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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, 2003
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 15, 2003
5,033,203 common shares
FIRST CITIZENS BANC CORP
Index
PART I. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 2003 and December 31, 2002..............................................................3
Consolidated Statements of Income (unaudited)
Three months ended March 31, 2003 and 2002........................................................4
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31, 2003 and 2002........................................................5
Condensed Consolidated Statements of Shareholders' Equity (unaudited)
Three months ended March 31, 2003 and March 31, 2002..............................................6
Condensed Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2003 and 2002........................................................7
Notes to Consolidated Financial Statements (unaudited).............................................8-16
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................17-21
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........................................21-23
ITEM 4. Controls and Procedures..............................................................................23
PART II. Other Information
ITEM 1. Legal Proceedings....................................................................................24
ITEM 2. Changes in Securities and Use of Proceeds............................................................24
ITEM 3. Defaults Upon Senior Securities......................................................................24
ITEM 4. Submission of Matters to a Vote of Security Holders..................................................24
ITEM 5. Other Information....................................................................................24
ITEM 6. Exhibits and Reports on Form 8-K.....................................................................24
SIGNATURES ...................................................................................................25
Certifications ............................................................................................26-30
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
March 31, December 31,
ASSETS 2003 2002
--------- ---------
Cash and due from financial institutions $ 22,922 $ 23,797
Federal funds sold 19,750 12,700
Securities available for sale 144,224 155,168
Securities held to maturity (Fair value of $42 in
2003 and $44 in 2002) 40 42
Loans held for sale 1,157 1,390
Loans, net 421,129 415,682
FHLB, FRB and GLBB stock 7,006 6,752
Premises and equipment, net 8,343 8,219
Goodwill 15,052 15,052
Core deposit and other intangibles 2,892 3,000
Other assets 9,235 9,832
--------- ---------
Total assets $ 651,750 $ 651,634
========= =========
LIABILITIES
Deposits
Noninterest-bearing $ 69,788 $ 70,527
Interest-bearing 466,851 469,372
--------- ---------
Total deposits 536,639 539,899
Federal Home Loan Bank advances 32 183
Securities sold under agreements to repurchase 13,050 13,509
U. S. Treasury interest-bearing demand note payable 1,190 5,000
Notes payable 13,000 13,000
Trust preferred securities 12,500 5,000
Accrued expenses and other liabilities 3,605 3,354
--------- ---------
Total liabilities 580,016 579,945
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
5,326,441 shares issued 47,370 47,370
Retained earnings 30,130 29,588
Treasury stock, 293,238 shares at cost (7,241) (7,241)
Accumulated other comprehensive income 1,475 1,972
--------- ---------
Total shareholders' equity 71,734 71,689
--------- ---------
Total liabilities and shareholders' equity $ 651,750 $ 651,634
========= =========
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,
---------------------------------
2003 2002
---------- ---------
Interest and dividend income
Loans, including fees $ 7,041 $ 6,257
Taxable securities 1,121 996
Tax-exempt securities 386 384
Federal funds sold 45 67
Other 1 6
---------- ---------
8,594 7,710
Interest expense
Deposits 2,129 2,592
Federal Home Loan Bank advances 2 11
Trust preferred securities 62 -
Other 141 171
---------- ---------
2,334 2,774
---------- ---------
Net interest income 6,260 4,936
Provision for loan losses 215 205
---------- ---------
Net interest income after provision for
loan losses 6,045 4,731
---------- ---------
Noninterest income
Computer center item processing fees 288 318
Service charges 762 606
Net gains on sale of securities 289 -
Net gain on sale of loans 154 43
Other 647 441
---------- ---------
2,140 1,408
Noninterest expense
Salaries, wages and benefits 2,570 2,000
Net occupancy expense 322 218
Equipment expense 293 274
Contracted data processing 237 193
State franchise tax 212 123
Professional services 286 183
Amortization of intangible assets 108 31
Other operating expenses 1,539 1,149
---------- ---------
Total noninterest expense 5,567 4,171
---------- ---------
Income before income taxes 2,618 1,968
Income tax expense 768 549
---------- ---------
Net income $ 1,850 $ 1,419
========== =========
Earnings per common share, basic and diluted $ 0.37 $ 0.35
========== =========
Weighted average basic common shares 5,033,203 4,077,730
========== =========
Weighted average diluted common shares 5,041,068 4,077,730
========== =========
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,
2003 2002
------- -------
Net income $ 1,850 $ 1,419
Unrealized holding gains and (losses) on
available for sale securities (464) (473)
Reclassification adjustment for (gains)
and losses later recogized in income (289) --
------- -------
Net unrealized gains and (losses) (753) (473)
Tax effect 256 161
------- -------
Total other comprehensive income (loss) (497) (312)
------- -------
Comprehensive income $ 1,353 $ 1,107
======= =======
See notes to interim consolidated financial statements Page 5
FIRST CITIZENS BANC CORP
Condensed 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, 2002 4,082,619 $23,258 $ 28,844 $ (4,919) $ 1,544 $ 48,727
Net income 1,419 1,419
Change in unrealized gain/(loss) on
securities available for sale, net
of reclassifications and tax effects (312) (312)
Purchase of treasury stock, at cost (5,000) (112) (112)
Cash dividends ($.19 per share) (775) (775)
--------- -------- --------- -------- ------- --------
Balance, March 31, 2002 4,077,619 $ 23,258 $ 29,488 $ (5,031) $ 1,232 $ 48,947
========= ======== ========= ======== ======= ========
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
========= ======== ========= ======== ======= ========
See notes to interim consolidated financial statements Page 6
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
--------------------
2003 2002
-------- --------
Net cash from operating activities $ 4,177 $ 3,074
Cash flows from investing activities
Maturities and calls of securities, held-to-maturity 2 13
Maturities and calls of securities, available-for-sale 20,023 11,781
Purchases of securities, available-for-sale (17,193) (11,462)
Proceeds from sale of securities, available-for-sale 7,124 4
Purchases of FRB Stock (195) --
Loans made to customers, net of principal collected (5,674) 1,903
Change in federal funds sold (7,050) (8,375)
Net purchases of office premises and equipment (366) (103)
-------- --------
Net cash from investing activities (3,329) (6,239)
Cash flows from financing activities
Repayment of FHLB borrowings (151) (153)
Net change in deposits (3,260) (8,240)
Change in securities sold under agreements to repurchase (459) (363)
Change in U. S. Treasury interest-bearing demand note payable (3,810) 1,411
Purchases of treasury stock -- (113)
Net proceeds from obligated mandatorily redeemable capital securities 7,265 4,849
Cash dividends paid (1,308) (775)
-------- --------
Net cash from financing activities (1,723) (3,384)
-------- --------
Net change in cash and due from banks (875) (6,549)
Cash and due from banks at beginning of period 23,797 19,227
-------- --------
Cash and due from banks at end of period $ 22,922 $ 12,678
======== ========
See notes to interim consolidated financial statements Page 7
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(1) Consolidated Financial Statements
The consolidated financial statements include the accounts of First
Citizens Banc Corp (First Citizens) and it wholly-owned subsidiaries:
The Citizens Banking Company (Citizens), The Farmers State Bank of New
Washington (Farmers), SCC Resources, Inc. (SCC), R. A. Reynolds
Appraisal Service, Inc., (Reynolds), Mr. Money Finance Company (Mr.
Money), First Citizens Title Insurance Agency, Inc. (Title Agency),
First Citizens Insurance Agency, Inc. (Insurance Agency), First
Citizens Statutory Trust I (Trust I), and First Citizens Statutory
Trust II (Trust II) together referred to as the Corporation. Citizens
and Farmers are collectively referred to as the Banks. As of January 2,
2003, another wholly owned subsidiary, The Castalia Banking Company,
was merged into Citizens. All significant inter-company balances and
transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared by the
Corporation without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the Corporation's financial position as of March 31,
2003 and its results of operations and changes in cash flows for the
periods ended March 31, 2003 and 2002 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, 2003 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 2002 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 2003, SCC provided item processing for nine financial institutions
in addition to the two subsidiary banks. SCC accounted for 2.7% of the
Corporation's total revenues through March 31, 2003. 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
4.1% of total Corporation revenues. In September 2000 the Corporation
formed two new affiliates; First Citizens Title Insurance Agency Inc.
and First Citizens Insurance Agency Inc. First Citizens Title Insurance
Agency Inc. has been formed to provide customers with a seamless
mortgage product with improved service. First Citizens Insurance Agency
Inc was formed to allow the Corporation to participate in commission
revenue generated through its
Page 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
third party insurance agreement. Insurance commission revenue is less
than 1 percent of total revenue for the period ended March 31, 2003.
First Citizens Statutory Trust I, formed in 2002, and First Citizens
Statutory Trust II, formed in March 2003, are special purpose entities
for the purpose of issuing floating rate obligated mandatorily
redeemable capital securities as part of a pooled transaction. Trust I
was a $5,000, 5.59% issuance while Trust II was a $7,500, 4.41%
issuance. Management considers the Corporation to operate primarily in
one reportable segment, banking. To prepare financial statements in
conformity with accounting principles generally accepted in the United
States of America, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the
amounts reported in financial statements and the disclosures provided,
and future results could differ. The allowance for loan losses, fair
values of financial instruments, and status of contingencies are
particularly subject to change.
Income tax expense is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current year income tax due or refundable and the change in deferred
tax assets and liabilities. Deferred tax assets and liabilities are the
expected future tax amounts for the temporary differences between
carrying amounts and tax basis of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
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. 148. No stock options were granted
prior to July 2, 2002.
2003
----
Net income as reported $ 1,850
Deduct: Stock-based compensation expense
determined under fair value based method 8
---------
Pro forma net income 1,842
=========
Basic earnings per share as reported $ 0.37
Pro forma basic earnings per share 0.37
Diluted earnings per share as reported $ 0.37
Pro forma diluted earnings per share 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, 2003 and December 31, 2002 were as follows:
March 31, 2003
Gross Gross
Unrealized Unrealized
AVAILABLE FOR SALE Fair Value Gains Losses
-------- -------- --------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 87,038 $ 1,153 $ (40)
Corporate Bonds 1,360 33 --
Obligations of states and political subdivisions 42,493 1,740 (49)
Other securities, including mortgage-backed
securities and equity securities 13,333 224 (48)
-------- -------- --------
$144,224 $ 3,150 $ (137)
======== ======== ========
March 31, 2003
Gross Gross
Amortized Unrecognized Unrecognized
HELD TO MATURITY Cost Gains Loss Fair Value
-------------- ------------- ------------ ----------
Mortgage-backed securities $ 40 $ 2 $ - $ 42
===== ==== ==== ====
Page 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
December 31, 2002
Gross Gross
Unrealized Unrealized
AVAILABLE FOR SALE Fair Value Gains Losses
-------- -------- --------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $102,780 $ 1,822 $ --
Corporate Bonds 2,475 45 --
Obligations of states and political subdivisions 41,458 1,688 (36)
Other securities, including mortgage-backed
securities and equity securities 8,455 247 --
-------- -------- --------
$155,168 $ 3,802 $ (36)
======== ======== ========
December 31, 2002
Gross Gross
Amortized Unrecognized Unrecognized
HELD TO MATURITY Cost Gains Loss Fair Value
--------- ------------ ------------ ----------
Mortgage-backed securities $ 42 $ 2 $ - $ 44
===== ==== ==== ====
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, 2003, 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 $ 56,030
Due after one year through five years 66,548
Due after five years through ten years 6,570
Due after ten years 1,743
Mortgage-backed securities 12,671
Equity securities 662
--------
Total securities available for sale $144,224
========
Estimated Fair
HELD TO MATURITY Amortized Cost Value
-------------- --------------
Mortgage-backed securities $ 40 $ 42
-------------- --------------
Proceeds from sales of securities, gross realized gains and gross realized
losses were as follows:
Three Months Ended
March 31,
---------------------
2003 2002
------ ------
Proceeds $7,124 $ 4
Gross gains 289 --
Gross losses -- --
Securities with a carrying value of approximately $100,104 and $102,072
were pledged as of March 31, 2003 and December 31, 2002, 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, 2003 and December 31, 2002 were as follows:
3/31/2003 12/31/2002
--------- ----------
Commercial and Agriculture $ 48,739 $ 46,495
Commercial real estate 136,492 116,674
Real Estate - mortgage 193,795 210,931
Real Estate - construction 14,737 13,179
Consumer 28,930 30,278
Credit card and other 3,811 3,700
Leases 1,166 1,302
--------- ---------
Total loans 427,670 422,559
Allowance for loan losses (5,970) (6,325)
Deferred loan fees (566) (546)
Unearned interest (5) (6)
--------- ---------
Net loans $ 421,129 $ 415,682
========= =========
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses for the
three months ended March 31, 2003 and 2002 was as follows:
2003 2002
------- -------
Balance January 1, $ 6,325 $ 4,865
Loans charged-off (637) (297)
Recoveries 67 114
Provision for loan losses 215 205
------- -------
Balance March 31, $ 5,970 $ 4,887
======= =======
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:
2003 2002
------ ------
Average investment in impaired loans $5,085 $3,588
Interest income recognized on impaired loans
including interest income recognized on cash basis 98 54
Interest income recognized on impaired loans
on cash basis 98 54
Information regarding impaired loans at March 31, 2003 and December 31, 2002 was
as follows:
3/31/2003 12/31/2002
--------- ----------
Balance impaired loans $6,171 $5,999
Less portion for which no allowance for loan
losses is allocated -- --
------ ------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $6,171 $5,999
====== ======
Portion of allowance for loan losses allocated to
impaired loans $1,002 $1,033
====== ======
Nonperforming loans were as follows:
3/31/03 12/31/02
-------------- -----------
Loans past due over 90 days still on accrual $ 3,492 $ 2,414
Nonaccrual $ 3,012 $ 3,468
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, 2003 and December 31, 2002:
Contract Amount
---------------
March 31, 2003 December 31, 2002
-------------- -----------------
Commitment to extend credit:
Lines of credit and construction loans $57,283 $56,467
Credit cards 6,159 6,127
Overdraft protection 6,712 5,258
Letters of credit 3,151 547
------- -------
$73,305 $68,399
======= =======
Commitments to make loans are generally made for a period of one year
or less. Fixed rate loan commitments included above totaled $7,529 at
March 31, 2003 and had interest rates ranging from 4.25% to 10.50% with
maturities extended up to 30 years. Fixed rate loan commitments
included above totaled $8,078 at December 31, 2002 with interest rates
ranging from 3.25% to 10.50% with maturities extended up to 30 years.
The Banks are required to maintain certain reserve balances on hand in
accordance with the Federal Reserve Board requirements. The average
reserve balance maintained in accordance with such requirements for the
periods ended March 31, 2003 and December 31, 2002 approximated $6,719
and $6,843.
(6) Trust Preferred Securities
In March 2002 and March 2003, FCBC issued $5,000 of 5.59%, and $7,500
of 4.41% floating rate trust preferred securities through special
purpose subsidiaries, each as part of a pooled transaction. The
Corporation's trust preferred securities may be redeemed by the
Corporation, in whole but not in part, prior to March 26, 2007 for
Trust I and March 26, 2008 for Trust II, subject to the occurrence and
continuation of a special event, at a redemption price of 107.50%
Page 15
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
of the face value of the capital securities. On or after March 26, 2007
and March 26, 2008, the trust preferred securities may be redeemed at
face value. The Corporation's trust preferred securities are considered
Tier II capital for regulatory reporting purposes. Debt issuance costs
of $151 and $235 are being amortized over the term of the securities.
Page 16
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Introduction
The following discussion focuses on the consolidated financial
condition of First Citizens Banc Corp at March 31, 2003 compared to
December 31, 2002 and the consolidated results of operations for the
three-month period ending March 31, 2003 compared to the same period in
2002. This discussion should be read in conjunction with the
consolidated financial statements and footnotes included in this Form
10-Q.
The registrant is not aware of any trends, events or uncertainties that
will have, or are reasonably likely to have, a material effect on the
liquidity, capital resources, or operations except as discussed herein.
Also, the registrant is not aware of any current recommendation by
regulatory authorities, which would have a material effect if
implemented.
When used in this Form 10-Q or future filings by the Corporation with
the Securities and Exchange Commission, in press releases or other
public or shareholder communications, or in oral statements made with
the approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "believe," or similar expressions
are intended to identify "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The
Corporation wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date
made, and to advise readers that various factors, including regional
and national economic conditions, changes in levels of market interest
rates, credit risks of lending activities and competitive and
regulatory factors, could effect the Corporation's financial
performance and could cause the Corporation's actual results for future
periods to differ materially from those anticipated or projected. The
Corporation does not undertake, and specifically disclaims, any
obligation to publicly release the result of any revisions, which may
be made to any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of
such statements.
See Exhibit 99, which is incorporated herein by reference.
Financial Condition
Total assets of the Corporation at March 31, 2003 totaled $651,750
compared to $651,634 at December 31, 2002, which was an increase of
$116. Within the structure of the assets, net loans have increased
$5,447, or 1.3 percent since December 31, 2002. The commercial real
estate portfolio increased by $19,818 and the commercial and
agriculture portfolio increased $2,244, while residential real estate
and consumer loans decreased by $17,136 and $1,348 respectively. This
is reflective of a shift in focus by the Corporation toward commercial
loans and away from residential real estate and consumer loans. In the
current 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. This shift in
focus has also helped improve the yield the Corporation earned on its
loan portfolio, as well as reducing the interest rate risk on the loan
portfolio. Mr. Money was formed to service the needs
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)
- --------------------------------------------------------------------------------
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 $13,199 at March 31, 2003
compared to $13,728 at December 31, 2002. Loans held-for-sale decreased
$233, or 16.8 percent from December 31, 2002. At March 31, 2003, the
net loan to deposit ratio was 78.5 percent compared to 77.0 percent at
December 31, 2002.
At March 31, 2003, available for sale securities totaled $144,224
compared to $155,168 at December 31, 2002, a decrease of $10,944. 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, such as loans and fed funds. Bank stocks
increased $254 from December 31, 2002, due to a purchase of $195 in FRB
stock and $59 in FHLB dividends.
For the three months of operations in 2003, $215 was placed into the
allowance for loan losses from earnings compared to $205 for the same
period of 2002. The slight increase of the provision is related to the
increase of the loan portfolio, in addition to the overall analysis of
loss reserves. To evaluate the adequacy of the allowance for loan
losses to cover probable losses in the portfolio, management considers
specific reserve allocations for identified portfolio loans, reserves
for delinquencies, economic trends, and historical reserve allocations.
The composition and overall level of the loan portfolio and charge-off
activity are also factors used to determine provisions to the reserve.
Charge-offs for the first three months of 2003 were $637 compared to
$297 for the same period of 2002. 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 2003. The March 31, 2003
allowance for loan losses as a percent of total loans was 1.40 percent
compared to 1.50 percent at December 31, 2002.
Office premises and equipment have increased $124 and intangible assets
have decreased $108 since December 31, 2002. The increase in office
premises and equipment is attributed to new purchases of $366 and
depreciation of $242. Intangible assets decreased due to amortization
of the core deposit premium.
Total deposits at March 31, 2003 decreased $3,260 from year-end 2002.
Noninterest-bearing deposits, decreased $739 from year-end 2002.
Interest-bearing deposits, including savings and time deposits,
decreased $2,521 from year-end 2002. The year to date average balance
of total deposits increased $128,417 compared to the average balance of
the same period 2002. This increase was primarily due to the merger of
ICBC in April 2002. ICBC's deposit balances totaled $111,968 at March
31, 2002. The year to date 2003 average balance of savings deposits has
increased $31,599 compared to the average balance of the same period
for 2002. The current average rate of these deposits is 0.57 percent
compared to 1.74 percent in 2002. The year to date 2003 average balance
of time certificates has increased $23,162 compared to the average
balance for the same period for 2002. Additionally, the year to date
2003 average balances compared to the same period in 2002 of Demand
Deposits increased $24,189, while N.O.W. accounts increased $6,511, and
Money Market Savings increased $42,956.
Total borrowed funds have increased $3,080 from December 31, 2002 to
March 31, 2003. The Corporation has notes outstanding with other
financial institutions totaling $13,000 at March 31,
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)
- --------------------------------------------------------------------------------
2003 and December 31, 2002. These notes were primarily used to fund the
loan growth at Mr. Money. Additionally, the Corporation increased its
Obligated Mandatorily Redeemable Capital Securities by $7,500. This
security, as well as the security of $5,000 in 2002, is a 30-year
issuance. These issuances were used to pay down a note used for funding
Mr. Money loans and stock repurchases. Additionally, a pool of low cost
funds was created at First Citizens which may be used for funding Mr.
Money loan growth, continued stock repurchases, as well as any other
opportunities which may present themselves in the future. Federal Home
Loan Bank borrowings have decreased $151 as a result of scheduled pay
downs. Securities sold under agreements to repurchase, which tend to
fluctuate, have decreased $459 and U.S. Treasury Tax Demand Notes have
decreased $3,810.
Shareholders' equity at March 31, 2003 was $71,734, or 11.0 percent of
total assets, compared to $71,689 at December 31, 2002, or 11.0 percent
of total assets. The increase in shareholders' equity resulted from
earnings of $1,850, less dividends paid of $1,308 and the decrease in
the market value of securities available for sale, net of tax, of $497.
The Corporation paid a cash dividend on February 1, 2003 at a rate of
$.26 per share. Total outstanding shares at March 31, 2003 were
5,033,203.
Results of Operations
Three Months Ended March 31, 2003 and 2002
Net income for the three months ended March 31, 2003 was $1,850, or
$.37 basic and diluted earnings per common share compared to $1,419 or
$.35 basic and diluted earnings per common share for the same period in
2002. This was an increase of $431, or 30.4 percent. Some of the
reasons for the changes are explained below.
Total interest income for the first three months of 2003 increased by
$884, or 11.5 percent compared to the same period in 2002. The average
rate on earning assets on a tax equivalent basis for the first three
months of 2003 was 5.68 percent and 6.55 percent for the first three
months of 2002. The decrease in yield is due to the rate environment in
which the Corporation has operated in 2003. However, the increase in
average earning assets more than offset the decline in yield. Total
interest expense for the first three months of 2003 has decreased by
$440, or 15.9 percent compared to the same period of 2002. This
decrease is mainly attributed to a decrease in interest on deposits of
$463, a decrease in interest on other borrowings of $30, partially
offset by an increase of $62 on Trust preferred securities. Interest on
other borrowings decreased due to the continued decline in interest
rates on the borrowings. Interest on FHLB borrowings is down due to
balances borrowed being lower in 2003. 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 2003 was 1.74 percent compared to 2.88 percent for the
same period of 2002. The net interest margin on a tax equivalent basis
was 4.34 percent for the three-month period ended March 31, 2003 and
4.18 percent for the same period ended March 31, 2002.
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)
- --------------------------------------------------------------------------------
Noninterest income for the first three months of 2003 totaled $2,140,
compared to $1,408 for the same period of 2002, an increase of $732.
Service charges on deposit accounts increased $156 in 2003 compared to
the same period in 2002. Check Protect generated an additional $108 in
service charge income in the first quarter 2003 compared to the same
period in 2002. Revenue from computer operations decreased $30 and
other operating income increased $206. Within other operating income,
Citizens increased its commission from the origination of wholesale
mortgages in 2003 $148 compared to the first three months in 2002.
Additionally, Citizens, through the merger with ICBC, increased Trust
income $66 in 2003 compared to the 2002. Gain on the sale of loans
increased $111 as loan customers continued to refinance into fixed rate
mortgages, which the Corporation typically sells on the secondary
market. Gains on sale of securities increased $289 due to sales at
Citizens in March. In the current low interest rate environment,
Citizens was able to sell certain securities at a gain and reinvest the
proceeds back into the investment portfolio without a significant
change in the book yield or weighted average maturity of the portfolio.
Noninterest expense for the three months ended March 31, 2003 totaled
$5,567 compared to $4,171 for the same period in 2002. This was an
increase of $1,396, or 33.5 percent. Salaries and benefits increased
$570, or 28.5 percent compared to the first three months of 2002. This
increase is attributed to the addition of new Citizens branches created
by the merger, as well as Farmers and Mr. Money expanding their offices
to new areas. Equipment expense increased $19 as a result of increased
depreciation and maintenance expense. Computer processing expense
increased by $44 compared to last year. State franchise taxes increased
$89 compared to the first three months in 2002. This increase was due
to the addition of ICBC, the addition of Title Agency and Insurance
Agency, and two refunds received by FCBC in 2002. Net occupancy expense
increased $104 compared to the first three months of 2002, due to the
same factors that lead to an increase in salary expense. Other
operating expenses increased $390 primarily due to the addition of ICBC
and the expenses associated with operating additional branches.
Income tax expense for the first three months of 2003 totaled $768
compared to $549 for the first three months of 2002. This was an
increase of $219, or 39.9 percent. The increase in the federal income
taxes is a result of the increase in total income before taxes of $650.
The effective tax rates were comparable for the three-month periods
ended March 31, 2003 and March 31, 2002, at 29.3% and 27.9%,
respectively.
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)
- --------------------------------------------------------------------------------
Capital Resources
Shareholders' equity totaled $71,734, at March 31, 2003 compared to
$71,689 at December 31, 2002. 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
3/31/03 12/31/2002 Purposes Provisions
---------------- ---------------- ------------------- ------------------
Tier I Risk Based Capital 12.3% 12.5% 4.0% 6.0%
Total Risk Based Capital 16.4% 14.9% 8.0% 10.0%
Leverage Ratio 8.7% 8.0% 4.0% 5.0%
In March 2002 and March 2003, FCBC issued $5,000 of 5.59% and $7,500 of
4.41% floating rate trust preferred securities through special purpose
subsidiaries, each as part of a pooled transaction. The Corporation's
trust preferred securities are considered Tier II capital for
regulatory reporting purposes.
The Corporation paid a cash dividend of $.26 per common share on
February 1, 2003 compared to $.19 per common share on February 1, 2002.
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 $48,761 and the Banks have
additional borrowing availability at the Federal Home Loan Bank of
Cincinnati of $77,341 at March 31, 2003. Liquidity is also evidenced by
all but $40 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.
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)
- --------------------------------------------------------------------------------
Interest rate risk is the risk that the Corporation's financial
condition will be adversely affected due to movements in interest
rates. The Corporation, like other financial institutions, is subject
to interest rate risk to the extent that its interest-earning assets
reprice differently than interest-bearing liabilities. The income of
financial institutions is primarily derived from the excess of interest
earned on interest-earning assets over interest paid on
interest-bearing liabilities. One of the Corporation's principal
financial objectives is to achieve long-term profitability while
reducing its exposure to fluctuations in interest rates. Accordingly,
the Corporation places great importance on monitoring and controlling
interest rate risk.
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 57.7 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, 2003 and December 31, 2002, 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, 2003 or December 31, 2002.
Page 22
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Net Portfolio Value
March 31, 2003 December 31, 2002
-------------------------------------------- --------------------------------------------
Change in Dollar Dollar Percent Dollar Dollar Percent
Rates Amount Change Change Amount Change Change
- ---------------- -------------------------------------------- --------------------------------------------
+400 bp 51,039 (22,731) -31% 55,141 (20,038) -27%
+300 bp 56,406 (17,364) -24% 60,093 (15,086) -20%
+200bp 62,122 (11,648) -16% 64,806 (10,373) -14%
+100bp 69,385 (4,385) -6% 70,702 (4,477) -6%
Base 73,770 - - 75,179 - -
-100bp 78,396 4,626 6% 79,921 4,742 6%
The relatively minor change in net portfolio value from December 31,
2002 to March 31, 2003, is primarily a result of two factors. First,
long-term interest rates have decreased only slightly during 2003. 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.
ITEM 4.
Controls and Procedures Disclosure
Within the 90-day period prior to the filing date of this 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 23
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. 99 - Safe Harbor under the Private Securities
Litigation Reform Act of 1995.
(B) EXHIBIT NO. 99.1 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(C) EXHIBIT NO. 99.2 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(D) REPORTS ON FORM 8-K - None - Filed on February 12, 2003, announcing
2002 earnings of $1.48 per share compared to $1.30 earnings per share
for 2001 and $1.39 earnings per share for 2000.
Page 24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf the undersigned
thereunto duly authorized.
First Citizens Banc Corp
/s/ David A. Voight May 15, 2003
- ------------------------------------ ------------
David A. Voight Date
President
/s/ James O. Miller May 15, 2003
- ------------------------------------ ------------
James O. Miller Date
Executive Vice President
Page 25
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q
I, David A. Voight, certify that:
1) I have reviewed this quarterly report on Form 10-Q of First Citizens
Banc Corp;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
a). designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b). any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Signature and Title: /s/ David A. Voight, President, Chief Executive Officer
-------------------------------------------------------
Date: May 15, 2003
------------
Page 26
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS FOR QUARTERLY REPORT ON FORM 10-Q
I, Todd A. Michel, certify that:
1) I have reviewed this quarterly report on Form 10-Q of First Citizens
Banc Corp;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
a). designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
d). all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
e). any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Signature and Title: /s/ Todd A. Michel, Senior Vice President, Controller
------------------------------------------------------
Date: May 15, 2003
------------
Page 27
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
- --------------------------------------------------------------------------------
Exhibit Number Description Page Number
-------------- ----------- -----------
99 Safe Harbor Under the Private Securities Litigation Incorporated by reference to Exhibit 99 to Annual
Reform Act of 1995 Report for the Year Ended December 31, 1999 filed by
the registrant on March 24, 2000.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as 33
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as 34
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Page 28