Attached files
file | filename |
---|---|
EX-4.7 - EX-4.7 - CIVISTA BANCSHARES, INC. | d854051dex47.htm |
EX-23.1 - EX-23.1 - CIVISTA BANCSHARES, INC. | d854051dex231.htm |
EX-32.1 - EX-32.1 - CIVISTA BANCSHARES, INC. | d854051dex321.htm |
EX-31.1 - EX-31.1 - CIVISTA BANCSHARES, INC. | d854051dex311.htm |
EX-13.1 - EX-13.1 - CIVISTA BANCSHARES, INC. | d854051dex131.htm |
EX-31.2 - EX-31.2 - CIVISTA BANCSHARES, INC. | d854051dex312.htm |
EX-32.2 - EX-32.2 - CIVISTA BANCSHARES, INC. | d854051dex322.htm |
EX-21.1 - EX-21.1 - CIVISTA BANCSHARES, INC. | d854051dex211.htm |
EXCEL - IDEA: XBRL DOCUMENT - CIVISTA BANCSHARES, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001- 36192
First Citizens Banc Corp
(Exact name of registrant as specified in its charter)
Ohio | 34-1558688 | |
State or other jurisdiction of incorporation or organization |
(IRS Employer Identification No.) |
100 East Water Street, Sandusky, Ohio | 44870 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (419) 625-4121
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered | |
Common shares, no par value | The NASDAQ Stock Market LLC (NASDAQ Capital Market) | |
Depositary Shares, each representing 1/40th of a 6.50% Noncumulative Redeemable Convertible Perpetual Preferred share, Series B, no par value | The NASDAQ Stock Market LLC (NASDAQ Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant 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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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 | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant based upon the closing market price as of June 30, 2014 was $60,305,367. For this purpose, shares held by non-affiliates include all outstanding shares except those held by the directors and executive officers of the registrant.
As of February 28, 2015, there were 7,800,494 common shares, no par value, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Annual Report to Shareholders for the fiscal year ended December 31, 2014 (the 2014 Annual Report) are incorporated by reference into Parts I and II of this Form 10-K. Portions of the registrants Proxy Statement for the registrants 2015 Annual Meeting of Shareholders to be held on April 21, 2015 (the 2015 Proxy Statement) are incorporated by reference into Part III of this Form 10-K.
Table of Contents
Part I | ||||||
Item 1. | 2 | |||||
Item 1A. | 22 | |||||
Item 1B. | 35 | |||||
Item 2. | 35 | |||||
Item 3. | 35 | |||||
Item 4. | 35 | |||||
Part II | ||||||
Item 5. | 36 | |||||
Item 6. | 36 | |||||
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
36 | ||||
Item 7A. | 36 | |||||
Item 8. | 37 | |||||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
38 | ||||
Item 9A. | 38 | |||||
Item 9B. | 38 | |||||
Part III | ||||||
Item 10. | 39 | |||||
Item 11. | 39 | |||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
39 | ||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
39 | ||||
Item 14. | 39 | |||||
Part IV | ||||||
Item 15. | 40 | |||||
Signatures | 44 |
Table of Contents
(a) | General Development of Business |
FIRST CITIZENS BANC CORP (FCBC) was organized under the laws of the State of Ohio on February 19, 1987 and is a registered financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended. FCBCs office is located at 100 East Water Street, Sandusky, Ohio. FCBC and its subsidiaries are sometimes referred to together as the Company. The Company had total consolidated assets of $1,213,191 at December 31, 2014.
THE CITIZENS BANKING COMPANY (Citizens), owned by FCBC since 1987, opened for business in 1884 as The Citizens National Bank. In 1898, Citizens was reorganized under Ohio banking law and was known as The Citizens Bank and Trust Company. In 1908, Citizens surrendered its trust charter and began operation as The Citizens Banking Company. Citizens is an insured bank under the Federal Deposit Insurance Act. Citizens maintains its main office at 100 East Water Street, Sandusky, Ohio and operates branch banking offices in the following Ohio communities: Sandusky (2), Norwalk (2), Berlin Heights, Huron, Port Clinton, Castalia, New Washington, Shelby (2), Willard, Greenwich, Plymouth, Shiloh, Akron, Dublin, Plain City, Russells Point, Urbana (2), West Liberty and Quincy. Citizens accounted for 99.8% of the Companys consolidated assets at December 31, 2014.
A new name for the bank is being introduced during the first quarter of 2015. The new name, Civista Bank, fulfills our strategic direction to solidify our dual Citizens/Champaign brand and distinguish ourselves from the many other Citizens Banks in existing and prospective markets. Created from the words, civic and vista, Civista uniquely reflects our commitment to the community, our Citizens heritage and our view toward the future. Our commitment to community banking and our shareholders remains at the heart of all we do.
FIRST CITIZENS INSURANCE AGENCY, INC. (Insurance Agency) was formed in 2001 to allow the Company to participate in commission revenue generated through its third party insurance agreement. Assets of the Insurance Agency were not significant as of December 31, 2014.
WATER STREET PROPERTIES (Water St.) was formed in 2003 to hold properties repossessed by FCBC subsidiaries. Assets of Water St. were not significant as of December 31, 2014.
FC REFUND SOLUTIONS, INC. (FCRS) was formed in 2012 and remained inactive for the periods presented. Assets of FCRS were not significant as of December 31, 2014.
FIRST CITIZENS INVESTMENTS, INC. (FCI) was formed in the fourth quarter of 2007 as a wholly-owned subsidiary of Citizens to hold and manage its securities portfolio. The operations of FCI are located in Wilmington, Delaware.
FIRST CITIZENS CAPITAL LLC (FCC) was also formed in the fourth quarter of 2007 as a wholly-owned subsidiary of Citizens to hold inter-company debt that is eliminated in consolidation. The operations of FCC are located in Wilmington, Delaware.
2
Table of Contents
(b) | Industry Segments |
FCBC is a financial holding company. Through its subsidiary bank, the Company is primarily engaged in the business of community banking, which accounts for substantially all of its revenue, operating income and assets.
(c) | Narrative Description of Business |
General
The Companys primary business is incidental to the subsidiary bank. Citizens, located in Erie, Crawford, Champaign, Franklin, Logan, Madison, Summit, Huron, Ottawa and Richland Counties, Ohio, conducts a general banking business that involves collecting customer deposits, making loans, purchasing securities, and offering Trust services.
Interest and fees on loans accounted for 67% of total revenue for 2014, 68% of total revenue for 2013, and 69% of total revenue for 2012. The Companys primary focus of lending continues to be real estate loans, both residential and commercial in nature. Residential real estate mortgages comprised 30% of the total loan portfolio in 2014, 29% of the total loan portfolio in 2013 and 31% of the total loan portfolio in 2012. Commercial real estate loans comprised 49% of the total loan portfolio in 2014, 52% in 2013, and 53% in 2012. Commercial and agriculture loans comprised 12% of the total loan portfolio in 2014, 13% in 2013, and 12% in 2012. Citizens loan portfolio does not include any foreign-based loans, loans to lesser-developed countries or loans to FCBC.
On a parent company only basis, FCBCs primary source of funds is the receipt of dividends paid by its subsidiaries, principally Citizens. The ability of Citizens to pay dividends is subject to limitations under various laws and regulations and to prudent and sound banking principles. Generally, subject to certain minimum capital requirements, Citizens may declare a dividend without the approval of the State of Ohio Division of Financial Institutions unless the total of the dividends in a calendar year exceeds the total net profits of the bank for the year combined with the retained profits of the bank for the two preceding years. At December 31, 2014, Citizens had available net profits to pay anticipated dividends.
The Companys business is not seasonal, nor is it dependent on a single or small group of customers.
In the opinion of management, the Company does not have exposure to material costs associated with environmental hazardous waste mitigation or cleanup.
Competition
The market area for Citizens is Erie, Crawford, Champaign, Franklin, Logan, Summit, Huron, Ottawa, Madison and Richland Counties in Ohio. Traditional financial service competition for Citizens consists of large regional financial institutions, community banks, thrifts and credit unions operating within Citizens market area. Nontraditional sources of competition for loan and deposit dollars come from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies and direct mutual funds.
Citizens experiences intense competition within several of its markets due to the presence of several national, regional and local financial institutions and other service providers. Citizens primarily competes based on client service, convenience and responsiveness to customer needs, availability and selection of products, and rates of interest on loans and deposits. However, some of Citizens competitors have greater resources and, as such, higher lending limits, which may adversely affect the ability of Citizens to compete.
3
Table of Contents
Employees
FCBC has no employees. Citizens employs approximately 303 full-time equivalent employees to whom a variety of benefits are provided. FCBC and its subsidiaries are not parties to any collective bargaining agreements. Management considers its relationship with its employees to be good.
Supervision and Regulation
The Bank Holding Company Act: As a financial holding company, FCBC is subject to regulation under the Bank Holding Company Act of 1956, as amended (the BHCA), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (Federal Reserve Board). Under the BHCA, FCBC is subject to periodic examination by the Federal Reserve Board and is required to file periodic reports regarding its operations and any additional information that the Federal Reserve Board may require. The Federal Reserve Board also has extensive enforcement authority over financial and bank holding companies, including the ability to assess civil money penalties, issue cease and desist and removal orders, and require that a financial or bank holding company divest subsidiaries, including its subsidiary banks.
Under Federal Reserve Board policy, a financial or bank holding company is expected to act as a source of strength to each of its subsidiary banks. In accordance with this policy, the Federal Reserve Board may require a financial or bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.
The BHCA generally limits the activities of a bank holding company to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries and engaging in any other activities that the Federal Reserve Board has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident to those activities. In addition, the BHCA requires every bank holding company to obtain the approval of the Federal Reserve Board prior to acquiring all or substantially all of the assets of any bank or another financial or bank holding company, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank not already majority-owned by it, or merging or consolidating with another financial or bank holding company.
Gramm-Leach-Bliley Act: The Gramm-Leach-Bliley Act of 1999 (GLBA) permits qualifying bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under the FDICs Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. In March, 2000, FCBC became a financial holding company. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or a savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.
The GLBA defines financial in nature to include:
| securities underwriting, dealing and market making; |
| sponsoring mutual funds and investment companies; |
| insurance underwriting and agency; |
| merchant banking; and |
| activities that the Federal Reserve Board has determined to be closely related to banking. |
4
Table of Contents
Transactions with Affiliates, Directors, Executive Officers and Shareholders: Transactions between Citizens and its affiliates, including FCBC, are subject to Sections 23A and 23B of the Federal Reserve Act, and Federal Reserve Board Regulation W, which generally limit the extent to which Citizens may engage in covered transactions with affiliates and require that the terms of such transactions be the same, or at least as favorable, to Citizens as the terms provided in a similar transaction between Citizens and an unrelated party. The term covered transaction includes the making of loans to an affiliate, the purchase of assets from an affiliate, the issuance of a guarantee on behalf of an affiliate, the purchase of securities issued by an affiliate and other similar types of transactions.
A banks authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially the same as those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these affiliated persons is based, in part, on the banks capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.
Banking subsidiaries of financial and bank holding companies are also subject to federal regulation regarding such matters as reserves, limitations on the nature and amount of loans and investments, issuance or retirement of its own securities, limitations on the payment of dividends and other aspects of banking operations.
Privacy Provisions of Gramm-Leach-Bliley Act: Under the GLBA, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These rules contain extensive provisions on a customers right to privacy of non-public personal information. Except in certain cases, an institution may not provide personal information to unaffiliated third parties unless the institution discloses that such information may be disclosed and the customer is given the opportunity to opt out of such disclosure. The privacy provisions of the GLBA affect how consumer information is conveyed to outside vendors. FCBC and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non-public personal information.
Federal Deposit Insurance Corporation (FDIC): The FDIC is an independent federal agency which insures the deposits of federally-insured banks and savings associations up to certain prescribed limits and safeguards the safety and soundness of financial institutions. The deposits of Citizens are subject to the deposit insurance assessments of the FDIC. Under the FDICs deposit insurance assessment system, the assessment rate for any insured institution may vary according to regulatory capital levels of the institution and other factors such as supervisory evaluations.
The FDIC is authorized to prohibit any insured institution from engaging in any activity that poses a serious threat to the insurance fund and may initiate enforcement actions against a bank, after first giving the institutions primary regulatory authority an opportunity to take such action. The FDIC may also terminate the deposit insurance of any institution that has engaged in or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, order or condition imposed by the FDIC.
5
Table of Contents
Consumer Financial Protection Bureau: The Dodd-Frank Act established the Consumer Financial Protection Bureau (the CFPB), which regulates consumer financial products and services and certain financial services providers. The CFPB is authorized to prevent unfair, deceptive and abusive acts or practices and seeks to ensure consistent enforcement of laws so that consumers have access to fair, transparent and competitive markets for consumer financial products and services. The CFPB has rulemaking and interpretive authority.
Community Reinvestment Act: The Community Reinvestment Act requires depository institutions to assist in meeting the credit needs of their market areas, including low- and moderate-income areas, consistent with safe and sound banking practice. Under this Act, each institution is required to adopt a statement for each of its market areas describing the depositary institutions efforts to assist in its communitys credit needs. Depositary institutions are periodically examined for compliance and assigned ratings. Banking regulators consider these ratings when considering approval of a proposed transaction by an institution.
USA Patriot Act of 2001: The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA Patriot Act) gives the United States Government greater powers over financial institutions to combat money laundering and terrorist access to the financial system in our country. The USA Patriot Act requires the Company to establish a program for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity.
Sarbanes-Oxley Act of 2002: As mandated by the Sarbanes-Oxley Act of 2002, the SEC has adopted rules and regulations governing, among other matters, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosure of corporate information. The NASDAQ Stock Market LLC (Nasdaq) has also adopted corporate governance rules. The Board of Directors of the Company has taken a series of actions to strengthen and improve the Companys governance practices in light of the rules of the SEC and Nasdaq. The Board of Directors has adopted charters for the Audit Committee, the Compensation Committee and the Nominating Committee, as well as a Code of Conduct (Ethics) applicable to all directors, officers and employees of the Company. In addition, in accordance with Section 302(a) of the Sarbanes-Oxley Act, written certifications by FCBCs Chief Executive Officer and Chief Financial Officer are required. These certifications attest that FCBCs quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact. See Item 9A Controls and Procedures in Part II of this Form 10-K for FCBCs evaluation of its disclosure controls and procedures.
6
Table of Contents
Regulation of Bank Subsidiary: As an Ohio chartered bank, Citizens is subject to supervision and regulation by the State of Ohio Department of Commerce, Division of Financial Institutions (ODFI). In addition, Citizens is a member of the Federal Reserve System and, therefore, is subject to supervision and regulation by the Federal Reserve Board. Citizens is subject to periodic examinations by the ODFI, and Citizens is additionally subject to periodic examinations by the Federal Reserve Board. These examinations are designed primarily for the protection of the depositors of the bank and not shareholders.
Regulatory Capital Requirements: Prior to January 1, 2015, the guidelines included a minimum for the ratio of total capital to risk-weighted assets of 8%, with at least half of the ratio composed of common shareholders equity, minority interests in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock and qualified trust preferred securities, less goodwill and certain other intangible assets (known as Tier 1 risk-based capital). The guidelines also provided for a minimum ratio of Tier 1 capital to average assets, or leverage ratio, of 3% for financial holding companies and bank holding companies that met certain criteria, including having the highest regulatory rating, and 4% for all other financial holding companies and bank holding companies.
The risk-based capital guidelines adopted by the federal banking agencies are based on the International Convergence of Capital Measurement and Capital Standard (Basel I), published by the Basel Committee on Banking Supervision (the Basel Committee) in 1988. In 2004, the Basel Committee published a new capital adequacy framework (Basel II) for large, internationally active banking organizations, and in December 2010 and January 2011, the Basel Committee issued an update to Basel II (Basel III). The Basel Committee frameworks did not become applicable to banks supervised in the United States until adopted into United States law or regulations. Although the United States banking regulators imposed some of the Basel II and Basel III rules on banks with $250 billion or more in assets or $10 billion of on-balance sheet foreign exposure, it was not until July 2013 that the United States banking regulators issued final (or, in the case of the FDIC, interim final) new capital rules applicable to smaller banking organizations which also implement certain of the provisions of the Dodd-Frank Act (the Basel III Capital Rules). Community banking organizations, including FCBC and Citizens, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phase in from January 1, 2016 through January 1, 2019, and most deductions from common equity tier 1 capital will phase in from January 1, 2015 through January 1, 2019.
The new rules include (a) a new common equity tier 1 capital ratio of at least 4.5%, (b) a Tier 1 capital ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum leverage ratio of 4.0%.
Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.
7
Table of Contents
Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.
Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.
The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organizations own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels). The deductions phase in from 2015 through 2019.
Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Some of the risk weightings have been changed effective January 1, 2015.
The new rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5 percent composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5 percent at the beginning of the quarter. The capital conservation buffer phases in starting on January 1, 2016, at 0.625%. The implementation of Basel III is not expected to have a material impact on FCBCs or Citizens capital ratios.
At December 31, 2014, both FCBC and Citizens were in compliance with these capital requirements. For FCBCs capital ratios, see Note 18 to the Companys 2014 Consolidated Financial Statements.
The Federal Reserve Board has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled state-chartered member banks. At each successively lower defined capital category, a bank is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the Federal Reserve Board has less flexibility in determining how to resolve the problems of the institution. In addition, the Federal Reserve Board generally can downgrade a banks capital category, notwithstanding its capital level, if, after notice and opportunity for hearings, the bank is deemed to be engaged in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. Citizens capital at December 31, 2014, met the standards for the highest capital category, a well-capitalized bank.
8
Table of Contents
Federal Reserve Board regulations also limit the payment of dividends by Citizens to FCBC. Citizens may not pay a dividend if it would cause Citizens not to meet its capital requirements. In addition, the dividends that Citizens may pay to FCBC without prior approval of the Federal Reserve Board is limited to net income for the year plus its retained net income for the preceding two years.
TARP Capital Purchase Program: On January 23, 2009, the Corporation issued and sold to the U.S. Treasury of 23,184 of newly-issued non-voting preferred shares in conjunction with the Corporations participation in the Troubled Asset Relief Program (TARP). The Corporation and the U.S. Treasury entered into a Letter Agreement, dated January 23, 2009, including the Securities Purchase Agreement Standard Terms attached thereto, pursuant to which the Corporation issued and sold to the U.S. Treasury (1) 23,184 Fixed Rate Cumulative Perpetual Preferred Shares, Series A (the Series A Preferred Shares), each without par value and having a liquidation preference of $1,000 per share (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 had a ten-year term. Under the standardized terms of the preferred shares, cumulative dividends on the Preferred Shares accrued 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. The Preferred Shares had no maturity date and ranked 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. The Preferred Shares qualified as Tier 1 capital for regulatory purposes.
On July 3, 2012, the U.S. Treasury completed the sale of all 23,184 of the Series A Preferred Shares to various investors pursuant to a modified Dutch auction process. On September 5, 2012, the Corporation completed the repurchase of the Warrant for an aggregate purchase price of $563.
On December 19, 2013, the Company completed the sale of 1,000,000 depositary shares, each representing a 1/40th ownership interest in a 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B, of the Company, with a liquidation preference of $1,000 per share (equivalent to $25.00 per depositary share). The Company sold the maximum of 1,000,000 depositary shares in the offering, resulting in gross proceeds to the Company of $25,000.
Using proceeds from the sale of the depositary shares, the Company redeemed all of the Series A Preferred Shares for an aggregate purchase price of $22,857, which redemption was completed as of February 15, 2014.
9
Table of Contents
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Federal regulators continue to implement many provisions of the Dodd-Frank Act, which was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. Currently, federal regulators are still in the process of drafting the implementing regulations for many portions of the Dodd-Frank Act. FCBC is closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with these regulatory requirements.
The Volcker Rule: In December 2013, five federal agencies adopted a final regulation implementing the Volcker Rule provision of the Dodd-Frank Act (the Volcker Rule). The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a security, derivative, commodity future or option on any such instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts specified U.S. Government, agency and/or municipal obligations, and it excepts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities.
The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions. The Company does not engage in any of the trading activities or have any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule.
Many aspects of the Dodd-Frank Act are still subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on FCBC, its subsidiaries, their respective customers or the financial services industry more generally.
Executive and Incentive Compensation
In June 2010, the Federal Reserve Board, the OCC and the FDIC issued joint interagency guidance on incentive compensation policies (Joint Guidance) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organizations incentive compensation arrangements should (a) provide incentives that do not encourage risk-taking beyond the organizations ability to effectively identify and manage risks, (b) be compatible with effective internal controls and risk management and (c) be supported by strong corporate governance, including active and effective oversight by the organizations board of directors.
10
Table of Contents
Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as FCBC. Such reviews will be tailored to each organization based on the scope and complexity of the organizations activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination and deficiencies will be incorporated into the institutions supervisory ratings, which can affect the institutions ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organizations safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.
On February 7, 2011, federal banking regulatory agencies jointly issued proposed rules on incentive-based compensation arrangements under applicable provisions of the Dodd-Frank Act (Proposed Rules). The Proposed Rules generally apply to financial institutions with $1.0 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees. The Proposed Rules (i) prohibit covered financial institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose the institution to inappropriate risk by providing the covered person with excessive compensation, (ii) prohibit covered financial institutions from establishing or maintaining incentive-based compensation arrangements for covered persons that encourage inappropriate risks that could lead to a material financial loss, (iii) require covered financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive-based compensation to help ensure compliance with the Proposed Rules and (iv) require covered financial institutions to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered persons within 90 days following the end of the fiscal year.
Pursuant to rules adopted by the stock exchanges and approved by the SEC in January 2013 under the Dodd-Frank Act, public companies are required to implement clawback procedures for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three-year look-back window of the restatement and would cover all executives who received incentive awards. Public company compensation committee members are also required to meet heightened independence requirements and to consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. The compensation committees must have the authority to hire advisors and to have the company fund reasonable compensation of such advisors.
11
Table of Contents
Effects of Government Monetary Policy
The earnings of the Company are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions, primarily through open market acquisitions or dispositions of United States Government securities, varying the discount rate on member bank borrowings and setting reserve requirements against member and nonmember bank deposits. Federal Reserve Board monetary policies have had a significant effect on the interest income and interest expense of commercial banks, including Citizens, and are expected to continue to do so in the future.
Available Information
FCBCs maintains an Internet website at www.fcza.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate FCBCs website into this Annual Report on Form 10-K). FCBC makes available free of charge on or through its Internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as well as FCBCs definitive proxy statements filed pursuant to Section 14 of the Exchange Act, as soon as reasonably practicable after FCBC electronically files such material with, or furnishes it to, the SEC.
Statistical Information
The following section contains certain financial disclosures related to the Company as required under the Securities and Exchange Commissions Industry Guide 3, Statistical Disclosures by Bank Holding Companies, or a specific reference as to the location of the required disclosures in the Registrants 2014 Annual Report to Shareholders, portions of which are incorporated in this Form 10-K by reference.
I. Distribution of Assets, Liabilities and Shareholders Equity, Interest Rates and Interest Differential
Average balance sheet information and the related analysis of net interest income for the years ended December 31, 2014, 2013 and 2012 is included on pages 11 through 13 - Distribution of Assets, Liabilities and Shareholders Equity, Interest Rates and Interest Differential and Changes in Interest Income and Interest Expense Resulting from Changes in Volume and Changes in Rates, within Managements Discussion and Analysis of Financial Condition and Results of Operations of the Companys 2014 Annual Report to Shareholders and is incorporated into this Item I by reference.
12
Table of Contents
II. Investment Portfolio
The following table sets forth the carrying amount of securities at December 31.
2014 | 2013 | 2012 | ||||||||||
(Dollars in thousands) | ||||||||||||
Available for sale (1) |
||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies |
$ | 42,902 | $ | 51,560 | $ | 54,286 | ||||||
Obligations of states and political subdivisions |
88,021 | 80,625 | 79,806 | |||||||||
Mortgage-backed securities in government sponsored entities |
66,442 | 66,979 | 69,435 | |||||||||
|
|
|
|
|
|
|||||||
Total debt securities |
197,365 | 199,164 | 203,527 | |||||||||
Equity securities in financial institutions |
540 | 449 | 434 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 197,905 | $ | 199,613 | $ | 203,961 | ||||||
|
|
|
|
|
|
(1) | The Corporation had no securitites of an issuer where the aggregate carrying value of such securitites exceeded ten percent of shareholders equity. |
The following tables set forth the maturities of securities at December 31, 2014 and the weighted average yields of such debt securities. Maturities are reported based on stated maturities and do not reflect principal prepayment assumptions.
Within one year | After one but within five years |
After five but within ten years |
After ten years | |||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Available for Sale (2) |
||||||||||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government agencies |
$ | | | $ | 22,740 | 0.98 | % | $ | 14,800 | 1.32 | % | $ | 5,362 | 1.35 | % | |||||||||||||||||
Obligations of states and political subdivisions (1) |
629 | 1.25 | 4,983 | 2.39 | 21,391 | 4.15 | 61,018 | 4.15 | ||||||||||||||||||||||||
Mortgage-backed securities in government sponsored entities |
| | 19,729 | 1.42 | 13,532 | 1.80 | 33,181 | 2.79 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
Total |
$ | 629 | 1.25 | % | $ | 47,452 | 1.36 | % | $ | 49,723 | 3.08 | % | $ | 99,561 | 3.43 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Weighted average yields on nontaxable obligations have been computed based on actual yields stated on the security. |
(2) | The weighted average yield has been computed using the historical amortized cost for available-for-sale securities. |
13
Table of Contents
III. Loan Portfolio
Types of Loans
The amounts of gross loans outstanding at December 31 are shown in the following table according to types of loans.
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial and agriculture |
$ | 114,186 | $ | 115,875 | $ | 100,661 | $ | 86,395 | $ | 84,913 | ||||||||||
Commercial real estate - owner occupied |
143,014 | 161,014 | 156,509 | 185,140 | 187,164 | |||||||||||||||
Commercial real estate - non-owner occupied |
308,666 | 282,832 | 278,299 | 186,712 | 149,087 | |||||||||||||||
Residential real estate |
268,510 | 250,691 | 250,598 | 274,995 | 295,038 | |||||||||||||||
Real estate construction |
65,452 | 39,964 | 19,677 | 39,790 | 39,341 | |||||||||||||||
Consumer and other |
15,029 | 10,865 | 9,809 | 12,236 | 11,780 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 914,857 | $ | 861,241 | $ | 815,553 | $ | 785,268 | $ | 767,323 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Commercial loans are those made for commercial, industrial and professional purposes to individuals, sole proprietorships, partnerships, corporations and other business enterprises. Agriculture loans are for financing agricultural production, including all costs associated with growing crops or raising livestock. Commercial and agriculture loans may be secured, other than by real estate, or unsecured, requiring one single repayment or on an installment repayment schedule. The loans involve certain risks relating to changes in local and national economic conditions and the resulting effect on the borrowing entities. Secured loans not collateralized by real estate mortgages maintain a loan-to-value ratio ranging from 50% in the case of certain stocks, to 100% in the case of savings or time deposit accounts. Unsecured credits rely on the financial strength and previous credit experience of the borrower and in many cases the financial strength of the principals when such credit is extended to a corporation.
Commercial real estate mortgage loans are made predicated on having a security interest in real property and are secured wholly or substantially by that lien on real property. Commercial real estate mortgage loans are generally underwritten with a maximum loan-to-value ratio of 80%.
Residential real estate mortgage loans and home equity lines of credit are made predicated on security interests in real property and secured wholly or substantially by those liens on real property. Such real estate mortgage loans are primarily loans secured by one-to-four family real estate. Residential real estate mortgage loans generally pose less risk to the Company due to the nature of the collateral being less susceptible to sudden changes in value.
14
Table of Contents
Real estate construction loans are for the construction of residential homes, new buildings or additions to existing buildings. Generally, these loans are secured by one-to-four family real estate or commercial real estate. The Company controls disbursements in connection with construction loans.
Consumer loans are made to individuals for household, family and other personal expenditures. These expenditures include the purchase of vehicles or furniture, educational expenses, medical expenses, taxes or vacation expenses. Consumer loans may be secured, other than by real estate, or unsecured, generally requiring repayment on an installment repayment schedule. Consumer loans pose a relatively higher credit risk. This higher risk is moderated by the use of certain loan to value limits on secured credits and aggressive collection efforts. The collectability of consumer loans is influenced by local and national economic conditions.
Letters of credit represent extensions of credit granted in the normal course of business, which are not reflected in the Companys consolidated financial statements. As of December 31, 2014 and 2013, the Company was contingently liable for $1,207 and $2,611, respectively, with respect to outstanding letters of credit. In addition, Citizens had issued lines of credit to customers. Borrowings under such lines of credit are usually for the working capital needs of the borrower. At December 31, 2014 and 2013, Citizens had commitments to extend credit, excluding letters of credit, in the aggregate amounts of approximately $192,249 and $184,300, respectively. Of these amounts, $170,123 and $163,198 represented lines of credit and construction loans, and $22,126 and $21,102 represented overdraft protection commitments at December 31, 2014 and 2013, respectively. Such amounts represent the portion of total commitments that had not been used by customers as of December 31, 2014 and 2013.
15
Table of Contents
Maturities and Sensitivity of Loans to Changes in Interest Rates
The following table shows the amount of commercial and agriculture, commercial real estate, and real estate construction loans outstanding as of December 31, 2014, which, based on the contract terms for repayments of principal, are due in the periods indicated. In addition, the amounts due after one year are classified according to their sensitivity to changes in interest rates.
Maturing | ||||||||||||||||
Within one year |
After one but within five years |
After five years |
Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial and agriculture |
$ | 37,041 | $ | 51,558 | $ | 25,587 | $ | 114,186 | ||||||||
Commercial real estate - owner occupied |
4,384 | 25,457 | 113,173 | 143,014 | ||||||||||||
Commercial real estate - non-owner occupied |
10,435 | 69,642 | 228,589 | 308,666 | ||||||||||||
Real estate construction |
8,127 | 24,924 | 32,401 | 65,452 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 59,987 | $ | 171,581 | $ | 399,750 | $ | 631,318 | |||||||||
|
|
|
|
|
|
|
|
Interest Sensitivity |
||||||||
Fixed rate |
Variable rate |
|||||||
(Dollars in thousands) | ||||||||
Due after one but within five years |
$ | 83,851 | $ | 87,730 | ||||
Due after five years |
42,389 | 357,361 | ||||||
|
|
|
|
|||||
$ | 126,240 | $ | 445,091 | |||||
|
|
|
|
The preceding maturity information is based on contract terms at December 31, 2014 and does not include any possible rollover at maturity date. In the normal course of business, Citizens considers and acts on the borrowers requests for renewal of loans at maturity. Evaluation of such requests includes a review of the borrowers credit history, the collateral securing the loan and the purpose for such request.
16
Table of Contents
Risk Elements
The following table presents information concerning the amount of loans at December 31 that contain certain risk elements.
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Loans accounted for on a nonaccrual basis (1) |
$ | 13,558 | $ | 20,459 | $ | 29,855 | $ | 25,768 | $ | 22,175 | ||||||||||
Loans contractually past due 90 days or more as to principal or interest payments (2) |
| | 80 | 1,301 | 2,241 | |||||||||||||||
Loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower (3) |
4,928 | 5,234 | 7,250 | 10,284 | 8,561 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 18,486 | $ | 25,693 | $ | 37,185 | $ | 37,353 | $ | 32,977 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans included in above totals |
$ | 7,101 | $ | 12,458 | $ | 19,302 | $ | 15,472 | $ | 8,784 | ||||||||||
Impaired loans not included in above totals |
4,048 | 5,599 | 6,788 | 11,908 | 10,389 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans |
$ | 11,149 | $ | 18,057 | $ | 26,090 | $ | 27,380 | $ | 19,173 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | A loan is placed on nonaccrual status when doubt exists as to the collectability of the loan, including any accrued interest. With a few immaterial exceptions, commercial and agriculture, commercial real estate, residential real estate and construction loans past due 90 days are placed on nonaccrual unless they are well collateralized and in the process of collection. Generally, consumer loans are charged-off within 30 days after becoming past due 90 days unless they are well collateralized and in the process of collection. Once a loan is placed on nonaccrual, interest is only recognized on a cash basis where future collections of principal is probable. |
(2) | Excludes loans accounted for on a nonaccrual basis. |
(3) | Excludes loans accounted for on a nonaccrual basis and loans contractually past due 90 days or more as to principal or interest payments. |
There were no loans as of December 31, 2014, other than those disclosed above, where known information about probable credit problems of borrowers caused management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms. There were no other interest-bearing assets that would be required to be disclosed in the table above, if such assets were loans as of December 31, 2014. The gross interest income that would have been recorded on nonaccrual loans and restructured loans in 2014 if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period, was $758. The amount of interest income on such loans actually included in net income in 2014 was $761.
17
Table of Contents
Interest income recognition associated with impaired loans was as follows.
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Interest income on impaired loans, all of which was recognized on a cash basis |
$ | 570 | $ | 989 | $ | 1,818 | $ | 2,028 | $ | 654 | ||||||||||
|
|
|
|
|
|
|
|
|
|
At December 31, 2014 and 2013, Citizens loan portfolio included industry concentrations for: Lessors of Real Estate; Agriculture; Accommodations & Restaurants; Construction Services; and Manufacturing. Management determines such concentrations using NAICS codes and regulatory standards that define significant concentrations as greater than 25 percent of Citizens capital, inclusive of the allowance for loan losses. In addition, management believes that Citizens most significant loan portfolio concentration and exposure relates to loans secured by real estate. There were no foreign loans outstanding at December 31, 2014.
18
Table of Contents
IV. Summary of Loan Loss Experience
Analysis of the Allowance for Loan Losses
The following table shows the daily average loan balances and changes in the allowance for loan losses for the years indicated.
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Daily average amount of loans net of unearned income |
$ | 874,432 | $ | 819,152 | $ | 780,786 | $ | 763,918 | $ | 784,263 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses at beginning of year |
$ | 16,528 | $ | 19,742 | $ | 21,257 | $ | 21,768 | $ | 15,271 | ||||||||||
Loan charge-offs: |
||||||||||||||||||||
Commercial and agriculture |
338 | 483 | 841 | 2,447 | 2,710 | |||||||||||||||
Commercial real estate - owner occupied |
1,661 | 989 | 1,644 | 1,612 | 4,201 | |||||||||||||||
Commercial real estate - non-owner occupied |
198 | 815 | 1,796 | 2,949 | 452 | |||||||||||||||
Real estate mortgage |
2,449 | 2,907 | 4,506 | 3,748 | 4,029 | |||||||||||||||
Real estate construction |
| 136 | 446 | 981 | 799 | |||||||||||||||
Consumer and other |
135 | 220 | 246 | 193 | 460 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
4,781 | 5,550 | 9,479 | 11,930 | 12,651 | ||||||||||||||||
Recoveries of loans previously charged-off: |
||||||||||||||||||||
Commercial and agriculture |
249 | 141 | 353 | 307 | 303 | |||||||||||||||
Commercial real estate - owner occupied |
363 | 265 | 287 | 296 | 646 | |||||||||||||||
Commercial real estate - non-owner occupied |
50 | 184 | 325 | 94 | 4 | |||||||||||||||
Real estate mortgage |
292 | 458 | 397 | 429 | 99 | |||||||||||||||
Real estate construction |
6 | 108 | 131 | 387 | | |||||||||||||||
Consumer and other |
61 | 80 | 71 | 106 | 156 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,021 | 1,236 | 1,564 | 1,619 | 1,208 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net charge-offs (1) |
(3,760 | ) | (4,314 | ) | (7,915 | ) | (10,311 | ) | (11,443 | ) | ||||||||||
Provision for loan losses (2) |
1,500 | 1,100 | 6,400 | 9,800 | 17,940 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses at year end |
$ | 14,268 | $ | 16,528 | $ | 19,742 | $ | 21,257 | $ | 21,768 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allowance for loan losses as a percent of loans at year-end |
1.56 | % | 1.92 | % | 2.42 | % | 2.71 | % | 2.84 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ratio of net charge-offs during the year to average loans outstanding |
0.43 | % | 0.53 | % | 1.01 | % | 1.35 | % | 1.46 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The amount of net charge-offs fluctuates from year to year due to factors relating to the condition of the general economy, decline in market values of collateral and deteriorization of specific businesses. |
19
Table of Contents
Allocation of Allowance for Loan Losses
The following table allocates the allowance for loan losses at December 31 to each loan category. The allowance has been allocated according to the amount deemed to be reasonably necessary to provide for the probable losses estimated to be incurred within the following categories of loans at the dates indicated.
2014 | 2013 | |||||||||||||||
Allowance | Percentage of loans to total loans |
Allowance | Percentage of loans to total loans |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial and agriculture |
$ | 1,822 | 12.5 | % | $ | 2,841 | 13.5 | % | ||||||||
Commercial real estate - owner occupied |
2,580 | 15.6 | 3,263 | 18.7 | ||||||||||||
Commercial real estate - non-owner occupied |
4,798 | 33.7 | 4,296 | 32.8 | ||||||||||||
Real estate mortgage |
3,747 | 29.3 | 5,224 | 29.1 | ||||||||||||
Real estate construction |
428 | 7.2 | 184 | 4.6 | ||||||||||||
Consumer and other |
196 | 1.6 | 214 | 1.3 | ||||||||||||
Unallocated |
697 | | 506 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 14,268 | 100.0 | % | $ | 16,528 | 100.0 | % | |||||||||
|
|
|
|
|
|
|
|
2012 | 2011 | |||||||||||||||
Allowance | Percentage of loans to total loans |
Allowance | Percentage of loans to total loans |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||
Commercial and agriculture |
$ | 2,811 | 12.3 | % | $ | 2,876 | 11.0 | % | ||||||||
Commercial real estate - owner occupied |
4,836 | 19.2 | 6,011 | 23.6 | ||||||||||||
Commercial real estate - non-owner occupied |
5,303 | 34.1 | 4,560 | 23.8 | ||||||||||||
Real estate mortgage |
5,780 | 30.7 | 5,796 | 35.0 | ||||||||||||
Real estate construction |
349 | 2.4 | 974 | 5.1 | ||||||||||||
Consumer and other |
246 | 1.3 | 719 | 1.5 | ||||||||||||
Unallocated |
417 | | 321 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 19,742 | 100.0 | % | $ | 21,257 | 100.0 | % | |||||||||
|
|
|
|
|
|
|
|
2010 | ||||||||
Allowance | Percentage of loans to total loans |
|||||||
(Dollars in thousands) | ||||||||
Commercial and agriculture |
$ | 3,639 | 11.1 | % | ||||
Commercial real estate - owner occupied |
5,920 | 24.4 | ||||||
Commercial real estate - non-owner occupied |
3,907 | 19.4 | ||||||
Real estate mortgage |
4,569 | 38.5 | ||||||
Real estate construction |
2,139 | 5.1 | ||||||
Consumer and other |
726 | 1.5 | ||||||
Unallocated |
868 | | ||||||
|
|
|
|
|||||
$ | 21,768 | 100.0 | % | |||||
|
|
|
|
20
Table of Contents
Citizens measures the adequacy of the allowance for loan losses by using both specific and general components. The specific component relates to the evaluation of each loan identified as impaired. The general component consists of a pooling of commercial credits risk graded as special mention and substandard, based on portfolio experience, and general reserves, which are based on an eight quarter loss migration analysis, adjusted for current economic factors. Factors in the determination of the economic reserve include items such as changes in the economic and business conditions of its market, changes in lending policies and procedures, changes in loan concentrations, as well as a few others. The allowance for loan losses to total loans decreased from 1.92% in 2013 to 1.56% in 2014. The unallocated reserve of Citizens increased to $697 in 2014 from $506 in 2013. Management considers both the increase in unallocated and the end-of-period number to be insignificant and within the loan policy guidelines.
Deposits
The average daily amount of deposits (all in domestic offices) and average rates paid on such deposits is summarized for the years indicated.
2014 | 2013 | 2012 | ||||||||||||||||||||||
Average balance |
Average rate paid |
Average balance |
Average rate paid |
Average balance |
Average rate paid |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Noninterest-bearing demand deposits |
$ | 297,003 | N/A | $ | 233,592 | N/A | $ | 194,418 | N/A | |||||||||||||||
Interest-bearing demand deposits |
184,961 | 0.05 | % | 183,861 | 0.07 | % | 157,193 | 0.14 | % | |||||||||||||||
Savings, including Money Market deposit accounts |
316,447 | 0.09 | % | 301,193 | 0.09 | % | 290,630 | 0.10 | % | |||||||||||||||
Certificates of deposit, including IRAs |
227,682 | 0.84 | % | 246,724 | 0.97 | % | 272,610 | 1.20 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
$ | 1,026,093 | $ | 965,370 | $ | 914,851 | |||||||||||||||||||
|
|
|
|
|
|
21
Table of Contents
Maturities of certificates of deposits and individual retirement accounts of $100,000 or more outstanding at December 31, 2014 are summarized as follows.
Certificates of Deposits |
Individual Retirement Accounts |
Total | ||||||||||
(Dollars in thousands) | ||||||||||||
3 months or less |
$ | 12,995 | $ | 751 | $ | 13,746 | ||||||
Over 3 through 6 months |
9,354 | 405 | 9,759 | |||||||||
Over 6 through 12 months |
13,338 | 1,102 | 14,440 | |||||||||
Over 12 months |
17,982 | 2,602 | 20,584 | |||||||||
|
|
|
|
|
|
|||||||
$ | 53,669 | $ | 4,860 | $ | 58,529 | |||||||
|
|
|
|
|
|
Return on Equity and Assets
Information required by this section is incorporated herein by reference from the information appearing under the caption Five-Year Selected Consolidated Financial Data located on pages 1 and 2 of the 2014 Annual Report. The common share dividend payout ratio was 15.4% in 2014, 18.7% in 2013, 16.6% in 2012, 5.8% in 2011 and 0% in 2010.
Short-term Borrowings
See Note 9 to the consolidated financial statements (located on page 62 of the 2014 Annual Report) and Distribution of Assets, Liabilities and Shareholders Equity, Interest Rates and Interest Differential (located on pages 11 through 13 of the 2014 Annual Report) for the statistical disclosures for short-term borrowings for 2014 and 2013.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), relating to such matters as financial condition, anticipated operating results, cash flows, business line results, credit quality expectations, prospects for new lines of business, economic trends (including interest rates) and similar matters. Forward-looking statements reflect our expectations, estimates or projections concerning future results or events. These statements are generally identified by the use of forward-looking words or phrases such as believe, belief, expect, anticipate, may, could, intend, intent, estimate, plan, foresee, likely, will, should or other similar words or phrases. Forward-looking statements are not guarantees
22
Table of Contents
of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results, performance or achievements to differ from results discussed in the forward-looking statements include, but are not limited to, changes in financial markets or national or local economic conditions; sustained weakness or deterioration in the real estate market; volatility and direction of market interest rates; credit risks of lending activities; changes in the allowance for loan losses; legislation or regulatory changes or actions; increases in FDIC insurance premiums and assessments; changes in tax laws; failure of or breach in our information and data processing systems; unforeseen litigation; increased competition in our market area; failures to manage growth and/or effectively integrate acquisitions; and other risks identified from time-to-time in the Companys other public documents on file with the Securities and Exchange Commission, including those risks set forth under Item 1A of Part 1 of this Annual Report on Form 10-K.
The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, 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.
OUR BUSINESS HAS BEEN AND MAY CONTINUE TO BE ADVERSELY AFFECTED BY CONDITIONS IN THE FINANCIAL MARKETS AND ECONOMIC CONDITIONS BOTH NATIONALLY AND IN OUR MARKET AREAS. OUR BUSINESS IS CONCENTRATED IN, AND DEPENDENT UPON THE PROSPERITY OF, NORTH AND NORTH CENTRAL OHIO, AND ANY CONTINUED WEAKNESS OR PROLONGED RECOVERY IN THE ECONOMIES OF THESE COMMUNITIES COULD RESULT IN DETERIORATION IN CREDIT QUALITY.
Our success depends to a significant extent upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond our control can adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings and our capital. Moreover, our lending and deposit gathering activities are concentrated in Central and North Central Ohio, with approximately 71.8% of our loan portfolio and approximately 80.1% of our deposits as of December 31, 2014 concentrated in a seven county region in North Central Ohio and approximately 28.2% of our loan portfolio and approximately 19.9% of our deposits as of December 31, 2014 concentrated in a four county region in Central Ohio. Our success depends on the general economic conditions of these areas, particularly given that a significant portion of our lending relates to real estate located in these regions. Real estate values in these Ohio communities have been negatively impacted by the recent economic crisis. During the last several years, the U.S. economy has been marked by sluggish labor market improvements, limited GDP growth, low inflation, and, only recently, upward movement in housing prices, as well as uncertainty related to U.S. and European fiscal issues, political climates and global economic conditions. Continued uncertainty, sustained high unemployment, volatility or disruptions of global financial markets, or prolonged deterioration in global, national or local business
23
Table of Contents
or economic conditions could result in, among other things, a deterioration of credit quality, further impairment of real estate values, a decrease in the demand for our loans and other products and services, a further impairment of certain intangible assets, such as goodwill, and an increase in the number of clients who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs, an increase in our provision for loan losses, and valuation adjustments on loans held for sale, which could have a material adverse effect on our financial condition, results of operations and cash flows.
A SUBSTANTIAL AMOUNT OF OUR LOAN PORTFOLIO CONSISTS OF RESIDENTIAL AND COMMERCIAL REAL ESTATE LOANS. SUSTAINED WEAKNESS OR DETERIORATION IN THE REAL ESTATE MARKET COULD CAUSE INCREASES IN DELINQUENCIES AND NON-PERFORMING ASSETS, INCLUDING ADDITIONAL LOAN CHARGE-OFFS, AND COULD DEPRESS OUR INCOME, EARNINGS AND CAPITAL.
At December 31, 2014, approximately 29.3% and 49.4%, respectively, of our loan portfolio was comprised of residential and commercial real estate loans. The volume and credit quality of these loans has been volatile in the last several years. The commercial and residential real estate markets continue to experience challenges in our markets. Economic factors both nationally and in the communities we serve have and may continue to cause deterioration to the value of real estate Citizens uses to secure its loans. Continued weakness in the economy or a prolonged recovery, deterioration of our real estate portfolio, a decrease in real estate values, an increase in unemployment, decreased or nonexistent housing price appreciation or increases in interest rates could reduce our earnings and consequently our financial condition because borrowers may not be able to repay their loans. The value of the collateral securing our loans and the quality of our loan portfolio may decline and customers may not want or need our products and services.
Any of these scenarios could cause us to make fewer loans, increase delinquencies and non-performing assets, require us to charge off a higher percentage of our loans or result in additional increases to our provision for loan losses in future periods, which could adversely affect our business, financial condition and results of operations.
WE MAY BE UNABLE TO MANAGE INTEREST RATE RISKS, WHICH COULD REDUCE OUR NET INTEREST INCOME.
Our results of operations are affected principally by net interest income, which is the difference between interest earned on loans and investments and interest expense paid on deposits and other borrowings. The spread between the yield on our interest-earning assets and our overall cost of funds has been compressed in the recent low interest rate environment, and our net interest income may continue to be adversely impacted by an extended period of continued low rates. We cannot predict or control changes in interest rates. National, regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the Federal Reserve System, affect the movement of interest rates and our interest income and interest expense. If the interest rates paid on deposits and other borrowed funds increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowed funds.
24
Table of Contents
In addition, certain assets and liabilities may react in different degrees to changes in market interest rates. For example, interest rates on some types of assets and liabilities may fluctuate prior to changes in broader market interest rates, while interest rates on other types may lag behind. Some of our assets, such as adjustable rate mortgages, have features that restrict changes in their interest rates, including rate caps.
Interest rates are highly sensitive to many factors that are beyond our control. Some of these factors include:
| inflation; |
| recession; |
| unemployment; |
| money supply; |
| international disorders; and |
| instability in domestic and foreign financial markets. |
Changes in interest rates may affect the level of voluntary prepayments on our loans and may also affect the level of financing or refinancing by customers. We believe that the impact on our cost of funds from a rise in interest rates will depend on a number of factors, including but not limited to, the competitive environment in the banking sector for deposit pricing, opportunities for clients to invest in other markets such as fixed income and equity markets, and the propensity of customers to invest in their businesses. The effect on our net interest income from an increase in interest rates will ultimately depend on the extent to which the aggregate impact of loan re-pricings exceeds the impact of increases in our cost of funds.
WE MAY FAIL TO REALIZE ALL OF THE ANTICIPATED BENEFITS OF THE TCNB TRANSACTION
The success of our acquisition of TCNB and The Citizens National Bank of Southwestern Ohio (TCNB Bank) will depend, in part, on our ability to (i) realize the anticipated benefits and cost savings from combining the businesses of TCNB and TCNB Bank with the existing businesses of the Company and its subsidiaries and (ii) combine our respective businesses in a manner that permits growth opportunities and cost savings to be realized without materially disrupting existing customer relationships or decreasing revenues due to loss of customers. However, to realize these anticipated benefits and cost savings, we must successfully combine and integrate the businesses of TCNB and TCNB Bank. If we are not able to achieve these objectives, the anticipated synergies, cost savings and other benefits of the transaction may not be realized fully or at all or may take longer to realize than expected.
The Company and TCNB and their respective subsidiaries have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each companys ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined companys ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also require significant management attention and resources that will not be available for normal operations. In addition, the merger and integration will result in the Company entering markets where we do not currently have a meaningful presence and could result in deposit and other customer losses.
25
Table of Contents
WE COULD EXPERIENCE DIFFICULTIES IN MANAGING OUR GROWTH AND EFFECTIVELY INTEGRATING THE OPERATIONS OF TCNB AND ITS SUBSIDIARY.
Our earnings, financial condition and prospects after the consummation of the TCNB merger transaction will depend in part on our ability to integrate successfully the operations of TCNB and TCNB Bank and to continue to implement our own business plan. We may not be able to achieve fully the strategic objectives and operating efficiencies in the merger. The costs or difficulties relating to the integration of TCNB and TCNB Bank within our organization may be greater than expected or the cost savings from any anticipated economies of scale of the combined organization may be lower or take longer to realize than expected. Inherent uncertainties exist in integrating the operations of any acquired entity. In addition, the markets and industries in which the Company and TCNB and their respective subsidiaries operate are highly competitive. We may lose our customers or customers of TCNB and TCNB Bank as a result of the merger. We may also lose key personnel, either from the Company or from TCNB and TCNB Bank, as a result of the merger. These factors could contribute to the Company not fully achieving the expected benefits from the merger.
STRONG COMPETITION WITHIN OUR MARKET AREA MAY REDUCE OUR ABILITY TO ATTRACT AND RETAIN DEPOSITS AND ORIGINATE LOANS.
We face competition both in originating loans and in attracting deposits within our market area, which includes Central and North Central Ohio. We compete for clients by offering personal service and competitive rates on our loans and deposit products. The type of institutions we compete with include large regional financial institutions, community banks, thrifts and credit unions operating within our market areas. Nontraditional sources of competition for loan and deposit dollars come from captive auto finance companies, mortgage banking companies, internet banks, brokerage companies, insurance companies and direct mutual funds. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. In addition, to stay competitive in our markets we may need to adjust the interest rates on our products to match the rates offered by our competitors, which could adversely affect our net interest margin. As a result, our profitability depends upon our continued ability to successfully compete in our market areas while achieving our investment objectives.
26
Table of Contents
LEGISLATIVE OR REGULATORY CHANGES OR ACTIONS COULD ADVERSELY IMPACT OUR BUSINESS.
The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. These laws and regulations are primarily intended for the protection of consumers, depositors, borrowers and the deposit insurance fund, not to benefit our shareholders. Changes to laws and regulations or other actions by regulatory agencies may negatively impact us, possibly limiting the services we provide, increasing the ability of non-banks to compete with us or requiring us to change the way we operate. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on the operation of an institution and the ability to determine the adequacy of an institutions allowance for loan losses. Failure to comply with applicable laws, regulations and policies could result in sanctions being imposed by the regulatory agencies, including the imposition of civil money penalties, which could have a material adverse effect on our operations and financial condition.
In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. In the last several years, Congress and the federal bank regulators have acted on an unprecedented scale in responding to the stresses experienced in the global financial markets. Some of the laws enacted by Congress and regulations promulgated by federal bank regulators subject us and other financial institutions to additional restrictions, oversight and costs that may have an adverse impact on our business and results of operations. In addition to laws, regulations and supervisory and enforcement actions directed at the operations of banks, proposals to reform the housing finance market contemplate winding down Fannie Mae and Freddie Mac, which could negatively affect our sales of loans.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law on July 21, 2010 and, although it became generally effective in July 2010, many of its provisions have extended implementation periods and delayed effective dates and have and will continue to require extensive rulemaking by regulatory authorities. In addition, we may be subjected to higher deposit insurance premiums to the FDIC. We may also be subject to additional regulations under the newly established Consumer Financial Protection Bureau, which was given broad authority to implement new consumer protection regulations. These and other provisions of the Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, may place significant additional costs on us, impede our growth opportunities and place us at a competitive disadvantage.
In July 2013, our primary federal regulator, the Federal Reserve, published final rules establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committees December 2010 framework known as Basel III for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The implementation of the final rules will lead to higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. In addition, in order to avoid limitations on capital distributions, such as dividend payments and certain bonus payments to executive officers, the rules require insured financial institutions to hold a capital conservation buffer of common equity tier 1 capital above the minimum risk-based capital requirements. The capital conservation buffer will be phased in over time, becoming effective on January 1, 2019, and will consist of an additional amount of common equity equal to 2.5% of risk-weighted assets. The rules will also revise the regulatory agencies prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of common equity. The rules began to phase in on January 1, 2014 for larger institutions and January 1, 2015 for smaller, less complex banking organizations such as the Company, and will be fully phased in by January 1, 2019. Until the rules are fully phased in, we cannot predict the ultimate impact it will have upon the financial condition or results of operations of the Company.
27
Table of Contents
DEPOSIT INSURANCE PREMIUMS MAY INCREASE AND HAVE A NEGATIVE EFFECT ON THE COMPANYS RESULTS OF OPERATIONS.
The Deposit Insurance Fund (the DIF) maintained by the FDIC to resolve bank failures is funded by fees assessed on insured depository institutions. The costs of resolving bank failures has increased during the last few years and decreased the DIF. The FDIC collected a special assessment in 2009 to replenish the DIF and also required a prepayment of an estimated amount of future deposit insurance premiums. If the costs of future bank failures increase, the deposit insurance premiums required to be paid by Citizens may also increase.
OUR ALLOWANCE FOR LOAN LOSSES MAY PROVE TO BE INSUFFICIENT TO ABSORB POTENTIAL LOSSES IN OUR LOAN PORTFOLIO.
We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses within the loan portfolio. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, the credit quality of the loan portfolio, the collateral supporting the loans and the performance of customers relative to their financial obligations with us. However, every loan we make carries a risk of non-payment. This risk is affected by, among other things, cash flow of the borrower and/or the project being financed, changes and uncertainties as to the future value of the collateral securing such loan, the credit history of the particular borrower, changes in economic and industry conditions, and the duration of the loan.
The amount of future losses is also susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the allowance for loan losses will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance, which would adversely affect our earnings. Excessive loan losses and significant additions to our allowance for loan losses could have a material adverse impact on our financial condition and results of operations.
In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our allowance for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our financial condition and results of operations.
28
Table of Contents
WE ARE A HOLDING COMPANY AND DEPEND ON OUR SUBSIDIARY BANK FOR DIVIDENDS.
As a financial holding company, we are a legal entity separate and distinct from our subsidiaries and affiliates. Our principal source of funds to support our operations, pay dividends on our common and preferred shares and service our debt is dividends from our subsidiary bank, Citizens. In the event that Citizens is unable to pay dividends to us, we may not be able to service our debt, pay our other obligations or pay dividends on our common or preferred shares. Accordingly, our inability to receive dividends from Citizens could also have a material adverse effect on our business, financial condition and results of operations.
Various federal and state statutory provisions and regulations limit the amount of dividends that Citizens may pay to us without regulatory approval. Generally, subject to certain minimum capital requirements, Citizens may declare a dividend without the approval of the State of Ohio Division of Financial Institutions so long as the total amount of the dividends in a calendar year does not exceed Citizens total net income for that year combined with its retained net income for the two preceding years. In addition, the Federal Reserve has issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Thus, the ability of Citizens to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines and may restrict our ability to declare and pay dividends on our common or preferred shares.
THE TRADING VOLUMES FOR OUR COMMON SHARES MAY NOT PROVIDE ADEQUATE LIQUIDITY FOR INVESTORS.
Our common shares and our depositary shares are both listed on the NASDAQ Capital Market; however, the average daily trading volume in our common shares and our depositary shares is less than that of many larger financial services companies. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of our shares at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the current daily average trading volume of our common and of our depositary shares, significant sales of our those in a brief period of time, or the expectation of these sales, could cause a material decline in the price of those shares.
29
Table of Contents
THE MARKET PRICE OF OUR COMMON SHARES MAY BE SUBJECT TO FLUCTUATIONS AND VOLATILITY.
The market price of our common shares may fluctuate significantly due to, among other things, changes in market sentiment regarding our operations or business prospects, the banking industry generally or the macroeconomic outlook. Factors that could impact our trading price include:
| our operating and financial results, including how those results vary from the expectations of management, securities analysts and investors; |
| developments in our business or operations or in the financial sector generally; |
| future offerings by us of debt or preferred shares, which would be senior to our common shares upon liquidation and for purposes of dividend distributions; |
| legislative or regulatory changes affecting our industry generally or our business and operations specifically; |
| the operating and stock price performance of companies that investors consider to be comparable to us; |
| announcements of strategic developments, acquisitions and other material events by us or our competitors; |
| actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers; and |
| other changes in U.S. or global financial markets, global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. |
Equity markets in general and our common shares in particular have experienced considerable volatility over the past few years. The market price of our common shares may continue to be subject to volatility unrelated to our operating performance or business prospects. Increased volatility could result in a decline in the market price of our common shares.
30
Table of Contents
THE SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON SHARES OR SECURITIES CONVERTIBLE INTO OUR COMMON SHARES IN THE PUBLIC MARKET COULD DEPRESS THE PRICE OF OUR COMMON SHARES.
In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide fluctuations that have not necessarily been related to their operating performance. Therefore, our shareholders may not be able to sell their shares at the volumes, prices, or times that they desire. We cannot predict the effect, if any, that future sales of our common shares or securities convertible into our common shares in the market, or availability of shares of our common shares or securities convertible into our common shares for sale in the market, will have on the market price of our common shares. We can give no assurance that sales of substantial amounts of our common shares or securities convertible into our common shares in the market, or the potential for large amounts of sales in the market, would not cause the price of our securities to decline or impair our ability to raise capital through sales of our common shares.
CHANGES IN TAX LAWS COULD ADVERSELY AFFECT OUR PERFORMANCE
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
WE RELY HEAVILY ON OUR MANAGEMENT TEAM, AND THE UNEXPECTED LOSS OF KEY MANAGEMENT MAY ADVERSELY AFFECT OUR OPERATIONS.
Our success to date has been strongly influenced by our ability to attract and to retain senior management experienced in banking in the markets we serve. Our ability to retain executive officers and the current management teams will continue to be important to successful implementation of our strategies. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.
31
Table of Contents
WE NEED TO CONSTANTLY UPDATE OUR TECHNOLOGY IN ORDER TO COMPETE AND MEET CUSTOMER DEMANDS.
The financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and may enable us to reduce costs. Our future success will depend, in part, on our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in our operations. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.
OUR INFORMATION SYSTEMS MAY EXPERIENCE AN INTERRUPTION OR SECURITY BREACH.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.
WE MAY ELECT OR NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, BUT CAPITAL MAY NOT BE AVAILABLE WHEN IT IS NEEDED.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, federal banking agencies have recently finalized extensive changes to their capital requirements, including the adoption of the final Basel III rules as discussed above, which will result in higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. The final impact on us is unknown at this time, but may require us to raise additional capital in the future. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and are based on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.
32
Table of Contents
WE MAY BE THE SUBJECT OF LITIGATION WHICH COULD RESULT IN LEGAL LIABILITY AND DAMAGE TO OUR BUSINESS AND REPUTATION.
From time to time, we may be subject to claims or legal action from customers, employees or others. Financial institutions like FCBC and Citizens are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding our business. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other large financial institutions, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations and/or cause significant reputational harm to our business.
WE DEPEND UPON THE ACCURACY AND COMPLETENESS OF INFORMATION ABOUT CUSTOMERS AND OTHER PARTIES.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and other parties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customers audited financial statements conform with accounting principles generally accepted in the United States and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with generally accepted accounting principles or that are materially misleading, or on other financial information that is inaccurate or incomplete.
WE HAVE IMPLEMENTED ANTI-TAKEOVER DEVICES THAT COULD MAKE IT MORE DIFFICULT FOR ANOTHER COMPANY TO PURCHASE US, EVEN THOUGH SUCH A PURCHASE MAY INCREASE SHAREHOLDER VALUE.
In many cases, shareholders may receive a premium for their shares if we were purchased by another company. State law and our Articles and Amended and Restated Code of Regulations (Code of Regulations) make it difficult for anyone to purchase us without the approval of our board of directors. Consequently, a takeover attempt may prove difficult, and shareholders may not realize the highest possible price for their securities.
INVESTORS COULD BECOME SUBJECT TO REGULATORY RESTRICTIONS UPON OWNERSHIP OF OUR COMMON SHARES.
Under the federal Change in Bank Control Act, a person may be required to obtain prior approval from the Federal Reserve before acquiring the power to directly or indirectly control our management, operations, or policy or before acquiring 10% or more of our common shares.
33
Table of Contents
OUR BUSINESS AND FINANCIAL RESULTS ARE SUBJECT TO RISKS ASSOCIATED WITH THE CREDITWORTHINESS OF OUR CUSTOMERS AND COUNTERPARTIES.
Credit risk is inherent in the financial services business and results from, among other things, extending credit to customers, purchasing securities, and entering into financial derivative transactions and certain guarantee contracts. Credit risk is one of our most significant risks, particularly given the high percentage of our assets represented directly or indirectly by loans, and the importance of lending to our overall business. We manage credit risk by assessing and monitoring the creditworthiness of our customers and counterparties and by diversifying our loan portfolio. Many factors impact credit risk.
A borrowers ability to repay a loan can be adversely affected by individual factors, such as business performance, job losses or health issues. A weak or deteriorating economy and changes in the United States or global markets also could adversely impact the ability of our borrowers to repay outstanding loans. Any decrease in our borrowers ability to repay loans would result in higher levels of nonperforming loans, net charge-offs, and provision for loan losses.
Despite maintaining a diversified loan portfolio, in the ordinary course of business, we may have concentrated credit exposure to a particular person or entity, industry, region or counterparty. Events adversely affecting specific customers, industries, regions or markets, a decrease in the credit quality of a customer base or an adverse change in the risk profile of a market, industry, or group of customers could adversely affect us.
Our credit risk may be exacerbated when collateral held by us to secure obligations to us cannot be realized upon or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure due us.
WE COULD FACE LEGAL AND REGULATORY RISK ARISING OUT OF OUR RESIDENTIAL MORTGAGE BUSINESS.
Numerous federal and state governmental, legislative and regulatory authorities are investigating practices in the business of mortgage and home equity loan lending and servicing and in the mortgage-related insurance and reinsurance industries. We could face the risk of class actions, other litigation and claims from: the owners of or purchasers of such loans originated or serviced by us, homeowners involved in foreclosure proceedings or various mortgage-related insurance programs, downstream purchasers of homes sold after foreclosure, title insurers, and other potential claimants. Included among these claims are claims from purchasers of mortgage and home equity loans seeking the repurchase of loans where the loans allegedly breached origination covenants and representations and warranties made to the purchasers in the purchase and sale agreements. The CFPB has issued new rules for mortgage origination and mortgage servicing. Both the origination and servicing rules create new private rights of action for consumers against lenders and servicers in the event of certain violations.
34
Table of Contents
Item 1B. Unresolved Staff Comments
None.
FCBC neither owns nor leases any properties. Citizens owns its main office at 100 East Water Street, Sandusky, Ohio, which is also the office of FCBC. Citizens also owns branch banking offices in the following Ohio communities: Sandusky (2), Norwalk, Berlin Heights, Castalia, Port Clinton, New Washington, Shelby (2), Greenwich, Plymouth, Shiloh, Dublin, Plain City, Russells Point, Urbana (2), and Quincy. Citizens leases branch banking offices in the Ohio communities of Akron, Huron, Norwalk, West Liberty and Willard.
The Corporation has previously disclosed pending litigation related to a proposed sale of real estate that it owns near one of its branches. The litigation involves allegations that the Corporation breached an agreement to sell the real estate. The Corporation has presented a number of defenses and has filed a counterclaim in the litigation. As a result of responses to discovery in the litigation, the Corporation has obtained information that the amount of the damages claimed by the plaintiff is approximately $330,000.00. The Corporation continues to vigorously defend the litigation and to dispute the claims made against it, including that it has any liability in the litigation, that plaintiff has suffered the damages claimed, and that any of the damages claimed can be recovered from the Corporation.
The Corporation has been named as a third party defendant in a legal action involving a former borrower. The borrowers loan was included in a pool of loans sold by the Corporation. The purchaser of the loan initiated the legal action to collect the loan. The borrower responded with claims that both the purchaser and the Corporation breached agreements. The Corporation intends to vigorously defend against the claims. While the amount of damage claimed by the borrower has not been specified, the Corporation does not believe that the amount would have a material impact on its financial condition.
There were no other new material legal proceedings or material changes to existing legal proceedings during the current period.
Item 4. Mine Safety Disclosures
Not Applicable
35
Table of Contents
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Information regarding the market in which FCBCs common shares are traded, the prices at which such shares have traded and dividend information is incorporated herein by reference from the information appearing under the caption Common Stock and Shareholder Matters located on page 3 of the 2014 Annual Report.
As of February 20, 2015, there were approximately 1,229 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms) of the Companys common shares.
Information regarding the restrictions on the Companys payment of dividends is included under Item 1 of this Annual Report on Form 10-K and is incorporated herein by reference.
The Company did not repurchase any of its common shares during 2014.
Item 6. Selected Financial Data
Information required by this item is incorporated herein by reference from the information appearing under the caption Five-Year Selected Consolidated Financial Data located on pages 1 and 2 of the 2014 Annual Report.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
Information required by this item is incorporated herein by reference from the information appearing under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations located on pages 4 through 17 of the 2014 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is incorporated herein by reference from the disclosures included under the caption Quantitative and Qualitative Disclosures About Market Risk on pages 18 through 19 of the 2014 Annual Report.
36
Table of Contents
Item 8. Financial Statements and Supplementary Financial Data
First Citizens Banc Corps Report of Independent Auditors and Consolidated Financial Statements and accompanying notes are listed below and are incorporated herein by reference from pages 30 through 86 of the 2014 Annual Report (included as Exhibit 13.1 hereto). The supplementary financial information specified by Item 302 of Regulation S-K, is included in Note 21 - Quarterly Financial Data (Unaudited) to the consolidated financial statements found on page 82 of the 2014 Annual Report.
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated Balance Sheets
December 31, 2014 and 2013
Consolidated Statements of Operations
For the years ended December 31, 2014 and 2013
Consolidated Comprehensive Income Statements
For the years ended December 31, 2014 and 2013
Consolidated Statements of Changes in Shareholders Equity
For the years ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows
For the years ended December 31, 2014 and 2013
Notes to Consolidated Financial Statements
37
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The Company has had no disagreements with its independent accountants on matters of accounting principles or financial statement disclosure required to be reported under this Item.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Accounting Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15 under the Exchange Act, as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures as of December 31, 2014, were effective.
Report on Internal Control over Financial Reporting
The Managements Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting located on pages 21 through 23 of the 2014 Annual Report are incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
There was no information the Company was required to disclose in a current report on Form 8-K during the fourth quarter of 2014 that was not reported.
38
Table of Contents
Item 10. Directors, Executive Officers, and Corporate Governance
The information contained under the captions Proposal 1 - Election of Directors, Executive Officers of the Company, Beneficial Ownership of Common Shares of the Company - Section 16(a) Beneficial Ownership Reporting Compliance, Board of Director Meetings and Committees - Audit Committee, Corporate Governance - Code of Ethics and Corporate Governance - Nominating Procedure in the 2015 Proxy Statement is incorporated herein by reference in response to this item.
Item 11. Executive Compensation.
The information contained under the captions Executive Compensation and 2014 Compensation of Directors in the 2015 Proxy Statement is incorporated herein by reference in response to this Item.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the caption Beneficial Ownership of Common Shares of the Company in the 2015 Proxy Statement is incorporated herein by reference in response to this Item.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information contained under the caption Corporate Governance - Transactions with Directors, Officers and Associates in the 2015 Proxy Statement is incorporated herein by reference in response to this item.
Item 14. Principal Accountant Fees and Services.
The information contained under the caption Audit Committee Matters of the 2015 Proxy Statement is incorporated herein by reference in response to this item.
39
Table of Contents
Item 15. Exhibit and Financial Statement Schedules
(a) Documents filed as a Part of the Report
1 | Financial Statements. First Citizens Banc Corps Report of Independent Auditors and Consolidated Financial Statements and accompanying notes are listed below and are incorporated herein by reference from pages 30 through 86 of the 2014 Annual Report (included as Exhibit 13.1 hereto). |
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated Balance Sheets
December 31, 2014 and 2013
Consolidated Statements of Operations
For the years ended December 31, 2014 and 2013
Consolidated Comprehensive Income Statements
For the years ended December 31, 2014 and 2013
Consolidated Statements of Changes in Shareholders Equity
For the years ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows
For the years ended December 31, 2014 and 2013
Notes to Consolidated Financial Statements
2 | Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. |
40
Table of Contents
3 | Exhibits |
Exhibit | Description | Location | ||
2.1 | Agreement and Plan of Merger, dated as September 10, 2014, by and among First Citizens Banc Corp, FC Merger Corp. and TCNB Financial Corp. | Filed as Exhibit 2.1 to First Citizens Banc Corps Current Report on Form 8-K dated and filed September 11, 2014, and incorporated herein by reference. (File No. 1-36192) | ||
3.1(a) | Articles of Incorporation, as amended, of First Citizens Banc Corp. | Filed as Exhibit 3.1 to First Citizens Banc Corps Annual Report on 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 Annual Report on 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 Banc Corp. | 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) | ||
3.1(d) | Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on November 1, 2013, 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 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Shares, Series B, of First Citizens Banc Corp. | Filed as Exhibit 3.4 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement dated and filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
3.2 | Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 15, 2008). | Filed as Exhibit 3.2 to First Citizens Banc Corps Annual Report on Form 10-Q for the period ended September 30, 2014, filed on November 7, 2014 and incorporated herein by reference. (File No. 001-36192) | ||
4.1 | Form of Certificate for Registrants Common Stock | Filed as Exhibit 4.1 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980) |
41
Table of Contents
4.2 | Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Shares, Series A | Filed as Exhibit 4.2 to First Citizens Banc Corps Registration Statement on Form S-1 filed May 22, 2012, and incorporated herein by reference. (File No. 333-181579) | ||
4.3 | Letter Agreement, dated January 20, 2009, including the Securities Purchase Agreement Standard Terms attached thereto as Exhibit A, between First Citizens Banc Corp and the U.S. Department of the Treasury. | Filed as Exhibit 10.1 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). | ||
4.4 | Form of Certificate for 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Shares, Series B, of First Citizens Banc Corp | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.5 | Form of Depositary Receipt for Depositary Shares, each representing 1/40th of a 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B, of First Citizens Banc Corp. | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.6 | Deposit Agreement dated December 1, 2013, among First Citizens Banc Corp, Illinois Stock Transfer Company, as Depositary, and the holders from time to time of Depositary Receipts thereunder. | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.7 | Agreement to furnish instrument and agreements defining rights of holders of long-term debt. | Included herewith. | ||
10.1* | Change in Control Agreement - James O. Miller. | Filed as Exhibit 10.6 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005 and incorporated herein by reference (File No. 0-25980). | ||
10.2* | Change in Control Agreement - Todd A. Michel. | Filed as Exhibit 10.8 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005 and incorporated herein by reference (File No. 0-25980). | ||
10.3 | Supplemental Nonqualified Executive Retirement Plan | Filed as Exhibit 10.12to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980). |
42
Table of Contents
10.4 | Amendment to Supplemental Nonqualified Executive Retirement Plan | Filed as Exhibit 10.13 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980). | ||
10.6 | First Citizens Banc Corp 2014 Incentive Plan | Filed as Exhibit 10.1 to First Citizens Banc Corps Registration Statement Form S-8 filed on February 26, 2015 and incorporated herein by reference (File No. 333-202316). | ||
11.1 | Statement regarding earnings per share | Included in Note 20 to the Consolidated Financial Statements filed as Exhibit 13.1 of this Annual Report on Form 10-K. | ||
13.1 | First Citizens Banc Corp 2014 Annual Report to Shareholders (not deemed filed except for portions which are specifically incorporated by reference in this Annual Report on Form 10-K) | Included herewith | ||
21.1 | Subsidiaries of FCBC | Included herewith | ||
23.1 | Consent of S.R. Snodgrass, P.C. | Included herewith | ||
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 Principal Accounting 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 Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Included herewith | ||
101 | The following materials from First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2014 and 2013; (ii) Consolidated Statements of Operations for each of the two years ended December 31, 2014 and 2013; (iii) Consolidated Comprehensive Income Statements for each of the two years ended December 31, 2014 and 2013; (iv) Consolidated Statements of Changes in Shareholders Equity for each of the two years ended December 31, 2014 and 2013; (v) Consolidated Statement of Cash Flows for each of the two years ended December 31, 2014 and 2013; and (vi) Notes to Consolidated Financial Statements. |
* | Management contract or compensatory plan or arrangement |
43
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) | First Citizens Banc Corp |
By | /s/ James O. Miller | |
James O. Miller, President (Principal Executive Officer) | ||
By | /s/ Todd A. Michel | |
Todd A. Michel, Senior Vice President (Principal Financial Officer) |
Date: March 13, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 13, 2015 by the following persons (including a majority of the Board of Directors of the Registrant) in the capacities indicated:
/s/ Thomas A. Depler Thomas A. Depler, Director |
/s/ Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA Allen R. Nickles, CPA, CFE, FCPA, CFF, CICA, Director | |||
/s/ Allen R. Maurice Allen R. Maurice, Director |
/s/ David A. Voight David A. Voight, Former Chairman of the Board | |||
/s/ James O. Miller James O. Miller, President & CEO, Chairman of the Board |
/s/ Daniel J. White Daniel J. White, Director | |||
/s/ W. Patrick Murray W. Patrick Murray, Director |
44
Table of Contents
FIRST CITIZENS BANC CORP
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
INDEX TO EXHIBITS
Exhibit | Description | Location | ||
2.1 | Agreement and Plan of Merger, dated as September 10, 2014, by and among First Citizens Banc Corp, FC Merger Corp. and TCNB Financial Corp. | Filed as Exhibit 2.1 to First Citizens Banc Corps Current Report on Form 8-K dated and filed September 11, 2014, and incorporated herein by reference. (File No. 1-36192) | ||
3.1(a) | Articles of Incorporation, as amended, of First Citizens Banc Corp. | Filed as Exhibit 3.1 to First Citizens Banc Corps Annual Report on 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 Annual Report on 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 Banc Corp. | 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) | ||
3.1(d) | Certificate of Amendment by Directors or Incorporators to Articles, filed with the Ohio Secretary of State on November 1, 2013, 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 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Shares, Series B, of First Citizens Banc Corp. | Filed as Exhibit 3.4 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement dated and filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
3.2 | Amended and Restated Code of Regulations of First Citizens Banc Corp (adopted April 15, 2008). | Filed as Exhibit 3.2 to First Citizens Banc Corps Annual Report on Form 10-Q for the period ended September 30, 2014, filed on November 7, 2014 and incorporated herein by reference. (File No. 001-36192) |
45
Table of Contents
4.1 | Form of Certificate for Registrants Common Stock | Filed as Exhibit 4.1 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2005, filed on March 16, 2006 and incorporated herein by reference. (File No. 0-25980) | ||
4.2 | Form of Certificate for Fixed Rate Cumulative Perpetual Preferred Shares, Series A | Filed as Exhibit 4.2 to First Citizens Banc Corps Registration Statement on Form S-1 filed May 22, 2012, and incorporated herein by reference. (File No. 333-181579) | ||
4.3 | Letter Agreement, dated January 20, 2009, including the Securities Purchase Agreement Standard Terms attached thereto as Exhibit A, between First Citizens Banc Corp and the U.S. Department of the Treasury. | Filed as Exhibit 10.1 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). | ||
4.4 | Form of Certificate for 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Shares, Series B, of First Citizens Banc Corp | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.5 | Form of Depositary Receipt for Depositary Shares, each representing 1/40th of a 6.50% Noncumulative Redeemable Convertible Perpetual Preferred Share, Series B, of First Citizens Banc Corp. | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.6 | Deposit Agreement dated December 1, 2013, among First Citizens Banc Corp, Illinois Stock Transfer Company, as Depositary, and the holders from time to time of Depositary Receipts thereunder. | Filed as Exhibit 4.2 to First Citizens Banc Corps Pre-Effective Amendment No.1 to Form S-1 Registration Statement filed November 1, 2013, and incorporated herein by reference. (File No. 333-191169) | ||
4.7 | Agreement to furnish instrument and agreements defining rights of holders of long-term debt. | Included herewith. | ||
10.1* | Change in Control Agreement - James O. Miller. | Filed as Exhibit 10.6 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005 and incorporated herein by reference (File No. 0-25980). | ||
10.2* | Change in Control Agreement - Todd A. Michel. | Filed as Exhibit 10.8 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005 and incorporated herein by reference (File No. 0-25980). |
46
Table of Contents
10.3 | Supplemental Nonqualified Executive Retirement Plan | Filed as Exhibit 10.12 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980). | ||
10.4 | Amendment to Supplemental Nonqualified Executive Retirement Plan | Filed as Exhibit 10.13 to First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 15, 2012 and incorporated herein by reference (File No. 0-25980). | ||
10.6 | First Citizens Banc Corp 2014 Incentive Plan | Filed as Exhibit 10.1 to First Citizens Banc Corps Registration Statement Form S-8 filed on February 26, 2015 and incorporated herein by reference (File No. 333-202316). | ||
11.1 | Statement regarding earnings per share | Included in Note 20 to the Consolidated Financial Statements filed as Exhibit 13.1 of this Annual Report on Form 10-K. | ||
13.1 | First Citizens Banc Corp 2014 Annual Report to Shareholders (not deemed filed except for portions which are specifically incorporated by reference in this Annual Report on Form 10-K) | Included herewith | ||
21.1 | Subsidiaries of FCBC | Included herewith | ||
23.1 | Consent of S.R. Snodgrass, P.C. | Included herewith | ||
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 Principal Accounting 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 Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Included herewith | ||
101 | The following materials from First Citizens Banc Corps Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2014 and 2013; (ii) Consolidated Statements of Operations for each of the two years ended December 31, 2014 and 2013; (iii) Consolidated Comprehensive Income Statements for each of the two years ended December 31, 2014 and 2013; (iv) Consolidated Statements of Changes in Shareholders Equity for each of the two years ended December 31, 2014 and 2013; (v) Consolidated Statement of Cash Flows for each of the two years ended December 31, 2014 and 2013; and (vi) Notes to Consolidated Financial Statements. |
* | Management contract or compensatory plan or arrangement |
47