UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ~~SECURTIES~~SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, ~~2012~~2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________.

Commission File Number: 0-11709

FIRST CITIZENS BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Tennessee	62-1180360
(State of Incorporation)	(IRS Employer Id. No.)

Tennessee 62-1180360

P.(State ~~O. Box 370,~~of ~~One~~Incorporation) (IRS Employer ~~First~~Id. ~~Citizens Place~~No.)

~~Dyersburg,~~One TN First ~~38024~~Citizens Place

~~(Address~~Dyersburg, ~~of principal~~TN ~~executive offices including zip code)~~38024

~~731-285-4410~~(Address of principal executive offices including zip code)

~~(Registrant’s telephone number including area code)~~731-285-4410

~~Indicate by check mark whether the registrant~~ (~~1) has filed~~Registrant’s ~~all~~telephone ~~reports~~number ~~required~~including toarea ~~be filed by Section 13 or 15(d~~code) ~~of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].~~

Indicate by check mark whether the registrant (1) has ~~submitted~~filed ~~electronically~~all ~~and~~reports ~~posted on its corporate Web site, if any, every Interactive Data File~~ required to be ~~submitted~~filed ~~and~~by ~~posted~~Section ~~pursuant~~13 toor ~~Rule~~15(d) ~~405~~ of the Securities ~~Regulation~~Exchange ~~S-T~~Act of 1934 during the preceding 12 months and (or2) ~~for~~has ~~such~~been ~~shorter~~subject ~~period that~~to ~~the~~such ~~registrant~~filing ~~was~~requirements ~~required~~for tothe ~~submit~~past ~~and~~90 ~~post such files)~~days. Yes [X ] No [ X].

Indicate by check mark whether the registrant ishas asubmitted electronically ~~large~~and ~~accelerated~~posted ~~filer~~on its corporate Web site, anif ~~accelerated filer~~any, aevery ~~non-accelerated~~Interactive Data ~~filer,~~File orrequired ato ~~smaller~~be ~~reporting~~submitted ~~company.~~and ~~See~~posted ~~the definitions~~pursuant to Rule 405 of Regulation ~~“large~~S-T ~~accelerated~~during ~~filer,”~~the ~~“accelerated~~preceding ~~filer”~~12 ~~and~~months ~~“smaller~~(or for such shorter period that ~~reporting~~the ~~company”~~registrant inwas ~~Rule~~required ~~12b-2~~to ofsubmit ~~the~~and ~~Exchange~~post ~~Act~~such files). Yes [ ] No [X]

~~Large~~Indicate ~~accelerated~~by check ~~filer~~mark [whether ]the ~~Accelerated~~registrant ~~filer~~is ~~[X]~~a ~~Non-~~large accelerated filer[, ]an ~~(Do~~accelerated filer, ~~not~~a ~~check~~non-accelerated iffiler, or a smaller reporting company). ~~Smaller~~See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” [in ]Rule 12b-2 of the Exchange Act.

~~Indicate~~Large byaccelerated afiler ~~check~~[ ~~mark whether~~] ~~the~~Accelerated ~~registrant~~filer is[ a] ~~shell~~Non-accelerated ~~company~~filer [X] (asDo ~~defined~~not incheck ~~Rule~~if ~~12b-2~~a ofsmaller ~~the Exchange~~reporting ~~Act~~company)~~. Yes~~ ~~[ ] No~~Smaller reporting company [X ]

OfIndicate ~~the~~by ~~registrant's~~a ~~only~~check ~~class~~mark whether ofthe ~~common~~registrant ~~stock~~is ~~(no~~a ~~par value),~~shell ~~there~~company ~~were~~(as ~~3,607,854~~defined ~~shares~~in ~~outstanding~~Rule as12b-2 of ~~August~~the Exchange ~~6, 2012~~Act). Yes [ ] No [X]

As of September 30, 2014, there were 3,569,379 shares of common stock and 37,220 shares of Class A common stock outstanding.

TABLE OF CONTENTS

	Page
PART I-FINANCIAL INFORMATION..	1
ITEM 1 - FINANCIAL STATEMENTS.	1
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013	1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013.	3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014, AND 2013.	5
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	26
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..	38
ITEM 4 – CONTROLS AND PROCEDURES.	39
PART II - OTHER INFORMATION..	40
ITEM 1. LEGAL PROCEEDINGS.	40
ITEM 1A. RISK FACTORS.	40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS-	40
ITEM 6. EXHIBITS.	40

PART I-FINANCIAL INFORMATION

ItemITEM 1. Financial- StatementsFINANCIAL STATEMENTS

FIRST CITIZENS BANCSHARES, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSSHEETSAS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

AS (In ~~OF JUNE 30, 2012 AND DECEMBER 31, 2011~~Thousands)

(In Thousands)

	UNAUDITED
	September 30, 2014	December 31, 2013(1)
ASSETS
Cash and due from banks	$ 15,074	$ 19,780
Federal funds sold	10,141	5,469
Cash and cash equivalents	25,215	25,249
Interest-bearing deposits in other banks	45,259	21,865
Investment securities:
Available-for-Sale, stated at market	437,789	456,525
Loans (excluding unearned income of $445 at September 30, 2014 and $434 at December 31, 2013)	611,920	580,236
Less: Allowance for loan losses	7,550	7,818
Net loans	604,370	572,418
Loans held-for-sale	882	3,098
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	5,684	5,684
Premises and equipment	35,540	34,152
Accrued interest receivable	6,570	5,011
Goodwill	13,651	13,651
Other intangible assets	352	384
Other real estate owned	5,485	6,826
Bank-owned life insurance policies	22,786	22,466
Other assets	7,072	7,143
TOTAL ASSETS	$1,210,655	$1,174,472

LIABILITIES AND EQUITY
Non-interest bearing demand deposits	$138,858	$ 142,673
Interest bearing time deposits	338,253	337,790
Interest bearing savings deposits	501,781	488,067
Total deposits	978,892	968,530
Securities sold under agreements to repurchase	42,291	36,808
Other borrowings	56,810	51,167
Other liabilities	8,068	5,361
Total liabilities	1,086,061	1,061,866

	June 30, 2012	December 31, 2011(1)
	(UNAUDITED)
ASSETS
Cash and due from banks	$ 14,840	$ 19,460
Federal funds sold	1,595	14,673
Cash and cash equivalents	16,435	34,133
Interest bearing deposits in banks	27,996	40,138
Investment securities:
Available-for-Sale, stated at market	408,310	365,465
Loans (excluding unearned income of $341 at June 30, 2012 and $352 at December 31, 2011)	545,323	527,699
Less: allowance for loan losses	7,926	8,039
Net loans	537,397	519,660
Loans held-for-sale	1,792	2,616
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	5,684	5,684
Premises and equipment	29,207	29,553
Accrued interest receivable	5,401	5,306
Goodwill	11,825	11,825
Other intangible assets	-	35
Other real estate owned	10,579	11,073
Bank owned life insurance policies	21,696	21,438
Other assets	6,484	6,623
TOTAL ASSETS	$1,082,806	$1,053,549
LIABILITIES AND EQUITY
Non-interest bearing demand deposits	$125,967	$119,689
Interest bearing time deposits	344,737	341,141
Interest bearing savings deposits	404,259	394,842
Total deposits	874,963	855,672
Securities sold under agreements to repurchase	36,149	36,471
Other borrowings	52,076	47,328
Other liabilities	9,836	10,610
Total liabilities	973,024	950,081

(1) Derived from audited financial statements.

FIRST CITIZENS BANCSHARES, INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (cont’d)

AS OF ~~JUNE~~SEPTEMBER 30, ~~2012~~2014 AND DECEMBER 31, ~~2011~~ 2013

(In Thousands)

	June 30, 2012	December 31, 2011(1)
	UNAUDITED
	(UNAUDITED)
	September 30, 2014	December 31, 2013 (1)
Equity
Common stock, no par value - 10,000,000 authorized; 3,717,593 issued and outstanding at June 30, 2012 and December 31, 2011	$ 3,718	$ 3,718
Class A common stock, no par value – 1,000,000 authorized; 37,220 issued and outstanding at September 30, 2014 and none authorized, issued or outstanding at December 31, 2013	$ 37	$ -
Common stock, no par value - 10,000,000 authorized; 3,717,593 issued and 3,569,379 outstanding at September 30, 2014 and 3,717,593 issued and 3,607,754 outstanding at December 31, 2013	3,681	3,718
Surplus	15,331	15,331
Retained earnings	81102,~~622~~454	7694,~~586~~889
Accumulated other comprehensive income	10,079	8,801
Accumulated other comprehensive income (loss)	4,114	(361)
Total common stock and retained earnings	~~110~~125,~~750~~617	~~104~~113,~~436~~577
Less-109,739 treasury shares, at cost as of June 30, 2012 and December 31, 2011	3,023	3,023
Less-111,001 treasury shares, at cost as of September 30, 2014 and 109,839 treasury shares, at cost as of December 31, 2013	3,078	3,026
Total shareholders' equity	~~107~~122,~~727~~539	~~101~~110,~~413~~551
Noncontrolling (minority) interest in consolidated subsidiary	2,055	2,055
Non-controlling (minority) interest in consolidated subsidiary	2,055	2,055
Total equity	~~109~~124,~~782~~594	~~103~~112,~~468~~606
TOTAL LIABILITITES AND EQUITY	$1,082,806	$1,053,549
TOTAL LIABILITIES AND EQUITY	$1,210,655	$1,174,472

(1) Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

~~THREE~~(Dollars ~~AND~~in Thousands ~~SIX~~Except ~~MONTHS~~for ~~ENDED~~Per ~~JUNE~~Share ~~30, 2012 AND 2011~~Amounts)

(Dollars in Thousands Except for Per Share Amounts)

	Three Months Ended September 30			Nine Months Ended September 30
		2014	2013	2014	2013
Interest income
Interest and fees on loans		$8,182	$8,201	$24,208	$24,196
Interest and dividends on investment securities:
Taxable		1,635	1,672	5,164	5,268
Tax-exempt		1,326	1,178	3,935	3,476
Dividends		47	50	143	150
Other interest income		19	22	56	67
Total interest income		11,209	11,123	33,506	33,157
Interest expense
Interest on deposits		1,168	1,194	3,493	3,661
Other interest expense		318	354	929	1,048
Total interest expense		1,486	1,548	4,422	4,709
Net interest income		9,723	9,575	29,084	28,448
Provision for loan losses		250	187	625	775
Net interest income after provision for loan losses		9,473	9,388	28,459	27,673
Non-interest income
Mortgage banking income		280	293	787	1,174
Income from fiduciary activities		270	204	668	663
Service charges on deposit accounts		1,200	1,278	3,444	3,595
Income from ATM and debit cards		693	639	1,979	1,856
Brokerage fees		396	341	1,126	1,041
Earnings on bank owned life insurance		149	145	441	465
Loss on sale or write down of other real estate owned		(190)	(84)	(194)	(291)
Gain on sale or call of available-for-sale securities		-	-	1,291	303
Gain on disposition of property		-	-	-	-
Income from insurance activities		175	195	672	762
Other non-interest income		188	279	505	623
Total non-interest income		3,161	3,290	10,719	10,191

			Three Months Ended		Six Months Ended
			June 30, 2012	June 30, 2011	June 30, 2012	June 30, 2011
Interest income:
	Interest and fees on loans		$ 8,100	$ 8,692	$16,129	$ 17,198
	Interest income on securities:
		Taxable	1,777	1,678	3,555	3,258
		Tax-exempt	1,116	1,102	2,245	2,175
		Dividends	51	55	106	111
Other interest income			27	22	63	42
		Total interest income	11,071	11,549	22,098	22,784
Interest expense:
	Interest expense on deposits		1,542	1,983	3,212	4,025
	Other interest expense		384	421	767	863
		Total interest expense	1,926	2,404	3,979	4,888
Net interest income			9,145	9,145	18,119	17,896
Provision for loan losses			300	650	300	1,225
Net interest income after provision			8,845	8,495	17,819	16,671
Non-interest income
	Mortgage banking income		345	121	652	284
	Income for fiduciary activities		185	191	368	378
	Service charges on deposits accounts		1,825	1,651	3,551	3,258
	Brokerage fees		400	339	693	642
	Gain on sale of securities		6	481	407	943
	Loss on sale of foreclosed property		(253)	(452)	(404)	(805)
	Gain on disposition of property		-	-	-	273
	Earnings on bank owned life insurance		138	169	298	353
	Income from insurance activities		185	121	435	324
	Other non-interest income		176	184	355	362
		Total non-interest income	3,007	2,805	6,355	6,012

4 FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

~~FIRST CITIZENS~~ ~~BANCSHARES,~~CONSOLIDATED STATEMENTS ~~INC.~~OF ~~AND~~INCOME ~~SUBSIDIARIES~~(UNAUDITED) (cont’d)

~~CONSOLIDATED~~ ~~STATEMENTS~~THREE OFAND ~~INCOME~~NINE ~~(UNAUDITED)~~MONTHS ~~(cont’d)~~ENDED SEPTEMBER 30, 2014 AND 2013

~~THREE~~ (Dollars ~~AND~~in Thousands ~~SIX~~Except ~~MONTHS~~for ~~ENDED~~Per ~~JUNE~~Share ~~30, 2012 AND 2011~~Amounts)

(Dollars in Thousands Except for Per Share Amounts)

	Three Months Ended September 30		Nine Months Ended September 30
	2014	2013	2014	2013
Salaries & employee benefits	$5,005	$4,680	$14,796	$14,027
Net occupancy expense	439	452	1,338	1,196
Depreciation	506	504	1,469	1,446
Data processing expense	460	315	1,459	1,206
Legal and professional fees	333	114	844	333
Stationary and office supplies	67	52	177	157
Amortization of intangibles	11	11	32	32
Advertising and promotions	239	326	663	763
Premiums for FDIC insurance	165	207	481	555
Expenses related to other real estate owned	103	121	259	373
ATM and debit card fees and expenses	296	288	885	1,174
Other non-interest expense	1,418	1,139	3,677	3,325
Total other non-interest expense	$9,042	$8,209	$26,080	$24,587
Net income before income taxes	3,592	4,469	13,098	13,277
Provision for income tax expense	$ 581	$ 971	$ 2,829	$ 3,080
Net income	3,011	3,498	10,269	10,197
Earnings per common share	$ 0.84	$ 0.97	$ 2.85	$ 2.83
Weighted average shares outstanding	3,607	3,608	3,607	3,608

			Three Months Ended		Six Months Ended June 30,
			June 30, 2012	June 30, 2011		June 30, 2012	June 30, 2011
Non-interest expense
	Salaries and employee benefits		$4,285	$4,195		$8,665	$8,279
	Net occupancy expense		438	418		847	837
	Depreciation expense		448	448		878	873
	Data processing expense		460	378		863	875
	Legal fees		77	103		187	173
	Stationary and office supplies		60	56		122	111
	Amortization of intangibles		14	21		35	42
	Advertising and promotions		172	153		354	315
	FDIC insurance premium expense		159	219		339	437
	Other real estate expense		115	199		243	408
	Other non-interest expense		1,314	1,256		2,675	2,564
		Total non-interest expense	7,542	7,446		15,208	14,914
Net income before income taxes			4,310	3,854		8,966	7,769
Income taxes			986	982		2,126	1,901
Net income			$3,324	$2,872		$6,840	$5,868
Earnings per share			$0.93	$0.79		$1.90	$1.62
Weighted average number of shares outstanding			3,607,854	3,615,477		3,607,854	3,620,623

See accompanying notes to consolidated financial statements.

~~See accompanying notes to consolidated financial statements.~~4

5FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

FIRSTCONSOLIDATED CITIZENS BANCSHARESSTATEMENTS OF COMPREHENSIVE INCOME THREE AND NINE MONTHS ENDED SEPTEMBER 30, INC.2014, AND SUBSIDIARIES2013

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~ (~~UNAUDITED~~In thousands)

THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

	Three months ended		Nine months ended
	September 30,		September 30,
	2014	2013	2014	2013
Net income	$3,011	$3,498	$10,269	$10,197
Other comprehensive income, net of tax:
Net change in unrealized gains (losses) on available-for-sale securities	483	(331)	4,475	(9,183)
Total other comprehensive income	483	(331)	4,475	(9,183)
Total comprehensive income	$3,494	$3,167	$14,744	$1,014

~~(In~~Related ~~thousands)~~tax effects allocated to each component of other comprehensive income were as follows:

	Three months ended		Six months ended
	Before-tax	Tax (Expense)	Net-of-tax
	June 30,		June 30,
	Amount	or Benefit	Amount
	2012	2011	2012	2011
Three months ended September 30, 2014:
Net income	$3,324	$2,872	$6,840	$5,868
Unrealized gains (losses) on available-for-sale securities:
Other comprehensive income, net of tax:
Unrealized gains (losses) arising during the period	$783	$(300)	$483
Net change in unrealized gains (losses) on available-for-sale securities	947	2,671	1,278	3,968
Reclassification adjustments for net gains included in net income	-	-	-
Total other comprehensive income	947	2,671	1,278	3,968
Net unrealized gains (losses)	$783	$(300)	$483
Total comprehensive income	$4,271	$5,543	$8,118	$9,836
Three months ended September 30, 2013:
Unrealized (losses) gains on available-for-sale securities:
Unrealized (losses) gains arising during the period	$(536)	$205	$(331)
Reclassification adjustments for net gains included in net income	-	-	-
Net unrealized (losses) gains	$(536)	$205	$(331)
Nine months ended September 30, 2014:
Unrealized (losses) gains on available-for-sale securities:
Unrealized (losses) gains arising during the period	$7,846	$(3,004)	$4,842
Reclassification adjustments for net gains included in net income	(595)	228	(367)
Net unrealized (losses) gains	$7,251	$(2,776)	$4,475
Nine months ended September 30, 2013:
Unrealized (losses) gains on available-for-sale securities:
Unrealized (losses) gains arising during the period	$(14,578)	$5,582	$(8,996)
Reclassification adjustments for net gains included in net income	(303)	116	(187)
Net unrealized (losses) gains	$(14,881)	$5,698	$(9,183)

~~The~~See ~~related tax effects of each component of other~~accompanying ~~comprehensive~~notes ~~income~~to ~~for~~consolidated ~~the~~financial ~~periods presented are as follows:~~ statements.

	Before-tax	Tax (Expense)	Net-of-tax
	Amount	or Benefit	Amount
Six months ended June 30, 2012:
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$2,478	$(949)	$1,529
Reclassification adjustments for net gains included in net income	(407)	156	(251)
Net unrealized gains (losses)	$2,071	$(793)	$1,278
Six months ended June 30, 2011:
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$7,373	$(2,823)	$4,550
Reclassification adjustments for net gains included in net income	(943)	361	(582)
Net unrealized gains (losses)	$6,430	$(2,462)	$3,968
Three months ended June 30, 2012:
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$1,541	$(590)	$951
Reclassification adjustments for net gains included in net income	(6)	2	(4)
Net unrealized gains (losses)	$1,535	$(588)	$947
Three months ended June 30, 2011:
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$4,810	$(1,842)	$2,968
Reclassification adjustments for net gains included in net income	(481)	184	(297)
Net unrealized gains (losses)	$4,329	$(1,658)	$2,671

6FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

~~FIRST CITIZENS~~CONSOLIDATED ~~BANCSHARES,~~STATEMENTS ~~INC.~~OF ~~AND~~SHAREHOLDERS’ ~~SUBSIDIARIES~~EQUITY (UNAUDITED)

~~CONSOLIDATED STATEMENTS~~NINE OFMONTHS ~~SHAREHOLDERS’~~ENDED ~~EQUITY~~SEPTEMBER 30, ~~(UNAUDITED)~~2014 AND 2013

~~SIX~~(In ~~MONTHS ENDED JUNE 30, 2012 AND 2011~~Thousands)

(In Thousands)

							Accum.
	Class A						Other		Non-
	Common Stock		Common Stock			Retained	Compre.	Treasury	Controlling
	Shares	Amount	Shares	Amount	Surplus	Earnings	Income	Stock	Interests	Total
	(#)	($)	(#)	($)	($)	($)	($)	($)		($)
Balance January 1, 2013	0	$0	3,718	$3,718	$15,331	$85,771	$10,291	$(3,026)	$2,055	$114,140
Comprehensive income:
Net income, nine months ended September 30, 2013						10,197				10,197
Adjustment of unrealized gain (loss) on
securities available-for-sale, net of tax							(9,183)			(9,183)
Total comprehensive income						10,197	(9,183)			1,014
Cash dividends paid - $0.75 per share						(2,706)				(2,706)
Balance September 30, 2013	0	$0	3,718	$3,718	$15,331	$93,262	$1,108	$(3,026)	$2,055	$112,448

Balance January 1, 2014	0	$0	3,718	$3,718	$15,331	$94,890	$(361)	$(3,027)	$2,055	$112,606
Comprehensive income:
Net income, nine months ended September 30, 2014						10,269				10,269
Adjustment of unrealized gain (loss) on
securities available-for-sale, net of tax							4,475			4,475
Total comprehensive income						10,269	4,475			14,744
Cash dividends paid - $0.75 per share						(2,705)				(2,705)
Class A Common Stock (no par)	37	37	(37)	(37)						-
Treasury stock purchases								(51)		(51)
Balance September 30, 2014	37	$37	3,681	$3,681	$15,331	$102,454	$4,114	$(3,078)	$2,055	$124,594

					Other		Non-
	Common Stock			Retained	Compre.	Treasury	Controlling
	Shares	Amount	Surplus	Earnings	Income	Stock	Interests	Total
	(#)	($)	($)	($)	($)	($)		($)
Balance January 1, 2011	3,718	$3,718	$15,331	$68,696	$1,896	$(2,417)	$2,055	$89,279
Comprehensive income:
Net income, six months ended June 30, 2011				5,868				5,868
Adjustment of unrealized gain (loss) on
securities available-for-sale, net of tax					3,968			3,968
Total comprehensive income				5,868	3,968			9,836
Cash dividends paid - $0.40 per share				(1,448)				(1,448)
Treasury stock transactions -net						(499)		(499)
Balance June 30, 2011	3,718	$3,718	$15,331	$73,116	$5,864	$(2,916)	$2,055	$ 97,168
Balance January 1, 2012	3,718	$3,718	$15,331	$76,586	$8,801	$(3,023)	$2,055	$103,468
Comprehensive income:
Net income, six months ended June 30, 2012				6,840				6,840
Adjustment of unrealized gain (loss) on
securities available-for-sale, net of tax					1,278			1,278
Total comprehensive income				6,840	1,278			8,118
Cash dividends paid - $0.50 per share				(1,804)				(1,804)
Balance June 30, 2012	3,718	$3,718	$15,331	$81,622	$10,079	$(3,023)	$2,055	$109,782

See accompanying notes to consolidated financial statements.

~~See accompanying notes to consolidated financial statements.~~6

7FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

~~FIRST CITIZENS~~CONDENSED ~~BANCSHARES,~~CONSOLIDATED ~~INC.~~STATEMENT ~~AND~~OF ~~SUBSIDIARIES~~CASH FLOWS (UNAUDITED)

~~CONDENSED CONSOLIDATED~~FOR ~~STATEMENT~~THE OFNINE ~~CASH~~MONTHS ~~FLOWS~~ENDED ~~(UNAUDITED)~~SEPTEMBER 30, 2014 AND 2013

~~FOR~~(Dollars ~~SIX MONTHS ENDED JUNE 30, 2012 AND 2011~~in Thousands)

(Dollars in Thousands)

			Nine Months Ended September 30,
			2014	2013
Net cash provided by operating activities			$ 10,793	$ 7,543
Investing activities:
	(Increase) Decrease in interest bearing deposits in banks		(23,394)	20,402
	Proceeds of maturities of available-for-sale securities		36,636	60,009
	Proceeds of sales of available-for-sale securities		22,845	29,317
	Purchase of available-for-sale securities		(32,655)	(66,352)
	Increase in loans-net		(31,164)	(43,395)
	Proceeds from sale of other real estate		1,030	648
	Purchases of premises and equipment		(2,857)	(1,357)
		Net cash used by investing activities	(29,559)	(728)
Financing activities:
	Net (decrease) increase in demand accounts		(3,815)	854
	Net (decrease) increase in savings accounts		13,714	(788)
	Net increase (decrease) in time deposits		463	(16,549)
	Increase in other borrowings		5,643	7,828
	Treasury stock purchases		(51)	(1)
	Cash dividends paid		(2,705)	(2,706)
	Net increase in securities sold under agreements to repurchase		5,483	1,611
		Net cash provided by (used in) financing activities	18,732	(9,751)
Decrease in cash and cash equivalents			(34)	(2,936)
Cash and cash equivalents at beginning of period			25,249	28,199
Cash and cash equivalents at end of period			$25,215	$25,263

Supplemental cash flow disclosures:
	Interest payments, net		$4,531	$4,756
	Income taxes paid, net		3,125	3,291
	Transfers from loans to foreclosed assets		1,453	262
	Transfers from foreclosed assets to loans		1,616	54

			Six Months Ended
			June 30, 2012	June 30, 2011
Net cash provided by operating activities			$ 6,392	$ 1,476
Investing activities:
	Decrease (increase) in interest bearing deposits in banks		12,142	4,067
	Proceeds of maturities of available-for-sale securities		31,476	23,575
	Proceeds of sales of available-for-sale securities		22,246	37,865
	Purchase of available-for-sale securities		(94,616)	(84,494)
	Decrease (Increase) in loans-net		(17,474)	(15,391)
	Proceeds from sale of other real estate		755	2,241
	Proceeds from disposition of property		-	328
	Purchases of premises and equipment		(532)	(538)
		Net cash (used) by investing activities	(46,003)	(32,347)
Financing activities:
	Net increase in demand accounts		6,278	1,650
	Net increase in savings accounts		9,417	21,407
	Net (decrease) in time deposits		3,596	(2,575)
	Increase (decrease) in other borrowings		4,748	(6,724)
	Treasury stock transactions -net		-	(499)
	Cash dividends paid		(1,804)	(1,448)
	Net increase (decrease) in securities sold under agreements to repurchase		(322)	817
		Net cash provided by financing activities	21,913	12,628
Increase (decrease) in cash and cash equivalents			(17,698)	(18,243)
Cash and cash equivalents at beginning of period			34,133	33,691
Cash and cash equivalents at end of period			$16,435	$15,448
Supplemental cash flow disclosures:
	Interest payments, net		$4,047	$4,979
	Income taxes paid, net		2,444	1,150
	Transfers from loans to foreclosed assets		823	1,496
	Transfers from foreclosed assets to loans		159	254

See accompanying notes to consolidated financial statements.

~~See accompanying notes to consolidated financial statements.~~7

8Note 1 - Consolidated Financial Statements

~~FIRST~~The ~~CITIZENS~~consolidated balance sheet as of September 30, 2014, ~~BANCSHARES~~the consolidated statements of income for the three and nine months ended September 30, ~~INC~~2014 and 2013 and the consolidated statements of cash flows for the nine-month periods then ended have been prepared by First Citizens Bancshares, Inc. ~~AND~~(the “Company”) ~~SUBSIDIARIES~~without an audit. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at September 30, 2014 and for all periods presented have been made. Operating results for the reporting periods presented are not necessarily indicative of results that may be expected for the year ending December 31, 2014. For further information, refer to the audited consolidated financial statements and footnotes in the Company’s Registration Statement on Form S-4/A filed with the Securities and Exchange Commission on August 21, 2014 (File No. 333-197512).

~~NOTES~~Certain TOprior year balances have ~~CONSOLIDATED~~been ~~FINANCIAL~~reclassified ~~STATEMENTS~~to conform to current year presentation. The consolidated financial statements include all accounts of the Company, and its subsidiary, First Citizens National Bank (~~UNAUDITED~~the “Bank”). First Citizens (TN) Statutory Trusts III and IV are reported under the equity method in accordance with generally accepted accounting principles for Variable Interest Entities for all periods presented. These investments are included in other assets and the proportionate share of income (loss) is included in other non-interest income. The Bank also has two wholly owned subsidiaries, First Citizens Financial Plus, Inc. and First Citizens Investments, Inc., which are consolidated into its financial statements.

~~JUNE~~The 30principal activity of First Citizens Investments, ~~2012~~Inc. is to acquire and sell investment securities and collect income from the securities portfolio. First Citizens Holdings, Inc., a wholly owned subsidiary of First Citizens Investments, Inc., acquires and sells certain investment securities, collects income from its portfolio, and owns First Citizens Properties, Inc., a real estate investment trust. First Citizens Properties, Inc. is a real estate investment trust organized and existing under the laws of the state of Maryland, the principal activity of which is to invest in participation interests in real estate loans made by the Bank and provide the Bank with an alternative vehicle for raising capital. First Citizens Holdings, Inc. owns 100% of the outstanding common stock and 60% of the outstanding preferred stock of First Citizens Properties, Inc. Directors, executive officers and certain employees and affiliates of the Bank own approximately 40% of the preferred stock which is reported as Noncontrolling Interest in Consolidated Subsidiary in the Consolidated Financial Statements of the Company. Net income (loss) attributable to the noncontrolling interest is included in Other Non-Interest Expense on the Consolidated Statements of Income and is not material for any of the periods presented.

~~Note~~The 1Bank -has ~~Consolidated~~a ~~Financial~~50% ownership interest in two insurance subsidiaries both of which are accounted for using the equity method. One is White and Associates/First Citizens Insurance, LLC, which is a general insurance agency offering a full line of insurance products. The other is First Citizens/White and Associates Insurance Company whose principal activity is credit insurance. On September 29, 2014, the credit insurance company, First Citizens/White and Associates Insurance Company, was dissolved and assets are in process of liquidation as of September 30, 2014. The investment in these subsidiaries is included in Other Assets on the Balance Sheets presented in this report and earnings from these subsidiaries are recorded in Other Income on the Income Statements presented in this report.

~~The~~On ~~consolidated~~October ~~balance sheet as of June 30~~1, ~~2012~~2014, ~~the consolidated~~by ~~statements~~virtue of ~~income for the three and six months ended June 30,~~ ~~2012 and 2011 and~~ the ~~consolidated~~merger ~~statements~~ of ~~cash~~its ~~flows~~parent ~~for the six-month periods then ended have been prepared by the~~ company, ~~without~~Southern anHeritage ~~audit~~Bancshares, Inc. ~~The accompanying~~ ~~reviewed condensed consolidated financial statements have been~~(“Southern ~~prepared~~Heritage”), ininto ~~accordance with accounting principles generally accepted in~~ the ~~United~~ ~~States~~Company, ofSouthern ~~America~~Heritage ~~for~~Bank ~~interim~~became ~~financial~~a ~~information and with the instructions to Form 10~~wholly-Qowned ~~and Article 10 of Regulation S-X. Accordingly they~~subsidiary ~~do not include all~~ of the ~~information and footnotes required by generally accepted accounting principles for complete financial statements~~Company. InSouthern ~~the opinion~~Heritage ofBank ~~management,~~was ~~all~~not ~~adjustments~~a ~~necessary~~subsidiary toof ~~present fairly~~ the ~~financial~~ ~~position,~~Company ~~results of operations and cash flows~~ at ~~June 30, 2012 and~~ ~~for~~any ~~all~~time ~~periods~~during ~~presented have been made. Operating results for~~ the ~~reporting~~ periods ~~presented~~reported are not necessarily indicative of results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in ~~the company’s~~this ~~Annual~~Quarterly Report on Form 10-~~K for the year ended December 31, 2011~~Q.

Certain prior year balances have been reclassified to conform to current year presentation. The consolidated financial statements include all accounts of First Citizens Bancshares, Inc. (the “Company”), and its subsidiary, First Citizens National Bank (the “Bank”). First Citizens (TN) Statutory Trusts III and IV are reported under the equity method in accordance with generally accepted accounting principles for Variable Interest Entities for all periods presented. These investments are included in other assets and the proportionate share of income (loss) is included in other non-interest income. The Bank also has two wholly owned subsidiaries, First Citizens Financial Plus, Inc. and First Citizens Investments, Inc., which are consolidated into its financial statements. 8

~~The principal activity of First~~ ~~Citizens~~Note ~~Investments,~~2 Inc. is to acquire and sell investment securities and collect income from the securities portfolio. First Citizens Holdings, Inc., a wholly owned subsidiary of First Citizens Investments, Inc., acquires and sells certain investment securities, collects income from its portfolio, and owns First Citizens Properties, Inc., a real estate investment trust. First Citizens Properties, Inc. is a real estate investment trust organized and existing under the laws of the state of Maryland, the principal activity of which is to invest in participation interests in real estate loans made by the Bank and provide the Bank with an alternative vehicle for raising capital. First Citizens Holdings, Inc. owns 100% of the outstanding common stock and 60% of the outstanding preferred stock of First Citizens Properties, Inc. Directors, executive officers and certain employees and affiliates of the Bank own approximately 40% of the preferred stock which is reported as Noncontrolling Interest in Consolidated Subsidiary in the Consolidated Financial Statements of the Company. Net income (loss) attributable to the noncontrolling interest is included in Other Non-~~Interest~~ ~~Expense on the Consolidated Statements of Income and is not material for any of the periods presented.~~Organization

~~The~~First ~~Bank~~Citizens ~~has~~Bancshares, Inc., is a ~~50%~~bank ~~ownership interest~~holding incompany ~~two~~chartered ~~insurance~~December ~~subsidiaries~~14, ~~both~~1982, ofunder ~~which~~the ~~are~~laws ~~accounted for using~~of the ~~equity~~State ~~method~~of Tennessee. ~~One~~ isOn ~~White~~September ~~and Associates/First Citizens Insurance~~23, ~~LLC~~1983, ~~which~~ isall aoutstanding ~~general~~shares ~~insurance agency offering a full line~~ of ~~insurance~~common ~~products. The~~stock ~~other~~of is First Citizens~~/White~~ ~~and~~National ~~Associates~~Bank ~~Insurance~~were ~~Company whose~~exchanged ~~principal~~for ~~activity~~an isequal ~~credit~~number ~~insurance. The investment in these~~of ~~subsidiaries~~shares ~~is included~~ in ~~Other~~First ~~Assets~~Citizens onBancshares, ~~the Balance Sheets presented in this report and earnings from these subsidiaries are recorded in Other Income on the Income Statements presented in this report~~Inc.

Note 3 2– -Contingent ~~Organization~~Liabilities

~~First~~There ~~Citizens Bancshares, Inc.,~~ is ano ~~bank holding company~~material ~~chartered~~pending ~~December~~or ~~14,~~threatened ~~1982,~~litigation ~~under~~as ~~the laws~~ of the ~~State~~current ofreportable ~~Tennessee.~~date ~~On September~~that ~~23, 1983, all outstanding shares of common stock of First Citizens~~would ~~National~~result ~~Bank were exchanged for an equal number of shares~~ in ~~First~~a ~~Citizens Bancshares, Inc~~liability.

9 Note 4 -- Cash Reserves and Interest-Bearing Deposits in Other Banks

~~Note~~The 3Bank –maintains ~~Contingent~~cash ~~Liabilities~~reserve balances as required by the Federal Reserve Bank. Average required balances during third quarter ended September 30, 2014 and the year ended December 31, 2013 were approximately $500,000. Amounts above the required minimum balance are reported as Interest-Bearing Deposits in Other Banks on the Consolidated Balance Sheets. Balances in excess of required reserves held at the Federal Reserve Bank as of September 30, 2014 and December 31, 2013 were $43.2 million and $19.8 million, respectively. Interest-bearing deposits in other banks also include short-term certificates of deposit held in increments that are within FDIC insurance limits and totaled $2.1 million as of September 30, 2014 and $2.0 million as of December 31, 2013.

~~There is no material pending or threatened litigation as~~ ofNote 5 ~~the~~– ~~current~~Investment ~~reportable date that would result in a liability.~~Securities

~~Note~~The 4amortized --cost ~~Cash~~and ~~Reserves~~fair ~~and~~value of securities as of September ~~Interest-Bearing~~30, ~~Deposits~~2014 inand ~~Other~~December ~~Banks~~31, 2013 were as follows:

The Bank maintains cash reserve balances as required by the Federal Reserve Bank. Average required balances during second quarter ended June 30, 2012 and the year ended December 31, 2011 were approximately $500,000. Amounts above the required minimum balance are reported as Interest-Bearing Deposits in Other Banks on the Consolidated Balance Sheets. Balances in excess of required reserves held at the Federal Reserve Bank as of June 30, 2012 and December 31, 2011 were $26.0 million and $38.3 million, respectively. Interest-bearing deposits in other banks also include short-term certificates of deposit held in increments that are within FDIC insurance limits and totaled $2.0 million and approximately $1.6 million as of June 30, 2012 and December 31, 2011, respectively.

	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
As of September 30, 2014:
U.S. Treasury securities and obligations of U.S. government agencies and corporations	$292,051	$3,183	$(5,217)	$290,017
Obligations of states and political subdivisions	139,060	8,920	(269)	147,711
All other	10	51	-	61
Total investment securities	$431,121	$12,154	$(5,486)	$437,789
As of December 31, 2013:
U.S. Treasury securities and obligations of U.S. government agencies and corporations	$326,272	$2,927	$ (7,496)	$321,703
Obligations of states and political subdivisions	130,813	5,338	(1,400)	134,751
All other	23	48	-	71
Total investment securities	$457,108	$8,313	$(8,896)	$456,525

~~Note~~There 5were –no ~~Investment~~securities ~~Securities~~classified as trading or held-to-maturity as of September 30, 2014 or December 31, 2013.

The ~~amortized~~following ~~cost~~table ~~and~~summarizes ~~fair~~contractual ~~value~~maturities of debt securities available-for-sale as of ~~June~~ September 30, ~~2012~~2014 ~~and~~(in ~~December 31, 2011 were as follows~~thousands):

	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
As of June 30, 2012:
U.S. Treasury securities and obligations of U.S. government agencies and corporations	$283,896	$7,366	$ (54)	$291,208
Obligations of states and political subdivisions	105,916	10,532	(7)	116,441
All other	2,166	26	(1,531)	661
Total investment securities	$391,978	$17,924	$(1,592)	$408,310
As of December 31, 2011:
U.S. Treasury securities and obligations of U.S. government agencies and corporations	$242,459	$6,793	$ (12)	$249,240
Obligations of states and political subdivisions	106,554	9,083	(3)	115,634
All other	2,194	15	(1,618)	591
Total investment securities	$351,207	$15,891	$(1,633)	$365,465

There were no securities classified as held-to-maturity or trading as of June 30, 2012 or December 31, 2011.

	Amortized Cost	Fair Value
Amounts maturing in:
One year or less	$2,547	$2,578
After one year through five years	17,054	17,999
After five years through ten years	69,750	73,550
After ten years*	341,760	343,601
Total debt securities	$431,111	$437,728
Equity securities	10	61
Total securities	$431,121	$437,789

~~The following table summarizes contractual maturities of debt securities available-for-sale as of June 30, 2012 (in thousands):~~10

	Amortized Cost	Fair Value
Amounts maturing in:
One year or less	$3,062	$3,105
After one year through five years	8,622	9,306
After five years through ten years	52,725	56,592
After ten years*	327,546	339,258
Total debt securities	391,955	408,261
Equity securities	23	49
Total securities	$391,978	$408,310

Sales and gains (losses) on sale of available-for-sale securities for the nine months ended September 30, 2014 and 2013 are presented as follows (in thousands):

*This table includes agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMO”) based on contractual maturities (primarily in the After ten years category). However, the remaining lives of such securities is expected to be much shorter

	Gross Sales		Gross Gains		Gross Losses	Net Gains
2014		$22,845		$1,385	$ (94)	$1,291
2013		$29,317		$303	$ -	$ 303

10The following table presents information on securities with gross unrealized losses as of September 30, 2014, aggregated by investment category and the length of time that the individual securities have been in a continuous loss position (in thousands):

Sales and gains (losses) on sale of available-for-sale securities for the six months ended June 30, 2012 and 2011 are presented as follows (in thousands):

	Less Than 12 Months		Over 12 Months		Total
	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value
Securities Available-for-Sale:
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$(445)	$43,642	$(4,772)	$122,095	$(5,217)	$165,737
Obligations of states and political subdivisions	(3)	550	(266)	11,555	(269)	12,105
Other debt securities	-	-	-	-	-	-
Total securities with unrealized losses	$(448)	$44,192	$(5,038)	$133,650	$(5,486)	$177,842

	Gross Sales		Gross Gains		Gross Losses	Net Gains
2012		$22,246	$401	*	$ -	$401
2011		37,865	943		-	943

In reviewing the investment portfolio for other-than-temporary impairment of individual securities, consideration is given but not limited to (1) the length of time in which fair value has been less than cost and the extent of the unrealized loss, (2) the financial condition of the issuer, and (3) the positive intent and ability of the Company to maintain its investment in the issuer for a time that would provide for any anticipated recovery in the fair value.

As of September 30, 2014, the Company had 74 debt *Gainsecurities onwith ~~sale~~unrealized losses, with 59 of those securities having been in an unrealized loss position for greater than 12 months. The Company did not intend to sell any such securities in unrealized loss position and it was more likely than not that the Company would not be required to sell the securities prior to recovery of costs. Aggregate unrealized losses totaled 1.24% of amortized cost of the total portfolio. All bonds in an unrealized loss position as ~~reported~~of September 30, 2014 were less than 10% of book value on ~~the~~an ~~Consolidated~~individual ~~Income~~basis ~~Statement~~and averaged less than 3%. Securities in an unrealized loss position as of September 30, 2014 have been evaluated for other-than-temporary impairment. In analyzing reasons for the ~~six~~unrealized ~~months~~losses, ~~ended~~management considers ~~June~~various 30factors including, ~~2012~~but ~~also~~not limited to, whether the securities ~~includes~~are ~~approximately~~issued $6by the federal government or its agencies,~~000~~ inor ~~gain~~whether downgrades of bond ratings have occurred, and also reviews any applicable industry analysts’ reports. With respect to unrealized losses on ~~called~~municipal and agency and the analysis performed relating to those securities, management believes that declines in market value were entirely the result of market factors primarily related to the fluctuations in the market yield curve between the time of purchase and as of the current period end and concluded there were no other-than-temporary losses as of September 30, 2014. For this reason, no other-than-temporary impairment has been recognized in earnings for the three or nine months ended September 30, 2014.

The ~~following~~Company ~~table~~held ~~presents information~~no onderivative securities ~~with gross unrealized losses~~ as of ~~June~~September 30, ~~2012, aggregated~~2014 byor ~~investment~~December ~~category~~31, ~~and the length of time that the individual securities have been in a continuous loss position (in thousands):~~2013.

	Less Than 12 Months		Over 12 Months		Total
	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value	Gross Unrealized Losses	Fair Value
U.S. Treasury securities and obligations of U.S. Government agencies and corporations	$(54)	$16,521	$ -	$ -	$ (54)	$16,521
Obligations of states and political subdivisions	(7)	410	-	-	(7)	410
Other debt securities	-	-	(1,531)	612	(1,531)	612
Total securities with unrealized losses	$(61)	$16,931	$(1,531)	$612	$(1,592)	$17,543

Note 6 -- Loans

InPerforming ~~reviewing~~and ~~the investment portfolio for other~~non-~~than-temporary impairment of individual securities, consideration is~~performing ~~given~~loans ~~but~~by ~~not~~category ~~limited~~were toas ~~(1)~~follows ~~the~~as ~~length~~ of ~~time~~September in30, ~~which~~2014 ~~fair value has been less than cost~~ and ~~the~~December ~~extent of the unrealized loss~~31, ~~(2) the financial~~ ~~condition~~2013 ~~of the issuer, and~~ (~~3) the positive intent and ability of the Company to maintain its investment~~ in ~~the issuer for a time that would provide for any anticipated recovery in the fair value.~~thousands):

As of June 30, 2012, the Company had nine debt securities with unrealized losses, with three of those securities having been in an unrealized loss position for greater than 12 months. The Company did not intend to sell any such securities in unrealized loss position and it was more likely than not that the Company would not be required to sell the securities prior to recovery of costs. Of the nine securities, three corporate debt securities accounted for approximately 96% of the unrealized gross losses as of June 30, 2012. The remaining bonds had unrealized loss positions for less than 12 months and consisted of one municipal bonds and five agency MBSs or CMOs. Securities in an unrealized loss position as of June 30, 2012 have been evaluated for other-than-temporary impairment. In analyzing reasons for the unrealized losses, management considers various factors including, but not limited to, whether the securities are issued by the federal government or its agencies, whether downgrades of bond ratings have occurred, and also reviews any applicable industry analysts’ reports. With respect to unrealized losses on municipal and agency and the analysis performed relating to the securities, management believes that declines in market value were not other-than-temporary as of June 30, 2012. The unrealized losses on the agency and municipal securities are considered immaterial on an individual basis and in the aggregate and have not been recognized for other-than-temporary impairment. 11

Three corporate debt securities accounted for $1.5 million of the $1.6 million unrealized loss as of June 30, 2012 and consist of pooled collateralized debt obligation securities that are backed by trust-preferred securities (“TRUP CDOs”) issued by banks, thrifts and insurance companies. These three bonds were rated below investment grade (BBB) by Moody’s and/or S&P as of June 30, 2012.

	Performing	Non- Performing*	Total
September 30, 2014:
Commercial, financial and agricultural	$106,225	$206	$106,431
Real estate – construction	55,727	745	56,472
Real estate – mortgage	406,772	6,344	412,234
Installment loans to individuals	24,066	37	24,103
All other loans	12,680	0	12,680
Total	$605,470	$7,332	$611,920
December 31, 2013:
Commercial, financial and agricultural	$81,089	$668	$ 81,757
Real estate – construction	46,313	646	46,959
Real estate – mortgage	406,082	7,153	413,235
Installment loans to individuals	24,743	64	24,807
All other loans	13,477	-	13,478
Total	$ 571,704	$8,531	$580,236

11_________________

~~The three TRUP CDOs have an aggregate book value of $2.1~~ ~~million~~*Non-Performing loans ~~and~~consist ~~fair market value~~ of ~~approximately~~loans ~~$612,000~~that ~~and each of the three~~ are ~~the~~on ~~mezzanine~~non-accrual orstatus ~~“B”~~and ~~class~~loans ~~tranches. The~~90 ~~unrealized~~days ~~loss of $1.5 million~~past asdue ~~of June 30, 2012 is reflected in accumulated other comprehensive income. The following table provides the book~~ and ~~market~~still ~~values~~accruing ~~of each security as well as information regarding the levels of excess subordination in the securities as of June 30, 2012 (dollars in thousands):~~interest.

Description	Class	Book Value	Market Value	Actual Over Collateral Ratio (2)	Required Over Collateral Ratio (3)	Actual Over (Under)
Pretsl I	Mezzanine	$839(1)	$334	77.8%	103.0%	-25.2%
Pretsl X	B-2	304(1)	1	63.1%	n/a (4)	-80.21%
I-Prestsl IV	B-1	1,000	278	107.1%	106.0%	1.1%

An aging analysis of loans outstanding by category as of September 30, 2014 and December 31, 2013 was as follows (in thousands):

_________________

	30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans	Recorded Investment > 90 Days and A ccruing
As of September 30, 2014:
Commercial, financial and agricultural	$ 136	$107	$ 48	$ 291	$106,140	$106,431	$ 1
Real estate – construction	52	0	260	312	56,160	56,472	-
Real estate – mortgage	3,537	328	4,215	8,080	404,154	412,234	-
Installment loans to individuals	235	44	1	280	23,823	24,103	-
All other loans	0	0	0	0	12,680	12,680	-
Total	$3,960	$479	$4,524	$8,963	$602,957	$611,920	$ 1

As of December 31, 2013:
Commercial, financial and agricultural	$305	$117	$596	$1,018	$80,739	$81,757	$ -
Real estate – construction	263	25	53	341	46,618	46,959	53
Real estate – mortgage	3,157	2,116	2,845	8,118	405,117	413,235	88
Installment loans to individuals	99	3	13	115	24,692	24,807	8
All other loans	-	-	-	-	13,478	13,478	-
Total	$3,824	$2,261	$3,507	$9,592	$570,644	$580,236	$149

(1)	Book values reflect principal only and do not include interest capitalized or payment-in-kind (“PIK”) to the bond according to contractual terms of the bond if applicable. The Company does not recognize PIK interest for book purposes and has these bonds on non-accrual status.
(2)	The Over Collateral (“OC”) Ratio reflects the ratio of performing collateral to a given class of notes and is calculated by dividing the performing collateral by the sum of the current balance of a given class of notes plus all senior classes.
(3)	The Required OC Ratio for a particular class of bonds reflects the required overcollateralization ratio such that cash distributions may be made to lower classes of bonds. If the OC Ratio is less than the Required OC ratio, cash is diverted from the lower classes of bonds to the senior bond classes.
(4)	The Required OC Ratio is not applicable in this case, as interest on Pretsl X for B-2 class is capitalized to the bond or PIK.

~~Security-specific~~Loans collateral is used in the assumptions to project cash flows each quarter. Issuers in default are assumed at zero recovery. Issuers in deferral are assumed at a 15% recovery beginning two years from deferral date. Forward interest rates are used to project future principal and interest payments allowing the model to indicate impact of over or undercollateralization for each transaction. Higher interest rates generally increase credit stress on ~~undercollateralized transactions by reducing excess~~ ~~interest~~non-accrual ~~(calculated~~status as ~~the difference between interest received from underlying collateral and interest paid on the bonds). The discount rate is based on the original discount margin calculated at the time~~ of ~~purchase~~September based on the purchase price. The original discount margin is then added to the three-month LIBOR to determine the discount rate. The discount rate is then used to calculate the present value for the then-current quarter’s projected cash flows. If the present value of the then-current quarter’s projected cash flows is less than the prior quarter or less than the then-current book value of the security30, ~~that~~2014 ~~difference~~and isDecember ~~recorded against earnings as the credit component of other-than-temporary impairment. No additional credit losses were incurred during the quarter or six months ended June 30~~31, ~~2012~~2013 ~~and~~by ~~therefore no~~category ~~losses~~ were ~~recognized~~as ~~against~~follows ~~earnings~~(in ~~during first or second quarter 2012.~~thousands):

See also discussion of valuation techniques and hierarchy for determining fair value of these securities at Note 11.

	September 30, 2014	December 31, 2013
Commercial, financial and agricultural	$ 206	$ 668
Real estate – construction	745	593
Real estate – mortgage	6,344	7,065
Installment loans to individuals	37	56
All other loans	-	-
Total	$7,332	$8,382

Credit risk management procedures include assessment of loan quality through use of an internal loan rating system. Each loan is assigned a rating upon origination and the rating may be revised over the life of the loan as circumstances warrant. The ~~Company~~rating ~~held~~system utilizes noeight ~~derivative~~major classification types based on risk of loss with Grade 1 ~~transactions~~being the lowest level of risk and Grade 8 being the highest level of risk. Loans internally rated Grade 1 to Grade 4 are considered “Pass” grade loans with low to average level of risk of credit losses. Loans rated Grade 5 are considered “Special Mention” and generally have one or more circumstances that require additional monitoring but do not necessarily indicate a higher level of probable credit losses. Loans rated Grade 6 or higher are loans with circumstances that generally indicate an above average level of risk for credit losses. Loans by internal risk rating by category as of ~~June~~September 30, ~~2012~~2014 or and December 31, ~~2011.~~2013 were as follows (in thousands):

	Grades 1-4		Grade 5	Grades 6-8	Total
September 30, 2014:
Commercial, financial and agricultural		$106,101	$ 128	$ 202	$106,431
Real estate – construction		53,673	-	2,799	56,472
Real estate – mortgage		396,714	1,441	14,079	412,234
Installment loans to individuals		24,007	-	96	24,103
All other loans		12,680	-	-	12,680
Total		$593,175	$ 1,569	$ 17,176	$611,920

December 31, 2013:
Commercial, financial and agricultural		$ 80,639	$ 267	$ 851	$ 81,757
Real estate – construction		42,486	611	3,862	46,959
Real estate – mortgage		394,749	1,645	16,841	413,235
Installment loans to individuals		24,662	-	145	24,807
All other loans		13,478	-	-	13,478
Total		$556,014	$ 2,523	$ 21,699	$580,236

~~Note~~Information 6regarding --the ~~Loans~~Company’s impaired loans for the quarter ended September 30, 2014 and 2013 is as follows (in thousands):

~~Performing and non-performing loans by category were as follows as of June 30, 2012 and December 31, 2011 (in thousands):~~13

	Performing		Non- Performing*		Total
	Recorded Investment	Unpaid Principal Balance	Specific Allowance	Average Recorded Investment	Interest Income Recognized
June 30, 2012:
September 30, 2014:
Commercial, financial and agricultural	$89,060		$681		$89,741
With no specific allocation recorded:
Real estate – construction	36,959		706		37,665
Commercial, financial and agricultural	$ -	$ -	N/A	$ -	$ -
Real estate – mortgage	379,312		7,447		386,759
Real estate – construction	201	201	N/A	264	-
Installment loans to individuals	26,524		233		26,757
Real estate – mortgage	1,305	1,409	N/A	1,420	31
All other loans	4,401		0		4,401
Installment loans to individuals	5	5	N/A	7	-
Total	$536,256		$9,067		$545,323
All other loans	-	-	N/A	-	-
December 31, 2011:
With allocation recorded:
Commercial, financial and agricultural	$~~71,465~~ -	$ -	$~~709~~ -	$ 375	$ ~~72,174~~-
Real estate – construction	~~38,946~~156	156	~~1,018~~79	100	~~39,964~~4
Real estate – mortgage	~~378~~2,~~006~~521	2,621	~~5,928~~403	3,672	~~383,934~~5
Installment loans to individuals	~~27,766~~-	-	~~261~~-	-	~~28,027~~-
All other loans	~~3,600~~-	-	-	-	~~3,600~~-
Total	$ 519,783		$7,916		$527,699
Total:
Commercial, financial and agricultural	$ -	$ -	$ -	$ 375	$ -
Real estate – construction	357	357	79	364	4
Real estate – mortgage	3,826	4,030	403	5,092	36
Installment loans to individuals	5	5	-	7	-
All other loans	-	-	-	-	-
September 30, 2013
With no specific allocation recorded:
Commercial, financial and agricultural	$ -	$ -	N/A	$ 35	$ -
Real estate – construction	442	442	N/A	633	6
Real estate – mortgage	1,611	1,611	N/A	2,504	20
Installment loans to individuals	4	4	N/A	6	-
All other loans	-	-	N/A	-	-
With allocation recorded:
Commercial, financial and agricultural	$ 534	$ 534	$ 71	$ 845	$ -
Real estate – construction	101	101	10	172	-
Real estate – mortgage	5,028	5,028	1,023	5,503	4
Installment loans to individuals	18	18	6	8	-
All other loans	-	-	3	-	-
Total:
Commercial, financial and agricultural	$ 534	$ 534	$ 71	$ 880	$ -
Real estate – construction	543	543	10	805	6
Real estate – mortgage	6,639	6,639	1,023	8,007	24
Installment loans to individuals	22	22	6	14	-
All other loans	-	-	3	-	-

~~_________________~~Loans that were restructured as of September 30, 2014 consisted of the following (dollars in thousands):

*Non-Performing loans consist of loans that are on non-accrual status and loans 90 days past due and still accruing interest.

	Number of Contracts	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial, financial and agricultural	7	$474	$333
Real estate – construction	9	1,287	1,026
Real estate – mortgage	27	4,892	4,130
Installment loans to individuals	18	140	61
All other loans	0	0	0
Total	61	$6,793	$5,550

~~An aging analysis of loans outstanding by category as of June 30, 2012 and December 31, 2011 was as follows (in thousands):~~14

	30-59 Days Past Due	60-89 Days Past Due	Greater Than 90 Days	Total Past Due	Current	Total Loans	Recorded Investment > 90 Days and Accruing
As of June 30, 2012:
Commercial, financial and agricultural	$ 124	$ 20	$ 534	$ 678	$89,063	$89,741	$ 35
Real estate – construction	2	46	51	99	37,566	37,665	51
Real estate – mortgage	1,008	251	2,440	3,699	383,060	386,759	407
Installment loans to individuals	111	54	4	169	26,588	26,757	1
All other loans	0	0	0	0	4,401	4,401	0
Total	$1,245	$371	$3,029	$4,645	$540,678	$545,323	$494
As of December 31, 2011:
Commercial, financial and agricultural	$ 72	$ 72	$ 538	$ 682	$ 71,492	$ 72,174	$ 34
Real estate – construction	539	47	345	931	39,033	39,964	-
Real estate – mortgage	1,481	2,727	2,353	6,561	377,373	383,934	570
Installment loans to individuals	81	30	41	152	27,875	28,027	2
All other loans	-	-	-	-	3,600	3,600	-
Total	$2,173	$2,876	$3,277	$8,326	$519,373	$527,699	$606

The modification of terms in the troubled debt restructurings reported in the above table did not have a material impact on the consolidated financial statements or to the overall risk profile of the loan portfolio. One loan with a recorded investment of approximately $21,000 that was modified in a troubled debt restructuring during the year ended December 31, 2013 defaulted during the nine months ended September 30, 2014. The allowance for loan losses associated with the troubled debt restructurings totaled approximately $353,000 as of September 30, 2014.

13 Note 7 – Allowance for Loan Losses

~~Loans~~The onfollowing ~~non-accrual~~table ~~status~~presents asthe breakdown of ~~June~~ ~~30,~~the ~~2012~~allowance ~~and~~for ~~December~~loan ~~31,~~losses ~~2011~~ by category ~~were~~and the percentage of each category in the loan portfolio to total loans as ~~follows~~of September 30, 2014 and December 31, 2013 (dollars in thousands):

	June 30, 2012		December 31, 2011
	September 30, 2014		December 31, 2013
Commercial, financial and agricultural	$ 646		$ 675
	Amount	% to Total Loans	Amount	% to Total Loans
Real estate – construction	655		1,018
Commercial, financial and agricultural	$1,074	17.37%	$1,221	14.09%
Real estate – mortgage	7,040		5,358
Real estate – construction	1,276	9.22%	1,521	8.09%
Installment loans to individuals	232		259
Real estate – mortgage	4,559	67.41%	4,752	71.22%
All other loans	-		-
Installment loans to individuals	327	3.93%	243	4.28%
Total	$8,573		$7,310
All other loans	314	2.07%	81	2.32%
Total	$7,550	100.00%	$7,818	100.0%

~~Credit~~An ~~risk~~analysis ~~management procedures include assessment~~ of ~~loan quality through use of an internal loan rating system. Each loan is assigned a rating upon origination and~~ the ~~rating~~allowance ~~may be~~for ~~revised over the life of the~~ loan as circumstances warrant. The rating system utilizes eight major classification types based on risk of loss with Grade 1 being the lowest level of risk and Grade 8 being the highest level of risk. Loans internally rated Grade 1 to Grade 4 are considered “Pass” grade loans with low to average level of risk of credit losses~~. Loans~~ rated Grade 5 are considered “Special Mention” and generally have one or more circumstances that require additional monitoring but do not necessarily indicate a higher level of probable credit losses. Loans rated Grade 6 or higher are loans with circumstances that generally indicate an above average level of risk for credit losses. Loans by ~~internal~~loan ~~risk rating by~~ category asfor ofthe ~~June~~nine ~~30,~~months ~~2012~~ended ~~and December 31~~September30, ~~2011~~2014 ~~were~~is as follows (in thousands):

	Grades 1-4	Grade 5	Grades 6-8	Total
	Beginning Balance	Charge-offs	Recoveries	Provision	Ending Balance
June 30, 2012:
Allowance for loan losses:
Commercial, financial and agricultural	$ 871,~~523~~221	($ ~~877~~244)	$ ~~1,341~~84	$ ~~89,741~~13	$1,074
Real estate – construction	341,~~860~~521	~~1,356~~(2)	~~1,449~~20	~~37,665~~(263)	1,276
Real estate – mortgage	~~365~~4,~~461~~752	~~4,863~~(672)	~~16,435~~52	~~386,759~~427	4,559
Installment loans to individuals	~~26,442~~243	5(76)	~~310~~34	~~26,757~~126	327
All other loans	~~4,401~~81	-(279)	-190	~~4,401~~322	314
Total	$~~518~~7,~~687~~818	($71,~~101~~273)	$~~19,535~~380	$~~545,323~~625	$7,550
December 31, 2011:
Commercial, financial and agricultural	$ 70,399	$ 423	$ 1,352	$ 72,174
Real estate – construction	36,972	1,113	1,879	39,964
Real estate – mortgage	362,686	4,715	16,533	383,934
Installment loans to individuals	27,701	9	317	28,027
All other loans	3,600	-	-	3,600
Total	$501,358	$6,260	$20,081	$527,699

14The allowance for loan losses is comprised of allocations for loans evaluated individually and loans evaluated collectively for impairment. The allocations of the allowance for loan losses for outstanding loans by category evaluated individually and collectively were as follows as of September 30, 2014 and December 31, 2013 (in thousands):

~~Information regarding the Company’s impaired loans for the quarter ended June 30, 2012 and 2011 is as follows (in thousands):~~15

	Recorded Investment	Unpaid Principal Balance	Specific Allowance	Average Recorded Investment	Interest Income Recognized
	Evaluated		Evaluated
June 30, 2012:
	Individually		Collectively		Total
With no specific allocation recorded:
As of September 30, 2014:
Commercial, financial and agricultural	$ -	$ -	N/A	$ 4	$ -
Allowance for loan losses
Real estate – construction	476	476	N/A	95	7
Commercial, financial and agricultural	$ -		$1,074		$1,074
Real estate – mortgage	1,313	1,313	N/A	915	20
Real estate – construction	79		1,197		1,276
Installment loans to individuals	-	-	N/A	-	-
Real estate – mortgage	402		4,157		4,559
All other loans	-	-	N/A	-	-
Installment loans to individuals	-		327		327
With allocation recorded:
All other loans	-		314		314
Commercial, financial and agricultural	$ 535	$ 535	$ 86	$ 553	$ 4
Total	$481		$7,069		$7,550
Real estate – construction	569	569	333	926	6
Loans
Real estate – mortgage	6,162	6,162	927	6,011	6
Commercial, financial and agricultural	$ -		$106,431		$106,431
Installment loans to individuals	155	155	29	161	-
Real estate – construction	364		56,108		56,472
All other loans	-	-	-	-	-
Real estate – mortgage	3,838		408,396		412,234
Total:
Installment loans to individuals	-		24,103		24,103
Commercial, financial and agricultural	$ 535	$ 535	$ 86	$ 557	$ 4
All other loans	6		12,674		12,680
Real estate – construction	1,045	1,045	333	1,021	13
Total	$4,208		$607,712		$611,920
Real estate – mortgage	7,475	7,475	927	6,926	26
As of December 31, 2013:
Installment loans to individuals	155	155	29	161	-
Allowance for loan losses
All other loans	-	-	-	-	-
Commercial, financial and agricultural	$ 50		$ 1,171		$ 1,221
June 30, 2011
Real estate – construction	90		1,431		1,521
With no specific allocation recorded:
Real estate – mortgage	847		3,905		4,752
Commercial, financial and agricultural	$ 20	$ 20	N/A	$ 7	$ 1
Installment loans to individuals	-		243		243
Real estate – construction	-	-	N/A	280	-
All other loans	-		81		81
Real estate – mortgage	3,195	3,195	N/A	2,795	99
Total	$ 987		$6,831		$ 7,818
Installment loans to individuals	-	-	N/A	-	-
Loans
All other loans	-	-	N/A	-	-
Commercial, financial and agricultural	$500		$ 81,257		$ 81,757
With allocation recorded:
Real estate – construction	518		46,441		46,959
Commercial, financial and agricultural	$ 581	$ 581	$ 131	$ 563	$ 16
Real estate – mortgage	6,466		406,769		413,235
Real estate – construction	710	710	357	1,095	-
Installment loans to individuals	15		24,792		24,807
Real estate – mortgage	5,652	5,652	720	5,276	129
All other loans	-		13,478		13,478
Installment loans to individuals	167	167	33	195	-
Total	$7,499		$572,737		$580,236
All other loans	-	-	-	-	-
Total:
Commercial, financial and agricultural	$ 601	$ 601	$131	$ 570	$ 17
Real estate – construction	710	710	357	1,375	-
Real estate – mortgage	8,847	8,847	720	8,071	228
Installment loans to individuals	167	167	33	195	-
All other loans	-	-	-	-	-

15 Note 8 – Goodwill and Intangible Assets

~~The~~Goodwill ~~Company~~is ~~adopted~~not ~~amendments~~amortized ~~in Accounting~~and ~~Standards~~is ~~Codification~~tested ~~Update~~for ~~(“ASU”) No. 2011-01 “Receivables~~impairment ~~(Topic~~annually ~~310)”~~or ~~(“ASU~~more ~~2011-01”)~~frequently asif ofevents ~~September~~and ~~30,~~circumstances ~~2011. As~~indicate athat ~~result,~~ the asset ~~Company~~might ~~reviewed~~be ~~loans~~impaired. The ~~classified~~goodwill asimpairment ~~troubled~~test ~~debt~~is ~~restructurings~~conducted ~~(“TDRs”)~~in ~~that~~first quarter ~~had~~annually ~~been~~and ~~restructured~~is ~~during~~a ~~the~~two-step ~~year~~test. The ~~ended~~first ~~December 31~~step, ~~2011~~used ~~and~~to ~~confirmed~~identify potential ~~that~~impairment, ~~TDRs~~involves ~~with~~comparing aeach ~~balance~~reporting ~~greater~~unit’s ~~than~~estimated orfair ~~equal~~value to its ~~$250~~carrying value,~~000~~ ~~deemed~~including togoodwill. Currently ~~be impaired~~the ~~were~~Company ~~properly~~has ~~identified~~one reporting asunit ~~such~~ and ~~reviewed~~does ~~individually~~not ~~for impairment~~meet asthe ~~reported~~tests into ~~the~~segment ~~impaired~~under ~~loan~~generally ~~table~~accepted accounting ~~above~~standards. ~~Loans~~If ~~meeting~~ the ~~criteria~~ toestimated befair ~~classified~~value asof ~~TDRs~~the ~~with~~reporting aunit exceeds ~~balance~~its ~~less~~carrying ~~than $250~~value,~~000~~ ~~have historically~~goodwill ~~been~~is ~~reviewed~~considered onnot ato ~~collective~~be ~~basis~~impaired. byIf ~~risk~~the carrying ~~code~~value ~~and~~exceeds ~~loan category. Reassessment~~estimated offair ~~these~~value, ~~loans~~there onis an ~~individual~~indication ~~basis upon adoption~~ of ~~the~~potential ~~ASU 2011-01 for~~ impairment ~~did~~and ~~not~~the ~~result~~second instep ais ~~significant~~performed ~~difference~~to ~~in the~~measure ~~required allowance, as~~ the ~~aggregate~~amount ~~balance~~ of ~~loans reviewed was less~~ ~~than $20,000~~impairment.

Generally, loans are appropriately risk rated and identified for individual impairment review prior to when the restructure occurs. Thus, in the normal life cycle of a loan, any specific allocations are usually made prior to a formal restructuring or at least at the time of restructuring rather than subsequent to modification. Therefore, adoption of these amendments did not have a material impact on the volume of loans classified as TDRs or the related allowance for loan losses associated with TDRs as of December 31, 2011 or June 30, 2012. Also, TDRs are included in non-accrual loans as reported in the above tables unless the loan has performed according to the modified terms for a length of time sufficient to support placing the loan on accrual status (generally six months). 16

~~Loans~~If ~~that~~required, ~~were~~the ~~restructured~~second asstep involves calculating an implied fair value of ~~June~~goodwill 30which is determined in a manner similar to the amount of goodwill calculated in a business combination, ~~2012~~by ~~consisted~~measuring the excess of the ~~following~~estimated ~~(dollars~~fair value of the reporting unit, as determined in ~~thousands):~~the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill.

	Number of Contracts	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial, financial and agricultural	7	$401	$242
Real estate – construction	8	1,370	1,332
Real estate – mortgage	19	3,984	3,925
Installment loans to individuals	21	233	211
All other loans	0	0	0
Total	55	$5,988	$5,710

The Company’s common stock price has historically traded above its book value per common share and tangible book value per common share and was trading above its book value per common share and tangible book value per common share as of September 30, 2014. In the event the stock price were to trade below its book value per common share and tangible book value per common share, an evaluation of the carrying value of goodwill would be performed as of the reporting date. Such a circumstance would be one factor in an evaluation that could result in an eventual goodwill impairment charge. Additionally, should future earnings and cash flows decline and/or discount rates increase, an impairment charge to goodwill and other intangible assets may also be required.

~~Modification~~No ofimpairment ~~the terms~~ of ~~the TDRs~~goodwill ~~reported~~is recorded in the ~~above~~current ~~table did not have a material impact on the~~or ~~consolidated~~prior ~~financial~~reportable ~~statements or to the overall risk profile of the loan portfolio~~periods. ~~The~~Total ~~allowance~~goodwill ~~for~~as ~~loan~~of ~~losses associated with~~ the ~~TDRs~~reportable ~~totaled approximately~~date is $113.0 7 million asor ~~of June 30, 2012~~1. ~~TDRs~~13% ~~that~~of ~~were~~total ~~modified~~assets ~~during the~~or ~~year~~11.14% ~~ended~~of ~~December~~total ~~31, 2011 that re-defaulted in the six months ended June 30, 2012 are as follows (in thousands):~~capital.

	Number of Contracts	Recorded Investment
Troubled debt restructurings:
Commercial, financial and agricultural	0	$ -
Real estate – construction	1	234
Real estate – mortgage	0	-
Installment loans to individuals	0	-
All other loans	0	-
Total	1	$234

Amortization expense of the other identifiable intangibles was approximately $32,000 for the nine months ended September 30, 2014 and 2013, respectively.

16 Note 9 – Borrowings

~~Note~~In 7March –2005, ~~Allowance~~the Company formed a wholly owned subsidiary -- First Citizens (TN) Statutory Trust III. The trust was created as a Delaware statutory trust for ~~Loan~~the sole purpose of issuing and selling trust ~~Losses~~preferred securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. The debentures are the sole assets of the trust. The Company owns 100% of the common stock of the trust.

~~The~~On ~~following~~March ~~table~~17, ~~presents~~2005, the Company, through First Citizens ~~breakdown~~(TN) Statutory Trust III, sold 5,000 of ~~the~~its ~~allowance~~floating rate trust preferred securities at a liquidation amount of $1,000 per security for ~~loan~~an ~~losses~~aggregate amount byof ~~category~~$5.0 ~~and~~million. For the ~~percentage~~period beginning on (and including) the date of original issuance and ending on (but excluding) June 17, 2005, the rate per annum was 4.84%. For each ~~category~~successive inperiod ~~the~~beginning ~~loan~~on ~~portfolio~~(and including) June 17, 2005, and each succeeding interest payment date, interest accrues at a rate per annum equal to ~~total~~the ~~loans~~three-month asLIBOR ofplus 1.80%. Interest payment dates are March 17, June 3017, ~~2012~~September 17, and December 17 during the 30-year term. ~~31,~~The ~~2011~~entire ~~(dollars~~$5.0 million in ~~thousands):~~proceeds was used to reduce other debt at the Company. The Company’s obligation under the debentures and related documents constitute a full and unconditional guarantee by the Company of the trust issuer’s obligations under the trust preferred securities.

	June 30, 2012		December 31, 2011
	Amount	% to Total Loans	Amount	% to Total Loans
Commercial, financial and agricultural	$1,438	16.46%	$1,469	13.68%
Real estate – construction	1,621	6.91%	1,614	7.57%
Real estate – mortgage	4,512	70.92%	4,534	72.76%
Installment loans to individuals	318	4.91%	381	5.31%
All other loans	37	0.81%	41	0.68%
Total	$7,926	100.00%	$8,039	100.00%

In March 2007, the Company formed a wholly owned subsidiary -- First Citizens (TN) Statutory Trust IV. The trust was created as a Delaware statutory trust for the sole purpose of issuing and selling trust preferred securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. The debentures are the sole assets of the trust. The Company owns 100% of the common stock of the trust.

AnIn ~~analysis~~March of2007, the ~~allowance~~Company, ~~for~~through First Citizens (TN) ~~loan~~Statutory ~~losses~~Trust byIV, ~~loan~~sold ~~category~~5,000 of its floating rate trust preferred securities at a liquidation amount of $1,000 per security for an aggregate amount of $5.0 million. For the ~~six~~period ~~months~~beginning ~~ended~~on (and including) the date of original issuance and ending on (but excluding) June 3015, ~~2012~~2007, isthe asrate per annum was ~~follows~~7.10%. For each successive period beginning on (and including) June 15, 2007, and each succeeding interest payment date, interest accrues at a rate per annum equal to the three-month LIBOR plus 1.75%. Interest payment dates are March 15, June 15, September 15, and December 15 during the 30-year term. The purpose of proceeds was to refinance the debt issued through First Citizens (TN) Statutory Trust II at a lower spread to LIBOR and results in ~~thousands~~savings of approximately $92,500 annually. First Citizens (TN): Statutory Trust II was dissolved as a result of this transaction. The Company’s obligation under the debentures and related documents constitute a full and unconditional guarantee by the Company of the trust issuer’s obligations under the trust preferred securities.

	Beginning Balance	Charge- offs	Recoveries	Provision	Ending Balance
Allowance for loan losses:
Commercial, financial and agricultural	$1,469	$ (60)	$152	$(123)	$1,438
Real estate – construction	1,614	(174)	503	(322)	1,621
Real estate – mortgage	4,534	(807)	13	772	4,512
Installment loans to individuals	381	(51)	11	(23)	318
All other loans	41	-	-	(4)	37
Total	$8,039	$(1,092)	$679	$300	$7,926

~~The~~Although ~~allowance~~ for ~~loan~~accounting ~~losses~~presentation isthe trust preferred ~~comprised~~securities ofare ~~allocations~~presented ~~for~~as ~~loans~~debt, ~~evaluated~~the ~~individually~~outstanding ~~and~~balance ~~loans~~qualifies ~~evaluated collectively~~as ~~for~~Tier ~~impairment. The~~I capital ~~allocations~~subject ofto the ~~allowance~~limitation ~~for~~that ~~loan~~the ~~losses for~~amount ~~outstanding~~of ~~loans~~the bysecurities ~~category~~included ~~evaluated~~in Tier ~~individually~~I ~~and~~Capital ~~collectively~~cannot ~~were as~~exceed ~~follows~~25% as of ~~June~~total ~~30,~~Tier ~~2012~~I ~~and December 31, 2011 (in thousands):~~capital.

17The Company is dependent on the profitability of its subsidiaries and their ability to pay dividends in order to service its long-term debt.

	Evaluated	Evaluated
	Individually	Collectively	Total
As of June 30, 2012:
Allowance for loan losses
Commercial, financial and agricultural	$ 86	$1,352	$1,438
Real estate – construction	333	1,288	1,621
Real estate – mortgage	926	3,586	4,512
Installment loans to individuals	29	289	318
All other loans	-	37	37
Total	$1,374	$6,552	$7,926
Loans
Commercial, financial and agricultural	$ 535	$ 89,206	$89,741
Real estate – construction	1,045	36,620	37,665
Real estate – mortgage	7,475	379,284	386,759
Installment loans to individuals	155	26,602	26,757
All other loans	-	4,401	4,401
Total	$9,210	$ 536,113	$545,323
As of December 31, 2011:
Allowance for loan losses
Commercial, financial and agricultural	$ 50	$ 1,419	$ 1,469
Real estate – construction	350	1,264	1,614
Real estate – mortgage	427	4,107	4,534
Installment loans to individuals	33	348	381
All other loans	-	41	41
Total	$860	$7,179	$8,039
Loans
Commercial, financial and agricultural	$ 500	$71,674	$72,174
Real estate – construction	1,007	38,957	39,964
Real estate – mortgage	5,132	378,802	383,934
Installment loans to individuals	158	27,869	28,027
All other loans	-	3,600	3,600
Total	$6,797	$520,902	$527,699

The Bank had secured advances from the FHLB totaling $46.5 million as of September 30, 2014 and $40.9 million as of December 31, 2013. FHLB borrowings are comprised primarily of advances with principal due at call date or maturity date with fixed interest rates ranging from 0.54% to 7.05%. Some of these FHLB borrowings have quarterly call features and maturities ranging from 2014 to 2023. Advances totaling $14 million require repayment if the call feature is exercised. Under the existing and forecasted rate environments, borrowings with call features in place are not likely to be called in the next 12 months. Obligations are secured by loans totaling $389 million consisting of the Bank’s entire portfolio of fully disbursed, one-to-four family residential mortgages, commercial mortgages, farm mortgages, second mortgages and multi-family residential mortgages. The Bank had additional borrowing capacity with the FHLB of $95.1 million as of September 30, 2014.

Note 810 – ~~Goodwill~~Bank Owned Life Insurance and ~~Intangible~~Imputed Income ~~Assets~~Tax Reimbursement Agreements

~~Goodwill~~The isBank ~~not~~has ~~amortized~~a ~~and is tested for impairment~~significant ~~annually~~investment orin ~~more~~bank-owned ~~frequently~~life ifinsurance ~~events~~policies (“BOLI”) and ~~circumstances indicate that the asset~~provides ~~might~~endorsement besplit ~~impaired. The~~dollar ~~goodwill~~life ~~impairment~~insurance ~~test~~to iscertain ~~conducted~~employees in ~~second~~the ~~quarter~~position of ~~annually~~Vice President and ishigher aafter ~~two-step~~one ~~test~~year of service. The ~~first~~cash ~~step,~~surrender ~~used~~values of toBOLI ~~identify~~were ~~potential impairment,~~$22.8 ~~involves~~million ~~comparing~~and ~~each~~$22.5 ~~reporting~~million ~~unit’s~~as ~~estimated~~of ~~fair~~September ~~value~~30, to2014 and ~~its~~December ~~carrying~~31, ~~value~~2013, ~~including goodwill~~respectively. ~~Currently~~BOLI ~~the~~is ~~Company~~initially ~~has~~recorded ~~one reporting~~at ~~unit~~the ~~and~~amount ~~does~~of premiums ~~not~~paid ~~meet~~and ~~the~~is ~~tests~~adjusted to ~~segment~~current ~~under~~cash ~~generally~~surrender ~~accepted accounting standards~~values. IfChanges ~~the~~in cash ~~estimated~~surrender ~~fair~~values ~~value~~are ofrecorded ~~the~~in ~~reporting~~other ~~unit exceeds~~non-interest ~~its~~income ~~carrying~~and ~~value,~~are ~~goodwill~~based on ispremiums ~~considered~~paid ~~not~~less toexpenses beplus ~~impaired~~accreted interest income. Earnings Ifon ~~the~~BOLI ~~carrying~~resulted ~~value~~in ~~exceeds~~non-interest ~~estimated~~income ~~fair~~of ~~value~~approximately $441,000 ~~there~~and is$465,000 anfor ~~indication~~the ofnine ~~potential~~months ~~impairment~~ended ~~and~~September ~~the~~30, ~~second~~2014 ~~step~~and is2013, ~~performed to measure the amount of impairment~~respectively.

18Post-retirement death benefits for endorsement split dollar life insurance plans are accounted for in accordance with FASB ASC Subtopic 715-60, “Compensation – Retirement Benefits – Defined Benefit Plans – Postretirement.” Expense for accrual of such benefits is reflected in Salaries and Employee Benefits on the Consolidated Statements of Income and was approximately $168,000 and $100,000 for the nine months ended September 30, 2014 and 2013, respectively. The accrued liability for post-retirement death benefits is included in Other Liabilities on the Consolidated Balance Sheet and totaled $2.7 million and $2.6 million as of September 30, 2014 and December 31, 2013, respectively.

IfNote required,11 the– secondFair stepValue involves calculating an implied fair value of goodwill which is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill. Measurements

~~The~~Fair ~~Company’s~~value ~~stock~~measurements ~~price~~are ~~has~~used to ~~historically~~record ~~traded~~fair ~~above its~~value ~~book~~adjustments ~~value~~to ~~per~~certain ~~common~~assets ~~share~~and liabilities and ~~tangible~~to determine ~~book~~fair value ~~per~~disclosures. The ~~common~~Company ~~share~~measures ~~and~~fair value under ~~was~~guidance ~~trading~~provided ~~above~~by ~~its~~the ~~book~~Financial ~~value~~Accounting ~~per~~Standards ~~common~~Board ~~share~~(“FASB”) ~~and~~Accounting Standards ~~tangible~~Codification ~~book~~(“ASC”) ~~value~~Topic ~~per common~~820, ~~share~~“Fair asValue ofMeasurements ~~June~~and Disclosures” ~~30,~~(“ASC ~~2012~~820”). InASC ~~the~~820 ~~event~~defines ~~the~~fair ~~stock~~value, ~~price~~establishes ~~were~~a ~~to trade~~framework ~~below~~for ~~its~~measuring ~~book~~fair value ~~per~~and ~~common~~expands ~~share~~disclosure ~~and~~requirements ~~tangible~~regarding ~~book~~ fair value ~~per~~measurements. ASC ~~common~~820 ~~share, an~~does ~~evaluation~~not ofexpand the ~~carrying~~use ~~value~~ of ~~goodwill~~fair ~~would~~value bein ~~performed~~any ~~as of the~~new ~~reporting~~circumstances ~~date. Such~~but aclarifies ~~circumstance~~the ~~would~~principle bethat ~~one~~fair ~~factor~~value inshould anbe ~~evaluation~~based ~~that~~on ~~could~~assumptions ~~result~~that inmarket anparticipants ~~eventual~~would ~~goodwill~~use ~~impairment~~when ~~charge.~~pricing ~~Additionally,~~the ~~should~~asset or ~~future~~liability. ~~earnings~~ASC ~~and~~820 ~~cash~~outlines ~~flows~~the ~~decline~~following ~~and/or~~three ~~discount~~acceptable ~~rates~~valuation ~~increase, an~~techniques ~~impairment~~may ~~charge~~be used to ~~goodwill~~measure ~~and~~fair ~~other intangible assets may also be required.~~value:

NoMarket ~~impairment~~approach—The ofmarket ~~goodwill~~approach isuses ~~recorded~~prices inand ~~the~~other relevant ~~current~~information generated by market transactions involving identical or ~~prior~~similar ~~reportable~~assets ~~periods~~or liabilities. ~~Total~~This ~~goodwill~~technique asincludes ofmatrix ~~the~~pricing ~~reportable~~that ~~date~~ is a ~~$11.8~~mathematical technique used principally to value debt securities without ~~million~~relying orsolely ~~1.1%~~on ofquoted ~~total~~prices ~~assets~~for orspecific ~~11.0%~~securities ofbut ~~total~~rather ~~capital~~by relying on securities’ relationship to other benchmark quoted securities.

~~Amortization expense of the other identifiable intangibles was approximately $14,000 and $21,000 for the second quarter 2012 and 2011, respectively.~~ 18

~~Note~~Income 9approach—The –income ~~Borrowings~~approach uses valuation techniques to convert future amounts such as earnings or cash flows to a single present discounted amount. The measurement is based on the value indicated by current market expectations about those future amounts. Such valuation techniques include present value techniques, option-pricing models (such as the Black-Scholes-Merton formula or a binomial model), and multi-period excess earnings method (used to measure fair value of certain intangible assets).
InCost ~~March~~approach—The ~~2005,~~cost ~~the~~approach ~~Company~~is ~~formed~~based aon ~~wholly owned~~current ~~subsidiary~~replacement --cost ~~First~~which ~~Citizens~~is ~~(TN) Statutory Trust III. The trust was created as a Delaware statutory trust for~~ the ~~sole~~amount ~~purpose~~that ofwould ~~issuing~~currently ~~and~~be ~~selling~~required ~~trust preferred securities and using proceeds from the sale~~ to ~~acquire long-term~~ ~~subordinated~~replace ~~debentures issued by~~ the ~~Company. The~~service ~~debentures~~capacity ~~are the sole assets~~ of ~~the~~an ~~trust~~asset. ~~The Company owns 100% of the common stock of the trust.~~

OnValuation ~~March~~techniques ~~17,~~are ~~2005, the Company, through First Citizens~~selected ~~(TN)~~as ~~Statutory~~appropriate ~~Trust~~for ~~III,~~the ~~sold~~circumstances ~~5,000~~and offor ~~its~~which ~~floating~~sufficient ~~rate~~data ~~trust preferred~~is ~~securities~~available. Valuation attechniques aare ~~liquidation~~to ~~amount~~be ofconsistently $1applied,~~000~~ ~~per~~but ~~security~~a ~~for an aggregate~~change ~~amount~~in ofvaluation ~~$5.0~~technique ~~million. For~~or ~~the~~its ~~period~~application ~~beginning~~may onbe ~~(and~~made ~~including)~~if the ~~date of~~change ~~original~~results ~~issuance~~in a ~~and~~measurement ~~ending~~that onis ~~(but~~equally ~~excluding)~~or ~~June~~more ~~17,~~representative ~~2005,~~of ~~the~~fair ~~rate~~value ~~per annum~~under ~~was~~the 4circumstances.~~84%. For each successive period beginning on (and including) June~~ ~~17,~~Revisions ~~2005,~~resulting ~~and~~from ~~each succeeding interest payment date, interest accrues at~~ a ~~rate per~~change ~~annum~~in ~~equal~~valuation totechnique ~~the~~or ~~three-month~~its ~~LIBOR~~application ~~plus 1.80%. Interest payment dates~~ are accounted ~~March~~for ~~17,~~as ~~June~~a ~~17,~~change ~~September~~in ~~17,~~accounting ~~and~~estimate ~~December~~which 17does ~~during~~not ~~the~~require ~~30-year term.~~ the ~~The~~change ~~entire $5.0 million~~ in ~~proceeds~~accounting ~~was~~estimate ~~used~~ to ~~reduce~~be ~~other~~accounted ~~debt~~for atby ~~the~~restating or ~~Company. The~~retrospectively ~~Company’s~~adjusting ~~obligation~~amounts ~~under~~reported ~~the~~in ~~debentures~~financial ~~and~~statements ~~related~~of ~~documents~~prior ~~constitute~~periods aor ~~full and unconditional guarantee~~ by ~~the~~reporting ~~Company~~pro offorma ~~the~~amounts ~~trust issuer’s~~for ~~obligations~~prior ~~under the trust preferred securities~~periods.

InASC ~~March~~820 ~~2007,~~also ~~the~~establishes ~~Company formed~~ a ~~wholly owned~~ ~~subsidiary~~hierarchy --that ~~First~~prioritizes ~~Citizens~~information ~~(TN)~~used ~~Statutory~~to ~~Trust~~develop IVthose assumptions. The level ~~trust~~in ~~was~~the ~~created~~hierarchy ~~as a~~within ~~Delaware~~which ~~statutory~~the ~~trust~~fair ~~for~~value ~~the~~measurement ~~sole~~in ~~purpose~~its ofentirety falls ~~issuing~~is ~~and~~determined ~~selling~~based ~~trust preferred~~on ~~securities~~the ~~and~~lowest ~~using~~level ~~proceeds~~input ~~from~~that ~~the~~is ~~sale~~significant to ~~acquire long-term~~the ~~subordinated~~fair ~~debentures~~value ~~issued~~measurement byin ~~the~~its ~~Company~~entirety. The ~~debentures~~Company ~~are~~considers ~~the~~an ~~sole~~input to be ~~assets~~significant ofif ~~the~~it ~~trust. The~~drives ~~Company~~more ~~owns~~than ~~100~~10% of the ~~common~~total ~~stock~~fair value of ~~the~~a ~~trust~~particular asset or liability. The hierarchy is as follows:

InLevel ~~March 2007, the Company, through First Citizens (TN) Statutory Trust IV, sold 5,000 of its floating rate trust preferred securities at a liquidation amount of $~~1~~,000~~ ~~per~~Inputs ~~security for an aggregate amount of $5.0 million. For the period beginning on~~ (~~and including) the date of original~~Highest ~~issuance and ending on (but excluding~~ ranking): Unadjusted ~~June~~quoted ~~15,~~prices ~~2007,~~in ~~the~~active ~~rate~~markets ~~per~~for ~~annum was~~identical ~~7.10%. For~~ assets ~~each~~or ~~successive~~liabilities ~~period~~that ~~beginning on (and including) June 15, 2007, and each succeeding interest payment date, interest accrues at a rate per annum equal to~~ the ~~three-month~~entity ~~LIBOR~~has ~~plus 1.75%. Interest payment dates are March 15, June 15, September 15, and December 15 during~~ the ~~30-year~~ability ~~term. The purpose of proceeds was~~ to ~~refinance~~access ~~the debt issued through First Citizens (TN) Statutory Trust II~~ at a lower spread to LIBOR and results in savings of approximately $92,500 annually. First Citizens (TN) Statutory Trust II was dissolved as a result of this transaction. The Company’s obligation under the ~~debentures~~ measurement ~~and related documents constitute a full and unconditional guarantee by the Company of the trust issuer’s obligations under the trust preferred securities~~date.

19Level 2 Inputs: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs may include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted market prices that are observable for the assets and liabilities such as interest rates and yield curves that are observable at commonly quoted intervals.

~~Although~~Level ~~for~~3 ~~accounting~~Inputs ~~presentation the trust preferred~~(Lowest ~~securities~~ ranking): Unobservable ~~are~~inputs ~~presented~~for asdetermining ~~debt,~~fair ~~the~~values ~~outstanding~~of ~~balance qualifies as Tier I~~assets ~~capital~~ and ~~subject~~liabilities ~~to the limitation~~ that ~~the~~reflect ~~amount~~an ofentity’s ~~the~~own ~~securities~~assumptions ~~included~~about inthe ~~Tier~~ assumptions Ithat ~~Capital~~market ~~cannot~~participants ~~exceed~~would ~~25%~~use ofin ~~total~~pricing ~~Tier~~the Iassets ~~capital~~and liabilities.

~~The~~Assets ~~Company~~and isliabilities ~~dependent~~may be measured for fair value on a recurring basis (daily, weekly, monthly or quarterly) or on a non-recurring basis in periods subsequent to initial recognition. Recurring valuations are measured regularly for investment securities and the ~~profitability~~cash offlow ~~its~~hedge. Loans held for sale, other real estate and ~~subsidiaries~~impaired loans are measured at fair value on a non-recurring basis and ~~their~~do ~~ability~~not necessarily toresult ~~pay~~in ~~dividends~~a change in ~~order~~the toamount ~~service~~recorded ~~its~~on the Consolidated ~~long~~Balance Sheets. Generally, these assets have non-~~term~~recurring ~~debt~~valuations that are the result of application of other accounting pronouncements that require the assets be assessed for impairment or at the lower of cost or fair value. Fair values of loans held for sale are considered Level 2. Fair values for other real estate and impaired loans are considered Level 3.

The ~~Bank~~Company ~~had~~obtains ~~secured~~fair ~~advances from the FHLB totaling $41.8~~value ~~million~~measurements asfor ofsecurities ~~June~~from ~~30,~~a ~~2012~~third ~~and~~party ~~$37.1~~vendor ~~million~~based ason ofLevel ~~December 31, 2011. FHLB~~2 ~~borrowings are comprised primarily of advances with principal due at call date or maturity date with fixed interest rates ranging from 0~~inputs.~~62%~~ The tofair ~~7.05%. Some of~~value ~~these~~measurements ~~FHLB~~reported ~~borrowings~~in ~~have~~Level ~~quarterly~~2 ~~call~~are ~~features~~primarily ~~and maturities ranging~~matrix ~~from~~pricing ~~2012~~that toconsiders ~~2022. Advances~~observable ~~totaling~~data ~~$16~~(such ~~million~~as ~~require~~dealer ~~repayment~~quotes, ifmarket ~~the call~~spreads, ~~feature~~cash ~~is exercised. Under the existing and forecasted rate environments~~flows, ~~borrowings~~ ~~with call features in place are not likely to be called in~~ the ~~next 12 months~~U. ~~The Bank had one London Interbank Offered Rate (“LIBOR”) based variable rate advance totaling $2~~S.5 ~~million~~Treasury ~~with~~yield ~~a rate of 0.34% as of June 30~~curve, ~~2012~~ ~~and~~live ~~December~~trading 31levels, ~~2011. Also~~trade ~~included in the FHLB borrowings total~~execution ~~reported~~data, ~~above~~market isconsensus aprepayment ~~pool~~speeds, ofcredit ~~smaller~~information ~~balance~~and ~~amortizing~~terms ~~advances that totaled~~and ~~approximately~~conditions ~~$805,000 as~~ of ~~June 30~~bonds, ~~2012~~ and ~~$1.0~~other ~~million as of year-end 2011~~factors). ~~These~~Fair ~~smaller~~value ~~balance~~measurements ~~advances have rates ranging from 3.34% to 7.05% and maturities range from 2012 to 2019. The Bank issued one $5 million amortizing advance in second quarter 2012~~ for ~~a fixed rate of 1.06% that~~pooled ~~matures~~trust-preferred insecurities ~~2022. Obligations~~ are ~~secured~~obtained bythrough ~~loans totaling $364 million consisting of~~ the ~~Bank’s~~use ~~entire portfolio~~ of ~~fully~~valuation ~~disbursed, one-to-four~~models ~~family~~that ~~residential~~include ~~mortgages,~~unobservable ~~commercial~~inputs ~~mortgages,~~which ~~farm~~are ~~mortgages,~~considered ~~second mortgages~~Level ~~and~~3 ~~multi-family residential mortgages~~inputs. ~~The Bank had additional borrowing capacity of $109.0 million as of June 30, 2012.~~

~~Note10—Bank Owned Life Insurance and Imputed Income Tax Reimbursement Agreements~~19

~~The~~Certain ~~Bank~~non-financial ~~has~~assets ~~a significant~~and ~~investment~~non-financial inliabilities ~~bank-owned~~measured ~~life~~at ~~insurance~~fair ~~policies~~value ~~(“BOLI”)~~on ~~and~~a ~~provides~~recurring ~~the~~basis include ~~associated~~reporting ~~fringe~~units ~~benefit~~measured toat ~~certain~~fair ~~employees~~value in the ~~position~~first step of ~~Vice~~a goodwill ~~President~~impairment ~~and~~test. ~~higher~~Certain ~~after~~non-financial ~~one~~assets ~~year~~measured ofat ~~service. The~~fair ~~cash~~value ~~surrender~~on ~~values~~a ofnon-recurring ~~BOLI~~basis ~~were~~include ~~$21.7~~non-financial ~~million~~assets and ~~$21.4~~non-financial ~~million~~liabilities asmeasured ~~of June 30, 2012 and December 31,~~at ~~2011,~~fair ~~respectively. BOLI~~value ~~are~~in ~~initially recorded at~~ the ~~amount~~second step of ~~premiums~~a ~~paid and~~goodwill ~~are~~impairment ~~adjusted~~test, toas ~~current~~well ~~cash surrender values. Changes in cash surrender~~as ~~values~~intangible ~~are~~assets ~~recorded~~and in other non-~~interest~~financial ~~income~~long-lived ~~and~~assets ~~are~~measured ~~based~~at ~~on premiums paid~~fair ~~less~~value ~~expenses plus accreted interest income. Earnings on BOLI resulted in non-interest income of approximately $298,000 and $353,000~~ for ~~six~~impairment ~~months ended June 30, 2012 and 2011, respectively~~assessment.

~~Expense related to these post-retirement~~ ~~death~~Recurring benefit accruals is reflected in Salaries and Employee Benefits on the Consolidated Income Statements and was approximately $85,000 and $98,000 for the six months ended June 30, 2012 and June 30, 2011, respectively. The accrual for the post-retirement death benefits is included in Other Liabilities on the Consolidated Balance Sheet and totaled $2.5 million as of June 30, 2012 and $2.4 million as of December 31, 2011. Basis

~~Imputed~~The ~~Income~~following ~~Tax~~are ~~Reimbursement Agreements~~descriptions ~~provide for annual cash payments to participants until death~~of ~~beginning~~valuation inmethodologies ~~March~~used ~~2009~~ for ~~the~~assets ~~previous~~and ~~tax~~liabilities ~~year~~measured inat ~~amounts~~fair ~~equal to a portion~~value ~~of federal income taxes attributable to (i) the income imputed to the participant~~ on ~~the~~a ~~benefit~~recurring ~~under the Amended and Restated Split Dollar Agreement and (ii) the additional cash payments under the Imputed Income Tax Reimbursement Agreement~~basis.

~~Each participant was 100% vested~~ inAvailable ~~benefits provided under Imputed Income Tax Reimbursement Agreements as of January 1, 2008. Therefore, 100% of the principal (or service) cost of the plan was accrued~~ for asSale of January 1, 2008 and expensed through earnings in the year ended December 31, 2008. Service costs are based on the net present value of the sum of payments in accordance with each participant’s agreement. Interest accrues monthly at a rate of 7.0%. Securities

20Fair values for available-for-sale securities are obtained from a third party vendor and are valued using Level 2 inputs.

~~Net~~A ~~other~~summary ~~post-retirement benefits expense for Imputed Income Tax Reimbursement Agreements is included in Salaries and Employee Benefits on the Consolidated Statements~~ of ~~Income~~assets and ~~totaled~~ ~~approximately~~liabilities ~~$13,000~~as ~~for each~~ of ~~the~~September ~~six months ended June~~ 30, ~~2012~~2014 and ~~2011. Benefit~~December ~~payments are made annually in March and totaled approximately $18~~31,~~000~~ ~~and~~2013 ~~$17,000~~measured ~~for~~at ~~the~~estimated ~~six~~fair ~~months~~value ~~ended~~on ~~June~~a ~~30,~~recurring ~~2012~~basis ~~and~~is ~~2011,~~as ~~respectively.~~ follows (in thousands):

The accumulated post-retirement defined benefit obligation for Imputed Income Tax Reimbursement Agreements is included in Other Liabilities on the Consolidated Balance Sheet totaled approximately $396,000 as of June 30, 2012 and approximately $403,000 as of December 31, 2011. The accumulated post-retirement benefit obligation was equal to the funded status of the plan as of each applicable period-end as there were no related assets recognized on the Consolidated Balance Sheets for the Imputed Income Tax Reimbursement Agreements.

	Level 1	Level 2	Level 3	Total Fair
	Inputs	Inputs	Inputs	Value
September 30, 2014:
Financial assets:
Securities available-for-sale	$ -	$437,789	$ -	$437,789
December 31, 2013:
Financial assets:
Securities available-for-sale	$ -	$456,525	$ -	$456,525

~~Note 11~~Non-~~Fair~~Recurring ~~Value Measurements~~Basis

~~Fair~~Certain ~~value~~assets ~~measurements~~ are ~~used to~~measured ~~record~~at fair value ~~adjustments~~on to certain assets and liabilities and to determine fair value disclosures. The Company measures fair value under guidance provided by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value, establishes a ~~framework~~ ~~for measuring fair value and expands disclosure requirements~~non-recurring ~~regarding~~basis ~~fair~~as ~~value~~described ~~measurements~~below. ASC 820 does not expand the use of fair value in any new circumstances but clarifies the principle that fair value should be based on assumptions that market participants would use when pricing the asset or liability. ASC 820 outlines the following three acceptable valuation techniques may be used to measure fair value:

a.Impaired Market approach—The market approach uses prices and other relevant information generated by market transactions involving identical or similar assets or liabilities. This technique includes matrix pricing that is a mathematical technique used principally to value debt securities without relying solely on quoted prices for specific securities but rather by relying on securities’ relationship to other benchmark quoted securities. b. Income approach—The income approach uses valuation techniques to convert future amounts such as earnings or cash flows to a single present discounted amount. The measurement is based on the value indicated by current market expectations about those future amounts. Such valuation techniques include present value techniques, option-pricing models (such as the Black-Scholes-Merton formula or a binomial model), and multi-period excess earnings method (used to measure fair value of certain intangible assets). c. Cost approach—The cost approach is based on current replacement cost which is the amount that would currently be required to replace the service capacity of an asset.Loans

~~Valuation~~Impaired ~~techniques~~loans are ~~selected~~evaluated and valued at the time the loan is identified as ~~appropriate~~impaired ~~for~~at the ~~circumstances~~lower ~~and~~of ~~for~~cost ~~which~~or ~~sufficient~~fair ~~data is available~~value. ~~Valuation~~Fair ~~techniques~~value is ~~are~~measured tobased beon ~~consistently~~the ~~applied,~~value ~~but~~of athe ~~change~~collateral securing these loans. inCollateral ~~valuation~~may ~~technique~~be real estate and/or ~~its~~business ~~application~~assets ~~may~~including beequipment, inventory ~~made~~and/or ifaccounts ~~the~~receivable. Independent ~~change~~appraisals ~~results~~for incollateral aare ~~measurement~~obtained ~~that~~and ismay ~~equally~~be ordiscounted ~~more~~by ~~representative~~management ofbased ~~fair~~on ~~value~~historical experience, ~~under~~changes ~~the circumstances. Revisions~~in ~~resulting~~market conditions from atime ~~change~~of in valuation ~~technique~~ and/or ~~its~~ ~~application~~management’s ~~are~~knowledge ~~accounted~~of ~~for~~the asborrower aand ~~change~~the inborrower’s ~~accounting~~business. As ~~estimate~~such discounts ~~which~~may ~~does~~be ~~not require~~significant, ~~the~~these ~~change~~inputs inare ~~accounting~~considered ~~estimate~~Level to3 bein ~~accounted~~the hierarchy for bydetermining ~~restating~~fair ~~or retrospectively~~value. Values ~~adjusting~~of ~~amounts~~impaired ~~reported~~loans inare ~~financial~~reviewed ~~statements~~on at ofleast ~~prior periods~~a orquarterly bybasis ~~reporting~~to ~~pro~~determine ~~forma~~if ~~amounts~~specific allocations in the allowance for ~~prior~~loan ~~periods~~losses are adequate.

ASCLoans 820Held alsofor establishes a hierarchy that prioritizes information used to develop those assumptions. The level in the hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company considers an input to be significant if it drives more than 10% of the total fair value of a particular asset or liability. The hierarchy is as follows:Sale

~~Level~~Loans 1held ~~Inputs~~for ~~(Highest~~sale are recorded at the lower of cost or ~~ranking): Unadjusted~~fair ~~quoted~~value. Fair ~~prices~~value inof ~~active~~loans ~~markets~~held for ~~identical~~sale are based upon binding contracts ~~assets~~and orquotes ~~liabilities~~from third party investors that ~~the~~qualify ~~entity~~as ~~has~~Level ~~the~~2 ~~ability~~inputs tofor determining ~~access~~fair atvalue. Loans ~~the~~held for sale did not have an impairment charge ~~measurement~~for ~~date~~second quarters ended September 30, 2014 or 2013.

21Other Real Estate Owned

~~Level~~Other 2real ~~Inputs: Inputs~~estate ~~other~~owned ~~than~~is ~~quoted~~recorded ~~prices~~at ~~included~~the inlower ~~Level~~of 1cost ~~that~~or ~~are observable for the~~fair ~~asset~~value. Fair orvalue ~~liability,~~is ~~either~~measured ~~directly~~based oron ~~indirectly. Such~~independent ~~inputs~~appraisals and may be ~~include~~discounted ~~quoted~~by ~~prices~~management ~~for~~based ~~similar~~on ~~assets~~historical orexperience ~~liabilities~~and knowledge and changes in ~~active~~market ~~markets, and~~conditions ~~inputs~~from ~~other~~time ~~than~~of ~~quoted~~valuation. As ~~market~~such ~~prices~~discounts ~~that~~may be significant, these inputs are ~~observable~~considered ~~for~~Level 3 in the hierarchy for ~~assets~~determining ~~and~~fair ~~liabilities~~value. Values ~~such~~of asother ~~interest~~real ~~rates~~estate ~~and~~owned ~~yield~~are ~~curves~~reviewed ~~that~~at ~~are~~least ~~observable~~annually ator ~~commonly~~more ~~quoted~~often ~~intervals~~if circumstances require more frequent evaluations.

Level 3 Inputs (Lowest ranking): Unobservable inputs for determining fair values of assets and liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets and liabilities.20

~~Assets~~A ~~and~~summary ~~liabilities~~of ~~may~~assets ~~be measured~~as ~~for~~of ~~fair~~September ~~value on a recurring basis (daily~~30, ~~weekly,~~2014 ~~monthly~~and orDecember ~~quarterly) or on a non-recurring basis in periods subsequent to initial recognition. Recurring valuations are measured regularly for investment securities. Loans held for sale~~31, ~~other~~2013 ~~real estate and impaired loans are~~ measured at estimated fair value on a non-recurring basis ~~and~~were ~~do not necessarily result~~as in a change in the amount recorded on the Consolidated Balance Sheets. Generally, these assets have non-recurring valuations that are the result of application of other accounting pronouncements that require the assets be assessed for impairment or at the lower of cost or fair value. Fair values of loans held for sale are considered Level 2. Fair values for other real estate and impaired loans are considered Level 3. follows:

The Company obtains fair value measurements for securities and from a third party vendor. The majority of the available-for-sale securities are valued using Level 2 inputs. Collateralized debt obligation securities that are backed by trust preferred securities and account for less than 1% of the available-for-sale securities portfolio are valued using Level 3 inputs. The fair value measurements reported in Level 2 are primarily matrix pricing that considers observable data (such as dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and terms and conditions of bonds, and other factors). Fair value measurements for pooled trust-preferred securities are obtained through the use of valuation models that include unobservable inputs which are considered Level 3.

	Level 1	Level 2	Level 3	Total Fair
	Inputs	Inputs	Inputs	Value
September 30, 2014:
Assets:
Impaired loans	$ -	$ -	$ 4,188	$ 4,188
Loans held for sale	-	882	-	882
Other real estate owned	-	-	5,485	5,485
December 31, 2013:
Assets:
Impaired loans	$ -	$ -	$ 7,499	$ 7,499
Loans held for sale	-	3,098	-	3,098
Other real estate owned	-	-	6,826	6,826

~~Certain non-financial assets and~~ ~~non-financial~~Fair ~~liabilities~~Value measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Estimates

~~Recurring~~ASC ~~Basis~~820 requires disclosure of the estimated fair value of financial instruments for interim and annual periods. The following assumptions were made and methods applied to estimate the fair value of each class of financial instruments not measured at fair value on the Consolidated Balance Sheets:

TheCash following are descriptions of valuation methodologies used for assets and liabilitiesCash measured at fair value on a recurring basis.Equivalents

~~Available~~For ~~for~~instruments ~~Sale~~that ~~Securities~~qualify as cash equivalents, as described in Note 1, the carrying amount is assumed to be fair value.

Fair values for available-for-sale securities are obtained from a third party vendor and are valued using Level 2 inputs, except for TRUP CDOs which are accounted for using Level 3 inputs. TRUP CDOs accounted for less than 1% of the portfolio at June 30, 2012 and December 31, 2011. Loans

The ~~markets~~fair ~~for~~value ~~TRUP~~of ~~CDOs~~variable-rate ~~and other~~loans ~~similar~~with ~~securities~~no ~~were~~significant change ~~not~~in ~~active~~credit atrisk ~~June~~subsequent ~~30,~~to ~~2012~~loan ororigination ~~December~~is ~~31,~~based ~~2011.~~ on carrying ~~The~~amounts. For ~~inactivity~~other ~~was~~loans, ~~evidenced~~such ~~first~~as byfixed arate ~~significant~~loans, ~~widening~~fair ofvalues ~~the~~are ~~bid-ask~~estimated ~~spread~~utilizing indiscounted ~~the~~cash ~~brokered~~flow ~~markets~~analyses, inapplying ~~which~~interest ~~these~~rates ~~securities~~currently offered ~~trade~~for ~~and~~new ~~then~~loans bywith ~~a significant~~similar ~~decrease~~terms into ~~the~~borrowers ~~volume~~of similar credit quality. Fair values of ~~trades~~loans ~~relative~~that tohave ~~historical~~experienced ~~levels.~~ significant changes in ~~The~~credit ~~new~~risk ~~issue~~have ~~market~~been ~~has~~adjusted ~~also~~to ~~been~~reflect ~~relatively~~such ~~inactive~~changes.

22Accrued Interest Receivable

The ~~market~~fair values for TRUP CDOs and other securities except for those issued or guaranteed by the U.S. Treasury have been very depressed relative to historical levels. For example, the yield spreads for the broad market of ~~investment~~accrued ~~grade~~interest receivable and ~~high yield corporate bonds~~other ~~reached~~assets ~~all-time~~are ~~levels~~assumed ~~versus Treasuries at the end of November 2008 and remained close~~ to ~~those~~be levels at June 30, 2012. Therefore, low market prices for a particular bond may only have provided evidence of stress in credit markets in general rather than being an indicator of credit problems with a particular issuer over the ~~past~~carrying ~~three years~~value.

GivenFederal conditionsHome inLoan debtBank markets for this type of security at June 30, 2012 and DecemberFederal 31,Reserve 2011Bank and the relative inactivity in the secondary and new issue markets, the Company determined:Stock

~~Few~~The ~~observable~~carrying ~~transactions~~amounts ~~existed~~of ~~and~~capital ~~market~~stock ~~quotations that~~of ~~were~~the ~~available~~FHLB ~~were not reliable for purposes~~ of ~~determining fair~~ ~~value~~Cincinnati asand ofFederal ~~June~~Reserve ~~30,~~Bank ~~2012~~of orSt. ~~December~~Louis ~~31,~~approximate ~~2011;~~fair value.

An income valuation approach technique (present value technique) that maximized the use of relevant observable inputs and minimized the use of unobservable inputs were equally or more representative of fair value than the market approach valuation technique used at prior measurement dates; andBOLI

~~The~~Carrying ~~Company’s~~amount ~~TRUP~~of ~~CDOs~~BOLI ~~should~~is bethe ~~classified~~cash ~~within~~surrender ~~Level 3~~value ofas of the ~~fair~~end ~~value~~of ~~hierarchy~~the ~~because~~periods ~~significant~~presented ~~adjustments~~and ~~were required~~approximates ~~to determine~~ fair value ~~at the measurement date~~.

~~The Company’s TRUP CDO valuations were prepared by an independent third party. The third party’s approach to determining fair value involved these steps as of June 30, 2012 and December 31, 2011:~~21

TheDeposit credit quality of the collateral was calibrated by assigning default probabilities to each issuer;Liabilities

~~Asset~~The ~~defaults~~fair ~~were~~value ~~generated~~of ~~taking into account both the~~deposit ~~probability~~liabilities ofare ~~default of the asset and an~~ assumed ~~level~~to ofbe ~~correlation among~~ the ~~assets;~~carrying value.

ADemand 50% level of correlation was assumed among assets from the same industry (e.g., banks with other banks) while a lower (30%) correlation level is assumed among those from different industries;Deposits

The ~~loss~~fair ~~given~~values ~~default~~of ~~was~~deposits which ~~assumed~~are topayable beon ~~100%~~demand, ~~(i.e.~~such as interest-bearing and non-interest-bearing checking accounts, nopassbook savings, and certain money market accounts are ~~recovery);~~equal to the carrying amount of the deposits.

TheVariable-Rate cash flows were forecast for the underlying collateral and applied to each TRUP CDO tranche to determine the resulting distribution among the securities;Deposits

The ~~calculations~~fair ~~were~~value ~~modeled~~of invariable-rate ~~10,000~~money ~~scenarios~~market ~~using~~accounts ~~a Monte~~and ~~Carlo~~certificates ~~engine;~~of deposit approximate their carrying value at the balance sheet date.

TheFixed-Rate expected cash flows for each scenario were discounted using a discount rate that the third party calculates for each bond that represents an estimate of the yield that would be required in today’s market for a bond with a similar credit profile as the bond in question; andDeposits

~~The~~For ~~prices~~fixed-rate ~~were~~certificates ~~aggregated~~of ~~and~~deposit, ~~the~~fair ~~average~~values ~~price~~are estimated ~~was~~utilizing ~~used~~discounted ~~for~~cash flow analyses, which apply interest rates ~~valuation~~currently ~~purposes~~being offered on certificates of deposits to a schedule of aggregated monthly maturities on time deposits.

TheShort CompanyTerm recalculated the overall effective discount rates for these valuations. The overall discount rates ranged from .1% to 21% and wereOther highly dependent upon the credit quality of the collateral, the relative position of the tranche in the capital structure of the TRUP CDO and the prepayment assumptions.Borrowings

AFor ~~summary~~securities ofsold ~~assets~~under ~~and~~repurchase ~~liabilities~~agreements aspayable upon demand, the carrying amount is a reasonable estimate of ~~June~~fair 30value. For securities sold under repurchase agreements for a fixed term, ~~2012~~fair ~~and~~values ~~December~~are ~~31,~~estimated ~~2011~~using ~~measured~~the atsame ~~estimated~~methodology as fixed rate time deposits discussed above. The fair value onof athe ~~recurring~~advances ~~basis~~from isthe asFHLB ~~follows~~and other long-term ~~(in~~borrowings ~~thousands):~~are estimated by discounting the future cash outflows using the current market rates.

23Other Liabilities

	Level 1	Level 2	Level 3	Total Fair
	Inputs	Inputs	Inputs	Value
June 30, 2012:
Financial assets:
Securities available-for-sale	$ -	$407,698	$612	$408,310
December 31, 2011:
Financial assets:
Securities available-for-sale	$ -	$364,912	$553	$365,465

Fair value of other liabilities is assumed to be the carrying values.

The ~~following~~carrying ~~table~~amount ~~presents a reconciliation~~ and ~~income statement~~fair ~~classification~~value of ~~gains~~assets and ~~losses for all assets measured at fair~~liabilities ~~value~~as onof aSeptember ~~recurring~~30, ~~basis~~2014 ~~using significant unobservable inputs (Level 3) for the three~~ and ~~six~~December ~~months ended June 30~~31, ~~2012~~2013 ~~and~~were ~~2011~~as follows (in thousands):

	Three months ended June 30		Six months ended June 30
	2012	2011	2012	2011
Available-for-sale securities
Beginning balance	$475	$366	$553	$439
Total unrealized gains (losses) included in:
Net income	-	-	-	-
Other comprehensive income	137	197	82	124
Purchases, sales, issuances and settlements, net	-	-	(23)	-
Transfers in and (out) of Level 3	-	-	-	-
Ending balance	$612	$563	$612	$563

Non-Recurring Basis

	Carrying	Level 1	Level 2	Level 3	Fair
	Amount	Inputs	Inputs	Inputs	Value
As of September 30, 2014:
Financial assets:
Cash and cash equivalents	$ 25,215	$ 25,215	$ -	$ -	$ 25,215
Interest-bearing deposits in other banks	45,259	45,259	-	-	45,259
Investment securities	437,789	-	437,789	-	437,789
Loans, net of allowance	604,370	-	608,718	4,188	612,906
Loans held-for-sale	882	-	882	-	882
Accrued interest receivable	6,570	-	6,570	-	6,570
Federal Reserve Bank and Federal Home Loan Bank Stock	5,684	-	5,684	-	5,684
Other real estate owned	5,485	-	-	5,485	5,485
Bank owned life insurance	22,786	-	22,786	-	22,786
Financial liabilities:				-
Deposits	978,892	-	979,454	-	979,454
Short-term borrowings	47,291	-	47,291	-	47,291
Other borrowings	51,810	-	51,810	-	51,810
Other liabilities	8,068	-	8,068	-	8,068
Off-balance sheet arrangements				-
Commitments to extend credit	61,187	-	61,187	-	61,187
Standby letters of credit	2,342	-	2,342	-	2,342

As of December 31, 2013:
Financial assets
Cash and cash equivalents	$ 25,249	$25,249	$ -	$ -	$ 25,249
Interest bearing deposits in other banks	21,865	21,865	-	-	21,865
Investment securities	456,525	-	456,525	-	456,525
Loans, net of allowance	572,418	-	570,862	7,499	578,361
Loans held for sale	3,098	-	3,098	-	3,098
Accrued interest receivable	5,011	-	5,011	-	5,011
Federal Reserve Bank and Federal Home Loan Bank Stock	5,684	-	5,684	-	5,684
Other real estate owned	6,826	-	-	6,826	6,826
Bank owned life insurance	22,466	-	22,466	-	22,466
Financial liabilities				-
Deposits	968,530	-	969,520	-	969,520
Short-term borrowings	36,808	-	36,808	-	36,808
Other borrowings	51,167	-	49,638	-	49,638
Other liabilities	5,361	-	5,361	-	5,361
Off-balance sheet arrangements				-
Commitments to extend credit	87,698	-	87,698	-	87,698
Standby letters of credit	4,266	-	4,266	-	4,266

~~Certain assets are measured at fair value on a non-recurring basis as described below.~~23

~~Impaired~~ Note 12 ~~Loans~~- Comprehensive Income

~~Impaired~~The ~~loans~~tax ~~are~~effects ~~evaluated and valued at the time the loan is identified as impaired at the lower~~ of ~~cost~~each orcomponent ~~fair value. Fair value is measured based on the value~~ of ~~the~~other ~~collateral securing these loans. Collateral~~comprehensive ~~may~~income ~~be real estate and/or business assets including equipment, inventory and/or accounts receivable. Independent appraisals~~ for ~~collateral are obtained and are prepared using a combination of~~ the ~~market~~three ~~approach, cost approach~~ and ~~income~~ ~~approach. However,~~nine ~~the~~months ~~heaviest~~ended ~~weighting~~September ~~is given to the market approach depending on the type of collateral being appraised. Appraisals may be discounted by management based on historical experience~~30, ~~changes~~2014 ~~in market conditions from time of valuation~~ and~~/or~~ ~~management’s~~2013 ~~knowledge of the borrower and the borrower’s business. Such discounts~~ are ~~usually based on more~~as ~~qualitative factors but may be significant, therefore valuations for impaired loans are considered Level 3 in the hierarchy.~~follows: ~~Values of impaired loans are reviewed on at least a quarterly basis to determine if specific allocations in the allowance for loan losses are adequate.~~

Loans Held for Sale

	Before-tax		Tax (Expense)	After-tax
	Amount		or Benefit	Amount
Three months ended September 30, 2014
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$783		$(300)	$483
Reclassification adjustments for net gains included in net income	-		-	-
Net unrealized gains (losses)	$783		$(300)	$483
Three months ended September 30, 2013
Unrealized (losses) gains on available-for-sale securities:
Unrealized gains (losses) arising during the period	$(536)		$205	$(331)
Reclassification adjustments for net gains included in net income	-		-	-
Net unrealized (losses) gains	$(536)		$205	$(331)
Nine months ended September 30, 2014
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	$7,846		$(3,004)	$4,842
Reclassification adjustments for net gains included in net income	(595)	*	228	(367)
Net unrealized gains (losses)	$7,251		$(2,776)	$4,475
Nine months ended September 30, 2013
Unrealized (losses) gains on available-for-sale securities:
Unrealized (losses) gains arising during the period	$(14,578)		$5,582	$(8,996)
Reclassification adjustments for net gains included in net income	(303)		116	(187)
Net unrealized (losses) gains	$(14,881)		$5,698	$(9,183)

~~Loans~~ *For ~~held for sale are recorded at~~ the ~~lower~~nine ofmonths ~~cost~~ended orSeptember ~~fair~~30, ~~value. Fair~~2014, ~~value~~reclassification ofadjustment ~~loans held~~ for ~~sale~~gains ~~are~~included ~~based~~in ~~upon~~net ~~binding~~income ~~contracts~~reflect ~~and~~net ~~quotes~~gains ~~from~~on ~~third~~sale ~~party~~of ~~investors~~available-for-sale ~~that~~debt ~~qualify~~securities asand ~~Level~~do 2not ~~inputs~~include ~~for~~gain ~~determining~~recognized ~~fair~~on ~~value. Loans~~the ~~held~~sale ~~for~~of ~~sale~~the ~~did~~Fannie ~~not~~and ~~have~~Freddie anMac ~~impairment~~preferred ~~charge~~stock ~~for~~as no ~~three~~unrealized gains or ~~six~~losses ~~months~~were ~~ended~~recorded ~~June~~in ~~30,~~Accumulated ~~2012~~Other ~~or 2011~~Comprehensive Income.

24During a special meeting on July 16, 2014, the Company’s shareholders voted on and approved authorizing an additional class of common stock (Class A common stock) and a reclassification of Company’s outstanding common stock. Upon the filing of Company’s Charter Amendment on July 18, 2014, each share of Company’s common stock outstanding immediately prior to such filing owned by a shareholder of record who owned between one and 299 shares of such common stock was, by virtue of the filing of the Company’s Charter Amendment and without any action on the part of the holders, reclassified as Class A common stock, on the basis of one share of Class A common stock per each share of common stock so reclassified. Each share of Company’s common stock outstanding immediately prior to the filing of the Company’s Charter Amendment owned by a shareholder of record who owned 300 or more shares of such common stock was not reclassified and continued to be classified as common stock. The Company’s common stock continues to have unlimited voting rights. Company’s Class A common stock has no voting rights, except as may be required by law.

~~Other Real Estate~~24

~~Other real estate is recorded at the lower of cost or fair~~ ~~value. Fair value is measured based on independent appraisals and may be~~Note ~~discounted~~13 bySubsequent management based on historical experience and knowledge and changes in market conditions from time of valuation. As such discounts may be significant, these inputs are considered Level 3 in the hierarchy for determining fair value. Appraisals are prepared in accordance with regulatory standards and guidelines and usually incorporate a combination of the market approach, cost approach and income approach. However, the most weighting is usually assigned to the market approach based on the most recent and comparable sales of similar properties. Values of other real estate are reviewed at least annually or more often if circumstances require more frequent evaluations. Events

AThe ~~summary~~Company ofhas ~~assets~~reviewed assubsequent ofevents ~~June~~through 30November 4, ~~2012 and December 31~~2014, ~~2011~~ ~~measured~~the atdate ~~estimated~~the ~~fair~~financial ~~value~~statements onwere aavailable ~~non-recurring~~to ~~basis~~be ~~were as follows:~~issued.

	Level 1	Level 2	Level 3	Total Fair
	Inputs	Inputs	Inputs	Value
June 30, 2012:
Assets:
Impaired loans	$ -	$ -	$ 9,210	$ 9,210
Loans held for sale	-	1,792	-	1,792
Other real estate owned	-	-	10,579	10,579
December 31, 2011:
Assets:
Impaired loans	$ -	$ -	$ 6,797	$ 6,797
Loans held for sale	-	2,616	-	2,616
Other real estate owned	-	-	11,073	11,073

On October 1, 2014, the Company entered into a Loan Agreement, Pledge and Security Agreement, Promissory Note (Fixed Rate) and Promissory Note (Floating Rate) (collectively, the “Loan Documents”) with First Tennessee Bank, National Association (the “Lender”), pursuant to which the Lender has agreed to extend to the Company two five-year term loans in the aggregate maximum principal amount of $12,000,000 (the “Credit Facilities”). The Loan Documents provide that the Credit Facilities will be repaid in quarterly installments of principal and interest based on a ten-year amortization schedule at a rate of interest as follows:

~~Fair~~the ~~Value~~$6,000,000 ~~Estimates~~five-year fixed rate loan will accrue interest at a fixed rate of 3.76%; and
~~ASC 820 requires disclosure of~~ the ~~estimated~~$6,000,000 ~~fair~~five-year ~~value~~floating ~~of financial~~rate ~~instruments~~loan ~~for~~will ~~interim and annual periods. The following~~accrue ~~assumptions~~ interest ~~were~~at ~~made and methods applied to estimate~~ the ~~fair~~90 ~~value~~day ofrounded ~~each class~~LIBOR ofplus ~~financial instruments not measured at fair value on the Consolidated Balance Sheets:~~2%.

~~Cash~~The Credit Facilities are secured by a pledge of 51% of the stock of First Citizens National Bank, the Company’s wholly owned subsidiary. The Loan Documents also contain a number of affirmative and ~~Cash~~negative ~~Equivalents~~covenants, including limitations on the incurrence of additional debt, liens on property, guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, relocation of the Company’s principal office, principal banking office, or principal registered office, and transactions with affiliates. The Company is using the proceeds of the Credit Facilities to finance a part of the cash portion of the merger consideration payable to shareholders of Southern Heritage described below.

~~Cash~~Also ~~equivalents~~on ~~include~~October ~~amounts~~1, ~~due~~2014, ~~from banks which do~~the ~~not~~Company ~~bear~~completed ~~interest~~its ~~and~~previously ~~federal~~announced ~~funds~~acquisition ~~sold.~~of ~~Generally,~~Southern ~~federal~~Heritage ~~funds are~~pursuant ~~purchased~~to orthe ~~sold~~terms ~~for~~of ~~one-day~~the ~~periods~~Merger Agreement. ~~For~~ ~~instruments~~In ~~that~~accordance ~~qualify~~with asthe ~~cash equivalents~~Merger Agreement, Southern Heritage merged with and into the ~~carrying~~Company, ~~amount~~with isthe ~~assumed~~Company tocontinuing as bethe ~~fair~~surviving ~~value~~corporation.

~~Loans~~Following the closing of the Merger, all outstanding shares of Southern Heritage stock were converted into the right to receive an aggregate of (i) $16,085,903.75 in cash and (ii) 269,302 shares of Company common stock and 108,356 shares of Company Class A common stock, depending on the class of Southern Heritage stock held and subject to adjustment as set forth in the Merger Agreement. Southern Heritage shareholders who held Southern Heritage common stock received Company common stock and Southern Heritage shareholders who held Southern Heritage Class A common stock, Southern Heritage Class B common stock or Southern Heritage Series A preferred stock received Company Class A common stock. Each share of Southern Heritage stock issued and outstanding immediately prior to the effective time of the Merger was, subject to the election procedures and adjustments described in the Merger Agreement, converted into the right to receive (i) $12.25 in cash, plus (ii) 0.2876 of a share of Company stock. In lieu of the issuance of any fractional shares of Company stock, the Company paid each former Southern Heritage shareholder who would otherwise be entitled to receive any fractional shares an amount in cash determined by multiplying (i) $42.60 by (ii) the fraction of a share of Company common stock to which such holder would otherwise have been entitled to receive.

Fair value of variable-rate loans with no significant change in credit risk subsequent to loan origination is based on carrying amounts. For other loans, such as fixed rate loans, fair values are estimated utilizing discounted cash flow analyses, applying interest rates currently offered for new loans with similar terms to borrowers of similar credit quality. Fair values of loans that have experienced significant changes in credit risk have been adjusted to reflect such changes.25

AccruedITEM Interest2 Receivable– MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The fair values of accrued interest receivable and other~~ ~~assets are assumed to be the carrying value.~~Forward-Looking Statements

~~Federal~~ Certain statements ~~Home~~contained ~~Loan~~in ~~Bank~~this report may not be based upon historical facts and are ~~Federal~~“forward-looking ~~Reserve~~statements” ~~Bank~~within ~~Stock~~the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “project,” “should,” “believe,” “could,” “estimate,” “expect,” “foresee,” “hope,” “intend,” “may,” “might,” “plan,” “will,” “is likely,” “going forward” or “would” or future or conditional verb tenses and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to capital resources, strategic planning, acquisitions or de novo branching, ability to meet capital guidelines, legislation and governmental regulations affecting financial services companies, construction of new branch locations, dividends, critical accounting policies, allowance for loan losses, fair value estimates, goodwill, occupancy and depreciation expense, held-to-maturity securities, available-for-sale securities, trading securities, cash flows, core deposit intangibles, diversification in the real estate loan portfolio, interest income, maturity of loans, loan impairment, loan ratings, charge-offs, other real estate owned, maturity and re-pricing of deposits, borrowings with call features, dividend payout ratio, off-balance sheet arrangements, the impact of recently issued accounting standards, changes in funding sources, liquidity, interest rate sensitivity, net interest margins, debt securities, non-accrual status of loans, troubled debt restructurings, contractual maturities of mortgage-backed securities and collateralized mortgage obligations, other-than-temporary impairment of securities, amortization expense, deferred tax assets, independent appraisals for collateral, property enhancement or additions, efficiency ratio, ratio of assets to employees, net income, changes in interest rates, loan policies, categorization of loans, maturity of FHLB borrowings and the effectiveness of internal control over financial reporting.

~~Carrying~~The ~~amounts~~Company cautions readers not to place undue reliance on the forward-looking statements contained in this report, in that actual results could differ materially from those indicated in such forward-looking statements as a result of ~~capital~~a ~~stock~~variety of factors. These factors may include, but are not limited to, credit quality risks and the ~~FHLB~~sufficiency of the Company’s credit policies to avoid losses, declines in the value of ~~Cincinnati~~other real estate owned, the adequacy of the Company’s allowance for loan losses, changes in interest rates, the geographical concentration of the Company’s business and ~~Federal~~changes ~~Reserve~~in local economic conditions affecting that concentration, the effect of any worsening in the condition of financial markets or the increase in the Company’s loan demand on the Company’s liquidity position, the availability of secondary sources of liquidity to meet withdrawal needs or fund operations, the effect of market conditions on the Company’s ability to obtain additional capital on favorable terms should it need it, the ability to remain competitive in an increasingly competitive industry, the effect of changes in laws, government regulation and monetary policy, the ability of the Company or the Bank to pay dividends, failures or breaches of Stthe Company’s operational or security systems or infrastructure, or the failure of the Company’s third party vendors, service providers or other third parties’ operational or security systems or infrastructure, including as a result of cyber-attacks, other factors generally understood to affect the assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations of financial services companies and other factors detailed from time to time in the Company’s press and news releases, reports and other filings with the SEC. Forward-looking ~~Louis~~statements ~~approximate~~speak ~~fair~~only ~~value~~as of the date that they were made, and, except as required by law, the Company does not undertake any obligation to update or revise forward-looking statements to reflect events or circumstances that occur after the date of this report.

25 Overview

~~Bank~~Net income increased approximately $72,000 or 0.7% when comparing the first nine months of 2014 to the first nine months of 2013. For the first nine months of 2014, net income totaled $10.3 million compared to $10.2 million for the same period in 2013. Increased earnings in 2014 were primarily because of increased gains on sale of available-~~Owned~~for-sale ~~Life~~securities, ~~Insurance~~reduced provision for loan losses and increased net interest income.

~~Carrying amount of bank-owned life insurance is the cash surrender value as of the end of the periods presented and approximates fair value.~~26

~~Deposit~~The ~~Liabilities~~Company remains steadfast in its commitment to quality growth balanced with strong liquidity and capital positions. Balance sheet growth remains modest at 3.1% for first three quarters of 2014 as loan growth of 5.5% was funded primarily by investment cash flows as deposits increased only 1.1% during the first nine months of 2014. Capital increased $12.0 million or 10.7% from December 31, 2013 to September 30, 2014 as a result of undistributed net income of $7.6 million and increase of $4.5 million in accumulated other comprehensive income due to overall appreciation of the investment portfolio. Unrealized gains and losses on available-for-sale securities continue to fluctuate relative to the overall market yield curve. The market values of the portfolio are heavily influenced by the 10-year Treasury rates which were 3.04% as of December 31, 2013 and 2.52% as of September 30, 2014.

~~Demand~~Key ~~Deposits~~performance metrics for the Company reflect solid capital positions and stable earnings for the first nine months of 2014 consistent with the same period in prior years. Such key metrics are as follows:

The fair values of deposits which are payable on demand, such as interest-bearing and non-interest-bearing checking accounts, passbook savings, and certain money market accounts are equal to the carrying amount of the deposits.

	2014	2013	2012	2011	2010
Net income to average total assets	1.15%	1.17%	1.28%	1.22%	0.89%
Net income to average shareholders’ equity	11.40%	11.73%	12.57%	12.78%	9.70%
Dividends declared to net income	26.34%	26.54%	26.32%	23.87%	25.40%
Average equity to average assets	10.13%	9.85%	10.21%	10.36%	10.13%
Total equity to total assets	10.29%	9.66%	10.35%	10.01%	9.48%

~~Variable~~The efficiency ratio is a measure of non-~~Rate~~interest ~~Deposits~~expense as a percentage of total revenue. The Company computes the efficiency ratio by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure, which management believes provides investors with important information regarding operational efficiency. Comparison of the Company’s efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The Company’s efficiency ratios for the three months ended September 30, 2014, 2013 and 2012 were 66.6%, 60.0%, and 58.5%, respectively. The significant increase is primarily attributable to one-time transaction costs associated with the merger with Southern Heritage Bancshares, Inc. which closed October 1, 2014. See also Note 13 to the Consolidated Financial Statements included elsewhere in this report.

The ~~fair~~tangible ~~value~~common ofequity ~~variable~~ratio is a non-~~rate~~GAAP ~~money~~measure used ~~market~~by ~~accounts~~management to evaluate capital adequacy. Tangible common equity is total equity less net accumulated other comprehensive income ("OCI"), goodwill and deposit-based intangibles. Tangible assets are total assets less ~~certificates~~goodwill ofand deposit-based ~~approximate~~intangibles. The ~~their~~tangible ~~carrying~~common ~~value~~equity atratio ~~the~~is ~~balance~~8.90% as ~~sheet~~of September 30, 2014 compared to 8.28% and 8.33% as of September 30, 2013 ~~date~~and 2012, respectively.

~~Fixed-Rate Deposits~~27

~~For~~A ~~fixed~~reconciliation of non-~~rate~~GAAP ~~certificates~~measures of ~~deposit,~~the ~~fair~~efficiency ~~values~~ratio ~~are estimated~~and ~~utilizing~~tangible ~~discounted~~common ~~cash~~equity ~~flow~~ratio ~~analyses, which apply interest rates~~is ~~currently~~as ~~being~~follows ~~offered~~for onthe ~~certificates~~three ofmonths ~~deposits~~ended toSeptember a30, ~~schedule~~2014, of2013 ~~aggregated monthly~~and ~~maturities on time deposits.~~2012:

Short Term and Other Borrowings

	At or for the Three Months Ended September 30,
	2014	2013	2012
Efficiency ratio:
Net interest income⁽¹⁾	$10,407	$10,182	$9,985
Non-interest income⁽²⁾	3,161	3,290	2,948
Total revenue	13,568	13,472	12,933
Non-interest expense	9,042	8,209	7,566
Efficiency ratio	66.64%	60.93%	58.50%
Tangible common equity ratio:
Total equity capital	$124,594	$110,246	$113,570
Less:
Accumulated other comprehensive income	4,114	1,439	11,328
Goodwill	13,651	13,651	11,825
Other intangible assets	352	405	-
Tangible common equity	$106,477	$94,751	$90,417
Total assets	$1,210,655	$1,158,982	$1,097,437
Less:
Goodwill	13,651	13,651	11,825
Other intangible assets	352	405	-
Tangible assets	$1,196,652	$1,144,926	$1,085,612
Tangible common equity ratio	8.90%	8.28%	8.33%

For securities sold under repurchase agreements payable upon demand, the carrying amount is a reasonable estimate of fair value. For securities sold under repurchase agreements for a fixed term, fair values are estimated using the same methodology as fixed rate time deposits discussed above. The fair value of the advances from the FHLB and other long-term borrowings are estimated by discounting the future cash outflows using the current market rates. ___________________

Other Liabilities

(1)	Net interest income includes interest and rates on securities that are non-taxable for federal income tax purposes that are presented on a taxable equivalent basis based on federal statutory rate of 34%.
(2)	Non-interest income is presented net of any credit component of other-than-temporary impairment on available-for-sale securities recognized against earnings for the years presented.

~~Fair value of other liabilities is assumed to be the~~ ~~carrying~~Critical Accounting ~~values.~~Policies

~~The~~There ~~following~~was ~~table~~no ~~reflects~~significant ~~fair~~change ~~value~~in ofcritical ~~financial~~accounting ~~instruments~~policies asfrom ofDecember ~~June 30~~31, ~~2012~~2013 ~~and~~to ~~December~~September 3130, ~~2011 (in thousands):~~2014.

2628

	Carrying	Level 1	Level 2	Level 3	Fair
	Amount	Inputs	Inputs	Inputs	Value
As of June 30, 2012:
Financial assets:
Cash and cash equivalents	$ 16,435	$16,435	$ -	$ -	$ 16,435
Interest bearing deposits in other banks	27,996	27,996	-	-	27,996
Investment securities	408,310	-	407,698	612	408,310
Loans, net of allowance	537,397	-	529,388	9,210	538,598
Loans held for sale	1,792	-	1,792	-	1,792
Accrued interest receivable	5,401	-	5,401	-	5,401
Federal Reserve Bank and Federal Home Loan Bank Stock	5,684	-	5,684	-	5,684
Other real estate owned	10,579	-	-	10,579	10,579
Bank owned life insurance	21,696	-	21,696	-	21,696
Financial liabilities:				-
Deposits	874,963	-	876,350	-	876,350
Short-term borrowings	36,149	-	36,208	-	36,208
Other borrowings	52,076	-	53,825	-	53,825
Other liabilities	9,836	-	9,836	-	9,836
Off-balance sheet arrangements				-
Commitments to extend credit	57,929	-	57,929	-	57,929
Standby letters of credit	3,123	-	3,123	-	3,123
As of December 31, 2011:
Financial assets
Cash and cash equivalents	$ 34,133	$ 34,133	$ -	$ -	$34,133
Interest bearing deposits in other banks	40,138	40,138	-	-	40,138
Investment securities	365,465	-	364,912	553	365,465
Loans, net of allowance	519,660	-	512,863	6,797	519,269
Loans held for sale	2,616	-	2,616	-	2,616
Accrued interest receivable	5,306	-	5,306	-	5,306
Federal Reserve Bank and Federal Home Loan Bank Stock	5,684	-	5,684	-	5,684
Other real estate owned	11,073	-	11,073	-	11,073
Bank owned life insurance	21,438	-	21,438	-	21,438
Financial liabilities				-
Deposits	855,672	-	855,672	-	857,299
Short-term borrowings	36,471	-	36,471	-	36,550
Other borrowings	47,328	-	47,328	-	49,230
Other liabilities	10,610	-	-	10,610	10,610
Off-balance sheet arrangements				-
Commitments to extend credit	77,861	-	77,861	-	77,861
Standby letters of credit	2,410	-	2,410	-	2,410

Results of Operations

27Net interest income is the principal source of earnings for the Company and is defined as the amount of interest generated by earning assets minus interest costs required to fund those assets. Net interest income increased 2.2% and totaled $29.1 million for the nine months ended September 30, 2014 compared to $28.5 million in first nine months of 2013. Net interest income increased 1.6% and totaled $9.7 million for the quarter ended September 30, 2014 compared to $9.6 million for the quarter ended September 30, 2013. The net yield on average earning assets for the third quarter of 2014 and 2013 were 4.40% and 4.51%, respectively. The modest decrease of 11 basis points in yield on earning assets is driven by the decline in loan yields from the third quarter of 2013 to the third quarter of 2014 as interest rates continue at historical lows. The cost of interest bearing liabilities decreased from 0.68% in the third quarter of 2013 to 0.64% in the third quarter of 2014. Net interest margin for the third quarter of 2014 was 3.85% compared to 3.92% in the third quarter of 2013. Net interest margin has been stable the past six quarters in the range of 3.80% to 3.95%.

~~Note~~The ~~12-Subsequent~~following ~~Events~~table presents quarterly average balances, interest, and average rates for the periods listed (dollars in thousands):

The Company has reviewed subsequent events through August 6, 2012, the date the financial statements were available to be issued.

	AVERAGE BALANCES AND RATES
	2014			2013			2012
	Balance	Interest	Rate	Balance	Interest	Rate	Balance	Interest	Rate
Assets
Interest earning assets:
Loans ^(1)(2)(3)	$604,646	$8,182	5.41%	$577,986	$8,200	5.67%	$537,440	$8,187	6.09%
Investment securities:
Taxable	297,482	1,683	2.26%	307,844	1,723	2.24%	286.721	1,819	2.54%
Tax exempt ⁽⁴⁾	146,007	2,009	5.50%	121,719	1,785	5.87%	116,114	1,702	5.86%
Interest earning deposits	26,771	16	0.24%	26,590	18	0.27%	27,301	14	0.21%
Federal funds sold	5,352	4	0.30%	5,025	3	0.24%	2,410	3	0.50%
Total interest earning assets	1,080,258	11,894	4.40%	1,039,164	11,729	4.51%	969,986	11,725	4.83%
Non-interest earning assets:
Cash and due from banks	14,202			13,968			18,357
Premises and equipment	35,444			34,362			29,132
Other assets	65,303			66,264			65,257
Total assets	$1,195,207			$1,153,758			$1,082,732
Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing deposits	$827,676	$1,169	0.56%	$805,539	$1,194	0.59%	$745,279	$1,386	0.74%
Federal funds purchased and other interest bearing liabilities	99,062	318	1.28%	99,843	353	1.41%	88,932	354	1.59%
Total interest bearing liabilities	926,738	1,487	0.64%	905,382	1,547	0.68%	834,211	1,740	0.83%
Non-interest bearing liabilities
Demand deposits	136,614			131,734			124,838
Other liabilities	7,713			5,861			11,173
Total liabilities	1,071,065			1,042,977			970,222
Total shareholders' equity	124,142			110,781			112,510
Total liabilities and shareholders' equity	$1,195,207			$1,153,758			$1,082,732
Net interest income		$10,407			$10,182			$9,985
Net yield on average earning assets			3.85%			3.92%			4.12%

28 ___________________

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

⁽¹⁾	Loan totals are loans held for investments and net of unearned income and loan loss reserves.
⁽²⁾	Fee income on loans held for investment is included in interest income and computations of the yield.
⁽³⁾	Includes loans on non-accrual status.
⁽⁴⁾	Interest and rates on securities that are non-taxable for federal income tax purposes are presented on a taxable equivalent basis based on the Company’s statutory federal tax rate of 34%.

~~Overview~~29

~~Net~~Provision ~~income~~ for ~~the~~loan ~~current quarter~~losses ~~increased~~ totaled approximately $~~452~~250,000 ~~or 15.7%~~ and ~~earnings per share increased~~ $~~0.14~~187,000 orfor ~~17.7%~~the ~~when~~three ~~comparing~~months ~~second quarters 2012 and 2011. For the quarter~~ ended ~~June~~September 30, ~~2012, net income totaled $3.3 million compared to $2.9~~ ~~million~~2014 inand ~~second~~2013, ~~quarter 2011~~respectively. ~~Increased~~Provision ~~earnings in 2012 were primarily the result of decreased provision~~ for loan losses~~. The~~ ~~Company~~totaled ~~recorded provision~~approximately ~~for~~$625,000 ~~loan~~and ~~losses totaling~~ $~~300~~775,000 ~~during~~for ~~second~~the ~~quarter~~nine ~~2012~~months ~~compared~~ended ~~to approximately~~September ~~$650~~30,~~000~~ in2014 ~~second~~and ~~quarter 2011~~2013, respectively. ~~Decreased~~Loans ~~provision~~charged ~~for~~off ~~loan losses~~net ~~was~~of ~~due~~recoveries tototaled ~~modest~~approximately ~~loan~~$893,000 and ~~growth of 3%~~$625,000 ~~stability~~ in ~~overall quality of~~ the ~~loan~~ ~~portfolio,~~nine ~~and~~months ~~charged~~ended ~~off~~September ~~loans~~30, ~~totaling~~2014 ~~approximately~~and ~~$396~~2013,~~000~~ respectively. Allowance for losses on loans as a percent of total loans was 1.4523% as of ~~June~~September 30, ~~2012~~ 2014 compared to 1.4836% as of ~~June~~September 30, ~~2011~~2013 and 1.5234% as of December 31, ~~2011~~2013.

~~The~~Non-interest ~~Company~~income ~~also remains~~represents ~~steadfast~~fees inand ~~its~~other ~~commitment~~income toderived ~~quality~~from ~~growth~~sources ~~balanced~~other ~~with~~than ~~strong~~interest-earning ~~liquidity~~assets. ~~and~~Non-interest ~~capital~~income ~~positions. Total deposits~~ increased approximately $~~19.3~~528,000 ~~million~~ or 25.42% ~~from December~~when ~~31,~~comparing ~~2011~~the nine tomonths ~~June~~ended September 30, ~~2012. Other~~2014 ~~borrowings~~and ~~consisting~~2013, ~~primarily of~~respectively. Non-interest ~~advances~~income ~~from~~decreased ~~the~~approximately ~~Federal~~$129,000 ~~Home~~or ~~Loan~~3.9% ~~Bank~~when ~~(“FHLB”)~~comparing ~~increased~~third ~~$4.7 million from~~quarters ~~December~~of ~~31,~~2014 ~~2011~~and ~~to June 30, 2012~~2013. ~~Capital~~Non-interest ~~increased~~income ~~$6.3~~contributed ~~million or 6~~24.12% ~~from~~ ~~December~~of ~~31,~~total ~~2011~~revenue toin first ~~June~~nine ~~30,~~months ~~2012 as a result~~ of ~~undistributed~~2014 ~~net~~compared ~~income of~~to $523.05% ~~million and increase~~ of ~~$1.3~~total ~~million~~revenue in ~~accumulated~~nine ~~other~~months ~~comprehensive~~of 2013. Non-interest income ~~due~~contributed to22.0% ~~overall appreciation~~ of ~~the~~total ~~investment~~revenue ~~portfolio~~ in the ~~most~~third ~~recent~~ quarter~~. Strong~~ ~~deposit~~of ~~growth~~2014 ~~resulted~~compared into ~~total assets growth of $~~22.~~9 million or 2.4~~8% ~~from~~of ~~year-end~~total ~~2011~~revenue toin ~~second~~the third quarter ~~2012. Deposit~~of ~~growth and~~2013. ~~cash~~The ~~and~~following ~~cash~~table ~~equivalents~~compares ~~were~~non-interest ~~used~~income tofor ~~fund~~the anthird ~~increase~~quarters of ~~$42.8 million in~~ ~~available-for-sale~~2014, ~~securities~~2013 and an2012 ~~increase~~(dollars ~~of $17.6 million~~ in ~~loans.~~ thousands):

Key performance metrics for the Company reflect preservation of capital and the impact of increased net income in first six months of 2012 compared to first six months of prior years. Such key metrics are as follows:

	Total 2014	(Decrease) Increase		Total 2013	(Decrease) Increase		Total 2012
	Total 2014	Amount	%	Total 2013	Amount	%	Total 2012
Mortgage banking income	$ 280	($13)	(4.44%)	$293	($134)	(31.38%)	$427
Income from fiduciary activities	270	66	32.35%	204	(35)	(14.64%)	239
Service charges on deposit accounts	1200	(78)	(6.10%)	1,278	4	0.31%	1,274
Income from ATM and debit cards	693	54	8.45%	639	59	10.17%	580
Brokerage fees	396	55	16.13%	341	79	30.15%	262
Earnings on BOLI	149	4	2.76%	145	2	1.40%	143
Gain (loss) on sale of foreclosed property	(190)	(106)	126.19%	(84)	519	(86.07%)	(603)
Gain on sale or call of available-for-sale securities	0	0	n/a	0	(265)	(100.00%)	265
Gain on disposition of property	0	0	n/a	0	0	n/a	0
Income from insurance activities	175	(20)	(10.26%)	195	19	10.80%	176
Other non-interest income	188	(91)	(32.62%)	279	94	50.81%	185
Total non-interest income	$3,161	($129)	(3.92%)	$3,290	$342	11.60%	$2,948

	2012	2011	2010	2009	2008
Net income to average total assets	1.29%	1.20%	0.88%	0.89%	0.99%
Net income to average shareholders’ equity	12.78%	12.75%	9.72%	10.29%	11.78%
Dividends declared to net income	26.32%	24.69%	25.97%	39.39%	47.82%
Average equity to average assets	10.12%	10.22%	9.50%	9.50%	9.10%
Total equity to total assets	10.14%	9.73%	9.23%	8.60%	7.92%

Decreased non-interest income in the third quarter of 2014 is primarily a result of increased realized losses on other real estate owned, decreased service charges on deposits and decreased other non-interest income. Realized losses on other real estate owned increased in the third quarter of 2014 compared to the third quarter of 2013 primarily because of the realized loss on one isolated sale in the third quarter of 2014 with a realized loss of approximately $150,000. Service charges on deposits decreased because of an overall decrease in overdraft fees. Other non-interest income decreased as a result of the combination of small decreases in various other types of fees such as service charges on letters of credit which vary depending on the volume in any given quarter. Increased income from fiduciary activities, brokerage activities and income from ATM and debit cards helped to offset lower overall non-interest income in the third quarter of 2014 compared to the third quarter of 2013. Income from fiduciary activities varied from the third quarter of 2014 to the third quarter of 2013 primarily because of timing and volume of activities such as fees earned from estate planning and settlements. Brokerage fees increased as a result of overall increased volume of business in 2014 compared to 2013. Income from ATM and debit cards increased as a result of a change in vendors and as a result of the overall trend of increased use of debit cards and electronic transactions that continue to replace paper transactions.

The efficiency ratio is a measure of non-interest expense as a percentage of total revenue. The Company computes the efficiency ratio by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure, which we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The efficiency ratios for the quarter ended June 30~~, 2012, 2011 and 2010 were 59.26%, 59.75%, and 50.41%, respectively.~~

~~The~~Income ~~tangible~~from White ~~common~~and ~~equity~~Associates/First ~~ratio~~Citizens isInsurance, LLC, a ~~non~~full-~~GAAP~~service ~~measure~~insurance ~~used~~agency ~~by management to evaluate capital adequacy. Tangible common equity is total equity less net accumulated other comprehensive income~~ (~~"OCI"~~“WAFCI”), ~~goodwill~~ ~~and~~was ~~deposit-based~~included ~~intangibles.~~in ~~Tangible~~Income ~~assets~~from ~~are~~Insurance ~~total~~Activities ~~assets~~in ~~less~~the ~~goodwill~~Consolidated ~~and~~Statements ~~deposit-based~~of ~~intangibles~~Income. ~~The~~Non-interest ~~tangible~~income ~~common~~generated ~~equity~~by ~~ratio is 8.21%~~WAFCI for ~~quarter~~the ~~ended~~third ~~June~~quarter ~~30,~~of ~~2012~~2014 ~~compared to 8.05%~~ and ~~7.50%~~2013 ~~for~~totaled ~~the~~approximately ~~quarters ended June 30~~$175,000 ~~2011~~ and ~~2010~~$195, 000, respectively.

ANo ~~reconciliation of non~~other-~~GAAP~~than-temporary impairment ~~measures~~losses ofwere ~~efficiency~~recognized ~~ratio and~~in ~~tangible~~the ~~common~~three ~~equity~~or isnine ~~provided~~months asended ~~follows~~September 30, ~~for~~2014 ~~the~~or ~~quarter~~2013. See ~~ended~~Investment ~~June~~Securities ~~30, 2012,~~section ~~2011~~for ~~and 2010:~~additional information.

29The following table compares non-interest expense for third quarter of 2014, 2013 and 2012 (dollars in thousands):

	At or for the Quarter Ended June 30,
	Total 2014	Increase (Decrease)		Total 2013	Increase (Decrease)		Total 2012
	2012	2011	2010
		Amount	%		Amount	%
Efficiency ratio:
Salaries and employee benefits	$5,005	$325	6.94%	$4,680	$436	10.27	$4,244
Net interest income(1)	$9,720	$9,657	$9,087
Net occupancy expense	439	(13)	(2.88)	452	30	7.11	422
Non-interest income(2)	3,007	2,805	3,164
Depreciation	506	2	0.40	504	47	10.28	457
Total revenue	12,727	12,462	12,251
Data processing expense	460	145	46.03	315	(140)	(30.77)	455
Non-interest expense	7,542	7,446	6,176
Legal and professional fees	333	219	192.11	114	47	70.15	67
Efficiency ratio	59.26%	59.75%	50.41%
Stationary and office supplies	67	15	28.85	52	2	4.00	50
Tangible common equity ratio:
Amortization of intangibles	11	0	0	11	11	n/a	0
Total equity capital	$109,782	$ 97,168	$88,877
Advertising and promotions	239	(87)	(26.69)	326	163	100.00	163
Less:
Premiums for FDIC insurance	165	(42)	(20.29)	207	91	78.45	116
Accumulated other comprehensive income	10,079	5,864	5,638
Expenses related to other real estate owned	103	(18)	(14.88)	121	(47)	(27.98)	168
Goodwill	11,825	11,825	11,825
ATM related fees and expenses	296	8	2.78	288	72	33.33	216
Other intangible assets	-	77	162
Other expenses	1,418	279	24.50	1,139	(20)	(1.73)	1,159
Tangible common equity	$87,878	$79,402	$71,252
Total non-interest expense	$9,042	$833	10.15%	$8,209	$692	9.21%	$7,517
Total assets	$1,082,806	$998,400	$962,552
Less:
Goodwill	11,825	11,825	11,825
Other intangible assets	-	77	162
Tangible assets	$1,070,981	$986,498	$950,565
Tangible common equity ratio	8.21%	8.05%	7.50%

~~___________________~~Non-interest expense represents operating expenses of the Company and increased approximately $833,000 or 10.2% in the third quarter of 2014 compared to the third quarter of 2013. Salary and benefits expense is the largest component of non-interest expense and increased approximately $325,000 or 6.9% from the third quarter of 2014 to the third quarter of 2013. Significant expense associated with salaries and benefits is consistent with the Company’s strategic plan to hire and retain high quality employees to provide outstanding customer service and strive for exceptional shareholder returns. Expenses increased in 2014 and 2013 as a result of a combination of pay increases to existing employees, increased cost of employee benefits (including health insurance, contributions to retirement plans and incentive plans). Increased expense in the third quarter of 2014 also reflects the Company’s continued strategy to invest in new hires necessary to achieve expansion and growth goals, absorb regulatory burdens and planning for succession.

(1)	Net interest income includes interest and rates on securities that are non-taxable for federal income tax purposes that are presented on a taxable equivalent basis based on federal statutory rate of 34%.
(2)	Non-interest income is presented net of any credit component of other-than-temporary impairment on available-for-sale securities recognized against earnings for the years presented.

Net occupancy and depreciation were essentially flat when comparing the third quarter of 2014 to the third quarter of 2013. Data processing (which includes computer services) expense increased approximately $145,000 in the third quarter of 2014 compared to the third quarter of 2013 due to timing of expenses related to various information technology projects related to our core processor, online banking, outsourcing of certain data processing functions, network security and maintenance. Data processing is and will continue to be a significant component of non-interest expense as a result of strategic efforts to ensure integrity and security of customer data and in order to comply with ever-increasing regulatory burdens.

~~Expansion~~Legal and professional fees totaled approximately $333,000 and $114,000 in the third quarter of 2014 and 2013, respectively. These fees relate to legal costs associated with the normal course of business including but not limited to collection efforts on loans and consulting on corporate matters such as regulatory compliance. The increase from 2013 to 2014 is primarily attributable to expenses incurred related to the Merger with Southern Heritage.

~~The~~Other ~~Company,~~real ~~through~~estate ~~its strategic~~owned ~~planning process, intends to seek profitable opportunities that~~expense ~~utilize~~for ~~excess~~the ~~capital~~third ~~and~~quarter ~~maximize~~of ~~income~~2014 inwas ~~Tennessee. If~~approximately ~~the~~$103,000 ~~Company decides~~compared to approximately ~~acquire other banking institutions~~$121,000 ~~its~~in ~~objective would be for asset growth and diversification into other market areas. Acquisitions and de novo branches might afford~~ the ~~Company~~third ~~increased~~quarter ~~economies~~ of ~~scale~~2013. The ~~within~~trend ~~the operation functions and better utilization~~ of ~~human resources. The Company~~declining ~~would~~expense ~~only~~is ~~pursue~~consistent anwith ~~acquisition or de novo branch if~~ the ~~board~~declining oftrend ~~directors determines it to be~~ in the ~~best~~overall ~~interest~~volume of ~~the~~other real ~~Company~~estate ~~and its shareholders~~owned. ~~The~~ ~~Company~~See issection ~~currently~~below ~~considering~~titled ~~opportunities~~“Other toReal ~~acquire~~Estate ~~other~~Owned” ~~banking~~for ~~institutions~~additional ~~but has not yet entered into any material definitive agreements regarding such opportunities~~information.

The Company owns two lots in Jackson, Tennessee, that are intended for construction of full service branches but construction has been temporarily on hold because of current economic conditions. Construction for the site near Union University is expected to commence within the next year and construction for the other site is expected to commence within the next two to three years.31

~~Forward~~No impairment of goodwill has been recorded for the current and prior reportable periods. Core deposit intangible expense for the current reportable quarter was flat at approximately $11,000. Quarter-~~Looking~~to-date ~~Statements~~advertising, community relations, and other forms of marketing expenses were approximately $239,000 or 2.64% of other non-interest expense in the third quarter of 2014 compared to approximately $326,000 or 4.04% of total non-interest expense in the third quarter of 2013. All marketing or advertising items are expensed at the time they are incurred.

~~Information~~ ~~contained~~Changes herein includes forward-looking statements with respect to the beliefs, plans, risks, goals and estimates of the Company. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant banking, economic, and competitive uncertainties, many of which are beyond management’s control. When used in ~~this~~ ~~discussion,~~Financial the words “anticipate,” “project,” “expect,” “believe,” “should,” “will,” “intend,” “is likely,” “going forward,” “may” and other expressions are intended to identify forward-looking statements. These forward-looking statements are within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, capital resources, strategic planning, acquisitions or de novo branching, ability to meet capital guidelines, legislation and governmental regulations affecting financial services companies, construction of new branch locations, dividends, critical accounting policies, allowance for loan losses, fair value estimates, goodwill, occupancy and depreciation expense, held-to-maturity securities, available-for-sale securities, trading securities, cash flows, core deposit intangibles, diversification in the real estate loan portfolio, interest income, maturity of loans, loan impairment, loan ratings, charge-offs, other real estate owned, maturity and re-pricing of deposits, borrowings with call features, dividend payout ratio, off-balance sheet arrangements, the impact of recently issued accounting standards, changes in funding sources, liquidity, interest rate sensitivity, net interest margins, debt securities, non-accrual status of loans, contractual maturities of mortgage-backed securities and collateralized mortgage obligations, other-than-temporary impairment of securities, amortization expense, deferred tax assets, independent appraisals for collateral, property enhancement or additions, efficiency ratio, ratio of assets to employees, net income, changes in interest rates, loan policies, categorization of loans, maturity of FHLB borrowings and the effectiveness of internal control over financial reporting.Condition

Total assets were $1.21 billion as of September 30, 2014. Total assets increased $36.2 million or 3.1% during the nine months ended September 30, 2014 primarily as a result of an increase of $32 million in total loans. Federal funds sold grew $4.7 million while available-for-sale investment securities decreased $18.7 million during the nine months ended September 30, 2014. Interest bearing deposits in banks grew $23.4 million during the nine months ended September 30, 2014.

~~Forward-looking~~ ~~statements~~Deposit ~~are~~growth ~~based~~was ~~upon~~modest ~~information~~at ~~currently~~1.1% ~~available~~during the nine months ended September 30, 2014 and ~~represent~~primarily occurred in the savings category. Savings ~~management’s~~deposits ~~expectations~~increased $13.7 million or ~~predictions~~2.8% ofduring the ~~future~~nine months ended September 30, 2014. Demand Asdeposits adecreased ~~result~~$3.8 million from December 31, 2013 to September 30, 2014. Demand deposits have been in excess of ~~risks~~$130 million during ~~and~~the ~~uncertainties~~nine ~~involved~~months ended September 30, ~~actual~~2014 ~~results~~with ~~could~~an ~~differ~~average ~~materially~~for ~~from~~the ~~such forward~~nine-~~looking~~month period ~~statements~~of $135.7 ~~The~~million. Time ~~potential~~deposits ~~factors~~increased ~~that~~approximately ~~could~~$463,000 ~~affect~~or ~~the~~less ~~Company’s~~than ~~results~~one ~~include~~percent ~~but~~over ~~are~~the ~~not~~same ~~limited to:~~period.

~~Changes~~Securities insold ~~general~~under ~~economic~~agreements to ~~and~~repurchase ~~business~~increased ~~conditions;~~$5.5 million or 14.9% since year-end 2013. Securities sold under agreements to repurchase had an average balance of $38.9 million during the nine months ended September 30, 2014. Other borrowings increased approximately $5.6 million during the nine months ended September 30, 2014 as a result of new advances net of principal reductions on existing advances from the Federal Home Loan Bank.

~~Changes~~Capital inincreased ~~market~~$12.0 ~~rates~~million as ~~and~~a ~~prices~~result of ~~securities,~~undistributed ~~loans,~~net ~~deposits~~income totaling $7.6 million in the nine months ended September 30, 2014 and increased accumulated other ~~financial~~comprehensive income ~~instruments;~~(“AOCI”). AOCI increased $4.5 million from December 31, 2013 to September 30, 2014 due to overall appreciation in the available-for-sale investment securities portfolio.

~~Changes in legislative or regulatory developments affecting~~ ~~financial institutions in general, including changes in tax, banking,~~Investment ~~insurance, securities or other financial service related laws;~~Securities

~~Changes~~Investment insecurities ~~government~~are primarily ~~fiscal~~held by the bank’s subsidiary, First Citizens Investments, Inc. and its ~~monetary~~subsidiary, ~~policies;~~First Citizens Holdings, Inc. The bank has a portfolio advisory agreement with a third party vendor to manage the investment portfolio. Quarterly average rates for taxable securities in the third quarter of 2014 increased two basis points while tax exempt securities decreased 36 basis points compared to the third quarter of 2013. The investment portfolio is heavily weighted in agency mortgage-related securities, which accounted for approximately 67% of total portfolio. The Company’s goal continues to be to steadily maintain or improve the quality of the investment portfolio without taking on material risk.

~~The~~Pledged ~~ability~~investments ofreflect ~~the~~a market ~~Company~~value toof ~~provide~~$214 ~~and~~million ~~market~~as ~~competitive products~~of ~~and~~September ~~services;~~30, 2014.

~~Concentrations~~The ~~within~~carrying value of investment securities were as follows as of September 30 for each of the ~~loan~~years ~~portfolio;~~indicated (in thousands):

Fluctuations in prevailing interest rates and the effectiveness of the Company’s interest rate hedging strategies;

	2014	2013	2012	2011	2010
U.S. Treasury and government agencies	$290,017	$300,230	$289,297	$221,546	$ 150,690
State and political subdivisions	147,711	126,546	118,009	112,915	95,492
All other	61	1,238	702	553	1,721
Total investment securities	$437,789	$428,014	$408,008	$335,014	$ 247,903

~~The Company’s ability to maintain credit quality;~~32

~~The~~For ~~effectiveness~~additional information regarding amortized cost and fair value of investments, see also Note 5 to the Consolidated ~~Company’s~~Financial ~~risk~~Statements ~~monitoring~~included ~~systems;~~elsewhere in this report. Investments are classified according to intent under generally accepted accounting principles. Also, there were no securities in the trading or held-to-maturity categories as of September 30, 2014, or December 31, 2013.

~~The~~Accumulated ~~ability~~other comprehensive income reflects $4.1 million net unrealized gain on available-for-sale securities, net of ~~the~~tax ~~Company’s~~as ~~borrowers~~of September 30 2014. During nine months of 2014, net unrealized gains on securities (net of tax) increased $4.5 million from year end 2013 primarily due to ~~repay~~modest ~~loans;~~increase in overall market values of securities held in the portfolio. There were no realized gains or sales of securities during the third quarter of 2014 or 2013.

The ~~availability~~Company continues to employ a strong due diligence process on securities purchases and factors considered include but are not limited to type of security, diversification among and within ~~costs~~portfolio ~~associated~~sectors, ~~with~~internal ~~maintaining~~policy limits, credit quality of issuer and/or ~~obtaining~~ ~~adequate~~underlying ~~and~~collateral, ~~timely~~ratings, ~~sources~~yield, ofduration, ~~liquidity;~~expected life, maturity date, etc.

~~Geographic~~The ~~concentration~~Company ofheld ~~the~~no ~~Company’s~~derivative transactions ~~assets~~as ~~and susceptibility~~of toSeptember ~~economic~~30, ~~downturns~~2014 inor ~~that~~December ~~area;~~31, 2013.

~~The ability of the Company to attract, train and retain qualified~~ ~~personnel;~~Loans

~~Changes~~The infollowing ~~consumer~~table ~~preferences;~~sets ~~and~~forth total loans held for investment net of unearned income by category for the as of September 30 for the years indicated (in thousands):

Other factors generally understood to affect financial results of financial services companies.

	2014	2013	2012	2011	2010
Commercial, financial and agricultural	$106,431	$96,305	$82,801	$82,721	$77,240
Real estate-construction	56,472	42,881	40,008	40,918	52,472
Real estate-mortgage	412,234	418,512	385,851	397,682	399,631
Installment loans to individuals	24,103	25,143	26,738	29,059	32,838
Other loans	12,680	13,530	5,660	3,659	3,647
Total loans	$611,920	$596,371	$541,058	$554,039	$565,828

Loans increased $31.6 million from December 31, 2013 to September 30, 2014 and increased $15.5 million September 30, 2013 to September 30, 2014. Real estate loans increased $7.3 million from September 30, 2013 to September 30, 2014. Commercial, financial and agricultural loans increased $10.1 million when comparing September 30, 2014 and 2013. Loan demand has improved significantly during 2013 and 2014 and growth levels are strong through the third quarter of 2014. The Company continues to exercise strategic caution with its growth strategies under the current economic conditions.

The ~~Company~~loan ~~undertakes~~portfolio nowas ~~obligation~~heavily weighted toin ~~update~~real ~~its~~estate loans, which accounted for approximately $470 million ~~forward~~or 77% of total loans. Commercial and residential construction loans comprised $56 million, or 9.2%, of the total loans. Although the portfolio was heavily weighted in real estate, the Bank did not and does not invest in sub-~~looking~~prime ~~statements~~or non-traditional mortgages. Within real estate loans, residential mortgage loans (including residential construction) were the largest category comprising 31% of total loans. Diversification of the real estate portfolio is a necessary and desirable goal of the real estate loan policy. In order to achieve ~~reflect~~and ~~events~~maintain ora ~~circumstances~~prudent ~~that~~degree ~~occur~~of ~~after~~diversity, given the composition of the ~~date~~market area and the general economic state of ~~this~~the ~~quarterly~~market ~~report~~area, onthe ~~Form~~Company will ~~10-Q~~strive to maintain real estate loan portfolio diversification. Risk monitoring of commercial real estate concentrations is performed in accordance with regulatory guidelines and includes assessment of risk levels of various types of commercial real estate and review of ratios of various concentrations of commercial real estate as a percentage of capital.

~~Critical Accounting Policies~~33

The ~~accounting~~aggregate ~~and~~amount ~~reporting~~ of ~~the~~ ~~Company~~loans ~~and its subsidiaries conform to accounting principles generally accepted in~~ the ~~United States (“GAAP”) and follow general practices within the~~ ~~industry. Preparation~~company ofis ~~financial~~permitted ~~statements requires management~~ to make ~~estimates~~ ~~and~~under ~~assumptions~~applicable ~~that~~bank ~~affect~~regulations ~~amounts~~to ~~reported~~any inone borrower ~~the~~is ~~financial statements~~15% ~~and~~of ~~accompanying~~unimpaired ~~notes~~capital. The ~~Management believes that the Company~~Bank’s ~~estimates~~ ~~are~~legal ~~reasonable~~lending ~~under~~limit ~~the~~at ~~facts and circumstances based on past~~September ~~experience and information supplied from professionals~~30, ~~regulators~~2014 ~~and~~was ~~others~~$17. ~~Accounting~~8 ~~estimates~~million. Although ~~are~~the ~~considered~~Bank’s ~~critical~~legal iflending ~~(i)~~limit ~~management~~has ~~is required to~~been ~~make~~in ~~assumptions~~excess orof ~~judgments~~$10 ~~about~~million ~~items~~for ~~that~~several ~~are~~years, ~~highly uncertain at~~ the ~~time estimates~~Bank ~~are~~rarely ~~made~~extends ~~and~~credit ~~(ii) different estimates reasonably could have been used during the current period, or changes~~ in ~~such estimates are reasonably likely~~ toexcess ~~occur~~of ~~from~~$5 ~~period~~million to ~~period,~~one ~~that~~borrower. There ~~could~~were ~~have~~no a material ~~impact on~~reportable ~~presentation~~contingencies as of ~~the~~September ~~Company’s~~30, ~~Consolidated Financial Statements~~2014.

~~The development, selection and disclosure~~ ofAgricultural critical accounting policies are discussed and approved by the Audit Committee of the Bank’s Board of Directors. Because of the potential impact on the financial condition or results of operations and the required subjective or complex judgments involved, management believes its critical accounting policies consist of the allowance for loan losses, fair value of financial instruments and goodwill.Loans

First Citizens is one of the largest agriculture lenders ~~Allowance~~in the State of Tennessee and is the only preferred Farm Services Agency community bank lender in Tennessee. Agriculture makes a significant contribution to commerce of the Company’s core market in Dyer County, Tennessee, generating over $100 million in revenue on an annual basis. Agricultural credits including loans secured by farmland and loans to finance agricultural production comprise $106 million of total loans as of September 30, 2014 compared to $99 million as of September 30, 2013. Net charge-offs in this category were approximately $19,000 for ~~Loan~~the ~~Losses~~nine months ended September 30, 2014 and less than $1,000 for the nine months ended September 30, 2014.

~~The allowance for losses on loans~~ ~~represents management’s best estimate of inherent losses in the existing loan~~Non-Performing ~~portfolio. Management’s~~Loans ~~policy is to maintain the allowance for loan losses at a level sufficient to absorb reasonably estimated~~ and ~~probable~~Allowance ~~losses within the portfolio. Management believes the allowance~~ for ~~loan~~Loan loss estimate is a critical accounting estimate because: (i) changes can materially affect provision for loan loss expense on the income statement, (ii) changes in the borrower’s cash flows can impact the allowance, and (iii) management makes estimates at the balance sheet date and also into the future in reference to the allowance. While management uses the best information available to establish the allowance for loan losses, future adjustments may be necessary if economic or other conditions change materially. In addition, federal regulatory agencies as a part of their examination process periodically review the Bank’s loans and allowances for loan losses and may require the Bank to recognize adjustments based on their judgment about information available to them at the time of their examination. See Note 1 of the Company’s Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information.Losses

Non-performing loans have historically been in the range ~~Fair~~of ~~Value~~1-2% of ~~Financial~~total ~~Instruments~~loans over the past five years. Non-performing loans totaled $7.3 million as of September 30, 2014 compared to $8.5 million as of December 31, 2013. The decreasing trend of non-performing loans is due to resolution of non-performing loans exceeding the volume of newly identified problems and non-performing loans during 2014.

~~Certain~~Non-current ~~assets~~loans ~~and~~at ~~liabilities are~~third ~~required~~quarter toend be2014 ~~carried~~were on$4.5 million ~~the~~or ~~balance~~less ~~sheet~~than atone ~~fair~~percent ~~value. Further,~~of ~~the fair~~total ~~value~~loans ofcompared ~~financial~~to ~~instruments~~$3.5 ~~must~~million beor less ~~disclosed~~than asone apercent ~~part~~as of ~~the~~year-end ~~notes~~2013. The todifference between ~~the~~non-performing ~~consolidated~~and ~~financial~~non-current ~~statements~~loans ~~for~~is ~~other~~due ~~assets~~to ~~and~~a ~~liabilities. Fair values~~certain ~~are~~volume ~~volatile~~of ~~and~~loans ~~may~~placed on benonaccrual ~~influenced~~status byin a ~~number~~previous ofquarter ~~factors,~~are ~~including market~~paying ~~interest~~and ~~rates~~showing improvements, but ~~prepayment~~have ~~speeds,~~not ~~discount~~yet ~~rates,~~been ~~the~~on ~~shape~~a ofpaying ~~yield~~status for long enough or shown enough ~~curves~~financial ~~and~~improvement ~~the~~to ~~credit~~return ~~worthiness~~to offull ~~counter~~accrual ~~parties~~status.

~~Fair~~The ~~values~~allowance for ~~the~~loan ~~majority~~losses totaled 1.23% as of September ~~the~~30, ~~Bank’s~~2014 ~~available-for-sale~~compared ~~investment~~to ~~securities~~1.35% ~~are~~as ~~based~~of onDecember ~~observable~~2013 and 1.36% as of September 30, ~~market~~2013. The ~~prices~~following ~~obtained~~recaps ~~from~~activity ~~independent~~in ~~asset~~the ~~pricing~~allowance ~~services~~for ~~that~~the ~~are~~first ~~based~~nine months onfor ~~observable~~each ~~transactions~~of ~~but~~the ~~not~~past ~~quoted~~five ~~market~~years ~~prices.~~ (in thousands):

Goodwill

	Year-To-Date Ended September 30,
	2014	2013	2012	2011	2010
Allowance for loan losses:
Beginning of period balance	$7,818	$7,955	$8,039	$8,028	$8,784
Loans charged off	(1,273)	(815)	(1,335)	(2,086)	(6,948)
Recovery of loans previously charged off	380	190	735	228	223
Net loans charged-off	(893)	(625)	(600)	(1,858)	(6,725)
Provision for loan losses	625	775	500	1,925	6,000
End of period balance	$7,550	$8,105	$7,939	$8,095	$8,059

~~The~~See ~~Company’s~~also ~~policy~~Notes is6 toand ~~review goodwill~~7 for impairment at the reporting unit level on an annual basis unless an event occurs that could potentially impair the goodwill amount. Goodwill represents the excess of the cost of an acquired entity over fair value assigned to ~~assets and liabilities. Management believes accounting estimates associated with determining fair value as part of~~ the ~~goodwill~~financial ~~test are~~statements ~~critical~~included ~~because~~elsewhere ~~estimates~~in ~~and~~this ~~assumptions~~Quarterly ~~are~~Report ~~made based~~ on ~~prevailing~~Form ~~market factors,~~10-Q ~~historical~~for ~~earnings and multiples and other contingencies. For more~~additional information, ~~see~~regarding ~~Note 8 in~~ the ~~Consolidated~~loan ~~Financial~~portfolio ~~Statements~~and ~~included elsewhere~~the ~~this~~allowance ~~Quarterly~~for ~~Report~~loan ~~on Form 10-Q~~losses.

32 Other Real Estate Owned

~~Results~~The book value of ~~Operations~~other real estate owned (“OREO”) was $5.5 million as of September 30, 2014 and $6.8 million at December 31, 2013.

~~Earnings~~As ~~per~~of ~~share~~current ~~totaled~~quarter ~~$0.93~~end, ~~per~~there were ~~share~~over 69 properties in ~~second~~OREO ~~quarter 2012~~consisting ~~compared~~primarily toof ~~$0.79~~residential ~~per~~lots, ~~share~~land for indevelopment ~~second~~and ~~quarter~~other ~~2011~~commercial purpose properties. ~~The~~Approximately ~~increase~~94% inof ~~earnings~~the ~~per~~$5.5 ~~share~~million isin ~~primarily~~OREO ais ~~result~~located ofin ~~decreased~~Shelby ~~provision~~County, ~~for~~Tennessee ~~loan losses~~ and ~~stable net interest income~~surrounding counties. ~~Non-interest~~Management ~~income~~continues ~~and~~efforts ~~non-interest~~to ~~expense components~~market ~~are~~and ~~discussed~~liquidate inOREO ~~detail~~with minimal ~~below~~losses.

Net interest income is the principal source of earnings for the Company and is defined as the amount of interest generated by earning assets minus interest cost to fund those assets. Net interest income was flat at $9.1 million for each of second quarters 2011 and 2012. The net yield on average earning assets for second quarters 2012 and 2011 were 4.84% and 5.44%, respectively. The decrease of 60 basis points in yield on earning assets is due to a combination of the continued historically low interest rate environment and due to a shift in the balance sheet. Strong deposit growth over the past two years was invested primarily into lower yielding fed funds sold, interest bearing deposits in other banks and available-for-sale investment securities while loan demand has been weak. Thus, average loans as a percent of total interest earning assets trended lower and totaled 55%, 62% and 67% for the quarter ended June 30, 2012, 2011 and 2010, respectively.34

~~Cost~~Accounting for adjustments to the value of ~~interest~~OREO ~~bearing~~when ~~liabilities~~recorded ~~decreased~~subsequent ~~from~~to 1foreclosure is accomplished on the basis of an independent appraisal.~~21%~~ The asset is recorded at the time of inforeclosure ~~second~~at ~~quarter~~the ~~2011~~lesser toof ~~0.93%~~its inappraised ~~second~~value ~~quarter~~or ~~2012~~the loan balance. ~~Net~~Any reduction ~~interest~~in ~~margin for~~value ~~second~~at ~~quarter~~the ~~2012~~time ~~was~~of ~~4.04%~~acquisition ~~compared~~of the property is charged to 4the allowance for loan losses.~~35%~~ All inother ~~second~~real ~~quarter~~estate ~~2011~~parcels ~~and~~are appraised ~~4.28%~~annually ~~for~~and the ~~year~~carrying ~~ended~~value ~~December~~adjusted 31to reflect the decline, ~~2011~~if any, in its realizable value. ~~Second~~Write-downs ~~quarter~~subsequent ~~2012~~to ~~net~~foreclosure ~~interest~~and gains or losses on ~~margin~~the ~~decreased~~sale asof ~~cost~~OREO are reported in Loss on Sale of ~~interest~~Foreclosed Property in the Non-~~bearing~~Interest ~~liabilities~~Income ~~decreased~~section ~~less~~of ~~than~~ the ~~decreased~~Consolidated ~~yield~~Income Statements. The net loss on ~~interest-earning~~sale ~~assets~~or writedown of OREO for the third quarter of 2014 totaled approximately $190,000 compared to approximately $84,000 for the third quarter of 2014.

~~Average~~Other ~~earning~~real ~~assets~~estate toexpenses ~~total average assets was 90% as~~totaled ofapproximately ~~June 30~~$103,000 ~~2012 consistent with prior period ranges of 85-90%. The dilution is caused by significant investments~~ in ~~fixed~~the ~~assets~~third ~~and~~quarter ~~Bank-owned life insurance (BOLI) policies, which total $51 million or 4.8%~~ of ~~total~~2014 ~~assets~~compared ~~as of~~to ~~June 30, 2012. The statement of cash flows reflects fixed assets purchases of~~ approximately $~~532~~121,000 in ~~first~~the ~~two~~third ~~quarters~~quarter ~~2012~~of ~~and $538,000 during first two quarters 2011~~2013. ~~Earnings~~Other onreal ~~BOLI~~estate ~~policies~~expenses ~~are~~consist ~~included~~of ~~in other non-interest~~expenses ~~income~~related ~~and~~to ~~totaled~~owning ~~approximately~~the ~~$138,000~~property insuch ~~second~~as ~~quarter~~property ~~2012~~taxes, ~~compared to $169~~insurance,~~000~~ property inimprovements ~~second~~and ~~quarter~~maintenance ~~2011~~costs.

~~Average~~Activity ~~interest-bearing deposits~~ in ~~quarter~~OREO ~~ended~~for ~~June~~the ~~30, 2012~~third ~~reflect~~quarters ~~an increase~~ of ~~$30~~2014 ~~million~~and ~~or 4.2% when compared to the same~~2013 ~~period~~consisted ~~in 2011. Cost~~ of ~~interest~~the ~~bearing deposits decreased 28 basis points from second quarter 2011 to second quarter 2012.~~ following:

The following quarterly average balances, interest, and average rates are presented in the following table (dollars in thousands):

	2014	2013
Beginning balance	$5,755	$8,248
Acquisitions	78	77
Capitalized costs	-	-
Dispositions	(158)	(391)
Valuation adjustments through earnings	(190)	(84)
Ending balance	$5,485	$7,850

33 Liquidity

	QUARTER ENDING JUNE 30,
	2012			2011			2010
	Balance	Interest	Rate	Balance	Interest	Rate	Balance	Interest	Rate
ASSETS
Loans(1)(2)(3)	$531,695	$8,100	6.09%	$548,354	$8,692	6.34%	$567,617	$9,076	6.40%
Taxable investment securities	276,429	1,828	2.65%	207,282	1,678	3.24%	169,570	1,606	3.79%
Tax-exempt investment securities(4)	116,588	1,691	5.80%	106,724	1,670	6.26%	92,787	1,483	6.39%
Interest earning deposits in banks	22,497	18	0.32%	16,475	14	0.34%	1,054	2	0.76%
Federal funds sold	14,804	9	0.24%	8,679	7	0.32%	13,934	11	0.32%
Total interest earning assets	962,013	11,646	4.84%	887,514	12,061	5.44%	844,962	12,178	5.77%
Cash and due from banks	13,488			13,405			16,997
Bank premises and equipment	29,356			29,809			30,505
Other non-earning assets	64,497			66,483			65,951
Total Assets	$1,069,354			$997,211			$958,415
LIABILITIES AND EQUITY
Interest bearing deposits	$ 744,063	1,542	0.83%	$714,027	1,983	1.11%	$660,619	2,189	1.33%
Other interest bearing liabilities	85,315	384	1.80%	79,124	421	2.13%	109,158	902	3.31%
Total interest bearing liabilities	829,378	1,926	0.93%	793,151	2,404	1.21%	769,777	3,091	1.61%
Non-interest bearing demand deposits	120,107			103,333			94,781
Other non-interest bearing liabilities	10,539			6,026			6,086
Total liabilities	960,024			902,510			870,644
Total equity	109,330			94,701			87,771
Total liabilities and equity	$1,069,354			$997,211			$958,415
Net interest income		$9,720			$9,657			$9,087
Net yield on average earning assets			4.04%			4.35%			4.30%

Liquidity is managed to ensure there is ample funding to satisfy loan demand, investment opportunities, and large deposit withdrawals. The Company’s primary funding sources include customer core deposits, FHLB borrowings, other borrowings, and correspondent borrowings. Customer based deposits accounted for at least 90% of funding as of September 30, 2014, September 30, 2013 and year-end 2013. As of both September 30, 2014 and December 31, 2013, the Company had $23 million in deposit funds from the State of Tennessee.

The Bank participates in ~~___________________~~Certificate of Deposit Account Registry Service (“CDARS”). CDARS is a deposit placement service that allows the Bank to accept very large-denomination certificates of deposit (“CDs”) (up to $50,000,000) from customers and ensures that 100% of those CDs are FDIC-insured. Participating in this network enhances the Bank’s ability to attract and retain large-denomination depositors without having to place them in a sweep or repurchase agreement. The CDARS network provides a means to place reciprocal deposits for the Bank’s customers, purchase time deposits (referred to as “One-Way Buy” deposits) or to sell excess deposits (referred to as “One-Way Sell” deposits). One-Way Buy deposits are structured similar to traditional brokered deposits. The Bank held reciprocal deposits and One-Way Buy deposits in the CDARS program totaling $7.2 million as of September 30, 2014 compared to $8.4 million as of December 31, 2013. CDARS accounts are classified as brokered time deposits for regulatory reporting purposes.

	(1)	Loan totals are loans held for investments and net of unearned income and loan loss reserves.
	(2)	Fee income on loans held for investment is included in interest income and computations of the yield.
	(3)	Includes loans on non-accrual status.
	(4)	Interest and rates on securities that are non-taxable for federal income tax purposes are presented on a taxable equivalent basis based on the Company’s statutory federal tax rate of 34%.

Securities sold under agreements to repurchase increased $5.5 million from December 31, 2013 to September 30, 2014. Borrowed funds from the FHLB totaled $46.5 million or 4.3% of total liabilities as of September 30, 2014 compared to $40.9 million or 3.9% of total funding as of December 30, 2013.

3435

~~Provision~~Appropriate ~~for~~liquidity ~~loan~~risk ~~losses~~management ~~totaled~~remains ~~approximately~~a ~~$300,000~~high inpriority ~~second~~for ~~quarter~~the ~~2012~~Company ~~compared~~especially togiven ~~approximately~~current ~~$650,000~~conditions in ~~second~~the ~~quarter 2011.~~ banking ~~Net~~industry ~~charged-off~~and ~~loans~~national ~~for~~economy. The ~~first~~Company’s ~~six~~liquidity ~~months~~position ofis strengthened ~~2012~~by ~~totaled~~ready ~~approximately~~access ~~$413,000 compared~~ to ~~approximately~~a ~~$989,000~~diversified inbase ~~first six months~~ of ~~2011. Allowance~~wholesale ~~for~~borrowings. ~~losses~~These oninclude ~~loans~~correspondent asborrowings, afederal ~~percent~~funds ofpurchased, ~~total~~securities sold ~~loans~~under ~~was~~agreements ~~1.45%~~to asrepurchase, ofFHLB ~~June 30~~advances, ~~2012~~brokered certificates of ~~compared~~deposit, toand 1others.~~48%~~ Rates ason ofwholesale ~~June~~borrowing 30sources including FHLB advances, ~~2011~~overnight ~~and~~federal ~~1.52%~~funds aspurchased, ofand ~~December~~brokered ~~31,~~deposits ~~2011. See~~continue to ~~also~~be ~~Nonperforming~~funding ~~Loans~~sources ~~and~~that ~~Allowance~~offer ~~for~~attractive ~~Loan~~pricing ~~Losses~~in ~~section~~the ~~below~~current environment.

~~Non-interest~~As ~~income~~of ~~represents~~September ~~fees~~30, ~~and~~2014, ~~other~~the ~~income derived~~Bank ~~from~~has ~~sources~~available ~~other~~lines ~~than~~of credit ~~interest-earning~~for ~~assets. Non-interest~~federal ~~income~~fund ~~increased approximately~~purchases ~~$202,000~~totaling ~~or 7~~$54.2%5 ~~when~~million ~~comparing~~with ~~second quarters 2012 and 2011. Non-interest~~four ~~income~~correspondent ~~contributed~~banks ~~21.4%~~as ofwell ~~total~~as ~~revenue~~additional inborrowing ~~second~~capacity ~~quarter~~of ~~2012~~$95 ~~compared to 19.5%~~million ofwith ~~total revenue in second quarter 2012~~FHLB.

~~Increased~~The ~~non-interest~~Company ~~income~~maintains ~~in second quarter 2012 is~~ a ~~result~~ ofcrisis ~~increased~~contingency ~~mortgage~~liquidity ~~banking income, increased service charges on~~plan ~~deposit accounts, and reduced net losses on sale or write down of foreclosed property. Income from fiduciary activities was flat~~ at approximately $185,000 in second quarter 2012 compared to $191,000 in second quarter 2011. Mortgage banking income increased approximately $224,000 or 185% due to higher volume of mortgage originations in second quarter 2012 compared to second quarter 2011 as mortgage rates continue at historical lows. Service charges on deposits increased approximately $174,000 or 10.5% due to increased fee and interchange income related to ATM and debit card usage. Brokerage fees increased approximately $61,000 or 18.0% from second quarter 2011 to second quarter 2012 due to increased sales from new and existing accounts. Loss on sale of foreclosed property consists of losses on the ~~sale~~bank ~~of other real estate~~ and ~~valuation~~holding ~~adjustments~~company ~~made subsequent~~level to ~~foreclosures~~defend ~~and~~against ~~totaled~~any ~~approximately~~material ~~$253,000 in net losses for~~downturn ~~second quarter 2012 compared to net losses of $452,000~~ in ~~second~~its ~~quarter~~liquidity ~~2011~~position.

~~Income from~~ ~~White~~Capital Resources and ~~Associates/First~~Regulatory ~~Citizens~~Requirements ~~Insurance, LLC, a full-service insurance agency (“WAFCI”), was included in Income from Insurance Activities in the Consolidated Statements of Income. Non-interest income generated by WAFCI~~ for second quarter 2012, 2011 and 2010 totaled approximately $179,000, $114,000 and $159,000, respectively. Income from insurance activities also includes commissions from sale of credit life policies and the Company’s proportionate share of income from the Bank’s other 50% owned insurance agency.Capital

Management of shareholder equity in a highly regulated environment requires a balance between leverage and return on equity while maintaining adequate capital amounts and ratios. The Company ~~following~~and ~~table~~the ~~compares~~Bank ~~non~~are subject to federal regulatory capital adequacy standards. The risk-~~interest~~based ~~income~~capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, account for ~~second~~off-balance-sheet exposure and minimize ~~quarter~~disincentives for holding liquid assets. Failure to meet capital adequacy requirements could result in certain mandatory, and possibly additional discretionary, actions by regulators that could have a direct material adverse effect on the financial condition of ~~2012~~the Company and the Bank. Federal regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, ~~2011~~liabilities and certain ~~2010~~off-balance-sheet ~~(dollars~~items inas ~~thousands):~~calculated under regulatory accounting policies. The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

	Total	Increase (Decrease)		Total	Increase (Decrease)		Total
	2012	Amount	%	2011	Amount	%	2010
Mortgage banking income	$345	$224	185.12%	$121	($156)	-56.32%	$277
Income from fiduciary activities	185	(6)	-3.14%	191	5	2.69%	186
Service charges on deposit accounts	1,825	173	10.47%	1,652	(111)	-6.30%	1,763
Brokerage fees	400	61	17.99%	339	96	39.51%	243
Earnings on bank owned life insurance	138	(30)	-17.86%	168	40	31.25%	128
Gain (loss) on sale of foreclosed property	(253)	199	-44.03%	(452)	351	-43.71%	(803)
Gain on sale of available-for-sale securities	6	(475)	-98.75%	481	(515)	-51.71%	996
Income from insurance activities	185	64	52.89%	121	(84)	-40.98%	205
Gain on disposition of property	-	-	n/a	-	-	n/a	-
Other non-interest income	176	(8)	-4.35%	184	8	4.55%	176
Total non-interest income	$3,007	$202	7.20%	$2,805	($366)	-11.54%	$3,171

The FDIC’s capital‑based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from “well capitalized” to “critically undercapitalized.” To be “well-capitalized,” the Company’s and the Bank’s Tier 1 Risk-Based Capital Ratio (ratio of Tier 1 Capital to risk-weighted assets) must be at least 6%, its Total Risk-Based Capital Ratio (ratio of total capital to risk-weighted assets) must be at least 10%, and its Tier 1 Leverage Capital Ratio (ratio of Tier 1 Capital to average assets) must be at least 5%. Equity capital (net of certain adjustments for intangible assets and investments in non-consolidated subsidiaries and certain classes of preferred stock) and other certain equity like instruments are considered Tier 1 Capital. Tier 2 Capital consists of core capital plus supplementary or temporary capital such as subordinated debt, some types of preferred stock, and a defined percentage of the allowance for loan losses. The Company has historically maintained capital in excess of minimum levels established by the Federal Reserve Board.

NoAs ~~other~~of September 30, 2014, the Bank’s Tier 1 Risk-~~than~~Based Capital Ratio, Total Risk-~~temporary~~Based ~~impairment~~Capital ~~losses~~Ratio and Tier 1 Leverage Capital Ratios were ~~recognized~~16.17%, in17.27%, and 9.45%, respectively, compared to 16.26%, 17.44%, and 9.32% at December 31, 2013. At September 30, 2014, the ~~three~~Company’s orTier ~~six~~1 ~~months~~Risk-Based ~~ended~~Capital ~~June~~Ratio, Total Risk-Based Capital Ratio and Tier 1 Leverage Capital Ratios were 17.01%, 18.12% and 9.88%, respectively, compared to 16.41%, 17.58%, and 9.40% at December 31, 2013. Management believes, as of September 30, ~~2011~~2014, orthat ~~2012~~the Company and the Bank each met all capital adequacy requirements to which they are subject. Total capital increased 10.7% during 2014 to $124.6 million. ~~See~~The ~~Investment~~increase ~~Securities~~in capital consists of an ~~section~~increase in unrealized gains on available-for-sale ~~additional~~securities ~~information~~as well as undistributed net income.

35On July 2, 2013, the Board of Governors of the Federal Reserve System approved the final rule for Basel III capital requirements for all commercial banks charted in the United States of America. The rule was subsequently approved by the FDIC on July 9, 2013. The rule will implement in the United States certain of the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The major provisions of the new rule applicable to the Company and the Bank are:

Non-interest expense represents operating expenses of the Company and increased $96,000 or 1.3% second quarter 2012 compared to second quarter 2011. Salary and benefits expense is the largest component of non-interest expense and increased approximately $90,000 or 2.15% from second quarter 2011 to second quarter 2012. Increased salary and benefit expense is a result of overall increase in base salaries of approximately 1% and increased employee benefit expense related to accruals for discretionary contributions to the Bank’s Employee Stock Ownership Plan, 36

~~Depreciation and net occupancy expense combined were flat when~~ ~~comparing~~ The new ~~second~~rule ~~quarter~~implements ~~2012~~higher tominimum ~~second~~capital ~~quarter~~requirements, ~~2011. Data~~includes ~~processing~~a ~~(which~~new ~~includes~~ common ~~computer~~equity ~~services)~~Tier ~~expense~~1 ~~increased~~capital ~~approximately $82~~requirement,~~000~~ ~~due~~and toestablishes ~~timing~~criteria that of instruments ~~expenses~~must ~~related~~meet toin ~~various~~order ~~information~~to ~~technology~~be ~~projects~~considered ~~related~~common toequity ~~our core~~Tier ~~processor~~1 capital, ~~online~~additional ~~banking,~~Tier ~~outsourcing~~1 ~~of certain data processing functions~~capital, ~~network~~or ~~security~~Tier ~~and~~2 ~~maintenance~~capital. ~~Data~~ ~~processing~~These ~~is and will~~enhancements ~~continue~~ will toboth beimprove athe ~~significant~~quality ~~component~~and ofincrease ~~non-interest~~the ~~expense~~quantity ~~as a result~~ of ~~strategic~~capital ~~efforts~~ required to ~~ensure~~be ~~integrity~~held ~~and~~by ~~security~~banking oforganizations, ~~customer~~better ~~data~~equipping ~~and~~the inU.S. banking ~~order~~system to ~~comply~~ deal with ~~ever~~adverse ~~increasing~~economic ~~regulatory burdens~~conditions.
~~Legal~~ The new ~~fees~~minimum ~~totaled~~capital ~~approximately~~to ~~$77,000~~risk-weighted ~~and~~assets ~~$103,000~~(RWA) inrequirements ~~second~~are a ~~quarter~~ Common ~~2012~~Equity ~~and~~Tier ~~2011,~~1 ~~respectively. These~~Capital ~~fees~~Ratio ~~relate~~of to4.5% ~~legal~~and ~~costs associated~~a ~~with~~Tier ~~the~~1 ~~normal~~Capital ~~course~~Ratio of ~~business including but not limited to~~ ~~collection~~ 6.0% ~~efforts~~which onis ~~loans~~an ~~and~~increase ~~consulting~~from ~~on corporate matters such as regulatory compliance~~4. ~~Stationary~~0%, and ~~supplies~~a ~~expense~~Total ~~totaled~~Capital ~~approximately~~Ratio ~~$60,000~~that in remains ~~second~~at ~~quarter~~8.0%. ~~2012~~The ~~compared~~minimum toLeverage ~~$56,000~~Ratio ~~for~~(Tier ~~the~~1 ~~same~~capital ~~period~~to ~~in 2011~~total ~~primarily~~ assets) ~~due~~is ~~to overall increased cost of paper and other routine supplies~~4. 0%.
~~While~~ The new ~~FDIC~~rule ~~insurance~~improves ~~premium~~the ~~continues~~quality toof becapital aby ~~major~~implementing changes to the ~~component~~ definition of ~~non-interest~~capital. ~~expense,~~Among itthe ~~has~~most ~~been~~important onchanges aare ~~decreasing~~stricter eligibility ~~trend~~criteria ~~due~~for toregulatory ~~the~~capital instruments that would ~~favorable~~ disallow ~~impact~~the inclusion of ~~the~~instruments ~~changes~~such as trust preferred securities in ~~how~~Tier ~~premiums~~1 ~~are~~capital ~~assessed. Premiums~~going ~~for~~forward, ~~FDIC~~and new constraints on the inclusion of ~~insurance~~ minority ~~decreased~~interests, ~~approximately~~mortgage-servicing ~~$60~~assets (MSAs),~~000~~ deferred tax assets (DTAs), and certain investments in ~~second~~the ~~quarter~~capital ~~2012~~of ~~compared~~unconsolidated tofinancial institutions. ~~second~~In addition, the new rule requires that most regulatory ~~quarter~~ capital ~~2011~~deductions be made from common equity Tier 1 capital.
~~Other~~ Under the ~~real~~new ~~estate~~rule, ~~expense~~in ~~for~~order ~~second~~to ~~quarter~~avoid ~~2012~~limitations ~~was~~on capital distributions, ~~approximately~~ including ~~$115~~dividend payments and certain discretionary bonus payments to executive officers,~~000~~ ~~compared~~a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. This buffer will help to ~~approximately~~ensure that ~~$199~~banking organizations conserve capital when it is most needed,~~000~~ allowing them to better weather periods of economic stress. The buffer is measured relative to risk weighted assets. Phase-in ~~second~~of the capital conservation buffer requirements will begin on January 1, 2016. A banking organization with a buffer greater than 2.5% would not be subject to limits on capital distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The new rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter ~~2011~~if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2. 5% at the beginning of the quarter. When the new ~~See~~ rule ~~Other~~is ~~Real~~fully ~~Estate~~phased ~~section~~in, ~~below~~the ~~for~~minimum ~~additional~~capital ~~information~~requirements plus the capital conservation buffer will exceed the prompt corrective action well-capitalized thresholds.
No The new ~~impairment~~rule ofalso ~~goodwill~~increases ~~has been recorded for~~ the ~~current~~ ~~and~~risk ~~prior~~weights ~~reportable periods. Core deposit intangible expense~~ for ~~the current~~past-due ~~reportable quarter decreased approximately $7~~loans,~~000~~ ~~in second quarter~~certain ~~2012~~ commercial asreal ~~the~~estate ~~core~~loans, ~~deposit intangible was fully amortized in May 2012~~ and ~~therefore~~ ~~has~~some aequity ~~zero balance as of June 30~~exposures, ~~2012. Quarter-to~~

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