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To Our Shareholders:

 

 
The financial condition of First Citizens Bancshares, Inc. and its two subsidiary banks, First The financial condition of First Citizens Bancshares, Inc. and its two subsidiary banks, First Citizens National Bank and Southern Heritage Bank, remains a fortress with solid capital levels, stable core earnings streams, strong asset quality and strategically controlled growth. The Company’s strategic plan is currently being executed as designed to promote quality growth balanced with strong risk management practices that produce a return on equity and total shareholder return that exceed our peers.
FINANCIAL CONDITION
Total asset growth of 27.7% and capital growth of 20.8% from June 2014 to June 2015 reflects the impact of acquiring Southern Heritage Bank effective October 1, 2014. In addition to the acquisition, asset growth also reflects strong organic growth in deposits which increased 32.4% from June 2014 to June 2015. Strong asset and capital growth continue to outpace earnings growth and thus, result in downward pressure on return on assets and return on equity. Return on equity was 10.4% and 12.3% and return on assets was 1.03% and 1.23% for first six months of 2015 and 2014, respectively. Net gain on sale of securities is a significant contributing factor to the decrease in these two ratios in 2015 compared to 2014. Net gain on sale of securities (included in non-interest income on the Condensed Results of Operations) totaled approximately $792,000 in first six months of 2015 compared to $1.3 million in first six months of 2014.  
RESULTS OF OPERATIONS
Net income totaled $7.7 million for six months ended June 30, 2015 which is an increase of 5.7% compared to six months ended June 30, 2014. Earnings per share were $1.93 and $2.01 for the six months ended June 30, 2015 and 2014, respectively. Net income excluding net gain on sale of securities (net of tax) increased 11.6% and totaled $7.1 million for first six months of 2015 compared to $6.4 million for first six months of 2014. Increased core earnings in 2015 are attributable to organic growth in earning assets as well as the acquisition. Net interest income to average assets was 3.09% and 3.27% for first two quarters 2015 and 2014, respectively. This decline is partially due to increased interest expense associated with new debt at the holding company level issued or assumed in 2014 in relation to the acquisition. Other factors influencing net interest income to average assets are balance sheet mix and the continued low interest rate environment keeping loan and investment rates at or near historical lows. 
The Company’s strong asset quality is evidenced by low levels of provision expense which totaled $326,000 and $375,000 during first two quarters of 2015 and 2014, respectively. Net loans charged off totaled approximately $154,000 and $386,000 year-to-date June 30, 2015 and 2014, respectively. 
OUR FUTURE
Producing year-after-year high performances remains a challenge even though our economy continues to slowly improve. Nevertheless, we have executed our plans and have done it.  We feel the pains of compliance burdens along with other banks, as nearly half of all banks have reduced their offerings of financial products and services.             We will continue to be laser focused on asset quality, net interest margin, efficiency, quality loan growth and our rock solid mission. The agricultural sector may face headwinds this year, but our farmers and First Citizens are well positioned to handle short term pains. We are pleased with our current asset diversification in Tennessee: Northwest 48%, Southwest 27%, East 17% and Middle 8%. Middle and East Tennessee markets should fuel much of our asset growth in the near future, but our core long term markets will also continue to add much value. Hopefully you can feel the optimism of our management team. We are excited about our long term future and we thank you for your continued support.
 
 
Jeff Agee                                                    Judy Long
Chairman &                                               President &
Chief Executive Officer                           Chief Operating Officer