As filed with the Securities and Exchange Commission on August 21, 2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT No. 1

to

FORM S-4

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

FIRST CITIZENS BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

E. Marlee Mitchell, Esq. Waller Lansden Dortch & Davis, LLP 511 Union Street, Suite 2700 Nashville, Tennessee 37219 (615) 850-8943

With copies to:

Steven J. Eisen, Esq. Mark L. Miller, Esq. Baker, Donelson, Bearman, Caldwell & Berkowitz, PC 211 Commerce Street, Suite 800 Nashville, Tennessee 37201 (615) 726-5600

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and completion of the merger described in the enclosed Proxy Statement/Prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ __________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐ __________

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☐
(Do not check if a smaller reporting company)

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

                Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)                          ☐

                Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)               ☐

________________________________________

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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Subject to completion, dated August 21, 2014

 

	PROXY STATEMENT/PROSPECTUS
	First Citizens Bancshares, Inc., holding company for		Southern Heritage Bancshares, Inc., holding company for
	MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
	The boards of directors of First Citizens Bancshares, Inc. (“First Citizens”) and Southern Heritage Bancshares, Inc. (“SHB”) have approved an agreement and plan of merger, as amended (the “Merger Agreement”), to merge our two companies. If SHB shareholders approve the Merger Agreement and the transactions contemplated thereby, and the merger is completed, SHB will merge with and into First Citizens and SHB shareholders (other than SHB shareholders who properly exercise their right to dissent from the merger and subject to all applicable securities laws) will have the right to receive an aggregate of (i) $16,085,903.75 in cash, subject to adjustment as set forth in the Merger Agreement, and (ii) 377,658 shares of First Citizens stock, subject to adjustment as set forth in the Merger Agreement and as described below, of the following classes depending on the class of SHB stock held by them: 269,302 shares of First Citizens common stock and 108,356 shares of First Citizens Class A common stock. If the merger is completed, each share of SHB stock issued and outstanding immediately prior to the effective time of the merger will, subject to the election described under “The Merger Agreement - Terms of the Merger” beginning on Page 60 of the attached Proxy Statement/Prospectus, be converted into the right to receive (i) $12.25 in cash, plus (ii) 0.2876 of a share of First Citizens stock. Following arms’-length negotiations between First Citizens and SHB, the per-share value of First Citizens common stock and First Citizens Class A common stock was agreed to be $42.60 per share on the effective date of the Merger Agreement. Based on a value of First Citizens common stock and Class A common stock of $42.60 per share, and assuming no adjustments to the merger consideration, the aggregate per-share merger consideration to SHB shareholders would be $24.50. In certain circumstances described in more detail below, which circumstances SHB’s management does not currently expect, the cash portion of the merger consideration may be adjusted downwards such that, if in the extraordinary circumstance that SHB’s net worth on the Closing Date has dropped by as much as $16,085,903.75, SHB shareholders would receive only First Citizens stock and no cash consideration, in which case the aggregate per-share merger consideration to SHB shareholders would be $12.25. As noted above, the aggregate merger consideration payable to SHB shareholders is subject to certain adjustments as set forth in the Merger Agreement in the event that two specific circumstances occur. First, if SHB’s accumulated other comprehensive income as of the closing date is a loss of greater than $3.4 million, then First Citizens may increase the number of shares issued as merger consideration so that up to 55% of the aggregate merger consideration is comprised of First Citizens stock. Second, if SHB’s minimum net worth at closing (SHB’s total shareholders’ equity, excluding (i) SHB’s Series D Preferred Stock, (ii) accumulated other comprehensive income (loss), (iii) all merger costs if paid or accrued by SHB or any subsidiary of SHB and not reimbursed by SHB prior to the closing date and (iv) any accruals, provisions or charges taken by SHB at the written direction of First Citizens) is less than the required minimum of $22,863,000 set forth in the Merger Agreement, then the cash portion of the merger consideration will be adjusted downward dollar for dollar by the amount of such shortfall. If the closing were to have occurred on August 15, 2014, the latest practicable date prior to the date of first mailing of this Proxy Statement/Prospectus, SHB’s closing net worth would have been $23,628,000, and there would accordingly have been no downward adjustment to the cash portion of the merger consideration, and SHB’s management expects that in the ordinary course of business, which SHB’s management believes will be the case, the closing equity at the date of determination will be greater than or equal to $22,863,000. However, in the event of an extraordinary set of circumstances which SHB’s management does not currently expect, SHB’s closing net worth could be significantly less than $22,863,000. In such extraordinary circumstances, and assuming First Citizens did not elect to exercise its right to terminate the Merger Agreement for breach of the representation of the absence of certain changes or events pursuant to the Merger Agreement, the per share merger consideration to SHB shareholders could be significantly lower than $24.50 per share, and if the closing equity were to drop to as low as $6,777,096.50, then SHB shareholders would receive no cash consideration and would receive only First Citizens stock for their SHB stock of 0.2876 shares of First Citizens stock for each share of SHB stock. For additional information on the possibility of a downward adjustment to the cash portion of the merger consideration, see “The Merger Agreement - Terms of the Merger” beginning on Page 60 of the attached Proxy Statement/Prospectus.

 

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SHB shareholders who hold SHB common stock shall receive First Citizens common stock and SHB shareholders who hold SHB Class A common stock, SHB Class B common stock or SHB Series A preferred stock shall receive First Citizens Class A common stock. In lieu of the issuance of any fractional shares of First Citizens stock, First Citizens will pay to each former SHB shareholder who would otherwise be entitled to receive such fractional share an amount in cash determined by multiplying (i) $42.60 by (ii) the fraction of a share of First Citizens common stock to which such holder would otherwise be entitled to receive. All holders of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock shall have the right to vote on the merger; however, only holders of SHB common stock have the right to vote with respect to the other proposals to be submitted at the annual meeting of SHB shareholders.

First Citizens stock is not currently listed or traded on any securities exchange or quotation system. Neither the common stock nor the preferred stock of SHB is listed or traded on any securities exchange or quotation system. First Citizens may not issue its stock to residents of any state in which the offering of these securities is not registered or eligible for a claim of exemption from registration.

We cannot complete the merger unless we obtain the necessary governmental approvals and unless the shareholders of SHB approve the merger agreement. The board of directors of SHB unanimously recommends that you vote in favor of the merger agreement.

This Proxy Statement/Prospectus provides you with detailed information about the proposed merger between First Citizens and SHB. This document also contains information about First Citizens and SHB. We encourage you to carefully read and consider this Proxy Statement/Prospectus in its entirety.

You should carefully consider the risk factors described beginning on page 14 of this Proxy Statement/Prospectus.

First Citizens is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements after this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this Proxy Statement/Prospectus or determined if this Proxy Statement/Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction.

Shares of First Citizens stock are not savings or deposit accounts or other obligations of any bank or savings association, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of this Proxy Statement/Prospectus is [•], 2014,
and it is first being mailed to the shareholders of SHB on or about [•], 2014.

 

 

 

 

 

 

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Southern Heritage Bancshares, Inc.,

The holding company for

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 25, 2014

TO THE SHAREHOLDERS OF SOUTHERN HERITAGE BANCSHARES, INC.:

This serves as notice to you that an annual meeting of shareholders of Southern Heritage Bancshares, Inc. (“SHB”) will be held on September 25, 2014, at 5:00 PM Eastern Time, at 3020 Keith Street NW, Cleveland, Tennessee 37312, for the following purposes:

1.  Merger Proposal.  Considering and voting upon the approval of the agreement and plan of merger, as amended (the “Merger Agreement”), dated as of March 20, 2014, between SHB and First Citizens Bancshares, Inc. (“First Citizens”), which provides for the merger of SHB with and into First Citizens as more fully described in the accompanying Proxy Statement/Prospectus, and the transactions contemplated by the Merger Agreement;

2.  Election of Directors.  Electing two Class III members of the board of directors to serve three-year terms until the annual meeting of shareholders in 2017 or until their successors have been duly elected and qualified. Note that upon the effective date of the merger, if approved and then consummated, the directors of SHB will no longer serve as directors of SHB, but since the same directors generally are elected as the directors of Southern Heritage Bank, they will continue to serve in that capacity;

3.   Adjournment.  If necessary, adjourning the annual meeting to a later date; and

4. Other Business. Transacting such other business as may properly come before the annual meeting or any adjournment of the annual meeting.

All holders of record of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock at the close of business on August 21, 2014 (the “record date”) are entitled to notice of and to vote on the merger. Each share of SHB stock is entitled to one vote. Approval of the Merger Agreement requires approval by an affirmative vote of at least a majority of the outstanding shares of SHB stock entitled to vote on the proposal, voting as separate classes. Only holders of SHB common stock at the close of business on the record date have the right to vote with respect to the other proposals to be submitted at the annual meeting of SHB shareholders.

The board of directors of SHB has unanimously approved the Merger Agreement and the transactions contemplated thereby and recommends that SHB shareholders vote “FOR” approval of the Merger Agreement and the transactions contemplated thereby.

Under the terms of the Merger Agreement, if the Merger Agreement is approved and the merger is completed, all outstanding shares of SHB stock will be converted into the right to receive an aggregate of (i) $16,085,903.75 in cash, subject to adjustment as set forth in the Merger Agreement, and (ii) 377,658 shares of First Citizens stock, subject to adjustment as set forth in the Merger Agreement, of the following classes depending on the class of SHB stock held by SHB’s shareholders: 269,302 shares of First Citizens common stock and 108,356 shares of First Citizens Class A common stock.

If the merger is completed, each share of SHB stock issued and outstanding immediately prior to the effective time of the merger will, subject to the election described under “The Merger Agreement - Terms of the Merger” beginning on Page 60 of the attached Proxy Statement/Prospectus, be converted into the right to receive (i) $12.25 in cash, plus (ii) 0.2876 of a share of First Citizens stock. Following arms’-length negotiations between First Citizens and SHB, the per-share value of First Citizens common stock and First Citizens Class A common stock was agreed to be $42.60 per share on the effective date of the Merger Agreement.  Based on a value of First Citizens common stock and Class A common stock of $42.60 per share, and assuming no adjustments to the merger consideration, the aggregate per-share merger consideration to SHB shareholders would be $24.50. In certain circumstances described in more detail below, which circumstances SHB’s management does not currently expect, the cash portion of the merger consideration may be adjusted downwards such that, if in the extraordinary circumstance that SHB’s net worth on the Closing Date has dropped by as much as $16,085,903.75,  SHB shareholders would receive only First Citizens stock and no cash consideration, in which case the aggregate per-share merger consideration to SHB shareholders would be $12.25.

 

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As noted above, the aggregate merger consideration payable to SHB shareholders is subject to certain adjustments as set forth in the Merger Agreement in the event that two specific circumstances occur. First, if SHB’s accumulated other comprehensive income as of the closing date is a loss of greater than $3.4 million, then First Citizens may increase the number of shares issued as merger consideration so that up to 55% of the aggregate merger consideration is comprised of First Citizens stock. Second, if SHB’s minimum net worth at closing (SHB’s total shareholders’ equity, excluding (i) SHB’s Series D Preferred Stock, (ii) accumulated other comprehensive income (loss), (iii) all merger costs if paid or accrued by SHB or any subsidiary of SHB and not reimbursed by SHB prior to the closing date and (iv) any accruals, provisions or charges taken by SHB at the written direction of First Citizens) is less than the required minimum of $22,863,000 set forth in the Merger Agreement, then the cash portion of the merger consideration will be adjusted downward dollar for dollar by the amount of such shortfall. If the closing were to have occurred on August 15, 2014, the latest practicable date prior to the date of first mailing of this Proxy Statement/Prospectus, SHB’s closing net worth would have been $23,628,000, and there would accordingly have been no downward adjustment to the cash portion of the merger consideration, and SHB’s management expects that in the ordinary course of business, which SHB’s management believes will be the case, the closing equity at the date of determination will be greater than or equal to $22,863,000. However, in the event of an extraordinary set of circumstances which SHB’s management does not currently expect, SHB’s closing net worth could be significantly less than $22,863,000. In such extraordinary circumstances, and assuming First Citizens did not elect to exercise its right to terminate the Merger Agreement for breach of the representation of the absence of certain changes or events pursuant to the Merger Agreement, the per share merger consideration to SHB shareholders could be significantly lower than $24.50 per share, and if the closing equity were to drop to as low as $6,777,096.50, then SHB shareholders would receive no cash consideration and would receive only First Citizens stock for their SHB stock of 0.2876 shares of First Citizens stock for each share of SHB stock. For additional information on the possibility of a downward adjustment to the cash portion of the merger consideration, see “The Merger Agreement - Terms of the Merger” beginning on Page 60 of the attached Proxy Statement/Prospectus.

SHB shareholders who hold SHB common stock shall receive First Citizens common stock and SHB shareholders who hold SHB Class A common stock, SHB Class B common stock or SHB Series A preferred stock shall receive First Citizens Class A common stock. In lieu of the issuance of any fractional shares of First Citizens stock, First Citizens will pay to each former SHB shareholder who would otherwise be entitled to receive such fractional share an amount in cash determined by multiplying (i) $42.60 by (ii) the fraction of a share of First Citizens common stock to which such holder would otherwise be entitled to receive. All holders of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock shall have the right to vote on the merger; however, only holders of SHB common stock have the right to vote with respect to the other proposals to be submitted at the annual meeting of SHB shareholders.

Notice of Right to Dissent. Dissenting SHB shareholders who comply with the procedural requirements of Chapter 23 of the Tennessee Business Corporation Act will be entitled to receive payment of the “fair value” of their shares. A copy of Chapter 23 of the Tennessee Business Corporation Act containing the procedural requirements to exercise dissenters’ rights is attached as Annex B to the accompanying Proxy Statement/Prospectus. In addition, please see the section entitled “PROPOSAL 1:  THE MERGER – Dissenters’ Rights” in the accompanying Proxy Statement/Prospectus for a discussion of the procedures to be followed in asserting these dissenters’ rights.

Please vote through the Internet or mark, sign, date and return the enclosed proxy card promptly, whether or not you plan to attend the annual meeting. All SHB shareholders are invited to attend the annual meeting. To ensure your representation at the annual meeting, please complete and promptly mail the enclosed proxy card in the enclosed postage paid business reply envelope or vote through the Internet by visiting the following website: www.voteproxy.com. This will not prevent you from voting in person, but will help to secure a quorum and avoid added solicitation costs. If you do not vote your proxy and do not attend the annual meeting in order to vote in person, the effect will be the same as a vote against the Merger Agreement and the transactions contemplated thereby. You may revoke your proxy at any time before it is voted.

Please review the Proxy Statement/Prospectus accompanying this notice for more complete information regarding the proposed merger and the annual meeting.

August [•], 2014

 

 

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TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING	1
SUMMARY	5
The Companies (Pages 71, 113)	5
The Merger (Page 42)	5
What SHB Shareholders Will Receive in the Merger (Page 60)	5
The Board of Directors of SHB Recommends that its Shareholders Approve the Merger Agreement (Page 43)	6
Vote Required to Complete the Merger (Page 40)	6
Annual Meeting (Page 39)	7
Vote Required on Other Matters (Page 40)	8
Record Date and Voting Rights On the Merger (Page 40)	8
Background of the Merger (Page 42)	8
Why First Citizens and SHB are Seeking to Merge (Page 43)	8
Opinion of Financial Advisor to SHB (Page 44)	9
Opinion of Financial Advisor to First Citizens (Page 48)	9
Management and Board of Directors of First Citizens Following the Merger (Page 69)	9
Material U.S. Federal Income Tax Consequences of the Merger (Page 53)	9
Accounting Treatment (Page 53)	9
Interests of SHB Management and Directors in the Merger (Page 59)	10
SHB Shareholders May Dissent from the Merger (Page 56)	10
We Must Obtain Regulatory Approvals to Complete the Merger (Page 53)	10
Conditions to Complete the Merger (Page 66)	11
Termination of the Merger Agreement (Page 67)	12
Termination Fee (Page 68)	13
Comparative Per Share Market Price Information (Page 70)	13
Comparison of Rights of Shareholders (Page 146)	13
RISK FACTORS	14
Risks Related to the Merger	14
Risks Related to First Citizens and First Citizens Stock	17
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRST CITIZENS	21
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SHB	23
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION	25
UNAUDITED COMPARATIVE PER SHARE DATA	36
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION	37
THE ANNUAL MEETING	39
General	39
Proxies	39
Solicitation of Proxies	40
Record Date and Voting Rights On the Merger	40
Vote Required on Other Matters	40
Recommendation of Board of Directors	40
Dissenters’ Rights	41
Certain Matters Relating to Proxy Materials	41
PROPOSAL 1: THE MERGER	42
Introduction	42
Description of the Merger	42
Background of the Merger	42
Reasons for the Merger; Recommendation of the Board of Directors	43
Opinion of Financial Advisor to SHB	44
Opinion of Financial Advisor to First Citizens	48
Regulatory Approval	53
Accounting Treatment	53
Material United States Federal Income Tax Consequences	53
Dissenters’ Rights	56
Interests of Certain Persons in the Merger	59

 

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Comparison of Rights of Shareholders	59
Restrictions on Resales by Affiliates	59
Source of Funds for Cash Portion of Merger Consideration	59
THE MERGER AGREEMENT	60
General	60
Terms of the Merger	60
Treatment of Options	61
Exchange of Certificates in the Merger	61
Fractional Shares	62
Dividends and Distributions	62
Effective Time	62
Representations and Warranties	62
Conduct of Business Prior to the Merger and Other Covenants	64
Conditions to the Completion of the Merger	66
Director Support Agreements	67
Employment Agreements	67
Release by Officers and Directors of SHB	67
Termination of the Merger Agreement	67
Termination Fee	68
Indemnification	68
Amendment of the Merger Agreement	68
Waiver	68
Expenses	68
Management and Operations Following the Merger	69
PRICE RANGE OF STOCK AND DIVIDENDS	70
First Citizens	70
SHB	70
INFORMATION ABOUT FIRST CITIZENS	71
Business	71
Expansion	72
Competition	72
Regulation and Supervision	73
Properties	76
Legal Proceedings	77
Market for First Citizens’ Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	77
Dividends	78
Issuer Purchases of Equity Securities	78
Unregistered Sales of Securities	78
Management’s Discussion and Analysis of Financial Condition and Results of Operations	78
Interest Rate Sensitivity	100
Emerging Growth Company Status	102
Management of First Citizens	103
Corporate Governance	107
Security Ownership of Certain Beneficial Owners and Management of First Citizens	107
Executive Compensation	108
Director Compensation	111
Certain Relationships and Related Person Transactions; Director Independence	112
INFORMATION ABOUT SHB	113
Business	113
Competition	114
Regulation and Supervision	114
Properties	115
Legal Proceedings	116
Market for SHB’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	116
Dividends	116
Issuer Purchases of Equity Securities	116
Unregistered Sales of Securities	116
Management’s Discussion and Analysis of Financial Condition and Results of Operations	117
Interest Rate Sensitivity	136
Management of SHB	138

 

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Corporate Governance	140
Security Ownership of Certain Beneficial Owners and Management of SHB	141
Executive Compensation	142
Certain Relationships and Related Person Transactions	142
DESCRIPTION OF FIRST CITIZENS CAPITAL STOCK	143
Introduction	143
Authorized Capital Stock	143
Common Stock	143
Class A Common Stock	143
Preferred Stock	145
Transfer Agent and Registrar	145
COMPARISON OF RIGHTS OF SHAREHOLDERS	146
PROPOSAL 2:  ELECTION OF DIRECTORS	153
INFORMATION ABOUT THE BOARD OF DIRECTORS	154
Role of the Board	154
2013 Board Meetings	154
Board Committees	154
Director Compensation	154
PROPOSAL 3:  ADJOURNMENT	155
PROPOSAL 4:  OTHER BUSINESS	156
WHERE YOU CAN FIND MORE INFORMATION	157
ANNUAL SHAREHOLDER MEETING AND SHAREHOLDER PROPOSALS	158
First Citizens	158
SHB	158
LEGAL MATTERS	159
EXPERTS	160
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1
Annex A:        Agreement and Plan of Merger, as amended	A-1
Annex B:        Chapter 23 of the Tennessee Business Corporation Act Relating to Dissenters’ Rights	B-1
Annex C:        Opinion of FIG Partners, LLC	C-1
Annex D:       Opinion of Olsen Palmer LLC	D-1

 

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QUESTIONS AND ANSWERS
ABOUT THE MERGER AND THE ANNUAL MEETING

	The following are some questions that you may have regarding the merger and the SHB annual meeting and brief answers to those questions. We urge you to carefully read the remainder of this Proxy Statement/Prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the annual meeting.
Q:	What am I being asked to vote on?
A:	If you are a record holder of SHB common stock, SHB Class A common stock, SHB Class B common stock or SHB Series A preferred stock, you are being asked to vote on a proposal to approve a merger in which SHB will merge with and into First Citizens, with First Citizens surviving. Southern Heritage Bank will become a wholly-owned subsidiary of First Citizens. After the merger, SHB shareholders will no longer own shares of SHB stock and will receive the per share merger consideration.
	In addition, if you are a holder of SHB common stock, you are also being asked to vote on the following proposals:
	Election of Directors.  To elect two Class III members of the board of directors to serve three-year terms until the annual meeting of shareholders in 2017 or until their successors have been duly elected and qualified. Note that upon the effective date of the merger, if approved and then consummated, the directors of SHB will no longer serve as directors of SHB, but since the same directors generally are elected as the directors of Southern Heritage Bank, they will continue to serve in that capacity.
	Adjournment.   If necessary, to adjourn the annual meeting to a later date.
	Other Business.  To transact such other business as may properly come before the annual meeting or any adjournment of the annual meeting.
Q:	Why is SHB merging with First Citizens?
A:	SHB is merging with First Citizens because the boards of directors of both companies believe that the merger will provide shareholders of both companies with substantial benefits and will enable the combined company to better serve customers. The combined company would have a presence throughout West and East Tennessee. A detailed discussion of the background of and reasons for the proposed merger is contained under the headings “PROPOSAL 1:  THE MERGER - Background of the Merger,” and “PROPOSAL 1:  THE MERGER - Reasons for the Merger; Recommendation of the Board of Directors.”
Q:	What do I need to do now?
A:	After you carefully read this Proxy Statement/Prospectus, please vote using the Internet by visiting the following website: www.voteproxy.com or, if you have been provided a proxy card, please vote it promptly by indicating on the enclosed proxy card how you want to vote, and by signing and mailing the proxy card in the enclosed postage-paid business reply envelope as soon as possible so that your shares may be represented at the annual meeting of shareholders. Do not send in your stock certificates now.
	Regardless of whether you plan to attend the annual meeting in person, if you are a SHB shareholder, we encourage you to vote your proxy promptly. This will help to ensure that a quorum is present at the annual meeting and will help reduce the costs associated with the solicitation of proxies.
	The board of directors of SHB unanimously recommends that SHB shareholders vote “FOR” approval of the Merger Agreement and the transactions contemplated thereby and that holders of SHB common stock vote “FOR” the election of two Class III directors to serve until the 2017 annual meeting of shareholders.
Q:	Why is my vote important?
A:	Pursuant to the Tennessee Business Corporation Act, the Merger Agreement must be approved by a majority of all the votes of each class entitled to be cast by SHB shareholders, with each class of stock voting separately. Therefore, a majority of the outstanding shares of SHB stock held by SHB shareholders, present in person or by proxy at the annual meeting, must vote to approve the Merger Agreement. Accordingly, if you abstain, it will have the same effect as a vote AGAINST approval of the Merger Agreement.

 

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Q:	Can I change my vote after I have delivered my proxy card?
A:	You may change your vote at any time before your proxy is voted at the meeting. You can do this in any of the following four ways:
	by sending a written notice to the corporate secretary of SHB in time to be received before the annual meeting stating that you would like to revoke your proxy;
	by completing, signing and dating another proxy card and returning it by mail in time to be received before the annual meeting, in which case your later-submitted proxy will be recorded and your earlier proxy revoked;
	re-vote by using the Internet and visiting the following website: www.voteproxy.com; or
	if you are a SHB shareholder, by attending the annual meeting and voting in person, although attendance by itself will not revoke a previously granted proxy.
	If your shares are held in an account at a broker, you should contact your broker to change your vote.
Q:	If my shares are held in “street name” by my broker, will my broker vote my shares for me?
A:	NOT WITH RESPECT TO THE PROPOSAL TO APPROVE THE MERGER AGREEMENT OR TO ELECT DIRECTORS. You should instruct your broker to vote your shares, following the directions your broker provides. Your broker will not have the discretion to vote your shares on the proposal to approve the Merger Agreement or on the proposal to elect two Class III directors. Failure to instruct your broker how to vote your shares on the proposal to approve the Merger Agreement will have the same effect as voting AGAINST the Merger Agreement.
Q:	What is the aggregate amount of consideration to be paid by First Citizens in the merger?
A:	Under the terms of the Merger Agreement, if the Merger Agreement is approved and the merger is completed, the outstanding shares of SHB stock will be converted into the right to receive an aggregate of (i) $16,085,903.75 in cash, subject to adjustment as set forth in the Merger Agreement, and (ii) 377,658 shares of First Citizens stock, subject to adjustment as set forth in the Merger Agreement.
Q:	What will I receive in connection with the merger?
A:	If the merger is completed, each share of SHB stock issued and outstanding immediately prior to the effective time of the merger will, subject to the election described below, be converted into the right to receive (i) $12.25 in cash, plus (ii) 0.2876 of a share of First Citizens stock. Shareholders of SHB who hold more than one share of SHB stock may elect to receive consideration in exchange for each share of SHB common stock in the form of: (a) 0.5751 shares of First Citizens stock or (b) $24.50 in cash, subject to adjustment pursuant to the merger consideration adjustments as provided in the Merger Agreement, including First Citizens’ rights to adjust the aggregate merger consideration such that, in the aggregate, no more than 377,658 shares of First Citizens stock will be issued in connection with the merger. Following arms’-length negotiations between First Citizens and SHB, the per-share value of First Citizens common stock and First Citizens Class A common stock was agreed to be $42.60 per share on the effective date of the Merger Agreement.  Based on a value of First Citizens common stock and Class A common stock of $42.60 per share, and assuming no adjustments to the merger consideration, the aggregate per-share merger consideration to SHB shareholders would be $24.50. In certain circumstances described in more detail below, which circumstances SHB’s management does not currently expect, the cash portion of the merger consideration may be adjusted downwards such that, if in the extraordinary circumstance that SHB’s net worth on the Closing Date has dropped by as much as $16,085,903.75,  SHB shareholders would receive only First Citizens stock and no cash consideration, in which case the aggregate per-share merger consideration to SHB shareholders would be $12.25.
	As noted above, the aggregate merger consideration payable to SHB shareholders is subject to certain adjustments as set forth in the Merger Agreement in the event that two specific circumstances occur. First, if SHB’s accumulated other comprehensive income as of the closing date is a loss of greater than $3.4 million, then First Citizens may increase the number of shares issued as merger consideration so that up to 55% of the aggregate merger consideration is comprised of First Citizens stock. Second, if SHB’s minimum net worth at closing (SHB’s total shareholders’ equity, excluding (i) SHB’s Series D Preferred Stock, (ii) accumulated other comprehensive income (loss), (iii) all merger costs if paid or accrued by SHB or any subsidiary of SHB and not reimbursed by SHB prior to the closing date and (iv) any accruals, provisions or charges taken by SHB at the written direction of First Citizens) is less than the required minimum of $22,863,000 set forth in the Merger Agreement, then the cash portion of the merger consideration will be adjusted downward dollar for dollar by the amount of such shortfall. If the closing were to have occurred on August 15, 2014, the latest practicable date prior to the date of first mailing of this Proxy Statement/Prospectus, SHB’s closing net worth would have been $23,628,000, and there would accordingly have been no downward adjustment to the cash portion of the merger consideration, and SHB’s management expects that in the ordinary course of business, which SHB’s management believes will be the case, the closing equity at the date of determination will be greater than or equal to $22,863,000. However, in the event of an extraordinary set of circumstances which SHB’s management does not currently expect, SHB’s closing net worth could be significantly less than $22,863,000. In such extraordinary circumstances, and assuming First Citizens did not elect to exercise its right to terminate the Merger Agreement for breach of the representation of the absence of certain changes or events pursuant to the Merger Agreement, the per share merger consideration to SHB shareholders could be significantly lower than $24.50 per share, and if the closing equity were to drop to as low as $6,777,096.50, then SHB shareholders would receive no cash consideration and would receive only First Citizens stock for their SHB stock of 0.2876 shares of First Citizens stock for each share of SHB stock. For additional information on the possibility of a downward adjustment to the cash portion of the merger consideration, see “The Merger Agreement - Terms of the Merger” beginning on Page 60 of the attached Proxy Statement/Prospectus.

 

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	SHB shareholders who hold SHB common stock shall receive First Citizens common stock and SHB shareholders who hold SHB Class A common stock, SHB Class B common stock or SHB Series A preferred stock shall receive First Citizens Class A common stock. In lieu of the issuance of any fractional shares of First Citizens stock, First Citizens will pay to each former SHB shareholder who would otherwise be entitled to receive such fractional share an amount in cash determined by multiplying (i) $42.60 by (ii) the fraction of a share of First Citizens common stock to which such holder would otherwise be entitled to receive.
Q:	Who will be on the board of directors of First Citizens after the merger?
A:	Following the merger, the board of directors of First Citizens will consist of 19 members. Eighteen of these directors will be the current members of the board of directors of First Citizens. For more information on these individuals, see “INFORMATION ABOUT FIRST CITIZENS - Management of First Citizens.” J. Lee Stewart, the current president and chief executive officer of SHB, will be joining the First Citizens board of directors as the 19th member. He will also be joining the First Citizens National Bank board of directors. If, prior to the closing date, Mr. Stewart becomes unavailable for any reason to serve as a member of the board of directors of First Citizens or First Citizens National Bank following the merger, the boards of directors of First Citizens and First Citizens National Bank will continue with their current members. See “THE MERGER AGREEMENT - Management and Operations Following the Merger” for biographical information with respect to Mr. Stewart.
Q:	What are the material U.S. federal income tax consequences of the merger to the shareholders?
A:	The merger has been structured and is intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). As a result of the merger’s qualification as a reorganization, it is anticipated that SHB shareholders will not recognize gain or loss for U.S. federal income tax purposes on the exchange of shares of SHB stock for shares of First Citizens stock, except with respect to cash received in connection with the merger and cash delivered in lieu of fractional shares of First Citizens stock and except for SHB shareholders who exercise their dissenters’ rights with respect to the merger.
	This tax treatment may not apply to all SHB shareholders. You are urged to consult your own tax advisor for a full understanding of the merger’s tax consequences that are particular to you.
Q:	What is the purpose of this Proxy Statement/Prospectus?
A:	This document serves as SHB’s proxy statement and as First Citizens’ prospectus. As a proxy statement, this document is being provided to SHB’s shareholders because SHB’s board of directors is soliciting proxies to vote to approve the Merger Agreement, the election of directors and other business that may properly come before the meeting. As a prospectus, this document is being provided to SHB’s shareholders by First Citizens because First Citizens is offering shares of First Citizens stock in exchange for their shares of SHB’s stock if the merger is completed.
Q:	Should I send in my SHB stock certificates now?
A:	No. You should not send in your stock certificates at this time. If the merger is approved by the SHB shareholders, then shortly after the annual meeting, the exchange agent will send SHB shareholders written instructions for exchanging SHB stock certificates for First Citizens stock certificates, including a letter of transmittal and an election form with instructions. The allocation of the mix of consideration payable to each SHB shareholder will not be finally determined until the exchange agent tallies the results of the stock and cash elections made by SHB shareholders, which will not incur until after the deadline specified in the election form.
Q:	What happens if I do not make a valid election under the election form?
A:	If you do not return a properly completed election form by the deadline specified in the election form, your shares of SHB stock will be considered “non-election shares” and, in accordance with the terms if the Merger Agreement, you will be entitled to receive for each share of SHB stock you hold cash consideration of $12.25 and stock consideration of 0.2876 of a share of First Citizens stock (plus cash in lieu of any fractional shares), subject to adjustment as described in the Merger Agreement.
Q:	Do I have the right to dissent and obtain the “fair value” for my shares?
A:	Yes, if you are a SHB shareholder, Tennessee law permits you to dissent from the merger and to obtain payment in cash of the “fair value” of your shares of SHB stock. To do this, an SHB shareholder must follow specific procedures, including delivering written notice to SHB of his or her intent to demand payment for his or her shares if the merger is completed. This notice must be delivered to SHB before the shareholder vote on the Merger Agreement is taken and a dissenting SHB shareholder must not vote his or her shares in favor of the Merger Agreement. If an SHB shareholder follows the required procedures, his or her only right will be to receive the “fair value” of his or her SHB stock in cash if the merger is completed. If a shareholder thinks that he or she may desire to dissent, then such person should not send in a proxy unless it is marked to vote against the merger. Copies of the applicable Tennessee statutes are attached to this Proxy Statement/Prospectus as Annex B. See “PROPOSAL 1:  THE MERGER - Dissenters’ Rights.”
	Tennessee law does not provide dissenters’ rights to First Citizens’ shareholders.

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Q:	Whom do I contact if I have questions about the merger?
A:	If you have questions about the merger, including about the procedures for voting your shares, you should contact:
	Southern Heritage Bancshares, Inc.
	3020 Keith Street NW
	Cleveland, Tennessee 37312
	Attention: J. Lee Stewart, President and Chief Executive Officer
	Phone Number: (423) 473-7980
Q:	When and where will the annual meeting of shareholders of SHB be held?
A:	The annual meeting of shareholders of SHB will be held on September 25, 2014, at 5:00 PM Eastern Time, at 3020 Keith Street NW, Cleveland, Tennessee 37312.
Q:	Who is entitled to vote at the annual meeting of shareholders of SHB?
A:	All holders of record of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock at the close of business on August 21, 2014 are entitled to notice of and to vote on the merger. Only holders of SHB common stock at the close of business on the record date have the right to vote with respect to the other proposals to be submitted at the annual meeting of SHB shareholders.
Q:	When do you expect the merger to be completed?
A:	We expect to complete the merger during the fourth quarter of 2014, although delays could occur. We received approval from the Federal Reserve System (the “Federal Reserve”) on May 13, 2014, and the Federal Reserve has extended the deadline by which the merger must close to November 13, 2014. We received approval from the Tennessee Department of Financial Institutions (the “TDFI”) on July 24, 2014. The next step is to obtain the approval of SHB shareholders at their annual shareholders meeting.
Q:	Are there any risks I should consider in deciding whether I vote for the Merger Agreement?
A:	Yes. A number of risk factors that you should consider carefully are set forth under the heading of “Risk Factors,” beginning on page 14.

 

 

 

 

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RISK FACTORS

If the merger is consummated and you are an SHB shareholder, you will receive shares of First Citizens common stock in exchange for your shares of SHB common stock and you will receive shares of First Citizens Class A common stock in exchange for your shares of SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock. An investment in First Citizens common stock is subject to a number of risks and uncertainties. Risks and uncertainties relating to general economic conditions are not summarized below. However, First Citizens and SHB believe that there are a number of other risks and uncertainties relating to First Citizens that you should consider in deciding how to vote on the Merger Agreement in addition to the risks and uncertainties associated with financial institutions generally. Many of these risks and uncertainties could affect First Citizens’ future financial results and may cause First Citizens’ future earnings and financial condition to be less favorable than First Citizens’ expectations. There are also a number of risks related to the merger that shareholders of SHB should consider in deciding how to vote on the Merger Agreement. This section summarizes those risks. You should keep these risk factors in mind when you read forward-looking statements in this document. Please refer to the section of this Proxy Statement/Prospectus titled “Cautionary Statement Concerning Forward-Looking Information.”

Risks Related to the Merger

The value of First Citizens shares received may fluctuate; shareholders of SHB may receive more or less value depending on fluctuations in the price of First Citizens stock and, in certain circumstances, downward adjustments to the cash portion of the merger consideration pursuant to certain provisions of the Merger Agreement

The number of shares of First Citizens stock issued to SHB shareholders in exchange for each share of SHB stock is fixed. The market values of First Citizens stock and SHB stock at the time the merger is completed may vary from their market values at the date the Merger Agreement was executed, the date of this document and at the date of the shareholders’ meeting of SHB. Shares of First Citizens stock are not traded on an exchange, and therefore, as of the date of this Proxy Statement/Prospectus, there is no public market for such shares. There is no assurance that shares of First Citizens stock can be sold at a price equal to or greater than the implied per share merger value of $24.50 per SHB share following completion of the merger. See “Risks Related to First Citizens and First Citizens Stock - Lack of Trading Market.” Because the exchange ratio will not be adjusted to reflect any changes in the market value of First Citizens stock, the market value of First Citizens stock issued in the merger may be higher or lower than the value of such shares on earlier dates. If the value of First Citizens stock declines prior to completion of the merger, the value of the merger consideration to be received by SHB’s shareholders will decrease.

These variations may be the result of various factors, many of which are beyond the control of SHB and First Citizens, including:

• changes in the business, operations or prospects of First Citizens, SHB or the combined company;

• governmental and/or litigation developments and/or regulatory considerations;

• market assessments as to whether and when the merger will be consummated and the anticipated benefits of the merger;

• governmental action affecting the banking and financial industry generally;

• market assessments of the potential integration or other costs;

• lack of a trading market for First Citizens stock; and

• general market and economic conditions.

The merger may not be completed until a significant period of time has passed after the SHB shareholder meeting. At the time of the shareholder meeting, SHB shareholders will not know the exact value of the First Citizens stock that will be issued in connection with the merger.

                The value of First Citizens stock and SHB stock at the effective time of the merger may vary from their prices on the date the Merger Agreement was executed, the date of this Proxy Statement/Prospectus and the date of the shareholders’ meeting. Because there is no public market for either First Citizens stock or SHB stock, the future market prices of First Citizens stock and SHB stock cannot be guaranteed or predicted. Additionally, if SHB’s minimum net worth at closing (SHB’s total shareholders’ equity, excluding (i) SHB’s Series D Preferred Stock, (ii) accumulated other comprehensive income (loss), (iii) all merger costs if paid or accrued by SHB or any subsidiary of SHB and not reimbursed by SHB prior to the closing date and (iv) any accruals, provisions or charges taken by SHB at the written direction of First Citizens) is less than the required minimum of $22,863,000 set forth in the Merger Agreement, then the cash portion of the merger consideration will be adjusted downward dollar for dollar by the amount of such shortfall. Assuming First Citizens did not elect to exercise its right to terminate the Merger Agreement for breach of the representation of the absence of certain changes or events pursuant to the Merger Agreement if SHB’s closing net worth is significantly less than $22,863,000 at the closing, the per share merger consideration to SHB shareholders could be significantly lower than $24.50 per share. If the closing equity were to drop to as low as $6,777,096.50, then SHB shareholders would receive no cash consideration and would receive only First Citizens stock for their SHB stock of 0.2876 shares of First Citizens stock for each share of SHB stock. For additional information on the possibility of a downward adjustment to the cash portion of the merger consideration, see “The Merger Agreement - Terms of the Merger” beginning on Page 60 of this Proxy Statement/Prospectus.

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SHB’s shareholders may not receive the form of merger consideration they elect.

The Merger Agreement contains provisions that are designed to ensure that 50% of the outstanding shares of SHB stock are exchanged for shares of First Citizens stock and the other 50% of the shares of SHB stock are exchanged for cash consideration; provided, however, that the Merger Agreement provides that the stock portion of the merger consideration may be increased to 55%. If elections are made by SHB shareholders that would otherwise result in more or less than 50% of such shares being converted into First Citizens stock, the amount of First Citizens stock that SHB shareholders will have elected to receive upon exchange of their shares will be adjusted so that, in the aggregate, 50% of the shares of SHB stock will be exchanged for the right to receive shares of First Citizens stock and the remaining shares of SHB stock will be exchanged for the right to receive cash. As a result, there is a risk that you will not receive a portion of the merger consideration in the form that you elect, which could result in, among other things, tax consequences that differ from those that would have resulted had you received the form of consideration you elected (including the recognition of gain for U.S. federal income tax purposes with respect to the cash received). If you do not make an election, you will be deemed to have made an election to receive the merger consideration in such combination of cash and/or shares of First Citizens stock as provided for in the Merger Agreement. Further, First Citizens may not issue its stock as merger consideration to residents of any state in which the offering of First Citizens’ stock is not registered or eligible for a claim of exemption from registration. One or more state securities commissions may deny First Citizens’ application for registration or claim of exemption, in which case First Citizens could not sell its stock in the subject jurisdiction.

We may fail to achieve the anticipated benefits of the merger.

First Citizens and SHB have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger.

First Citizens may fail to realize the cost savings estimated for the merger.

Although First Citizens estimates that it will realize cost savings from the merger when fully phased in, it is possible that the estimates of the potential cost savings could turn out to be incorrect. For example, the combined purchasing power may not be as strong as expected, and therefore the estimated cost savings could be reduced. In addition, unanticipated growth in First Citizens’ business may require First Citizens to continue to operate or maintain some facilities or support functions that are currently expected to be combined or reduced. The cost savings estimates also depend on our ability to combine the businesses of First Citizens and SHB in a manner that permits those costs savings to be realized. If the estimates turn out to be incorrect or First Citizens is not able to combine the two companies successfully, the anticipated cost savings may not be fully realized or realized at all, or may take longer to realize than expected.

The market price of shares of First Citizens stock after the merger may be affected by factors different from those affecting shares of SHB or First Citizens currently.

The businesses of First Citizens and SHB differ in some respects and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of stock may be affected by factors different from those currently affecting the independent results of operations of each of First Citizens and SHB. For a discussion of the businesses of First Citizens and SHB and of certain factors to consider in connection with those businesses, see “INFORMATION ABOUT FIRST CITIZENS” and “INFORMATION ABOUT SHB” beginning on pages 71 and 113, respectively.

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The executive officers and directors of SHB have interests different from typical SHB shareholders.

The executive officers and directors of SHB have certain interests in the merger and participate in certain arrangements that are different from, or are in addition to, those of SHB shareholders generally. See “THE MERGER – Interests of Certain Persons in the Merger.” As a result, these executive officers and directors could be more likely to approve the Merger Agreement than if they did not hold these interests.

Former shareholders of SHB will be limited in their ability to influence First Citizens’ actions and decisions following the merger.

Following the merger, former shareholders of SHB will hold less than 9.5 percent of the outstanding shares of First Citizens stock, including only approximately 7 percent of the outstanding voting stock. As a result, former SHB shareholders will have only limited ability to influence First Citizens’ business. Former SHB shareholders will not have separate approval rights with respect to any actions or decisions of First Citizens or, other than Mr. Stewart, have separate representation on First Citizens’ board of directors.

The merger may result in a loss of current SHB employees.

Despite First Citizens’ efforts to retain quality employees, First Citizens might lose some of SHB’s current employees following the merger. Current SHB employees may not want to work for First Citizens or may not want to assume different duties, positions and compensation that First Citizens offers to the SHB employees. Competitors may recruit employees prior to the merger and during the integration process after the merger. As a result, current employees of SHB could leave with little or no prior notice. First Citizens cannot assure you that the combined companies will be able to attract, retain and integrate employees following the merger.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated in the Merger Agreement may be completed, various approvals must be obtained from bank regulatory and other governmental authorities. These governmental entities may impose conditions on the granting of such approvals. Such conditions and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on First Citizens following the merger. The regulatory approvals may not be received at any time, may not be received in a timely fashion, and may contain conditions on the completion of the merger that are not anticipated or cannot be met. Although First Citizens and SHB do not currently expect that any such material conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

The Merger Agreement limits SHB’s ability to pursue an alternative transaction and requires SHB to pay a termination fee plus expenses incurred by First Citizens under certain circumstances relating to alternative acquisition proposals.

The Merger Agreement prohibits SHB from soliciting, initiating, encouraging or knowingly facilitating certain alternative acquisition proposals with any third party, subject to exceptions set forth in the Merger Agreement. The Merger Agreement also provides for the payment by SHB to First Citizens of a termination fee of $1,000,000 in the event that the Merger Agreement is terminated in certain circumstances, involving, among others, certain changes in the recommendation of SHB’s board of directors. These provisions may discourage a potential competing acquirer that might have an interest in acquiring SHB from considering or proposing such an acquisition. See “THE MERGER AGREEMENT—Termination; Termination Fee” on page 68 of this prospectus/proxy statement.

The fairness opinions obtained by SHB and First Citizens from their respective financial advisors will not reflect changes in circumstances subsequent to the date of the fairness opinions.

FIG Partners, SHB’s financial advisor in connection with the proposed merger, has delivered to the board of directors of SHB its opinion dated as of March 19, 2014. Olsen Palmer, First Citizens’ financial advisor in connection with the proposed merger, has delivered to the board of directors of First Citizens its opinion dated as of March 19, 2014. Each opinion states that, as of the date of such opinion and based upon and subject to the factors and assumptions set forth therein, the total merger consideration was fair to their respective clients from a financial point of view. The opinions do not reflect changes that may occur or may have occurred after the date of the opinions, including changes to the operations and prospects of First Citizens or SHB, changes in general market and economic conditions or regulatory or other factors. Any such changes, or changes in other factors on which the opinions are based, may materially alter or affect the respective opinions as to the fairness of the total merger consideration to First Citizens and/or SHB.

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Failure to complete the merger could cause First Citizens’ or SHB’s stock price to decline.

If the merger is not completed for any reason, although neither First Citizens nor SHB’s stock trades on an active or liquid market, First Citizens’ or SHB’s stock price may decline because costs related to the merger, such as legal, accounting and certain financial advisory fees, must be paid even if the merger is not completed. In addition, if the merger is not completed, First Citizens’ or SHB’s stock price may decline to the extent that the current market price reflects a market assumption that the merger will be completed or due to questions about why (or whose “fault” it was that) the merger was not completed.

Risks Related to First Citizens and First Citizens Stock

First Citizens is subject to credit quality risks and First Citizens’ credit policies may not be sufficient to avoid losses.

First Citizens is subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay interest and principal amounts on loans. Although First Citizens maintains credit policies and credit underwriting, monitoring and collection procedures that management believes are sufficient to manage this risk, these policies and procedures may not prevent losses, particularly during periods in which the local, regional or national economy suffers a general decline. If a large number of borrowers fail to repay their loans, First Citizens’ financial condition and results of operations may be adversely affected.

Earnings could be adversely affected if values of other real estate owned decline.

First Citizens is subject to the risk of losses from the liquidation and/or valuation adjustments on other real estate owned. First Citizens owns approximately 70 properties totaling $5.8 million in other real estate owned as of June 30, 2014. Other real estate owned is valued at the lower of cost or fair market value less cost to sell. Fair market values are based on independent appraisals for properties valued at $50,000 or greater and appraisals are updated annually. First Citizens may incur future losses on these properties if economic and real estate market conditions result in further declines in the fair market value of these properties.

If First Citizens’ allowance for loan losses becomes inadequate, First Citizens’ financial condition and results of operations could be adversely affected.

First Citizens maintains an allowance for loan losses that it believes is a reasonable estimate of known and inherent potential losses in its loan portfolio. Management uses various assumptions and judgments to evaluate on a quarterly basis the adequacy of the allowance for loan losses in accordance with GAAP as well as regulatory guidelines. The amount of future losses is susceptible to changes in economic, operating and other conditions, as well as changes in interest rates most of which are beyond First Citizens’ control, and these losses may exceed current estimates. Although First Citizens believes the allowance for loan losses is a reasonable estimate of known and inherent potential losses in its loan portfolio, First Citizens cannot fully predict such potential losses or that its loan loss allowance will be adequate in the future. Excessive loan losses could have an adverse effect on First Citizens’ financial performance.

Federal and state regulators periodically review First Citizens’ allowance for loan losses and may require First Citizens to increase its provision for loan losses or recognize further loan charge-offs, based on judgments different than those of its management. Any increase in the amount of First Citizens’ provision or loans charged-off as required by these regulatory agencies could have an adverse effect on First Citizens’ results of operations.

Changes in interest rates could have an adverse effect on First Citizens’ earnings.

First Citizens’ profitability is in part a function of interest rate spread, or the difference between interest rates earned on investments, loans and other interest-earning assets and the interest rates paid on deposits and other interest-bearing liabilities. Interest rates are largely driven by monetary policies set by the Federal Open Market Committee, or FOMC, and trends in the prevailing market rate of interest embodied by the yield curve. The FOMC establishes target rates of interest to influence the cost and availability of capital and promote national economic goals. In January 2012, the FOMC indicated that rates would most likely remain at the historical low of a range of 0.00% to 0.25% through the end of 2014. The yield curve is a representation of the relationship between short-term interest rates to longer-term debt maturity rates. Currently, the yield curve is fairly steep as short-term rates continue at historic lows. As of December 31, 2013, First Citizens National Bank was liability sensitive in terms of interest rate risk exposure, meaning that First Citizens National Bank will likely experience margin compression when federal funds rates increase. In other words, upward pressure on deposit interest rates will outpace increases in the interest rates on interest-earning assets. Deposits are currently priced at historically low levels and are likely to reprice at a faster pace than interest-earning assets when the rate environment begins rising. The majority of variable-rate loans are priced at floors that will require significant increases in federal fund and prime rates before loan yields increase.

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If the rate of interest paid on deposits and other borrowings increases more than the rate of interest earned on loans and other investments, First Citizens’ net interest income and, therefore, earnings could be adversely affected. Earnings could also be adversely affected if the rates on loans and other investments fall more quickly than those on deposits and other borrowings. While management takes measures to guard against interest rate risk, there can be no assurance that such measures will be effective in minimizing the exposure to interest rate risk. A sudden and significant increase in the market rate of interest could have a material adverse effect on the First Citizens’ financial position and earnings.

First Citizens is an emerging growth company and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make First Citizens’ stock less attractive to investors.

After filing the registration statement, of which this Proxy Statement/Prospectus is a part, First Citizens will be subject to periodic reporting requirements under the Exchange Act. First Citizens is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), however, and it may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if First Citizens complies with the greater obligations of public companies that are not emerging growth companies immediately after this offering, First Citizens may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as it is an emerging growth company. First Citizens may remain an emerging growth company for up to five years, though First Citizens may cease to be an emerging growth company earlier under certain circumstances, including if, before the end of such five year period, it is deemed to be a large accelerated filer under the SEC rules (which depends on, among other things, having a market value of common stock held by non-affiliates in excess of $700 million) or if First Citizens’ total annual gross revenues equal or exceed $1 billion in a fiscal year. First Citizens cannot predict if investors will find its common stock less attractive because it will rely on these exemptions. If some investors find First Citizens’ common stock less attractive as a result, there may be a less active trading market for First Citizens’ common stock and First Citizens’ stock price may be more volatile.

First Citizens is geographically concentrated in West Tennessee, and changes in local economic conditions may impact its profitability.

First Citizens operates primarily in West Tennessee and the majority of all loan customers and most deposit and other customers live or have operations in this area. Accordingly, First Citizens’ success depends significantly upon growth in population, income levels, deposits, housing starts and continued attraction of business ventures to this area. First Citizens’ profitability is impacted by changes in general economic conditions in this market. First Citizens is concerned about the impact of plant closings (such as Goodyear and Briggs & Stratton) and their impact to unemployment levels and economic conditions in its rural markets. Additionally, unfavorable local or national economic conditions could reduce First Citizens’ growth rate, affect the ability of its customers to repay their loans and generally affect First Citizens’ financial condition and results of operations.

First Citizens is less able than larger institutions to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, First Citizens is unable to give assurance that it will benefit from any market growth or favorable economic conditions in its primary market areas if they do occur.

If financial market conditions worsen or First Citizens’ loan demand increases significantly, First Citizens’ liquidity position could be adversely affected. First Citizens may be required to rely on secondary sources of liquidity to meet withdrawal needs or fund operations, and there can be no assurance that these sources will be sufficient to meet future liquidity demands.

First Citizens relies on dividends from the First Citizens National Bank as its primary source of funds. First Citizens National Bank’s primary sources of funds are client deposits and loan repayments and from the sale or maturity of securities. While scheduled loan repayments have historically been a relatively stable source of funds, they are susceptible to the inability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, natural disasters and national or international instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic conditions. Accordingly, First Citizens may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank (“FHLB”) advances, sales of securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits. While First Citizens believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if First Citizens continues to grow and experience increasing loan demand. First Citizens may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

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Market conditions could adversely affect First Citizens’ ability to obtain additional capital on favorable terms should it need it.

First Citizens’ business strategy calls for continued growth. First Citizens anticipates that it will be able to support this growth through the generation of additional deposits at new branch locations, as well as through returns realized as a result of investment opportunities. However, First Citizens may need to raise additional capital in the future to support continued growth and maintain adequate capital levels. First Citizens may not be able to obtain additional capital in the amounts or on terms satisfactory to it. Growth may be constrained if First Citizens is unable to raise additional capital as needed.

Failure to remain competitive in an increasingly competitive industry may adversely affect results of operations and financial condition.

First Citizens encounters strong competition from other financial institutions in its market areas. In addition, established financial institutions not already operating in First Citizens’ market areas may open branches in its market areas at future dates or may compete in the market via the internet. Certain aspects of First Citizens’ banking business also compete with savings institutions, credit unions, mortgage banking companies, consumer finance companies, insurance companies and other institutions, some of which are not subject to the same degree of regulation or restrictions imposed on First Citizens. Many of these competitors have substantially greater resources and lending limits and are able to offer services that First Citizens does not provide. While First Citizens believes that it competes effectively with these other financial institutions in its market areas, First Citizens may face a competitive disadvantage as a result of its smaller size, smaller asset base, lack of geographic diversification and inability to spread its marketing costs across a broader market. If First Citizens has to raise interest rates paid on deposits or lower interest rates charged on loans to compete effectively, First Citizens’ net interest margin and income could be negatively affected. Failure to compete effectively to attract new or to retain existing clients may reduce or limit First Citizens’ margins and its market share and may adversely affect First Citizens’ results of operations and financial condition.

First Citizens and its subsidiaries are subject to extensive government regulation and supervision. Changes in laws, government regulation and monetary policy may have a material adverse effect on our results of operations.

First Citizens and its subsidiaries are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not First Citizens’ shareholders. These regulations affect First Citizens’ lending practices, capital structure, investment practices and dividend policy and growth, among other things. Future changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect First Citizens in substantial and unpredictable ways. Such changes could subject First Citizens to additional costs, limit the types of financial services and products First Citizens may offer and/or increase the ability of non-banks to offer competing financial services and products, or decrease the flexibility in pricing certain products and services by First Citizens National Bank, among other things. Failure to comply with laws, regulations or policies could result in sanctions imposed by regulatory agencies, civil money penalties, civil liability and/or reputation damage, which could have a material adverse effect on First Citizens’ financial condition and results of operations. While First Citizens’ policies and procedures are designed to deter and detect any such violations, there can be no assurance that such violations will not occur.

First Citizens stock is not listed or traded on any established securities market and is normally less liquid than most securities traded in those markets; First Citizens anticipates filing to revert to non-reporting status following the merger.

First Citizens stock is not listed or traded on any established securities exchange or market and First Citizens has no plans to seek to list its stock on any recognized exchange or qualify it for trading in any market. Accordingly, First Citizens stock has substantially fewer trades than the average securities listed on any national securities exchange. Most transactions in First Citizens stock are privately negotiated trades and its stock is very thinly traded. There is no dealer for First Citizens stock and no “market maker.” First Citizens’ shares do not have a trading symbol. The lack of a liquid market can produce downward pressure on First Citizens stock price and can reduce the marketability of First Citizens stock.

If First Citizens’ registration statement on Form S-4 becomes effective under the Securities Act, First Citizens will be required to file with the SEC the periodic and current reports required by the Securities Exchange Act and related rules and regulations. It is the intent of First Citizens’ management, and the merger consideration has been structured to permit First Citizens’ management, to apply to the SEC in 2015 to “go dark” so as not to continue being required to comply with these filing requirements. If First Citizens is eligible to discontinue SEC filings, SHB shareholders who receive First Citizens’ stock in the merger will have access to less information about the financial condition and results of operations of First Citizens than would be the case if SEC filings were continued.

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First Citizens’ ability to pay dividends may be limited.

As a holding company, First Citizens is a separate legal entity from First Citizens National Bank and does not conduct significant income-generating operations of its own. It currently depends upon First Citizens National Bank’s cash and liquidity to pay dividends to its shareholders. First Citizens cannot provide assurance that First Citizens National Bank will have the capacity to pay dividends to First Citizens in the future. Various statutes and regulations limit the availability of dividends from First Citizens National Bank. It is possible that, depending upon First Citizens National Bank’s financial condition and other factors, First Citizens National Bank’s regulators could assert that payment of dividends by First Citizens National Bank to First Citizens is an unsafe or unsound practice. In the event that First Citizens National Bank is unable to pay dividends to First Citizens, First Citizens may not be able to pay dividends to its shareholders.

A failure or breach of First Citizens’ operational or security systems or infrastructure, or those of First Citizens’ third party vendors and other service providers or other third parties, including as a result of cyber-attacks, could disrupt First Citizens’ businesses, result in the disclosure or misuse of confidential or proprietary information, damage its reputation, increase its costs, and cause losses.

First Citizens relies heavily on communications and information systems to conduct its business. Information security risks for financial institutions such as First Citizens have generally increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and terrorists, activists, and other external parties. As customer, public, and regulatory expectations regarding operational and information security have increased, First Citizens’ operating systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. First Citizens’ business, financial, accounting, and data processing systems, or other operating systems and facilities, may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond First Citizens’ control. For example, there could be electrical or telecommunication outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and as described below, cyber-attacks.

As noted above, First Citizens’ business relies on its digital technologies, computer and email systems, software and networks to conduct its operations. Although First Citizens has information security procedures and controls in place, First Citizens’ technologies, systems and networks and its customers’ devices may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of First Citizens’ or its customers’ or other third parties’ confidential information. Third parties with whom First Citizens does business or that facilitate First Citizens’ business activities, including financial intermediaries, or vendors that provide service or security solutions for First Citizens’ operations, and other unaffiliated third parties, could also be sources of operational and information security risk to First Citizens, including from breakdowns or failures of their own systems or capacity constraints.

While First Citizens has disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. First Citizens’ risk and exposure to these matters remain heightened because of the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of First Citizens’ controls, processes, and practices designed to protect its systems, computers, software, data, and networks from attack, damage or unauthorized access remain a focus for First Citizens. As threats continue to evolve, First Citizens may be required to expend additional resources to continue to modify or enhance its protective measures or to investigate and remediate information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support First Citizens’ businesses and clients, or cyber-attacks or security breaches of the networks, systems or devices that First Citizens’ clients use to access First Citizens’ products and services could result in client attrition, regulatory fines, penalties or intervention, reputation damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could have a material effect on First Citizens’ results of operations or financial condition.

Shares of First Citizens stock are not insured.

Shares of First Citizens stock are not deposits and are not insured by the Federal Deposit Insurance Corporation (the “FDIC”) or any other entity.

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FIRST CITIZENS

The following table sets forth selected consolidated historical financial data of First Citizens. The selected consolidated historical financial data as of and for each of the two years ended December 31, 2013 and 2012 is derived from First Citizens’ audited financial statements. The selected consolidated historical financial data as of and for each of the six-month periods ended June 30, 2014 and 2013 is derived from First Citizens’ unaudited financial statements for those periods. You should not assume that the results of operations for past periods and for any interim period indicate results for any future period. You should read this information in conjunction with First Citizens’ consolidated financial statements and related notes included in this Proxy Statement/Prospectus beginning on Page F-3.

 

 

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¹ Derived from unaudited financial statements.
² Derived from audited financial statements.

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF SHB

The following table sets forth selected consolidated historical financial data of SHB. The selected consolidated historical financial data as of and for each of the two years ended December 31, 2013 and 2012 is derived from SHB’s audited financial statements. The selected consolidated historical financial data as of and for each of the six-month periods ended June 30, 2014 and 2013 is derived from SHB’s unaudited financial statements for those periods. You should not assume that the results of operations for past periods and for any interim period indicate results for any future period. You should read this information in conjunction with SHB’s consolidated financial statements and related notes included in this Proxy Statement/Prospectus beginning on Page F-65.

 

 

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¹ Derived from unaudited financial statements.
² Derived from audited financial statements.

 

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UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma combined consolidated financial information and accompanying notes show the impact on the historical financial condition and results of operations of First Citizens and SHB and have been prepared to illustrate the effects of the merger under the acquisition method of accounting. See “THE MERGER - Accounting Treatment.”

The unaudited pro forma combined consolidated balance sheet as of June 30, 2014 is presented as if the merger had occurred on June 30, 2014. The unaudited pro forma combined consolidated income statements for the year ended December 31, 2013 and the six months ended June 30, 2014 are presented as if the merger had occurred on January 1, 2013. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statements only, expected to have a continuing impact on consolidated results of operations.

The selected unaudited pro forma combined consolidated financial statements are provided for informational purposes only. The unaudited pro forma combined consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined consolidated financial statements should be read together with:

• the accompanying notes to the unaudited pro forma combined consolidated financial statements;

• First Citizens’ audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2013, included beginning on Page F-3 in this Proxy Statement/Prospectus;

• SHB’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2013, included beginning on Page F-65 elsewhere in this Proxy Statement/Prospectus;

• First Citizens’ unaudited condensed consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2014, included beginning on Page F-43 in this Proxy Statement/Prospectus;

• SHB’s unaudited consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2014, included beginning on Page F-97 in this Proxy Statement/Prospectus; and

• other information pertaining to First Citizens and SHB included elsewhere in this Proxy Statement/Prospectus.

 

 

 

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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET

JUNE 30, 2014

 (all amounts are in thousands, except per share data, unless otherwise indicated)

 

 

 

 

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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED INCOME STATEMENT

YEAR ENDED DECEMBER 31, 2013

(all amounts are in thousands, except per share data, unless otherwise indicated)

                                                                                                                       

 

 

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FIRST CITIZENS BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED INCOME STATEMENT

SIX MONTHS ENDED JUNE 30, 2014

 (all amounts are in thousands, except per share data, unless otherwise indicated)

 

 

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NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are in thousands, except per share data, unless otherwise indicated)

Note 1—Basis of Pro Forma Presentation

The unaudited pro forma combined consolidated balance sheet as of June 30, 2014 and the unaudited pro forma combined consolidated income statements for the year ended December 31, 2013 and six months ended June 30, 2014 are based on the historical financial statements of First Citizens and SHB after giving effect to the completion of the merger and the assumptions and adjustments described in the accompanying notes. The unaudited pro forma combined consolidated balance sheet as of June 30, 2014 gives effect to the merger as if it occurred on that date. The unaudited pro forma combined consolidated income statements for the year ended December 31, 2013 and six months ended June 30, 2014 gives effect to the merger as if it occurred on January 1, 2013. Such financial statements do not reflect any cost savings or operating synergies which may occur subsequent to the merger, or the cost to achieve such cost savings or operating synergies or any anticipated disposition of assets which may result from integration of the operations of the two companies. The unaudited pro forma information is presented solely for informational purposes and is not necessarily indicative of the combined results of operation or financial position that might have been achieved for the period indicated, nor is it necessarily indicative of the future results of the combined company. Certain historical financial information has been reclassified to conform to the current presentation.

The transaction will be accounted for under the acquisition method of accounting in accordance with the Accounting Standard Codification (“ASC”) Topic 805, Business Combinations (ASC 805). Under ASC 805, all of the assets acquired and liabilities assumed in a business combinations are recognized at their acquisition-date fair values, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, net of deferred tax allocations, is recorded to goodwill.

The actual amounts recorded as of the completion of the merger may differ materially from the information presented in these unaudited pro forma combined financial statements as a result of:

• changes in the fair values of SHB’s assets and liabilities;

• changes used or generated in SHB’s operations between signing of the merger agreement and completion of the merger;

• other changes in SHB’s net assets that occur prior to completion of the merger; and

• actual financial results of the combined company.

 

 

 

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Note 2 – Pro Forma Allocation of Purchase Price

The following table shows the pro forma allocation of purchase price to net assets acquired and the pro forma goodwill generated from the transaction:

 

Note 3 – Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments

The following preliminary unaudited pro forma adjustments have been reflected in the unaudited condensed combined financial information. All adjustments are based on current valuations and assumptions which are subject to change. The descriptions related to these preliminary adjustments are as follows (in thousands):

 

 

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Note 4 – Preliminary Unaudited Pro Forma Regulatory and Tangible Capital Ratios

The following information reflects the unaudited pro forma balances used for calculating pro forma regulatory and tangible capital ratios as of June 30, 2014 for First Citizens, First Citizens National Bank and Southern Heritage Bank and gives effect to the merger as if it occurred on that date.

First Citizens Bancshares, Inc.

	June 30, 2014  (as reported) (1)	Adjustments		Pro Forma
Total equity (before minority interests)	$119,950	$16,995	(2)	$    136,945
Less:
Net unrealized gain on available-for-sale debt securities	3,631			3,631
Disallowed goodwill & intangibles	14,013	10,958	(3)	24,971
Add qualifying restricted core capital elements:
Trust preferred debt	10,310	3,605	(4)	13,915
Noncontrolling minority interests	2,000	2,000	(5)	4,000
Tier 1 capital (total tangible equity capital)	114,616	11,642		126,258
Reserve for loan losses	7,807			7,807
Unrealized gains on available-for-sale equity securities	19			19
Tier 2 capital	7,826			7,826
Total qualified capital	122,442	11,642		134,084
Risk weighted assets	683,550	152,737	(6)	836,287
Total average assets	1,186,149	247,545	(7)	1,433,694
Less:  disallowed goodwill and intangibles	14,013	10,958	(3)	24,971
Average assets for regulatory leverage capital	1,172,136	236,587		1,408,723
Total assets	1,199,609	245,036	(8)	1,444,645
Total tangible assets	1,185,596	234,078	(9)	1,419,674
Tier 1 leverage ratio (10)	9.78%			8.96%
Tier 1 risk based capital ratio (11)	16,77%			15.10%
Total risk based capital ratio (12)	17.91%			16.03%
Total tangible equity capital to total tangible assets	9.67%			8.89%

 

(1)	Balances as of June 30, 2014 as reported on First Citizens FRY-9C filed with the Federal Reserve.
(2)	Adjustment to reflect stock consideration to effect the transaction. See also Note 2, “Pro Forma Allocation of Purchase Price.”
(3)	Adjustment to reflect preliminary estimate of goodwill and intangibles net of the deferred tax liability. See also Note 2, “Pro Forma Allocation of Purchase Price.”
(4)	Adjustment to reflect assumption of SHB’s subordinated debentures net of estimated fair value adjustment. See also Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments” (k).
(5)	Adjustment to reflect issuance of non-cumulative perpetual preferred stock by First Citizens Properties, Inc., the real estate investment trust subsidiary of First Citizens. See also Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments” (m).
(6)	Adjustment to reflect the risk weighted assets as reported by Southern Heritage Bank on the June 30, 2014 Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only – FFIEC 041 (“Call Report”) filed with the Federal Financial Institutions Examination Council on July 28, 2014 adjusted for the redemption of the SBLF shares and applicable fair value adjustments. Adjustments consist of the following:

 

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(7)     Adjustments to total average assets include the following: 
 

(8)     Adjustments to total assets consist of the following:
 

 

(9)	Adjustment to tangible assets consists of the adjustments totaling $245,036 in (8) above less goodwill and intangibles totaling $10,958.
(10)	Tier 1 leverage ratio is calculated as Tier 1 capital (total tangible equity capital) to average assets for regulatory leverage capital.
(11)	Tier 1 risk based capital ratio is calculated as Tier 1 capital (total tangible equity capital) to risk weighted assets.
(12)	Total risk based capital ratio is calculated as total qualified capital to risk weighted assets.

   First Citizens National Bank

 

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(1)	Balances as of June 30, 2014 as reported on First Citizens National Bank’s Call Report filed with the FFIEC on July 30, 2014.
(2)	Adjustment to reflect cash dividends from First Citizens National Bank to First Citizens to be used as funding source for cash consideration to effect the transaction.
(3)	Adjustment to reflect issuance of non-cumulative perpetual preferred stock by First Citizens Properties, Inc., the real estate investment trust subsidiary of First Citizens. See also Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments” (m).
(4)	Adjustments to risk weighted assets, total average assets, total assets and total tangible assets reflect the net decrease in assets as a result of $5,000 dividend to First Citizens as noted in (2) above net of proceeds of $2,000 from issuance of non-cumulative perpetual preferred stock as described in (3) above.
(5)	Tier 1 leverage ratio is calculated as Tier 1 capital (total tangible equity capital) to average assets for regulatory leverage capital.
(6)	Tier 1 risk based capital ratio is calculated as Tier 1 capital (total tangible equity capital) to risk weighted assets.
(7)	Total risk based capital ratio is calculated as total qualified capital to risk weighted assets.

 

 Southern Heritage Bank

 

 

(1)    Balances as of June 30, 2014 as reported on Southern Heritage Bank’s June 30, 2014 Call Report.

(2)    Adjustments to total equity consist of the following:

 

                See also Note 2, “Pro Forma Allocation of Purchase Price” and Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments.”

 

(3)    Adjustment to reflect reversal of Southern Heritage Bank’s historical accumulated other comprehensive income balance. 

(4)    Adjustment to reflect preliminary estimate of goodwill and intangibles. See also Note 2, “Pro Forma Allocation of Purchase Price.”

(5)   Adjustment to reflect the reversal of Southern Heritage Bank’s recorded allowance for loan losses. See also Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments.”

 

 

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(6)     Adjustments to risk weighted assets as reported by Southern Heritage Bank on the June 30, 2014 Call Report consist of the following:

 

                See also Note 3, “Preliminary Unaudited Pro Forma and Acquisition Accounting Adjustments” for additional information regarding fair value adjustments.

 

 

(7)     Adjustments to average and total assets as reported by Southern Heritage Bank on the June 30, 2014 Call Report consist of the following:

 

Note 5 – Historical and Pro Forma Cash Dividends Per Share

The following information reflects cash dividends per share on a historical and pro forma basis for the six months ended June 30, 2014 and year ended December 31, 2013:

 

 

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UNAUDITED COMPARATIVE PER SHARE DATA

The following information presented below should be read together with: (i) First Citizens’ audited consolidated financial statements and accompanying notes for the year ended December 31, 2013, and unaudited consolidated financial statements and accompanying notes for the six months ended June 30, 2014, both of which are included elsewhere in this Proxy Statement/Prospectus; and (ii) SHB’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2013, and SHB’s unaudited consolidated financial statements and accompanying notes for the six months ended June 30, 2014, also included elsewhere in this Proxy Statement/Prospectus. See “Index to Financial Statements.”

The unaudited pro forma adjustments are based upon available information and certain assumptions that First Citizens’ management believes are reasonable. The unaudited pro forma data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the merger or consider any potential impacts of current market conditions of the merger on revenues, expense efficiencies, asset dispositions, among other factors. As a result, unaudited pro forma data is presented for illustrative purposes only and does not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of Southern Heritage Bank will be reflected in the consolidated financial statements of First Citizens on a prospective basis.

 

 

The table shows: (1) the value assigned to First Citizens’ common stock on June 30, 2014 and on July 31, 2014, the most recent date practicable preceding the date of this Proxy Statement/Prospectus; and (2) the equivalent proforma value of a share of SHB common stock at such dates based on the value of the consideration to be received by SHB shareholders in the merger with respect to each share.

 

 

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This Proxy Statement/Prospectus contains certain forward-looking statements about the financial condition, results of operations and business of First Citizens and SHB and about the combined companies following the merger. These statements concern the cost savings, revenue enhancements and other advantages the companies expect to obtain from the merger, the anticipated impact of the merger on First Citizens’ financial performance, tax consequences and accounting treatment of the merger, receipt of regulatory approvals and earnings estimates for the combined company. These statements appear in several sections of this Proxy Statement/Prospectus, including “SUMMARY”, “RISK FACTORS”, “THE MERGER – Reasons for the Merger”, “INFORMATION ABOUT FIRST CITIZENS – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “INFORMATION ABOUT SHB – Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Also, the forward-looking statements generally include any of the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “should,” “will,” “may” or “plans” or similar expressions.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The future results and shareholder values of First Citizens and SHB, and of the combined companies, may differ materially from those expressed in these forward-looking statements. Many of the factors that could influence or determine actual results are unpredictable and not within the control of First Citizens or SHB. In addition, neither First Citizens nor SHB intends to, nor are they obligated to, update these forward-looking statements after this Proxy Statement/Prospectus is distributed, even if new information, future events or other circumstances have made them incorrect or misleading as of any future date. For all of these statements, First Citizens claims the protection of the safe harbor for forward-looking statements provided in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act.

Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities:

• First Citizens and SHB may fail to achieve the anticipated benefits of the merger;

• The value of First Citizens stock after the merger may be affected by factors different from those affecting shares of SHB or First Citizens currently;

• The executive officers and directors of SHB have interests different from typical SHB shareholders;

• Former shareholders of SHB will be limited in their ability to influence First Citizens’ actions and decisions following the merger;

• The merger may result in a loss of current SHB employees;

• Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met;

• The Merger Agreement limits SHB’s ability to pursue an alternative transaction and requires SHB to pay a termination fee under certain circumstances relating to alternative acquisition proposals;

• First Citizens’ actual cost savings resulting from the merger with SHB may be less than expected, First Citizens may be unable to realize those cost savings as soon as expected or First Citizens may incur additional or unexpected costs;

• Changes in general economic and business conditions;

• Changes in market rates and prices of securities, loans, deposits and other financial instruments;

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

• Changes in government fiscal and monetary policies;

• The ability of First Citizens to provide market competitive products and services;

• Concentrations within the loan portfolio;

• Fluctuations in prevailing interest rates and the effectiveness of the First Citizens’ interest rate hedging strategies;

• First Citizens’ ability to maintain credit quality;

• The effectiveness of First Citizens’ risk monitoring systems;

• The ability of First Citizens’ borrowers to repay loans;

 

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• The availability of and costs associated with maintaining and/or obtaining adequate and timely sources of liquidity;

• Geographic concentration of First Citizens’ assets and susceptibility to economic downturns in that area;

• The ability of First Citizens to attract, train and retain qualified personnel;

• Changes in consumer preferences; and

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

 

 

 

 

 

 

 

 

 

 

 

 

 

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THE ANNUAL MEETING

General

This Proxy Statement/Prospectus is first being mailed on or about [•], 2014, to all persons who were SHB shareholders on August 21, 2014.

Along with this Proxy Statement/Prospectus, SHB shareholders are being provided with a Notice of Annual meeting and form of proxy card for use at the annual meeting of SHB shareholders and at any adjournments or postponements of that meeting.

At the SHB annual meeting, the following proposals will be considered and voted upon:

1.  Merger Proposal.  Considering and voting upon the approval of the agreement and plan of merger, as amended (the “Merger Agreement”), dated as of March 20, 2014, between SHB and First Citizens, which provides for the merger of SHB with and into First Citizens as more fully described in the accompanying Proxy Statement/Prospectus, and the transactions contemplated by the Merger Agreement;

2.  Election of Directors.  To elect two Class III members of the board of directors to serve three-year terms until the annual meeting of shareholders in 2017 or until their successors have been duly elected and qualified. Note that upon the effective date of the merger, if approved and then consummated, the directors of SHB will no longer serve as directors of SHB, but since the same directors generally are elected as the directors of Southern Heritage Bank, they will continue to serve in that capacity;

3.  Adjournment.  If necessary, to adjourn the annual meeting to a later date; and

4.  Other Business. To transact such other business as may properly come before the annual meeting or any adjournment of the annual meeting.

All holders of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock shall have the right to vote on the merger; however, only holders of SHB common stock have the right to vote with respect to the other proposals to be submitted at the annual meeting of SHB shareholders.

The annual meeting of SHB shareholders will be held at the following time and place:

 September 25, 2014

5:00 PM (Eastern Time)

3020 Keith Street NW

Cleveland, Tennessee 37312

Proxies

We encourage SHB shareholders to promptly vote their proxies using the Internet by visiting the following website: www.voteproxy.com or by completing, signing, dating and returning the enclosed proxy card, solicited by SHB’s board of directors, whether or not they are able to attend the SHB annual meeting in person.

A SHB shareholder may revoke any proxy given in connection with this solicitation by:

• delivering to SHB a written notice revoking the proxy prior to the taking of the vote at the SHB annual meeting;

• delivering a duly executed proxy relating to the same shares bearing a later date;

• re-vote by using the Internet and visiting the following website: www.voteproxy.com; or

• attending the meeting and voting in person (attendance at the SHB annual meeting without voting at the meeting will not in and of itself constitute a revocation of a proxy).

Revocation of proxy by written notice or execution of a new proxy bearing a later date should be submitted to:

Southern Heritage Bancshares, Inc.

3020 Keith Street NW

Cleveland, Tennessee 37312

Attention: Corporate Secretary

For a notice of revocation or later proxy to be valid, however, SHB must receive it prior to the vote of SHB shareholders at the SHB annual meeting. SHB will vote all shares of SHB common stock represented by valid proxies received through this solicitation and not revoked before they are exercised in the manner described above.

 

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SHB is currently unaware of any other matters that may be presented for action at the SHB annual meeting. If other matters do properly come before the SHB annual meeting, then shares of SHB common stock represented by proxies will be voted (or not voted) by the persons named in the proxies in their discretion.

Please do not forward your SHB stock certificates with your proxy card.

Solicitation of Proxies

SHB will bear the costs of printing and mailing this Proxy Statement/Prospectus and First Citizens will bear the costs of filing First Citizens’ registration statement on Form S-4 with the SEC.

If necessary, SHB may use certain of its employees, who will not be specially compensated, to solicit proxies from SHB shareholders, either personally or by telephone, facsimile or mail.

Record Date and Voting Rights On the Merger

SHB’s board of directors has fixed August 21, 2014 as the record date for the determination of SHB shareholders entitled to receive notice of and to vote at SHB’s annual meeting of shareholders. Accordingly, only SHB shareholders of record and entitled to vote at the close of business on August 21, 2014 will be entitled to notice of and to vote at the SHB annual meeting. At the close of business on SHB’s record date, there were 936,375 shares of SHB common stock, 151,949 shares of SHB Class A common stock, 193,176 shares of SHB Class B common stock and 31,635 shares of SHB Series A preferred stock entitled to vote at the SHB annual meeting held by approximately 847 holders of record, and the executive officers and directors of SHB beneficially owned an aggregate of 18.9% of the outstanding shares of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock.

The presence, in person or by proxy, of a majority of the votes entitled to be cast by the holders of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock is necessary to constitute a quorum at the annual meeting. Each share of SHB common stock, SHB Class A common stock, SHB Class B common stock and SHB Series A preferred stock outstanding on SHB’s record date entitles its holder to one vote as to the approval of the Merger Agreement or any other proposal that may properly come before SHB’s annual meeting. Holders of those shares will be considered as separate voting groups and will be entitled to vote and be counted as separate voting groups for each class of stock.

For purposes of determining the presence or absence of a quorum for the transaction of business, SHB will count shares of SHB stock entitled to vote present in person or by proxy at the annual meeting but not voting as present at the annual meeting. Abstentions and broker non-votes will also be counted as present at the SHB annual meeting for purposes of determining whether a quorum exists.

Under Tennessee law, the Merger Agreement must be approved by a majority of all the votes entitled to be cast on the Merger Agreement. Therefore, the holders of a majority of the outstanding shares of SHB stock entitled to vote, present in person or by proxy at the annual meeting must approve the Merger Agreement. Accordingly, SHB’s board of directors urges SHB shareholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed postage paid business reply envelope.

Vote Required on Other Matters

Only holders of SHB common stock are entitled to vote on matters other than the merger at the annual meeting. You are entitled to vote your common stock if our records show that you held your shares as of the close of business on August 21, 2014, the record date. Holders of shares of our Class A common stock, Class B common stock and SHB Series A preferred stock are not entitled to vote on these other matters being presented at the annual meeting.

Each shareholder is entitled to one vote for each share of common stock held on the record date. On that date, there were 936,375 shares of common stock outstanding and entitled to vote. Shareholders are not entitled to cumulative voting rights.

For the election of directors, you may vote for (1) all of the nominees, (2) none of the nominees, or (3) all of the nominees except those you designate. For other matters or adjournment, you may vote “FOR” or “AGAINST” or you may “ABSTAIN” from voting.

If you return your signed proxy card but do not specify how you want to vote your shares, we will vote them “FOR” the election of the nominees for directors, and “FOR” the adjournment, if necessary, of the annual meeting to a later date.

If a quorum is present at the annual meeting, the director nominees will be elected by a plurality of the votes cast in person or by proxy at the meeting, and any other matters submitted to the shareholders will require the affirmative vote of a majority of the shares of common stock present or represented by proxy at the meeting.

Recommendation of Board of Directors

SHB’s board of directors has approved the Merger Agreement. SHB’s board of directors believes that the merger is in the best interests of SHB and SHB shareholders and recommends that SHB shareholders vote “FOR” approval of the Merger Agreement. The determination of SHB’s board of directors with respect to the merger is based on a number of factors, as described in this Proxy Statement/Prospectus. See “THE MERGER – Reasons for the Merger; Recommendation of the Board of Directors.” SHB’s board of directors also believes that the election of the nominees for election as directors are in the best interests of SHB and SHB shareholders and recommends that SHB shareholders vote “FOR” all nominees for election as directors.

 

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Dissenters’ Rights

Tennessee law permits SHB shareholders to dissent from the merger and to receive the fair value of their shares of SHB stock in cash. To dissent, a SHB shareholder is subject to a number of restrictions and technical requirements, including filing certain notices with SHB and voting his or her shares against the Merger Agreement. The shares of SHB stock held by a dissenter will not be exchanged for stock consideration or cash consideration in the merger and a dissenter’s only right will be to receive the “fair value” of his or her shares of SHB stock in cash.

Any SHB shareholder who wishes to exercise dissenters’ rights, or who wishes to preserve his or her right to do so, should carefully review Chapter 23 of the Tennessee Business Corporation Act, a copy of which is attached as Annex B to this Proxy Statement/Prospectus, and the section entitled “THE MERGER – Dissenters’ Rights.”

Certain Matters Relating to Proxy Materials

The rules regarding delivery of proxy statements may be satisfied by delivering a single proxy statement to an address shared by two or more shareholders. This method of delivery is referred to as “householding” and can result in meaningful cost savings. In order to take advantage of this opportunity, we may deliver only one proxy statement to certain multiple SHB shareholders who share an address, unless we have received contrary instructions from one or more of the shareholders. We undertake to deliver promptly upon request a separate copy of the proxy statement, as requested, to a shareholder at a shared address to which a single copy of these documents is delivered. If you hold SHB stock as a record holder and prefer to receive a separate copy of a proxy statement, please call (423) 473-7980 or send a written request to:

Southern Heritage Bancshares, Inc.

3020 Keith Street NW

Cleveland, Tennessee 37312

Attention: Corporate Secretary

If your SHB stock is held through a broker or bank and you prefer to receive a separate copy of a proxy statement, please contact such broker or bank.

 

 

 

 

 

 

 

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PROPOSAL 1: THE MERGER

The discussion in this Proxy Statement/Prospectus of the merger of SHB into First Citizens does not purport to be complete and is qualified by reference to the full text of the Merger Agreement and the other annexes attached to, and incorporated by reference into, this Proxy Statement/Prospectus.

Introduction

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

Description of the Merger

At the effective time, SHB will merge with and into First Citizens, with First Citizens being the surviving corporation following the merger. Southern Heritage Bank will survive and become a wholly-owned subsidiary of First Citizens. SHB shareholders, other than SHB shareholders who properly exercise their right to dissent from the merger, will be entitled to receive the per share merger consideration in exchange for each share of SHB stock they own.

First Citizens will not issue any fractional shares of First Citizens stock. Instead, an SHB shareholder who would otherwise be entitled to receive a fractional share of First Citizens stock as consideration in the merger will receive cash in an amount equal to $42.60 multiplied by the fraction of a share of First Citizens stock to which the shareholder otherwise would be entitled.

Tennessee law permits SHB shareholders to dissent from the merger and to receive the fair value of their shares of SHB stock in cash. To dissent, an SHB shareholder is subject to a number of restrictions and technical requirements., including filing certain notices with SHB and voting his or her shares against the Merger Agreement. The shares of SHB stock held by a dissenter will not be exchanged for stock consideration or cash consideration in the merger and a dissenter’s only right will be to receive the “fair value” of his or her shares of SHB stock in cash. For a discussion of the procedures that dissenting shareholders must follow to properly exercise their rights, please see “THE MERGER – Dissenters’ Rights.”

Background of the Merger

From time to time in recent years, SHB has considered the strategic options available to it – as an independent bank, as an acquirer and consolidator in the Tennessee market, or as a party to a merger with another institution. The steady growth trajectory of SHB since its inception in 1999, however, resulted in the principal executives and the board of directors of SHB electing to continue an organic growth pattern while at the same time continuing to evaluate its strategic alternatives to maximize shareholder value.

Over the past number of years, however, the principal executives and the board of directors began to consider ways to give SHB better size and scale to pursue growth and shareholder value. The health of SHB and its core markets, the current interest rate environment and continued competitive pressures and rising regulatory costs led SHB’s leadership to consider a merger as one avenue to achieve that goal. SHB engaged FIG Partners on March 27, 2013 to act as the exclusive agent to provide investment banking and financial advisory services, in connection with a possible merger with another financial institution. FIG Partners solicited interest in SHB from 29 financial institutions.

Since approximately 2011, Mr. J. Lee Stewart, president and chief executive officer of SHB, and Mr. Jeffrey D. Agee, president and chief executive officer of First Citizens, have had periodic conversations about strategic options regarding their two companies. In April 2012, Christopher Olsen, currently a principal of Olsen Palmer, a financial advisory firm, advised First Citizens to consider SHB as an acquisition target and conducted a financial analysis of such a transaction. On May 24, 2013, First Citizens engaged Olsen Palmer to act as its exclusive agent to provide investment banking and financial advisory services in connection with the potential acquisition of SHB.

        The first formal visit between Mr. Stewart and Mr. Agee took place in May 2011, in Washington, D.C. This meeting was followed by many others between Mr. Agee and Mr. Stewart as well as other key persons associated with First Citizens and SHB. At each of these meetings, the parties discussed the opportunities presented by a merger between them, the overall banking marketplace in Tennessee, the communities in which SHB does business, and various potential transaction structures.

        In the spring of 2013, the discussions between the parties and their financial advisors turned toward structuring a formal offer from First Citizens to SHB regarding a proposed merger transaction. The offer was submitted to SHB in the form of an indication of interest first by letter dated May 2, 2013 followed by a letter dated June 14, 2013. The June 14, 2013 letter was not executed by SHB. A formal letter dated December 3, 2013 (herein, the “Letter of Intent”) was executed by SHB on December 4, 2013. In the Letter of Intent, First Citizens offered to purchase SHB for an aggregate purchase price of $32,171,807.50, to be paid in stock and cash, based on the market value of First Citizens’ capital stock at that time. Between the initial indication of interest in May and the December Letter of Intent, the consideration was changed from a range to a set amount ($24.50 per share), the structure changed to provide for an adjustment based on a material decrease in SHB’s accumulated other comprehensive income (“AOCI”), the minimum net worth requirement was added and defined, and certain operational issues were addressed.

 

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        After SHB reviewed the Letter of Intent and consulted with FIG Partners, SHB and FIG Partners determined that the offer received from First Citizens was clearly the highest and best offer received by SHB. The SHB board agreed that the offer was in the best interest of the shareholders and voted to enter into said Letter of Intent which provided First Citizens a period of exclusivity in which to conduct diligence on SHB and draft the definitive Merger Agreement.

        The parties proceeded to perform due diligence on one another on an exclusive basis. On January 23, 2014, First Citizens provided SHB and its advisors with an initial draft of a definitive Merger Agreement. The parties discussed various legal and business points related to this agreement through March 19, 2014. During the due diligence period, First Citizens conducted a thorough due diligence investigation of SHB. This due diligence investigation included on-site review of documents, files and other pertinent materials, as well as in-person meetings and discussions with key SHB personnel. SHB and its advisors conducted a thorough due diligence investigation of First Citizens. This due diligence investigation included a review of historical public filings of First Citizens, on-site review of key documents and interviews with First Citizens’ management. Throughout the due diligence investigation period and negotiation of the Merger Agreement, the deal terms did not materially deviate from the terms set forth in the executed Letter of Intent. The cash and share consideration provided in the executed Letter of Intent remained the same.

        Olsen Palmer presented a financial analysis with regard to a proposed merger with SHB to the executive committee of First Citizens’ board of directors on March 17, 2014. On March 19, 2014, the First Citizens board of directors met to consider the proposed merger between SHB and First Citizens and the terms of the proposed Merger Agreement. The First Citizens board of directors discussed the merger with its legal counsel and management. Olsen Palmer presented its fairness opinion to the board of directors at this meeting. After further discussion among the directors, the Merger Agreement was approved by First Citizens’ board of directors on March 19, 2014 and executed by First Citizens’ chief executive officer on March 20, 2014.

        On March 19, 2014, SHB’s board of directors held a meeting to discuss the transaction and the Merger Agreement. At that meeting, the SHB board of directors was briefed on the Merger Agreement and the ancillary legal documents and had the opportunity to ask questions to SHB’s legal and financial advisors regarding terms and conditions of the transaction included in the Merger Agreement. FIG Partners also presented an analysis of the financial terms set forth in the Merger Agreement. At that time, the total deal value of the transaction was projected to be $32,702,855.75 based on a First Citizens stock price of $44.00. FIG Partners provided SHB’s board of directors with its opinion that closing of the proposed transaction on those terms was fair from a financial perspective to the shareholders of SHB. FIG Partners also provided its written fairness opinion, a copy of which is attached as Annex C to this Proxy Statement/Prospectus, on March 19, 2014.

        SHB’s board of directors unanimously approved the Merger Agreement and transactions contemplated thereby with First Citizens on March 19, 2014. On March 20, 2014, SHB’s chief executive officer executed the Merger Agreement. First Citizens and SHB publicly announced the proposed merger that day.

        On June 27, 2014, First Citizens and SHB amended the Merger Agreement to correct a clerical error in the amount to be paid to SHB’s shareholders for fractional shares. See Annex A to this Proxy Statement/Prospectus for a copy of the First Amendment to the Merger Agreement.

        On August 14, 2014, First Citizens and SHB further amended the Merger Agreement to extend the date upon which the merger must be completed from September 30, 2014 to October 30, 2014, and to provide that the mailing of letters of transmittal and election forms to SHB shareholders by the exchange agent will occur on or immediately following the meeting date of SHB shareholders and that the elections form must be returned by SHB shareholders within fifteen days of such mailing date in order to be considered timely. See Annex A to this Proxy Statement/Prospectus for a copy of the Second Amendment to the Merger Agreement.

Reasons for the Merger; Recommendation of the Board of Directors

The merger will combine the strengths of First Citizens and SHB and their subsidiary banks. First Citizens has an established presence in West and Middle Tennessee with plans to significantly enhance its market share in those markets. Joining with First Citizens will provide SHB’s customers opportunities offered by a large, resourceful, community-minded bank. First Citizens has been actively seeking other banking locations to expand its presence in Tennessee. The proposed merger with SHB accelerates First Citizens’ opportunity to grow across Tennessee and brings to First Citizens’ team a number of outstanding bankers. First Citizens currently operates 21 commercial banking, mortgage, and insurance locations in West and Middle Tennessee, with total assets of approximately $1.18 billion. First Citizens’ management views Bradley County as a logical growth area for its community style of banking.

In reaching its determination to approve the Merger Agreement, SHB’s board of directors consulted with SHB’s management and legal and financial advisors and considered a number of factors, including a fairness opinion presented by FIG Partners. FIG Partners took into consideration the results of the limited auction process for the potential sale of SHB in which FIG Partners contacted a total of 29 financial institutions regarding their potential interest in an acquisition of SHB, and First Citizens’ offer was the highest indication received.

The following is a discussion of information and factors considered by SHB’s board of directors in reaching this determination. This discussion is not intended to be exhaustive, but includes the material factors considered by SHB’s board of directors. In the course of its deliberations with respect to the merger, SHB’s board of directors discussed the anticipated impact of the merger on SHB, SHB’s shareholders and the communities that SHB serves.

 

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The terms of the Merger Agreement, including the consideration to be paid to SHB’s shareholders, were the result of arm’s length negotiations between representatives of SHB and representatives of First Citizens. In arriving at its determination to approve the Merger Agreement, SHB’s board of directors considered a number of factors, including the following:

• SHB’s board’s familiarity with SHB’s consolidated business, operations, earnings, and financial conditions;

• SHB’s board’s review of possible affiliation partners other than First Citizens, the prospects of such other possible affiliation partners, the discussions between FIG Partners and such other possible affiliation partners and the likelihood of any such affiliation;

• SHB’s board’s review, based in part by the presentation by SHB’s management and SHB’s legal and financial advisors, of the proposal, including a review of the business, operations, earnings, and financial conditions of First Citizens, as well as the potential results from a sale to First Citizens, and also including the financial presentation of FIG Partners and the opinion of FIG Partners dated as of March 19, 2014, that, as of March 19, 2014, and subject to the assumptions, limitations and qualifications set forth in the opinion, the total aggregate merger consideration to be received from First Citizens, which consisted of no more than 377,658 shares of First Citizens stock and $16,085,903.75 in cash, is fair, from a financial point of view, to the shareholders of SHB (see Opinion of FIG Partners, a copy of which is attached as Annex C to this Proxy Statement/Prospectus);

• SHB’s board’s review of alternatives to such a transaction (including the alternatives of remaining independent and growing organically, remaining independent for a period of time and then selling, and remaining independent and growing through future acquisitions);

• The recent business combinations involving financial institutions either announced or completed during the past few years in the United States, the State of Tennessee, and contiguous states, and the effect of such combinations on competitive conditions in SHB’s market area;

• A comparison of the proposal from First Citizens to such recent business combinations involving other financial institutions;

• SHB’s reliance on its management team in order to continue to profitably grow and a lack of true management succession;

• SHB’s reliance on mortgage banking activities in producing a significant portion of its net income and the potential decline in these activities if interest rates increase significantly;

• Increasing regulatory and statutory burdens (including costs, time commitments, earnings opportunities) on SHB and its subsidiaries as a community banking organization in general and as a result of the particular status of SHB; and

• The opportunity for SHB shareholders to exchange their shares of SHB for shares of First Citizens in a tax free exchange and resulting in the ownership of a stock currently paying a higher dividend.

The reasons set out above for the merger are not intended to be exhaustive but include the material factors considered by the board of directors of SHB in approving the transaction and the Merger Agreement. In reaching its determination, the board of directors of SHB did not assign any relative or specific weight to different factors and individual directors may have given weight to different factors. Based on the reasons stated above, the board of directors of SHB believes that the merger is in the best interest of SHB and its shareholders and therefore the board of directors of SHB approved the Merger Agreement and the transactions contemplated thereby.

Based on a thorough evaluation of these factors, SHB’s board of directors believes the merger is in the best interests of SHB and SHB’s shareholders. SHB’s board of directors recommends that SHB shareholders vote “FOR” approval of the Merger Agreement and the transactions contemplated thereby.

Opinion of Financial Advisor to SHB

FIG Partners was engaged by SHB to advise SHB’s board of directors as to the fairness of the consideration, from a financial perspective, to be paid by First Citizens to the SHB shareholders as set forth in the Merger Agreement.

By letter dated March 27, 2013, SHB retained FIG Partners to act as its financial advisor in connection with a possible business combination with another financial institution. FIG Partners is a nationally recognized investment banking firm and, as part of its investment banking business, is continually engaged in the valuation of financial institutions in connection with mergers and acquisitions, private placements and valuations for other corporate purposes. As a specialist in securities of financial institutions, FIG Partners has experience in, and knowledge of, banks, thrifts and bank and thrift holding companies. Neither FIG Partners nor any of its affiliates has a material financial interest in SHB or First Citizens. FIG Partners was selected to advise SHB’s board of directors based upon its familiarity with Southeastern financial institutions and knowledge of the banking industry as a whole.

FIG Partners performed certain analyses described herein and presented the range of values for SHB, resulting from such analyses, to the board of directors of SHB in connection with its advice as to the fairness of the consideration to be paid by First Citizens. In forming its opinion as to the fairness of the proposed consideration to be received by SHB’s shareholders, FIG Partners also took into consideration the results of the limited auction process for the potential sale of SHB in which FIG Partners contacted a total of 29 financial institutions regarding their potential interest in an acquisition of SHB, and First Citizens’ offer was the highest indication received.

FIG Partners acted as financial advisor to SHB in connection with the proposed merger and participated in certain of the negotiations leading to the Merger Agreement. At the March 19, 2014 meeting of the board of directors of SHB at which SHB’s board of directors considered and approved the Merger Agreement, FIG Partners delivered to SHB’s board of directors its written opinion that as of March 19, 2014, the merger consideration was fair to SHB’s shareholders from a financial point of view. In requesting FIG Partners’ advice and opinion, no limitations were imposed by SHB upon FIG Partners with respect to the investigations made or procedures followed by it in rendering its opinion. The full text of the opinion of FIG Partners, dated March 19, 2014, which describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached hereto as Annex C. SHB shareholders should read this opinion in its entirety. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion.

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In arriving at its fairness opinion, FIG Partners reviewed certain publicly available business and financial information relating to SHB and First Citizens. FIG Partners considered certain financial and stock market data of SHB and First Citizens, compared that data with similar data for certain other publicly-held banks and bank holding companies and considered the financial terms of certain other comparable bank transactions that had recently been completed. FIG Partners also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant. In connection with its review, FIG Partners did not independently verify the foregoing information and relied on such information as being complete and accurate in all material respects. Financial forecasts prepared by FIG Partners were based on assumptions believed by FIG Partners to be reasonable and to reflect currently available information. FIG Partners did not make an independent evaluation or appraisal of the assets of SHB or First Citizens.

For purposes of its opinion and in connection with the review of the proposed merger, FIG Partners, among other things:

• Reviewed the Merger Agreement;

• Reviewed certain historical publicly available business and financial information concerning SHB and First Citizens including, among other things, quarterly and annual reports filed by the parties with the Federal Reserve, the FDIC or the Office of the Comptroller of the Currency as applicable;

• Reviewed certain internal financial statements and other financial and operating data concerning SHB and First Citizens;

• Analyzed certain financial estimates and budgeted information prepared by the management of SHB;

• Participated in discussions with members of the senior managements of SHB and First Citizens for the purpose of reviewing the future prospects of SHB and First Citizens, including financial estimates related to their respective businesses, earnings, assets, and liabilities and credit quality;

• Reviewed the terms of recent merger and acquisition transactions, to the extent publicly available, involving banks, thrifts and bank and thrift holding companies that FIG Partners considered and deemed relevant; and

• Performed such other analyses and considered such other factors as FIG Partners has deemed appropriate.

FIG Partners assumed and relied, without independent verification, upon the accuracy and completeness of all of the financial and other information that has been provided to them by SHB, and of the publicly available information that was reviewed. FIG Partners is not an expert in the evaluation of allowances for loan losses and did not independently verify such allowances, and has relied on and assumed that the aggregate allowances for loan losses set forth on the balance sheets of SHB and First Citizens at December 31, 2013 were adequate to cover such losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. FIG Partners was not retained to and did not conduct a physical inspection of any of the properties or facilities of SHB, did not make any independent evaluation or appraisal of the assets, liabilities or prospects of SHB, was not furnished with any such evaluation or appraisal, and did not review any individual credit files. FIG Partners’ opinion is necessarily based on economic, market, and other conditions as in effect on, and the information made available to FIG Partners as of, the date of the opinion.

FIG Partners reviewed and tabulated statistical data regarding the loan portfolio, securities portfolio and other performance ratios and statistics of SHB. Financial projections were prepared and analyzed as well as other financial studies, analyses and investigations as deemed relevant for the purposes of this opinion. In review of the aforementioned information, FIG Partners took into account its assessment of general market and financial conditions, its experience in other similar transactions and its knowledge of the banking industry generally.

In connection with rendering the fairness opinion and preparing its written and oral presentation to SHB’s board of directors, FIG Partners performed a variety of financial analyses, including those summarized herein. The summary does not purport to be a complete description of the analyses performed by FIG Partners in this regard. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and therefore, such an opinion is not readily susceptible to summary description. Accordingly, notwithstanding the separate factors summarized below, FIG Partners believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. In performing its analyses, FIG Partners made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond SHB’s or First Citizens’ control. The analyses performed by FIG Partners are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the values of businesses do not purport to be appraisals or to reflect the process by which businesses actually may be sold.

 

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In the proposed merger, SHB shareholders will receive in aggregate $16,085,903.75 in cash and shares of First Citizens stock in the amounts as follows: 269,302 shares of First Citizens common stock and 108,356 shares of First Citizens Class A common stock, for all of the issued and outstanding stock of SHB. Based on a trading price of $44.00 per share for First Citizens’ common stock, the proposed aggregate consideration to be received totals $32,702,855.75, subject to downward adjustment, as further described in the Merger Agreement.

The aggregate merger consideration represents a multiple of SHB’s December 31, 2013 stated and tangible common equity of 162.9%, a multiple of SHB’s 2013 earnings of 12.00x and a multiple of adjusted earnings of 17.64x. In addition, the proposed consideration to be received by SHB’s shareholders represents a 6.58% premium over SHB’s December 31, 2013 tangible equity as a percentage of SHB’s December 31, 2013 core deposits.

Contribution Analysis:  FIG Partners prepared a contribution analysis demonstrating percentages of total assets, total loans, total deposits, and tangible common equity, and net income as of the most recently available period for SHB and for First Citizens to be contributed to the combined company on a pro forma basis. SHB shareholders will receive merger consideration of 50.8% stock and 49.2% cash. FIG Partners also calculated the estimated pro forma impact on earnings, book value and dividends for the SHB shareholders who elect to receive 100% First Citizens stock in the merger.