UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:...................................March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from...................... to .......................
Commission File Number:..................................................0-25980
FIRST CITIZENS BANC CORP
(Exact name of registrant as specified in its charter)
Ohio 34-1558688
---- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
100 East Water Street, Sandusky, Ohio 44870
---------------------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 625-4121
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
__X__ Yes
_____ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value
Outstanding at May 13, 2002
5,097,935 common shares
FIRST CITIZENS BANC CORP
Index
PART I. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 2002 and December 31, 2001.........................................3
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2002 and 2001...................................4
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31, 2002 and 2001...................................5
Consolidated Statement of Shareholders' Equity (unaudited)
Three months ended March 31, 2001 and March 31, 2002.........................6
Condensed Consolidated Statement of Cash Flows (unaudited)
Three months ended March 31, 2002 and 2001...................................7
Notes to Consolidated Financial Statements (unaudited)........................8-16
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................17-21
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...................21-23
PART II. Other Information
ITEM 1. Legal Proceedings...............................................................24
ITEM 2. Changes in Securities and Use of Proceeds.......................................24
ITEM 3. Defaults Upon Senior Securities.................................................24
ITEM 4. Submission of Matters to a Vote of Security Holders.............................24
ITEM 5. Other Information...............................................................24
ITEM 6. Exhibits and Reports on Form 8-K................................................24
SIGNATURES ..............................................................................25
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
March 31, December 31,
Assets 2002 2001
---------------- ----------------
Cash and due from banks $ 12,678 $ 19,227
Federal Funds Sold 14,400 6,025
Securities
Available-for-sale 112,647 113,587
Held-to-maturity (Estimated Fair Value of $130 at
March 31, 2002, and $143 at December 31, 2001) 126 139
---------------- ----------------
Total securities 112,773 113,726
Loans held for sale 656 2,307
Loans 334,169 336,212
Less: Allowance for loan losses (4,887) (4,865)
---------------- ----------------
Net loans 329,282 331,347
Office premises and equipment, net 6,878 7,003
Intangible assets 1,512 1,543
Accrued interest and other assets 7,372 6,493
---------------- ----------------
Total assets $ 485,551 $ 487,671
================ ================
Liabilities
Deposits
Noninterest-bearing deposits $ 42,953 $ 44,612
Interest-bearing deposits 358,985 365,566
---------------- ----------------
Total deposits 401,938 410,178
Federal Home Loan Bank borrowings 658 811
Securities sold under agreements to repurchase 9,948 10,311
U. S. Treasury interest-bearing demand deposit note payable 2,131 720
Notes payable to other financial institutions 14,000 14,000
Obligated mandatory redeemable capital securities 5,000 0
Accrued interest, taxes and other expenses 2,929 2,924
---------------- ----------------
Total liabilities 436,604 438,944
Shareholders' Equity
Common stock, no par value; 10,000,000 shares authorized,
4,263,401 shares issued 23,258 23,258
Retained earnings 29,489 28,844
Treasury stock, 185,782 shares at cost at March 31, 2002,
180,782 shares at cost at December 31, 2001 (5,032) (4,919)
Accumulated other comprehensive income 1,232 1,544
---------------- ----------------
Total shareholders' equity 48,947 48,727
---------------- ----------------
Total liabilities and shareholders' equity $ 485,551 $ 487,671
================ ================
See notes to interim consolidated financial statements Page 3
FIRST CITIZENS BANC CORP
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
Three months ended
March 31,
-----------------------------
2002 2001
INTEREST INCOME:
Loans, including fees $ 6,257 $ 7,504
Taxable securities 996 1,158
Nontaxable securities 384 447
Federal funds sold 67 44
Other 6 10
------- -------
Total interest income 7,710 9,163
INTEREST EXPENSE:
Deposits 2,592 3,692
FHLB Borrowings 11 19
Other 171 587
------- -------
Total interest expense 2,774 4,298
------- -------
NET INTEREST INCOME 4,936 4,865
PROVISION FOR LOAN LOSSES 205 296
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,731 4,569
NONINTEREST INCOME:
Computer center data processing fees 318 303
Service charges 606 400
Net gain/(loss) on sale of loans 43 52
Other 441 418
------- -------
Total noninterest income 1,408 1,173
NONINTEREST EXPENSE:
Salaries, wages and benefits 2,000 1,948
Net occupancy expense 218 237
Equipment expense 274 252
Computer processing 193 182
State franchise tax 123 182
Professional services 183 142
Amortization of intangible assets 31 82
Other operating expenses 1,149 1,076
------- -------
Total noninterest expense 4,171 4,101
------- -------
Income before taxes 1,968 1,641
Income tax expense 549 460
------- -------
Net Income $ 1,419 $ 1,181
======= =======
Basic and diluted earnings per share $ 0.35 $ 0.29
Dividends declared per share $ 0.19 $ 0.18
Wtd. avg. shares during the period 4,077,730 4,083,675
See notes to interim consolidated financial statements Page 4
FIRST CITIZENS BANC CORP
Consolidated Comprehensive Income Statements (Unaudited)
(In thousands)
Three months ended
March 31,
2002 2001
---- ----
Net income $ 1,419 $ 1,181
Other Comprehensive Income (Loss):
Unrealized holding gains and (losses) on
available for sale securities (473) 1,488
Reclassification adjustment for (gains) and
losses later recognized in income - -
-------- -------
Net unrealized gains and (losses) (473) 1,488
Tax effect 161 (506)
-------- -------
Total other comprehensive income (loss) (312) 982
-------- -------
Comprehensive income $ 1,107 $ 2,163
======== =======
See notes to interim consolidated financial statements Page 5
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
Form 10-Q
(In thousands, except share data)
Accumulated
Common Stock Other Total
Outstanding Retained Treasury Comprehensive Shareholders'
Shares Amount Earnings Stock Income/(Loss) Equity
------------ -------------- -------------- ------------- -------------- -------------
Balance, January 1, 2001 4,087,619 $ 23,258 $ 28,614 $ (4,818) $ 871 $ 47,925
Net income 1,181 1,181
Change in unrealized gain/(loss) on
securities available for sale, net
of reclassifications and tax effects 982 982
Purchase of treasury stock, at cost (5,000) (101) (101)
Cash dividends ($.18 per share) (735) (735)
---------- ---------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 4,082,619 $ 23,258 $ 29,060 $ (4,919) $ 1,853 $ 49,252
========== ========== =========== =========== =========== ===========
Balance, January 1, 2002 4,082,619 $ 23,258 $ 28,844 $ (4,919) $ 1,544 $ 48,727
Net income 1,419 1,419
Change in unrealized gain/(loss) on
securities available for sale, net
of reclassifications and tax effects (312) (312)
Purchase of treasury stock, at cost (5,000) (112) (112)
Cash dividends ($.19 per share) (775) (775)
---------- ---------- ----------- ----------- ---------- -----------
Balance, March 31, 2002 4,077,619 $ 23,258 $ 29,488 $ (5,031) $ 1,232 $ 48,947
========== ========== =========== =========== ========== ===========
See notes to interim consolidated financial statements Page 6
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
----------------------------------
2002 2001
--------------- ---------------
Net cash from operating activities $ 2,923 $ 1,020
Cash flows from investing activities
Maturities of deposits held in other institutions - 51
Maturities and calls of securities, held-to-maturity 13 4
Maturities and calls of securities, available-for-sale 11,781 2,267
Purchases of securities, available-for-sale (11,462) (998)
Proceeds from sale of securities, available-for-sale 4 -
Loans made to customers, net of principal collected 1,903 (4,661)
Change in federal funds sold (8,375) -
Purchases of office premises and equipment (103) (163)
--------- ---------
Net cash from investing activities (6,239) (3,500)
Cash flows from financing activities
Repayment of FHLB borrowings (153) (145)
Net change in deposits (8,240) 17,733
Change in securities sold under agreements to repurchase (363) (881)
Change in U. S. Treasury interest-bearing demand note payable 1,411 (823)
Change in notes payable - 3,400
Change in federal funds purchased - (10,335)
Purchases of treasury stock (113) (101)
Proceeds from obligated mandatorily redeemable capital securities 5,000 -
Cash dividends paid (775) (735)
--------- ---------
Net cash from financing activities (3,233) 8,113
--------- ---------
Net change in cash and due from banks (6,549) 5,633
Cash and due from banks at beginning of period 19,227 15,735
--------- ---------
Cash and due from banks at end of period $ 12,678 $ 21,368
========= =========
Cash paid during the period for:
Interest $ 2,829 $ 5,226
Income taxes $ - $ -
See notes to interim consolidated financial statements Page 7
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(1) Consolidated Financial Statements
The consolidated financial statements include the accounts of First
Citizens Banc Corp (First Citizens) and it wholly-owned subsidiaries, The
Citizens Banking Company (Citizens), The Castalia Banking Company
(Castalia), The Farmers State Bank of New Washington (Farmers), SCC
Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc., (Reynolds),
Mr. Money Finance Company (Mr. Money), First Citizens Title Insurance
Agency, and First Citizens Insurance Agency, together referred to as the
Corporation. All significant inter-company balances and transactions have
been eliminated in consolidation.
The consolidated financial statements have been prepared by the Corporation
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
Corporation's financial position as of March 31, 2002 and its results of
operations and changes in cash flows for the periods ended March 31, 2002
and 2001 have been made. The accompanying consolidated financial statements
have been prepared in accordance with instructions of Form 10-Q, and
therefore certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been omitted.
The results of operations for the period ended March 31, 2002 are not
necessarily indicative of the operating results for the full year.
Reference is made to the accounting policies of the Corporation described
in the notes to financial statements contained in the Corporation's 2001
annual report. The Corporation has consistently followed these policies in
preparing this Form 10-Q.
The Corporation provides financial services through its offices in the Ohio
counties of Erie, Crawford, Huron, Marion, Ottawa, and Union. Its primary
deposit products are checking, savings, and term certificate accounts, and
its primary lending products are residential mortgage, commercial, and
installment loans. Substantially all loans are secured by specific items of
collateral including business assets, consumer assets and real estate.
Commercial loans are expected to be repaid from cash flow from operations
of businesses. Real estate loans are secured by both residential and
commercial real estate. Other financial instruments that potentially
represent concentrations of credit risk include deposit accounts in other
financial institutions. In 2002, SCC provided item processing for 11
financial institutions in addition to the three subsidiary banks. SCC
accounted for 5.2% of the Corporation's total revenues through March 31,
2002. Reynolds provides real estate appraisal services for lending purposes
to subsidiary banks and other financial institutions. Reynolds accounts for
less than 1.0% of total Corporation revenues. Mr. Money provides consumer
and real estate financing that the Banks would not normally provide to B
and C credits at a rate commensurate with the risk. Mr. Money accounted for
5.1% of total Corporation revenues. In September 2000 the Corporation
formed two new affiliates; First Citizens Title Insurance Agency Inc. and
First Citizens Insurance Agency Inc. First Citizens Title Insurance Agency
Inc. has been formed to provide customers with a seamless mortgage product
with improved service. First Citizens Insurance Agency Inc was formed to
allow the Corporation to participate in commission revenue generated
through its third party
Page 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
insurance agreement. Insurance commission revenue is less than 1 percent of
total revenue for the period ended March 31, 2002. Management considers the
Corporation to operate primarily in one reportable segment, banking. To
prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates
and assumptions affect the amounts reported in financial statements and the
disclosures provided, and future results could differ. The allowance for
loan losses, fair values of financial instruments, and status of
contingencies are particularly subject to change.
Income tax expense is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the
expected future tax amounts for the temporary differences between carrying
amounts and tax basis of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the
amount expected to be realized.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which addresses the accounting for such assets arising
from prior and future business combinations. Upon the adoption of this
Statement, goodwill arising from business combinations will no longer be
amortized, but rather will be assessed regularly for impairment, with any
such impairment recognized as a reduction to earnings in the period
identified. The Company is required to adopt this Statement on January 1,
2002 and early adoption is not permitted. Prior to the adoption of SFAS No.
142, the Corporation's annual amortization of goodwill was $201.
The previously reported net income adjusted to eliminate prior period
goodwill is as follows:
March 31,
2001
Reported net income $ 1,181
Add back: goodwill amortization 50
Add back: trademark amortization -
--------
Adjusted net income $ 1,231
Basic and diluted earnings per share $ 0.30
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which amends SFAS No. 121
by addressing business segments accounted for as a discontinued operation
under Accounting Principles Board Opinion No. 30. This Statement was
effective beginning after January 1, 2002. The effect of this Statement on
the financial position and results of operations of the Corporation was not
material.
Page 9
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(2) Securities
Securities at March 31, 2002 and December 31, 2001 were as follows:
March 31, 2002
Gross Gross
Amortized Unrealized Unrealized
AVAILABLE FOR SALE Cost Gains Losses Fair Value
-------------- -------------- -------------- --------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 54,960 $ 853 $ (54) $ 55,759
Obligations of state and political subdivisions 37,525 970 (40) 38,455
Corporate obligations 3,554 42 (5) 3,591
Other securities, including mortgage-backed
securities and equity securities 14,742 111 (11) 14,842
--------- --------- --------- ---------
$110,781 $ 1,976 $ (110) $ 112,647
========= ========= ========= =========
March 31, 2002
Gross Gross
Amortized Unrealized Unrealized
HELD TO MATURITY Cost Gains Losses Fair Value
-------------- -------------- -------------- --------------
Obligations of state and political subdivisions $ 78 $ 1 $ - $ 79
Other securities, including mortgage-backed
securities and equity securities 48 3 - 51
--------- --------- --------- ---------
$ 126 $ 4 $ - $ 130
========= ========= ========= =========
Page 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
December 31, 2001
Gross Gross
Amortized Unrealized Unrealized
AVAILABLE FOR SALE Cost Gains Losses Fair Value
-------------- -------------- -------------- --------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 54,106 $ 1,263 $ (7) $ 55,362
Obligations of state and political subdivisions 37,627 931 (7) 38,551
Corporate obligations 4,567 59 (8) 4,618
Other securities, including mortgage-backed
securities and equity securities 14,948 122 (14) 15,056
---------- --------- --------- ---------
$ 111,248 $ 2,375 $ (36) $ 113,587
========== ========= ========= =========
December 31, 2001
Gross Gross
Amortized Unrealized Unrealized
HELD TO MATURITY Cost Gains Losses Fair Value
-------------- -------------- -------------- --------------
Obligations of state and political subdivisions $ 78 $ 2 $ - $ 80
Other securities, including mortgage-backed
securities and equity securities 61 2 - 63
---------- --------- --------- ---------
$ 139 $ 4 $ - $ 143
========== ========= ========= =========
Page 11
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities at March 31, 2002, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Securities not due at a single maturity date, primarily
mortgage-backed securities and equity securities are shown separately.
AVAILABLE FOR SALE Amortized Cost Fair Value
------------------- --------------------
Due in one year or less $ 41,154 $ 41,581
Due after one year through five years 47,299 48,515
Due after five years through ten years 6,241 6,402
Due after ten years 1,346 1,307
Mortgage-backed securities 8,865 8,966
Equity securities 5,876 5,876
---------- ----------
Total securities available for sale $ 110,781 $ 112,647
========== ==========
Estimated Fair
HELD TO MATURITY Amortized Cost Value
------------------- --------------------
Due in one year or less $ 78 $ 79
Due after one year through five years - -
Mortgage-backed securities 48 51
---------- ----------
Total securities held to maturity $ 126 $ 130
========== ==========
Proceeds from sales of securities, gross realized gains and gross realized
losses were as follows:
Three Months Ended
March 31,
------------------------------------------
2002 2001
------------------- -------------------
Proceeds $ 4 $ -
Gross gains - -
Gross losses - -
Securities with a carrying value of approximately $70,237 and $71,106 were
pledged as of March 31, 2002 and December 31, 2001, respectively, to secure
public deposits, other deposits and liabilities as required by law.
Page 12
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(3) Loans
Loans at March 31, 2002 and December 31, 2001 were as follows:
<Table>
<Caption>
3/31/2002 12/31/2001
--------- ----------
Commercial and Agriculture $ 26,657 $ 26,708
Commercial real estate 74,021 70,616
Real Estate - mortgage 202,630 204,496
Real Estate - construction 8,290 9,402
Consumer 21,578 23,100
Credit card and other 1,283 2,315
Leases 525 435
--------- ---------
Total loans 334,984 337,072
Allowance for loan losses (4,887) (4,865)
Deferred loan fees (805) (848)
Unearned interest (10) (12)
--------- ---------
Net loans $ 329,282 $ 331,347
========= =========
</Table>
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses for the three
months ended March 31, 2002 and 2001 was as follows:
<Table>
<Caption>
2002 2001
---- ----
Balance January 1, $ 4,865 $ 4,107
Loans charged-off (297) (163)
Recoveries 114 79
Provision for loan losses 205 296
--------- ---------
Balance March 31, $ 4,887 $ 4,319
========= =========
</Table>
Page 13
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Information regarding impaired loans was as follows for the three months
ended March 31.
2002 2001
---- ----
Average investment in impaired loans $ 3,588 $ 3,123
Interest income recognized on impaired loans
including interest income recognized on cash basis 54 22
Interest Income recognized on impaired loans
on cash basis 54 22
Information regarding impaired loans at March 31, 2002 and December 31,
2001 was as follows:
3/31/02 12/31/01
------- ----------
Balance impaired loans $ 5,583 $ 1,592
Less portion for which no allowance for loan
losses is allocated - -
---------------- ----------------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 5,583 $ 1,592
================ ================
Portion of allowance for loan losses allocated to
impaired loans $ 858 $ 544
================ ================
Nonperforming loans were as follows.
March 31, December 31,
2002 2001
---------------- -----------------
Loans past due over 90 days still on accrual $ 3,200 $ 2,818
Nonaccrual 3,604 2,413
Nonperforming loans would include some loans, which are classified as
impaired, and smaller balance homogeneous loans, such as residential
mortgages and consumer loans, that are collectively evaluated for
impairment.
Page 14
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(5) Commitments, Contingencies and Off-Balance Sheet Risk
Some financial instruments, such as loan commitments, credit lines, letters
of credit and overdraft protection are issued to meet customers financing
needs. These are agreements to provide credit or to support the credit of
others, as long as the conditions established in the contract are met, and
usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk of credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of commitment.
The contractual amount of financial instruments with off-balance-sheet risk
was as follows for March 31, 2002 and December 31, 2001.
<Table>
<Caption>
CONTRACT AMOUNT
March 31, December 31,
2002 2001
------------ -----------
Commitment to extend credit:
Lines of credit and construction loans $ 35,813 $ 36,828
Credit cards 3,910 7,005
Letters of credit 1,164 888
---------- --------
$ 40,887 $ 44,721
========== ========
</Table>
Commitments to make loans are generally made for a period of one year or
less. Fixed rate loan commitments included above totaled $6,974 at March
31, 2002 and had interest rates ranging from 4.0% to 10.0% with maturities
extended up to 30 years. Fixed rate loan commitments included above totaled
$7,277 at December 31, 2001 with interest rates ranging from 4.8% to 10.0%
with maturities extended up to 30 years.
The Banks are required to maintain certain reserve balances on hand in
accordance with the Federal Reserve Board requirements. The average reserve
balance maintained in accordance with such requirements for the periods
ended March 31, 2002 and December 31, 2001 approximated $5,102 and $4,670.
On November 1, 2001, the Company signed a letter of intent to acquire
Independent Community Banc Corp. ("ICBC"), headquartered in Norwalk, Ohio.
The shareholders of ICBC will receive 1.7 shares of First Citizens Banc
Corp stock for each share of ICBC stock. The merger will be a tax-free
exchange of common shares and will be accounted for as a purchase
transaction. At December 31, 2001, ICBC reported total assets of $135,628,
shareholders' equity of $11,899 and net income of $1,005. The merger is
expected to be consummated in April 2002.
Page 15
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(6) Obligated Mandatorily Redeemable Capital Securities
In March 2002, FCBC issued $5,000 of 5.59% floating rate Obligated
Mandatorily Redeemable Capital Securities through a special purpose
subsidiary as part of a pooled transaction. The Corporation's obligated
mandatorily redeemable capital securities may be redeemed by the
Corporation, in whole but not in part, prior to March 26, 2007 and subject
to the occurrence and continuation of a special event, at a redemption
price of 107.50% of the face value of the capital securities. On or after
March 26, 2007, the capital securities may be redeemed at face value. The
Corporation's mandatorily redeemable capital securities are considered Tier
I capital for regulatory reporting purposes.
Page 16
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the consolidated financial condition of
First Citizens Banc Corp at March 31, 2002, compared to December 31, 2001
and the consolidated results of operations for the three-month period
ending March 31, 2002 compared to the same period in 2001. This discussion
should be read in conjunction with the consolidated financial statements
and footnotes included in this Form 10-Q.
The registrant is not aware of any trends, events or uncertainties that
will have, or are reasonably likely to have, a material effect on the
liquidity, capital resources, or operations except as discussed herein.
Also, the registrant is not aware of any current recommendation by
regulatory authorities, which would have a material effect if implemented.
When used in this Form 10-Q or future filings by the Corporation with the
Securities and Exchange Commission, in press releases or other public or
shareholder communications, or in oral statements made with the approval of
an authorized executive officer, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Corporation wishes to caution readers
not to place undue reliance on any such forward-looking statements, which
speak only as of the date made, and to advise readers that various factors,
including regional and national economic conditions, changes in levels of
market interest rates, credit risks of lending activities and competitive
and regulatory factors, could effect the Corporation's financial
performance and could cause the Corporation's actual results for future
periods to differ materially from those anticipated or projected. The
Corporation does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions, which may be made to any
forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
See Exhibit 99, which is incorporated herein by reference.
FINANCIAL CONDITION
Total assets of the Corporation at March 31, 2002 totaled $485,551 compared
to $487,671 at December 31, 2001. This was a decrease of $2,120, or 0.4
percent. Within the structure of the assets, net loans have decreased
$2,065, or 0.6 percent since December 31, 2001. The commercial real estate
portfolio increased by $3,405, while residential real estate and consumer
loans decreased by $2,978 and $2,554 respectively. This is reflective of a
shift in focus by the Corporation toward commercial loans and away from
residential real estate and consumer loans. In the current down rate
environment, the greatest demand for residential real estate loans has been
for a fixed rate loan. Rather than add these loans to the portfolio, the
Corporation has generally sold these loans on the secondary market. This
has allowed for additional funding to be
Page 17
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
used for commercial lending. This shift in focus has also helped improve
the yield the Corporation earned on its loan portfolio, as well as reducing
the interest rate risk on the loan portfolio. Mr. Money was formed to
service the needs of B and C credit customers for consumer and real estate
financing that the Banks would not normally provide, and at a rate
commensurate with the risk. Mr. Money had loans outstanding of $15,208 at
March 31, 2002. Loans held-for-sale decreased $1,651, or 71.6 percent from
December 31, 2001. At March 31, 2002, the net loan to deposit ratio was
81.9 percent compared to 80.8 percent at December 31, 2001.
At March 31, 2002, $112,647, or 99.9 percent of the security portfolio was
classified as available for sale. The $126 remainder of the portfolio was
classified as held to maturity. Securities decreased $953 from December 31,
2001.
For the three months of operations in 2002, $205 was placed into the
allowance for loan losses from earnings compared to $296 for the same
period of 2001. The decreased provision is a related to the decline in the
loan portfolio, in addition to the overall analysis of loss reserves. To
evaluate the adequacy of the allowance for loan losses to cover probable
losses in the portfolio, management considers specific reserve allocations
for identified portfolio loans, reserves for delinquencies and historical
reserve allocations. The composition and overall level of the loan
portfolio and charge-off activity are also factors used to determine
provisions to the reserve. Charge-offs for the first three months of 2002
were $297 compared to $163 for the same period of 2001. The March 31, 2002
allowance for loan losses as a percent of total loans was 1.46 percent
compared to 1.45 percent at December 31, 2001.
Office premises and equipment have decreased $125 and intangible assets
have decreased $31 since December 31, 2001. The decrease in office premises
and equipment is attributed to new purchases of $104 and depreciation of
$229. Intangible assets decreased due to amortization of the core deposit
premium.
Accrued interest and other assets totaled $7,372 at March 31, 2002 compared
to $6,493 at December 31, 2001, an increase of $880. This increase was
primarily due to other assets at First Citizens, which included $577 of
prepaid merger costs.
Total deposits at March 31, 2002 decreased $8,240 from year-end 2001.
Noninterest-bearing deposits, representing demand deposit balances,
decreased $1,659 from year-end 2001. Interest-bearing deposits, including
savings and time deposits, decreased $6,581 from year-end 2001, $4,861 of
which is attributed to the maturity of special rate certificates of
deposit. The year to date 2002 average balance of savings deposits has
increased $7,177 compared to the average balance of the same period for
2001. The current average rate of these deposits is 1.74 percent compared
to 2.35 percent in 2001. The year to date 2002 average balance of time
certificates has decreased $3,164 compared to the average balance for the
same period for 2001. Under current market conditions, and with the
decrease in the loan portfolio and an increase in fed funds sold, the banks
have been less aggressive in their efforts to attract deposits.
Page 18
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Total borrowed funds have increased $5,895 from December 31, 2001 to March
31, 2002. . The Corporation has notes outstanding with other financial
institutions totaling $14,000 at March 31, 2002. These notes were primarily
used to fund the loan growth at Mr. Money. Additionally, the Corporation
has $5,000 in long-term borrowings due to the issuance of an Obligated
Mandatorily Redeemable Capital Security. This borrowing is a 30-year
issuance. Federal Home Loan Bank borrowings have decreased $153 as a result
of scheduled pay downs. Securities sold under agreements to repurchase,
which tend to fluctuate, have decreased $363 and U.S. Treasury Tax Demand
Notes have increased $1,411.
Shareholders' equity at March 31, 2002 was $48,947, or 10.1 percent of
total assets, compared to $48,727 at December 31, 2001,or 10.0 percent of
total assets. The increase in shareholders' equity is made up of earnings
of $1,419, less dividends paid of $775 and the purchase of 5,000 treasury
shares for $113 and the decrease in the market value of securities
available for sale, net of tax, of $312. The Corporation paid a cash
dividend on February 1, 2002 at a rate of $.19 per share. Total outstanding
shares at March 31, 2002 were 4,077,619.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001
Net income for the three months ended March 31, 2002 was $1,419, or $.35
per common share compared to $1,181, or $.29 per common share for the same
period in 2001. This was an increase of $238, or 20.2 percent. Some of the
reasons for the changes are explained below.
Total interest income for the first three months of 2002 decreased by
$1,453, or 15.9 percent compared to the same period in 2001. The average
rate on earning assets on a tax equivalent basis for the first three months
of 2002 was 6.55 percent and 7.65 percent for the first three months of
2001. The decrease in yield is due to the assets booked in 2002 at lower
rates. Total interest expense for the first three months of 2002 has
decreased by $1,525, or 35.5 percent compared to the same period of 2001.
This decrease is mainly attributed to a decrease in interest on deposits of
$1,100 and a decrease in interest on other borrowings of $417. Interest on
other borrowings decreased due to the decreased need to use fed funds
purchased as a source of funding for loan growth. Interest on FHLB
borrowings is down due to balances borrowed being lower in 2002. The
average rate on interest-bearing liabilities for the first three months of
2001 was 2.88 percent compared to 4.22 percent for the same period of 2001.
The net interest margin on a tax equivalent basis was 4.18 percent for the
three-month period ended March 31, 2002 and 4.14 percent for the same
period ended March 31, 2001.
Noninterest income for the first three months of 2002 totaled $1,408,
compared to $1,173 for the same period of 2001, an increase of $235.
Service charges on deposit accounts increased $206 in 2002 compared to the
same period in 2001. In December 2001, the banks created a new deposit
Page 19
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
program called Check Protect, which generated $173 of additional fee
income. Revenue from computer operations increased $14 and other operating
income increased $23. Gain on the sale of loans decreased $8.
Noninterest expense for the three months ended March 31, 2002 totaled
$4,171 compared to $4,101 for the same period in 2001. This was an increase
of $70, or 1.7 percent. Salaries and benefits increased $52, or 2.7 percent
compared to the first three months of 2001. Equipment expense increased $22
as a result of increased depreciation and maintenance expense. Computer
processing expense increased by $11 compared to last year. Net occupancy
expense decreased $19 compared to the first three months of 2002.
Income tax expense for the first three months of 2002 totaled $549 compared
to $460 for the first three months of 2001. This was a increase of $89, or
19.6 percent. The increase in the federal income taxes is a result of the
increase in total income before taxes of $328. The effective tax rates were
comparable for the three-month periods ended March 31, 2002 and March 31,
2001, at 27.9% and 28.0% respectively.
CAPITAL RESOURCES
Shareholders' equity totaled $48,947, at March 31, 2002 compared to $48,727
at December 31, 2001. All of the capital ratios exceed the regulatory
minimum guidelines as identified in the following table:
Corporation Ratios Regulatory
3/31/02 12/31/01 Minimums
------- -------- --------
Tier I Risk Based Capital 16.8% 14.7% 4.0%
Total Risk Based Capital 18.1% 16.0% 8.0%
Leverage Ratio 10.5% 9.1% 4.0%
In March 2002, FCBC issued $5,000 of 5.59% floating rate Obligated
Mandatorily Redeemable Capital Securities through a special purpose
subsidiary as part of a pooled transaction. The Corporation's mandatorily
redeemable capital securities are considered Tier I capital for regulatory
reporting purposes.
The Corporation paid a cash dividend of $.19 per common share each on
February 1, 2002 compared to $.18 per common share each on February 1,
2001.
Capital expenditures totaled $104 for the first three months of 2002
compared to $163 for the same period of 2001.
Page 20
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
LIQUIDITY
Liquidity as it relates to the banking entities of the Corporation is the
ability to meet the cash demand and credit needs of its customers. The
Banks, through their respective correspondent banks, maintain federal funds
borrowing lines totaling $47,241 and the Banks have additional borrowing
availability at the Federal Home Loan Bank of Cincinnati of $71,368 at
March 31, 2002. Finally, 99.9% of the Corporation's security portfolio has
been classified as available for sale, which provides additional liquidity.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary market risk exposure is interest rate risk and,
to a lesser extent, liquidity risk. The Banks do not maintain a trading
account for any class of financial instrument and the Corporation is not
affected by foreign currency exchange rate risk or commodity price risk.
Due to the basis in equities held by Farmers being so much less than the
current fair value at this time, the Corporation is not subject to
significant equity price risk.
Interest rate risk is the risk that the Corporation's financial condition
will be adversely affected due to movements in interest rates. The
Corporation, like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently
than interest-bearing liabilities. The income of financial institutions is
primarily derived from the excess of interest earned on interest-earning
assets over interest paid on interest-bearing liabilities. One of the
Corporation's principal financial objectives is to achieve long-term
profitability while reducing its exposure to fluctuations in interest
rates. Accordingly, the Corporation places great importance on monitoring
and controlling interest rate risk.
An institution may use several techniques to minimize interest-rate risk.
One approach used by the Corporation is to periodically analyze its assets
and liabilities and make future financing and investment decisions based on
payment streams, interest rates, contractual maturities, and estimated
sensitivity to actual or potential changes in market interest rates. Such
activities fall under the broad definition of asset/liability management.
The Corporation's primary asset/liability management technique is the
measurement of the Corporation's asset/liability gap, that is, the
difference between the cash flow amounts of interest sensitive assets and
liabilities that will be refinanced (or repriced) during a given period.
For example, if the asset amount to be repriced exceeds the corresponding
liability amount for a certain day, month, year, or longer period, the
institution is in an asset sensitive gap position. In this situation, net
interest income would increase if market interest rates rose or decrease if
market interest rates fell. If, alternatively, more liabilities than assets
will reprice, the institution is in a liability sensitive position.
Accordingly, net interest income would decline when rates rose and increase
when rates
Page 21
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
fell. Also, these examples assume that interest rate changes for assets and
liabilities are of the same magnitude, whereas actual interest rate changes
generally differ in magnitude for assets and liabilities.
Several ways an institution can manage interest-rate risk include selling
existing assets or repaying certain liabilities; matching repricing periods
for new assets and liabilities, for example, by shortening terms of new
loans or securities; and hedging existing assets, liabilities, or
anticipated transactions. An institution might also invest in more complex
financial instruments intended to hedge or otherwise change interest-rate
risk. Interest rate swaps, futures contracts, options on futures, and other
such derivative financial instruments often are used for this purpose.
Because these instruments are sensitive to interest rate changes, they
require management expertise to be effective. Financial institutions are
also subject to prepayment risk in falling rate environments. For example,
mortgage loans and other financial assets may be prepaid by a debtor so
that the debtor may refund its obligations at new, lower rates. The
Corporation has not purchased derivative financial instruments in the past
and does not intend to purchase such instruments in the near future.
Prepayments of assets carrying higher rates reduce the Corporation's
interest income and overall asset yields. A large portion of an
institution's liabilities may be short term or due on demand, while most of
its assets may be invested in long term loans or securities. Accordingly,
the Corporation seeks to have in place sources of cash to meet short-term
demands. Increasing deposits, borrowing, or selling assets can obtain these
funds. Also, FHLB advances and wholesale borrowings may also be used as
important sources of liquidity for the Corporation.
Management measures the Corporation's interest rate risk by computing
estimated changes in net interest income and the net portfolio value
("NPV") of its cash flows from assets, liabilities and off-balance sheet
items in the event of a range of assumed changes in market interest rates.
The following tables present an analysis of the potential sensitivity of
the Corporation's new present value of its financial instruments to sudden
and sustained changes in the prevailing interest rates.
-------------------------------------------------
NET PORTFOLIO VALUE - MARCH 31, 2002
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
--------------- -------- -------- --------
+200 bp $ 41,477 $ (7,914) (16)%
+100 bp 45,872 (3,519) (7)%
Base 49,391 - -
-100 bp 53,031 3,640 7%
-200 bp 56,336 6,945 14%
Page 22
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
-------------------------------------------------
NET PORTFOLIO VALUE - DECEMBER 31, 2001
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
--------------- -------- -------- --------
+200 bp $ 42,491 $ (9,621) (18)%
+100 bp 47,743 (4,369) (8)%
Base 52,112 - -
-100 bp 56,594 4,482 9%
-200 bp 60,239 8,127 16%
The reduction in the relative change in net portfolio value from December 31,
2001 to March 31, 2002, given the assumed immediate change in interest rates is
primarily a result of two factors. First, the increase in long-term interest
rates during 2002 served to decrease the base level of net portfolio value due
to the corresponding decrease in the fair value of loans and investments. In
addition, the majority of new loans originated in 2002 have interest rate
adjustment features, which lessens the impact of future rate changes.
Page 23
First Citizens Banc Corp
Other Information
Form 10-Q
- --------------------------------------------------------------------------------
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
First Citizens Banc Corp held a special shareholder meeting on
February 26, 2002, for the purpose of considering and voting on
the following:
1.) A proposal to adopt the Agreement and Plan of Merger dated
as of November 1, 2001 by and between First Citizens and
Independent Community Banc Corp., a bank holding company
organized and existing under the laws of the State of Ohio,
and to approve the transactions contemplated thereby,
including the parent merger of ICBC with and into First
Citizens.
The summary of the voting of common shares outstanding was as
follows:
Shares voted:
For 2,965,253.07
Against 94,212.00
Abstain 9,858.80
ITEM 5. OTHER INFORMATION
None
ITEM 6. (a) EXHIBIT NO. 99 Safe Harbor under the Private Securities
Litigation Reform Act of 1995
(b) REPORTS ON FORM 8-K - None.
Page 24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf the undersigned
thereunto duly authorized.
First Citizens Banc Corp
/s/ David A. Voight May 14, 2002
- ------------------------------------ ------------
David A. Voight Date
President
/s/ James O. Miller May 14, 2002
- ------------------------------------ ------------
James O. Miller Date
Executive Vice President
Page 25
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
Exhibit
Number Description Page Number
- ------ ----------- -----------
99 Safe Harbor Under the Private Securities Incorporated by reference to Exhibit
Litigation Reform Act of 1995 99 to Annual Report for the Year
Ended December 31, 2000 filed by
the registrant on March 21, 2001
Page 26