LONG TERM DEBT

12 Months Ended

Dec. 31, 2014

NOTE 14 – LONG TERM DEBT

Long-term debt as of December 31, 2014 and 2013 is summarized as follows (in thousands):

	2014		2013
FHLB advances	$	41,164	$	40,857
Junior subordinated debentures		13,951		10,310
Promissory notes		11,716		-
Total long-term debt	$	66,831	$	51,167

FHLB advances

FCNB had secured advances from FHLB totaling $41.2 million as of December 31, 2014 and $40.9 million as of December 31, 2013. FHLB borrowings are comprised primarily of advances with principal due at call date or maturity date with fixed interest rates ranging from 0.31% to 7.05%. Some FHLB borrowings have quarterly call features and maturities ranging from 2015 to 2023. Advances totaling $16 million require repayment if the call feature is exercised. Under the existing and forecasted rate environments, borrowings with call features in place are not likely to be called in the next 12 months. Obligations are secured by loans totaling $385 million consisting of the FCNB’s entire portfolio of fully disbursed, one-to-four family residential mortgages, commercial mortgages, farm mortgages, second mortgages and multi-family residential mortgages. FCNB had additional borrowing capacity with the FHLB of $100.4 million as of December 31, 2014.

SHB had no outstanding secured or unsecured advances from FHLB as of December 31, 2014 or during the period from acquisition date of October 1, 2014 to December 31, 2014. SHB has one-to-four family residential mortgages totaling $19.6 million pledged and borrowing capacity of $4.7 million with FHLB as of December 31, 2014.

Junior subordinated debentures

The Company owns 100% of the outstanding common securities of three business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors. The trusts used the proceeds from the issuance of their preferred capital securities and common securities (collectively referred to as “capital securities” to buy floating rate junior subordinated debentures issued by the Company. The debentures are the trusts’ only assets and interest payments from the debentures finance the distributions paid on the capital securities. Distributions are payable quarterly at a rate per annum equal to the interest rate being earned by the trusts on the debentures held by the trusts. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company has entered into agreement which fully and unconditionally guarantees the capital securities subject to terms of the guarantee. Although for accounting presentation the trust preferred securities are presented as long-term debt, the outstanding balance qualifies as Tier I capital subject to the limitation that the amount of the securities included in Tier I Capital cannot exceed 25% of total Tier I capital. The following table provides details on the debentures as of December 31, 2014:

	Principal Amount		Interest Rate			Year of Maturity		Amount included in Tier I Capital
First Citizens (TN) Statutory Trust III	$	5,155		2.04	%		2035	$	5,155
First Citizens (TN) Statutory Trust IV		5,155		1.99	%		2037		5,155
Southern Heritage Statutory Trust I		5,155		2.29	%		2034		3,951

In March 2005, the Company formed First Citizens (TN) Statutory Trust III, a Delaware statutory trust for the sole purpose of issuing and selling trust preferred securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. Proceeds were used to reduce other debt at the Company. For the period beginning on (and including) the date of original issuance and ending on (but excluding) June 17, 2005, the rate per annum equals the three-month LIBOR plus 1.80%. Interest payment dates are March 17, June 17, September 17, and December 17 during the 30-year term.

In March 2007, the Company formed First Citizens (TN) Statutory Trust IV, a Delaware statutory trust for the sole purpose of issuing and selling trust preferred securities and using proceeds from the sale to acquire long-term subordinated debentures issued by the Company. Proceeds were used to refinance other debt at the Company at a lower interest rate. For the period beginning on (and including) the date of original issuance and ending on (but excluding) June 15, 2007, the rate per annum equals the three-month LIBOR plus 1.75%. Interest payment dates are March 15, June 15, September 15, and December 15 during the 30-year term.

Pursuant to the merger with SH Bancshares on October 1, 2014, the Company assumed the debentures issued to Southern Heritage Statutory Trust I. The discount associated with the Company’s assumption of the debentures issued to Southern Heritage Statutory Trust I had a carrying value of $1.5 million as of December 31, 2014 and is being amortized through September 2024. Interest for Southern Heritage Statutory Trust I reprices quarterly equal to the three-month LIBOR plus 2.05%.

Promissory Notes

On October 1, 2014, the Company entered into a Loan Agreement, Pledge and Security Agreement, Promissory Note (Fixed Rate) and Promissory Note (Floating Rate) (collectively, the “Promissory Notes”) with First Tennessee Bank, National Association (the “Lender”), pursuant to which the Lender has agreed to extend to the Company two five-year term loans in the aggregate maximum principal amount of $12,000,000 (the “Credit Facilities”). The Promissory Notes provide that the Credit Facilities will be repaid in quarterly installments of principal and interest based on a ten-year amortization schedule consisting of a $6.0 million five-year fixed rate loan at a fixed rate of 3.76% and a $6.0 million five-year floating rate loan at the 90 day rounded LIBOR plus 2% that reprices quarterly. The current principal balance on the Promissory Notes is $11.7 million as of December 31, 2014.

The Credit Facilities are secured by a pledge of 51% of the stock of FCNB, the Company’s wholly owned subsidiary. The Loan Documents also contain a number of affirmative and negative covenants, including limitations on the incurrence of additional debt, liens on property, guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, relocation of the Company’s principal office, principal banking office, or principal registered office, and transactions with affiliates. The Company has used the proceeds of the Credit Facilities to finance part of the cash consideration in the merger with SH Bancshares.

Annual average volume, rates and maturities of long-term debt for the years ended December 31, 2014 and 2013 were as follows (dollars in thousands):

	Average
	Volume		Interest Rate			Maturity
2014⁽¹⁾
First Citizens Bancshares, Inc.	$	14,233		2.63	%	18 years
First Citizens National Bank		46,096		1.82	%	3 years
2013
First Citizens Bancshares, Inc.	$	10,310		2.08	%	22 years
First Citizens National Bank		46,096		1.93	%	4 years

(1)	SHB had no borrowings during the periods presented therefore is not included in the table above.

Maturities of principal of long-term debt for the following five years were as follows as of December 31, 2014 (in thousands):

2015	$	7,505
2016		10,095
2017		9,841
2018		9,620
2019		13,350
Thereafter		16,420
	$	66,831

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

FIRST CITIZENS BANCSHARES INC /TN/ 10-K