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First Citizens Bancshares, Inc.
(Exact name of registrant as specified in its charter)

P.O. Box 370, First Citizens Place
Dyersburg, Tennessee 38025-0370
(Address of principal executive offices including zip code)

PART I 

ITEM 1 - BUSINESS

GENERAL

First Citizens Bancshares, Inc. ("Bancshares") was organized December, 1982 as a Tennessee Corporation and commenced operations in September, 1983, with the acquisition of all Capital Stock of First Citizens National Bank of Dyersburg ("First Citizens"). At a meeting of the Board of Directors of First Citizens Bancshares, Inc., on April 19, 2000, a resolution was approved which authorized the filing of a declaration with the Federal Reserve Bank which would result in a change in status from Bank Holding Company to Financial Holding Company. In accordance with provisions of this resolution, an application for Financial Holding Company status was submitted to the Federal Reserve Bank of St. Louis and subsequently approved on June 8, 2000.

As a financial holding company, Bancshares may engage in activities that are financial in nature or incidental to a financial activity. Permissible activities for a financial holding company are contained in Regulation Y of Federal Reserve Regulations. Bancshares may continue to claim the benefits of financial holding status so long as each depository institution owned by the company remains well capitalized and well managed. In addition, Bancshares may not commence new activities under sections 4(k) or 4(n) of the Bank Holding Company Act or acquire control of a company engaged in activities under those sections if any of Bancshares insured depository institutions receive a rating of less than "satisfactory" under any examination conducted to determine compliance with the Community Reinvestment Act.

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

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

The following table sets forth a comparative analysis of Assets, Deposits, Net Loans, and Equity Capital of Bancshares as of December 31, for the years indicated:

Individual bank performance is compared to industry standards through utilization of the Uniform Bank Performance Report (UBPR), published quarterly by the Federal Financial Institution's Examination Council.

This report provides comparisons of significant operating ratios of First Citizens Bancshares with peer group banks. Presented in the following chart are comparisons of First Citizens with peer group banks for the periods indicated:

EXPANSION

On November 12, 1999 the Gramm-Leach-Bliley Act was signed into law. The act contains seven titles, each of which focuses on a different aspect of the financial services industry. This new law will significantly change the way we do business by opening up new business opportunities to the banking industry.

Based on authority granted under this act, First Citizens Bancshares, Inc., formerly a Bank Holding Company, converted to a Financial Holding Company. As a financial holding company, Bancshares may engage in activities that are financial in nature or incidental to a financial activity.

First Citizens through its strategic planning process has stated its intention to seek profitable opportunities that would utilize excess capital and maximize income within the West Tennessee Area. First Citizens' objective in acquiring other banking institutions would be for asset growth and diversification into other market areas. Acquisitions would afford the bank increased economies of scale within the data processing function and better utilization of human resources. Any acquisition approved by Bancshares, would be deemed to be in the best interest of Bancshares and its shareholders.

In December 2001 an Intent to Purchase Agreement was signed with shareholders of Metropolitan Bancshares whereby Bancshares would purchase the assets and assume liabilities of Munford Union Bank, pending regulatory approval. When consumated, this action will add approximately $115,000,000 in assets housed in five locations in Tipton and Shelby Counties in Southeast Tennessee to Bancshares' balance sheet. In addition, this will expand our market into one of the fastest growing areas in our state. The transaction is expected to close by April 30, 2002.

SUPERVISION AND REGULATION

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

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

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

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

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

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

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

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

CAPITAL

Bancshares is subject to capital adequacy requirements imposed by the Federal Reserve Bank. In addition, First Citizens (the principal subsidiary of the corporation) is restricted by the Office of the Comptroller of the Currency (Comptroller) from paying dividends in any years which exceed the net earnings of the current year plus retained profits of the preceding two years. It is the policy of First Citizens to comply with regulatory requirements for the payment of dividends. The Federal Reserve adopted a risk-based capital measure for use in evaluating the capital adequacy of bank holding companies effective January 1, 1991. The risk-based capital measure focuses primarily on broad categories of credit risk and incorporates elements of transfer, interest rate and market rate risk. The calculation of risk-based capital is accomplished by dividing qualifying capital by weighted risk assets. The minimum risk-based capital ratio is 8%, at least one-half or 4.00% must consist of core capital (Tier 1), and the remaining 4% may be in the form of core (Tier 1) or supplemental capital (Tier 2). Tier 1 capital/core capital consists of common stockholders equity, qualified perpetual stock and minority interests in consolidated subsidiaries. Tier 2 capital/supplementary capital consists of the allowance for loan and lease loses, perpetual preferred stock, term subordinated debt, and other debt and stock instruments. Bancshares has historically maintained capital in excess of minimum levels established by the Federal Reserve. A risked based capital analysis is performed on a quarterly basis to test for compliance with Federal Reserve and bank policy guidelines before declaring a dividend or increasing a dividend. First Citizens' policy states that before declaring a di vidend the following ratios will be achieved: (1) Risk Based Capital Tier 1 will be 8.25% or above; Return on year-to-date average equity 9.00%; Asset growth and projected one year future asset growth less than 20.00%; and non performing assets to capital less than 30%. Non performing assets include 90 day past due and non accrual loans.

ITEM 1A.     EXECUTIVE OFFICERS OF THE REGISTRANT

The following information relates to the principal executive officers of Bancshares and its principal subsidiary, First Citizens National Bank as of December 31, 2001:

 BANKING BUSINESS

First Citizens operates a general retail banking business in Dyer County, Tennessee. The bank expanded its banking operations into Lauderdale County in 1995 with the purchase of $8 million in assets and Obion County in 1997 and 1998, purchasing approximately $104 million in assets. All persons who live in either community or who work in or have a business or economic interest in either county are considered as forming a part of the area serviced by First Citizens. First Citizens provides customary banking services, such as checking and savings accounts, funds transfers, various types of time deposits, and safe deposit facilities. It also finances commercial transactions and makes and services both secured and unsecured loans to individuals, firms, and corporations. Commercial lending operations include various types of credit services for its customers.

Agricultural services are provided that include operating loans as well as financing for the purchase of equipment and farm land. The consumer lending department makes direct loans to individuals for personal, automobile, real estate, home improvement, business and collateral needs. Mortgage lending makes available long term fixed and variable rate loans to finance the purchase of residential real estate. These loans are sold in the secondary market without retaining servicing rights. Credit cards and open-ended credit lines are available to both commercial customers and consumers.

Corporate Offices for First Citizens Bancshares and First Citizens National Bank are located in Dyersburg/Dyer County, Tennessee. Dyersburg/Dyer County is located in northwest Tennessee and sits on the banks of the Mississippi River. It is 78 miles northeast of Memphis, Tennessee, 165 miles west of Nashville and 230 miles south of St. Louis, Missouri. Dyer County is equidistant between Chicago and New Orleans with direct rail, Amtrak, highway and interstate service to major industrial and consumer markets. Dyersburg/Dyer County is an anchor in the region that blends education, transportation, industry agribusiness and retail trade to serve the tri-state and service the encompassing Northwest Tennessee, Northwest Arkansas, and the Missouri Boot heel area. Dyer County is a mix of agriculture and industry. Sixty-eight percent of the land in Dyer County is in agricultural production and farming is a major industry in the county. Dyer County is Tennessee's number one producer of soybeans, grain sorghum, commercial vegetables and rice. Other important crops are wheat, cotton, and corn. There are 61 manufacturers and processors distributed throughout the county employing approximately 7,500 workers. The local economy slowed significantly in recent months following a trend which began nationally in mid - 2000. In December 2001, Dyer County unemployment rate was 8.8% compared to the State of Tennessee unemployment rate of 4.5%. The labor force in Dyer County decreased 7.66% from 19,450 in January 1995 to 17,960 in December 2000 primarily due to closings and layoffs in local industries and businesses. A textile manufacturing plant closed in mid-2001, eliminating 900+ jobs, and severely impacting the local economy.

First Citizens National Bank expanded its base of operations into Obion County in 1998. Obion County is located approximately 27 miles north of Dyersburg and is adjacent to Dyer County. Economic conditions in Obion County appear to be solid and growing. The unemployment rate as of December 31, 2001 was 3.5% down from 4.1% at December 31, 2000. The County is a mix of industry, service and retail business. Goodyear Manufacturing, a builder of tires, is the largest employer in the county, employing approximately 3,400 workers at year end 2001. Total Assets of First Citizens National Bank - - Obion County offices in Troy and Union City are approximately $114 million consisting primarily of consumer and retail business loans. Total assets of the Lauderdale County office in Ripley increased to approximately $17,234 million consisting primarily of commercial, business and agriculture loans. Unemployment in Lauderdale County as of December 31, 2000 was 9.0% compared to 4.5% for the state.

First Citizens Financial Plus, Inc., a Bank Service Corporation wholly owned by First Citizens is a licensed Brokerage Service. This allows the bank to compete on a limited basis with numerous non-bank entities who pose a continuing threat to our customer base, and are free to operate outside regulatory control. A second office of First Citizens Financial Plus, Inc. was opened in January 2000 at our Union City location.

First Citizens was granted trust powers in 1925 and has maintained an active Trust Department since that time. Assets as of December 31, 2001 were in excess of $135,360,000. Services offered by the Investment Management and Trust Services Division include but are not limited to estate settlement, trustee of living trusts, testamentary trustee, court appointed conservator and guardian, agent for investment accounts, and trustee of pension and profit sharing trusts.

Delta Finance, a finance company wholly owned by First Citizens National Bank offers financial service to the retail market. Services offered by Delta Finance, consumer finance affiliate, consist primarily of consumer and residential real estate loans. The three offices of Delta Finance are located in Dyersburg, Milan and Union City, TN. The Union City location was purchased in November 2000. Delta Finance was placed on the market "For Sale" last quarter of 2001. Return on this investment is not consistent with strategic goals of First Citizens, prompting the decision to divest ourselves of this business line.

On February 9, 1998, White and Associates/First Citizens Insurance, LLC was chartered by the State of Tennessee. White and Associates/First Citizens is a general insurance agency offering a full line of insurance products including casualty, Life and Health, and crop insurance. First Citizens holds a 50% ownership position, with Mr. White being the managing partner.

A second location of White and Associates/First Citizens Insurance was opened on July 1, 1998 with the purchase of Durham Insurance and is now operating out of the Union City Main Office of First Citizens National Bank. On December 28, 1998 a credit insurance company was formed as First Citizens/White and Associates Insurance Company. In January 1999, First Citizens acquired First Volunteer Bank of Union City and the primary office for Obion County was relocated to the Union City Branch. Halls Insurance Agency, a primary provider of Crop Insurance in the state of Tennessee, was acquired by White & Associates/First Citizens Insurance LLC and a full time agent placed in the Agricultural Services Department at the Main office. In addition, a Title Insurance Company established in 1999, is two-thirds owned by White and Associates/First Citizens, LLC.

On July 19, 2000, the Board approved the organization of Nevada I, which is a corporation organized and existing under the laws of the state of Nevada. The sole activities of Nevada I are the ownership of stock in Nevada II and the ownership of certain loans pursuant to a Participation Agreement. Nevada I will neither own nor lease any tangible property. Nevada I will have an employee located in the state of Nevada and officers and directors located in the state of Tennessee. Permission was also granted to organize Nevada II, which is also a corporation organized and existing under the laws of the state of Nevada. Nevada II board of directors consists of three persons, two Tennessee residents and one Nevada resident. All board meetings will held in Las Vegas, Nevada. The principal activity of Nevada II is to acquire and sell investment securities as well as collect the income from the portfolio. The sole purpose will be to transfer the bank's inv estment activity to the Nevada II Corporation. In conjunction with the Nevada Corporation and transfer of the investment portfolio, FTN Financial assumed management of the portfolio, with First Citizens retaining the option to approve all sales and purchases.

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

The following tabular analysis sets forth the competitive position of First Citizens when compared with other financial institutions in the service area for the period ending June 30, 2001.

*Does not include deposits of $17,827,000 categorized as Overnight and fixed term Repurchase Agreements.

At December 31, 2001 Bancshares and its subsidiary, First Citizens, employed a total of 204 full time equivalent employees. Having been a part of the local community in excess of 100 years, First Citizens has been privileged to enjoy a major share of the financial services market. Dyersburg and Dyer County are growing and with this growth come demands for more sophisticated financial products and services. Strategic planning has afforded the Company both the physical resources and data processing technology necessary to meet financial needs generated by this growth.

USURY, RECENT LEGISLATION AND ECONOMIC ENVIRONMENT

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

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

IMPACT OF GRAMM LEACH-BLILEY ACT

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

Pursuant to the Act, interstate branching took effect on June 1, 1997, except under certain circumstances. Once a bank has established branches in a host state (a state other than its headquarters state) through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the host state where any bank involved in the interstate merger transaction could have established or acquired branches under applicable federal or state law.

The Act further provides that individual states might opt out of interstate branching, prior to May 31, 1997. A bank in that state may merge with a bank in another state provided that neither of the states have opted out.

The Federal Reserve in September, 1996 gave bank holding companies the right to exclude certain securities earnings from the 10% cap on underwriting revenue through "Section 20 Units". It later removed three firewalls, one of which prevented the same bank employee from selling underwriting services, loans and transactions accounts. The Federal Reserve on December 20 more than doubled, to 25% the amount of revenue section 20 units may earn underwriting and dealing in commercial securities. The Office of the Comptroller of the Currency in adopting its controversial operating-subsidiary rule in November 1996, established a procedure that allows national banks to create subsidiaries to underwrite securities, sell insurance, or conduct other activities that the banks may engage in directly. Change in the law for securities underwriting will have no impact on First Citizens since the bank does not engage in this practice. Legislation being considered would possibly limit this action to operating Subsidiaries of the Holding Company only.

The Comptrollers' operating-subsidiary rule also streamlined national banks' applications for new branches. It sets a strict 45-day deadline for Comptroller action on all applications, with a 10 day extension possible when serious CRA issues are raised. The Comptroller provisions closely parallel changes to Regulation Y issued by the Federal Reserve in August, 1996. Those changes give the Federal Reserve 15 days to process most merger applications. It also expands data processing powers, eliminates tying restriction on nonbanks, and allows bank-run trusts to buy mutual funds advised by the bank.

The Gramm-Leach-Bliley Act, referred to as "Financial Modernization" was signed into law November 12, 1999. The Act is the most significant piece of legislation to be enacted in the last 50 years and is expected to dramatically change the landscape of the financial services industry. In essence, the Act is a conglomeration of numerous provisions that impact a broad range of issues within the banking industry. Financial Modernization will pave the way for a new era in banking.

The Act contains seven titles, each of which focuses on a different aspect of the financial services industry. An overview of the Act can be summarized using the following points:

• Removes barriers between insurance, banks, and securities by allowing these entities to merge and sell each other's products under a holding company structure with some exceptions.

• Reasserts the supremacy of state regulation of the business of insurance with specific exceptions.

• Prohibits companies outside the financial services industry to purchase (merge/affiliate) with insurers, banks, and/or securities firms.

• Allows banks to sell insurance and securities products as long as it discloses to the purchasers that these products are not guaranteed by the Federal Deposit Insurance System.

• Prohibits banks from tying the purchase of insurance and securities products as conditions for loan approvals.

• Permits affiliated companies to share customers' personal data with each other but gives the customer the right to prohibit the sharing of this data with companies outside the holding company structure.

• Allows states to preempt federal laws that offer greater privacy protections than those included in the Financial Services Modernization Act.

• Requires states to enact uniform laws and regulations governing the licensure of individuals and entities authorized to sell and solicit the purchases of insurance within and outside a state.

What does this mean for First Citizens? The primary impact will be increased competition as large-scale independent investment bankers (brokerage firms, insurance companies, mutual funds) are likely to begin offering banking services in offices nationwide. The good news is, our focus on diversification has placed the Company in a position to compete by offering the same products and services at convenient locations by a staff our customers know and trust. Through utilization of technology, we offer the same sophisticated services as larger banks with offices nationwide. One example is our Internet Banking Account that has drawn rave reviews from existing and new customers. Customers of First Citizens Financial Plus have access to on-line trading and White and Associates/First Citizens Insurance has established a web presence that is progressing toward on-line insurance sales.

Overall, opportunities available as a result of the new legislation are a plus for community banks. Increased competition that is sure to develop from giant financial services organizations simply means we will work harder to earn the business of our customers. As community bankers, we recognize that bigger does not always mean better, and knowing our customers affords us a tremendous advantage as we strive to identify and serve their financial needs.

First Citizens intends to pursue challenges and opportunities presented by "Financial Modernization". We have made the choice to compete and will do so in an aggressive manner. We intend to maximize our potential for success as we focus on the following:

• Market Awareness - Business decisions will be driven by a clear understanding of the financial needs of existing and potential customers, a focus on enhancing our ability to serve those needs and an awareness of changes which might impact either or both.

• Strategic Planning - Establishing a clear direction for the future of First Citizens, understanding what must be done to accomplish established goals and recognizing signs that might indicate a need to rethink the strategy are key components of the Plan. The management team, acting under guidance of a diverse and committed Board of Directors is positioned to execute a well thought out Strategic Plan. 

• Technology Utilization - Automated customer information systems, electronic banking and remote distribution of services are as available to First Citizens as to the largest bank in America. We are committed to investing resources in a manner that will allow us to remain competitive as the information age continues to grow and mature. 

• Staff Development - There is no one element within an organization more important to success than the quality of staff. In spite of automation and the efficiencies of outsourcing, community banks still need people. In response, a formalized Staff Development program was introduced in 1999, which will support and enhance the quality of current and future management of First Citizens at all levels. Recognizing leadership skills, enhancing abilities through training and supporting realistic career goals are primary objectives of this ongoing process.

The likely focus of the immediate future in this industry is the convergence of financial services. Our emphasis on diversification in recent years has placed First Citizens in the enviable position of being able to effectively compete in this new environment.

CUSTOMER INFORMATION SECURITY AND CUSTOMER FINANCIAL PRIVACY

The Board of Governors of the Federal Reserve System published guidelines for Customer Information Security and Customer Financial Privacy with a mandatory effective date of July 1, 2001. First Citizens has established policies in adherence to the published guidelines.

The three principal requirements relating to the Privacy of Consumer Financial Information in the GLBA:

• Financial institutions must provide their customers with notices describing their privacy policies and practices, including their policies with respect to the disclosure of nonpublic personal information to their affiliates and to nonaffiliated third parties. The notices must be provided at the time the customer relationship is established and annually thereafter.

• Subject to specified exceptions, financial institutions may not disclose nonpublic personal information about consumers to any nonaffiliated third party unless consumers are given a reasonable opportunity to direct that such information not be shared (to "opt out").

• Financial institutions generally may not disclose customer account numbers to any nonaffiliated third party for marketing purposes.

The Customer Information Security guidelines implement section 501(b) of the Gramm-Leach-Bliley Act. The act requires the agencies to establish standards for financial institutions relating to administrative, technical and physical safeguards for customer records and information.

The guidelines require financial institutions to establish an information security program to:

• Identify and assess the risks that may threaten customer information;

• Develop a written plan containing policies and procedures to manage and control these risks; 

• Implement and test the plan; and 

• Adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer information, and internal or external threats to information security

Each institution may implement a security program appropriate to its size and complexity and the nature and scope of its operations. First Citizens National Bank has structured and implemented a financial security program that complies with all principal requirements of the act.

There are no known trends, events or uncertainties that are likely to have a material effect on First Citizens liquidity, capital resources or results of operation. There currently exists no recommendation by regulatory authorities which if implemented, would have such an effect. There are no matters which have not been disclosed. There are numerous banks located within markets served by First Citizens who compete for deposit dollars and earning assets, two of whom are branches of large regional competitors. First Tennessee Bank and Union Planters National Bank are two of the largest financial institutions in the state. Interstate banking as permitted by recent federal legislation as discussed herein could possibly bring about the location of large out of state banks to the area. If so, First Citizens would continue to operate as it has in the past, focusing on the wants and needs of existing and potential customers and maximizing the use of technology. The quality of service and individual attention afforded by an independent community bank cannot be matched by large regional competitors, managed by a corporate team unfamiliar to the area. First Citizens is a forward thinking bank offering products and services required to maintain satisfactory customer relationships as we move into the twenty-first century.

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

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

ITEM 2.     PROPERTIES

First Citizens owns and occupies a six-story building in Dyersburg, Tennessee containing approximately 50,453 square feet of office space, bearing the municipal address of First Citizens Place (formerly 200 West Court). An expansion program completed during 1988 doubled the available floor space of the existing facility. The space was utilized to combine all lending and loan related functions. First Citizens owns the Banking Annex containing total square footage of 12,989 which provides operating space for banking departments i.e. agricultural services, training and public relations, as well as the bank's Brokerage subsidiaries. The municipal address of the bank occupied portion of the Annex is 215-219 Masonic Street.

DOWNTOWN DRIVE-IN:

The land and building occupied by the Downtown Drive-in Branch located at 113 South Church Street, Dyersburg, Tennessee is owned by First Citizens National Bank. The building, newly constructed in 2001 occupies approximately 898 square feet and will be a remote motor bank with six drive-thru lanes and a drive-up ATM lane.

GREEN VILLAGE:

The Green Village Office is located at 620 U.S. 51 Bypass adjacent to the Green Village Shopping Center. Construction of the new office was completed in June 2000. The 6400 square foot facility is designed to generate and service a much larger customer base than currently exists. The addition of a commercial lender to staff, a small business center designed to focus on the needs of local business and a full service postal facility lay the groundwork for growth and development at this location. This facility is equipped with seven drive up teller lanes, one of which is an ATM.

NEWBERN:

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

INDUSTRIAL PARK:

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

RIPLEY:

The Ripley, Lauderdale County facility contains approximately 3,500 square feet and is located on 1.151 acres of land located at 316 Cleveland Street in Ripley, Tennessee. The facililty, newly constructed in 1999 offers full services banking with four drive-up lanes and a twenty four hour access drive-up ATM. Other services offered at the Ripley office are mortgage loans, Brokerages and Insurance.

TROY:

The Bank of Troy was purchased by First Citizens National Bank in early 1998. The Troy Branch is located on Harper Street just west of Highway 51 in Troy, Tennessee. The building is two story brick and siding. The site consists of three lots with maximum dimensions on each side being 272 feet and 260 feet. The first floor in the main building contains 5,896 square feet and houses a full service branch facility. Most of the building was constructed in 1970 with additions and renovations being made since that time. First Citizens has two ATMs located in Troy, one at 510 East Harper Street and the other in the Little General Store.

UNION CITY:

First Volunteer Bank in Union City was purchased by First Citizens early in January 1999. The Union City branch operates two full service facilities, a motor branch and three ATM's in Obion County. The main office is located at 100 Washington Avenue in Union City. The brick building consists of 52,500 square feet on three floors and is a combination of two buildings. The bank occupies 10,000 square feet of the ground floor. An additional 3,750 square feet are used for storage space. The other 3,750 square feet of the ground floor are leased to Snappy Tomato Pizza Company. A motor branch is located at First and Harrison Streets across from the main office. The East branch facility and ATM are located at 1509 East Reelfoot Avenue in Union City.

As a result of the Union City acquisition, First Citizens acquired a 5,123 square foot building having a street address of 500 South First Street, currently leased by Radio Shack. This building will be considered in terms of future expansion of the Union City franchise, or will be sold if no future utilization can be identified.

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

ITEM 3.     LEGAL PROCEEDINGS

First Citizens is involved in routine legal issues. However, the outcome of these issues are not expected to have a material adverse effect to the bank.

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

During the fourth quarter of the year ending December 31, 2001, there were no meetings, annual or special, of the shareholders of Bancshares. No matters were submitted to a vote of the shareholders nor were proxies solicited by management or any other person.

PART II

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

As of December 31, 2001 there were 981 shareholders of Bancshares' stock. Bancshares common stock is not actively traded on any market. Per share prices reflected in the following table are based on records of actual sales during stated time periods. These records may not include all sales during these time periods if sales were not reported to First Citizens for transfer.

Dividend payouts per share restated to reflect a 4:1 stock split in June 1998 were 1.00 dollar in 2000, .90 cents in 1999 and .75 cents in 1998.

*Special dividend paid in fourth quarter 2000 and 1999.

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

ITEM 6.     SELECTED FINANCIAL DATA

The following table presents information for Bancshares effective December 31 for the years indicated.

(1)    Long Term Obligations consist of FHLB Borrowings, an ESOP obligation, and Finance Company Debts.

(2)    Restated to reflect 4 for 1 Stock Split on June 15, 1998.

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

First Citizens Bancshares Inc. is a one-bank holding company headquartered in Dyersburg, Tennessee with full service banking locations Dyer, Lauderdale and Obion Counties. The primary asset of Bancshares is First Citizens National Bank, but also includes First Citizens Financial Plus, Inc, a full service brokerage subsidiary, 50% ownership in White and Associates/First Citizens Insurance, a full service insurance agency, and Delta Finance, a consumer finance affiliate. First Citizens National Bank also offers a full range of Trust and Mortgage Loan services.

The following discussion reviews important factors affecting the financial condition and results of operations of the Corporation for periods indicated. The review should be read in conjunction with the consolidated financial statements and related notes. The discussion also contains forward-looking statements that must also be read in conjunction with the Corporation's Consolidated Financial Statements and Footnotes. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.

A review of the financials contained within this report reveals renewed growth in deposits, loans and assets of the company. Earnings are much improved over the prior year, increasing 27%, supported by an upward trend in net interest margins that began in second quarter and is expected to continue into the current year.

Balance Sheet Summary: Assets grew 7.9%, up in excess of $39,000,000 when compared to year-end 2000. This increase represents good solid internal growth with no acquisitions being accomplished in 2001. For the first time in recent history, growth in deposits exceeded that of loans, with increases of $31,659,000 (8.5%) in deposits and $27,815,000 (8.25%) in loans. This can be attributed in part to a flight to safety by customers concerned with volatility of financial markets, opting instead for security of principal afforded by FDIC insurance. Capital growth of 7.9% was supported by improved earnings and an increase in unrealized gains in the Available for Sale segment of the Investment Portfolio.

Income Statement: Improved net interest margins and an increase in other income resulted in a 27% increase in net income when compared to results of the prior year. This was accomplished in spite of a 24% increase in the loan loss provision, a reflection of the slowing economy and growth within the portfolio. Overall loan portfolio quality remains high, a reflection of strong underwriting standards and diligent oversight by loan administration. The long term Mortgage division was a major contributor to the increase in earnings, ending a record year with income up more than %. Our partnership with White & Associates Insurance produced $242,000 in after tax earnings during 2001, an increase of 19% when compared to year 2000 results.

Liquidity/asset/liability management: The increase in deposit totals and turnover in the investment portfolio resulting from callable securities significantly improved the liquidity position, but also lowered returns. We are reinvesting with an enhanced awareness of the management of callable securities and the impact their structure can have on net interest margins in a falling rate environment.

Shareholder value: The management team at First Citizens is driven by shareholder value. Proposals that involve expansion of markets, investment in new or existing business lines and internal enhancements of operations are all focused toward long-term improvement in the shareholder value of the Company. Dividend yields on Bancshares' Common Stock for years 2001 and 2000 were 45% and 79% above peer group payout ratios. A five-year stock buy-back program approved by the Board of Directors will reduce the number of outstanding shares and thereby enhance the value of each remaining share. During 2001, a total of 41,000 shares were purchased at a cost of $939,000. These shares are held as Treasury Stock and are not available for resale. The management team is committed to the future of First Citizens National Bank as an independent community bank. We realize that the only way this can be accomplished is by providing financial returns sufficient to maintain a high level of shareholder value.

Our future: By the time this report reaches investors, a new location in Martin, Tennessee should be open for business. At this time, the staff and management are in place and are being trained. Even as the temporary facility is being located on sight, we are involved in the process of making decisions relative to a permanent structure. Within eighteen months, a proposed plan will be presented to the Martin Planning Commission for their approval. Based on both internal and external studies of this location, this should prove to be a profitable expansion of First Citizens' market.

First Citizens Bancshares, Inc. has entered into an agreement to purchase the assets of Munford Union Bank in Munford, Tennessee. This is a $115,000,000 asset state chartered bank with locations in Munford (2), Atoka, Millington and Bartlett. It is our intent to allow this bank to continue to operate under its current corporate structure, retaining existing employees and an independent Board of Directors. This acquisition will expand the Bancshares' franchise into several high growth markets, creating opportunities to market banking, brokerage, trust, insurance and mortgage loan product and services.

Summary: This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement no. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion no. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extaordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB no. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which controls is likely to be temporary.

Reasons for issuing This Statement: Because Statement 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under Opinion 30, two accounting models existed for long-lived assets to be disposed of. The Board decided to establish a single accounting model, based on the framework established in Statement 121, for long-lived assets to be disposed of by sale. The Board also decided to resolve significant implementation issues related to Statement 121.

• Users of financial statements indicated that the diverse accounting practices that have developed for obligations associated with the retirement of tangible long-lived assets to be disposed of. The Board decided to establish a single accounting model, based on the framework established in Statement 121, for long-lived assets to be disposed of by sale. The Board also decided to resolve significant implementation issues related to Statement 121.

• Obligations that meet the definitions of a liability were not being recognized when those liabilities were incurred or the recognized liability was not consistently measured or presented.

• Company management indicated that the difference between the pooling and purchase methods of accounting for business combinations affected competition in markets for mergers and acquisitions.

NON-INTEREST INCOME

The following table reflects restated non-interest income for the years ending December 31, 2001, 2000, and 1999:

Net interest income is the difference between interest and fees earned on loans, securities and other interest-earning assets (interest income) and interest paid on deposits and borrowed funds (interest expense). Net interest income is affected by a number of factors including the level, pricing, mix and maturity of earning assets and interest-bearing liabilities; interest rate fluctuations; and asset quality. The Federal Reserve in year 2000 continued to increase the Federal Funds rates from 5.50% at the end of 1999 to 6.50% at the end of year 2000. This rising rate environment caused First Citizens liabilities to reprice at a faster rate than interest rates earned on earning assets thereby causing a decrease in net interest income of $711 thousand or 3.8% from year-end 1999 to 2000. In 2001 the Federal Funds rate started a steady decline throughout the year resulting in net interest income of $ 1 million or 6.34% in excess of amounts posted in 2000. Downward pressures exerted on interest rate margins were offset in part in year 2001 and 2000 with strong loan growth in excess of 7 percent. Net interest income after the loan loss provision when comparing 2001, 2000 and 1999 was $18,273 thousand, $17,183 thousand, and $18,585 thousand. Increases to the provision in 2001and 2000 represents increased loan growth and elevated charge-offs, which exceeded budget projections for the years under comparison. Long term mortgage lending income ended 2001 with record income of $840 thousand up 65% when compared to $508 thousand in 2000. With Federal Funds rate expected to remain steady in 2002, management expects a favorable impact on this years net interest margins and income. First Citizens Bank locked in $19 million of FHLB long term borrowings during the year of 2001 to reduce our exposure to rising rates or interest rate risk.

Growth in non-interest income has become a key component in sustaining increased earnings for Bancshares. Non-interest income increased 5.32 percent and 7.07 percent when comparing year 2001 to 2000 and 1999 respectively. The major components of non-interest income are service charges on deposit accounts, trust, brokerage and insurance commissions. Service charges on deposit accounts increased $503 thousand or 18.55% and $303 thousand or 12.58% when comparing the year 2001, 2000, and 1999. Also contributing to net interest income was $353,000 received from the sale of insurance products and service from First Citizens/White & Associates Insurance Company, LLC. Non interest income as percent of income for 2001 was 14.03% versus 13.73% for 2000 and 13.58% for 1999.

NON-INTEREST EXPENSE

Non interest expense increased .35 percent in 2001 to $16,705 thousand, compared to $16,646 thousand and $15,409 thousand in 2000 and 1999 respectively. One of the most significant components of non-interest expense is salaries and employee benefits representing $8,911 thousand in 2001 and $8,751 thousand in 2000 and $8,672 thousand in 1999. At December 31, 2001 First Citizens had 204 full-time equivalent employees, compared to 209 and 203, respectively at December 31, 2000 and 1999. The reduction in fulltime-time equivalent and associated expenses in 2001 related to a reduction in a number of personnel brought about by improved operational efficiencies gained when merging operations of banks acquired beginning in 1998. Efficiencies implemented over the past three years have reduced and/or controlled non-interest expense at acceptable levels. Going forward, management will continue to focus on improving the efficiency ratio at a level comparable to peer banks.

Net occupancy and equipment expense was $2,951 thousand, an increase of .44% over $2,938 thousand in 2000. Equipment and depreciation expense has been largely driven by information technology demands made on First Citizens in support of service delivery systems necessary to meet customer needs as well to place the bank at a competitive advantage.

Other operating expense decreased $114 thousand or 2.29 percent after posting a sharp $946 thousand or 23.58 percent increase in year 2000. The increase from 1999 to 2000 was a result of payouts to two individuals choosing to exercise contract options available as the result of merger activity in Obion County in 1998. Total payout exceeded $800 thousand and represented the extent of First Citizens' contract liability to employees of merged banks. Other changes in non-interest expense resulted from the cost of employing a consulting firm to review systems and practices and to make recommendations for improvements. The level of compensation for the consulting firm was targeted at one-third or approximately $443 thousand of the increase in annual income derived by the company. After the first year, all income enhancements accrue to the benefit of the company.

Efficiencies implemented over the past five years have reduced and/or controlled non-interest expense at an acceptable level. Going forward, management will focus on increasing the potential to generate non-interest income through investment in non-banking subsidiaries such as insurance agencies, consumer finance companies, and our brokerage business. In addition, we will concentrate on internal income growth in the bank's mortgage lending and trust services departments. As we implement new business lines and grow within existing businesses, non-interest expense can be expected to increase. However, the increase should be offset by increases in income at levels targeted by our Capital Plan.

*      The Peer Group for First Citizens changed when we exceeded $500 million in assets

**    1998 includes Bank of Troy and Delta Finance II. Assets per employee increased due to Troy=s positive position.

COMPOSITION OF DEPOSITS

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