FIRST CITIZENS BANCSHARES INC /TN/ - 10-K Annual Report

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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 1995 Commission File Number 0-11709

FIRST CITIZENS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

TENNESSEE
(State or other jurisdiction of 62-1180360
incorporation or organization) (I.R.S. Employer Identification No.)

P. O. Box 370
First Citizens Place, Dyersburg, Tennessee 38025-0370
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (901)
285-4410

Securities registered pursuant to Section 12(b) of the
Act:

Name of each exchange
Title of each class on which registered
NONE NONE

Securities registered pursuant to Section 12(g) of the
Act:

COMMON STOCK
(Title of Class)

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 X No

The aggregate market value of voting stock held by nonaffiliates
of the registrant at December 31, 1995 was $24,897,000.

Of the registrant's only class of common stock ($1.00 par value)
there were 733,359 (Net of Treasury) shares outstanding as of December
31, 1995.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Proxy Statement dated March 27, 1996 (Part III)
Filed by Electronic Submission

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PART I
ITEM 1. BUSINESS

GENERAL

First Citizens Bancshares, Inc. ("Bancshares") was organized December, 1982
as a Tennessee Corporation and commenced operations in September, 1983, with
the acquisition of all Capital Stock of First Citizens National Bank of
Dyersburg ("First Citizens").

First Citizens was chartered as a national bank in 1900 and presently
operates a general retail banking business in Dyersburg and Dyer County,
Tennessee providing customary banking services. First Citizens operates
under the supervision of the Comptroller of the Currency, is insured up to
applicable limits by the Federal Deposit Insurance Corporation and is a member
of the Federal Reserve System. First Citizens operates under the day-to-day
management of its own officers and directors; and formulates its own policies
with respect to lending practices, interest rates, service charges and other
banking matters.

Bancshares' primary source of income is dividends received from First
Citizens. Dividend payments are determined in relation to First Citizens'
earnings, deposit growth and capital position in compliance with
regulatory guidelines. Management anticipates that future increases in the
capital of First Citizens will be accomplished through earnings retention or
capital injection.

The following table sets forth a comparative analysis of Assets, Deposits,
Net Loans, and Equity Capital of Bancshares as of December 31, for the years
indicated:
December 31
(in thousands)
1995 1994 1993
Total Assets $291,412 $256,685 $234,892
Total Deposits 237,160 209,481 193,823
Total Net Loans 191,906 166,727 147,646
Total Equity Capital 27,103 23,879 21,700

Individual bank performance is compared to industry standards through
utilization of the Uniform Bank Performance Report (UBPR), published
quarterly by the Federal Financial Institution's Examination Council.
This report provides comparisons of significant operating ratios of First
Citizens with peer group banks. Presented in the following chart are
comparisons of First Citizens with peer group banks for the periods
indicated:

12/31/95 12/31/94 12/31/93
FCNB PEER GRP FCNB PEER GRP FCNB PEER GRP
Average Assets/
Net Interest Income 4.04% 4.40% 4.31% 4.43% 4.46% 4.46%

Average Assets/
Net Operating Income 1.00% 1.31% 1.09% 1.26% 1.16% 1.30%

Net loan losses/
Average total loans .05% .10% .01% .12% .30% .18%

Primary Capital/
Average Assets 8.34% 9.18% 8.51% 9.02% 8.32% 8.72%

Cash Dividends/
Net Income ** 10.47% 33.93% 19.03% 43.50% 20.20% 38.83%

*Performance as of 12/31/95 is compared to peer group totals as of 09/30/95

(Most recent UBPR available)

** Dividends paid to shareholders in 1995 were funded by First Citizens
Bancshares, Inc. with the only exception being first quarter.

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EXPANSION

Bancshares may, subject to regulatory approval, acquire existing banks or
organize new banks. The Federal Reserve Board permits bank holding companies
to engage in non-banking activities closely related to banking or managing or
controlling banks, subject to Board approval. In making such determination,
the Federal Reserve Board considers whether the performance of such
activities by a bank holding company would offer advantages to the public
which outweigh possible adverse effects. Approval by the Federal Reserve
Bank of a Bank Holding Company's application to participate in a proposed
activity is not a determination that the activity is a permitted non-bank
activity for all bank holding companies. Approval applies only to the
applicant, although it suggests the likelihood of approval in a similar case.

First Citizens National Bank through its strategic planning process has
stated its intention to acquire other financial institutions within the
West Tennessee Area. The Bank's objective in acquiring other banking
institutions would be for asset growth and diversification into other
market areas. Acquisitions would afford the bank increased economies of
scale within the data processing function and better utilization of
human resources. Any acquisition approved by the Board of Bancshares,
Inc. would be deemed to be in the best interest of Bancshares and its
shareholders.

On September 29, 1994, President Clinton signed into law
the Riegel-Neal Interstate Banking and Branching
Efficiency Act of 1994. The Act provides for nationwide
interstate Banking and branching within certain
limitations. A more detailed description of the act is
discussed within the section entitled "Usury, Recent
Legislation and Economic Environment."

SUPERVISION AND REGULATION

Bancshares is a one-bank holding company under the Bank
Holding Company Act of 1956, as amended, and is subject
to supervision and examination by the Board of Governors
of the Federal Reserve System.

As a bank holding company, Bancshares is required to file
with the Federal Reserve Board annual reports and other
information regarding the business obligations of itself
and its subsidiaries. Board approval must be obtained
before Bancshares may:

(1) Acquire ownership or control of any voting
securities of a bank or Bank Holding Company where
the acquisition results in the BHC owning or
controlling more than 5 percent of a class of
voting securities of that bank or BHC;

(2) Acquire substantially all assets of a bank or BHC
or merge with another BHC.

Federal Reserve Board approval is not required for a bank
subsidiary of a BHC to merge with or acquire
substantially all assets of another bank if prior
approval of a federal supervisory agency, such as the
Comptroller of the Currency is required under the Bank
Merger Act. Relocation of a subsidiary bank of a BHC
from one state to another requires prior approval of the
Federal Reserve Board and is subject to the prohibitions
of the Douglas Amendment.

The Bank Holding Company Act provides that the Federal
Reserve Board shall not approve any acquisition, merger
or consolidation which would result in a monopoly or
which would be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States.
Further, the Federal Reserve Board may not approve any
other proposed acquisition, merger, or consolidation, the
effect of which might be to substantially lessen
competition or tend to create a monopoly in any section
of the country, or which in any manner would be in
restraint of trade, unless the anti-competitive effect of
the proposed transaction is clearly outweighed in favor
of public interest by the probable effect of the
transaction in meeting the convenience and needs of the
community to be served. An amendment effective February
4, 1993 further provides that an application may be
denied if the applicant has failed to provide the Federal
Reserve Board with adequate assurances that it will make
available such information on its operations and
activities, and the operations and activities of any
affiliate, deemed appropriate to determine and enforce
compliance with the Bank Holding Company Act and any
other applicable federal banking statutes and
regulations. In addition, consideration is given to the
competence, experience and integrity of the officers,
directors and principal shareholders of the applicant and
any subsidiaries as well as the banks and bank holding
companies concerned. The Board also considers the record
of the applicant and its affiliates in fulfilling
commitments to conditions imposed by the Board in
connection with prior applications.

4

A bank holding company is prohibited with limited
exceptions from engaging directly or indirectly through
its subsidiaries in activities unrelated to banking or
managing or controlling banks. One exception to this
limitation permits ownership of a company engaged solely
in furnishing services to banks; another permits
ownership of shares of the company, all of the activities
of which the Federal Reserve Board has determined after
due notice and opportunity for hearing, to be so closely
related to banking or managing or controlling banks, as
to be a proper incident thereto. Moreover, under the
1970 amendments to the Act and to the Board's
regulations, a bank holding company and its subsidiaries
are prohibited from engaging in certain "tie-in"
arrangements in connection with any extension of credit
or provision of any property or service. Subsidiary banks
of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any
extension of credit to the bank holding company or to any
of its other subsidiaries, or investments in the stock or
other securities thereof, and on the taking of such stock
or securities as collateral for loans to any borrower.

Bank holding companies are required to file an annual
report of their operations with the Federal Reserve
Board, and they and their subsidiaries are subject to
examination by the Board.

First Citizens Bancshares, Inc. is subject to capital
adequacy requirements imposed by the Federal Reserve
Bank. In addition, Firs Citizens National Bank (the
principal subsidiary of the corporation) is restricted by
the Office of the Comptroller of the Currency from paying
dividends in any years which exceed the net earnings of
the current year plus retained profits of the preceding
two years. It is the policy of First Citizens National
Bank "the bank" to comply with regulatory requirements
for the payment of dividends. The Federal Reserve Bank
adopted a risk-based capital measure for use in
evaluating the capital adequacy of bank holding companies
effective January 1, 1991. The risk-based capital
measure focuses primarily on broad categories of credit
risk and incorporates elements of transfer, interest rate
and market rate risk. The calculation of risk-based
capital is accomplished by dividing qualifying capital by
weighted risk assets. The minimum risked-base capital
ratio is 8%, at least one-half or 4:00% must consist of
core capital (Tier 1), and the remaining 4:00% may be in
the form of core (Tier 1) or supplemental capital (Tier
2). Tier 1 capital/core capital consists of common
stockholders equity, qualified perpetual stock and
minority interests in consolidated subsidiaries. Tier 2
capital/supplementary capital consists of the allowance
for loan and lease loses, perpetual preferred stock, term
subordinated debt, and other debt and stock instruments.
Bancshares has historically maintained capital in excess
of minimum levels established by the Federal Reserve
Board. A risked based capital analysis is performed on
a quarterly basis to test for compliance with Federal
Reserve and bank policy guidelines before declaring a
dividend or increasing a dividend. The banks' policy
states that before declaring a dividend the following
ratios will be achieved: (1) Risked Based Capital Tier 1
will be 8.34% or above; Return on year-to-date average
equity 9.00%; Asset Growth and projected one year future
asset growth less than 20.00%; and non performing assets
to capital less than 30%. Non performing assets include
90 day past due and non accrual loans.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information relates to the principal
executive officers of Bancshares and its principal
subsidiary, First Citizens National Bank as of
December 31, 1995.

Name Age Position and Office

Stallings Lipford 65 Chairman of the Board and CEO
of First Citizens Bancshares,
Inc and Chairman of the Board
of First Citizens National
Bank. Mr. Lipford joined
First Citizens in 1950. He
became a member of the Board
of Directors in 1960 and
President in 1970. He was
made Vice Chairman of the
Board in 1982. He served as
Vice Chairman of the Board of
Bancshares from September,
1982 to February, 1984. The
Board elected Mr. Lipford
Chairman of both First
Citizens and Bancshares on
February 14, 1984. He served
as President of First Citizens
and Bancshares from 1983 to 1992,
and as CEO of First Citizens from
1960 until 1996.

5

Katie Winchester 55 President of Bancshares;
President and CEO of First
Citizens; employed by First
Citizens National Bank in
1961; served as Executive
Vice President and Secretary
of the Board from 1986 to
1992. She was appointed CEO
of First Citizens in 1996;
and President of Bancshares
and First Citizens in 1992.
Ms. Winchester was elected to
the Board of both First
Citizens and Bancshares in
1990.

H. Hughes Clardy 53 Vice President of First Citizens
Bancshares, Inc.; Senior Vice
President and Senior Trust Officer
of First Citizens National Bank.
Employed by First Citizens
National Bank in 1993. Mr.
Clardy was employed as Vice
President and Senior Trust
Officer at Crestar Bank from
January, 1987 to January,
1991 and as a Vice President
of Dominion Trust Company of
Tennessee from 1991 to 1993.

Ralph Henson 54 Vice President of First
Citizens Bancshares, Inc.;
Executive Vice President of
Loan Administration of First
Citizens National Bank. Employed
by First Citizens National Bank in
1964. Mr. Henson served the
Bank as Senior Vice President
and Senior Lending Officer
until his appointment as
Executive Vice President of
Loan Administration in
February, 1993.

Jeffrey Agee 35 Vice President and Chief
Financial Officer of
Bancshares, Inc. and First
Citizens as of April, 1994.
Employed by First Citizens
National Bank in 1982.
Served the bank previous to
April, 1994 as Vice President
and Accounting Officer.

Barry Ladd 55 Appointed Executive Vice
President and Chief
Administrative Officer of
First Citizens National Bank
in 1996. Senior Vice
President and Senior Lending
Officer of First Citizens
National Bank from 4/20/94 to
January 17, 1996. Employed
by the Bank in 1972. Mr.
Ladd served First Citizens as
Vice President and Lending
Officer previous to his
appointment as Senior Vice
President.

Bennett Ragan, Jr. 47 Executive Vice President and
Senior Lending Officer of
First Citizens National Bank.
Senior Vice President and
Senior Lending Officer from
4/20/94 to 1/17/96. Employed
by the Bank in 1970. Mr.
Ragan served the Bank as Vice
President and Lending Officer
since 1986.

BANKING BUSINESS

First Citizens operates a general retail banking business
in Dyer County, Tennessee. The bank expanded its banking
operations into Lauderdale County with the purchase of a
branch bank in Ripley, Tennessee in January, 1995. All
persons who live in either community or who work in or
have a business or economic interest in either county are
considered as forming a part of the area serviced by the
bank. First Citizens provides customary banking
services, such as checking and savings accounts, funds
transfers, various types of time deposits, and safe
deposit facilities. It also finances commercial
transactions and makes and services both secured and
unsecured loans to individuals, firms, and corporations.
Commercial lending operations include various types of
credit services for its customers. Agricultural services
are provided that include operating loans as well as
financing for the purchase of equipment and farm land.
The installment lending department makes direct loans to
individuals for personal, automobile, real estate, home
improvement, business and collateral needs. Mortgage
lending makes available long term fixed and variable rate
loans to finance the purchase of residential real estate.
These loans are sold in the secondary market without
retaining servicing rights. Credit cards and open-ended
credit lines are available to both commercial customers
and consumers.

6

First Citizens National Bank is located in a community
supported by a well diversified economy. Dyer County is
home for over 393 full time farm operators of 603 farms
with a total land acreage of 345,600. Total Farm
operators and farm laborers represent a small percentage
of the Dyer County population (Dyer County Statistical
Information, 1992-93). At 12/31/95 agriculture loans
outstanding totaled $29,315,000 representing 15.28% of
total loans. $18,871,000 was well secured with farmland,
including farms, residential and other improvements,
while $10,444,000 were secured loans to finance
agricultural production and equipment purchases.
Approximately $3,211,000 of agricultural loans were 90%
FmHA guaranteed. Dyer County is also the home base for
over 61 manufacturing firms employing over 40% of the
population. Distribution of employment in other areas
consist of 14.9% services, 14.75% government, and 19.3%
trade. While First Citizens is dependent upon the
debtors ability to honor their obligations, there are no
concentrations of credit in any one borrower, type of
loan or industry that would represent a material affect
to the net income of the Bank.

First Citizens Financial Plus, Inc., a Bank Service
Corporation wholly owned by First Citizens National Bank
is a licensed Brokerage Service. This allows the bank to
compete on a limited basis with numerous non-bank
entities who pose a continuing threat to our customer
base, and are free to operate outside regulatory control.

First Citizens was granted trust powers in 1925 and has
maintained an active Trust Department since that time.
Assets as of December 31, 1995 were in excess of
$132,933,000. Services offered by the Investment
Management and Trust Services Division include but are
not limited to estate settlement, trustee of living
trusts, testamentary trustee, court appointed conservator
and guardian, agent for investment accounts, and trustee
of pension and profit sharing trusts.

The business of providing financial services is highly
competitive. The competition involves not only other banks but non-
financial enterprises as well. In addition to competing
with other commercial banks in the service area, First
Citizens competes with savings and loan associations,
insurance companies, savings banks, small loan companies,
finance companies, mortgage companies, real estate
investment trusts, certain governmental agencies, credit
card organizations, and other enterprises.

The following tabular analysis sets forth the competitive
position of First Citizens when compared with other
financial institutions in the service area for the period ending
June 30, 1995.

Dyer County Market

(All Financial Institutions)
(in thousands)
Total Deposits % of Market Share
Bank Name 06/30/95 06/30/95

First Citizens
National Bank $222,206* 50.36%

First Tennessee
Bank 98,440 22.31%

Security Bank 57,819 13.10%

Union Planters, FSB 36,777 8.34%

Union Planters
(First Exchange Bank) 22,695 5.14%

Dyersburg City Employees
Credit Union 3,271 .74%

Total $411,425

*Does not include deposits of $16,950,086 categorized as
Overnight and fixed term Repurchase Agreements.

At December 31, 1995 Bancshares and its subsidiary, First
Citizens National Bank, employed a total of 145 full time
equivalent employees. Having been a part of the local
community in excess of 100 years, First Citizens has been
privileged to enjoy a major share of the financial
services market. Dyersburg and Dyer County are growing
and with this growth come demands for more sophisticated
financial products and services. Strategic planning has
afforded the Company both the physical resources and data
processing technology necessary to meet the financial
needs generated by this growth.

7

USURY, RECENT LEGISLATION AND ECONOMIC ENVIRONMENT

Tennessee usury laws limit the rate of interest that may
be charged by banks. Certain Federal laws provide for
preemption of state usury laws. Legislation enacted in
1983 amends Tennessee usury laws to permit interest at an
annual rate of interest four (4) percentage points above
the average prime loan rate for the most recent week for
which such an average rate has been published by the
Board of Governors of the Federal Reserve System, or
twenty-four percent (24%), whichever is less (TCA 47-14-
102(3)). The "Most Favored Lender Doctrine" permits
national banks to charge the highest rate permitted by
any state lender.

Specific usury laws may apply to certain categories of
loans, such as the limitation placed on interest rates on
single pay loans of $1,000.00 or less for one year or
less. Rates charged on installment loans, including
credit cards, are governed by the Industrial Loan and
Thrift Companies Act.

On September 29, 1994, President Clinton signed into law
the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Act"). The Act provides for
nationwide interstate banking and branching with certain
limitations. The Act permits bank holding companies to
acquire banks without regard to state boundaries after
September 29, 1995. The Federal Reserve may approve an
interstate acquisition only if, as a result of the
acquisition, the bank holding company would control less
than 10% of the total amount of insured deposits in the
United States or 30% of the deposits in the home state of
the bank being acquired. The home state can waive the
30% limit as long as there is no discrimination against
out-of-state institutions.

Pursuant to the Act, interstate branching will take
effect on June 1, 1997, except under certain
circumstances. Once a bank has established branches in
a host state (a state other than its headquarters state)
through an interstate merger transaction, the bank may
establish and acquire additional branches at any location
in the host state where any bank involved in the
interstate merger transaction could have established or
acquired branches under applicable federal or state law.
The Act further provides that individual states may opt
out of interstate branching. If a state does not opt out
of interstate branching prior to May 31, 1997, then a
bank in that state may merge with a bank in another state
provided that neither of the states have opted out.
States may either enact laws opting out of interstate
branching before June 1, 1997 or permit interstate merges
transactions earlier than June 1, 1997, by statute at
their option. A state also may impose conditions on any
interstate merger transaction that occurs before June 1,
1997 if the conditions do not discriminate against out-
of-state banks, are not preempted by federal law, and do
not apply or require performance after May 31, 1997.

There are no known trends, events or uncertainties that
are likely to have a material effect on First Citizens
liquidity, capital resources or results of operation.
There currently exists no recommendation by regulatory
authorities which if implemented, would have such an
effect. There are no matters which have not been
disclosed. Interstate Banking/Branching became a reality
by legislation passed September 13, 1994. The act
permits full nationwide interstate branching after June
1, 1997. First Citizens Bancshares, Inc. and First
Citizens National Bank are located in a highly
competitive market. There are presently four banks
competing for deposit dollars and earning assets, two of
whom are branches of large regional competitors. First
Tennessee Bank and Union Planters National Bank are two
of the largest financial institutions in the state.
While First Citizens has historically maintained in
excess of 50% of local market share, statistics reflect
a loss of approximately 2% over the past five years by
both First Citizens and First Tennessee. This is
reflective of increased competition brought about by the
location of two branch banks into the market place, both
of whom have been bought by Union Planters National Bank.
Interstate banking could possibly bring about the
location of large out of state banks to the area. If so,
First Citizens would continue to operate as it has in the
past, focusing on the wants and needs of existing and
potential customers. The quality of service and
individual attention afforded by an independent community
bank cannot be matched by large regional competitors,
managed by a corporate team unfamiliar to the area. First
Citizens is a forward moving bank offering products and
services that are required for maintaining satisfactory
customer relationships moving into the next decade and
beyond. A recent market analysis completed in September,
1995 indicates a remarkably strong performance by First
Citizens in satisfying customer expectations in the areas
of personnel, service and convenience.

8

Monetary policies of regulatory authorities, including
the Federal Reserve Board, have a significant effect on
the operating results of bank holding companies and their
subsidiary banks. The Federal Reserve Board regulates
the national supply of bank credit by open market
operations in United States Government securities,
changes in the discount rate on bank borrowings, and
changes in reserve requirements against bank deposits.
A tool once extensively used by the Federal Reserve Board
to control growth and distribution of bank loans,
investments and deposits has been eliminated through
deregulation. Competition, not regulation, dictates
rates which must be paid and/or charged in order to
attract and retain customers.

Federal Reserve Board monetary policies have materially
affected the operating results of commercial banks in the
past and are expected to do so in the future. The nature
of future monetary policies and the effect of such
policies on the business and earnings of the company and
its subsidiaries cannot be accurately predicted.

ITEM 2. PROPERTIES

First Citizens owns and occupies a six-story building in
Dyersburg, Tennessee containing approximately 50,453
square feet of office space, bearing the municipal
address of First Citizens Place (formerly 200 West
Court). An expansion program completed during 1988
doubled the available floor space of the existing
facility. The space was utilized to combine all lending
and loan related functions. First Citizens owns the
Banking Annex containing total square footage of 12,989,
of which approximately 3,508 square feet is rented to
various tenants. The municipal address of the bank
occupied portion of the Annex is 215-219 Masonic Street.

The land and building occupied by the Downtown Drive-In
Branch located at 113 South Church Street, Dyersburg,
Tennessee is owned by First Citizens. The building,
containing approximately 1,250 square feet, is located on
a lot which measures 120 feet square. Also located at
this address is a separate ATM facility wholly owned by
the Bank.

The Midtown Branch of First Citizens is located at 620
U.S. 51 By-Pass adjacent to the Green Village Shopping
Center. The building contains 1,920 square feet and has
been owned by First Citizens since construction. The
land on which this Branch is located, having previously
been leased, was purchased during 1987. In June of 1992
an additional 1.747 acres adjoining the Midtown Branch
property was purchased to accommodate future growth and
expansion. During 1993, the Board of Directors made a
decision to locate a branch office at 2211 St. John
Avenue near the Industrial Park, eliminating the need to
expand the Midtown Branch. The 1.747 acres valued at
$164,000, is now offered for sale.

In addition, the Midtown Branch Motor Bank is located on
.9 acres adjoining the Midtown Branch. This property
consists of a servicing facility and six remote teller
stations and is owned in its entirety by the Bank. A
drive-through ATM was located at this facility during
1994.

The Newbern Branch, also owned by First Citizens, is
located on North Monroe Street, Newbern, Tennessee. The
building contains approximately 4,284 square feet and
occupies land which measures approximately 1.5 acres. A
separate facility located in Newbern on the corner of
Highway 51 and RoEllen Road houses an ATM. Both land and
building are owned by the Bank.

The Super Money Market Branch in the Kroger Supermarket
on Highway 78 is operated under a franchise obtained
through National Bank of Commerce, Memphis, Tennessee.
While the fixtures are owned by First Citizens, space is
made available from the Kroger Company through the
franchise agreement. An ATM is also located near the
branch in the Kroger facility.

The Industrial Park Branch located at 2211 St. John
Avenue is a full service banking facility that offers
drive-thru Teller and ATM services. The building owned
by First Citizens National Bank contains approximately
2,773 square feet and is located on 1.12 acres of land.
The Industrial Park Branch, became operational In
November, 1994.

In November, 1993 First Citizens National Bank leased
space in the Wal-Mart Store #677 located at 2650 Lake
Road in Dyersburg, Tennessee to locate an Automatic
Teller Machine (ATM). The ATM was installed in December,
1993. In January, 1995 the ATM was relocated in the
newly constructed Super Wal-Mart Store at the same
address.

9

The Ripley Branch of First Citizens National Bank,
purchased January 16, 1995, is located at 292 South
Washington Street in Ripley, Tennessee (Lauderdale
County). The Branch contains approximately 1,450 square
feet and was built in 1984 on a quarter acre of land.
The Ripley Branch is a full service banking facility that
also offers drive-up teller and twenty four hour ATM
services. On July 14, 1995 the bank purchased 1.151
acres located on Cleveland Street in Ripley, Tennessee.
The land was purchased for future expansion of the
Ripley Branch.

There are no liens or encumbrances against any of the
properties owned by First Citizens.

ITEM 3. LEGAL PROCEEDINGS

On June 8, 1995, William M. Boehmler resigned without
notice from his position as President and Director of
First Citizens Financial Plus, Inc. a brokerage
subsidiary owned by First Citizens National Bank. A
subsequent lawsuit was filed by First Citizens Financial
Plus, Inc. against Boehmler and the firm who employed
him, J. J. B. Hilliard, W. L. Lyons, Inc., seeking
compensatory and punitive damages because Boehmler took
information and records allegedly belonging to the
subsidiary. An injunction was issued by the circuit
court prohibiting use of the information by the rival
brokerage firm until the matter could be resolved. In
January, 1996, an arbitration panel of the National
Association of Securities Dealers awarded Boehmler and
his current employer $134,045.87 from Financial Plus.
The arbitrators ordered Boehmler to pay Financial Plus
$9,500.00 for data reclamation costs. A letter issued by
the arbitration panel stating their decision gave no
reason for the ultimate outcome of the hearing. Based on
advice of legal council, management made the decision not
to pursue an appeal of the arbitration panel's decision.

All costs associated with the matter have been included
in 1995 financial statements as required by Financial
Accounting Standards.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

During the fourth quarter of the year ending December 31,
1995, there were no meetings, annual or special, of the
shareholders of Bancshares. No matters were submitted to
a vote of the shareholders nor were proxies solicited by
management or any other person.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

As of December 31, 1995 there were 640 shareholders
of Bancshares' stock. Bancshares common stock is not
actively traded on any market. Per share prices
reflected in the following table are based on records of
actual sales during stated time periods. These records
may not include all sales during these time periods if
sales were not reported to First Citizens for transfer.

Quarter Ended High Low

March 31, 1995 $40.00 $37.40
June 30, 1995 $42.00 $37.90
September 30, 1995 $42.00 $41.99
December 31, 1995 $44.00 $42.00

March 31, 1994 $35.00 $30.00
June 30, 1994 $35.00 $33.10
September 30, 1994 $37.50 $35.00
December 31, 1994 $38.00 $37.40

10

Dividends paid each quarter of 1995 were 30 cents per
share. In addition a special dividend of 10 cents per
share was paid during the fourth quarter, bringing total
dividends paid per share during 1995 to $1.30. Dividends
paid per share during 1994 were 26 cents per share. A
special dividend of 15 cents per share was declared
during the fourth quarter of 1994.

Dividends - 1995
Dividend Quarter
Per Share Declared
.30 1st
.30 2nd
.30 3rd
.30 4th
.10* 4th
Total $1.30

*Special dividend paid in fourth quarter, 1995.

Future dividends will depend on Bancshares' earnings and
financial condition and other factors which the Board of
Directors of Bancshares considers relevant.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents information for Bancshares
effective December 31 for the years indicated.
(in thousands)
(except per share data)

1995 1994 1993 1992 1991
Net Interest &
Fee Income (5) $ 11,311 $ 10,476 $ 10,255 $ 9,770 $ 9,235
Gross Interest Income(5) $ 22,426 $ 18,447 $ 17,516 $ 18,274 $ 20,427
Income From
Continuing Operations $ 2,706 $ 2,946 $ 2,638 $ 2,175 $ 1,961

Long Term Obligations(4) $ 4,652 $ 4,125 $ 0 $ 0 $ 0
Income Per Share from
Continuing Operation(1) $ 3.72 $ 4.15 $ 3.76 $ 3.39 $ 3.06
Net Income per
Common Share(2)(3) $ 3.72 $ 4.15 $ 3.94 $ 3.39 $ 3.06

Cash Dividends Declared
per Common Share(2)(3) $ 1.30 $ 1.19 $ .99 $ .94 $ .89
Total Assets at
Year End $291,412 $256,687 $234,892 $239,897 $227,017

Allowance for Loan
Losses as a % Loans 1.16% 1.22% 1.13% 1.26% 1.46%

Allowance for Loan
Losses as a % of
Non-Performing Loans 707.99% 196.75% 520.50% 967.62% 188.15%

Loans 90 Days Past Due
as a % of Loans .17% .62% .22% .13% .78%

(1)Restated to reflect 10% stock dividend on December 15, 1992.
(2)Restated to reflect 2.5 for 1 Stock Split on October 15, 1993.
(3)The $1.19 dividend for 1994 reflects $.26 x 4 plus a special dividend
of $.15.
(4)Long Term Obligations is FHLB Borrowings matched with Loans & Investments.
(5)Reclassified 1991 to 1994 Overdraft Fee Income. It is not included on
this line item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

To understand the following analysis, reference should be
made to the consolidated financial statements and other
selected financial data presented elsewhere in this
report. For purposes of the following discussion, net
interest income and net interest margins are presented on
a fully taxable equivalent basis. Per share data is
adjusted to reflect all stock dividends declared through
December 31, 1995.

1995 was a year of planning and implementation, laying
the foundation for growth and profitability for future
years. In January, the purchase of our Ripley Branch was
finalized, adding $8,000,000 to deposit totals and providing
a physical presence in Lauderdale County, Tennessee. Total

11

Assets of the Ripley Branch as of 12/31/95 were
$11,252,000 with a loan to deposit ratio of 25.90%. The
Industrial Park Branch opened in November, 1994 continues
to expand through development of new and existing
business. Total Assets at 12/31/95 were $3,162,000 with
a loan to deposit ratio of 59.89%. In June, 1995 a
contract was signed with Internet/Most, Reston, VA. for
ATM and Point of Sale Processing. A business partnership
with Internet/Most will offer First Citizens National
Bank an innovative network for electronic and remote
banking services. Electronic services provided by the
network are ATM and POS processing, while remote products
include home banking programs using Personal Computer and
Screen Phone devices as well as bill payment services.
The bank's management believes that a successful
electronic/homebanking program is a key part to
accomplishing strategic planning goals set for the bank's
future service delivery systems. The ATM switch from
Deluxe, Inc. (current ATM network provider) is expected
to be completed by second quarter, 1996, with the
introduction of the bank's debit card product within 90
to 120 days thereafter. The bank has selected the Visa
Check Card offered by Visa, U.S.A., Inc. as its debit
(POS) card solution. Application was made to Visa in
December, 1995 and accepted in January, 1996. The Visa
Check Card is considered to be the most widely accepted
debit card by consumers in todays market. Another
strategic element included in the decision to add the
Visa Check Card service was the selection of an online
debit system. The online debit system is the most common
means of communication between the bank and retailer.
When debit transactions are authorized online, funds can
be automatically transferred from the customer's account
eliminating preapproval risk to the bank. If funds are
not available at the time of transaction approval, the
transaction is void. Installation of an automated Teller
Platform, "TellerPro Plus" application purchased from
Southern Data Systems, Roswell, Georgia was completed in
the fourth quarter, 1995. Online Signature Verification,
considered to be another critical electronic identification
device, also purchased from Southern Data Systems, will be installed
in the second quarter of '96. Signature Verification will reduce
risk in transaction approval as well as speed up service delivery to the
customer. Item and Statement Imaging was introduced to
our customer base in November, 1995.

A review of 1995 operating results reflected net income
of $2,705,656 or $3.72 per share compared to, $2,946,249
or $4.15 per share, and $2,763,737 or $3.76 per share, in
1994 and 1993 respectively. Net income '94 is distorted
due to an after tax profit of $178,000 derived from the
sale of other real estate in Madison County, Tennessee.
Excluding this profit 1995 net income and earnings per
share would be more comparable to that of 1994.

Weighted Average number of shares outstanding changed
from 709,434 in '94 to 726,489 in '95. Shares were
issued from previously authorized unissued stock to
satisfy the requirements of the Dividend Reinvestment
Plan. An increase in net interest income of
approximately $4 million was accomplished despite an
upward trend in the cost of funds which began in late
1994 and continued through July, 1995. Interest rates
paid on deposits were reduced the third and fourth
quarter of '95 causing a reduction in interest expense
and improved interest margins.

Strong loan growth is evident when comparing totals at
December 31, 1995 to the same time period in 1994. Total
Assets were up approximately $34 Million when the two
periods are compared. During 1995, deposit and capital
growth as well as maturing investments were utilized to
fund loan demand.

Changes in Financial Accounting Standards

FASB NO. 114 (Accounting by creditors for impairments of
loans). Effective date is fiscal years beginning after
December 15, 1994. FASB 114 requires a bank to recognize
impairment of a loan if the present value of expected
future cash flows discounted at the loan's effective
interest rate (or alternatively, the observable market
price of the loan or the fair value of the collateral) is
less than the recorded investment. If the fair value
used is at least equal or greater than the recorded
amount, there is no impairment. Impaired loans are
usually considered loans in non-accrual status, 90 days
or more past due that will not pay full interest and
principal due, or have been classified as a problem loan.
First Citizens National Bank has implemented procedures
that capture average balances of impaired loans, interest
income associated with impaired loans, and allocations
made to the reserve for loan losses associated with
impaired loans. There has been no material affect to
Bancshares or the Bank as a result of the implementation
of FASB 114.

FASB NO. 115 (Accounting for certain investments in Debt
and Equity Securities). Effective January 1, 1994, the
Company adopted FASB 115 and classified securities
contained in its investment portfolio according to stated
specifications: Held-to-maturity (includes securities
which the company has the intent and ability to hold to
maturity); Trading

12

securities (includes investment securities which are held
for short-term resale); and Available-for-sale (includes
all other investment securities). The cumulative effect
of FASB 115 on the investment portfolio for 1994 was
($259,543) and the 1995 cumulative effect was a positive
$485,000 (net of tax).

FASB NO. 118 (Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures) amends FASB
Statement 114 to allow a creditor to use exiting methods
for recognizing interest income on impaired loans.
Implementation of procedures discussed in FASB 114
includes accounting requirements for income recognition
on impaired loans.

FASB NO. 119 (Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments)
amends FASB 105 (Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit
Risk), and FASB 107 (Disclosures about Fair Value of
Financial Instruments). Effective for years after
December 15, 1994. Statement No. 119 requires disclosures
about the amounts, nature, and terms of derivatives that
are not subject to statement 105 because they do not
result in off-balance-sheet risk of accounting loss. It
requires banks to make a distinction between financial
instruments held or issued for trading purposes and for
purposes other than trading. Derivative products held in
the banks investment portfolio are reported on a
quarterly basis to the banks investment committee and
Board of Directors. Reports presented include disclosure
requirements stated in FASB 119. First Citizens National
Bank has $0 investment in derivative instruments.

FASB NO. 121 (Impairment of Long Lived Assets). FASB 121
establishes accounting standards for the impairment of
long lived assets, certain identifiable intangibles, and
good will related to those assets to be held and used and
for long lived assets and certain identifiable
intangibles to be disposed of. An impaired loss is
recognized as the amount by which the carrying amount of
the asset exceeds the fair market value of the assets.
FASB 121 is effective for years beginning after December
15, 1995. We do not project any material writedowns at
this time.

NON-INTEREST INCOME

The following table reflects non-interest income for the
years ending December 31, 1995, 1994, and 1993:

December 31
Change from prior year
(in thousands)
Increase Increase
Total (Decrease) Total(Decrease) Total
1995 Amount Percentage 1994 Amount Percentage 1993
Service Charges on
Deposit Accounts $1,305 $ 189 16.94% $1,116 $ 36 (3.34%) $1,080
Other Service
Charges, Commissions
& Fees $ 465 $ (239) (33.90%) $ 704 $ (67) (8.69%) $ 771
Other Income $1,053 $ 2 .19% $1,051 $ 182 20.95% $ 869
TOTAL NON-INTEREST
INCOME $2,720 $ (151) (5.26%) $2,871 $ 151 5.56% $2,720

Non Interest Income is down by $151,000 or 5.26% when
comparing 1995 to 1994 after posting a 5.56% increase in
1994 when compared to the previous year. The decrease is
primarily attributed to (1) A gross profit of $297,000
resulting from the sale of the Jackson (Madison County),
Tennessee property in 1994; (2) A decrease in fee income
of $160,000 received from the Banks' Subsidiary,
Financial Plus, Inc. The broker/dealer subsidiary has
undergone a management change, following the abrupt
resignation of its President in June of 1995; (Further
explanation of the change is included in the legal
proceedings section of this report) and (3) a reduction
in insurance commissions of $52,000. A significant
increase is noted in service charges on deposit accounts.
Overdraft income was reclassified from interest and fees
on loans into other income for prior years and restated
within the table.

NON-INTEREST EXPENSE
December 31
Change from prior year
(in thousands)
Increase Increase
Total (Decrease) Total(Decrease) Total
1995 Amount Percentage 1994 Amount Percentage 1993
Salaries & Employee
Benefits $5,172 $ 202 4.07% $4,970 $ 220 4.63% $4,750
Net Occupancy Expense $ 341 $ 23 7.24% $ 318 $ (31) (8.88%) $ 349
Other Operating Expense $4,115 $ 593 16.84% $3,522 $(112) (3.08%) $3,634
TOTAL NON-INTEREST
EXPENSE $9,628 $ 818 7.79% $8,810 $ 77 1.06% $8,733

13

Non-Interest Expense increased 7.79% when comparing 1995
to 1994 after increasing 1.06% the previous years under
comparison. Salaries and benefits increased 4.07%. A
comparison of assets per employee for the years 1991
through 1995 is indicated in the table below. Full time
equivalent employees were 145, 150, and 149 as of
12/31/95, '94, and '93 respectively. FTE decreased
inspite of employing 4 fulltime and 2 parttime employees
to staff the newly acquired Ripley and Industrial Park
branches and the addition of 6 Tellers On the Shelf hired
during July, 1995. Tellers on the Shelf are trained in
a one month training program, then utilized to fill
vacancies created by absence or special projects. Assets
per employee totaled $1,969,000 as of 12/31/95, compared
to assets per employee for peer group banks of
$1,900,000.

The upward trend in other operating expenses of 16.84% is
attributed to settlement and professional fees of
$261,000 incurred as a result of arbitration between
Financial Plus, Inc. and William M. Boehmler and
Hilliard, Lyon, Inc.

December 31 Assets Per Employee-FCNB Asset Per Employee-Peer Groups
(in thousands) (in thousands)
1995 $1,969 $1,900
1994 $1,695 $1,900
1993 $1,563 $1,900
1992 $1,643 $1,900
1991 $1,393 $1,800

COMPOSITION OF DEPOSITS

The average daily amounts of deposits and rates paid on
such deposits are summarized for the periods indicated:

December 31
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Non-Interest
Bearing Demand
Deposits $ 25,375 - $ 24,989 - $21,922 -

Savings Deposits $ 65,996 3.05% $ 64,912 2.69% $65,612 2.58%

Time Deposits $136,631 5.91% $111,268 4.79% $104,166 4.70%

TOTAL DEPOSITS $228,002 4.43% $201,169 3.52% $191,700 3.44%

Substantial growth in deposits in 1995 was the result of rising interest
rates; the purchase of approximately $8 Million in deposits held by the
newly acquired Ripley Branch; and deposits acquired as a result of opening
both the Ripley and Industrial Park Branches. An Analysis of prior years
(1994 and 1993) is reflective of customer response to a low interest rate
environment and the flight to mutual funds by consumers in search of higher
yields. The average rate paid on time deposits during 1995, 1994 and 1993
was 5.91%, 4.79%, and 3.44% respectively. Time deposits have escalated
due to higher rates and an active officer call program established to
seek deposit funds and loans. Pricing of deposit products is based on
local market competition and Treasury Bill rates.

Non Interest Bearing Demand Deposit have also expanded
from $21,922,000 in 1993 to $25,375,000 in 1995.
However, Securities sold under an agreement to
repurchase, more commonly known as short term borrowings,
totaling $19,744,966 are not included in average balances
for non-interest bearing demand deposits. Additional
information on "Sweep", "Repurchase Agreements" is
included in the table below titled Short Term Borrowings.
The Repurchase agreement "Sweep" product is offered to
large balance customers and provides for funds to
automatically sweep daily from a demand deposit account
into an overnight repurchase agreement. This affords
commercial customers the opportunity to earn interest on
excess collected funds while providing availability of
adequate funds to clear large denomination checks as
presented for payment.

14

SHORT TERM BORROWINGS
12/31/95 12/31/94
Amount outstanding-end of Period $19,745,000 $16,950,000
Weighted Average Rate of Outstanding 4.59% 4.36%
Maximum Amount of Borrowings at Month End 18,624,000 24,533,000
Average Amounts Outstanding for Period 17,033,000 17,183,000
Weighted Average Rate of Average Amounts 4.66% 3.67%

The bank's management is continuously monitoring and
enhancing the bank's product line in order to retain
existing customers and to attract new customer
relationships. In 1995 the "Dogwood" checking account
was developed and marketed as a replacement for the
"Generations Gold" checking account introduced in 1993.
The "Dogwood" account is a package account that includes
Overdraft Protection with no annual fee, no minimum
balance requirement, free checks, accidental death
insurance of $10,000, interest earned on a daily
collected balance of $500.00 or more, and other customer
benefits. Overdraft protection and Imaged Statements
were also additional services offered in 1995.

The following table sets forth the maturity distribution
of Certificates of Deposit and other time deposits of
$100,000 or more outstanding on the books of First
Citizens on December 31, 1995. The overall total
increased in excess of $9 million when compared to the
prior year.

MATURITY DISTRIBUTION OF TIME DEPOSITS IN AMOUNTS OF $100,000 AND OVER

December 31
(in thousands)
1995 1994
Amount Percent Amount Percent
Maturing in:
3 months or less $ 3,577 13.40% $ 3,874 22.78%

Over 3 through 6 months $ 5,218 19.54% $ 3,302 19.42%

Over 6 through 12 months $ 8,710 32.62% $ 5,550 32.64%

Over 12 months $ 9,201 34.44% $ 4,278 25.16%

TOTAL $26,706 100.00% $17,004 100.00%

15

The following table sets forth an analysis of sources and
uses of funds for the years under comparison.

SOURCES AND USES OF FUNDS
(in thousands)
1995 1994 1993
FUNDING USES Average Increase Average Increase Average
Balance (Decrease) Balance (Decrease) Balance
Amount % Amount % Amount
INTEREST-EARNING
ASSETS:

Loans (Net of
Unearned Discounts
& Reserve) $183,018 $22,764 14.21% $160,254 $18,590 13.12% $141,664

Taxable Investment
Securities $ 59,360 $10,593 21.73% $ 48,767($10,357) (17.52%)$ 59,124

Non-Taxable
Investment
Securities $ 10,467 $(2,817)(21.21%)$ 13,284 $ 3,484 35.55% $ 9,800

Federal Funds
Sold $ 2,603 $ (84) (3.13%)$ 2,687 $ 300 12.57% $ 2,387

Interest Earning
Deposits In
Banks $ 113 $ (43)(27.57%)$ 156 $ (42) (21.21%)$ 198

TOTAL INTEREST-
EARNING ASSETS $255,561 $30,413 13.51% $225,148 $11,975 5.62% $213,173

Other Uses $ 20,938 $ 187 .91% $ 20,751 $ 646 3.21% $ 20,105

TOTAL FUNDING
USES $276,499 $30,600 12.45% $245,899 $12,621 5.41% $233,278

INTEREST-BEARING
LIABILITIES:
Savings
Deposits $ 65,996 $ 1,084 1.15% $ 64,912 $ (700) (1.07%)$ 65,612

Time Deposits $136,631 $25,363 22.80% $111,268 $ 7,102 6.82% $104,166

Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 23,613 $ 967 4.27% $ 22,646 $ 1,442 6.80% $ 21,204

TOTAL INTEREST-
BEARING
LIABILITIES $226,240 $27,414 13.79% $198,826 $ 7,844 4.11% $190,982
Demand Deposits $ 25,375 $ 386 1.55% $ 24,989 $ 3,067 13.99% $ 21,922
Other Sources $ 24,884 $ 2,800 12.68% $ 22,084 $ 1,710 8.39% $ 20,374

TOTAL FUNDING
SOURCES: $276,499 $30,600 12.45% $245,899 $12,621 5.41% $233,278

16

SUMMARY - AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS

(FIRST CITIZENS NATIONAL BANK)

Monthly Average Balances and Interest Rates
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate

ASSETS
INTEREST EARNING
ASSETS:
Loans (1)(2)
(3) $182,997 $17,718 9.69% $160,217 $ 14,619 9.12% $141,591 $ 13,389 9.46%

Investment
Securities:

Taxable $ 59,360 $ 3,948 6.65% $ 48,767 $ 2,978 6.11% $ 59,124 $ 3,571 6.04%
Tax Exempt
(4) $ 10,467 $ 730 6.98% $ 13,284 $ 908 6.84% $ 9,800 $ 677 6.91%

Interest Earning
Deposits $ 113 $ 7 6.20% $ 156 $ 5 3.21% $ 198 $ 6 3.03%

Federal Funds
Sold $ 2,603 $ 158 6.07% $ 2,687 $ 113 4.21% $ 2,387 $ 75 3.14%

Lease Financing $ 21 $ 2 9.53% $ 37 $ 4 10.81% $ 73 $ 6 8.22%

Total Interest
Earning Assets $255,561 $22,563 8.83% $225,148 $ 18,627 8.27% $213,173 $ 17,724 8.31%

NON-INTEREST
EARNING ASSETS:
Cash and Due From
Banks $ 9,457 $ - - $ 8,876 $ - - $ 8,373 $ - -

Bank Premises and
Equipment $ 8,699 $ - - $ 8,008 $ - - $ 7,859 $ - -

Other Assets $ 2,782 $ - - $ 3,867 $ - - $ 3,873 $ - -

Total Assets $276,499 $ - - $245,899 $ - - $233,278 $ - -

LIABILITIES AND
SHAREHOLDERS'
EQUITY:

INTEREST BEARING
LIABILITIES:
Savings
Deposits $ 65,996 $ 2,009 3.05% $ 64,912 $ 1,746 2.69% $ 65,612 $ 1,695 2.58%
(5)

Time Deposits $136,631 $ 8,063 5.91% $111,268 $ 5,335 4.79% $104,166 $ 4,895 4.70%

Federal Funds
Purchased and
Other Interest
Bearing
Liabilities $ 23,613 $ 1,184 5.02% $ 22,646 $ 912 4.03% $ 21,204 $ 671 3.16%

Total Interest
Bearing
Liabilities $226,240 $ 11,256 4.98% $198,826 $ 7,993 4.02% $190,982 $ 7,261 3.80%

NON-INTEREST
BEARING
LIABILITIES:
Demand
Deposits $ 25,375 $ - - $ 24,989 $ - - $ 21,922 $ - -

Other
Liabilities $ 1,972 $ - - $ 1,553 $ - - $ 1,908 $ - -

Total
Liabilities $253,587 $ - - $225,368 $ - - $214,812 $ - -

SHAREHOLDERS'
EQUITY $ 22,912 $ - - $ 20,530 $ - - $ 18,466 $ - -

17

SUMMARY - AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
(continued)

(FIRST CITIZENS
NATIONAL BANK)

Monthly Average Balances and Interest Rates
(in thousands)
1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate

TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $276,499 $ - - $245,899 $ - - $233,278 $ - -

NET INTEREST
INCOME $ - $11,307 - $ - $10,634 - $ - $10,463 -

NET YIELD ON
AVERAGE EARNING
ASSETS $ - $ - 4.43% $ - $ - 4.72% $ - $ - 4.91%

(1) Loan totals are shown net of interest collected, not earned and loan
loss reserves.

(2) Fee Income is included in interest income and the computations of the
yield on loans. Overdraft Fee Income is excluded from the totals.

(3) Includes loans on nonaccrual status.

(4) Interest and rates on securities which are non-taxable for Federal
Income Tax purposes are presented on a taxable equivalent basis.

(5) Includes Insured Money Fund, NOW, Club Accounts, and other Savings.

18

VOLUME/RATE ANALYSIS
(First Citizens 1995 Compared to 1994 1994 Compared to 1993
National Bank) Due to Changes in: Due to Changes in:

Total Total
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)

(in thousands)
Interest Earned On:

Loans $ 2,987 $ 112 $ 3,099 $ 1,762 $ (532) $1,230

Taxable Investments 647 323 970 (626) 33 (593)
Tax Exempt Investment
Securities (193) 15 (178) 241 (10) 231

Interest Bearing
Deposits with Other
Banks 1 1 2 (1) 0 (1)

Federal Funds Sold and
Securities purchased
under agreements to
resell (4) 49 45 9 29 38

Lease Financing (4) 2 (2) (3) 1 (2)
TOTAL INTEREST EARNING
ASSETS $ 3,434 $ 502 $ 3,936 $ 1,382$ (479) $ 903

Interest Paid On:
Savings Deposits 29 234 263 (18) 69 51
Time Deposits 1,215 1,513 2,728 334 106 440
Federal Funds Purchased
and Securities Sold
Under Agreement to
Repurchase 39 233 272 46 195 241
TOTAL INTEREST BEARING
LIABILITIES $ 1,283 $ 1,980 $ 3,263 $ 362$ 370 $ 732
INTEREST EARNINGS $ 2,151 $(1,478) $ 673 $ 1,020$ (849) $ 171

A summary of average interest earning assets and interest bearing
liabilities is set forth in the preceding table together with
average yields on the earning assets and average cost on the
interest bearing liabilities. Total interest earning assets
increased 13.51% and 5.62% when comparing 1995 to 1994 and 1993.
Total interest bearing liabilities increased 13.79% and 4.11%
when comparing 1995, 1994 and 1993 respectively. Total interest
earning assets averaged $255,561,000 at an average rate of 8.83% while
total interest bearing liabilities averaged $226,240,000 at an average
rate of 4.98%. Net yield on average earning assets (annualized)
was 4.43%, 4.72%, and 4.91% for the years of '95, '94, and '93,
reflecting an upward swing in interest rates beginning in 1994
and continuing in 1995. Maintaining interest rate margins achieved
in prior years proved more difficult in '95 due to higher rates paid
on deposits. Asset/Liability policies are in place to protect the
company from the negative effects of volatile swings in interest
rates. Interest margins are well managed to achieve acceptable
profits and a return on equity within policy guidelines.

19

LOAN PORTFOLIO ANALYSIS

COMPOSITION OF LOANS
December 31
(in thousands)
1995 1994 1993 1992 1991
Real Estate Loans:
Construction $ 12,954 $ 10,511 $ 7,675 $ 5,272 $ 4,879
Mortgage $107,844 $ 97,310 $ 87,314 $ 79,376 $ 76,500

Commercial, Financial
and Agricultural Loans $ 45,061 $ 38,843 $ 35,626 $ 33,931 $ 33,089

Installment Loans to
Individuals $ 23,718 $ 19,117 $ 15,901 $ 15,077 $ 15,901

Other Loans $ 2,329 $ 3,000 $ 2,806 $ 2,005 $ 2,697

TOTAL LOANS $191,906 $168,781 $149,322 $135,661 $133,066

CHANGES IN LOAN CATEGORIES

December 31, 1995 as compared to December 31, 1994
(in thousands)

Amount of Increase % of Increase

Loan Category (Decrease) (Decrease)

Real Estate $12,977 12.04%

Commercial, Financial
and Agricultural $ 6,218 16.01%

Installment Loans to
Individuals $ 4,601 24.07%

Other Loans $ (671) (22.37%)

TOTAL LOANS $23,125 13.71%

Diversification of the loan portfolio is a strategic goal of the
bank and a requirement of loan policy. Total loans at 12/31/95
were $191,906 consisting of $120,798,000 Mortgage and Construction,
$45,061,000 Commercial Financial and Agricultural, $23,718,000
Installment Loans to Individuals, and $2,329,000 other loans. A
comparison of growth of the loan portfolio indicates the largest
percentage of growth is centered in the Real Estate category.
Mortgage and construction loan totals increased $12.9 Million,
$12.7 Million, and $10.3 Million when comparing 1995, 1994 and 1993.
The upward trend is attributed to substantial growth in both
population and number of households recorded in Dyer County over the past
decade. First Citizens is located in the Dyersburg/Dyer County
Trade Area, having a population of 40,000. The entire trade area
has outpaced both the state and the nation in per capita personal
income growth since the early 1980's. The State of Tennessee
projects that per capita income in the area will be greater than
the national average by the year of 2000. The mix of industry in the
local economy has provided stable, growing employment opportunities for
residents under all economic conditions. The Dyer County distribution of
employment consists primarily of service employers 14.9%, government 14.7%,
trade 19.3%, and manufacturing of 40.5%. Dyer County's unemployment rate
at quarter end was 4.4% up from April, 1995 at 3.8%, but significantly
less than the State of Tennessee's rate of 5.5%. Based on a market study
completed during the second quarter of 1995, First Citizens National Bank
was the bank of choice for providing financing for personal residence of
new and existing customers. The loan portfolio is made up of quality
loans, and is well diversified with no concentrations of credit
in any one industry. A reduction was made in the provision to loan
losses despite loan growth due to a continued reduction in
problem and watch loans. Problem loans totaled $2,783,975 at 12/31/95,
while watch loan total was slightly above $200,000. Total non-
performing loans were .59% of total portfolio, at 12/31/95
compared to .69% for peer group banks. Experience of the lending staff
and adherence to policy lends a comfort level to the portfolio that
supports the Loan Loss Allowance at the present level.

20

The book value of repossessed real property held by Bancshares
was $935,000 at 12/31/95 and $1,119,000 at 12/31/94. The balance was
significantly reduced as a result of the sale of property in
December, 1993 valued at $1,055,000. The only property held on
the books of Bancshares is a strip shopping center valued at
$689,000. The remaining balance held in repossessed real property
represents real estate held by First Citizens National Bank with exception
to property purchased for expansion of the Branch located on Highway
51 ByPass valued at $164,000. Accounting for adjustments to the
value of Other Real Estate when recorded subsequent to foreclosure is
accomplished on the basis of an independent appraisal. The asset
is recorded at the lesser of its appraised value or the loan
balance.

Loan Administration sets policy guidelines approved by the Board
of Directors regarding portfolio diversification and underwriting
standards. Loan policy also includes board approved guidelines
for collateralization, loans in excess of loan to value limits,
maximum loan amount, maximum maturity and amortization period for each
loan type. Policy guidelines for loan to value ratio and maturities
related to various collateral are as follows:

Collateral Max. Amortization Max. LTV

Real Estate Various (see discussion) Various (see discussion)
Equipment 5 Years 75%
Inventory 5 Years 50%
A/R 5 Years 75%
Livestock 5 Years 80%
Crops 1 Year 50%
*Securities 10 Years 75% (Listed)
50% (Unlisted)

*Maximum LTV on margin stocks (stocks not listed on a national
exchange) when proceeds are used to purchase or carry same, shall
be 50%.

Diversification of the banks' real estate portfolio is a
necessary and desirable goal of the bank's real estate loan policy. In
order to achieve and maintain a prudent degree of diversity, given the
composition of the bank's market area and the general economic
state of the market area, the bank will strive to maintain a real
estate loan portfolio diversification based upon the following:

. Agricultural loans totaling in the aggregate no more than 20%
of the Bank's total loans.

. Land acquisition and development loans totaling in the
aggregate no more than 10% of the Bank's total loans.

. Commercial construction loans totaling in the aggregate no
more than 10% of the Bank's total loans.

. Residential construction loans totaling in the aggregate no
more than 10% of the Bank's total loans.

. Residential mortgage loans totaling in the aggregate no more
than 40% of the Bank's total loans.

. Commercial loans totaling in the aggregate no more than 30%
of the Bank's total loans.

It is the policy of FCNB that no real estate loan will be made
(except in accordance with the provisions for certain loans in
excess of supervisory limits provided for hereinafter) that
exceed the loan-to-value percentage limitations ("LTV limits")
designated by category as follows:

Loan Category LTV Limit

Raw Land 65%
Land Development or Farmland 75%
Construction:
Commercial, multi-family, and
other non-residential 80%
1-to-4 family residential 80%
Improved Property 80%
Owner-occupied 1-to-4 family
and home equity 80%

Multi-family construction loans include loans secured by
cooperatives and condominiums. Owner-occupied 1-to-4 family and
home equity loans which equal or exceed 90% LTV at origination
must have either private mortgage insurance or other readily
marketable collateral pledged in support of the credit.

21

On occasion, the Loan Committee may entertain and approve a
request to lend sums in excess of the LTV limits as established by
policy, provided that:

. 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 Bank's records
and reported as an aggregate number with all other such loans
approved by the full Board of Directors on at least a quarterly
basis;

. The aggregate total of all loans so approved, including the
extension of credit then under consideration, shall not exceed
50% of the Bank's total capital; and

. Provided further that the aggregate portion of these loans in
excess of the LTV limits that are classified as commercial,
agricultural, multi-family or non-1-to-4 family residential
property shall not exceed 30% of the Bank's total capital.

Amortization Schedules: Every loan must have a documented
repayment arrangement. While reasonable flexibility is necessary to meet
the credit needs of the Bank's customers, in general all loans should
be repaid within the following time frames:

Loan Category Amortized Period

Raw Land 10 years
Construction:
Commercial, multi-family, and
other non-residential 20 years
1-to-4 family residential 20 years
Improved Property Farmland 20 years
Owner-occupied 1-to-4 family
and home equity 20 years

The average yield on loans of First Citizens National Bank for
the years indicated are as follows:

1995 - 9.69%
1994 - 9.12%
1993 - 9.46%
1992 - 10.05%
1991 - 11.34%

The aggregate amount of unused guarantees, commitments to extend
credit and standby letter of credit was $27,713,000 at 12/31/95.

LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES

Due after
Due in one one year but Due after
year or less within five years five years
(in thousands)

Real Estate $26,108 $80,662 $14,028

Commercial, Financial
and Agricultural $26,572 $14,187 $ 4,302

All Other Loans $ 5,530 $20,314 $ 203

TOTALS $58,210 $115,163 $18,533

Loans with Maturities After One Year for which:
(in thousands)
Interest Rates are Fixed or Predetermined $110,683
Interest Rates are Floating or Adjustable $ 23,013

The degree of interest rate risk that a bank is subject to can be
controlled through a well managed asset/liability management
program. First Citizens controls interest rate risk by matching
assets and liabilities, (by employing interest-sensitive funds in
assets that are also interest sensitive). One tool used to
ensure market rate return is variable rate loans. Loans totaling
$81,223,000 or 42% of the total portfolio are subject to
repricing within one year or carry a variable rate of interest. Loan
maturities in the one to five year category increased from
$101,979, at 12/31/94 to $115,163,000 at 12/31/95 as a result of customer
demand to lock in fixed rates for a longer period of time. The
trend exhibited by consumers in recent years to lock in interest
rates is projected to continue in 1996.

22

NON-PERFORMING LOANS

Nonaccrual, Restructured and Past Due Loans and Foreclosed Properties
(First Citizens National Bank)
December 31
(in thousands)

1995 1994 1993 1992 1991
Nonaccrual Loans $ 836 $ 945 $1,079 $1,743 $2,058
Restructured Loans 0 0 0 0 0
Foreclosed Property
Other Real Estate, 111 148 98 550 884
Other Repossessed Assets 0 0 0 0 0
Loans and leases 90 days
Past due and still
accruing interest $ 313 $1,044 $ 322 $ 176 $1,029
Total Nonperforming Assets $1,260 $2,137 $1,499 $2,469 $3,971
Nonperforming assets as a
percent of loans and
leases plus foreclosed
property at end of year .66% 1.27% 1.01% 1.82% 2.97%
Allowance as a percent of:
Nonperforming assets 175.88% 96.12% 111.81% 68.98% 48.76%
Gross Loans 1.16% 1.22% 1.12% 1.27% 1.46%
Addition to Reserve as a
percent of Net
Charge-Offs 180.20% 1,675.00% 93.69% 63.82% 103.86%
Loans and leases 90 days
past due as a percent of
loans and leases at year
end .17% .62% .22% .13% .78%
Recoveries as a percent of
Gross Charge-Offs 44.66% 87.10% 28.79% 36.17% 26.64%

Non Performing Assets continued in a downward trend when reviewing the
years under comparison. Total Non Performing Assets were
$1,260,000 as of 12/31/95 compared to $2,137,000 at year end in
1994. Non performing Assets as a percent of loans was .66%
compared to 1.27% in '94 and .62% for peer group banks. Continued
improvements reflected in the financial ratios are indicative of
well communicated loan policies and procedures. Categorization
of a loan as non-performing is not in itself a reliable indicator of
potential loan loss. The banks' policy states that the bank
shall not accrue interest or discount on (1) any asset which is
maintained on a cash basis because of deterioration in the financial
position of the borrower, (2) any asset for which payment-in-full of
interest or principal is not expected, or (3) any asset upon which
principal or interest has been in default for a period of 90 days or more
unless it is both well secured and in the process of collection.
For purposes of applying the 90 day due test for the non-accrual
of interest discussed above, the date on which an asset reaches non-
accrual status is determined by it contractual term. A debt is
well secured if it is secured (1) by collateral in the form of liens
or pledges or real or personal property, including securities that
have a realizable value sufficient to discharge the debt (including
accrued interest) in full, considered to be proceeding in due
course either through legal action, including judgement enforcement
procedures, or, in appropriate circumstances, through collection
efforts not involving legal action which are reasonably expected
to result in repayment of the debt or in its restoration to a
current status. Loans that represent a potential loss to First Citizens
are adequately reserved for in the provision for loan losses.

Interest income on loans is recorded on an accrual basis. The
accrual of interest is discontinued on all loans, except consumer
loans, which become 90 days past due, unless the loan is well
secured and in the process of collection. Consumer loans which
become past due 90 to 120 days are charged to the allowance for
loan losses. The gross interest income that would have been recorded
for the twelve months ending 12/31/95 if all loans reported as non-
accrual had been current in accordance with their original

23

terms and had been outstanding throughout the period is $81,000.
Interest income on loans reported as ninety days past due and on
interest accrual status was $30,000 for 1995. Loans on which
terms have been modified to provide for a reduction of either principal
or interest as a result of deterioration in the financial position
of the borrower are considered to be "Restructured Loans". First
Citizens has no Restructured Loans for the period being reported.

Certain loans contained on the bank's Internal Problem Loan List
are not included in the listing of non-accrual, past due or
restructured loans. Management is confident that, although certain of these
loans may pose credit problems, any potential for loss has been
provided for by specific allocations to the Loan Loss Reserve
Account. Loan officers are required to develop a "Plan of
Action" for each problem loan within their portfolio. Adherence to each
established plan is monitored by Loan Administration and re-evaluated at
regular intervals for effectiveness.

LOAN LOSS EXPERIENCE & RESERVE FOR LOAN LOSSES (in thousands)

1995 1994 1993 1992 1991
Average Net Loans
Outstanding $183,018 $160,254 $141,664 $134,514 $134,230
Balance of Reserve
for Loan Losses
at Beginning of
Period $ 2,054 $ 1,676 $ 1,703 $ 1,936 $ 1,914
Loan Charge-Offs $ (365) $ (186) $ (601) $ (1,009) $ (777)
Recovery of Loans
Previously Charged Off $ 163 $ 162 $ 173 $ 365 $ 207

Net Loans Charged Off $ (202) $ (24) $ (428) $ (644) $ (570)

Additions to Reserve
Charged to Operating
Expense $ 364 $ 402 $ 401 $ 411 $ 592
Balance at End of
Period $ 2,216 $ 2,054 $ 1,676 $ 1,703 $ 1,936

Ratio of Net Charge-
Offs to Average Net
Loans Outstanding .11% .01% .30% .48% .43%

The preceding table summarizes activity posted to the Loan Loss
Reserve Account for the past five years. The summary includes
the average net loans outstanding; changes in the reserve for loan
losses arising from loans charged off and recoveries on loans
previously charged off; additions to the reserve which have been
charged to operating expenses; and the ratio of net loans charged
off to average loans outstanding. Changes to the Reserve Account
for the quarter just ended consisted of (1) Loans charged off of
$202,000 (2) Recovery of loans previously charged off $163,000
and (3) Additions to reserves totaling $364,000.

An analysis of the allocation of the allowance for Loan Losses is
made on a fiscal quarter at the end of the month, (February,
August, and November) and reported to the board at its meeting
immediately preceding quarter-end. Requirements of FASB 114 & 118 have
been incorporated into the policy for Accounting by Creditor for
Impairment of a loan. A loan is impaired when it is probable
that a creditor will be unable to collect all amounts due of principal
and interest according to the original contractional terms of the
loan. First Citizens adopted the following as a measure of
impairment: (1) Impairment of a loan at First Citizens shall
exist when the present value of expected future cash flows discounted
at the loans effective interest rate impede full collection of the
contract; and (2) Fair Value of the collateral, if the loan is
collateral dependent, indicates unexpected collection of full
contract value. The Impairment decision will be reported to the
Board of Directors and other appropriate regulatory agencies as
specified in FASB 114 and 118. The bank will continue to follow
regulatory guidelines for income recognition for purposes of
generally accepted accounting principles, as well as regulatory
accounting principles.

An annual review of the loan portfolio to identify the risks will
cover a minimum of 70% of the gross portfolio less installment
loans. In addition, any single note or series of notes directly
or indirectly related to one borrower which equals 25% of the bank's
legal lending limit will be included in the review automatically.

24

For analysis purposes, the loan portfolio is separated into four
classifications:

1. Pass - Loans that have been reviewed and graded high quality
or no major deficiencies.

2. Watch - Loans which, because of unusual circumstances, need
to be supervised with slightly more attention than is common.

3. Problem - Loans which require additional collection efforts
to liquidate both principal and interest.

4. Specific Allocation - Loans, in total or in part, in which a
future loss is possible.

Examples of factors taken into consideration during the review
are: Industry or geographic economic problems, sale of business,
change of or disagreement among management, unusual growth or expansion
of the business, past due status of either principal or interest for
90 days, placed on non-accrual or renegotiated status, declining
financial condition, adverse change in personal life, frequent
overdrafts, lack of cooperation by borrower, decline in
marketability or market value of collateral, insufficient cash
flow, and inadequate collateral values.

Identification of impaired loans from non-performing assets as
well as bankrupt and doubtful loans is paramount to the reserve
analysis. Special allocations shall support loans found to be collateral
or interest cash flow deficient. In addition an allowance shall be
determined for pools of loans including all other criticized
assets as well as small homogeneous loans managed by delinquency. In no
circumstance shall the reserve fall below 1% of total loans less
government guarantees. The following is a sample of information
analyzed quarterly to determine the allowance for loan losses.

LOAN LOSS ALLOWANCE ANALYSIS

AVERAGE AVERAGE PERCENT CURRENT RESERVE
LOSS 3 YRS. BALANCE 3 YRS. BALANCE REQUIRED

I. CREDIT $ GROSS $ % $ $
CARDS

II. INSTALL. $ NET $ % $ $
LOANS

III. IMPAIRED WITH ALLOCATIONS $ $
IMPAIRED WITHOUT ALLOCATIONS $ $
ALLOWANCE
IV. DOUBTFUL 50.00% $ $
SUBSTANDARD 10.00%
WATCH 5.00%
OTHER LOANS NOT LISTED PREVIOUSLY .75%
LESS SBA/FMHA GUARANTEED PORTIONS

TOTAL LOANS $

V. LETTERS OF CREDIT .75% $ $

VI. OTHER REAL ESTATE OWNED $

RESERVE REQUIRED $

RESERVE BALANCE $

EXCESS (DEFICIT) $

RESERVE AS % OF TOTAL LOANS %
PEER GROUP %

LOSS EXPERIENCE III & IV
(AVERAGE LAST 3 YEARS) .% OR $

25

Accounting for adjustments to the value of Other Real Estate when
recorded subsequent to foreclosure is accomplished on the basis
of an independent appraisal. The asset is recorded at the lesser of
its appraised value or the loan balance. Any reduction in value
is charged to the allowance for possible loan losses. All other
real estate parcels are appraised annually and the carrying value is
adjusted to reflect the decline, if any, in its realizable value.
Such adjustments are charged directly to expense.

Management estimates the approximate amount of charge-offs for
the 12 month period ending 12/31/96 to be as follows:

Domestic Amount
Commercial, Financial & Agricultural $125,000
Real Estate-Construction 0
Real Estate-Mortgage 50,000
Installment Loans to individuals & credit cards 75,000
Lease financing 0

01/01/96 through 12/31/96 Total $250,000

The following table will identify charge-offs by category for the
periods ending December 31 as indicated:

Year Ending December 31
(in thousands)
1995 1994 1993
Charge-offs:
Domestic:
Commercial, Financial & Agricultural $ 54 $ 32 $ 415

Real Estate-Construction 0 0 0

Real Estate-Mortgage 113 22 27

Installment Loans to individuals
& credit cards 198 132 159

Lease financing 0 0 0
Total $ 365 $ 186 $ 601

Recoveries:
Domestic:
Commercial, Financial & Agricultural $ 38 $ 30 $ 53
Real Estate-Construction 0 0 0
Real Estate-Mortgage 19 12 11
Installment Loans to individuals
& credit cards 106 120 109
Lease financing 0 0 0

Total $ 163 $ 162 $ 173

Net Charge-offs $ 202 $ 24 $ 428

COMPOSITION OF INVESTMENT SECURITIES
December 31
(in thousands)

1995 1994 1993 1992 1991
U. S. Treasury &
Government Agencies $59,462 $47,042 $42,502 $59,019 $50,919

State & Political
Subdivisions $10,776 $10,883 $12,774 $ 9,300 $ 3,239

All Others $ 3,654 $ 4,801 $ 5,471 $ 6,129 $ 4,944

TOTALS $73,892 $62,726 $60,747 $74,448 $59,102

26

MATURITY AND YIELD ON SECURITIES - DECEMBER 31, 1995
(in thousands)

Maturing Maturing Maturing
Maturing After One Year After Five Years After
Within One Year Within Five Years Within Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
U. S. Treasury
and Government
Agencies $ 4,153 6.69% $35,871 6.32% $12,882 6.82% $6,556 6.75%

State and
Political
Subdivisions* $ 223 5.57% $ 7,304 6.59% $ 2,657 6.86% $ 592 7.57%

All Others $ 744 6.87% $ 501 6.00% $ 2,409 5.50% ---- ---

TOTALS $ 5,120 6.67% $43,676 6.36% $17,948 6.65% $7,148 6.83%

*Yields on tax free investments are stated herein on a taxable
equivalent basis.

HELD TO MATURITY & AVAILABLE FOR SALE SECURITIES - DECEMBER 31, 1995

Held to Maturity Available for Sale
(in thousands)
Amortized Fair Amortized Fair
Cost Value Cost Value

U.S. Treasury Securities 3,020 3,020 10,033 10,241
U.S. Government Agency & Corporation
obligations (exclude mortgage-backed
securities):
Issued by U.S. Govt. Agencies (2) 200 200 0 0
Issued by U.S. Govt.-Sponsored
Agencies (3) 20,484 20,755 16,055 16,560
Securities issued by states & political
subdivisions in the U.S.:
General Obligations 3,953 3,967 3,474 3,486
Revenue Obligations 2,616 2,616 716 721
Industrial development &
similar obligations 0 0 0 0
Mortgage-backed Securities (MBS):
Pass-through securities:
Guaranteed by GNMA 448 462 1,072 1,101
Issued by FNMA & FHLMC 1,088 1,101 435 445
Other pass-through securities 0 0 0 0
Other mortgage-backed securities
(include CMOs, REMICs and stripped
MBS):
Issued or guaranteed by FNMA & FHLMC
or GNMA 1,143 1,139 4,724 4,731
Collateralized by MBS
issued or guaranteed by
FNMA, FHLMC or GNMA 0 0 0 0
All other mortgage-backed securities 0 0 0 0
Other Debt Securities:
Other domestic debt securities 995 999 250 252
Foreign debt securities 0 0 0 0
Equity Securities:
Investments in Mutual Funds 0 0 0 0
Other equity securities with readily
determinable fair values 0 0 749 780
All other equity securities (1) 0 0 1,628 1,628
Total 33,947 34,259 39,136 39,945

(1) Includes equity securities without readily determinable fair
values at historical cost.
(2) Includes Small Business Administration "Guaranteed Loan Pool
Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than pass-through securities, CMOs,
and REMICs) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation,
the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.

27

A major goal of the bank's investment portfolio management is to
maximize returns from investments while controlling the basic
elements of risk. The second goal is to provide liquidity and
meet financial needs of the community. Investment Securities also
serve as collateral for government and public funds deposits.
Investment activity for 1995 was directed by strong loan demand and
Financial Accounting Standard No. 115 (further explanation is contained
within this section as well footnotes included in the Auditors Report)
which addresses Accounting in Certain Investments in Debt and
Equity Securities. The investment portfolio, which currently totals
$73,892,000, is comprised of U. S. Treasury and U. S. Agency
Obligations of $59,462,000, Municipal Obligations of $10,776,000,
and all other investments totaling $3,654,000. Fixed rate
holdings comprise 90% of the portfolio, while adjustable rates comprise
the remaining 10%.

The fixed rate holdings currently have an expected average life
of 2.6 years. It is estimated that this average life would extend
to 3.2 years should rates go up by 100 basis points and 3.5 years if
rates increase 200 basis points. This is a result of some extension
occurring in the callable bonds and mortgage-backed holdings as
rates rise. Should rates decline 100 basis points, the average
life would decrease to 2.4 years.

In terms of price sensitivity, we estimate that if rates go up
100 basis points the market value of the portfolio would fall by
2.5%, while rates up 200 basis points would impact the market value by
a negative 5.4%. This is equal to the price sensitivity of the
3-year Treasury bond, which is consistent with the current average life
of the portfolio. If rates go down 100 basis points, we estimate
that the market value would increase by 2.2%.

The adjustable rate holdings all reprice on an annual or more
frequent basis and currently have an average life of 7.2 years.
Due to the structure of these holdings, we would expect very little
extension to occur in average life should interest rates rise,
but could see some shortening should rates fall. We estimate that the
adjustable rate holdings also have the price sensitivity of a
3-year Treasury, although this is more difficult to project on
adjustable rate holdings than on fixed rate holdings.

FASB 115 required banks to maintain separate investment
portfolios for Held-to-Maturity, Available for Sale, and Trading Account
Investments. As of 12/31/95 approximately 54 percent of the
banks total portfolio was placed in the Held For Sale Account while the
remaining 46 percent is contained in the Held to Maturity
Account. FASB 115 also requires banks to mark to market the Available for
Sale and Trading Account investments at the end of each calendar
quarter. Held-to Maturity account investments are stated at
amortized cost on the balance sheet. Mark to market resulted in
a positive capital entry of $745,000 as reflected on the 12/31/95
balance sheet. Mark to market impact to capital on 12/31/94 was
a negative $259,543. All purchase and sale transactions in 1995
were made in accordance with specifications set forth in FASB 115.
During the fourth quarter of 1995 transfers were made from the
Held to Maturity account to the Held for Sale account to provide for
future liquidity. The Financial Accounting Standards Board
provided a grace period under FASB 115 from November 15 thru December 31,
1995 to allow banks to reclassify investments contained in the
three portfolios. The trading account at 12/31/95 maintained a zero
balance. First Citizens has not engaged in Derivative activities
as defined by paragraphs 5 thru 7 of FASB 119.

Maturities in the portfolio are made up of 6.9% within one year,
and 59.1% maturing after one year and within five years. Policy
provides for 20% maturities on an annual basis. Maturities on
future investment purchases will be structured to meet loan
demand as well as projected changes in interest rates.

Gains/Losses reflected in year-end income statements attributable
to trading account securities:

Year Ended
12/31 Gains Losses Net

1995 $ 0.00 $ 0.00 $ 0.00
1994 $ 0.00 $ 0.00 $ 0.00
1993 $ 0.00 $ 0.00 $ 0.00

28

The following table allocates by category unrealized Gains/Losses
within the portfolio as of December 31, 1995 (in thousands):

Unrealized Net
Gains Losses Gains/Losses

U.S. Treasury
Securities $ 220 $ 12 $ 208

Obligations of U.S.
Government Agencies
and Corporations $ 986 $ 138 $ 848

Obligations of States
and Political
Subdivisions $ 65 $ 35 $ 30

Federal Reserve and
Corporate Stock $ 35 $ 0 $ 35

TOTALS $ 1,306 $ 185 $ 1,121

LIQUIDITY AND INTEREST RATE SENSITIVITY

Liquidity is the ability to meet the needs of our customer base
for loans and deposit withdrawals by maintaining assets which are
convertible to cash equivalents with minimal exposure to interest
rate risk. Liquidity which is determined by a comparison of net
liquid assets to net liabilities remains between 10% and 15%.
The stability of our deposit base, sound asset/liability management,
a strong capital base and quality assets assure adequate liquidity.
Loan to deposit ratio at 12/31/95 was 80%. Two factors primarily
affecting liquidity in '95, was loan demand in excess of budget
projections and customer demand to lock in low interest rates for
longer periods of time. Solid deposit growth centered primarily in
time deposits provided a steady source of funds to meet liquidity needs.
During the last half of '94 interest rates started to climb upward,
causing consumers to move funds from Annuities and Mutual Funds into
bank certificates of deposits. Asset growth was in excess of 11% for
1995. Other sources available to meet liquidity needs were (1) approved
lines of credit with Federal Home Loan Bank and correspondent banks
totaling $19 Million (2) Loans and investments in excess of $86,343,000
maturing within one year and (3) approximately 53% of the banks' total
investments placed in the held-for-sale account. As of year end approximately
$5 Million was drawn on approved lines of credit. The borrowings were
maturity matched with loans and investments on the books of the bank.

There are no known trends or uncertainties that are likely to
have a material affect on First Citizens liquidity or capital
resources. There currently exists no recommendations by regulatory
authorities which if implemented, would have such an affect. There are no
matters of which management is aware that have not been disclosed.

Interest rate sensitivity varies with different types of interest-
earning assets and interest-bearing liabilities. Overnight
federal funds, on which rates change daily, and loans which are tied to
the prime rate are much more sensitive than long-term investment
securities and fixed rate loans. The shorter term interest
sensitive assets and liabilities are the key to measurement of
the interest sensitivity gap. Minimizing this gap is a continual
challenge and a primary objective of the asset/liability
management program.

The following condensed gap report provides an analysis of
interest rate sensitivity of earning assets and costing liabilities.
First Citizens Asset/Liability Management Policy provides that the
cumulative gap as a percent of assets shall not exceed 10% for
categories up to 12 months and one to two year categories and 20%
for categories in excess of two years. As evidenced by the
following table, our current position is significantly below this
level, with annual income exposure determined to be less than the
$150,000 limitation established by policy.

29

CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)

DAILY 0-1 1-2 2-3 3-6 6-12
TOTAL FLOATING MONTHS MONTHS MONTHS MONTHS MONTHS

CASH AND DUE FROM:
CURRENCY AND COIN 2,711 - - - - - -
DUE FROM BANKS 1,801 - - - - - -
CASH ITEMS 6,524 - - - - - -
MONEY MARKET 63 63 - - - - -

TOTAL CASH & DUE FROM 11,099 63 - - - - -

INVESTMENTS 72,793 3,845 227 227 227 5,078 1,488

TOTAL INVESTMENTS 72,793 3,845 227 227 227 5,078 1,488

LOANS:
COMMERCIAL FIXED 140,151 - 3,951 4,084 2,705 6,863 12,124
COMMERCIAL VARIABLE 43,611 43,611 - - - - -
HOME EQUITY LOANS 4,701 4,701 - - - - -
SEC MORTGAGE 280 280 - - - - -
CREDIT CARDS 1,793 - - - - - 1,793
FACTORING REC 226 - 226 - - - -
OVERDRAFTS 308 308 - - - - -
NON-ACCRUAL LOANS 836 - - - - - -
TOTAL LOANS 191,906 48,900 4,177 4,084 2,705 6,863 13,917
LOAN LOSS RESERVE 2,216 - - - - - -

NET LOANS 189,690 48,900 4,177 4,084 2,705 6,863 13,917

FED FUNDS SOLD 1,850 1,850 - - - - -

TOTAL FED FUNDS SOLD 1,850 1,850 - - - - -

TOTAL EARNING ASSETS 264,333 54,595 4,404 4,311 2,932 11,941 15,405
OTHER ASSETS:
BUILDING, F&F & LAND 8,826 - - - - - -
OTHER REAL ESTATE 111 - - - - - -
OTHER ASSETS 4,478 - - - - - -

TOTAL OTHER ASSETS 13,415 - - - - - -

TOTAL ASSETS 288,847 54,658 4,404 4,311 2,932 11,941 15,405

DEMAND DEPOSITS:
BANKS 39 - - - - - -
DEMAND DEPOSITS 26,210 - - - - - -

TOTAL DEMAND 26,249 - - - - - -

SAVINGS ACCOUNTS:
REGULAR SAVINGS 18,326 - - - - - -
NOW ACCOUNT 25,823 - - - - - -
BUSINESS CHECKING 67 - 67 - - - -
IMF-MMDA 11,697 - - 11,697 - - -
HIGH YIELD ACCOUNT 9,462 - - 9,462 - - -
DOGWOOD CLUB 4,940 - - - - - -

TOTAL SAVINGS 70,315 - 67 21,159 - - -

30
CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)
1-2 2+
YEARS YEARS
CASH AND DUE FROM:
CURRENCY AND COIN - 2,711
DUE FROM BANKS - 1,801
CASH ITEMS - 6,524
MONEY MARKET - -

TOTAL CASH & DUE FROM - 11,036

INVESTMENTS 16,040 45,661

TOTAL INVESTMENTS 16,040 45,661

LOANS
COMMERCIAL FIXED 19,916 90,508
COMMERCIAL VARIABLE - -
HOME EQUITY LOANS - -
SEC MORTGAGE - -
CREDIT CARDS - -
FACTORING REC - -
OVERDRAFTS - -
NON-ACCRUAL LOANS - 836
TOTAL LOANS 19,916 91,344
LOAN LOSS RESERVE - 2,216

NET LOANS 19,916 89,128

FED FUNDS SOLD - -

TOTAL FED FUNDS SOLD - -

TOTAL EARNING ASSETS 35,956 134,789

OTHER ASSETS:
BUILDING, F&F & LAND - 8,826
OTHER REAL ESTATE - 111
OTHER ASSETS - 4,478

TOTAL OTHER ASSETS - 13,415

TOTAL ASSETS 35,956 159,240

DEMAND DEPOSITS:
BANKS - 39
DEMAND DEPOSITS - 26,210

TOTAL DEMAND - 26,249

SAVINGS ACCOUNTS:
REGULAR SAVINGS - 18,326
NOW ACCOUNT - 25,823
BUSINESS CHECKING - -
IMF-MMDA - -
HIGH YIELD ACCOUNT - -
DOGWOOD CLUB - 4,940

TOTAL SAVINGS - 49,089

31

CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)

DAILY 0-1 1-2 2-3 3-6 6-12
TOTAL FLOATING MONTHS MONTHS MONTHS MONTHS MONTHS

TIME DEPOSITS:
FLEX-CD 93,333 - 7,774 5,000 6,274 20,993 19,406
LARGE CD-FLEX 26,706 - 1,484 764 1,329 5,218 8,710
IRA-FLOATING 177 177 - - - - -
IRA-FIXED 20,425 - 573 947 747 1,588 2,664
CHRISTMAS CLUB 73 - - - - - 73

TOTAL TIME 140,714 177 9,831 6,711 8,350 27,799 30,853

TOTAL DEPOSITS 237,278 177 9,898 27,870 8,350 27,799 30,853

SHORT TERM BORROWINGS:
TT&L 181 181 - - - - -
SECURITIES SOLD-SWEEP 11,566 11,566 - - - - -
SECURITIES SOLD-FIXED 8,179 - 1,266 2,259 1,081 2,290 -
FHLB-LIBOR INVESTMENT 2,407 2,407 - - - - -
FHLB-LONG TERM 2,245 - - - - - -

TOTAL SHORT TERM BORR. 24,578 14,154 1,266 2,259 1,081 2,290 -

OTHER LIABILITIES:
ACCRUED INT. PAYABLE 2,092 - - - - - -
OTHER LIABILITIES 287 - - - - - -

TOTAL OTHER LIABILITIES 2,379 - - - - - -

TOTAL LIABILITIES 264,235 14,331 11,164 30,129 9,431 30,089 30,853

CAPITAL:
COMMON STOCK 2,000 - - - - - -
SURPLUS 4,000 - - - - - -
UNREALIZED GAIN (LOSSES) 485 - - - - - -
UNDIVIDED PROFITS 18,127 - - - - - -

TOTAL CAPITAL 24,612 - - - - - -

TOTAL LIAB'S & CAPITAL 288,847 14,331 11,164 30,129 9,431 30,089 30,853

GAP (SPREAD) - 40,327 -6,760 -25,818 -6,499 -18,148-15,448
GAP % TOTAL ASSETS - 13.96 -2.34 -8.94 -2.25 -6.28 -5.35
CUMULATIVE GAP - 40,327 33,567 7,749 1,250 -16,898-32,346
CUM. GAP % TOTAL ASSETS - 13.96 11.62 2.68 .43 -5.85 11.20
SENSITIVITY RATIO - 3.81 2.32 1.14 1.02 .82 .74

32
CONDENSED GAP REPORT
12/31/95 CURRENT BALANCES
(in thousands)

1-2 2+
YEARS YEARS
TIME DEPOSITS:
FLEX-CD 28,593 5,293
LARGE CD-FLEX 5,101 4,100
IRA-FLOATING - -
IRA-FIXED 5,082 8,824
CHRISTMAS CLUB - -

TOTAL TIME 38,776 18,217

TOTAL DEPOSITS 38,776 93,555

SHORT TERM BORROWINGS:
TT&L - -
SECURITIES SOLD-SWEEP - -
SECURITIES SOLD-FIXED 1,003 280
FHLB-LIBOR INVESTMENT - -
FHLB-LONG TERM - 2,245

TOTAL SHORT TERM BORR. 1,003 2,525

OTHER LIABILITIES:
ACCRUED INT. PAYABLE - 2,092
OTHER LIABILITIES - 287

TOTAL OTHER LIABILITIES - 2,379

TOTAL LIABILITIES 39,779 98,459

CAPITAL:
COMMON STOCK - 2,000
SURPLUS - 4,000
UNREALIZED GAIN (LOSSES) 485
UNDIVIDED PROFITS - 18,127

TOTAL CAPITAL - 24,612

TOTAL LIAB'S & CAPITAL 39,779 123,071

GAP (SPREAD) -3,823 36,169
GAP % TOTAL ASSETS -1.32 12.52
CUMULATIVE GAP -36,169 -
CUM. GAP % TOTAL ASSETS -12.52 -
SENSITIVITY RATIO .78 1.00

NOTES TO THE GAP REPORT

1. This gap report reflects interest sensitivity positions
during a flat rate environment. Time frames could change
if rates rise or fall.

2. Repricing over-rides maturity in various time frames.

3. Demand deposits are placed in the last time frame due to
lack of interest sensitivity. Demand deposits are considered
core deposits.

4. Savings accounts are placed in the +2 year time frame. In
a flat rate environment, savings accounts generally do not reprice
or liquidate. Savings deposits tend to be price sensitive, after a
major increase in the 6 month CD rate. These accounts are placed in
the +2 year time frame as opposed to variable based on past historical
trends. Savings accounts are considered core deposits.

5. The policy for cumulative gap positions at FCNB are: Interva