governance Committee does not
consider Mr. White to be independent because he serves as Managing Partner of
First Citizens/White and Associates Insurance Company, which is a 50% owned
subsidiary of FCNB. The Corporate Governance Committee annually reviews
relationships that exist between the Company and each director and his or her
related interests for the purpose of determining whether the director is
independent. The full board conducts this review on directors serving as
members of the Corporate Governance Committee. A director is presumed to be
independent unless the director (or his or her immediate family members):
-
Has been an employee or executive of the Company or the Banks at any
time during the last three years;
-
Has been an employee or partner of the Companys independent registered
public accounting firm at any time during the last three years;
-
Is an owner, partner, employee or director of an entity with material
relationships (i.e., makes payments to, or receives payments from, the Company
which exceed the greater of $1 million or 2% of the entitys gross revenues) with
the Company, either as a vendor or customer, except in situations where
revenues are generated as a result of a competitive bid process in which the
board determines the business relationship is in the best interest of the
Company; or
-
Receives more than $100,000 per year in direct compensation from the
Company, other than director and related fees.
These independence standards can
also be found in the About Investor Relations Governance Guidelines
Director Independence section of our website at www.FirstCNB.com.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES.
The Audit
Committee has selected Alexander Thompson Arnold PLLC as our independent
registered public accounting firm for the year ending December 31, 2014. We
are presenting this proposal to the shareholders for ratification at the Companys
2015 annual meeting of shareholders. A representative of Alexander Thompson
Arnold PLLC is expected to be present at the meeting, will have the opportunity
to make a statement and will be available to respond to appropriate questions.
Total fees paid
to Alexander Thompson Arnold PLLC for the fiscal years ended December 31, 2014
and 2013 were as follows:
|
|
|
|
Audit Fees(1)
|
$115,975
|
|
$104,954
|
Audit-Related Fees
|
|
|
|
Tax Fees(2)
|
20,350
|
|
19,400
|
All Other Fees
|
|
|
|
Total
|
$136,325
|
|
$124,354
|
__________________________
(1) |
Audit fees for the years ended December
31, 2014 and 2013 consisted principally of fees for professional services in
connection with the audit of the Companys consolidated financial statements
and the audit of internal control over financial reporting as well as various
statutory and compliance audits.
|
(2)
|
Tax fees for the years ended December 31,
2014 and 2013 consisted principally of fees for professional services for tax
compliance, tax advice and tax planning.
|
The Audit
Committee reviews and pre-approves each audit and non-audit service provided by
Alexander Thompson Arnold PLLC prior to its engagement to perform such
services. The Audit Committee has not adopted any other pre-approval policies
or procedures.
PART
IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
1. Financial Statements.
The following financial statements of the Company are set forth in Item 8
above:
- Reports of Independent Registered Public Accounting Firm;
- Consolidated Balance Sheets as of December 31, 2014 and 2013;
- Consolidated Statements of Income for the years ended
December 31, 2014, 2013 and 2012;
- Consolidated Statements of Changes in Shareholders Equity
and Other Comprehensive Income for the years ended December 31, 2014, 2013
and 2012;
- Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013 and 2012; and
- Notes to Consolidated Financial Statements.
2. Financial Statement
Schedules. All schedules are omitted because they are not applicable or
are not required, or because the information is included in the consolidated
financial statements and notes thereto included in Item 8 of this Annual Report
on Form 10-K.
3. Exhibits. The
following Exhibits are filed herewith or incorporated herein by reference:
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of March 20, 2014, between First Citizens
Bancshares, Inc. and Southern Heritage Bancshares, Inc. (4)
|
2.2
|
|
First
Amendment to Agreement and Plan of Merger, dated as of June 27, 2014, between
First Citizens Bancshares, Inc. and Southern Heritage Bancshares, Inc. (4)
|
2.3
|
|
Second
Amendment to Agreement and Plan of Merger, dated as of August 14, 2014,
between First Citizens Bancshares, Inc. and Southern Heritage Bancshares,
Inc. (4)
|
3.1
|
|
Charter
of First Citizens Bancshares, Inc., as amended. (1)
|
3.2
|
|
Articles
of Amendment to the Charter of First Citizens Bancshares, Inc. (3)
|
3.3
|
|
Bylaws
of First Citizens Bancshares, Inc., as amended. (1)
|
4.1
|
|
Specimen
Common Stock Certificate. (4)
|
10.1
|
|
Form
of Amendment to Executive Employment Agreement for Jeffrey D. Agee and Judy
D. Long. (1)
|
10.2
|
|
Form
of First Citizens National Bank Amended and Restated Split Dollar Agreement.
(1)
|
10.3
|
|
Executive
Employment Agreement by and between First Citizens Bancshares, Inc. and
Jeffrey D. Agee, dated April 21, 1994. (1)
|
10.4
|
|
Executive
Employment Agreement by and between First Citizens Bancshares, Inc. and Judy
D. Long, dated April 15, 1998. (1)
|
10.5
|
|
Form
of First Citizens National Bank Imputed Income Tax Reimbursement Agreement. (1)
|
10.6
|
|
Employment
Agreement by and among First Citizens Bancshares, Inc. and Katie S.
Winchester, effective as of January 1, 2012. (2)
|
10.7
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Lee Stewart
dated July 16, 2014. (3)
|
10.8
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Steve Ledbetter
dated July 16, 2014. (3)
|
10.9
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Virginia Kibble
dated July 16, 2014. (3)
|
10.10
|
|
Loan
Agreement, dated as of October 1, 2014, by and between First Citizens
Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.11
|
|
Pledge
and Security Agreement, dated as of October 1, 2014, by and between First
Citizens Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.12
|
|
Promissory
Note (Fixed Rate), dated as of October 1, 2014, by and between First Citizens
Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.13
|
|
Promissory
Note (Floating Rate), dated as of October 1, 2014, by and between First
Citizens Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
21.1
|
|
List
of subsidiaries of First Citizens Bancshares, Inc.*
|
31.1
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
31.2
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
32.1
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
32.2
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
101.1
|
|
Pursuant
to Rule 405 of Regulation S-T, the following financial information from First
Citizens Bancshares Inc.s Annual Report on Form 10-K for the year ended
December 31, 2012, is formatted in XBRL (Extensible Business Reporting
Language) interactive data files: (i) the Consolidated Balance Sheets as of
December 31, 2012 and 2011, (ii) the Consolidated Statements of Income for
each of the years ended December 31, 2012, 2011 and 2010, (iii) the
Consolidated Statements of Shareholders Equity and Comprehensive Income for
each of the years ended December 31, 2012, 2011 and 2010, (iv) the
Consolidated Statements of Cash Flows for each of the years ended December
31, 2012, 2011 and 2010, and (v) the Notes to Consolidated Financial
Statements, tagged as blocks of text.
|
(1) Incorporated by reference to First Citizens
Bancshares, Inc.s Annual Report on Form 10-K for the year ended December 31,
2008 (File No. 000-11709).
|
(2) Incorporated by reference to First Citizens
Bancshares, Inc.s Current Report on Form 8-K filed on September 23, 2011
(File No. 000-11709).
|
(3) Incorporated by reference to First Citizens
Bancshares, Inc.s Registration Statement on Form S-4 filed on July 18, 2014
(File No. 333-197512).
(4) Incorporated by reference to First Citizens
Bancshares, Inc.s Registration Statement on Form S-4/A filed on August 21,
2014 (File No. 333-197512).
(5) Incorporated by reference to First Citizens
Bancshares, Inc.s Current Report on Form 8-K filed on October 1, 2014 (File
No. 333-197512).
|
* Filed herewith.
|
|
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
FIRST CITIZENS
BANCSHARES, INC.
|
|
|
/s/ Jeffrey D. Agee
|
Jeffrey D. Agee
|
President and Chief Executive Officer
|
|
Dated: March 31, 2015
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 31, 2015.
/s/ Katie S. Winchester
|
|
/s/ Larry W. Gibson
|
|
/s/ Milton E. Magee
|
Katie S. Winchester
|
|
Larry W. Gibson
|
|
Milton E. Magee
|
Chairman
|
|
Director
|
|
Director
|
/s/ Jeffrey D. Agee
|
|
/s/ Christian E. Heckler
|
|
/s/ G W Smitheal
|
Jeffrey D. Agee
|
|
Christian E. Heckler
|
|
Green Smitheal
|
President and Chief Executive Officer, Director
|
|
Director
|
|
Director
|
/s/ Eddie E. Anderson
|
|
/s/ Ralph E. Henson
|
|
|
Eddie E. Anderson
|
|
Ralph E. Henson
|
|
J. Lee Stewart
|
Director
|
|
Director
|
|
Director
|
/s/ J. Walter Bradshaw
|
|
/s/ Barry T. Ladd
|
|
/s/ Larry S. White
|
J. Walter Bradshaw
|
|
Barry T. Ladd
|
|
Larry S. White
|
Director
|
|
Director
|
|
Director
|
/s/ J. Daniel Carpenter
|
|
/s/ John M. Lannom
|
|
/s/ Dwight S. Williams
|
J. Daniel Carpenter
|
|
John M. Lannom
|
|
Dwight S. Williams
|
Director
|
|
Director
|
|
Director
|
/s/ Richard W. Donner
|
|
/s/ Judy Long
|
|
/s/ Joseph S. Yates
|
Richard W. Donner
|
|
Judy Long
|
|
Joseph S. Yates
|
Director
|
|
Chief Operating Officer, Executive Vice President
and
Director
|
|
Director
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EXHIBIT INDEX
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|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of March 20, 2014, between First Citizens
Bancshares, Inc. and Southern Heritage Bancshares, Inc. (4)
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2.2
|
|
First
Amendment to Agreement and Plan of Merger, dated as of June 27, 2014, between
First Citizens Bancshares, Inc. and Southern Heritage Bancshares, Inc. (4)
|
2.3
|
|
Second
Amendment to Agreement and Plan of Merger, dated as of August 14, 2014,
between First Citizens Bancshares, Inc. and Southern Heritage Bancshares,
Inc. (4)
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3.1
|
|
Charter
of First Citizens Bancshares, Inc., as amended. (1)
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3.2
|
|
Articles
of Amendment to the Charter of First Citizens Bancshares, Inc. (3)
|
3.3
|
|
Bylaws
of First Citizens Bancshares, Inc., as amended. (1)
|
4.1
|
|
Specimen
Common Stock Certificate. (4)
|
10.1
|
|
Form
of Amendment to Executive Employment Agreement for Jeffrey D. Agee and Judy
D. Long. (1)
|
10.2
|
|
Form
of First Citizens National Bank Amended and Restated Split Dollar Agreement.
(1)
|
10.3
|
|
Executive
Employment Agreement by and between First Citizens Bancshares, Inc. and
Jeffrey D. Agee, dated April 21, 1994. (1)
|
10.4
|
|
Executive
Employment Agreement by and between First Citizens Bancshares, Inc. and Judy
D. Long, dated April 15, 1998. (1)
|
10.5
|
|
Form
of First Citizens National Bank Imputed Income Tax Reimbursement Agreement.
(1)
|
10.6
|
|
Employment
Agreement by and among First Citizens Bancshares, Inc. and Katie S.
Winchester, effective as of January 1, 2012. (2)
|
10.7
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Lee Stewart
dated July 16, 2014. (3)
|
10.8
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Steve Ledbetter
dated July 16, 2014. (3)
|
10.9
|
|
Employment
Agreement by and between First Citizens Bancshares, Inc. and Virginia Kibble
dated July 16, 2014. (3)
|
10.10
|
|
Loan
Agreement, dated as of October 1, 2014, by and between First Citizens
Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.11
|
|
Pledge
and Security Agreement, dated as of October 1, 2014, by and between First
Citizens Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.12
|
|
Promissory
Note (Fixed Rate), dated as of October 1, 2014, by and between First Citizens
Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
10.13
|
|
Promissory
Note (Floating Rate), dated as of October 1, 2014, by and between First
Citizens Bancshares, Inc. and First Tennessee Bank, National Association. (5)
|
21.1
|
|
List
of subsidiaries of First Citizens Bancshares, Inc.*
|
31.1
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
31.2
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
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32.1
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
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32.2
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
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101.1
|
|
Pursuant
to Rule 405 of Regulation S-T, the following financial information from First
Citizens Bancshares Inc.s Annual Report on Form 10-K for the year ended
December 31, 2012, is formatted in XBRL (Extensible Business Reporting
Language) interactive data files: (i) the Consolidated Balance Sheets as of
December 31, 2012 and 2011, (ii) the Consolidated Statements of Income for
each of the years ended December 31, 2012, 2011 and 2010, (iii) the
Consolidated Statements of Shareholders Equity and Comprehensive Income for
each of the years ended December 31, 2012, 2011 and 2010, (iv) the
Consolidated Statements of Cash Flows for each of the years ended December
31, 2012, 2011 and 2010, and (v) the Notes to Consolidated Financial
Statements, tagged as blocks of text.
|
(1) Incorporated by reference to First Citizens
Bancshares, Inc.s Annual Report on Form 10-K for the year ended December 31,
2008 (File No. 000-11709).
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(2) Incorporated by reference to First Citizens
Bancshares, Inc.s Current Report on Form 8-K filed on September 23, 2011
(File No. 000-11709).
|
(3) Incorporated by reference to First Citizens
Bancshares, Inc.s Registration Statement on Form S-4 filed on July 18, 2014
(File No. 333-197512).
(4) Incorporated by reference to First Citizens
Bancshares, Inc.s Registration Statement on Form S-4/A filed on August 21,
2014 (File No. 333-197512).
(5) Incorporated by reference to First Citizens
Bancshares, Inc.s Current Report on Form 8-K filed on October 1, 2014 (File
No. 333-197512).
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* Filed herewith.
|
|
113
SUBSIDIARIES OF REGISTRANT
Subsidiary
|
|
Place of Incorporation
|
|
|
|
First Citizens National Bank
|
|
Tennessee
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Southern Heritage Bank
|
|
Tennessee
|
First Citizens Financial Plus, Inc.
|
|
Tennessee
|
White and Associates/First Citizens Insurance, LLC
|
|
Tennessee
|
First Citizens Investments, Inc.
|
|
Nevada
|
First Citizens Holdings, Inc.
|
|
Nevada
|
First Citizens Properties, Inc.
|
|
Maryland
|
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey D. Agee, certify that:
1. I have reviewed
this annual report on Form 10-K of First Citizens Bancshares, Inc.;
2. Based on my
knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my
knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrants
other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such internal
control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the
effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any
change in the registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5. The registrants
other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
a) All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or
not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
/s/Jeffrey D. Agee
Jeffrey D. Agee
Chief Executive Officer
Date: March 31, 2015
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Laura Beth Butler, certify that:
1. I have reviewed
this annual report on Form 10-K of First Citizens Bancshares, Inc.;
2. Based on my
knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my
knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrants
other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Designed such
internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the
effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this
report any change in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants
other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or
persons performing the equivalent functions):
a) All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or
not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
/s/Laura Beth Butler
Laura Beth Butler
Chief Financial Officer
Date: March 31, 2015
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual
Report on Form 10-K of First Citizens Bancshares, Inc. (the Company) for the
year ended December 31, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Jeffrey D. Agee, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) The information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/Jeffrey D. Agee
|
Jeffrey D. Agee
|
Chief Executive Officer
|
Date: March 31, 2015
|
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual
Report on Form 10-K of First Citizens Bancshares, Inc. (the Company) for the
year ended December 31, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Laura Beth Butler, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
(2) The information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/Laura Beth Butler
|
Laura Beth Butler
|
Chief Financial Officer
|
Date: March 31, 2015
|
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