1 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:...................................June 30, 1997 [ ] 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 issuers classes of common stock, as of the latest practicable date. Common Stock, no par value Outstanding at August 12, 1997 3,051,504 common shares 2 FIRST CITIZENS BANC CORP Index PART I. Financial Information ITEM 1. Financial Statements: Consolidated Balance Sheets (unaudited) June 30, 1997 and December 31, 1996..........................................3 Consolidated Statements of Income (unaudited) Three and six months ended June 30, 1997 and 1996............................4 Consolidated Statements of Shareholders' Equity (unaudited) Three and six months ended June 30, 1997 and 1996............................5 Consolidated Statements of Cash Flows (unaudited) Six months ended June 30, 1997 and 1996......................................6 Notes to Consolidated Financial Statements (unaudited)........................7-14 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................15-19 PART II. Other Information ITEM 1. Legal Proceedings ..............................................................20 ITEM 2. Changes in Securities ..........................................................20 ITEM 3. Defaults upon Senior Securities ................................................20 ITEM 4. Submission of Matters to a Vote of Security Holders .........................20-21 ITEM 5. Other Information ..............................................................21 ITEM 6. (a) Exhibits ...................................................................21 SIGNATURES ............................................................................22 3 FIRST CITIZENS BANC CORP Consolidated Balance Sheet (Unaudited) June 30 December 31 Assets 1997 1996 ------------- ------------- Cash and due from banks 14,656,860 11,615,060 Federal funds sold 6,872,000 8,521,000 Securities (Note 3) Available-for-sale 57,639,135 58,971,155 Held-to-maturity 8,519,571 9,789,977 ------------- ------------- Total securities 66,158,706 68,761,132 Loans (Note 4) 218,506,559 205,127,385 Less: Allowance for possible loan losses (Note 5) (2,755,880) (2,642,000) ------------- ------------- Net Loans 215,750,679 202,485,385 Office premises and equipment, net 7,229,434 6,373,506 Accrued interest receivable 2,194,867 1,823,667 Intangible assets 3,010,535 1,679,465 Other assets 2,036,321 1,518,404 ------------- ------------- Total assets 317,909,402 302,777,619 ============= ============= Liabilities Deposits Interest bearing deposits 220,607,697 215,873,075 Noninterest bearing deposits 33,708,908 24,624,624 ------------- ------------- Total deposits 254,316,605 240,497,699 Federal Home Loan Bank borrowings 15,088,267 15,671,686 Securities sold under agreements to repurchase 8,910,684 9,157,032 U. S. Treasury interest bearing demand notes payable 2,301,569 1,388,979 Accrued interest, taxes and other expenses 1,825,461 1,634,915 ------------- ------------- Total liabilities 282,442,586 268,350,311 Shareholders' Equity Common stock, no par value; 10,000,000 shares authorized, 3,051,504 shares issued and outstanding 15,257,520 15,257,520 Retained Earnings 19,978,830 19,005,014 Unrealized gain on securities available for sale 230,466 164,774 ------------- ------------- Total shareholders' equity 35,466,816 34,427,308 ------------- ------------- Total liabilities and shareholders' equity 317,909,402 302,777,619 ============= ============= See notes to interim consolidated financial statements. Page 3 4 FIRST CITIZENS BANC CORP Consolidated Statements of Income (Unaudited) Three months ended Six months ended June 30, June 30, ------------------------- --------------------------- 1997 1996 1997 1996 INTEREST INCOME: Interest and fees on loans $4,567,740 $4,218,431 $ 8,949,706 $ 8,428,496 Interest and dividends on securities Taxable 621,601 669,750 1,270,167 1,358,554 Nontaxable 330,735 365,965 672,147 742,909 Interest on federal funds sold 98,105 103,777 220,192 216,570 Other interest income 12,751 976 13,775 2,242 ---------- ---------- ----------- ----------- Total interest income 5,630,932 5,358,899 11,125,987 10,748,771 INTEREST EXPENSE: Interest on deposits 2,056,206 1,971,774 4,059,635 3,982,990 Interest on FHLB borrowings 218,700 234,980 441,649 473,875 Interest on other borrowings 58,610 72,482 132,398 160,918 ---------- ---------- ----------- ----------- Total interest expense 2,333,516 2,279,236 4,633,682 4,617,783 ---------- ---------- ----------- ----------- NET INTEREST INCOME 3,297,416 3,079,663 6,492,305 6,130,988 PROVISION FOR LOAN LOSSES (Note 5) 103,000 79,500 201,500 149,000 ---------- ---------- ----------- ----------- NET INTEREST INCOME AFTER 3,194,416 3,000,163 6,290,805 5,981,988 PROVISION FOR LOAN LOSSES NONINTEREST INCOME: Computer center service charges and retail sales 533,648 533,245 1,110,390 1,055,236 Service charges on deposit accounts 131,230 120,907 260,639 237,427 Security gain 0 10,350 6,250 15,850 Other operating income 243,308 196,333 456,632 368,984 ---------- ---------- ----------- ----------- Total noninterest income 908,186 860,835 1,833,911 1,677,497 NONINTEREST EXPENSE: Salaries, wages and benefits 1,420,294 1,308,190 2,839,856 2,616,964 Net occupancy expense 148,981 137,494 291,744 272,188 Equipment 183,420 156,794 362,044 308,810 FDIC Premiums 7,777 1,500 15,482 2,500 Franchise Tax 107,041 106,852 216,099 219,309 Professional Fees 155,399 134,815 287,319 261,931 Other operating expenses 795,054 626,397 1,567,619 1,222,233 ---------- ---------- ----------- ----------- Total noninterest expense 2,817,966 2,472,042 5,580,163 4,903,935 ---------- ---------- ----------- ----------- Income before taxes 1,284,636 1,388,956 2,544,553 2,755,550 Provision for Income taxes 368,014 387,969 716,316 760,759 ---------- ---------- ----------- ----------- Net Income $ 916,622 $1,000,987 $ 1,828,237 $ 1,994,791 ========== ========== =========== =========== Per share data (based on 3,051,504 shares) Earnings per share $ 0.30 $ 0.33 $ 0.60 $ 0.65 ========== ========== =========== =========== Dividends declared $ 0.140 $ 0.1275 $ 0.2800 $ 0.2525 ========== ========== =========== =========== See notes to interim consolidated financial statements Page 4 5 FIRST CITIZENS BANC CORP Consolidated Statements of Shareholders' Equity (Unaudited) Three months ended Six months ended June 30, June 30, ------------------------------ ------------------------------ 1997 1996 1997 1996 Balance at beginning of period $ 34,775,135 $ 34,212,506 $ 34,427,308 $ 33,806,791 Net earnings 916,622 1,000,987 1,828,237 1,994,791 Cash dividends (427,210) (389,067) (854,421) (770,505) Market adjustment on securities available for sale 202,269 (325,244) 65,692 (531,895) ------------ ------------ ------------ ------------ Balance at end of period $ 35,466,816 $ 34,499,182 $ 35,466,816 $ 34,499,182 ============ ============ ============ ============ See notes to interim consolidated financial statements Page 5 6 FIRST CITIZENS BANC CORP Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, ------------------------------- 1997 1996 Cash flows from operating activities: Net Income $ 1,828,237 $ 1,994,791 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of office premises and equipment 316,184 307,090 Amortization of goodwill 163,024 100,767 Provision for loan losses 201,500 149,000 Change in deferred loan fees (25,113) (5,619) Net amortization of security premiums and discounts 57,967 65,331 Change in accrued interest receivable (371,200) (98,278) Change in other assets (517,917) (326,697) Change in accrued interest, taxes and other expenses 129,044 (647,267) ------------ ------------ Net cash from operating activities 1,781,726 1,539,118 ------------ ------------ Cash flows from investing activities: Maturities and calls of securities, held-to-maturity 1,250,302 3,766,546 Maturities and calls of securities, available-for-sale 7,274,063 6,191,462 Purchases of securities, available-to-sale (5,880,373) (7,393,476) Loans made to customers, net of principal collected (13,441,681) (1,132,925) Change in federal funds sold 1,649,000 (345,000) Purchases of office premises and equipment (215,967) (296,628) ------------ ------------ Net cash from investing activities (9,364,656) 789,979 ------------ ------------ Cash flows from financing activities: Cash and cash equivalents received from branch acquisition 12,153,945 0 Repayments of FHLB borrowings (583,419) (551,191) Change in deposits (757,617) (5,038,221) Change in securities sold under agreements to repurchase (246,348) (290,190) Change in U. S. Treasury interest-bearing demand notes payable 912,590 1,340,632 Cash dividends paid (854,421) (770,505) ------------ ------------ Net cash from financing activities 10,624,730 (5,309,475) ------------ ------------ Net Change in cash and due from banks 3,041,800 (2,980,378) Cash and due from banks at beginning of period 11,615,060 16,295,910 ------------ ------------ Cash and due from banks at end of period $ 14,656,860 $ 13,315,532 ============ ============ Supplemental disclosures: Cash paid during the period for: Interest $ 4,710,137 $ 4,780,528 ============ ============ Federal Income taxes $ 626,000 $ 705,000 ============ ============ See notes to interim consolidated financial statements Page 6 7 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- (1) Consolidated Financial Statements The consolidated financial statements include the accounts of First Citizens Banc Corp (Corporation) and it wholly-owned subsidiaries, The Citizens Banking Company (Citizens), The Castalia Banking Company (Castalia), SCC Resources, Inc. (SCC), and R. A. Reynolds Appraisal Service, Inc. (Reynolds). All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated balance sheets as of June 30, 1997 and December 31, 1996; the consolidated statements of income for the three month periods ended June 30, 1997 and 1996, and for the six month periods ended June 30, 1997 and 1996; the consolidated statement of shareholders' equity for the three months ended June 30, 1997 and 1996, and for the six month periods ended June 30, 1997 and 1996; and the consolidated statement of cash flows for the six month periods ended June 30, 1997 and 1996 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 June 30, 1997 and its results of operations and changes in cash flows for the periods ended June 30, 1997 and 1996 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The results of operations for the period ended June 30, 1997 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 Corporations's 1996 annual report. The Corporation has consistently followed these policies in preparing this form 10-Q. The provision for income taxes is based on the effective tax rate expected to be applicable for the entire year. The corporation follows the liability method of accounting for income taxes. The liability method provides that deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, using enacted tax rates. Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",was issued by the Financial Accounting Standards Board ("FASB") in 1996. It revises the accounting for transfers of financial assets, such as loans and securities, and for distinguishing between sales and secured borrowings. It was originally effective for some transactions in 1997 and others in 1998. SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" was issued in December 1996. SFAS No. 127 defers for one year the Page 7 8 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- effective date of provisions related to securities lending, repurchase agreements and other similar transactions. The remaining portions of SFAS No. 125 will continue to be effective January 1, 1997. SFAS No. 125 did not have a material impact on the Corporation's financial statements. In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which is effective for the financial statements for periods ending after December 15, 1997, including interim periods. SFAS No. 128 simplifies the calculation of earnings per share by replacing primary EPS with basic EPS. It also requires dual presentation of basic EPS and diluted EPS for entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in earnings such as stock options, warrants or other common stock equivalents. All prior period EPS data will be restated to conform with the new presentation. (2) Branch Acquisition On January 21, 1997, Citizens acquired from EST National Bank of Elyria, Ohio, certain assets including cash and premises and equipment and assumed certain deposit and other liabilities of two branch banking offices. The transaction was accounted for as a purchase, and accordingly, the acquired assets and liabilities have been recorded based on their respective market values at the date acquisition. A summary of the assets acquired and the liabilities assumed are as follows: ASSETS LIABILITIES Cash and cash equivalents $12,153,945 Noninterest bearing deposits $4,559,545 Premises and equipment 956,145 Interest bearing deposits 10,016,978 ------------- Identified intangible assets 1,494,094 Total deposits 14,576,523 ------------- Total assets $14,604,184 ============= Other liabilities 27,661 ------------- Total liabilities $14,604,184 ============= Page 8 9 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- (3) Securities The gross unrealized gains and losses of the securities, as presented in the consolidated balance sheets at June 30, 1997 and December 31, 1996 are as follows: June 30, 1997 Gross Gross Amortized Unrealized Unrealized Estimated Fair AVAILABLE FOR SALE Cost Gains Losses Value ----------- --------- ------------ ----------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $35,033,460 $18,703 ($115,783) $34,936,380 Obligations of state and political subdivisions 18,597,513 474,637 (27,696) 19,044,454 Other securities, including mortgage- backed securities 3,658,971 0 (670) 3,658,301 ----------- --------- ------------ ----------- $57,289,944 $493,340 ($144,149) $57,639,135 =========== ========= ============ =========== June 30, 1997 Gross Gross Amortized Unrealized Unrealized Estimated Fair HELD TO MATURITY Cost Gains Losses Value ----------- --------- ------------ ----------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $1,000,000 $12,813 $0 $1,012,813 Obligations of state and political subdivisions 5,448,373 88,027 (8,676) 5,527,724 Other securities, including mortgage- backed securities 2,071,198 9,170 (7,611) 2,072,757 ----------- --------- ------------ ----------- $8,519,571 $110,010 ($16,287) $8,613,294 =========== ========= ============ =========== Page 9 10 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- December 31, 1996 Gross Gross Amortized Unrealized Unrealized Estimated Fair AVAILABLE FOR SALE Cost Gains Losses Value ----------- --------- ------------ ----------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $37,000,835 $58,526 ($155,293) $36,904,068 Obligations of state and political subdivisions 18,109,603 433,174 (86,282) 18,456,495 Other securities, including mortgage- backed securities 3,611,060 0 (468) 3,610,592 ----------- --------- ------------ ----------- $58,721,498 $491,700 ($242,043) $58,971,155 =========== ========= ============ =========== December 31, 1996 Gross Gross Amortized Unrealized Unrealized Estimated Fair HELD TO MATURITY Cost Gains Losses Value ----------- --------- ------------ ----------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $1,000,000 $23,125 $0 $1,023,125 Obligations of states and political subdivisions 6,329,284 141,366 (7,318) 6,463,332 Other securities, including mortgage- backed securities 2,460,693 12,007 (10,648) 2,462,052 ----------- --------- ------------ ----------- $9,789,977 $176,498 ($17,966) $9,948,509 =========== ========= ============ =========== Page 10 11 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- The amortized cost and estimated fair value of securities at June 30, 1997, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Estimated Fair Amortized Cost Value AVAILABLE FOR SALE Due in one year or less $22,071,331 $22,035,996 Due after one year through five years 20,710,629 20,931,077 Due after five years through ten years 10,024,298 10,168,773 Due after ten years 824,715 844,988 Mortgage-backed securities 47,021 46,351 Other securities 3,611,950 3,611,950 ----------- ----------- Total securities available for sale $57,289,944 $57,639,135 =========== =========== HELD TO MATURITY Due in one year or less $4,599,335 $4,645,023 Due after one year through five years 1,849,035 1,895,511 Mortgage-backed securities 2,071,201 2,072,760 ----------- ----------- Total securities held to maturity $8,519,571 $8,613,294 =========== =========== No securities were sold during the six months ended June 30, 1997 or 1996. Securities called or settled by the issuer in 1996 resulted in gains of $6,250 for the six months ended June 30, 1997 and $15,850 for the six months ended June 30, 1996. Securities with a carrying value of approximately $37,186,000 and $33,650,000 were pledged as of June 30, 1997 and December 31, 1996, respectively, to secure public deposits, other deposits and liabilities as required by law. Page 11 12 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- (4) Loans Loans as presented in the consolidated balance sheets are comprised of the following classifications: June 30, 1997 December 31, 1996 ------------- ----------------- Commercial & agriculture $43,800,858 $42,038,299 Real estate - mortgage 137,013,263 131,491,632 Real estate - construction 1,419,601 2,079,810 Consumer loans 35,664,998 29,232,380 Credit card and other 1,747,406 1,449,945 Deferred Loan Fees (1,139,568) (1,164,681) ------------- ------------- Total loans $218,506,558 $205,127,385 ============= ============= (5) Allowance for Loan Losses A summary of the activity in the allowance for loan losses for the six months ended June 30, 1997 and June 30, 1996 is as follows: 1997 1996 ------------- ------------- Balance January 1, $2,642,000 $2,602,000 Loans Charged Off (183,599) (167,931) Recoveries of Loans 95,979 69,036 Provision for loan losses 201,500 149,000 ------------- ------------- Balance June 30, $2,755,880 $2,652,105 ============= ============= Page 12 13 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- Information regarding impaired loans is as follows for the six months ended June 30. 1997 1996 ---------- ---------- Average investment in impaired loans $1,910,217 $2,126,587 Interest income recognized on impaired loans including interest income recognized on cash basis $83,969 $68,281 Interest income recognized on impaired loans $83,969 $68,281 on cash basis Information regarding impaired loans at June 30, 1997 and December 31, 1996 is as follows: 6/30/97 12/31/96 ---------- ---------- Balance impaired loans $1,866,000 $1,982,000 Less portion for which no allowance for loan losses is allocated $0 $0 Portion of impaired loan balance for which an allowance for credit losses is allocated $1,866,000 $1,982,000 Portion of allowance for loan losses allocated to $466,000 $495,000 the impaired loan balance (6) Commitments, Contingencies and Off-balance Sheet Risk The Bank subsidiaries are parties to financial instruments with off-balance sheet risk in the normal course of business to meet financing needs of their customers. These include commitments to make or purchase loans, undisbursed lines of credit, undisbursed credit card balances and letters of credit. The Banks' exposure to credit loss in the event of nonperformance by the other party to the financial instrument is represented by the contractual amount of those instruments. The Banks follow the same credit policy to make such commitments as they use for loans recorded on the balance sheet. Since many commitments to make loans expire without being used, the amount does not necessarily represent future cash commitments. Collateral obtained relating to the commitments is determined using management's credit evaluation of the borrower and may include real estate, vehicles, business Page 13 14 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q - -------------------------------------------------------------------------------- assets, deposits and other items. The Banks do make fixed rate loan commitments for short periods of time. However, such commitments were immaterial as of June 30, 1997 and December 31, 1996. Commitments to extend credit and letters of credit approximated the following amounts at June 30, 1997 and December 31, 1996. Contract Amount --------------- June 30, 1997 December 31, 1996 ------------- ----------------- Commitment to extend credit: Lines of credit and construction loans $15,876,000 $14,081,000 Credit cards 4,242,000 4,235,000 Letters of credit 334,000 62,000 ----------- ----------- $20,452,000 $18,378,000 Citizens and Castalia 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 June 30, 1997 and December 31, 1996 approximated $1,784,000 and $1,702,000 respectively. In the normal course of business, the Corporation and its subsidiaries are involved in various legal actions, but in the opinion of management and its legal counsel, ultimate disposition of such legal matters is not expected to have a material adverse effect on the consolidated financial statements. Page 14 15 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - -------------------------------------------------------------------------------- Introduction The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at June 30, 1997, compared to December 31, 1996 and the consolidated results of operations for the three and six month periods ended June 30, 1997 compared to the same periods in 1996. 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 such effect if implemented. In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Corporation's operations, and the Corporation's actual results could differ significantly from those disclosed in forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and in the Corporation's general market area. Some of the forward-looking statements included herein are the statements regarding the following: 1. Management's determination of the amount of loan loss allowance and the amount of the loan loss provision; 2. The sufficiency of the Corporation's liquidity and capital reserves. See Exhibit 99, which is incorporated herein by reference. Financial Condition - ------------------- Total assets of the Corporation at June 30, 1997 totalled $317,909,402 compared to $302,777,619 at December 31, 1996. This was an increase of $15,131,783 or 5.0 percent. Within the structure of the assets, net loans have increased $13,265,294 since December 31, 1996. Office premises and equipment have increased $855,928 and intangible assets have increased $1,331,070 since December 31, 1996. The increase in these two areas is attributable to the acquisition of two branches by The Citizens Banking Company. Page 15 16 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - -------------------------------------------------------------------------------- At June 30, 1997, $57,639,135 or 87.1 percent of the securities portfolio was classed as available- for-sale. The remainder, $8,519,571 or 12.9 percent was classified as held-to-maturity. Securities decreased $2,602,426 or 3.8 percent from December 31, 1996. The decrease in the balances of the portfolio is a result of maturities of securities. As of June 30, 1997, the net unrealized gain of the available-for-sale portfolio was $349,191 compared to $249,657 at December 31, 1996. The increase in the net unrealized gain reflects changes in market values due to the current interest rate environment. Total loans at June 30, 1997 increased $13,379,174 or 6.5 percent from year end 1996. At June 30, 1997, the net loan to deposit ratio was 84.8 percent compared to 84.2 percent at December 31, 1996. This increase in the loan to deposit ratio is due partly to loan growth generated by a loan promotion during the second quarter of 1997. At June 30, 1997, the allowance for loan losses as a percent of total loans was 1.26 percent compared to 1.29 percent at December 31, 1996. For the six months of operations of 1997, $201,500 was placed into the allowance from earnings compared to $149,000 for the same period of 1996. Net charge offs for the first six months of 1997 were $87,620 compared to $98,895 for the same period of 1996. Impaired loans at June 30, 1997 totalled $1,866,000 or 0.85 percent of the loan portfolio compared to $1,982,000 or .97 percent of the loan portfolio at December 31, 1996. Total deposits at June 30, 1997 increased $13,818,906 from year end 1996. Non-interest bearing deposits, representing demand deposit balances, increased $9,084,284 from year end 1996. Interest bearing deposits, including savings and time deposits, increased $4,734,622 from year end 1996. The year to date 1997 average balance of savings deposits has increased $1,705,000 compared to the average balance of the same period for 1996. The current average rate of these deposits is 2.80 percent. The year to date 1997 average balance of time certificates has increased $2,567,000 compared to the average balance for the same period for 1996. The current average rate on these deposits is 5.20 percent. Other borrowed funds have increased $82,823 from December 31, 1996 to June 30, 1997. Federal Home Loan Bank borrowings have decreased $583,419 as a result of scheduled paydowns. Securities sold under agreements to repurchase have decreased $246,348 and U.S. Treasury Tax Demand Notes have increased $912,590. Shareholders' equity at June 30, 1997 was $35,466,816 which was 11.2 percent of total assets. Shareholders' equity at December 31, 1996 was $34,427,308 which was 11.4 percent of total assets. The increase in shareholders' equity was represented by earnings of $1,828,237 less dividends of $854,421 and plus the increase in the unrealized gain on securities available for sale of $65,692. Total outstanding shares for the period December 31, 1996 to June 30, 1997 were 3,051,504. The Page 16 17 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - -------------------------------------------------------------------------------- company paid cash dividends on February 1, 1997 at the rate of $.14 per share, and on May 1, 1997 at the rate of $.14. Results of Operations - --------------------- Net income for the quarter ended June 30, 1997 were $916,612 or $.30 per common share compared to $1,000,987 or $.33 per common share for the same period in 1996. This was a decrease of $84,365 or 8.4 percent. Net earnings for the six month period ended June 30, 1997 were $1,828,237 or $.60 per common share compared to $1,994,791 or $.65 per common share for the same period in 1996. This was a decrease of $166,554 or 8.3 percent. Net interest income for the second quarter 1997 totalled $3,297,416 compared to $3,079,663 for the second quarter of 1996. This was an increase of $217,753 or 7.1 percent. Net interest income for the first six months of 1997 totalled $6,492,305 compared to $6,130,988 for the first six months of 1996. This was an increase of $361,317 or 5.9 percent. Total interest income for the first six months of 1997 has increased $377,216 or 3.5 percent compared to the same period of 1996. The average rate on earning assets on a tax equivalent basis for the first six months of 1997 was 7.90 percent compared to 8.05 percent for the same period of 1996. Total interest expense for the first six months of 1997 has increased $15,899 or .34 percent compared to the same period of 1996. The net interest margin on a tax equivalent basis for the first six months was 4.70 percent for the six month period ended June 30, 1997 and 4.71 percent for the same period ended June 30, 1996. Noninterest income for the second quarter 1997 totalled $908,186 compared to $860,835 for the second quarter 1996. This was an increase of $47,351 or 5.5 percent and is attributed to increased service charges on deposit accounts of $10,323, decreased gain on securities of $10,350 and increased other operating income of $46,975. Noninterest income for the first six months of 1997 totalled $1,833,911 compared to $1,677,497 for the same period in 1996. This was an increase of $156,414 or 9.3 percent and is attributed to increases in revenue from the computer operations of $55,154, increased service charge on deposit accounts of $23,212, decreased gain on securities of $9,600 and increased other operating income of $87,648. Noninterest expenses for the second quarter 1997 totalled $2,817,966 compared to $2,472,042 for the second quarter 1996. This was an increase of $345,924 or 14.0 percent. Noninterest expenses for the first six months of 1997 totalled $5,580,163 compared to $4,903,395 for the first six months of 1996. This was an increase of $676,768 or 13.8 percent. The largest monetary increase in non-interest expense is in salaries, wages and employee benefits, which increased $222,892 or 8.5 percent for the first six months of 1997 compared to the same period of 1996. The increase in salaries, wages and employee benefits is due to additional staffing brought on by the acquisition of two branches. Page 17 18 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - -------------------------------------------------------------------------------- Federal Income Taxes - -------------------- The federal income tax expense for the second quarter 1997 totalled $368,014 compared to $387,969 for the second quarter 1996. This was a decrease of $19,955 or 5.1 percent. The decrease in the federal income taxes is a result of the decrease in total earnings before taxes of $104,320. The federal income tax expense for the first half of 1997 totalled $716,316 compared to $760,759 for the first half of 1996. This was a decrease of $44,443 or 5.8 percent. The decrease in the federal income taxes is a result of the decrease in total earnings before taxes of $210,997. Capital Resources - ----------------- Shareholders' equity totalled $35,466,816 at June 30, 1997 compared to $34,427,308 at December 31, 1996. All of the capital ratios exceed the regulatory minimum guidelines as identified in the following table: Corporation Ratios Regulatory 6/30/97 12/31/96 Minimums ------- -------- -------- Tier I Risk Based Capital 19.12% 20.76% 4.00% Total Risk Based Capital 20.38% 22.20% 8.00% Leverage Ratio 10.29% 10.64% 4.00-5.00% The Corporation paid cash dividends of $.14 per common share on February 1, 1997 and $.14 per common share on May 1, 1997 compared to $.125 per common share the February 1, 1996 and $.1275 per common share on May 1, 1996. 1997 year-to-date dividends paid have increased $.0275 per common share from year-to-date 1996. Capital expenditures totalled $1,172,112 for the first six months of 1997 compared to $418,128 for the same period of 1996. The capital expenditures for the first six months of 1997 include $956,145 of premises and equipment acquired in the purchase of two branches. First Citizens Banc Corp ("First Citizens") and The Farmers State Bank of New Washington ("Farmers") have signed a definitive agreement for the affiliation of Farmers with First Citizens. Farmers, a commercial bank located in New Washington, Ohio, having total assets at March 31, 1997 of 153,900,000, is expected to become a separate operating subsidiary of First Citizens and operate under its current name and charter. Farmers operates banking offices in New Washington, Tiro and Chatfield in Crawford County; Green Camp in Marion County; and Richwood in Union Page 18 19 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q - -------------------------------------------------------------------------------- County. Under the terms of the agreement, First Citizens will exchange 6.5 shares of its common stock for each of the 200,000 shares of Farmers outstanding stock. Based on the closing bid price of First Citizens on July 1, 1997 of $34.50, the transaction would be valued at approximately $44.85 million, or $224.25 per share of Farmers stock. The merger, which will be accounted for as a pooling of interests, is expected to be consummated during February 1998, pending Farmers and First Citizens shareholder approval, regulatory approval and other customary conditions of closing. The transaction is expected to be a tax-free reorganization for federal income tax purposes. First Citizens currently plans to add additional personnel, equipment ATM's and other operating improvements to Farmers. In addition, First Citizens expects to offer additional loan, deposit, security brokerage, and trust products not currently offered to Farmers customers. With the added operating expenditures, and excluding the expected revenue enhancements, First Citizens estimates that the transaction will be neutral to earnings per share in the first year following the acquisition and will improve its earnings growth rate in the future. 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. For the first six months of 1997 the Banks maintained a federal funds sold position that averaged $8,223,000. In addition, the Banks, through their respective correspondent banks maintain federal funds borrowing lines totalling $11,500,000 and the Banks have total borrowing availability at the Federal Home Loan Bank of Cincinnati of $25,800,000, including additional borrowing capacity of $10,613,342 at June 30, 1997. Finally, 87.1 percent of the Corporation's investment and mortgage-backed investment portfolio has been classified as available for sale which provides additional liquidity. Page 19 20 First Citizens Banc Corp Other Information Form 10-Q - -------------------------------------------------------------------------------- Part II - Other Information ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS First Citizens Banc Corp held its annual meeting on April 15, 1997, for the purpose of considering and voting on the following: 1.) To elect three Class III directors to serve for terms of three years or until their successors are elected and qualified. 2.) To ratify the appointment of Crowe, Chizek & Co. as independent auditors for the calendar year 1997 3.) To consider and act upon the amendment to the Corporation's Code of Regulations to provide that no Director of the Corporation shall be of the age of seventy-five years or more on the date of his election or appointment. 4.) To consider and act upon an amendment to the Code of Regulations of The Citizens Banking Company providing that no Director of that Corporation shall be of the age of seventy-two years or more on the date of his election or appointment, and to create the position of Director Emeritus. 5.) To consider and act upon an amendment to the Code of Regulations of The Castalia Banking Company providing that no Director of that Corporation shall be of the age of seventy-two years or more on the date of his election or appointment, and to create the position of Director Emeritus. Three directors, Dean S. Lucal, W. Patrick Murray, Paul H. Pheiffer were nominated for reelection and were subsequently reelected as directors. No other issues were brought before the meeting. Page 20 21 First Citizens Banc Corp Other Information Form 10-Q - -------------------------------------------------------------------------------- The summary of the voting of 3,051,504 common shares outstanding were as follows: For Against Not Voted Director Candidate - ------------------ Dean S. Lucal 2,617,890 2,538 431,076 W. Patrick Murray 2,611,266 9,162 431,076 Paul H. Pheiffer 2,615,242 5,186 431,076 Accounting Firm - --------------- Crowe, Chizek & Co. 2,617,948 40 433,516 Amendments to Codes of - ---------------------- Regulations - ----------- First Citizens Banc Corp 2,182,627 59,978 808,899 The Citizens Banking Company 2,192,946 60,578 797,980 The Castalia Banking Company 2,189,643 48,686 813,175 ITEM 5. OTHER INFORMATION None. ITEM 6. (A) EXHIBIT NO. 27 Financial Data Schedule . . . . . . . . 24 (B) EXHIBIT NO. 99 Safe Harbor Under the Private Securities Litigation Reform Act of 1995 (B) REPORTS ON FORM 8-K - None Page 21 22 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 August 12, 1997 - ------------------------- --------------- David A. Voight Date President /s/ James O. Miller August 12, 1997 - ------------------------- --------------- James O. Miller Date Senior Vice President Page 22 23 First Citizens Banc Corp Index to Exhibits Form 10-Q - -------------------------------------------------------------------------------- Exhibit Number Description Page Number - ------ ----------- ----------- 27 Financial Data Schedule 24 99 Safe Harbor Under the Private Incorporated by reference to Exhibit Securities Litigation Reform 99 to Annual Report on Form 10-K Act of 1995 for the Year Ended December 31, 1996 filed by the registrant on February 24, 1997 Page 23