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, 2004
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. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of Exchange Act). Yes [X] 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 10, 2004
5,033,203 common shares
FIRST CITIZENS BANC CORP
Index
PART I. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 2004 and December 31, 2003.........................................................3
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2004 and 2003...................................................4
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31, 2004 and 2003...................................................5
Consolidated Statements of Shareholders' Equity (unaudited)
Three months ended March 31, 2004 and March 31, 2003.........................................6
Condensed Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2004 and 2003...................................................7
Notes to Consolidated Financial Statements (unaudited)........................................8-17
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................18-22
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...................................22-24
ITEM 4. Controls and Procedures.........................................................................24
PART II. Other Information
ITEM 1. Legal Proceedings...............................................................................25
ITEM 2. Changes in Securities and Use of Proceeds.......................................................25
ITEM 3. Defaults Upon Senior Securities.................................................................25
ITEM 4. Submission of Matters to a Vote of Security Holders.............................................25
ITEM 5. Other Information...............................................................................25
ITEM 6. Exhibits and Reports on Form 8-K................................................................25
Signatures .......................................................................................26
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
March 31, December 31,
ASSETS 2004 2003
--------- ---------
Cash and due from financial institutions $ 21,083 $ 21,983
Securities available for sale 101,569 109,508
Securities held to maturity (Fair value of $14 in
2004 and $15 in 2003) 13 14
Loans held for sale 335 159
Loans, net of allowance of $6,521 and $6,308 469,325 462,878
FHLB, FRB, GLBB and NCDC stock 7,269 7,211
Premises and equipment, net 10,416 10,481
Goodwill 15,052 15,052
Core deposit and other intangibles 2,385 2,506
Other assets 8,444 6,631
--------- ---------
Total assets $ 635,891 $ 636,423
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 68,755 $ 73,391
Interest-bearing 429,867 436,781
--------- ---------
Total deposits 498,622 510,172
Federal Home Loan Bank advances 30,800 18,975
Securities sold under agreements to repurchase 10,447 12,115
U. S. Treasury interest-bearing demand note payable 1,209 939
Notes payable 9,000 9,000
Subordinated debentures 12,500 12,500
Accrued expenses and other liabilities 4,342 3,597
--------- ---------
Total liabilities 566,920 567,298
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
5,326,441 shares issued 47,370 47,370
Retained earnings 28,416 28,612
Treasury stock, 293,238 shares at cost (7,241) (7,241)
Accumulated other comprehensive income 426 384
--------- ---------
Total shareholders' equity 68,971 69,125
--------- ---------
Total liabilities and shareholders' equity $ 635,891 $ 636,423
========= =========
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,
-------------------------------
2004 2003
Interest and dividend income
Loans, including fees $ 6,689 $ 7,041
Taxable securities 688 1,121
Tax-exempt securities 317 386
Federal funds sold and other (2) 46
----------- -----------
7,692 8,594
Interest expense
Deposits 1,571 2,129
Federal Home Loan Bank advances 34 2
Subordinated debentures 138 62
Other 125 141
----------- -----------
1,868 2,334
----------- -----------
Net interest income 5,824 6,260
Provision for loan losses 435 215
----------- -----------
Net interest income after provision for loan losses 5,389 6,045
----------- -----------
Noninterest income
Computer center item processing fees 290 288
Service charges 763 762
Net gains on sale of securities 106 289
Net gain on sale of loans 53 154
ATM fees 123 118
Trust fees 165 73
Other 223 456
----------- -----------
1,723 2,140
Noninterest expense
Salaries, wages and benefits 2,738 2,570
Net occupancy expense 361 322
Equipment expense 276 293
Contracted data processing 204 237
State franchise tax 198 212
Professional services 265 286
Amortization of intangible assets 121 108
Advertising 99 98
ATM expense 102 71
Other operating expenses 1,141 1,370
----------- -----------
Total noninterest expense 5,505 5,567
----------- -----------
Income before income taxes 1,607 2,618
Income tax expense 444 768
----------- -----------
Net income $ 1,163 $ 1,850
=========== ===========
Earnings per common share, basic $ 0.23 $ 0.37
=========== ===========
Earnings per common share, diluted $ 0.23 $ 0.37
=========== ===========
Weighted average basic common shares 5,033,203 5,033,203
=========== ===========
Weighted average diluted common shares 5,041,469 5,041,068
=========== ===========
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,
2004 2003
------- -------
Net income $ 1,163 $ 1,850
Unrealized holding gains and (losses)
on available for sale securities 42 (464)
Reclassification adjustment for (gains) and
losses later recognized in income (106) (289)
------- -------
Net unrealized gains and (losses) (64) (753)
Tax effect 22 256
------- -------
Total other comprehensive income (loss) (42) (497)
------- -------
Comprehensive income $ 1,121 $ 1,353
======= =======
See notes to interim consolidated financial statements Page 5
FIRST CITIZENS BANC CORP
Consolidated Statements 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, 2003 5,033,203 $ 47,370 $ 29,588 $ (7,241) $ 1,972 $ 71,689
Net income 1,850 1,850
Change in unrealized gain/(loss) on
securities available for sale, net
of reclassifications and tax effects (497) (497)
Cash dividends ($.26 per share) (1,308) (1,308)
---------- --------- --------- --------- -------- ---------
Balance, March 31, 2003 5,033,203 $ 47,370 $ 30,130 $ (7,241) $ 1,475 $ 71,734
========== ========= ========= ========= ======== =========
Balance, January 1, 2004 5,033,203 $ 47,370 $ 28,612 $ (7,241) $ 384 $ 69,125
Net income 1,163 1,163
Change in unrealized gain/(loss) on
securities available for sale, net
of reclassifications and tax effects 42 42
Cash dividends ($.27 per share) (1,359) (1,359)
---------- --------- --------- --------- -------- ---------
Balance, March 31, 2004 5,033,203 $ 47,370 $ 28,416 $ (7,241) $ 426 $ 68,971
========== ========= ========= ========= ======== =========
See notes to interim consolidated financial statements Page 6
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
-------------------------
2004 2003
-------- --------
Net cash from operating activities $ 629 $ 3,941
Cash flows from investing activities
Maturities and calls of securities, held-to-maturity 1 2
Maturities and calls of securities, available-for-sale 19,670 20,023
Purchases of securities, available-for-sale (12,003) (17,193)
Proceeds from sale of securities, available-for-sale 241 7,124
Purchases of FRB Stock - (195)
Loans made to customers, net of principal collected (6,861) (5,674)
Proceeds from sale of OREO properties 76 -
Change in federal funds sold - (7,050)
Net purchases of office premises and equipment (171) (366)
-------- --------
Net cash from investing activities 953 (3,329)
Cash flows from financing activities
Repayment of FHLB borrowings - (151)
Net change in short-term FHLB advances 11,825 -
Net change in deposits (11,550) (3,260)
Change in securities sold under agreements to repurchase (1,668) (458)
Change in U. S. Treasury interest-bearing demand note payable 270 (3,810)
Net proceeds from obligated mandatorily redeemable capital securities - 7,500
Cash dividends paid (1,359) (1,308)
-------- --------
Net cash from financing activities (2,482) (1,487)
-------- --------
Net change in cash and due from banks (900) (875)
Cash and due from banks at beginning of period 21,983 23,797
-------- --------
Cash and due from banks at end of period $ 21,083 $ 22,922
======== ========
Cash paid during the period for:
Interest $ 1,978 $ 2,568
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 (FCBC) and its wholly-owned subsidiaries, The
Citizens Banking Company (Citizens), The Farmers State Bank (Farmers),
SCC Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc.
(Reynolds), Mr. Money Finance Company (Mr. Money), First Citizens Title
Insurance Agency Inc. (Title Agency), First Citizens Insurance Agency
Inc. (Insurance Agency), and Water Street Properties, Inc. (Water St.)
together referred to as the Corporation. Intercompany balances and
transactions are eliminated in consolidation. As further discussed in
Note 8, a trust that had previously been consolidated with the
Corporation is now reported separately as of December 31, 2003.
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,
2004 and its results of operations and changes in cash flows for the
periods ended March 31, 2004 and 2003 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, 2004 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 2003 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, Richland 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 2004, SCC provided item processing for nine financial institutions
in addition to the two subsidiary banks. SCC accounted for 3.1% of the
Corporation's total revenues through March 31, 2004. 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
4.4% of total Corporation revenues. First Citizens Title Insurance
Agency Inc. was 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 insurance agreement. Insurance
commission is less than 1.0% of total revenue for the first quarter
ended March 31, 2004. Water Street Properties, Inc. was formed to hold
repossessed assets of FCBC's subsidiaries. Water St. revenue was less
than 1.0% of total revenue through March 31, 2004. Management considers
the
Page 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
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.
On December 31, 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation" was issued and amended SFAS No. 123. Employee
compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected
in net income, as all options granted had an exercise price equal to or
greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and
earnings per share if expense was measured using the fair value
recognition provisions of SFAS No. 123. No stock options were granted
prior to July 2, 2002.
2004 2003
---- ----
Net income as reported $ 1,163 $ 1,850
Deduct: Stock-based compensation expense
determined under fair value based method 19 8
--------- ---------
Pro forma net income 1,144 1,842
========= =========
Basic earnings per share as reported $ 0.23 $ 0.37
Pro forma basic earnings per share 0.23 0.37
Diluted earnings per share as reported $ 0.23 $ 0.37
Pro forma diluted earnings per share 0.23 0.37
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, 2004 and December 31, 2003 were as follows:
March 31, 2004
Gross Gross
Unrealized Unrealized
AVAILABLE FOR SALE Fair Value Gains Losses
-------- -------- --------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 59,728 $ 628 $ (2)
Corporate Bonds 531 - (3)
Obligations of states and political
subdivisions 32,971 1,507 -
Mortgage-back securities 7,856 90 -
-------- -------- --------
Total debt securities $101,086 $ 2,225 $ (5)
Equity securities 483 - -
-------- -------- --------
$101,569 $ 2,225 $ (5)
======== ======== ========
March 31, 2004
Gross Gross
Amortized Unrecognized Unrecognized
HELD TO MATURITY Cost Gains Losses Fair Value
--------- ------------ ------------ ----------
Mortgage-backed securities $13 $ 1 $ - $14
=== === === ===
Page 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
December 31, 2003
Gross Gross
AVAILABLE FOR SALE Unrealized Unrealized
Fair Value Gains Losses
---------- ---------- ----------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 64,333 $ 636 $ (2)
Corporate Bonds 1,030 1 (8)
Obligations of states and political subdivisions 35,036 1,408 (3)
Mortgage-back securities 8,426 82 (51)
-------- -------- --------
Total debt securities 108,825 2,127 (64)
Equity securities 683 93 -
-------- -------- --------
Total $109,508 $ 2,220 $ (64)
======== ======== ========
December 31, 2003
Gross Gross
Carrying Unrecognized Unrecognized
HELD TO MATURITY Amount Gains Losses Fair Value
-------- ------------ ------------ ----------
Mortgage-backed securities $14 $ 1 $ - $15
=== === === ===
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, 2004, 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 Fair Value
----------
Due in one year or less $ 58,418
Due after one year through five years 29,020
Due after five years through ten years 4,490
Due after ten years 1,302
Mortgage-backed securities 7,856
Equity securities 483
---------
Total securities available for sale $ 101,569
=========
Estimated Fair
HELD TO MATURITY Amortized Cost Value
-------------- --------------
Mortgage-backed securities $13 $14
=== ===
Proceeds from sales of securities, gross realized gains and gross realized
losses were as follows:
Three Months Ended
March 31,
--------------------
2004 2003
------- -------
Proceeds $ 241 $7,124
Gross gains 103 289
Gross losses - -
Gains from securities called or settled by the issuer 3 0
Securities with a carrying value of approximately $78,090 and $83,813
were pledged as of March 31, 2004 and December 31, 2003, 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, 2004 and December 31, 2003 were as follows:
3/31/2004 12/31/2003
--------- ----------
Commercial and Agriculture $ 55,178 $ 51,146
Commercial real estate 162,737 158,125
Real Estate - mortgage 204,481 205,635
Real Estate - construction 23,848 22,708
Consumer 23,461 24,765
Credit card and other 4,520 4,977
Leases 2,105 2,293
--------- ---------
Total loans 476,330 469,649
Allowance for loan losses (6,521) (6,308)
Deferred loan fees (482) (460)
Unearned interest (2) (3)
--------- ---------
Net loans $ 469,325 $ 462,878
========= =========
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses for the
three months ended March 31, 2004 and 2003 was as follows:
2004 2003
------- -------
Balance January 1, $ 6,308 $ 6,325
Loans charged-off (337) (637)
Recoveries 115 67
Provision for loan losses 435 215
------- -------
Balance March 31, $ 6,521 $ 5,970
======= =======
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:
2004 2003
------ ------
Average investment in impaired loans $6,923 $6,085
Interest income recognized on impaired loans
including interest income recognized on cash basis 115 98
Interest income recognized on impaired loans
on cash basis 115 98
Information regarding impaired loans at March 31, 2004 and December 31,
2003 was as follows:
3/31/2004 12/31/2003
--------- ----------
Balance impaired loans $ 7,480 $ 6,365
Less portion for which no allowance for loan
losses is allocated (875) (924)
------- -------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $ 6,605 $ 5,441
======= =======
Portion of allowance for loan losses allocated to
impaired loans $ 1,882 $ 1,181
======= =======
Nonperforming loans were as follows:
3/31/04 12/31/03
------- --------
Loans past due over 90 days still on accrual $1,153 $3,206
Nonaccrual $4,333 $3,204
Nonperforming loans include both smaller balance homogeneous loans,
such as residential mortgages and consumer loans, that are collectively
evaluated for impairment and individual classified impaired loans.
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, 2004 and December 31, 2003:
Contract Amount
---------------
2004 2003
---- ----
Fixed Variable Fixed Variable
Rate Rate Rate Rate
------- ------- ------- -------
Commitment to extend credit:
Lines of credit and construction loans $ 4,815 $51,322 $ 4,199 $46,956
Overdraft protection - 6,651 - 6,658
Letters of credit 20 3,352 70 3,377
------- ------- ------- -------
$ 4,835 $61,325 $ 4,269 $56,991
======= ======= ======= =======
Commitments to make loans are generally made for a period of one year
or less. Fixed rate loan commitments above had interest rates ranging
from 3.25% to 6.50% at March 31, 2004 and 3.25% to 8.00% at December
31, 2003. Maturities extend 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, 2004 and December 31, 2003 approximated $9,664
and $9,293.
(6) Merger
On March 4, 2004, the Corporation signed a letter of intent to acquire
FNB Financial Corporation ("FNB"), a $215,000 bank holding company
headquartered in Shelby, Ohio. The shareholders of FNB will be able to
elect to receive 2.62 shares of the Corporation's common shares, $72.00
in cash or a combination of 60% stock and 40% cash, subject to an
overall limitation. At the time of the merger, FNB's subsidiary, First
National Bank of Shelby, will be merged into Farmers. The merger is
subject to shareholder and regulatory approval and is expected to be
consummated in the fourth quarter of 2004.
Page 15
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(7) Pension Information
Net periodic pension expense for:
March 31
--------
2004 2003
-------------------- ------------------
Service cost $ 130 $ 114
Interest cost 115 106
Expected return on plan assets 83 70
Other components
Amortization of net loss/(gain) from earlier periods 30 39
Amortization of unrecognized service cost 3 3
Amortization of the remaining unrecognized net
obligation/(asset) existing at the date of initial
application of FASB statement no. 87 (20) (20)
---- ----
Net total components 14 22
--- ---
Net periodic pension cost $ 175 $ 172
===== =====
The total amount of contributions expected to be paid by the Corporation in 2004
total $1,196, compared to $430 in 2003 due to four additional payments that the
Corporation is required to make in 2004.
(8) Subordinated Debentures and Trust Preferred Securities
Trusts formed by the Corporation, in March 2003 and March 2002, issued
$7,500 of 4.41% floating rate and $5,000 of 5.59% floating rate trust
preferred securities through special purpose entities as part of pooled
offerings of such securities. The Corporation issued subordinated
debentures to the trusts in exchange for the proceeds of the offerings,
which debentures represent the sole assets of the trusts. The
Corporation may redeem the subordinated debentures, in whole but not in
part, any time prior to March 26, 2008 and March 26, 2007, respectively
at a price of 107.50% of face value for those issued in 2003 and 2002.
After March 26, 2008 and March 26, 2007, respectively, subordinated
debentures may be redeemed at face.
Prior to December 31, 2003, the trusts were consolidated in the
Corporation's financial statements, with the trust preferred securities
issued by the trusts reported in liabilities as "trust preferred
securities" and the subordinated debentures eliminated in
consolidation. Under new accounting guidance, FASB Interpretation No.
46, as revised in December 2003, the trusts are no longer consolidated
with the Corporation. Accordingly, the Corporation does not report the
securities issued by the trusts as liabilities, and instead reports as
liabilities the subordinated debentures issued by the Corporation and
held by the trusts, as these are no longer eliminated in consolidation.
Amounts previously reported as "trust preferred securities" in
liabilities have
Page 16
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
been recaptioned "subordinated debentures" and continue to be presented
in liabilities on the balance sheet. The effect of no longer
consolidating the trusts does not significantly change the amounts
reported as the Corporation's assets, liabilities, equity, or interest
expense.
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)
- --------------------------------------------------------------------------------
Introduction
- ------------
The following discussion focuses on the consolidated financial
condition of First Citizens Banc Corp at March 31, 2004 compared to
December 31, 2003 and the consolidated results of operations for the
three-month period ending March 31, 2004 compared to the same period in
2003. 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.
Financial Condition
- -------------------
Total assets of the Corporation at March 31, 2004 totaled $635,891
compared to $636,423 at December 31, 2003, which was a decrease of
$532. Within the structure of the assets, net loans have increased
$6,447, or 1.4 percent since December 31, 2003. The commercial real
estate portfolio increased by $4,612 and the commercial and agriculture
portfolio increased $4,032, while residential real estate and consumer
loans decreased by $1,154 and $1,304 respectively. The increase in the
commercial loan portfolio is reflective of the shift in focus by the
Corporation during the last two years toward commercial loans and away
from residential real estate and consumer loans. The Corporation has
continued to emphasize increasing its share of the local market for
commercial real estate loans. New lending officers have been hired to
enable the Corporation to continue its proactive approach in contacting
new and current clients. Commercial lending relationships generally
offer more attractive returns than residential loans and also offer
opportunities for attracting larger balance deposit relationships.
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)
- --------------------------------------------------------------------------------
In the continued low interest 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 used for commercial lending. Mr. Money
continues 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 $14,480 at March 31, 2004 compared to $14,442 at
December 31, 2003. Loans held-for-sale increased $176, or 110.7 percent
from December 31, 2003. At March 31, 2004, the net loan to deposit
ratio was 94.1 percent compared to 90.1 percent at December 31, 2003.
At March 31, 2004, available for sale securities totaled $101,569
compared to $109,508 at December 31, 2003, a decrease of $7,939. The
decrease in securities was due to paydowns, calls, maturities and sales
of its portfolio. Funds not used to replace these securities were used
to fund other assets, primarily the loan portfolio. Bank stocks
increased $58 from December 31, 2003, due to $58 in FHLB dividends.
For the three months of operations in 2004, $435 was placed into the
allowance for loan losses from earnings compared to $215 for the same
period of 2003. The increase of the provision is related to the
increase of the loan portfolio, especially the commercial loan
portfolio, and an increase in impaired loans of $1,115 from December
31, 2003. Efforts are continually made to examine both the level and
mix of the reserve by loan type as well as the overall level of the
reserve. Management specifically evaluates loans that are impaired, or
graded as doubtful by the internal grading function for estimates of
loss. 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 the amount of the allowance for loan losses.
Charge-offs for the first three months of 2003 were $337 compared to
$637 for the same period of 2003. As part of an ongoing review of the
above factors, the allowance for loan losses was adjusted from year end
to reflect conditions in the first quarter of 2004. The March 31, 2004
allowance for loan losses as a percent of total loans was 1.37 percent
compared to 1.34 percent at December 31, 2003.
Office premises and equipment have decreased $65 and intangible assets
have decreased $121 since December 31, 2003. The decrease in office
premises and equipment is attributed to new purchases of $171 and
depreciation of $236. Intangible assets decreased due to amortization
of the core deposit premium.
Total deposits at March 31, 2004 decreased $11,550 from year-end 2003.
Noninterest-bearing deposits decreased $4,636 from year-end 2003.
Interest-bearing deposits, including savings and time deposits,
decreased $6,914 from year-end 2003. The year to date average balance
of total deposits decreased $28,120 compared to the average balance of
the same period 2003. As the stock market continues to recover,
investors who had sought out short-term financial institution deposit
products are now moving funds into different markets. The year to date
2004 average balance of savings deposits has decreased $4,757 compared
to the average balance of the same period for 2003. The current average
rate of these deposits is 0.41 percent compared to 0.57
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)
- --------------------------------------------------------------------------------
percent in 2003. The year to date 2004 average balance of time
certificates has decreased $19,724 compared to the average balance for
the same period for 2003. Additionally, the year to date 2004 average
balances compared to the same period in 2003 of Demand Deposits
increased $6,016, while N.O.W. accounts increased $9,118, and Money
Market Savings decreased $15,550.
Total borrowed funds have increased $10,427 from December 31, 2003 to
March 31, 2004. The company used FHLB advances to offset the decline in
deposits experienced in the first quarter of 2004. At March 31, 2004,
the Corporation had $30,800 in outstanding advances compared to $18,975
at December 31, 2003. The Corporation has notes outstanding with other
financial institutions totaling $9,000 at March 31, 2004 and December
31, 2003. These notes were primarily used to fund the loan growth at
Mr. Money. Securities sold under agreements to repurchase, which tend
to fluctuate, have decreased $1,668 and U.S. Treasury Tax Demand Notes
have increased $270.
Shareholders' equity at March 31, 2004 was $68,971, or 10.8 percent of
total assets, compared to $69,125 at December 31, 2003, or 10.9 percent
of total assets. The decrease in shareholders' equity resulted from
earnings of $1,163, less dividends paid of $1,359 and the increase in
the market value of securities available for sale, net of tax, of $42.
The Corporation paid a cash dividend on February 1, 2004 at a rate of
$.27 per share. Total outstanding shares at March 31, 2004 were
5,033,203.
Results of Operations
- ---------------------
Three Months Ended March 31, 2004 and 2003
Net income for the three months ended March 31, 2004 was $1,163, or
$.23 basic and diluted earnings per common share compared to $1,850 or
$.37 basic and diluted earnings per common share for the same period in
2003. This was a decrease of $687, or 37.1 percent. Some of the reasons
for the changes are explained below.
Total interest income for the first three months of 2004 decreased by
$902, or 10.5 percent compared to the same period in 2003. The average
rate on earning assets on a tax equivalent basis for the first three
months of 2004 was 5.07 percent and 5.68 percent for the first three
months of 2003. The decrease in yield is due to the rate environment in
which the Corporation has operated in 2004. Total interest expense for
the first three months of 2004 has decreased by $466, or 20.0 percent
compared to the same period of 2003. This decrease is mainly attributed
to a decrease in interest on deposits of $558, a decrease in other
borrowings of $16, partially offset by an increase in FHLB borrowings
of $32 and an increase in trust preferred securities of $76. Interest
on other borrowings decreased due to the continued decline in interest
rates on the borrowings. Interest on FHLB borrowings has increased due
to the additional advances taken by the Corporation through March 31,
2004. The Corporations two Trust preferred issuances account for the
$62 increase in Trust preferred expense. The average rate on
interest-bearing liabilities for the first three months of 2004 was
1.44 percent compared to 1.74 percent for the same period of 2003. The
net interest margin on a tax equivalent basis was 4.01 percent for the
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)
- --------------------------------------------------------------------------------
three-month period ended March 31, 2004 and 4.34 percent for the same
period ended March 31, 2003.
Noninterest income for the first three months of 2004 totaled $1,723,
compared to $2,140 for the same period of 2003, a decrease of $417.
Revenue from computer operations, service charge income, and ATM fees
all increased minimally from 2003. Gain on sale of securities decreased
$183 from 2003. Citizens sold securities at a $103 gain, using the
proceeds to help fund its loan growth. Gain on the sale of loans
decreased $101 compared to the first three months of 2003. In the first
quarter of 2003, mortgage refinancing's were at a high level as
interest rates continued to be low and the demand for fixed rate
mortgages was high. In 2004, the amount of refinancing's decreased as
the market of customers wanting to refinance diminished. These two
factors have caused the decline of gain of loan sales in 2004. Compared
to March 31, 2003, Trust fees increased $92, up to $165. The Trust
department continues to add assets to its portfolio, resulting in
increased revenue generated by the Trust department. Other operating
income declined $233 in 2004 compared with the same period of time in
2003. Within other operating income, income earned from the origination
of wholesale mortgages in 2004 declined $156 compared to the first
three months in 2003. As with the traditional secondary market, the
amount of loans sold has declined dramatically in 2004 compared to
2003. Additionally, Citizens, revenue earned through its credit card
portfolio has decreased $46. In November 2003, Citizens sold its credit
card portfolio. The fees earned in the past with the portfolio will no
longer be earned.
Noninterest expense for the three months ended March 31, 2004 totaled
$5,505 compared to $5,567 for the same period in 2003. This was a
decrease of $62, or 1.1 percent. Salaries and benefits increased $168,
or 6.5 percent compared to the first three months of 2003. Net
occupancy expense increased from $322 for the first three months of
2003, to $361 in 2004, an increase of $39. This increase is primarily
due to the rise in utility payments and building depreciation
associated with the new operations center constructed in 2003.
Equipment expense decreased $17, as a result of decreased depreciation
and maintenance expense. Computer processing expense decreased by $33
compared to last year. State franchise taxes decreased $14 compared to
the first three months in 2003. Professional services decreased $21 for
the first three months of 2004 compared to the same period in 2003. ATM
expenses increased $31 in the first quarter 2004 compared to the same
period in 2003. The primary reason for the increase was due to the
increased volume of transactions executed at Corporation ATM machines
as well as a timing issue with an invoice in 2003.
Income tax expense for the first three months of 2004 totaled $444
compared to $768 for the first three months of 2003. This was a
decrease of $324, or 42.2 percent. The decrease in the federal income
taxes is a result of the decrease in total income before taxes of
$1,011. The effective tax rates were comparable for the three-month
periods ended March 31, 2004 and March 31, 2003, at 27.6% and 29.3%,
respectively.
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)
- --------------------------------------------------------------------------------
Capital Resources
- -----------------
Shareholders' equity totaled $68,971, at March 31, 2004 compared to
$69,125 at December 31, 2003. All of the capital ratios exceed the
regulatory minimum guidelines as identified in the following table:
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Corporation Ratios Adequacy Action
3/31/2004 12/31/2003 Purposes Provisions
--------------------- --------------------- -------------------------- -------------------
Tier I Risk Based Capital 13.4% 10.9% 4.0% 6.0%
Total Risk Based Capital 14.6% 14.8% 8.0% 10.0%
Leverage Ratio 10.0% 8.1% 4.0% 5.0%
The Corporation paid a cash dividend of $.27 per common share on
February 1, 2004 compared to $.26 per common share on February 1, 2003.
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 $22,750 and the Banks have
additional borrowing availability at the Federal Home Loan Bank of
Cincinnati of $56,183 at March 31, 2004. Liquidity is also evidenced by
all but $13 of its security portfolio being classified as available for
sale.
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.
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
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)
- --------------------------------------------------------------------------------
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.
There are several methods employed by the Corporation to monitor and
control interest rate risk. One such method is using gap analysis. The
gap is defined as the repricing variance between rate sensitive assets
and rate sensitive liabilities within certain periods. The repricing
can occur due to changes in rates on variable products as well as
maturities of interest-earning assets and interest-bearing liabilities.
A high ratio of interest sensitive liabilities, generally referred to
as a negative gap, tends to benefit net interest income during periods
of falling rates as the average rate on interest-bearing liabilities
falls faster than the average rate earned on interest-earning assets.
The opposite holds true during periods of rising rates. The Corporation
attempts to minimize the interest rate risk through management of the
gap in order to achieve consistent shareholder return. The
Corporation's Assets and Liability Management Policy is to maintain a
laddered gap position. One strategy is to originate variable rate loans
tied to market indices. Such loans reprice as the underlying market
index changes. Currently, approximately 75.2 percent of the
Corporation's loan portfolio reprices on at least an annual basis. The
Corporation's usual practice is to invest excess funds in federal funds
that mature and reprice daily.
The following table provides information about the Corporation's
financial instruments that are sensitive to changes in interest rates
as of March 31, 2004 and December 31, 2003, based on certain prepayment
and account decay assumptions that management believes are reasonable.
The Corporation had no derivative financial instruments or trading
portfolio as of March 31, 2004 or December 31, 2003.
Net Portfolio Value
March 31, 2004 December 31, 2003
-------------------------------------------- ------------------------------------------------
Change in Dollar Dollar Percent Dollar Dollar Percent
Rates Amount Change Change Amount Change Change
---------- -------------------------------------------- ------------------------------------------------
+400bp 69,854 (12,584) -15% 66,508 (14,439) -18%
+300bp 72,623 (9,815) -12% 69,854 (11,093) -14%
+200bp 75,776 (6,662) -8% 73,288 (7,659) -9%
+100bp 79,086 (3,352) -4% 77,011 (3,936) -5%
Base 82,438 - - 80,947 - -
-100bp 84,192 1,754 2% 83,909 2,962 4%
The relatively minor change in net portfolio value from December 31,
2003 to March 31, 2004, is primarily a result of two factors. First,
long-term interest rates have decreased only slightly during 2004. The
Corporation has seen an increase in the base level of net portfolio
value due to a slight increase in the fair value of loans and
investments, as well as a decrease in the fair value of certificates of
deposits.
Page 23
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)
- --------------------------------------------------------------------------------
ITEM 4.
Controls and Procedures Disclosure
- ----------------------------------
As of the end of the period covered by this quarterly report , an
evaluation was carried out under the supervision and with the
participation of First Citizens Banc Corp's management, including our
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934). Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures are, to the best of their knowledge,
effective to ensure that information required to be disclosed by First
Citizens Banc Corp in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and
forms. Subsequent to the date of their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that there were no
significant changes in First Citizens Banc Corp's internal control or
in other factors that could significantly affect its internal controls,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Page 24
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. (a) EXHIBIT NO. 31.1 Certification of Chief Executive Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002.
(b) EXHIBIT NO. 31.2 Certification of Chief Financial Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002.
(c) EXHIBIT NO. 32.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(d) EXHIBIT NO. 32.2 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(e) EXHIBIT NO. 99 - Safe Harbor under the Private Securities
Litigation Reform Act of 1995.
(f) REPORTS ON FORM 8-K - Filed on April 20, 2004, announcing 2004
quarterly earnings of $0.23 per share compared to $0.37 earnings per
share for 2003 and $0.35 earnings per share for 2002.
Page 25
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 10, 2004
- ------------------------------ ------------
David A. Voight Date
President
/s/ James O. Miller May 10, 2004
- ------------------------------ ------------
James O. Miller Date
Executive Vice President
Page 26
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
- --------------------------------------------------------------------------------
EXHIBITS
(3)(i) Articles of Incorporation, as amended, of First Citizens Banc
Corp are incorporated by reference to First Citizens Banc Corp's
Form 10-K for the year ended December 31, 2000, filed on March
24, 2001.
(3)(ii) Code of Regulations of First Citizens Banc Corp is incorporated
by reference to First Citizens Banc Corp's Form 10-K for the year
ended December 31, 2000, filed on March 24, 2001.
(4) Certificate for Registrant's Common Stock is incorporated by
reference to First Citizens Banc Corp's Form 10-K for the year
ended December 31, 2000, filed on March 24, 2001.
(31.1) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
(31.2) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
(32.1) Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(32.2) Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(99) Safe Harbor under private Securities Litigation Reform Act of
1995 is incorporated by reference to Exhibit 99 of First Citizens
Banc Corp's Annual Report for the year ended December 31, 1999,
filed on March 24, 2000.
Page 27