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

One First Citizens Place
Dyersburg, Tennessee 38024
www.firstcitizens-bank.com
(Address of principal executive offices including zip code)

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET 
(Stated in Thousands)

See accompanying notes to consolidated financial statements.
- -1-

FIRST CITIZENS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(STATED IN THOUSANDS)

FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(STATED IN THOUSANDS EXCEPT E.P.S. AND SHARES OUTSTANDING)

PROFORMA WITH MUNFORD UNION IN ALL 
PERIODS PRESENTED FIRST CITIZENS 
BANCSHARES, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) 
STATED IN ($000) EXCEPT EPS AND SHARES OUTSTANDING

See accompanying notes to consolidated financial statements.

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FIRST CITIZENS BANCSHARES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, STATED IN THOUSANDS)

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FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, STATED IN THOUSANDS)
JUNE 30, 2003

The consolidated balance sheet as of June 30, 2003, the consolidated statements of income for the six month periods ended June 30, 2003, 2002 and 2001, and the consolidated statements of cash flows for the six months periods then ended have been prepared by the company without an audit.  The accompanying reviewed condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  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 June 30, 2003 and for all periods presented have been made. Operating results for the reporting periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.  For further information, refer to the consolidated financial statements and footnotes thereto included in the company's Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE 2 - ORGANIZATION

First Citizens Bancshares, Inc., is a bank holding company chartered on December 14, 1982, under the laws of the State of Tennessee, on September 23, 1983, all of the outstanding shares of common stock of First Citizens National Bank were exchanged for an equal number of shares in First Citizens Bancshares, Inc.

NOTE 3 - CONTINGENT LIABILITIES

There is no material pending litigation as of the current reportable date that would result in a liability.

NOTE 4 - RESERVE FOR LOAN LOSSES

FASB 114 and 118 were implemented during first quarter of 1995. This new FASB requires companies to set aside reserves for impaired loans.

The following data reflects impaired and probable loss loan totals:

Interest income recognized on impaired loans has been applied on a cash basis. Cash receipts are applied as cost recovery first or principal recovery first, consistent with OCC regulations. An analysis of the loan loss reserve indicates that overall reserves are adequate to cover possible losses within the portfolio in addition to impaired loans.

NOTE 5 - DERIVATIVES ORIGINATION DATE: 06/2000

FASB 133, 137 and 138 - FASB 133 establishes accounting and reporting standards for derivative instruments, embedded in other contracts, and for hedging activities.  It requires derivatives to be reported as either assets or liabilities in the statement of financial position and measures those instruments at fair value.  The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.  FASB 137 and 138 amended FASB 133.  Bancshares' used the derivative as a cash flow to hedge the "Benchmark Interest Rate."  First Citizens designated a Federal Home Loan Bank Variable Libor Borrowing to be hedged and effectively locked in a fixed cost on the liability.  

First Citizens swapped a fixed investment cash flow for a variable cash flow that is tied to the 90 day Libor Rate.  The new variable investment cash flow is matched with a variable borrowing cash flow generating a positive spread of 250 basis points with no interest rate risk.  The transaction was implemented to increase earnings of First Citizens. Volume used in the transaction was $1.5 million. Volume and risk associated with the transaction is well within the Funds Management Policy of the bank.  Maturity of the hedge is 10 years.

The cash flow hedge has produced negative income because First Citizens swapped a fixed cash flow for a variable cash flow and rates later decreased. Value of the derivative decreased $77 thousand net of tax for the current reportable period and $405 thousand cumulative to date.  Other comprehensive income reflects fair market value of the derivative at $547 thousand gross and  $405 thousand net of tax.

NOTE 6 - FASB 141

FASB 141 - This statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion 16. FASB 141 eliminated pooling of interests. Bancshares implemented purchase accounting effective June 30, 2001. Bancshares purchased Munford Union Bank on June 1, 2002.  Munford Union has 5 branches (including the main) for a total asset base at the time of purchase of $115 million.  Munford Union Bank, a state chartered bank established in 1925,serves the counties of Tipton and Shelby in Tennessee. Purchase accounting method was used for the acquisition. Total acquisition price was $19.3 million funded partially through a dividend paid by First Citizens National Bank (The Bank) to First Citizens Bancshares, Inc (The Company).  Balance of funding for the purchase was accomplished through Trust Preferred debt and a line of Credit.  Bancshares stock was not issued for the purchase.  Dollar cost of purchased research and development assets as well as pre-acquisition contingencies was $0 and dollar amount written off was not applicable.  Results of Operations for Munford Union stated in this report include all six months for the ending period June 30, 2003.  Munford Union Bank was merged as a branch of First Citizens National Bank the second quarter of 2003.

All assets and liabilities were valued to the current fair market value.  Goodwill included in the acquisition totaled $8.8 million and will only be amortized if impairment occurs as directed by FASB 142.  Core deposits intangible accumulated to $845 thousand and is being amortized over a ten year period using straight line method. Goodwill on the books of Bancshares will not be tax deductible if impairment according to FASB 142 occurs.

The following condensed balance sheet shows the initial values assigned to each balance sheet item:

Debt issued to fund the Munford purchase will be repaid from accumulated earnings of Munford Union with First Citizens National Bank subsidizing a small fraction of the debt for the first two years and thereafter funded 100% by Munford Union Bank.

NOTE 7 - FASB 142

This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supercedes APB 17.  Goodwill and some intangible assets will no longer be amortized.  This statement adopts a more aggregate view for goodwill and bases the accounting on the units of the combined units of the combined entity into which an acquired entity is integrated (those units are referred to as reporting units in FASB 131).  Currently First citizens' has one reporting unit and does not meet the tests to segment per FASB 131.  As of January 2002, First Citizens ceased to amortize goodwill ($25 thousand per month).  Tests implemented first quarter 2002 and 2003 to establish a goodwill benchmark resulted in an impairment of zero. Total goodwill as of the reportable date is $12 million or 1.69% of total assets or 21.68% of total capital.  The Charter of the Munford Union Bank was sold second quarter for a price of $225 thousand causing a decrease to goodwill of the same amount.  Munford Union Bank merged with First Citizens National Bank June 13, 2003.

Amortization expense of the other identifiable intangibles for the quarter was $15 thousand for 2003.

NOTE 8 - LONG TERM OBLIGATIONS

In March 2002, the Company formed a wholly owned subsidiary First Citizens(TN) Statutory Trust II.  The Trust was created under the Business Act of Delaware for the sole purpose of issuing and selling preferred securities and using proceeds from the sale to acquire long term subordinated debentures issued by Bancshares.  The debentures are the sole assets of the Trust.  First Citizens Bancshares owns 100% of the common stock of the Trust.

On March 26, 2002 the Company through its wholly owned subsidiary, First Citizens (TN) Statutory Trust II, sold 5,000 of its floating rate Preferred Trust Securities at a liquidation amount of $1000 per security for an aggregate amount of $5,000,000.  For the period beginning on (and including) the date of original issuance and ending on (but excluding) June 26, 2002 the rate per annum of 5.59%.  For each successive period beginning on (and including) June 26, 2002, and each succeeding interest payment date at a rate per annum equal to the 3-month LIBOR plus 3.60%; provided however, that prior to March 26, 2007, this interest rate shall not exceed 11%.  Interest payment dates are: March 26, June 26, September 26, and December 26 during the 30 year term.

Bancshares' obligation under the debentures and related documents, constitute a full and unconditional guarantee by the Company of the Trust issuer's obligations under the Preferred Securities.  Although the debentures are treated as debt of the Company, they are treated as Tier I capital subject to a limitation that the securities included as Tier I capital not exceed 25% of the total Tier I capital.  The securities are callable by the Company after 5 years.  These funds are a partial source for the acquisition of Munford Union Bank, along with a line of credit and capital infusion from First Citizens National Bank.

The ability of First Citizens to service its long-term debt obligation is dependent upon the future profitability of its banking subsidiaries and their ability to pay dividends to the Company.

NOTE 9 - REVOLVING LINE OF CREDIT

First Citizens Bancshares has an approved two year renewable line of credit with First Tennessee Bank in the amount of $13 million.  As of the reportable date, the drawn amount was $9.3 million.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS

GENERAL INFORMATION

First Citizens Bancshares, Inc. (the "company") headquartered in Dyersburg, Tennessee, the bank holding company for First Citizens National Bank ("the Bank"), First Citizens Capital Assets and First Citizens (TN) Statutory Trust II.  First Citizens National Bank is a diversified financial service institution, which provides banking and other financial services to its customers. The bank operates four wholly owned subsidiaries: Financial Plus, Inc., Delta Finance, Inc., Nevada Investments I, Inc., and Nevada Investments II, Inc. The bank also owns 50% of White and Associates/First Citizens Insurance LLC and First Citizens/White and Associates Insurance Company, Inc. These subsidiary activities consist of: brokerage, personal finance, investments, insurance related products and credit insurance. The Munford Union Bank and its two wholly owned subsidiaries (Nevada Investments III and IV) were merged into First Citizens National Bank and Nevada Investments during second quarter 2003.

Construction of two new branch facilities is underway and expected to be completed in year 2003.  The first facility at 200 University Avenue, Martin, Tennessee will replace a modular bank building, placed at this location and opened for full service banking in April 2002.  The second facility located at 5845 Airline Road, Arlington, TN, 38002 will serve as a full service branch bank and should be opened for business 4^th quarter 2003.  Market data analysis reflects more than adequate market share growth available within these geographic areas to support the bank's long term financial projections.  Future population and household income growth within the geographic regions are projected to be positive.  First Citizens will continue to search for expansion opportunities that will result in a positive deployment of the Company's capital.

Quarterly reports on Form 10-Q, including all documents incorporated by reference, may contain forward-looking statements. Additional written or oral forward-looking statements may be made from time to time in other filings with the Securities Exchange Commission.  The discussion of changes in operations may contain words that indicate the company's future plans, goals, and estimates of assets, liabilities or income.  Forward-looking statements will express the company's position as of the date the statement is made.  These statements are primarily 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, the words "anticipate," "project," "expect," "believe," "should," "intend," "is likely," "going forward," and other expressions are intended to identify forward-looking statements.  The statements are within the meaning and intent of section 27A of the Securities Exchange Act of 1934.  Such statements may include, but not limited to, projections of income or loss, expenses, acquisitions, plans for the future and others.

The accounting and reporting of First Citizens Bancshares and its subsidiaries conform with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The company's estimates are based on historical experience, information supplied from professionals, regulators and others believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates.  First Citizens considers its more critical accounting policies to consist of the allowance for loan losses and the estimation of fair market value.

The allowance for loan losses on loans represents management's best estimate of inherent losses in the existing loan portfolio.  Management's policy is to maintain the allowance for loan losses at a level sufficient to absorb reasonably estimated and probable losses within the portfolio.  The company believes the loan loss reserve estimate is a critical accounting estimate because:  changes can materially affect bad debt expense on the income statement, changes in the borrower's cash flows can impact the reserve, and management has to make estimates at the balance sheet date and also into the future in reference to the reserve.  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.

Fair value for First Citizens' available for sale investments are based on quoted market prices supplied by a third party.  In situations where quoted market prices are not available, fair values are based on quoted prices of similar instruments.

The Company's policy is to review goodwill for impairment at the reporting unit level on an annual basis unless an event occurs that would 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 test is a critical accounting estimate because estimates and assumptions are made based on prevailing market factors, historical earnings and multiples and other contingencies.

Management has discussed these critical accounting policies with the Audit Committee, and the Audit Committee has reviewed the Company's disclosure relating to them in the discussion and analysis of operations for the quarter just ended.

Bancshares reported continued growth in both earnings and assets for the first two quarters of 2003.  A comparison of total assets as of June 30, 2003 with totals for the same time period one-year ago reflects an increase of $62 million or 9.45%.  Double digit loan growth in second quarter was funded by an increase of 11.27% in total deposits.  This growth is a direct result of the decision by the Board of Directors in 2001 to seek out expansion opportunities in higher growth markets.  Expenses associated with new branch construction and staffing can be offset in a relatively short period of time in markets with good growth potential.  Combined earnings of both first and second quarters 2003 increased in spite of a change in interpretation of Tennessee Excise Tax Law, which resulted in an increase in tax liability of $190,000.  The ruling, which was made second quarter, was retroactive to January 1, 2003.  As a result, second quarter earnings were adjusted to reflect the year to date impact of this ruling. Excluding this retroactive tax expense, earnings for second quarter would have exceeded this same period in 2002.  Growth in net interest income of 11.26% and a 22.39% reduction in the provision for loan losses supported a year to date increase of 3.16% in overall net income.  Earnings projections for the remaining two quarters of 2003 are positive with net income expected to exceed budget projections. Earnings per share for the most recent four quarters respectively are as follows:  $.45, $.54, $.60, and $.58.  Return on average assets was.92% for 2003 compared to 1.20% for the same time period in 2002.Return on assets, excluding the excise tax adjustment would have been 1.06%.  Return on equity decreased to 11.80% for the current year from 13.81% last year and the adjusted ROE net of excise tax adjustment would have been 13.17%.  The effective tax rate for the current period is 35.26% compared to 31.59% for prior period.  Core effective tax rate (excluding excise tax adjustment) is 27.78%. A positive change in the core effective tax rate was a direct result of increased volumes in tax free investments.

Bancshares does not transact business outside the United States.

Net interest income increased $452 thousand or 7.58% when comparing second quarter to the same period in 2003. Total interest bearing liabilities declined 28 basis points over the past 12 months.  Time deposit average paying rate had the most dramatic decrease from 3.12% to 2.69%.  Federal Home Loan Bank borrowings of $64 million carries a yield of 5.37%, resulting in a dilution to net interest income of $1.9 million when compared to average cost of funds of 2.27%. Net interest margins are challenged as the Federal Reserve continues to lower interest rates in an effort to stimulate the national economy.  The most immediate impact to the company's earnings is created by the reduced potential of $142 million in assets held within the investment portfolio.  Accelerated prepayments on mortgage-backed investments and calls on higher earning securities held within the portfolio force the reinvestment of cash inflows at substantially lower rates. Taxable investment yields declined from 4.91% at June 30, 2003 to 3.30% in 2003.  The positive side of the low interest rate environment is the dramatic increase in secondary mortgage lending fees, which increased 355% when compared to first and second quarters of 2002. A review of the last six quarters starting with the most recent reflects the following total:  $498 thousand, $422 thousand, $336 thousand, $239 thousand, $169 thousand and $158 thousand.  It is anticipated that the second quarter trend will continue through third quarter 2003.  Bancshares' net yield on average earning assets was 6.38% for the current period compared to 7.16% for 2002 and 8.57% for 2001. Earning asset yield decreased 78 basis points compared to only 28 basis points for interest bearing liabilities.

The loan loss provision decreased $94 thousand or 23.91% over the prior reporting period.  Additional write downs, charge offs and the declining economy contributed to the higher amount in 2002.  Net charge offs for 2003 were $125 thousand compared to $341 thousand for the first six months in 2002.  A reduced net charge off total in 2003 was a result of recoveries of previously charged off loans totaling $74 thousand and improved quality within the loan portfolio.  Reserve for losses on loans as a percent of total loans was 1.24% at June 2003 compared to 1.16% at June 2002.   The reserve as a percent of total loans for third and fourth quarter 2002 was 1.19% and 1.24% respectively.

Non-interest income increased $172 thousand, or 9.98% over the prior year's total.  In current year 2003, fee income (non-interest income) contributed 15.77% to total revenue compared to 15.61% for the same period last year.  Non-interest income for Munford Union includes one month in 2002. Bond profits of $2 thousand were taken in 2002 compared to $0 in 2003.  The proforma income statement includes Munford Union in all periods and reflects non-interest income increased 1.50%.  The following table compares non-interest income for 2003, 2002 and 2001:

Non-interest expense increased $725 thousand or 15.30% when comparing second quarter 2003 with second quarter 2002. Quarter-to- date proforma income statement (includes Munford in prior period) reflects a 3.78% increase in non-interest expense. Salary and benefits increased as a result of the acquisition (44 fulltime equivalent), other additions in full time salaries, incentive accruals, and hospital insurance.. Bonus accruals account for 9.50% of the salary and benefit total. Full-time equivalent for the current period was 262 compared to 253 for prior year. Tight budget controls and incentives stabilized growth of other  controllable core expenses. Expense other real estate was $34 thousand for second quarter compared to $35 thousand for first quarter 2003.  Other real estate asset was $1.8 million as of December 2002 compared to $1.4 million at June 30, 2003.  Impaired Goodwill expense is $0 for the current reportable period compared to $0 for 2002 and $77 thousand for 2001. The core deposit intangible expense for the current reportable quarter was $15,000. FASB 142 altered the analysis of goodwill for the years 2002 forward. YTD advertising, community relations, and other forms of marketing expenses were $96 thousand or 1.75% of total non-interest expense. All marketing or advertising items are expensed at the time they are incurred.

The following table compares non-interest expense for the second quarter of 2003, 2002, and 2001:

The following quarterly average balances, interest, and average rates are presented in the following table:

FIRST CITIZENS BANCSHARES, INC.,
AND SUBSIDIARY
MONTHLY AVERAGE BALANCES AND INTERST RATES
(STATED IN THOUSANDS)
QUARTER ENDING JUNE 30

(1) Loan totals are shown net of interest collected, not earned and Loan Loss Reserve.

(2) Non-accrual loans are included in average total loans.

(3) Loan Fees are included in interest income and the computations of the yield on loans.

The following table sets forth loan totals net of unearned income by category for the past five years:

The following table sets forth the balance of non-performing loans as of June 30, for the years indicated:

The following table will identify charge-offs by category for the period ending June 30, 2003, 2002, and 2001.

Core net loan growth (excluding acquisitions) grew $45 million or 10.18% when comparing the current period to last June.  Delta Finance (Finance Company subsidiary of The Bank) has loans outstanding totaling $3.4 million or .69% of the company's total loans.  Real estate loans account for 75%, while agricultural production loans comprise 3.57% of total loans.  Loan loss reserve as a percent of total loans was 1.24% for 2003 compared to 1.16% 2002.  Net charge-offs to average net loans for the current reportable period was .02% compared to .07% for prior year.  Net charge offs to average net loans for 2003 represent the lowest percentage experienced for the years of 2001 thru second quarter 2003. It is expected that net loan demand will continue at above average growth percentages for the balance of 2003.

First Citizens is one of the largest agriculture lenders in the State of Tennessee and is an approved Farm Credit Services lender. Agriculture makes a significant contribution to Dyer County commerce, generating approximately $79 million in revenue on an annual basis.  Agricultural credits secured by farmland and other types of collateral comprise more than $42 million of total loans.  Past due credits in this category are .14% of total loans. 

An analytical model based on historical loss experience, current trends and economic conditions as well as reasonably foreseeable events is used to determine the amount of provision to be recognized and to test the adequacy of the loan loss allowance.  The ratio of allowance for loan losses to total loans, net of unearned income was discussed in the above section titled LOANS. A review of non- performing loans reflects non-performing assets at .59% of total loans as of June 30, 2003 compared to peer average of .82% as of the latest peer data dated 03/31/03. Improvements noted in asset quality have allowed for a reduction in the monthly accrual allocated to the loan loss reserve.  Unemployment rates in counties in which Bancshares operates are as follows: Dyer (7.0%), Shelby (6.4%), Tipton (6.9%), Obion (7.8%), Weakley (9.2%) and Lauderdale (11.8%).  Unemployment rates slightly increased in all counties listed when compared to second quarter 2003 from year-end 2002. Higher unemployment rates in Lauderdale County are the result of a plant closing and layoffs in other manufacturing jobs.  One manufacturing company in Obion has experienced a slow down in production, also resulting in employee layoffs. Tipton and Shelby county only experienced a fractional increase in unemployment rate.  On a more positive note the re-location of a injection molding company that produces automotive components for General Motor's line of sports utility vehicles has located in Dyer County and has employed several hundred workers. Concentrations of credit represent 25% of Gross Capital or approximately $12 million.  First Citizens had no concentrations of credit in any single industry.  There are no material reportable contingencies as of this report date.

Liquidity is managed to ensure there is ample funding to satisfy loan demand, investment opportunities, and large deposit withdrawals. Bancshares primary funding sources include customer core deposits, FHLB Borrowings, other borrowings, and correspondent borrowings. Customer based sources accounted for 83.86% of the funding for the current year compared to 82.64% for the prior year. Borrowed funds from the FHLB represent 9.65% ($64 million) of total funding for year 2003 compared to 10.16% ($67 million) last year.   The FHLB line of credit is $126 million with $47 million available at quarter end.  The Company has $20 million in deposit funds from the State of Tennessee. First Citizens National Bank has $15 million of brokered certificate of deposits comprising 2.69% of total deposits.

The bank's liquidity position decreased when comparing quarter end 2003 to year-end 2002 because of a decision to allow $10 million in State certificate of deposits funds to roll off during first quarter. Liquidity has significantly increased when comparing June 2003 to June 2002 as evidenced in the federal funds sold total of $15 million.  Total deposit growth of 28% when comparing quarter end 2003 to year end 2002 reinforces the notion that there is flight to quality by consumers.  A significant attraction of core deposit growth has been the Wall Street Account added to the product base in 2001. Core deposits generated by the addition of the money market account has been in excess of $51 million.  The Wall Street account is tied to the 90 day T-Bill Rate and has been a drawing attraction for consumers looking for a money market account to park funds for the short term while waiting for interest rates to go up.  While deposit growth increases market share and provides for liquidity needs, above average deposit growth can apply pressure to a bank funds' reserve ratio.  In the event deposit growth continues to exceed prior years, FDIC Insurance cost could possibly increase causing an impact on net income.  There is no material impact projected to First Citizens net income in the event FDIC insurance cost increases.

The bank's liquidity position has been strengthened by ready access to a diversified base of wholesale borrowings. These include correspondent borrowings, federal funds purchased, securities sold under agreements to repurchase, Federal Home Loan Bank, Brokered certificates of deposit, and others. The  Bank has lines of credit with the FHLB and correspondent banks totaling $138 million. The Company has a $13 million line of credit with First Tennessee Bank established for acquisitions and other holding company needs (see note 9).  The available line amount as of the current reportable period is $4 million.  The company has a crisis contingency liquidity plan at the bank and holding company level to defend against any material change in the liquidity position.

Nevada Investments I and II was incorporated in the year 2000 as subsidiaries for First Citizens National Bank. The core objective for these corporations was to house the investment portfolio for First Citizens National Bank. Savings from these strategic moves exceeding $300,000 on an annual basis were terminated second quarter 2003.  Termination of the excise tax was discussed in the opening paragraphs of RESULTS OF OPERATIONS. The bank has a portfolio advisory agreement with FTN Financial to manage the investment portfolio.

In excess of 50% of the bond portfolio was called in the year 2001. Investments called were Callable U.S. Agencies. The called amounts were reinvested mainly into mortgage backed agencies (very defined traunches and predictable characteristics) with an average life of less than 5 years. U.S. Treasuries and Agencies account for 71% of the total portfolio. Mortgage related investments are the largest sector of this category accounting for 50% of the total portfolio. Well defined mortgage related investments produce consistent cash flows and will serve Bancshares as a defense against rising interest rates. Declining rates have resulted in prepayment of mortgage related investments, thereby diluting investment yields and causing a material increase in the market value of the portfolio. The years 2003, 2002, and 2001 reflect an above average year in maturities, paydowns, and calls. Cash inflows on the cash flow statement indicate $33 million flowed in year 2003 compared to an average amount of $29 million for 2002. Also indicated on the statement of cash flow is net loan growth of $37 million compared to $6 million for 2002. Other comprehensive income in the capital section has increased 2.54% when compared to the prior year. Pledged investments total $105 million for the current reportable period. Peer data indicates our portfolio yields are less than the average peer bank due to portfolio changes (called bonds, paydowns and above average maturities)in years 2003 and 2002.  The quarterly average report reflects a yield decrease in the investment portfolio of 161 basis points or 33%.  The decrease caused a material decrease to margins, spreads, and net income. Bancshares' goal is to steadily improve the investment portfolio without taking on material risk.

First Citizens National Bank engaged in derivative activity as defined by FASB (Reference footnote 5).  Gains or losses reflected in the year-end income statement attributable to trading activities are $0.

The book value of listed investment securities as of the dates indicated are summarized as follows:

Total capital on June 30, 2003 was $56.3 million, up 7.17% from $52.5 million on June 30, 2002. The increase in capital was from undistributed net income, and favorable market value moves in the bond portfolio (comprehensive income). Bancshares has historically maintained capital in excess of minimum levels established by the Federal Reserve Board. The June 2003 ratio is down due to the Munford Union acquisition (purchase accounting with no stock issuance)and above average asset growth. Leveraging capital with asset growth is a strategic objective for Banchshares. Risk based capital ratio as of June 30, 2003 was in excess of 10.00% , significantly above the 8% mandated by Regulatory Authorities, while 2002's ratio was in excess of 13.50%. The Company's tier I leverage ratio as of the current period was 6.67%. Capital as a percentage of total assets for the current ending period, was 7.82% (excluding loan loss reserves).

The dividend pay-out ratio is 60.06% for the current period compared to 54.73% for the prior year.  Peer bank dividend payout ratios are 37.83%. The annualized dividend per share is $1.08 for 2003 compared to $1.04 for 2002.  The dividend yield was 3.92% (using $27.50 market price) well in excess of peer average of 2.83%.  Peer average is obtained for the Southeast Bank Group.  Treasury stock totaling 59,969 has been purchased as of the current reportable period at a weighted average cost basis of $23.40.  The Board approved a stock repurchase program in 2001 that provides for purchase of $1 million of Bancshares stock per year extended over a five year period.

The table below presents for First Citizens Bancshares, Inc. certain operating ratios as of June 30:  (quarterly annualized)

* Represents primary capital - including reserve for loan losses account

Sarbanes-Oxley Act of 2002:  Congress recently passed the Sarbanes-Oxley Act of 2002.  The legislation imposes new duties on public companies and executives, directors, auditors, plan administrators, attorneys as well as securities analysis.  It creates a new regulatory system for the audit profession and sets new standards for auditor independence.  It expands criminal and civil liabilities.  This new act should contribute to broad restoration of trust in the integrity of disclosure and account practices that inform our capital markets.  First Citizens Bancshares has and will continue to implement all necessary and applicable steps required by this act.

FASB 46:  Consolidation of Variable Interest Entities released earlier this year, has recently led some in the accounting profession to re-examine the accounting treatment of trust preferred securities.  While the Interpretation is not industry specific, the issue centers on whether trust preferred securities should continue to appear on a company's consolidated financial statements as a minority interest in a consolidated subsidiary or whether the trusts would need to be deconsolidated with a debt obligation and a 3% interest in an unconsolidated subsidiary appearing on the balance sheet.  The key question is whether a GAAP change would precipitate a regulatory change for capital purposes.  In letter SR 03-13, dated July 2, 2003, the Board of Governors of the Federal Reserve stated that, until form changes can be implemented to the FR Y-9C, bank holding companies should continue to follow current instructions for reporting of trust preferred securities.  Additionally, companies should continue to include trust preferred securities in their Tier 1 capital, subject to regulatory limitations, until notice is given to the contrary.

FASB 150:  Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03) - This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements.  Remaining provisions of this statement are consistent with the Board's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer.  While the Board still plans to revise that definition through an amendment to concepts Statement 6, the Board decided to defer issuing that amendment until it has concluded its deliberations on the next phase of this project.  That next phase will deal with certain compound financial instruments including putable shares, convertible bonds, and dual-indexed financial instruments.  This statement will not have a material impact on the financial statements of Bancshares.

The bank maintains a formal asset and liability management process to quantify, monitor and control interest rate risk.  The Asset/Liability Committee strives to maintain stability in net interest margin under various interest rate cycles.  First Citizens has materially improved interest rate risk exposure since year-end 2000.  Steps implemented are as follows: (1) increased long term Federal Home Loan Bank borrowings, (2) purchased variable rate investments with well defined traunches that produce perpetual cash flows, (3) encourage existing deposit customers to extend maturities past one year, (4) introduced 3 year brokered Certificate of Deposits as a source ($10 Million) and, (5) reduced overnight borrowings exposure.

First Citizens swapped a $1,500,000 fixed investment cash flow for a variable cash flow stream tied to 90 day libor rate June 2000.  The new variable investment cash flow is matched with a variable borrowing, resulting in an ongoing positive spread of 250 basis points with no interest rate risk.  The transaction was implemented to increase earnings and reduce interest rate risk.  The cash flow hedge has produced a positive income, but because the bank swapped a fixed cash flow for a variable cash flow and rates have declined the value of the derivative has decreased since inception.  The volume and risk associated with this derivative is well within the Funds Management Policy of the bank. There have been no material changes since year-end 2002 applicable to this transaction.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no material legal proceedings filed against First Citizens Bancshares or its subsidiaries as of this report date.

Item 2. Changes in Securities

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters To a Vote of Security Holders

None.

Item 5. Other Information - Controls and Procedures

A review of the effectiveness of internal controls in place over operations and accounting activities of Bancshares and its subsidiaries is performed on an ongoing basis throughout the fiscal year. Review of system controls is accomplished primarily through completion of control function questionnaires, observation and discussion with department or business unit managers. Controls and procedures for all operation and accounting functions are documented and approved by executive management. As of this report date, effectiveness of internal disclosure controls are considered to be effective with no material deficiencies that could adversely affect Bancshares ability to report accurate and comprehensive financial information to investors. There was no internal fraud of any nature known to management.

Item 6. Exhibits and Reports on Form 8K 

The following exhibits are filed herewith or incorporated herein by reference:

99.1) Certification pursuant to 18 U.S.C. 1350

99.2) Certification Under Sarbanes-Oxley Act: Our Chief Executive Officer and Chief Financial Officer furnished to the SEC the certification with respect to this report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.

Reports on Form 8K - None.

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

First Citizens Bancshares, Inc.
(Registrant)

Date: August 14, 2003                                        /s/  KATIE WINCHESTER               
                                                                        PRESIDENT,  CEO, Vice-Chairman
                                                                        First Citizens National Bank
                                                                             (Principal Subsidiary)

Date: August 14, 2003                                           /s/    JEFF AGEE                         
                                                                  EXECUTIVE VICE PRESIDENT &
                                                                     CHIEF FINANCIAL OFFICER
                                                                        First Citizens National Bank
                                                                             (Principal Subsidiary)

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