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EXCEL - IDEA: XBRL DOCUMENT - CIVISTA BANCSHARES, INC. | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - CIVISTA BANCSHARES, INC. | c24141exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - CIVISTA BANCSHARES, INC. | c24141exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - CIVISTA BANCSHARES, INC. | c24141exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - CIVISTA BANCSHARES, INC. | c24141exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2011
OR
o | 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 or organization) | (I.R.S. Employer Identification Number) | |
100 East Water Street, Sandusky, Ohio | 44870 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (419) 625-4121
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. Common Shares, no par value, outstanding at November 7, 2011
7,707,917 shares
FIRST CITIZENS BANC CORP
Index
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8-31 | ||||||||
32-40 | ||||||||
41-43 | ||||||||
43 | ||||||||
44 | ||||||||
44 | ||||||||
44 | ||||||||
44 | ||||||||
44 | ||||||||
44 | ||||||||
44 | ||||||||
45 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
Table of Contents
Part I Financial Information
ITEM 1. Financial Statements
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
(In thousands, except share data)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and due from financial institutions |
$ | 85,749 | $ | 79,030 | ||||
Securities available for sale |
209,708 | 184,952 | ||||||
Loans held for sale |
483 | | ||||||
Loans, net of allowance of $22,687 and $21,768 |
755,564 | 745,555 | ||||||
Other securities |
15,388 | 15,344 | ||||||
Premises and equipment, net |
18,038 | 18,129 | ||||||
Accrued interest receivable |
5,061 | 4,382 | ||||||
Goodwill |
21,720 | 21,720 | ||||||
Core deposit and other intangibles |
4,402 | 5,275 | ||||||
Bank owned life insurance |
17,797 | 12,320 | ||||||
Other assets |
11,275 | 13,915 | ||||||
Total assets |
$ | 1,145,185 | $ | 1,100,622 | ||||
LIABILITIES |
||||||||
Deposits |
||||||||
Noninterest-bearing |
$ | 174,064 | $ | 157,529 | ||||
Interest-bearing |
737,698 | 734,934 | ||||||
Total deposits |
911,762 | 892,463 | ||||||
Federal Home Loan Bank advances |
70,303 | 50,327 | ||||||
Securities sold under agreements to repurchase |
19,283 | 21,842 | ||||||
U. S. Treasury interest-bearing demand note payable |
2,339 | 2,008 | ||||||
Subordinated debentures |
29,427 | 29,427 | ||||||
Accrued expenses and other liabilities |
9,535 | 7,605 | ||||||
Total liabilities |
1,042,649 | 1,003,672 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Preferred stock, no par value, 200,000 shares authorized,
23,184 shares issued |
23,146 | 23,134 | ||||||
Common stock, no par value, 20,000,000 shares authorized,
8,455,881 shares issued |
114,447 | 114,447 | ||||||
Retained deficit |
(18,630 | ) | (20,218 | ) | ||||
Treasury stock, 747,964 shares at cost |
(17,235 | ) | (17,235 | ) | ||||
Accumulated other comprehensive income (loss) |
808 | (3,178 | ) | |||||
Total shareholders equity |
102,536 | 96,950 | ||||||
Total liabilities and shareholders equity |
$ | 1,145,185 | $ | 1,100,622 | ||||
See notes to interim unaudited consolidated financial statements
Page 3
Table of Contents
FIRST CITIZENS BANC CORP
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
(In thousands, except per share data)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest and dividend income |
||||||||||||||||
Loans, including fees |
$ | 10,455 | $ | 11,092 | $ | 31,208 | $ | 33,440 | ||||||||
Taxable securities |
1,367 | 1,448 | 4,213 | 4,464 | ||||||||||||
Tax-exempt securities |
419 | 444 | 1,250 | 1,392 | ||||||||||||
Federal funds sold and other |
26 | 13 | 54 | 23 | ||||||||||||
Total interest and dividend income |
12,267 | 12,997 | 36,725 | 39,319 | ||||||||||||
Interest expense |
||||||||||||||||
Deposits |
1,233 | 1,721 | 3,948 | 5,587 | ||||||||||||
Federal Home Loan Bank advances |
401 | 598 | 1,208 | 1,953 | ||||||||||||
Subordinated debentures |
189 | 212 | 578 | 631 | ||||||||||||
Other |
5 | 16 | 27 | 57 | ||||||||||||
Total interest expense |
1,828 | 2,547 | 5,761 | 8,228 | ||||||||||||
Net interest income |
10,439 | 10,450 | 30,964 | 31,091 | ||||||||||||
Provision for loan losses |
2,000 | 6,100 | 7,700 | 14,440 | ||||||||||||
Net interest income after provision for loan losses |
8,439 | 4,350 | 23,264 | 16,651 | ||||||||||||
Noninterest income |
||||||||||||||||
Service charges |
1,233 | 1,197 | 3,350 | 3,410 | ||||||||||||
Net gain on sale of securities |
| 7 | 3 | 22 | ||||||||||||
ATM fees |
473 | 472 | 1,371 | 1,344 | ||||||||||||
Trust fees |
505 | 457 | 1,577 | 1,378 | ||||||||||||
Bank owned life insurance |
173 | 116 | 477 | 354 | ||||||||||||
Computer center data processing fees |
60 | 61 | 193 | 195 | ||||||||||||
Other |
220 | 210 | 887 | 565 | ||||||||||||
Total noninterest income |
2,664 | 2,520 | 7,858 | 7,268 | ||||||||||||
Noninterest expense |
||||||||||||||||
Salaries, wages and benefits |
5,144 | 4,590 | 14,588 | 12,958 | ||||||||||||
Net occupancy expense |
549 | 604 | 1,728 | 1,841 | ||||||||||||
Equipment expense |
343 | 365 | 1,059 | 1,132 | ||||||||||||
Contracted data processing |
200 | 200 | 612 | 687 | ||||||||||||
FDIC Assessment |
240 | 395 | 971 | 1,183 | ||||||||||||
State franchise tax |
330 | 237 | 871 | 764 | ||||||||||||
Professional services |
509 | 689 | 1,505 | 1,776 | ||||||||||||
Amortization of intangible assets |
291 | 305 | 872 | 914 | ||||||||||||
ATM Expense |
154 | 177 | 452 | 537 | ||||||||||||
Marketing |
157 | 188 | 540 | 563 | ||||||||||||
Other operating expenses |
1,682 | 1,516 | 5,071 | 4,899 | ||||||||||||
Total noninterest expense |
9,599 | 9,266 | 28,269 | 27,254 | ||||||||||||
Income (loss) before taxes |
1,504 | (2,396 | ) | 2,853 | (3,335 | ) | ||||||||||
Income tax expense (benefit) |
311 | (1,003 | ) | 384 | (1,719 | ) | ||||||||||
Net Income (loss) |
1,193 | (1,393 | ) | 2,469 | (1,616 | ) | ||||||||||
Preferred stock dividends and discount accretion |
293 | 289 | 881 | 867 | ||||||||||||
Net income (loss) available to common shareholders |
$ | 900 | $ | (1,682 | ) | $ | 1,588 | $ | (2,483 | ) | ||||||
Earnings per common share, basic and diluted |
$ | 0.12 | $ | (0.22 | ) | $ | 0.21 | $ | (0.32 | ) | ||||||
See notes to interim unaudited consolidated financial statements
Page 4
Table of Contents
FIRST CITIZENS BANC CORP
Consolidated Comprehensive Income Statements
(Unaudited)
(In thousands)
(In thousands)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) |
$ | 1,193 | $ | (1,393 | ) | $ | 2,469 | $ | (1,616 | ) | ||||||
Unrealized holding gains
on available for sale securities |
2,719 | 883 | 6,042 | 4,002 | ||||||||||||
Reclassification adjustment for
gains later recognized in income |
| (7 | ) | (3 | ) | (22 | ) | |||||||||
Net unrealized gains |
2,719 | 876 | 6,039 | 3,980 | ||||||||||||
Tax effect |
(924 | ) | (298 | ) | (2,053 | ) | (1,353 | ) | ||||||||
Total other comprehensive income |
1,795 | 578 | 3,986 | 2,627 | ||||||||||||
Comprehensive income |
$ | 2,988 | $ | (815 | ) | $ | 6,455 | $ | 1,011 | |||||||
See notes to interim unaudited consolidated financial statements
Page 5
Table of Contents
FIRST CITIZENS BANC CORP
Condensed Consolidated Statements of Shareholders Equity
(Unaudited)
(In thousands, except share data)
(In thousands, except share data)
Accumulated | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Other | Total | |||||||||||||||||||||||||||||
Outstanding | Outstanding | Retained | Treasury | Comprehensive | Shareholders | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Deficit | Stock | Income/(Loss) | Equity | |||||||||||||||||||||||||
Balance, January 1, 2011 |
23,184 | $ | 23,134 | 7,707,917 | $ | 114,447 | $ | (20,218 | ) | $ | (17,235 | ) | $ | (3,178 | ) | $ | 96,950 | |||||||||||||||
Net Income |
| | | | 2,469 | | | 2,469 | ||||||||||||||||||||||||
Change in unrealized
gain/(loss) on
securities available
for sale, net of
reclassification and
tax effect |
| | | | | | 3,986 | 3,986 | ||||||||||||||||||||||||
Accretion of discount
on preferred stock |
| 12 | | | (12 | ) | | | | |||||||||||||||||||||||
Preferred stock dividend |
| | | | (869 | ) | | | (869 | ) | ||||||||||||||||||||||
Balance, September 30, 2011 |
23,184 | $ | 23,146 | 7,707,917 | $ | 114,447 | $ | (18,630 | ) | $ | (17,235 | ) | $ | 808 | $ | 102,536 | ||||||||||||||||
See notes to interim unaudited consolidated financial statements
Page 6
Table of Contents
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
(In thousands)
Nine months ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net cash from operating activities |
$ | 12,977 | $ | 13,093 | ||||
Cash flows from investing activities |
||||||||
Maturities and calls of securities, available-for-sale |
46,344 | 81,010 | ||||||
Purchases of securities, available-for-sale |
(64,624 | ) | (59,386 | ) | ||||
Redemption of FRB stock |
83 | 110 | ||||||
Purchases of FRB stock |
(127 | ) | | |||||
Purchase of bank owned life insurance |
(5,000 | ) | | |||||
Loans made to customers, net of principal collected |
(18,843 | ) | (4,713 | ) | ||||
Proceeds from sale of OREO properties |
785 | 903 | ||||||
Proceeds from sale of property |
48 | 1,174 | ||||||
Net purchases of office premises and equipment |
(1,102 | ) | (1,048 | ) | ||||
Net cash (used for) provided by investing activities |
(42,436 | ) | 18,050 | |||||
Cash flows from financing activities |
||||||||
Repayment of FHLB borrowings |
(24 | ) | (30 | ) | ||||
Repayment of short-term FHLB advances |
| (5,000 | ) | |||||
Proceeds from short-term FHLB advances |
20,000 | | ||||||
Repayment of long-term FHLB advances |
(22,500 | ) | (30,000 | ) | ||||
Proceeds from long-term FHLB advances |
22,500 | | ||||||
Net change in deposits |
19,299 | 46,869 | ||||||
Net change in securities sold under agreements to repurchase |
(2,559 | ) | 690 | |||||
Net change in U. S. Treasury interest-bearing demand note payable |
331 | (1,640 | ) | |||||
Dividends paid |
(869 | ) | (869 | ) | ||||
Net cash from financing activities |
36,178 | 10,020 | ||||||
Net change in cash and due from financial institutions |
6,719 | 41,163 | ||||||
Cash and cash equivalents at beginning of period |
79,030 | 26,942 | ||||||
Cash and cash equivalents at end of period |
$ | 85,749 | $ | 68,105 | ||||
Cash paid during the period for: |
||||||||
Interest |
$ | 5,779 | $ | 8,617 | ||||
Income taxes |
$ | | $ | 900 | ||||
Supplemental cash flow information: |
||||||||
Transfer of loans from portfolio to OREO |
$ | 677 | $ | 1,368 |
See notes to interim unaudited consolidated financial statements
Page 7
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
(1) Consolidated Financial Statements
Nature of Operations and Principles of Consolidation: The Consolidated Financial
Statements include the accounts of First Citizens Banc Corp (FCBC) and its wholly-owned
subsidiaries: The Citizens Banking Company (Citizens), First Citizens Insurance Agency,
Inc., and Water Street Properties, Inc. (Water St.). First Citizens Capital LLC (FCC) is
wholly-owned by Citizens and holds inter-company debt. The operations of FCC are located in
Wilmington, Delaware. First Citizens Investments, Inc. (FCI) is wholly-owned by Citizens
and holds and manages Citizens securities portfolio. The operations of FCI are located in
Wilmington, Delaware. The above companies together are referred to as the Corporation.
Intercompany balances and transactions are 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 Corporations financial position as of
September 30, 2011 and its results of operations and changes in cash flows for the periods
ended September 30, 2011 and 2010 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 September 30,
2011 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 the financial
statements contained in the Corporations 2010 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, Champaign, Franklin, Logan, Madison, Summit, Huron, Union, Ottawa, and
Richland. 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 commercial and residential real estate.
Commercial loans are expected to be repaid from cash flow from operations of businesses.
There are no significant concentrations of loans to any one industry or customer. However,
the customers ability to repay their loans is dependent on the real estate and general
economic conditions in the area. Other financial instruments that potentially represent
concentrations of credit risk include deposit accounts in other financial institutions and
Federal Funds sold. First Citizens Insurance Agency Inc. was formed to allow the
Corporation to participate in commission revenue generated through its third party insurance
agreement. Insurance commission revenue was less than 1.0% of total revenue through
September 30, 2011. Water St. revenue was less than 1.0% of total revenue through September
30, 2011. Management considers the Corporation to operate primarily in one reportable
segment, banking.
Page 8
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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Use of Estimates: 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, impairment of goodwill, fair values of
financial instruments, deferred taxes and pension obligations are particularly subject to
change.
Income Taxes: 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.
New Accounting Pronouncements:
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. The amendments in this ASU provide
additional guidance or clarification to help creditors in determining whether a creditor has
granted a concession and whether a debtor is experiencing financial difficulties for
purposes of determining whether a restructuring constitutes a troubled debt restructuring.
The amendments in this ASU are effective for the first interim or annual reporting period
beginning on or after June 15, 2011, and should be applied retrospectively to the beginning
annual period of adoption. As a result of applying these amendments, an entity may identify
receivables that are newly considered impaired. For purposes of measuring impairment of
those receivables, an entity should apply the amendments prospectively for the first interim
or annual period beginning on or after June 15, 2011. The adoption of this ASU did not have
a significant impact on the Corporations financial statements.
Impact of Not Yet Effective Authoritative Accounting Pronouncements:
In October, 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with
Acquiring or Renewing Insurance Contracts. This ASU addresses the diversity in practice
regarding the interpretation of which costs relating to the acquisition of new or renewal
insurance contracts qualify for deferral. The amendments are effective for fiscal years and
interim periods within those fiscal years, beginning after December 15, 2011, and are not
expected to have a significant impact on the Corporations financial statements.
Page 9
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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for
Repurchase Agreements. The main objective in developing this ASU is to improve the
accounting for repurchase agreements (repos) and other agreements that both entitle and
obligate a transferor to repurchase or redeem financial assets before their maturity. The
amendments in this ASU remove from the assessment of effective control (1) the criterion
requiring the transferor to have the ability to repurchase or redeem the financial assets on
substantially the agreed terms, even in the event of default by the transferee, and (2) the
collateral maintenance implementation guidance related to that criterion. The amendments in
this ASU apply to all entities, both public and nonpublic. The amendments affect all
entities that enter into agreements to transfer financial assets that both entitle and
obligate the transferor to repurchase or redeem the financial
assets before their maturity. The guidance in this ASU is effective for the first interim
or annual period beginning on or after December 15, 2011 and should be applied prospectively
to transactions or modifications of existing transactions that occur on or after the
effective date. Early adoption is not permitted. This ASU is not expected to have a
significant impact on the Corporations financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. The
amendments in this ASU improve the comparability, clarity, consistency, and transparency of
financial reporting and increase the prominence of items reported in other comprehensive
income. To increase the prominence of items reported in other comprehensive income and to
facilitate convergence of U.S. GAAP and IFRS, the option to present components of other
comprehensive income as part of the statement of changes in stockholders equity was
eliminated. The amendments require that all non-owner changes in stockholders equity be
presented either in a single continuous statement of comprehensive income or in two separate
but consecutive statements. In the two-statement approach, the first statement should
present total net income and its components followed consecutively by a second statement
that should present total other comprehensive income, the components of other comprehensive
income, and the total of comprehensive income. All entities that report items of
comprehensive income, in any period presented, will be affected by the changes in this ASU.
For public entities, the amendments are effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011. The amendments in this ASU should be
applied retrospectively, and early adoption is permitted. This ASU is not expected to have
a significant impact on the Companys financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles Goodwill and Other Topics
(Topic 350), Testing Goodwill for Impairment. The objective of this ASU is to simplify how
entities, both public and nonpublic, test goodwill for impairment. The amendments in this
ASU permit an entity to first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform the two-step goodwill impairment
test described in Topic 350. The more-likely-than-not threshold is defined as having a
likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not
required to calculate the fair value of a reporting unit unless the entity determines that
it is more likely than not that its fair value is less than its carrying amount. The
amendments in this ASU apply to all entities, both public and nonpublic, that have goodwill
reported in their financial statements and are effective for interim and annual goodwill
impairment tests performed for fiscal years beginning after December 15, 2011. Early
adoption is permitted, including for annual and interim goodwill impairment tests performed
as of a date before September 15, 2011, if an entitys financial statements for the most
recent annual or interim period have not yet been issued or, for nonpublic entities, have
not yet been made available for issuance. This ASU is not expected to have a significant
impact on the Companys financial statements.
Page 10
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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
In September 2011, the FASB issued ASU 2011-09, Compensation-Retirement
Benefits-Multiemployer Plans (Subtopic 715-80). The amendments in this ASU will require
additional disclosures about an employers participation in a multiemployer pension plan to
enable users of financial statements to assess the potential cash flow implications relating
to an employers participation in multiemployer pension plans. The disclosures also will
indicate the financial health of all of the significant plans in which the employer
participates and assist a financial statement user to access additional information that is
available outside the financial statements. For public
entities, the amendments in this ASU are effective for annual periods for fiscal years
ending after December 15, 2011, with early adoption permitted. For nonpublic entities, the
amendments are effective for annual periods of fiscal years ending after December 15, 2012,
with early adoption permitted. The amendments should be applied retrospectively for all
prior periods presented. The Corporation is currently evaluating the impact the adoption of
the standard will have on the financial position or results of operations.
Page 11
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First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
(2) Securities
Available for sale securities at September 30, 2011 and December 31, 2010 were as follows:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
September 30, 2011 | Cost | Gains | Losses | Fair Value | ||||||||||||
U.S. Treasury securities and obligations of
U.S. government agencies |
$ | 51,532 | $ | 499 | $ | | $ | 52,031 | ||||||||
Obligations of states and political subdivisions |
61,990 | 4,485 | (15 | ) | 66,460 | |||||||||||
Mortgage-backed securities in
government sponsored entities |
87,911 | 2,726 | (96 | ) | 90,541 | |||||||||||
Total debt securities |
201,433 | 7,710 | (111 | ) | 209,032 | |||||||||||
Equity securities in financial institutions |
481 | 195 | | 676 | ||||||||||||
Total |
$ | 201,914 | $ | 7,905 | $ | (111 | ) | $ | 209,708 | |||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
December 31, 2010 | Cost | Gains | Losses | Fair Value | ||||||||||||
U.S. Treasury securities and obligations of
U.S. government agencies |
$ | 55,398 | $ | 616 | $ | (307 | ) | $ | 55,707 | |||||||
Obligations of states and political subdivisions |
61,401 | 483 | (1,415 | ) | 60,469 | |||||||||||
Mortgage-backed securities in
government sponsored entities |
65,917 | 2,236 | (53 | ) | 68,100 | |||||||||||
Total debt securities |
182,716 | 3,335 | (1,775 | ) | 184,276 | |||||||||||
Equity securities in financial institutions |
481 | 195 | | 676 | ||||||||||||
Total |
$ | 183,197 | $ | 3,530 | $ | (1,775 | ) | $ | 184,952 | |||||||
Page 12
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
The fair value of securities at September 30, 2011, by contractual maturity, is 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 |
$ | 963 | ||
Due after one year through five years |
20,583 | |||
Due after five years through ten years |
11,666 | |||
Due after ten years |
85,279 | |||
Mortgage-backed securities |
90,541 | |||
Equity securities |
676 | |||
Total securities available for sale |
$ | 209,708 | ||
Proceeds from the sale of securities were zero for both the three and nine month periods ended
September 30, 2011 and September 30, 2010. Gains from securities called or settled by the issuer
during the quarter ended September 30, 2011 were zero, and $3 year-to-date. Gains from securities
called or settled by the issuer during the quarter ended September 30, 2010 were $7, and $22
year-to-date.
Securities with a carrying value of approximately $159,149 and $158,940 were pledged as of
September 30, 2011 and December 31, 2010, respectively, to secure public deposits, other deposits
and liabilities as required by law.
Page 13
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Securities with unrealized losses at September 30, 2011 and December 31, 2010 not recognized in
income are as follows:
September 30, 2011 | 12 Months or less | More than 12 months | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
Obligations of states and
political subdivisions |
$ | 1,536 | $ | (14 | ) | $ | 161 | $ | (1 | ) | $ | 1,697 | $ | (15 | ) | |||||||||
Mortgage-backed securities
in govt sponsored entities |
11,873 | (96 | ) | | | 11,873 | (96 | ) | ||||||||||||||||
Total temporarily impaired |
$ | 13,409 | $ | (110 | ) | $ | 161 | $ | (1 | ) | $ | 13,570 | $ | (111 | ) | |||||||||
December 31, 2010 | 12 Months or less | More than 12 months | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
U.S. Treasury securities and
obligations of U.S.
government agencies |
$ | 10,257 | $ | (307 | ) | $ | | $ | | $ | 10,257 | $ | (307 | ) | ||||||||||
Obligations of states and
political subdivisions |
34,938 | (1,359 | ) | 2,256 | (56 | ) | 37,194 | (1,415 | ) | |||||||||||||||
Mortgage-backed securities
in govt sponsored entities |
9,696 | (53 | ) | | | 9,696 | (53 | ) | ||||||||||||||||
Total temporarily impaired |
$ | 54,891 | $ | (1,719 | ) | $ | 2,256 | $ | (56 | ) | $ | 57,147 | $ | (1,775 | ) | |||||||||
There are sixteen securities in the portfolio with unrealized losses. Unrealized losses on
securities have not been recognized into income because the issuers securities are of high credit
quality, management has the intent and ability to hold these securities for the foreseeable future,
and the decline in fair value is largely due to market yields increasing across the municipal
sector partly due to higher risk premiums associated with municipal insurers. The fair value is
expected to recover as the securities approach their maturity date or reset date. The Corporation
does not intend to sell until recovery and does not believe selling will be required before
recovery.
Page 14
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
(3) Loans
Loan balances were as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Commercial and agriculture |
$ | 85,680 | $ | 84,913 | ||||
Commercial real estate |
359,731 | 336,251 | ||||||
Real estate mortgage |
282,412 | 295,038 | ||||||
Real estate construction |
38,767 | 39,341 | ||||||
Consumer |
11,661 | 11,780 | ||||||
Total loans |
778,251 | 767,323 | ||||||
Allowance for loan losses |
(22,687 | ) | (21,768 | ) | ||||
Net loans |
$ | 755,564 | $ | 745,555 | ||||
(4) Allowance for Loan Losses
Management has an established methodology to determine the adequacy of the allowance for
loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes
of determining the allowance for loan losses, the Corporation has segmented certain loans in
the portfolio by product type. Loans are segmented into the following pools: Commercial and
Agricultural loans, Commercial Real Estate loans, Real Estate Mortgage loans, Real Estate
Construction loans and Consumer loans. Historical loss percentages for each risk category
are calculated and used as the basis for calculating loan loss allowance allocations. These
historical loss percentages are calculated over a three-year period for all portfolio
segments. Certain economic factors are also considered for trends which management uses to
establish the directionality of changes to the unallocated portion of the reserve. The
following economic factors are analyzed:
| Changes in economic and business conditions |
||
| Changes in lending policies and procedures |
||
| Changes in experience and depth of lending and management staff |
||
| Changes in concentrations within the loan portfolio |
||
| Changes in past due, classified and nonaccrual loans and Troubled |
||
Debt Restructurings (TDRs) |
|||
| Changes in quality of Citizens credit review system |
||
| Changes in competition or legal and regulatory requirements |
Page 15
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
The total allowance reflects managements estimate of loan losses inherent in the loan
portfolio at the balance sheet date. The Corporation considers the allowance for loan
losses of $22,687 adequate to cover loan losses inherent in the loan portfolio, at September
30, 2011. The following tables present by portfolio segment, the changes in the allowance
for loan losses and the loan balances outstanding for the period ended September 30, 2011
and December 31, 2010. Management has reviewed its analysis of the allowance for loan
losses and made modifications to the beginning balances in this table. The analysis at
December 31, 2010 was based on information available at the time. Since then we have
improved our information systems and management reporting tools to allow us to better
segregate the portfolio. In order to consistently provide this information, we have
adjusted the beginning balances to correspond with the current methodology. The allowance
for Real Estate Construction loans was reduced not only by charge-offs, but also due to a
decrease in both the loan balances outstanding and the historical charge-offs for this type.
The net result of these changes was a reduction in the allowance for this loan type and is
represented as a decrease in the provision. The allowance related to the unallocated
segment was also reduced.
Commercial | Commercial | Residential | Real Estate | |||||||||||||||||||||||||
& Agriculture | Real Estate | Real Estate | Construction | Consumer | Unallocated | Total | ||||||||||||||||||||||
For the three months
ending September 30, 2011 |
||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||
Beginning balance |
$ | 2,821 | $ | 10,713 | $ | 6,184 | $ | 1,196 | $ | 670 | $ | 165 | $ | 21,749 | ||||||||||||||
Charge-offs |
(145 | ) | (710 | ) | (703 | ) | | (42 | ) | | (1,600 | ) | ||||||||||||||||
Recoveries |
111 | 166 | 136 | 98 | 27 | | 538 | |||||||||||||||||||||
Provision |
1,162 | 284 | 336 | (83 | ) | (21 | ) | 322 | 2,000 | |||||||||||||||||||
Ending Balance |
$ | 3,949 | $ | 10,453 | $ | 5,953 | $ | 1,211 | $ | 634 | $ | 487 | $ | 22,687 | ||||||||||||||
Commercial | Commercial | Residential | Real Estate | |||||||||||||||||||||||||
& Agriculture | Real Estate | Real Estate | Construction | Consumer | Unallocated | Total | ||||||||||||||||||||||
For the nine months
ending September 30, 2011 |
||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||
Beginning balance |
$ | 3,639 | $ | 9,827 | $ | 4,569 | $ | 2,139 | $ | 726 | $ | 868 | $ | 21,768 | ||||||||||||||
Charge-offs |
(1,053 | ) | (2,926 | ) | (3,126 | ) | (778 | ) | (151 | ) | | (8,034 | ) | |||||||||||||||
Recoveries |
284 | 299 | 245 | 348 | 77 | | 1,253 | |||||||||||||||||||||
Provision |
1,079 | 3,253 | 4,265 | (498 | ) | (18 | ) | (381 | ) | 7,700 | ||||||||||||||||||
Ending Balance |
$ | 3,949 | $ | 10,453 | $ | 5,953 | $ | 1,211 | $ | 634 | $ | 487 | $ | 22,687 | ||||||||||||||
Page 16
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
The allowance for loan losses activity is summarized for the three and nine month periods
ended September 30, 2010 as follows.
Three | Nine | |||||||
Months | Months | |||||||
Ended | Ended | |||||||
Balance beginning of period |
$ | 18,932 | $ | 15,271 | ||||
Loans charged-off |
(4,085 | ) | (9,030 | ) | ||||
Recoveries |
653 | 919 | ||||||
Provision for loan losses |
6,100 | 14,440 | ||||||
Balance Seotember 30, 2010 |
$ | 21,600 | $ | 21,600 | ||||
Commercial | Commercial | Residential | Real Estate | |||||||||||||||||||||||||
& Agriculture | Real Estate | Real Estate | Construction | Consumer | Unallocated | Total | ||||||||||||||||||||||
September 30, 2011 |
||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Individually evaluated
for impairment |
$ | 2,107 | $ | 3,517 | $ | 388 | $ | 176 | $ | 364 | $ | | $ | 6,552 | ||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Collectively evaluated
for impairment |
$ | 1,842 | $ | 6,936 | $ | 5,565 | $ | 1,035 | $ | 270 | $ | 487 | $ | 16,135 | ||||||||||||||
Loan balances outstanding: |
||||||||||||||||||||||||||||
Ending Balance |
$ | 85,680 | $ | 359,731 | $ | 282,412 | $ | 38,767 | $ | 11,661 | $ | 778,251 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Individually evaluated
for impairment |
$ | 5,474 | $ | 16,992 | $ | 3,995 | $ | 834 | $ | | $ | 27,295 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Collectively evaluated
for impairment |
$ | 80,206 | $ | 342,739 | $ | 278,417 | $ | 37,933 | $ | 11,661 | $ | 750,956 | ||||||||||||||||
Page 17
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Commercial | Commercial | Residential | Real Estate | |||||||||||||||||||||||||
& Agriculture | Real Estate | Real Estate | Construction | Consumer | Unallocated | Total | ||||||||||||||||||||||
December 31, 2010 |
||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Individually evaluated
for impairment |
$ | 1,322 | $ | 1,384 | $ | 355 | $ | 375 | $ | 427 | $ | | $ | 3,863 | ||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Collectively evaluated
for impairment |
$ | 3,055 | $ | 4,220 | $ | 8,307 | $ | 1,156 | $ | 299 | $ | 868 | $ | 17,905 | ||||||||||||||
Loan balances outstanding: |
||||||||||||||||||||||||||||
Ending Balance |
$ | 84,913 | $ | 336,251 | $ | 295,038 | $ | 39,341 | $ | 11,780 | $ | 767,323 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Individually evaluated
for impairment |
$ | 5,925 | $ | 7,814 | $ | 2,347 | $ | 1,821 | $ | 1,266 | $ | 19,173 | ||||||||||||||||
Ending balance: |
||||||||||||||||||||||||||||
Collectively evaluated
for impairment |
$ | 78,988 | $ | 328,437 | $ | 292,691 | $ | 37,520 | $ | 10,514 | $ | 748,150 | ||||||||||||||||
The following table represents credit exposures by internally assigned grades for the period
ended September 30, 2011 and December 31, 2010. The grading analysis estimates the
capability of the borrower to repay the contractual obligations of the loan agreements as
scheduled or at all. The Corporations internal credit risk grading system is based on
experiences with similarly graded loans.
The Corporations internally assigned grades are as follows:
| Pass loans which are protected by the current net worth and paying
capacity of the obligor or by the value of the underlying collateral. |
||
| Special Mention loans where a potential weakness or risk exists,
which could cause a more serious problem if not corrected. |
||
| Substandard loans that have a well-defined weakness based on
objective evidence and are characterized by the distinct possibility that Citizens
will sustain some loss if the deficiencies are not corrected. |
||
| Doubtful loans classified as doubtful have all the weaknesses
inherent in a substandard asset. In addition, these weaknesses make collection or
liquidation in full highly questionable and improbable, based on existing
circumstances. |
||
| Loss loans classified as a loss are considered uncollectible, or of
such value that continuance as an asset is not warranted. |
||
| Unrated Generally, consumer loans are not risk-graded, except when
collateral is used for a business purpose. |
Page 18
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Commercial | Commercial | Residential | Real Estate | Consumer | ||||||||||||||||||||
September 30, 2011 | & Agriculture | Real Estate | Real Estate | Construction | and Other | Total | ||||||||||||||||||
Pass |
$ | 71,389 | $ | 309,086 | $ | 99,733 | $ | 29,366 | $ | 1,214 | $ | 510,788 | ||||||||||||
Special Mention |
2,015 | 12,761 | 5,591 | 754 | | 21,121 | ||||||||||||||||||
Substandard |
12,276 | 37,884 | 14,055 | 6,194 | | 70,409 | ||||||||||||||||||
Doubtful |
| | | | | | ||||||||||||||||||
Ending Balance |
$ | 85,680 | $ | 359,731 | $ | 119,379 | $ | 36,314 | $ | 1,214 | $ | 602,318 | ||||||||||||
Commercial | Commercial | Residential | Real Estate | Consumer | ||||||||||||||||||||
December 31, 2010 | & Agriculture | Real Estate | Real Estate | Construction | and Other | Total | ||||||||||||||||||
Pass |
$ | 70,825 | $ | 284,083 | $ | 111,248 | $ | 28,815 | $ | 556 | $ | 495,527 | ||||||||||||
Special Mention |
2,972 | 12,674 | 2,821 | 937 | | 19,404 | ||||||||||||||||||
Substandard |
11,116 | 39,416 | 16,482 | 7,492 | 44 | 74,550 | ||||||||||||||||||
Doubtful |
| 78 | | | | 78 | ||||||||||||||||||
Ending Balance |
$ | 84,913 | $ | 336,251 | $ | 130,551 | $ | 37,244 | $ | 600 | $ | 589,559 | ||||||||||||
The following tables present performing and nonperforming loans based solely on payment
activity for the period ended September 30, 2011 and December 31, 2010 that have not been
assigned an internal risk grade. Payment activity is reviewed by management on a monthly
basis to determine how loans are performing. Loans are considered to be nonperforming when
they become 90 days past due. Nonperforming loans also include certain loans that have been
modified in Troubled Debt Restructurings (TDRs) where economic concessions have been granted
to borrowers who have experienced or are expected to experience financial difficulties.
These concessions typically result from the Corporations loss mitigation activities and
could include reductions in the interest rate, payment extensions, forgiveness of principal,
forbearance or other actions. Certain TDRs are classified as nonperforming at the time of
restructure and may only be returned to performing status after considering the borrowers
sustained repayment
performance for a reasonable period, generally six months.
Residential | Real Estate | Consumer | ||||||||||||||
Real Estate | Construction | and Other | Total | |||||||||||||
September 30, 2011 |
||||||||||||||||
Performing |
$ | 162,202 | $ | 2,453 | $ | 10,436 | $ | 175,091 | ||||||||
Nonperforming |
831 | | 11 | 842 | ||||||||||||
Total |
$ | 163,033 | $ | 2,453 | $ | 10,447 | $ | 175,933 | ||||||||
Page 19
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Residential | Real Estate | Consumer | ||||||||||||||
Real Estate | Construction | and Other | Total | |||||||||||||
December 31, 2010 |
||||||||||||||||
Performing |
$ | 162,702 | $ | 2,097 | $ | 11,169 | $ | 175,968 | ||||||||
Nonperforming |
1,785 | | 11 | 1,796 | ||||||||||||
Total |
$ | 164,487 | $ | 2,097 | $ | 11,180 | $ | 177,764 | ||||||||
Following is a table which includes an aging analysis of the recorded investment of past due
loans outstanding as of September 30, 2011 and December 31, 2010.
30-59 | 60-89 | 90 Days | ||||||||||||||||||||||||||
Days | Days | or | Total | Total | ||||||||||||||||||||||||
September 30, 2011 | Past Due | Past Due | Greater | Past Due | Current | Nonaccrual | Loans | |||||||||||||||||||||
Commericial & Agriculture |
$ | 139 | $ | 274 | $ | 406 | $ | 819 | $ | 81,366 | $ | 3,495 | $ | 85,680 | ||||||||||||||
Commercial Real Estate |
2,718 | 3,407 | 194 | 6,319 | 341,494 | 11,918 | 359,731 | |||||||||||||||||||||
Residential Real Estate |
752 | 726 | 769 | 2,247 | 271,239 | 8,926 | 282,412 | |||||||||||||||||||||
Real Estate Construction |
1,067 | 47 | | 1,114 | 37,006 | 647 | 38,767 | |||||||||||||||||||||
Consumer and Other |
73 | 35 | 7 | 115 | 11,546 | | 11,661 | |||||||||||||||||||||
Total |
$ | 4,749 | $ | 4,489 | $ | 1,376 | $ | 10,614 | $ | 742,651 | $ | 24,986 | $ | 778,251 | ||||||||||||||
30-59 | 60-89 | 90 Days | ||||||||||||||||||||||||||
Days | Days | or | Total | Total | ||||||||||||||||||||||||
December 31, 2010 | Past Due | Past Due | Greater | Past Due | Current | Nonaccrual | Loans | |||||||||||||||||||||
Commericial & Agriculture |
$ | 471 | $ | 309 | $ | 904 | $ | 1,684 | $ | 80,568 | $ | 2,661 | $ | 84,913 | ||||||||||||||
Commercial Real Estate |
3,467 | 39 | 349 | 3,855 | 324,337 | 8,059 | 336,251 | |||||||||||||||||||||
Residential Real Estate |
3,042 | 340 | 382 | 3,764 | 281,688 | 9,586 | 295,038 | |||||||||||||||||||||
Real Estate Construction |
258 | 246 | 581 | 1,085 | 36,387 | 1,869 | 39,341 | |||||||||||||||||||||
Consumer and Other |
118 | 39 | 25 | 182 | 11,598 | | 11,780 | |||||||||||||||||||||
Total |
$ | 7,356 | $ | 973 | $ | 2,241 | $ | 10,570 | $ | 734,578 | $ | 22,175 | $ | 767,323 | ||||||||||||||
Page 20
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Loan modifications that are considered troubled debt restructurings completed during the
quarters and nine month periods ended September 20, 2011 were as follows:
For the Quarter Ended September 30, 2011 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Number | Outstanding | Outstanding | ||||||||||
of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
Commericial & Agriculture |
| $ | | $ | | |||||||
Commercial Real Estate |
| | | |||||||||
Residential Real Estate |
1 | 143 | 144 | |||||||||
Real Estate Construction |
| | | |||||||||
Consumer and Other |
| | | |||||||||
Total Loan Modifications |
1 | $ | 143 | $ | 144 | |||||||
For the Nine Month Period Ended September 30, 2011 | ||||||||||||
Pre- | Post- | |||||||||||
Modification | Modification | |||||||||||
Number | Outstanding | Outstanding | ||||||||||
of | Recorded | Recorded | ||||||||||
Contracts | Investment | Investment | ||||||||||
Commericial & Agriculture |
| $ | | $ | | |||||||
Commercial Real Estate |
| | | |||||||||
Residential Real Estate |
1 | 143 | 144 | |||||||||
Real Estate Construction |
| | | |||||||||
Consumer and Other |
| | | |||||||||
Total Loan Modifications |
1 | $ | 143 | $ | 144 | |||||||
Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan,
results in the loan once again becoming a non-accrual loan. Recidivism occurs at a notably
higher rate than do defaults on new originations loans, so modified loans present a higher
risk of loss than do new origination loans.
During the nine month period ended September 30, 2011, no loans modified and considered TDRs
made during the twelve months previous to September 30, 2011, have defaulted.
Impaired Loans: Larger (greater than $350) commercial loans and commercial real
estate loans, many of which are 60 days or more past due, are tested for impairment. These
loans are analyzed to determine if it is probable that all amounts will not be collected
according to the contractual terms of the loan agreement. If management determines that the
value of the impaired loan is less than the recorded investment in the loan (net of previous
charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is
recognized through an allowance estimate or a charge-off to the allowance.
Page 21
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Nonaccrual Loans: Loans are considered for nonaccrual status upon reaching 90 days
delinquency, unless the loan is well secured and in the process of collection, although the
Corporation may be receiving partial payments of interest and partial repayments of
principal on such loans. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest is deducted from interest income.
The following table includes the recorded investment and unpaid principal balances for
impaired financing receivables with the associated allowance amount, if applicable as of
September 30, 2011 and December 31, 2010.
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
September 30, 2011 | Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 1,858 | $ | 1,950 | $ | | $ | 1,829 | $ | 123 | ||||||||||
Commercial Real Estate |
2,482 | 3,561 | | 2,936 | 223 | |||||||||||||||
Residential Real Estate |
1,115 | 1,115 | | 988 | 55 | |||||||||||||||
Real Estate Construction |
| | | 667 | | |||||||||||||||
Consumer and Other |
| | | | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 3,616 | $ | 4,175 | $ | 1,893 | $ | 2,789 | $ | 207 | ||||||||||
Commercial Real Estate |
14,510 | 16,220 | 3,706 | 10,039 | 711 | |||||||||||||||
Residential Real Estate |
2,880 | 3,447 | 776 | 2,586 | 139 | |||||||||||||||
Real Estate Construction |
834 | 1,362 | 176 | 893 | 41 | |||||||||||||||
Consumer and Other |
| | | | | |||||||||||||||
Total: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 5,474 | $ | 6,125 | $ | 1,893 | $ | 4,618 | $ | 330 | ||||||||||
Commercial Real Estate |
16,992 | 19,781 | 3,706 | 12,975 | 934 | |||||||||||||||
Residential Real Estate |
3,995 | 4,562 | 776 | 3,574 | 194 | |||||||||||||||
Real Estate Construction |
834 | 1,362 | 176 | 1,560 | 41 | |||||||||||||||
Consumer and Other |
| | | | |
Page 22
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
December 31, 2010 | Investment | Balance | Allowance | Investment | Recognized | |||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 2,259 | $ | 2,259 | $ | | $ | 3,129 | $ | 24 | ||||||||||
Commercial Real Estate |
1,849 | 1,849 | | 5,579 | 11 | |||||||||||||||
Residential Real Estate |
635 | 635 | | 2,035 | 31 | |||||||||||||||
Real Estate Construction |
477 | 477 | | 293 | 34 | |||||||||||||||
Consumer and Other |
125 | 125 | | 125 | | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 3,346 | $ | 3,665 | $ | 1,322 | $ | 1,612 | $ | 191 | ||||||||||
Commercial Real Estate |
4,582 | 5,966 | 1,384 | 4,569 | 256 | |||||||||||||||
Residential Real Estate |
1,357 | 1,712 | 355 | 1,146 | 69 | |||||||||||||||
Real Estate Construction |
969 | 1,344 | 375 | 1,377 | 7 | |||||||||||||||
Consumer and Other |
1,145 | 1,141 | 427 | 1,145 | 31 | |||||||||||||||
Total: |
||||||||||||||||||||
Commericial & Agriculture |
$ | 5,605 | $ | 5,924 | $ | 1,322 | $ | 4,741 | $ | 215 | ||||||||||
Commercial Real Estate |
6,431 | 7,815 | 1,384 | 10,148 | 267 | |||||||||||||||
Residential Real Estate |
1,992 | 2,347 | 355 | 3,181 | 100 | |||||||||||||||
Real Estate Construction |
1,446 | 1,821 | 375 | 1,670 | 41 | |||||||||||||||
Consumer and Other |
1,270 | 1,266 | 427 | 1,270 | 31 |
Page 23
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(5) Earnings per Common Share:
Basic earnings per share are net income available to common shareholders divided by the
weighted average number of common shares outstanding during the period. Diluted earnings
per common share include the dilutive effect, if any, of additional potential common shares
issuable under stock options, computed using the treasury stock method.
Three months ended | Nine months ended | |||||||||||||||
September 30, | Septmeber 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic |
||||||||||||||||
Net income (loss) |
$ | 1,193 | $ | (1,393 | ) | $ | 2,469 | $ | (1,616 | ) | ||||||
Preferred stock dividends and discount accretion |
293 | 289 | 881 | 867 | ||||||||||||
Net income (loss) available to common
shareholders |
$ | 900 | $ | (1,682 | ) | $ | 1,588 | $ | (2,483 | ) | ||||||
Weighted average common shares outstanding |
7,707,917 | 7,707,917 | 7,707,917 | 7,707,917 | ||||||||||||
Basic earnings per common share |
$ | 0.12 | $ | (0.22 | ) | $ | 0.21 | $ | (0.32 | ) | ||||||
Diluted |
||||||||||||||||
Net income (loss) |
$ | 1,193 | $ | (1,393 | ) | $ | 2,469 | $ | (1,616 | ) | ||||||
Preferred stock dividends and discount accretion |
293 | 289 | 881 | 867 | ||||||||||||
Net income (loss) available to common
shareholders |
$ | 900 | $ | (1,682 | ) | $ | 1,588 | $ | (2,483 | ) | ||||||
Weighted average common shares outstanding
for basic earnings per common share |
7,707,917 | 7,707,917 | 7,707,917 | 7,707,917 | ||||||||||||
Add: Dilutive effects of assumed exercises of
stock options |
| | | | ||||||||||||
Average shares and dilutive potential
common shares outstanding |
7,707,917 | 7,707,917 | 7,707,917 | 7,707,917 | ||||||||||||
Diluted earnings per common share |
$ | 0.12 | $ | (0.22 | ) | $ | 0.21 | $ | (0.32 | ) | ||||||
Stock options for 29,500 common shares and warrants for 469,312 common shares were not
considered in computing diluted earnings per common share for the three and nine-month
periods ended September 30, 2011 and September 30, 2010 because they were anti-dilutive.
Page 24
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(6) 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 September 30, 2011 and December 31, 2010:
Contract Amount | ||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Fixed | Variable | Fixed | Variable | |||||||||||||
Rate | Rate | Rate | Rate | |||||||||||||
Commitment to extend credit: |
||||||||||||||||
Lines of credit and construction loans |
$ | 7,607 | $ | 106,945 | $ | 3,161 | $ | 98,083 | ||||||||
Overdraft protection |
1,353 | 17,722 | | 12,500 | ||||||||||||
Letters of credit |
200 | 439 | 275 | 1,288 | ||||||||||||
$ | 9,160 | $ | 125,106 | $ | 3,436 | $ | 111,871 | |||||||||
Commitments to make loans are generally made for a period of one year or less. Fixed rate
loan commitments included in the table above had interest rates ranging from 1.75% to 15.0%
at September 30, 2011 and December 31, 2010. Maturities extend up to 30 years.
Citizens is 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 was $1,123 on September 30, 2011 and $3,585 on December 31, 2010.
Page 25
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(7) Pension Information
Net periodic pension expense was as follows:
Three months ended | Nine months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 212 | $ | 210 | $ | 635 | $ | 630 | ||||||||
Interest cost |
203 | 190 | 611 | 570 | ||||||||||||
Expected return on plan assets |
(206 | ) | (151 | ) | (620 | ) | (453 | ) | ||||||||
Other components |
85 | 65 | 257 | 194 | ||||||||||||
Net periodic pension cost |
$ | 294 | $ | 314 | $ | 883 | $ | 941 | ||||||||
The total amount of contributions expected to be paid by the Corporation in 2011 total
$1,152, compared to $2,016 in 2010.
(8) Stock Options
Options to buy stock may be granted to directors, officers and employees under the
Corporations Stock Option and Stock Appreciation Rights Plan, which provided for issue of
up to 225,000 options. The exercise price of stock options is determined based on the
market price of the Corporations common shares at the date of grant. The maximum option
term is ten years, and options normally vest after three years.
The Corporation did not grant any stock options during the first nine months of 2011 or
2010, nor did any stock options become vested during the first nine months of 2011 or 2010.
The Corporations Stock Option and Stock Appreciation Rights Plan expired in 2010, and no
further stock options or other awards may be granted by the Corporation under such plan.
Page 26
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
A summary of the activity in the plan is as follows:
Nine months ended | Nine months ended | |||||||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||||||
Total options | Total options | |||||||||||||||
outstanding | outstanding | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Price | Price | |||||||||||||||
Shares | Per Share | Shares | Per Share | |||||||||||||
Outstanding at beginning of year |
29,500 | $ | 25.42 | 29,500 | $ | 25.42 | ||||||||||
Granted |
| | | | ||||||||||||
Exercised |
| | | | ||||||||||||
Forfeited |
| | | | ||||||||||||
Options outstanding, end of period |
29,500 | $ | 25.42 | 29,500 | $ | 25.42 | ||||||||||
Options exercisable, end of period |
29,500 | $ | 25.42 | 29,500 | $ | 25.42 | ||||||||||
The following table details stock options outstanding:
Outstanding Options | ||||||||||||
Weighted | ||||||||||||
Average | Weighted | |||||||||||
Remaining | Average | |||||||||||
Contractual | Exercise | |||||||||||
Exercise price | Number | Life | Price | |||||||||
$20.50 |
19,500 | 9 mos. | $ | 20.50 | ||||||||
$35.00 |
10,000 | 1 yrs. 6.5 mos. | 35.00 | |||||||||
Outstanding at quarter-end |
29,500 | 1 yr. 0 mos. | $ | 25.42 | ||||||||
The intrinsic value for stock options is calculated based on the exercise price of the
underlying awards and the market price of our common shares as of the reporting date. As of
September 30, 2011 and December 31, 2010, the aggregate intrinsic value of outstanding stock
options was $0.
Page 27
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
(9) Fair Value Measurement
The Corporation uses a fair value hierarchy to measure fair value. The topic describes
three levels of inputs that may be used to measure fair value. Level 1: Quoted prices for
identical assets in active markets that are identifiable on the measurement date; Level 2:
Significant other observable inputs, such as quoted prices for similar assets, quoted prices
in markets that are not active and other inputs that are observable or can be corroborated
by observable market data; Level 3: Significant unobservable inputs that reflect the
Corporations own view about the assumptions that market participants would use in pricing
an asset.
Securities: The fair values of securities available for sale are determined by matrix
pricing, which is a mathematical technique widely used in the industry to value debt
securities without relying exclusively on quoted prices for the specific securities, but
rather by relying on the securities relationship to other benchmark quoted securities
(Level 2 inputs). Management uses significant unobservable inputs to determine the fair
value of one security (Level 3 inputs).
Equity securities: The fair values of equity securities available for sale are determined
by review of quoted prices for the specific securities, when available (Level 1 inputs).
Impaired loans: The fair values of impaired loans are determined using the fair values of
collateral for collateral dependent loans. The Corporation uses appraisals and other
available data to estimate the fair value of collateral (Level 3 inputs).
Other real estate owned: The fair value of other real estate owned is determined using the
fair value of collateral. The Corporation uses appraisals and other available data to
estimate the fair value of collateral (Level 3 inputs).
Page 28
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Assets measured at fair value are summarized below.
Fair Value Measurements at September 30, 2011 Using: | ||||||||||||
Quoted Prices in | Significant | |||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets: |
||||||||||||
Assets measured at fair value on a recurring basis: |
||||||||||||
U.S. Treasury securities and obligations
of U.S. Government agencies |
$ | | $ | 52,031 | $ | | ||||||
Obligations of states and political
subdivisions |
| 65,934 | 526 | |||||||||
Mortgage-backed securities in
government sponsored entities |
| 90,541 | | |||||||||
Equity securities in financial institutions |
676 | | | |||||||||
Assets measured at fair value on a nonrecurring basis: |
||||||||||||
Impaired loans |
$ | | $ | | $ | 20,744 | ||||||
Other real estate owned |
| | 1,080 |
Fair Value Measurements at December 31, 2010 Using: | ||||||||||||
Quoted Prices in | Significant | |||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets: |
||||||||||||
Assets measured at fair value on a
recurring basis: |
||||||||||||
U.S. Treasury securities and obligations
of U.S. Government agencies |
$ | | $ | 55,707 | $ | | ||||||
Obligations of states and political
subdivisions |
| 59,909 | 560 | |||||||||
Mortgage-backed securities in
government sponsored agencies |
| 68,100 | | |||||||||
Equity securities in financial institutions |
676 | | | |||||||||
Assets measured at fair value on a
nonrecurring basis: |
||||||||||||
Impaired loans |
$ | | $ | | $ | 15,310 | ||||||
Other real estate owned |
| 1,795 | |
Page 29
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The following table presents the changes in the Level 3 fair-value category for the period
ended September 30, 2011. The Corporation classifies financial instruments in Level 3 of
the fair value hierarchy when there is reliance on at least one significant unobservable
input to the valuation model. In addition to the unobservable inputs, the valuation models
for Level 3 financial instruments typically also rely on a number of inputs that are readily
observable, either directly or indirectly.
Securities available for sale |
||||
Beginning balance January 1, 2011 |
$ | 560 | ||
Principal payments |
(34 | ) | ||
Ending balance September 30, 2011 |
$ | 526 |
The carrying amount and fair values of financial instruments not previously presented were
as follows.
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Financial Assets: |
||||||||||||||||
Cash and due from financial institutions |
$ | 85,749 | $ | 85,749 | $ | 79,030 | $ | 79,030 | ||||||||
Other securities |
15,388 | 15,388 | 15,344 | 15,344 | ||||||||||||
Loans, available for sale |
483 | 483 | | | ||||||||||||
Loans, net of allowance for loan losses |
755,564 | 769,402 | 745,555 | 763,768 | ||||||||||||
Accrued interest receivable |
5,061 | 5,061 | 4,382 | 4,382 | ||||||||||||
Financial Liabilities: |
||||||||||||||||
Deposits |
911,762 | 914,474 | 892,463 | 895,950 | ||||||||||||
Federal Home Loan Bank advances |
70,303 | 73,369 | 50,327 | 53,162 | ||||||||||||
U.S. Treasury interest-bearing demand
note payable |
2,339 | 2,339 | 2,008 | 2,008 | ||||||||||||
Securities sold under agreement
to repurchase |
19,283 | 19,283 | 21,842 | 21,842 | ||||||||||||
Subordinated debentures |
29,427 | 21,059 | 29,427 | 15,883 | ||||||||||||
Accrued interest payable |
344 | 344 | 362 | 362 |
Page 30
Table of Contents
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
The fair value approximates carrying amount for all items except those described below. The
fair value for securities is based on quoted market values for the individual securities or
for equivalent securities. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using
current market rates applied to the cash flow analysis or underlying collateral values.
Fair value of debt is based on current rates for similar financing. The fair value of
off-balance-sheet items is based on the current fees or cost that would be charged to enter
into or terminate such arrangements and are considered nominal.
For certain homogeneous categories of loans, such as some residential mortgages, credit card
receivables, and other consumer loans, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
(10) Participation in the Treasury Capital Purchase Program
On January 23, 2009, the Corporation completed the sale to the U.S. Treasury of $23,184 of
newly-issued non-voting preferred shares as part of the Capital Purchase Program (CPP)
enacted by the U.S. Treasury as part of the Troubled Assets Relief Program (TARP) under the
Emergency Economic Stabilization Act of 2008 (EESA). To finalize the Corporations
participation in the CPP, the Corporation and the Treasury entered into a Letter Agreement,
dated January 23, 2009, including the Securities Purchase Agreement Standard Terms
attached thereto. Pursuant to the terms of the Securities Purchase Agreement, the
Corporation issued and sold to Treasury (1) 23,184 shares of Fixed Rate Cumulative Perpetual
Preferred Shares, Series A, each without par value and having a liquidation preference of
$1,000 per share (Series A Preferred Shares), and (2) a Warrant to purchase 469,312 common
shares of the Corporation, each without par value, at an exercise price of $7.41 per share.
The Warrant has a ten-year term. All of the proceeds from the sale of the Series A
Preferred Shares and the Warrant by the Corporation to the U.S. Treasury under the CPP
qualify as Tier 1 capital for regulatory purposes. Under the standardized CPP terms,
cumulative dividends on the Series A Preferred Shares will accrue on the liquidation
preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum
thereafter, but will be paid only if, as and when declared by the Corporations Board of
Directors. The Series A Preferred Shares have no maturity date and rank senior to the
common shares with respect to the payment of dividends and distributions and amounts payable
upon liquidation, dissolution and winding up of the Corporation.
Page 31
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
The following discussion focuses on the consolidated financial condition of the Corporation
at September 30, 2011 compared to December 31, 2010 and the consolidated results of
operations for the three and nine-month periods ended September 30, 2011, compared to the
same period in 2010. This discussion should be read in conjunction with the consolidated
financial statements and footnotes included in this Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements by the Corporation
relating to various matters, including, without limitation, anticipated operating results,
business line results, credit quality expectations, prospects for new lines of business,
economic trends (including interest rates) and similar matters. Such statements are based
upon the current beliefs and expectations of the Corporations management and are subject to
risks and uncertainties. While the Corporation believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the assumptions could
prove to be inaccurate, and accordingly, actual results and experiences could differ
materially from the anticipated results or other expectations expressed by the Corporation
in its forward-looking statements. Factors that could cause actual results or experiences
to differ from results discussed in the forward-looking statements include, but are not
limited to, regional and national economic conditions; volatility and direction of market
interest rates; credit risks of lending activities, governmental legislation and regulation,
including changes in accounting regulation or standards; material unforeseen changes in the
financial condition or results of operations of the Corporations clients; increases in FDIC
insurance premiums and assessments; and other risks identified from time-to-time in the
Corporations other public documents on file with the SEC, including those risks identified
in Item 1A of Part 1 of the Corporations Annual Report on Form 10-K.
The Corporation does not undertake, and specifically disclaims, any obligation to publicly
release the result of any revisions that may be made to any forward-looking statements to
reflect occurrence of anticipated or unanticipated events or circumstances after the date of
such statements, except as required by law.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements, and the purpose of this section is to secure the use of the safe
harbor provisions.
Financial Condition
Total assets of the Corporation at September 30, 2011 were $1,145,185 compared to
$1,100,622 at December 31, 2010, an increase of $44,563, or 4.0 percent. The increase in
total assets was mainly attributed to increased investment securities and loans. Total
liabilities at September 30, 2011 were $1,042,649 compared to $1,003,672 at December 31,
2010, an increase of $38,977, or 3.9
percent. The increase in total liabilities was mainly attributed to increases in non
interest-bearing deposits and Federal Home Loan Bank (FHLB) advances.
Page 32
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Net loans have increased $10,009 or 1.3 percent since December 31, 2010. The commercial and
agricultural, commercial real estate, and other portfolios increased $767, $23,480, and
$628, respectively, since December 31, 2010. The real estate, real estate construction, and
consumer loan portfolios decreased $12,626, $574, and $747, respectively. The current
increase in commercial real estate loans is mainly due to increased opportunities from our
larger markets and calling efforts by the commercial lending officers. The current decrease
in real estate, real estate construction and consumer loans is mainly the result of the
economic downturn and high unemployment rates in our market area, coupled with the
Corporations decision to originate and sell the majority of mortgage loans in the secondary
market and a decline in the demand for construction loans.
The Corporation had $483 loans held for sale at September 30, 2011. The Corporation had no
loans held for sale at December 31, 2010. At September 30, 2011, the net loan to deposit
ratio was 82.9 percent compared to 83.5 percent at December 31, 2010. This ratio has
declined in 2011 due to increased deposits.
For the nine months of operations in 2011, $7,700 was placed into the allowance for loan
losses from earnings, compared to $14,440 in the same period of 2010. The economic downturn
and high unemployment rates in our market area continue to stress the ability of some
customers to make payments on their loans. Although specific reserves required increases
compared to December 31, 2010, general reserves declined during the same period. However,
detailed analyses of potential losses in the loan portfolio indicated that a reduced
provision was appropriate. Net charge-offs have decreased to $6,781, compared to $8,111 in
2010 as both the amount of gross charge-offs and the number of charge-offs have decreased.
For the year the Corporation has charged off one hundred and seventy-five loans. One
hundred five Real Estate Mortgages totaling $2,881 net of recoveries, eighteen Commercial
Real Estate loans totaling $2,627 net of recoveries, eighteen Commercial and Agriculture
loans totaling $769 net of recoveries, and two Real Estate Construction loans totaling $430
were charged off in the first nine months of the year. In addition, thirty-two Consumer
loans were charged off, although the net amount charged off was only $74. For each loan
category, except Real Estate Construction, as well as in total, the percentage of net
charge-offs to loans was less than one percent. Real Estate Constructions percentage of
net charge-offs to loans was 1.1 percent. Nonperforming loans have increased by $1,946, of
which $865 was due to a decrease in loans past due 90 days but still accruing and $2,811 was
due to an increase in loans on nonaccrual status. Each of these factors was considered by
management as part of the examination of both the level and mix of the allowance by loan
type as well as the overall level of the allowance. Management specifically evaluates loans
that are impaired, or graded as doubtful by the internal grading function for estimates of
loss. To evaluate the adequacy of the allowance for loan losses to cover probable losses in
the portfolio, management considers specific reserve allocations for identified portfolio
loans, reserves for delinquencies and historical reserve allocations. The composition and
overall level of the loan portfolio and charge-off activity are also factors used to
determine the amount of the allowance for loan losses.
Page 33
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Management analyzes commercial and commercial real estate loans, with balances of $350 or
larger, on an individual basis and classifies a loan as impaired when an analysis of the
borrowers operating results and financial condition indicates that underlying cash flows
are not adequate to meet its debt service requirements. Often this is associated with a
delay or shortfall in payments of 90 days or more. In addition, loans held for sale and
leases are excluded from consideration as impaired. Loans are generally moved to nonaccrual
status when 90 days or more past due. Impaired loans, or portions thereof, are charged-off
when deemed uncollectible.
The allowance for loan losses as a percent of total loans was 2.92 at September 30, 2011 and
2.84 percent at December 31, 2010.
The available for sale security portfolio increased by $24,756, from $184,952 at December
31, 2010, to $209,708 at September 30, 2011. The increase is the result of additional
securities purchases made in the first quarter above scheduled maturities and reinvestment
of profits. These purchases were made to generate additional asset yield but did not
significantly change the characteristics of the portfolio. The Corporation continued
utilizing letters of credit from the Federal Home Loan Bank (FHLB) to replace maturing
securities that were pledged for public entities. As of September 30, 2011, the Corporation
was in compliance with all pledging requirements.
Bank owned life insurance (BOLI) increased $5,477 from December 31, 2010 to September 30,
2011 due to the purchase of $5,000 of additional BOLI and to income earned on the BOLI
investments. BOLI was purchased as an alternative to replacing maturing securities, and is
being used to help recover employee costs, including healthcare, group term life, and 401(k)
expenses.
Office premises and equipment, net, have decreased $91 from December 31, 2010 to September
30, 2011, as a result of depreciation of $1,145 and disposals of $48, offset by new
purchases of $1,102.
Total deposits at September 30, 2011 increased $19,299 from year-end 2010.
Noninterest-bearing deposits increased $16,535 from year-end 2010, while interest-bearing
deposits, including savings and time deposits, increased $2,764 from December 31, 2010. The
primary reason for the increase in noninterest-bearing deposits was due to an increase in
commercial accounts, which tend to fluctuate. The interest-bearing deposit increase was due
to an increase in savings accounts and time certificates offset by decreases in the
Corporations participation in the Certificate of Deposit Account Registry Service (CDARS),
interest bearing demand deposit accounts and individual retirement accounts (IRA). Savings
accounts increased $19,723 from year-end 2010, which included increases of $7,037 in
statement savings, $6,946 in money market savings and $5,155 in public fund money market
savings. Interest bearing-deposits, CDARS and IRA deposits decreased $18,763 from year end
2010, which included decreases of $7,074 in interest-bearing deposits, $4,238 in CDARS
accounts and $7,451 in IRA accounts. The year-to-date average balance of total deposits
increased $23,685 compared to the average balance of the same period in 2010. The increase
in average balance is due to increases of $35,102 in demand deposit accounts, $10,002 in
statement savings accounts, $5,004 in money market savings, $4,670 in interest-bearing
public funds, and $5,555 in public fund money market savings offset by
decreases of $27,097 in CDARS accounts and $815 in brokered deposits.
Page 34
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Total borrowed funds have increased $17,748 from December 31, 2010 to September 30, 2011.
At September 30, 2011, the Corporation had $70,303 in outstanding Federal Home Loan Bank
advances compared to $50,327 at December 31, 2010. On February 15, 2011, the Corporation
exchanged two FHLB advances with two new advances that are not substantially different. The
first advance, in the amount of $20,000, had a remaining term of nineteen months with a
fixed rate of 4.40%. The new replacement advance, in the amount of $20,000, has a term of
forty-two months with a fixed rate of 2.06%.The second advance, in the amount of $2,500, had
a remaining term of eleven months with a fixed rate of 4.74%. The new replacement advance,
in the amount of $2,500, has a term of thirty months with a fixed rate of 1.49%. The
replaced advances had pre-payment penalties associated with them of $1,199 and $98,
respectively. The pre-payment penalties will be amortized as an adjustment of interest
expense over the remaining term of the replacement advances. In addition, the Corporation,
on July 27, 2011 obtained a short term advance in the amount of $20,000. The advance has a
term of three months with a fixed rate of 0.08%. Securities sold under agreements to
repurchase, which tend to fluctuate due to timing of deposits, have decreased $2,559 and
U.S. Treasury Tax Demand Notes have increased $331 from December 31, 2010 to September 30,
2011.
Shareholders equity at September 30, 2011 was $102,536, or 9.0 percent of total assets,
compared to $96,950 at December 31, 2010, or 8.8 percent of total assets. The increase in
shareholders equity resulted from net income of $2,469 plus the increase in the market
value of securities available for sale, net of tax, of $3,986 less preferred dividends paid
of $869. Total outstanding common shares at September 30, 2011 and 2010 were 7,707,917.
Results of Operations
Nine Months Ended September 30, 2011 and 2010
The Corporation had net income of $2,469 for the nine months ended September 30, 2011, an
increase of $4,085 from net loss of $1,616 for the first nine months of 2010. Basic and
diluted earnings per common share were $.21 for the first nine months of 2011, compared to
$(0.32) for the same period in 2010. The primary reasons for the changes in net income are
explained below.
Net interest income for the first nine months of 2011 was $30,964, a decrease of $127 or 0.4
percent from $31,091 in the first nine months of 2010. Net interest income, the difference
between interest income earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities, is the most significant component of the Corporations
earnings. Net interest income is affected by changes in volume, rates and composition of
interest-earning assets and interest-bearing liabilities. Average earning assets increased
1.0 percent from the first nine months last year from organic growth. Average loans for the
first
Page 35
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
nine
months of 2011 decreased 3.5 percent compared to the first nine months of 2010.
Interest expense on FHLB advances decreased $745 or 38.2 percent in the first nine months of
2011 compared to the same period in
2010. Average FHLB advances for the first nine months of 2011 decreased 19.8 percent
compared to the first nine months of 2010. The interest rate paid on FHLB advances during
the nine months of 2011 also decreased as compared to the same period in 2010 by 87 basis
points. The Corporations net interest margin for the nine months ended September 30, 2011
and 2010 was 3.91% and 3.96%, respectively. Net interest margin decreased 5 basis points as
net interest income decreased 0.4 percent while average earning assets increased 1.0
percent.
The Corporation provides for loan losses through regular provisions to the allowance for
loan losses. The provision is affected by net charge-offs on loans and changes in specific
and general allocations required on the allowance for loan losses. Provisions for loan
losses totaled $7,700 for the first nine months of 2011, compared to $14,440 for the same
period in 2010. Although specific reserves required increased compared to December 31,
2010, general reserves declined during the same period. Management believes the overall
adequacy of the reserve for loan losses supported a reduced provision, compared to September
30, 2010.
Non-interest income for the first nine months of 2011 was $7,858, an increase of $590 or 8.1
percent from $7,268 for the same period of 2010. Service charge fee income for the first
nine months of 2011 was $3,350, down $60 or 1.8 percent over the same period of 2010. Trust
fee income was $1,577, up $199 or 14.4 percent over the same period in 2010. The increase
is related to the recoveries in the financial markets and the related effect on assets under
management, as well as a general increase in assets under management. ATM fee income for
the first nine months of 2011 was $1,371, up $27 or 2.0 percent over the first nine months
of 2010. Bank owned life insurance contributed $477 to non-interest income during the first
nine months of 2011. Other non-interest income was $887, up $322 over the same period in
2010. This was the result of the Citizens participation in an income tax refund
facilitation program, pursuant to which Citizens collected a fee for facilitating, and
expediting, payment of refunds to taxpayers.
Non-interest expense for the first nine months of 2011 was $28,269, an increase of $1,015,
from $27,254 reported for the same period of 2010. Salary and other employee costs were
$14,588, up $1,630 or 12.6 percent as compared to the same period of 2010. This increase is
mainly due to an increase in staffing in the credit and special assets departments and
higher commission costs for the first nine months of 2011. The number of full-time
equivalent employees increased during the first nine months of 2011 to 303.3, up 8.7,
compared to the same period of 2010. Occupancy and equipment costs were $2,787 down $186 or
6.3 percent compared to the same period in 2010. Contracted data processing costs were
$612, down $75, or 10.9 percent compared to last year. State franchise taxes increased by
$107 compared to the same period of 2010. Amortization expense decreased $42, or 4.6
percent from the nine months of 2010, as a result of scheduled amortization of intangible
assets associated with mergers. FDIC assessments were down by $212 during the first nine
months of 2011 compared to the same period of 2010. The decrease is due to a decrease in
the size of the assessment base. Professional service costs were $1,505 down $271 or 15.3
percent compared to the same period in 2010. The decrease is due to consulting services for
loan work outs, core banking software analysis and the resolution of certain larger
collection items in 2010 that were not recurring in 2011. Other operating expenses were
$5,071, down $172 or 3.5 percent compared to the same period of 2010.
Page 36
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Income tax expense for the first nine months of 2011 totaled $384 compared to an income tax
benefit of $1,719 for the first nine months of 2010. The increase of $2,103 in the federal
income taxes is mainly a result of the decrease in loan loss provision this year, coupled
with an increase in total noninterest income.
Three Months Ended September 30, 2011 and 2010
The Corporation had net income of $1,193 for the three months ended September 30, 2011, an
increase of $2,586 from net loss of $1,393 for the same three months of 2010. Basic and
diluted earnings per common share were $.12 for the first three months of 2011, compared to
$(0.22) for the same period in 2010. The primary reasons for the changes in net income are
explained below.
Net interest income for the three months ended September 30, 2011 was $10,439, a decrease of
$11 from $10,450 in the same three months of 2010. Net interest income, the difference
between interest income earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities, is the most significant component of the Corporations
earnings. Net interest income is affected by changes in volume, rates and composition of
interest-earning assets and interest-bearing liabilities. Average earning assets increased
less than one percent from the third quarter last year. Average loans for the third quarter
of 2011 decreased 2.0 percent compared to the third quarter of 2010. Interest expense on
FHLB advances decreased $197 or 32.9 percent in the third quarter of 2011 compared to the
same period in 2010. Average FHLB advances for the third quarter of 2011 decreased 1.7
percent compared to the third quarter of 2010. The interest rate paid on FHLB advances
during the third quarter of 2011 also decreased as compared to the same period in 2010 by
129 basis points. The Corporations net interest margin for the three months ended
September 30, 2011 and 2010 was 3.93% and 3.95%, respectively. Net interest margin
decreased 2 basis points as net interest income decreased 0.1 percent while average earning
assets increased by less than one percent.
The Corporation provides for loan losses through regular provisions to the allowance for
loan losses. The provision is affected by net charge-offs on loans and changes in specific
and general allocations required on the allowance for loan losses. Provisions for loan
losses totaled $2,000 for the three months ended September 30, 2011, compared to $6,100 for
the same period in 2010. Although specific reserves required increased compared to December
31, 2010, general reserves declined during the same period. Management believes the overall
adequacy of the reserve for loan losses supported a reduced provision, compared to September
30, 2010.
Non-interest income for the three months ended September 30, 2011 was $2,664, an increase of
$144 or 5.7 percent from $2,520 for the same period of 2010. Service charge fee income for
the same three months of 2011 was $1,233, up $36 or 3.0 percent over the same period of
2010. Trust fee income was $505, up $48 or 10.5 percent over the same period in 2010. The
increase is related to a general increase in assets under management. ATM fee income for
the third quarter of 2011 was $473, up $1 or 0.2 percent over the same period of 2010. Bank
owned life insurance contributed $173 to non-interest income during the three months ended
September 30, 2011. Other non-interest income was $220, up $10 over the same period in
2010.
Page 37
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Non-interest expense for the three months ended September 30, 2011 was $9,599, an increase
of $333, from $9,266 reported for the same period of 2010. Salary and other employee costs
were $5,144, up $554 or 12.1 percent as compared to the same period of 2010. This increase
is mainly due to an increase in staffing in the credit and special assets departments and
higher commission costs for the third quarter of 2011. The number of full-time equivalent
employees increased during the third quarter of 2011 to 303.3, up 8.7, compared to the same
period of 2010. Occupancy and equipment costs were $892 down $77 or 7.9 percent compared to
the same period in 2010. Contracted data processing costs were unchanged at $200 compared
to last year. State franchise taxes increased by $93 compared to the same period of 2010.
Amortization expense decreased $14, or 4.6 percent from the same three months of 2010, as a
result of scheduled amortization of intangible assets associated with mergers. FDIC
assessments were down by $155 during the same three months of 2011 compared to the same
period of 2010. The decrease is due to a decrease in the size of the assessment base.
Professional service costs were $509, down $180 or 26.1 percent compared to the same period
in 2010. The decrease is due to consulting services for loan work outs, core banking
software analysis and the resolution of certain larger collection items in 2010 that did not
recur in 2011. Other operating expenses were $1,682, up $166 or 10.9 percent compared to
the same period of 2010. In the third quarter of 2011, losses sustained on the sale of OREO
properties increased $55 compared to the third quarter of 2010. In addition, travel and
lodging and telephone expenses increased $30 and $22, respectively, compared to the third
quarter of 2010.
Income tax expense for the three months ended September 30, 2011 totaled $311 compared to an
income tax benefit of $1,003 for the same three months of 2010. This was an increase of
$1,314. The increase in the federal income tax expense is mainly a result of the decrease
in loan loss provision this year compared to last.
Page 38
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Capital Resources
Shareholders equity totaled $102,536 at September 30, 2011 compared to $96,950 at December
31, 2010. The increase in shareholders equity resulted from $2,469 of net income and a
$3,986 net increase in the unrealized gain on securities. This was offset by preferred
dividends paid of $869. All of the Corporations capital ratios exceeded the regulatory
minimum guidelines as of September 30, 2011 and December 31, 2010 as identified in the
following table:
Total Risk | ||||||||||||
Based | Tier I Risk | Leverage | ||||||||||
Capital | Based Capital | Ratio | ||||||||||
Corporation Ratios September 30, 2011 |
15.1 | % | 13.3 | % | 8.9 | % | ||||||
Corporation Ratios December 31, 2010 |
15.1 | % | 13.8 | % | 9.3 | % | ||||||
For Capital Adequacy Purposes |
8.0 | % | 4.0 | % | 4.0 | % | ||||||
To Be Well Capitalized Under Prompt
Corrective Action Provisions |
10.0 | % | 6.0 | % | 5.0 | % |
The Corporation did not pay a cash dividend on its common shares during the first three
quarters of 2011 or 2010. The Corporation did pay a 5% cash dividend on its preferred
shares issued to the U.S. Treasury pursuant to TARP in the amount of approximately $290 each
on February 15, May 15, 2011 and August 15, 2011.
Liquidity
Citizens maintains a conservative liquidity position. All securities are classified as
available for sale. Securities, with maturities of one year or less, totaled $963, or 0.5
percent of the total security portfolio. The available for sale portfolio helps to provide
the Corporation with the ability to meet its funding needs. The Consolidated Statements of
Cash Flows (Unaudited) contained in the consolidated financial statements detail the
Corporations cash flows from operating activities resulting from net earnings.
Cash from operations for the quarter ended September 30, 2011 was $12,977. This includes
net income of $2,469 plus net adjustments of $10,508 to reconcile net earnings to net cash
provided by operations. Cash used for investing activities was $42,436 for the nine months
ended September 30, 2011. The use of cash from investing activities is primarily due to
securities purchases, loans made to customers, net of principal collected and the purchase
of bank owned life insurance. Cash received from maturing and called securities totaled
$46,344. This increase in cash was offset by the purchase of securities of $64,624, the
purchase of bank owned life insurance of $5,000 and loans made to customers, net of
principal collected of $18,843. Cash from financing activities for the first nine months of
2011 totaled $36,178. The increase of cash from financing activities is due to the net
change in deposits and short term advance from the FHLB. The net change in deposits was
$19,299 for the first nine months
Page 39
Table of Contents
First Citizens Banc Corp
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
of 2011. The increase in
deposits was primarily due to an increase in non interest-bearing
deposits, which increased $16,535 during the first nine months of 2011. In addition, the Corporation obtained a short
term advance from the FHLB in the amount of $20,000. Cash was used by the early payoff of
two FHLB long-term advances of $2,500 and $20,000, respectively, offset by two new FHLB
long-term advances. Cash and cash equivalents increased from $79,030 at December 31, 2010
to $85,749 at September 30, 2011.
Future loan demand of Citizens may be funded by increases in deposit accounts, proceeds from
payments on existing loans, the maturity of securities, and the sale of securities
classified as available for sale. Additional sources of funds may also come from borrowing
in the Federal Funds market and/or borrowing from the FHLB. Through its correspondent
banks, Citizens maintains federal funds borrowing lines totaling $20,000. As of September
30, 2011, Citizens had total credit availability with the FHLB of $104,961 of which $70,303
was outstanding.
Page 40
Table of Contents
First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Corporations primary market risk exposure is interest-rate risk and, to a lesser
extent, liquidity risk. All of the Corporations transactions are denominated in U.S.
dollars with no specific foreign exchange exposure.
Interest-rate risk is the exposure of a banking organizations financial condition to
adverse movements in interest rates. Accepting this risk can be an important source of
profitability and shareholder value. However, excessive levels of interest-rate risk can
pose a significant threat to the Corporations earnings and capital base. Accordingly,
effective risk management that maintains interest-rate risk at prudent levels is essential
to the Corporations safety and soundness.
Evaluating a financial institutions exposure to changes in interest rates includes
assessing both the adequacy of the management process used to control interest-rate risk and
the organizations quantitative level of exposure. When assessing the interest-rate risk
management process, the Corporation seeks to ensure that appropriate policies, procedures,
management information systems and internal controls are in place to maintain interest-rate
risk at prudent levels with consistency and continuity. Evaluating the quantitative level
of interest rate risk exposure requires the Corporation to assess the existing and potential
future effects of changes in interest rates on its consolidated financial condition,
including capital adequacy, earnings, liquidity and, where appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the Currency and
the Federal Deposit Insurance Corporation, adopted a Joint Agency Policy Statement on
interest-rate risk, effective June 26, 1996. The policy statement provides guidance to
examiners and bankers on sound practices for managing interest-rate risk, which will form
the basis for ongoing evaluation of the adequacy of interest-rate risk management at
supervised institutions. The policy statement also outlines fundamental elements of sound
management that have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest-rate risk. Specifically,
the guidance emphasizes the need for active board of director and senior management
oversight and a comprehensive risk-management process that effectively identifies, measures,
and controls interest-rate risk. Financial institutions derive their income primarily from
the excess of interest collected over interest paid. The rates of interest an institution
earns on its assets and owes on its liabilities generally are established contractually for
a period of time. Since market interest rates change over time, an institution is exposed
to lower profit margins (or losses) if it cannot adapt to interest-rate changes. For
example, assume that an institutions assets carry intermediate- or long-term fixed rates
and that those assets were funded with short-term liabilities. If market interest rates
rise by the time the short-term liabilities must be refinanced, the increase in the
institutions interest expense on its liabilities may not be sufficiently offset if assets
continue to earn at the long-term fixed rates. Accordingly, an institutions profits could
decrease on existing assets because the institution will have either lower net interest
income or, possibly, net interest expense. Similar risks exist when assets are subject to
contractual interest-rate ceilings, or rate sensitive assets are funded by longer-term,
fixed-rate liabilities in a decreasing-rate environment.
Page 41
Table of Contents
First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Several techniques may be used by an institution to minimize interest-rate risk. One
approach used by the Corporation is to periodically analyze its assets and liabilities and
make future financing and investment decisions based on payment streams, interest rates,
contractual maturities, and estimated sensitivity to actual or potential changes in market
interest rates. Such activities fall under the broad definition of asset/liability
management. The Corporations primary asset/liability management technique is the
measurement of the Corporations asset/liability gap, that is, the difference between the
cash flow amounts of interest sensitive assets and liabilities that will be refinanced (or
repriced) during a given period. For example, if the asset amount to be repriced exceeds
the corresponding liability amount for a certain day, month, year, or longer period, the
institution is in an asset sensitive gap position. In this situation, net interest income
would increase if market interest rates rose or decrease if market interest rates fell. If,
alternatively, more liabilities than assets will reprice, the institution is in a liability
sensitive position. Accordingly, net interest income would decline when rates rose and
increase when rates fell. Also, these examples assume that interest rate changes for assets
and liabilities are of the same magnitude, whereas actual interest rate changes generally
differ in magnitude for assets and liabilities.
Several ways an institution can manage interest-rate risk include selling existing assets or
repaying certain liabilities; matching repricing periods for new assets and liabilities, for
example, by shortening terms of new loans or securities; and hedging existing assets,
liabilities, or anticipated transactions. An institution might also invest in more complex
financial instruments intended to hedge or otherwise change interest-rate risk. Interest
rate swaps, futures contracts, options on futures, and other such derivative financial
instruments often are used for this purpose. Because these instruments are sensitive to
interest rate changes, they require management expertise to be effective. The Corporation
has not purchased derivative financial instruments in the past and does not currently intend
to purchase such instruments in the near future. Financial institutions are also subject to
prepayment risk in falling rate environments. For example, mortgage loans and other
financial assets may be prepaid by a debtor so that the debtor may refinance its obligations
at new, lower rates. Prepayments of assets carrying higher rates reduce the Corporations
interest income and overall asset yields. A large portion of an institutions liabilities
may be short-term or due on demand, while most of its assets may be invested in long-term
loans or securities. Accordingly, the Corporation seeks to have in place sources of cash to
meet short-term demands. These funds can be obtained by increasing deposits, borrowing, or
selling assets. FHLB advances and wholesale borrowings may also be used as important
sources of liquidity for the Corporation.
The following table provides information about the Corporations financial instruments that
were sensitive to changes in interest rates as of December 31, 2010 and September 30, 2011,
based on certain prepayment and account decay assumptions that management believes are
reasonable. The table shows the changes in the Corporations net portfolio value (in amount
and percent) that would result from hypothetical interest rate increases of 200 basis points
and 100 basis points and an interest rate decrease of 100 basis points at September 30, 2011
and December 31, 2010. The Corporation had no derivative financial instruments or trading
portfolio as of December 31, 2010 or September 30, 2011. Expected maturity date values for
interest-bearing core deposits were calculated based on estimates of the period over which
the deposits would be
outstanding. The Corporations borrowings were tabulated by contractual maturity dates and
without regard to any conversion or repricing dates.
Page 42
Table of Contents
First Citizens Banc Corp
Form 10-Q
(Amounts in thousands, except share data)
Form 10-Q
(Amounts in thousands, except share data)
Net Portfolio Value | ||||||||||||||||||||||||
September 30, 2010 | December 31, 2010 | |||||||||||||||||||||||
Change in | Dollar | Dollar | Percent | Dollar | Dollar | Percent | ||||||||||||||||||
Rates | Amount | Change | Change | Amount | Change | Change | ||||||||||||||||||
+200bp |
134,437 | (2,592 | ) | -2 | % | 145,476 | 160 | 0 | % | |||||||||||||||
+100bp |
135,911 | (1,118 | ) | -1 | % | 150,062 | 4,746 | 3 | % | |||||||||||||||
Base |
137,029 | | | 145,316 | | | ||||||||||||||||||
-100bp |
157,115 | 20,086 | 15 | % | 154,728 | 9,412 | 6 | % |
The change in net portfolio value from December 31, 2010 to September 30, 2011, is primarily
a result of two factors. The yield curve has shifted downward and become flatter since the
end of the year. Additionally, both the mix and overall size of assets and funding sources
have changed. Assets have increased and the mix also shifted away from cash toward loans
and securities, which leads to greater volatility. Funding sources also increased while the
funding mix shifted from CDs to borrowed money and deposits. The shifts in mixes led to the
decrease in the base. Beyond the change in the base level of net portfolio value, overall
projected movements, given specific changes in rates, would lead to generally larger changes
in the value of assets, but smaller changes in liabilities. The change in the rates up
scenarios for both the 200 and 100 basis point movements would lead to a faster decrease in
the fair value of assets, compared to liabilities. Accordingly we would see a decrease in
the net portfolio value. A downward change in rates would lead to an increase in the net
portfolio value as the fair value of liabilities would increase much more slowly than the
fair value of the asset portfolio.
ITEM 4. Controls and Procedures Disclosure
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of
the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures as of September 30, 2011, were effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Corporations internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during
the Corporations most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Corporations internal control over financial reporting.
Page 43
Table of Contents
First Citizens Banc Corp
Other Information
Form 10-Q
Other Information
Form 10-Q
Part II Other Information
Item 1. | Legal Proceedings |
|
There were no new material legal proceedings or material changes to existing legal
proceedings during the current period. |
Item 1A. | Risk Factors |
|
There were no material changes to the risk factors as presented in the Corporations
Annual Report on Form 10-K for the year ended December 31, 2010. |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|
None |
Item 3. | Defaults Upon Senior Securities |
|
None |
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
|
None |
Item 6. | Exhibits |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
|
101 | The following materials from First Citizens Banc Corps Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted
in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of
Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30,
2011 and December 31, 2010; (ii) Consolidated Statements of Income (Unaudited)
for the three and nine months ended September 30, 2011 and 2010; (iii)
Consolidated Comprehensive Income Statements (Unaudited) for the three and nine
months ended September 30, 2011 and 2010; (iv) Condensed Consolidated Statement
of Shareholders Equity (Unaudited) for the nine months ended September 30,
2011; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the
nine months ended September 30, 2011 and 2010; and (vi) Notes to Interim
Consolidated Financial Statements (Unaudited) tagged as blocks of text.* |
* | Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit
101 hereto are furnished and not deemed filed or part of a registration statement or
prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as
amended, and are deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and otherwise are not subject to liability under
those Sections. |
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Table of Contents
First Citizens Banc Corp
Signatures
Form 10-Q
Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
First Citizens Banc Corp
/s/ James O. Miller
|
November 9, 2011 |
|
President, Chief Executive Officer |
||
/s/ Todd A. Michel
|
November 9, 2011 |
|
Senior Vice President, Controller |
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Table of Contents
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
Index to Exhibits
Form 10-Q
Exhibits
Exhibit | Description | Location | ||
3.1(a)
|
Articles of Incorporation, as amended, of First Citizens Banc Corp. | Filed as Exhibit 3.1 to First Citizens Banc Corps Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980) | ||
3.1(b)
|
Certificate of Amendment by Shareholders or Members as filed with the Ohio Secretary of State on January 12, 2009, evidencing the adoption by the shareholders of First Citizens Banc Corp on January 5, 2009 of an amendment to Article FOURTH to authorize the issuance of up to 200,000 preferred shares, without par value. | Filed as Exhibit 3.1(b) to First Citizens Banc Corps Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980) | ||
3.1(c)
|
Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on January 21, 2009, evidencing adoption of an amendment by the Board of Directors of First Citizens Banc Corp to Article FOURTH to establish the express terms of the Fixed Rate Cumulative Perpetual Preferred Shares, Series A, of First Citizens. | Filed as Exhibit 3.1 to First Citizens Banc Corps Current Report on Form 8-K dated and filed January 26, 2009, and incorporated herein by reference. (File No. 0-25980) | ||
3.2
|
Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 17, 2007). | Filed as Exhibit 3.2 to First Citizens Banc Corps Form 10-K for the year ended December 31, 2008, filed on March 16, 2009 and incorporated herein by reference. (File No. 0-25980) | ||
31.1
|
Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer. | Included herewith | ||
31.2
|
Rule 13a-14(a)/15-d-14(a) Certification of Chief Financial Officer. | Included herewith | ||
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Included herewith | ||
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Included herewith |
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Table of Contents
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
Index to Exhibits
Form 10-Q
Exhibit | Description | Location | ||
101
|
The following materials from First Citizens Banc Corps Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets (Unaudited) as of September 30, 2011 and December 31, 2010; (ii) Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2011 and 2010; (iii) Consolidated Comprehensive Income Statements (Unaudited) for the three and nine months ended September 30, 2011 and 2010; (iv) Condensed Consolidated Statement of Shareholders Equity (Unaudited) for the nine months ended September 30, 2011; (v) Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010; and (vi) Notes to Interim Consolidated Financial Statements (Unaudited) tagged as blocks of text.* | Included herewith |
* | Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
furnished and not deemed filed or part of a registration statement or prospectus for purposes of
Sections 11 and 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to
liability under those Sections. |
Page 47