10-Q 1 e10-q.txt FIRST CITIZENS BANC CORP 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended:...................................June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from....................to.......................... Commission File Number:................................................0-25980 FIRST CITIZENS BANC CORP ------------------------ (Exact name of registrant as specified in its charter) OHIO 34-1558688 ---- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 100 EAST WATER STREET, SANDUSKY, OHIO 44870 --------------------------------------------------- (Address of principle executive offices) (Zip Code) Registrant's telephone number, including area code: (419) 625-4121 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes ---- No ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value Outstanding at August 14, 2000 4,105,119 common shares 2 FIRST CITIZENS BANC CORP Index PART I. Financial Information ITEM 1. Financial Statements: Consolidated Balance Sheets (unaudited) June 30, 2000 and December 31, 1999........................................3 Consolidated Statements of Income (unaudited) Three and six months ended June 30, 2000 and 1999..........................4 Consolidated Statements of Comprehensive Income (unaudited) Three and six months ended June 30, 2000 and 1999..........................5 Consolidated Statement of Shareholders' Equity (unaudited) For the years ended December 31, 1998 and 1999 and six months ended June 30, 2000.............................................6 Consolidated Statement of Cash Flows (unaudited) Six months ended June 30, 2000 and 1999....................................7 Notes to Consolidated Financial Statements (unaudited)......................8-15 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................16-21 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk......................21-22 PART II. Other Information ITEM 1. Legal Proceedings..................................................................23 ITEM 2. Changes in Securities and Use of Proceeds..........................................23 ITEM 3. Defaults Upon Senior Securities....................................................23 ITEM 4. Submission of Matters to a Vote of Security Holders.............................23-24 ITEM 5. Other Information..................................................................24 ITEM 6. Exhibits and Reports on Form 8-K...................................................24 SIGNATURES 25
3 FIRST CITIZENS BANC CORP Consolidated Balance Sheets
(Unaudited) June 30, December 31, Assets 2000 1999 ------------------ -------------------- Cash and due from banks $ 16,171,860 $ 14,598,566 Federal funds sold 0 4,600,000 Interest-bearing deposits 51,031 51,031 Securities Available-for-sale 131,131,047 150,254,933 Held-to-maturity (Estimated Fair Value of $369,180 at June 30, 2000, and $407,765 at December 31, 1999) 370,980 406,108 ------------- ------------- Total securities 131,502,027 150,661,041 Loans held for sale 437,233 2,217,250 Loans 313,846,352 288,719,850 Less: Allowance for loan losses (4,286,579) (4,273,825) ------------- ------------- Net loans 309,559,773 284,446,025 Office premises and equipment, net 7,142,029 7,457,886 Intangible assets 2,032,391 2,197,916 Accrued interest and other assets 7,432,149 5,990,342 ------------- ------------- Total assets $ 474,328,493 $ 472,220,057 ============= ============= Liabilities Deposits Noninterest-bearing deposits $ 41,346,437 $ 40,246,502 Interest-bearing deposits 353,869,397 362,913,881 ------------- ------------- Total deposits 395,215,834 403,160,383 Federal Home Loan Bank borrowings 1,683,386 1,958,960 Securities sold under agreements to repurchase 9,244,173 12,975,188 U. S. Treasury interest-bearing demand deposit note payable 2,796,251 3,065,681 Federal funds purchased 15,280,000 0 Accrued interest, taxes and other expenses 2,528,093 2,865,057 ------------- ------------- Total liabilities 426,747,737 424,025,269 Shareholders' Equity Common stock, no par value; 10,000,000 shares authorized, 4,263,401 shares issued 23,257,520 23,257,520 Retained earnings 29,172,888 28,010,371 Treasury stock, 158,282 shares at cost at June 30, 2000, 100,586 shares at cost at December 31, 1999 (4,454,243) (2,877,032) Accumulated other comprehensive income/(loss) (395,409) (196,071) ------------- ------------- Total shareholders' equity 47,580,756 48,194,788 ------------- ------------- Total liabilities and shareholders' equity $ 474,328,493 $ 472,220,057 ============= =============
See notes to interim consolidated financial statements. Page 3 4 FIRST CITIZENS BANC CORP Consolidated Statements of Income (Unaudited)
Three months ended Six months ended June 30, June 30, ----------------------------------- ---------------------------------- 2000 1999 2000 1999 INTEREST INCOME: Loans, including fees $ 6,404,917 $ 5,699,663 $ 12,339,966 $ 11,500,563 Taxable securities 1,416,124 1,673,028 2,931,982 3,394,133 Nontaxable securities 545,953 589,935 1,093,079 1,170,960 Federal funds sold 7,907 153,988 41,293 329,807 Other 10,020 11,208 23,639 32,243 ------------ ------------ ------------ ------------ Total interest income 8,384,921 8,127,822 16,429,959 16,427,706 INTEREST EXPENSE: Deposits 3,428,315 3,575,291 6,869,905 7,224,511 FHLB Borrowings 24,967 32,540 51,868 195,604 Other 346,356 153,675 498,266 311,007 ------------ ------------ ------------ ------------ Total interest expense 3,799,638 3,761,506 7,420,039 7,731,122 ------------ ------------ ------------ ------------ NET INTEREST INCOME 4,585,283 4,366,316 9,009,920 8,696,584 PROVISION FOR LOAN LOSSES 120,000 88,000 215,000 156,000 ------------ ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,465,283 4,278,316 8,794,920 8,540,584 NONINTEREST INCOME: Computer center data processing fees 299,992 224,691 562,287 734,387 Service charges 448,206 242,962 900,268 483,603 Net gain/(loss) on sale of securities (42,858) 3,557 (43,966) 730,861 Net gain/(loss) on sale of loans (64,693) 33,072 (64,693) 127,590 Other 377,898 373,685 783,512 706,293 ------------ ------------ ------------ ------------ Total noninterest income 1,018,545 877,967 2,137,408 2,782,734 NONINTEREST EXPENSE: Salaries, wages and benefits 1,707,660 1,635,717 3,355,071 3,415,913 Net occupancy expense 196,446 204,039 396,469 400,977 Equipment expense 278,468 206,097 520,621 392,889 FDIC Premiums 24,763 12,171 41,901 24,416 State franchise tax 154,797 146,485 301,886 297,241 Professional services 293,621 375,354 570,576 643,383 Amortization of intangible assets 84,012 81,512 165,524 163,024 Other operating expenses 1,033,351 881,886 2,065,032 1,788,001 ------------ ------------ ------------ ------------ Total noninterest expense 3,773,118 3,543,261 7,417,080 7,125,844 ------------ ------------ ------------ ------------ Income before taxes 1,710,710 1,613,022 3,515,248 4,197,474 Income tax expense 446,930 420,144 946,094 1,149,015 ------------ ------------ ------------ ------------ Net Income $ 1,263,780 $ 1,192,878 $ 2,569,154 $ 3,048,459 ============ ============ ============ ============ Earnings per share $ 0.31 $ 0.28 $ 0.62 $ 0.72 Dividends declared $ 0.17 $ 0.16 $ 0.34 $ 0.32 Wtd. avg. shares during the period 4,108,449 4,262,834 4,123,688 4,263,083
See notes to interim consolidated financial statements. Page 4 5 FIRST CITIZENS BANC CORP Consolidated Comprehensive Income Statements (Unaudited)
Three months ended Six months ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $ 1,263,780 $ 1,192,878 $ 2,569,154 $ 3,048,459 Other Comprehensive Income (Loss): Unrealized holding gains and (losses) on available for sale securities 285,387 (1,981,596) (345,996) (2,909,902) Reclassification adjustment for (gains) and losses later recognized in income 42,858 (3,557) 43,966 (730,861) ----------- ----------- ----------- ----------- Net unrealized gains and (losses) 328,245 (1,985,153) (302,030) (3,640,763) Tax effect (111,601) 674,951 102,692 1,237,861 ----------- ----------- ----------- ----------- Total other comprehensive income (loss) 216,644 (1,310,202) (199,338) (2,402,902) Comprehensive income $ 1,480,424 $ (117,324) $ 2,369,816 $ 645,557 =========== =========== =========== ===========
See notes to interim consolidated financial statements. Page 5 6 FIRST CITIZENS BANC CORP Condensed Consolidated Statement of Shareholders' Equity (Unaudited) Form 10-Q
Common Stock Outstanding Retained Shares Amount Earnings --------- ------------ ------------ Balance, January 1,1998 4,263,401 $ 23,257,520 $ 25,514,853 Comprehensive income: Net income 5,760,667 Change in unrealized gain/(loss) on securities available for sale Total Cash paid for fractional shares (3,451) Cash dividends ($1.11 per share) (4,368,805) Cash dividends declared by Farmers, prior to merger (92,000) --------- ---------- ---------- Balance, December 31, 1998 4,263,401 23,257,520 26,811,264 Comprehensive income: Net income 6,062,169 Change in unrealized gain/(loss) on securities available for sale Total Purchase of treasury stock, at cost (100,586) Cash dividends ($1.15 per share) --------- ---------- ---------- Balance, December 31, 1999 4,162,815 23,257,520 28,010,371 Comprehensive income: Net income 2,569,154 Change in unrealized gain/(loss) on securities available for sale Total Purchase of treasury stock, at cost (57,696) Cash dividends ($.34 per share) (1,406,637) --------- ---------- ---------- Balance, June 30, 2000 4,105,119 $ 23,257,520 $ 29,172,888 ========= ============ ============ Accumulated Other Total Treasury Comprehensive Shareholders' Stock Income(Loss) Equity ------------ ------------ ------------ Balance, January 1,1998 $ 0 $ 2,427,062 $ 51,199,435 Comprehensive income: Net income 5,760,667 Change in unrealized gain/(loss) on securities available for sale 1,245,085 1,245,085 ------------ Total 7,005,752 Cash paid for fractional shares (3,451) Cash dividends ($1.11 per share) (4,368,805) Cash dividends declared by Farmers, prior to merger (92,000) ---------- -------- ---------- Balance, December 31, 1998 0 3,672,147 53,740,931 Comprehensive income: Net income 6,062,169 Change in unrealized gain/(loss) on securities available for sale (3,868,218) (3,868,218) ----------- Total 2,193,951 Purchase of treasury stock, at cost (2,877,032) (2,877,032) Cash dividends ($1.15 per share) (4,863,062) ---------- -------- ---------- Balance, December 31, 1999 (2,877,032) (196,071) 48,194,788 Comprehensive income: Net income 2,569,154 Change in unrealized gain/(loss) on securities available for sale (199,338) (199,338) ---------- Total Purchase of treasury stock, at cost (1,577,211) (1,577,211) Cash dividends ($.34 per share) ---------- -------- ---------- Balance, June 30, 2000 $ (4,454,243) $ (395,409) $ 47,580,756 ============ ============ ============
See notes to interim consolidated financial statements Page 6 7 FIRST CITIZENS BANC CORP Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, -------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities Net Income $ 2,569,154 $ 3,048,459 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization of office premises and equipment 463,627 473,579 Amortization of intangible assets 165,524 168,023 Provision for loan losses 215,000 156,000 Loans originated for sale (808,004) (7,242,501) Proceeds from sale of loans 297,215 7,319,380 (Gain)/loss on sale of loans 64,693 (127,590) Security (gains)/losses 43,966 (730,861) Change in deferred loan fees 50,745 (67,863) Net amortization of security premiums and discounts 135,397 318,075 Change in accrued interest and other assets (1,330,253) 1,980,745 Change in accrued interest, taxes and other expenses (336,964) (788,421) ------------ ------------ Net cash from operating activities 1,530,100 4,507,025 Cash flows from investing activities Maturities of interest bearing deposits -- 99,000 Maturities and calls of securities, held-to-maturity 34,852 154,828 Maturities and calls of securities, available-for-sale 9,090,006 17,220,146 Purchases of securities, available-for-sale (2,135,034) (12,925,835) Proceeds from sale of securities, available-for-sale 11,687,799 2,219,394 Loans made to customers, net of principal collected (15,797,972) 4,282,609 Loans purchased (7,364,271) -- Change in federal funds sold 4,600,000 9,365,000 Proceeds from sale of property and equipment 32,088 1,627 Purchases of office premises and equipment (179,858) (512,254) ------------ ------------ Net cash from investing activities (32,390) 19,904,515 Cash flows from financing activities Repayment of FHLB borrowings (275,574) (11,007,083) Net change in deposits (7,944,549) (10,316,713) Change in securities sold under agreements to repurchase (3,731,015) (4,155,049) Change in U. S. Treasury interest-bearing demand note payable (269,430) 1,869,352 Purchases of treasury stock (1,577,211) (16,851) Cash dividends paid (1,406,637) (1,364,289) Change n federal funds purchased 15,280,000 -- ------------ ------------ Net cash from financing activities 75,584 (24,990,633) ------------ ------------ Net change in cash and due from banks 1,573,294 (579,093) Cash and due from banks at beginning of period 14,598,566 16,443,613 ------------ ------------ Cash and due from banks at end of period $ 16,171,860 $ 15,864,520 ============ ============ Cash paid during the period for: Interest $ 8,533,422 $ 8,272,156 Income taxes $ 720,000 $ 960,000 Supplemental noncash disclosures: Transfer of loans held-for-sale to portfolio $ 2,138,027 $ 0
See notes to interim consolidated financial statements. Page 7 8 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- (1) Consolidated Financial Statements The consolidated financial statements include the accounts of First Citizens Banc Corp (First Citizens) and it wholly-owned subsidiaries, The Citizens Banking Company (Citizens), The Castalia Banking Company (Castalia), The Farmers State Bank of New Washington (Farmers), SCC Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc., (Reynolds), and Mr. Money Finance Company, (Mr. Money), together referred to as the Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The following reports have been prepared by the Corporation without audit: The consolidated balance sheets as of June 30, 2000; the consolidated statements of income for the three and six month periods ended June 30, 2000 and 1999;the consolidated statements of comprehensive income for the three and six month periods ended June 30, 2000 and 1999; the consolidated statement of shareholders' equity for the six months ended June 30, 2000; and the consolidated statements of cash flows for the six month periods ended June 30, 2000 and 1999. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Corporation's financial position as of June 30, 2000 and its results of operations and changes in cash flows for the periods ended June 30, 2000 and 1999 have been made. The accompanying consolidated financial statements have been prepared in accordance with instructions of Form 10-Q, and therefore certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The results of operations for the period ended June 30, 2000 are not necessarily indicative of the operating results for the full year. Reference is made to the accounting policies of the Corporation described in the notes to financial statements contained in the Corporation's 1999 annual report. The Corporation has consistently followed these policies in preparing this Form 10-Q. The Corporation provides financial services through its offices in the Ohio counties of Erie, Crawford, Marion and Union. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments that potentially represent concentrations of credit risk include deposit accounts in other financial institutions. In 2000, SCC provided item processing for 10 financial institutions in addition to the three subsidiary banks. SCC accounted for 3.0% of the Corporation's total revenues. Reynolds provides real estate appraisal services for lending purposes to subsidiary banks and other financial institutions. Reynolds accounts for less than 1.0% of total Corporation revenues. Mr. Money Finance Company is in the formation stage and as of June 30, 2000 has not engaged in any significant business activity. Management considers the Corporation to operate primarily in one reportable segment, banking. Page 8 9 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, and status of contingencies are particularly subject to change. Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Certain items in the 1999 financial statements have been reclassified to correspond with the 2000 presentation. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133 does not allow hedging of a security that is classified as held to maturity. Accordingly, upon adoption of SFAS No. 133, companies may reclassify any security from held to maturity to available for sale if they wish to be able to hedge the security in the future. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000 with early adoption encouraged for any fiscal quarter beginning July 1, 1998 or later, with no retroactive application. Management does not expect the adoption of SFAS No. 133 to have a significant impact on the Corporation's financial statements. Page 9 10 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- (2) Securities Securities at June 30, 2000 and December 31, 1999 were as follows:
June 30, 2000 Gross Gross Amortized Unrealized Unrealized AVAILABLE FOR SALe Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 54,433,713 $ 346 $ (1,173,076) $ 53,260,983 Obligations of state and political subdivisions 50,774,567 244,680 (661,377) 50,357,870 Other securities, including mortgage- backed and equity securities 26,521,873 1,507,877 (517,556) 27,512,194 ------------- ------------- ------------- ------------- $ 131,730,153 $ 1,752,903 $ (2,352,009) $ 131,131,047 ============= ============= ============= ============= June 30, 2000 Gross Gross Amortized Unrealized Unrealized HELD TO MATURITY Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- Obligations of state and political subdivisions $ 232,500 $ 0 $ (1,314) $ 231,186 Other securities, including mortgage- backed securities 138,480 73 (559) 137,994 ------------- ------------- ------------- ------------- $ 370,980 $ 73 $ (1,873) $ 369,180 ============= ============= ============= =============
Page 10 11 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q -------------------------------------------------------------------------------
December 31, 1999 Gross Gross Amortized Unrealized Unrealized AVAILABLE FOR SALE Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 64,114,363 $ 32,178 $ (921,945) $ 63,224,596 Obligations of state and political subdivisions 53,004,191 328,583 (727,110) 52,605,664 Other securities, including mortgage- backed securities 33,433,455 1,524,465 (533,247) 34,424,673 ------------- ------------- ------------- ------------- $ 150,552,009 $ 1,885,226 $ (2,182,302) $ 150,254,933 ============= ============= ============= =============
December 31, 1999 Gross Gross Amortized Unrealized Unrealized HELD TO MATURITY Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- Obligations of state and political subdivisions $ 232,500 $ 475 $ (31) $ 232,944 Other securities, including mortgage- backed securities 173,608 1,343 (130) 174,821 ------------- ------------- ------------- ------------- $ 406,108 $ 1,818 $ (161) $ 407,765 ============= ============= ============= =============
Page 11 12 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- The amortized cost and fair value of securities at June 30, 2000, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Securities not due at a single maturity date, primarily mortgage-backed securities and equity securities are shown separately.
AVAILABLE FOR SALE Amortized Cost Fair Value ------------------- -------------------- Due in one year or less $ 16,562,986 $ 16,495,965 Due after one year through five years 78,872,321 77,508,724 Due after five years through ten years 16,812,536 16,524,413 Due after ten years 570,000 574,412 Mortgage-backed securities 12,535,616 12,160,441 Equity securities 6,376,694 7,867,092 ------------ -------------- Total securities available for sale $131,730,153 $131,131,047 ============ ============= Estimated Fair HELD TO MATURITY Amortized Cost Value ------------------- -------------------- Due in one year or less $ 77,500 $ 77,223 Due after one year through five years 155,000 153,963 Mortgage-backed securities 138,480 137,994 ------------- ------------ Total securities held to maturity $ 370,980 $ 369,180 ============= ============
Proceeds from the sales of securities available for sale during the three months ended June 30, 2000 totaled $9,887,988 resulting in gross losses of $46,858. Proceeds from the sales of securities available for sale during the three months ended June 30, 1999 totaled $1,009,807 resulting in gross gains of $3,557. Proceeds from the sales of securities available for sale during the six months ended June 30, 2000 totaled $11,687,799 resulting in gross losses of $66,605 and gross gains of $18,639. Proceeds from the sales of securities available for sale during the six months ended June 30, 1999 totaled $2,219,394 resulting in gross gains of $730,861. Securities called or settled by the issuer during the three months ended June 30, 2000 resulted in gains of $4,000. Securities called or settled by the issuer during the six months ended June 30, 2000 resulted in gains of $4,000. No securities were called or settled by the issuer during the three or six months ended June 30, 1999. Securities with a carrying value of approximately $57,247,000 and $62,614,000 were pledged as of June 30, 2000 and December 31, 1999, respectively, to secure public deposits, other deposits and liabilities as required by law. Page 12 13 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- (3) Loans Loans at June 30, 2000 and December 31, 1999 were as follows:
6/30/2000 12/31/1999 --------- ---------- Commercial and Agriculture $ 36,286,375 $ 36,310,141 Commercial real estate 54,175,610 48,301,000 Real Estate - mortgage 185,622,697 168,643,326 Real Estate - construction 5,567,397 4,482,294 Consumer 28,345,975 28,105,412 Credit card and other 4,818,730 3,967,453 Deferred loan fees (926,869) (977,613) Unearned interest (43,563) (112,163) ------------- ------------- Total $ 313,846,352 $ 288,719,850 ============= =============
(4) Allowance for Loan Losses A summary of the activity in the allowance for loan losses for the six months ended June 30, 2000 and 1999 was as follows:
2000 1999 ---- ---- Balance January 1, $4,273,825 $4,567,126 Loans charged-off (351,027) (401,052) Recoveries 148,781 136,319 Provision for loan losses 215,000 156,000 ---------- ---------- Balance June 30, $4,286,579 $4,458,393 =========== ==========
Page 13 14 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- Information regarding impaired loans was as follows for the six months ended June 30.
2000 1999 ---- ---- Average investment in impaired loans $3,746,000 $3,747,000 Interest income recognized on impaired loans including interest income recognized on cash basis 143,562 144,502 Interest Income recognized on impaired loans on cash basis 143,562 144,502
Information regarding impaired loans at June 30, 2000 and December 31, 1999 was as follows:
6/30/00 12/31/99 ------- -------- Balance impaired loans $3,286,000 $4,160,000 Less portion for which no allowance for loan losses is allocated -- -- ---------- ---------- Portion of impaired loan balance for which an allowance for credit losses is allocated $3,286,000 $4,160,000 ========== ========== Portion of allowance for loan losses allocated to the impaired loan balace $ 942,900 $1,145,000 ========== ==========
Nonperforming loans were as follows.
June 30, 2000 December 31, 1999 -------------------- -------------------- Loans past due over 90 days still on accrual $1,308,000 $ 834,000 Nonaccrual 1,245,000 1,682,000
(5) Commitments, Contingencies and Off-Balance Sheet Risk Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection are issued to meet customers financing needs. These are agreements to provide credit or to support the credit of others, as long as the conditions established in the contract are met, and Page 14 15 First Citizens Banc Corp Notes to Interim Consolidated Financial Statements (Unaudited) Form 10-Q ------------------------------------------------------------------------------- usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of commitment The contractual amount of financial instruments with off-balance-sheet risk was as follows for June 30, 2000 and December 31, 1999.
Contract Amount --------------- June 30, December 31, 2000 1999 ----------------- ------------------ Commitment to extend credit: Lines of credit and construction loans $26,569,000 $23,982,000 Credit cards 4,289,000 3,078,000 Letters of credit 572,000 507,000 ----------- ----------- $31,430,000 $27,567,000 =========== ===========
Commitments to make loans are generally made for a period of one year or less. Fixed rate loan commitments included above totaled $5,781,000 at June 30, 2000 and had interest rates ranging from 5.25% to 12.00% with maturities extended up to 30 years. Fixed rate loan commitments included above totaled $4,484,000 at December 31, 1999 had interest rates ranging from 3.75% to 10.00% with maturities extended up to 30 years. The Banks are required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average reserve balance maintained in accordance with such requirements for the periods ended June 30, 2000 and December 31, 1999 approximated $4,436,000 and $3,065,000. In the normal course of business, the Corporation and its subsidiaries are involved in various legal actions, but in the opinion of management and its legal counsel, ultimate disposition of such legal matters is not expected to have a material adverse effect on the consolidated financial statements. Page 15 16 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q ------------------------------------------------------------------------------ INTRODUCTION The following discussion focuses on the consolidated financial condition of First Citizens Banc Corp at June 30, 2000, compared to December 31, 1999 and the consolidated results of operations for the three-month and six month periods ending June 30, 2000 compared to the same periods in 1999. This discussion should be read in conjunction with the consolidated financial statements and footnotes included in this Form 10-Q. The registrant is not aware of any trends, events or uncertainties that will have, or are reasonably likely to have, a material effect on the liquidity, capital resources, or operations except as discussed herein. Also, the registrant is not aware of any current recommendation by regulatory authorities, which would have a material effect if implemented. When used in this Form 10-Q or future filings by the Corporation with the Securities and Exchange Commission, in press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in levels of market interest rates, credit risks of lending activities and competitive and regulatory factors, could effect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims, any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements. See Exhibit 99, which is incorporated herein by reference. FINANCIAL CONDITION Total assets of the Corporation at June 30, 2000 totaled $474,328,493 compared to $472,220,057 at December 31, 1999. This was a increase of $2,108,436, or 0.4 percent. Within the structure of the assets, net loans have increased $25,113,748, or 8.8 percent since December 31, 1999, primarily in the area of commercial and residential real estate loans. Included in the increase in loans was $7,364,271 of commercial and residential real estate loans purchased by Farmers from another financial institution. The loans were purchased to supplement local demand, which management did not feel was as strong as desired. Given similar circumstances, management would consider purchasing additional loans in the future. Loans held-for-sale decreased Page 16 17 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q ----------------------------------------------------------------------------- $1,780,017, or 80.3 percent from December 31, 1999. At June 30, 2000, the net loan to deposit ratio was 78.3 percent compared to 70.6 percent at December 31, 1999. At June 30, 2000, $131,131,047, or 99.7 percent of the security portfolio was classified as available for sale. The remainder of $370,980 was classified as held to maturity. Securities decreased $19,159,014 from December 31, 1999. Some matured securities were not replaced and some additional securities were sold in order to increase liquidity and partially fund loan growth. . For the six months of operations in 2000, $215,000 was placed into the allowance for loan losses from earnings compared to $156,000 for the same period of 1999. The increased provision is mainly a result of loan growth. The calculation of specific reserves, reserves for delinquencies and historical reserve are representative of the reserves necessary for probable losses in the portfolio. The composition and overall level of the loan portfolio and charge-off activity are all factors used to determine provisions to the reserve. Net charge-offs for the first six months of 2000 were $202,246 compared to $264,733 for the same period of 1999. The June 30, 2000 allowance for loan losses as a percent of total loans was 1.37 percent compared to 1.48 percent at December 31, 1999. Office premises and equipment have decreased $315,857 and intangible assets have decreased $165,525 since December 31, 1999. The decrease in office premises and equipment is attributed to new purchases of $179,858, disposals of $32,088 and depreciation of $463,627. Accrued interest and other assets totaled $7,432,149 at June 30, 2000 compared to $5,990,342 at December 31, 1999, an increase of $1,441,807. This increase was primarily due to increases in interest receivable at the banks of $463,865, prepaid expenses of $232,983 and deferred taxes of $102,690. Total deposits at June 30, 2000 decreased $7,944,549 from year-end 1999. Noninterest-bearing deposits, representing demand deposit balances, increased $1,099,935 from year-end 1999. Interest-bearing deposits, including savings and time deposits, decreased $9,044,484 from year-end 1999. Interest bearing deposits are down in part because of our efforts to control deposit costs. Such efforts have caused some of our higher priced deposits to leave the banks. The year to date 2000 average balance of savings deposits has decreased $1,399,000 compared to the average balance of the same period for 1999. The current average rate of these deposits is 2.36 percent compared to 2.41 percent in 1999. The year to date 2000 average balance of time certificates has decreased $19,249,000 compared to the average balance for the same period for 1999. As with the end-of-period balances, the average balance of time certificates is down due to efforts to control deposit costs. Such efforts have led to higher priced deposits leaving the banks. In conjunction with market conditions and in order to remain competitive, the banks have offered special rates on various certificates of deposit. In addition to an increase in the overall interest rate environment, the banks have experienced shifting toward the special rate certificates, which Page 17 18 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q ------------------------------------------------------------------------------- has led to a modest increase in the overall rate on interest-bearing deposits. The current average rate on these deposits is 5.09 percent compared to 4.97 percent for the same period in 1999. Other borrowed funds have increased $11,003,981 from December 31, 1999 to June 30, 2000. Federal funds purchased have increased $15,280,000 since December 31, 1999. The need for federal funds purchased is the result of growing loans and shrinking deposits. Management feels that in the short term, federal funds purchased are a better source of funding than higher priced deposits. Maturities or sales of securities could be used to pay down the federal funds purchased balance in the future. Federal Home Loan Bank borrowings have decreased $275,574 as a result of scheduled pay downs. Securities sold under agreements to repurchase, which tend to fluctuate, have decreased $3,731,015 and U.S. Treasury Tax Demand Notes have decreased $269,430. Shareholders' equity at June 30, 2000 was $47,580,756, which was 10.0 percent of total assets. Shareholders' equity at December 31, 1999 was $48,194,788, which was 10.2 percent of total assets. The decrease in shareholders' equity is made up of earnings of $2,569,154, dividends paid of $1,406,637, the purchase of treasury stock for $1,577,211 and the decrease in the market value of securities available for sale, net of tax, of $199,338. The Corporation paid a cash dividend on February 1, 2000 and on May 1, 2000, each at a rate of $.17 per share. Total outstanding shares at June 30, 2000 were 4,105,119. RESULTS OF OPERATIONS Six Months Ended June 30, 2000 and 1999 Net income for the six months ended June 30, 2000 was $2,569,154, or $.62 per common share compared to $3,048,459, or $.72 per common share for the same period in 1999. This was a decrease of $479,305, or 15.7 percent. Some of the reasons for the changes are explained below. Total interest income for the first six months of 2000 has increased $2,253, or 0.01 percent compared to the same period in 1999. The average rate on earning assets on a tax equivalent basis for the first six months of 2000 was 7.35 percent and 7.22 percent for the first six months of 1999. Total interest expense for the first six months of 2000 has decreased $311,083, or 4.0 percent compared to the same period of 1999. This decrease is mainly attributed to a decrease in interest on deposits of $354,606, due to a lower average balance of interest-bearing deposits and a decrease in interest on FHLB borrowings of $143,736. Interest on FHLB borrowings is down as a result of balances borrowed being lower in 2000. The Corporation made scheduled balloon payments on two FHLB advances during the second quarter of 1999, and elected not to replace them. The average rate on interest-bearing liabilities for the first six months of 2000 was 3.97 percent compared to 3.94 percent for the same period of 1999. The net interest margin on a tax equivalent basis was 4.03 percent for the six-month period ended June 30, 2000 and 3.93 percent for the same period ended June 30, 1999. Page 18 19 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q -------------------------------------------------------------------------------- Noninterest income for the first six months of 2000 totaled $2,137,408, compared to $2,782,734 for the same period of 1999, a decrease of $645,326. Net gain on securities for the first six months of 2000 decreased $774,827 compared to 1999. Revenue from computer operations decreased $172,100 as a result of the sale of SCC's data processing contracts. The last remaining processing customers of SCC converted to Jack Henry and Associates by the end of the second quarter 1999. SCC still provides item processing for 10 financial institutions in addition to the three subsidiary banks. Other operating income increased $77,219, due mainly to increased revenue from point-of-sale terminal usage. Service charges on deposit accounts increased $416,665 as a result of a comprehensive review program of all service charges and fees undertaken at all three banks. Gain on the sale of loans decreased $192,283 for two reasons. Rising interest rates reduced the demand for fixed rate mortgages. This decreased the volume of loans sold, thereby reducing gains. The second reason is that $2,217,250 of held for sale loans were returned to the portfolio. These loans had experienced a decline in market value due to rising rates. They had also aged to the point that they were no longer traditionally saleable to FNMA. At this point, management returned theses loans to the portfolio and recognized the valuation loss of $79,223. Noninterest expense for the six months ended June 30, 2000 totaled $7,417,080 compared to $7,125,844 for the same period in 1999. This was an increase of $291,236, or 4.1 percent. Equipment expense increased $127,732 as a result of increased depreciation and maintenance expense. Salaries and benefits decreased $60,842, or 1.8 percent compared to the first six months of 1999 as a result of fewer total employees, on a full-time equivalent basis. The number of employees was reduced through attrition as well as a reduction based on staffing needs resulting from SCC's sale of data processing contracts. The reduction of salaries and benefits was offset by an increase in other expenses of $277,031 compared to 1999. Three Months Ended June 30, 2000 and 1999 Net income for the three months ended June 30, 2000 was $1,263,780, or $.31 per common share compared to $1,192,878, or $.28 per common share for the same period in 1999. This was an increase of $70,902, or 5.9 percent. Some of the reasons for the changes are explained below. Total interest income for the second quarter of 2000 increased $257,099, or 3.2 percent compared to the same period in 1999. The average rate on earning assets on a tax equivalent basis for the second quarter of 2000 was 7.45 percent and 7.17 percent for the same period of 1999. Total interest expense for the second quarter of 2000 increased $38,132, or 1.0 percent compared to the same period of 1999. Interest on deposits decreased $146,976, in part due to a decrease in volume. Federal funds were purchased to make up for this lost source of funding, with a corresponding increase to interest expense of $192,681. Management views this as a short term funding source that could be reduced through maturities or sales of securities in the future. Page 19 20 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q ------------------------------------------------------------------------------- The average rate on interest-bearing liabilities for the second quarter of 2000 was 3.92 percent compared to 3.96 percent for the same period of 1999. The net interest margin on a tax equivalent basis was 4.04 percent for the three-month period ended June 30, 2000 and 3.96 percent for the same period ended June 30, 1999. Noninterest income for the second quarter of 2000 totaled $1,018,545, compared to $877,967 for the same period of 1999, an increase of $140,578. Gain on securities for the second quarter of 2000 decreased $46,415 compared to 1999. Revenue from computer operations increased $75,301 The last remaining processing customers of SCC converted to Jack Henry and Associates by the end of the second quarter 1999. SCC still provides item processing for 10 financial institutions in addition to the three subsidiary banks. Other operating income increased $4,213. Service charges on deposit accounts increased $205,244 as a result of a comprehensive review program of all service charges and fees undertaken at all three banks. Gain on the sale of loans decreased $97,765 for two reasons. Rising interest rates reduced the demand for fixed rate mortgages. This decreased the volume of loans sold, thereby reducing gains. The second reason is that $2,217,250 of held for sale loans were returned to the portfolio. Management decided to return theses loans to the portfolio and record the valuation loss rather than sell them. Noninterest expense for the three months ended June 30, 2000 totaled $3,773,118 compared to $3,543,261 for the same period in 1999. This was an increase of $229,857, or 6.5 percent. Equipment expense increased $72,371 as a result of increased depreciation and maintenance expense. Salaries and benefits increased $71,943, or 4.4 percent compared to the second quarter of 1999. Other expenses increased by $151,465 compared to 1999. Professional fees decreased by $81,733, or 21.8 percent compared to the same period of 1999. INCOME TAX EXPENSE Income tax expense for the first six months of 2000 totaled $946,094 compared to $1,149,015 for the first six months of 1999. This was a decrease of $200,921, or 17.5 percent. The decrease in the federal income taxes is a result of the decrease in total income before taxes of $682,726, attributed mostly to reduced income from the sale of equity securities. The effective tax rates were comparable for the six-month periods ended June 30, 2000 and June 30, 1999, at 27.0% and 27.4% respectively. Income tax expense for the second quarter of 2000 totaled $448,930 compared to $420,144 for the same period of 1999. This was an increase of $28,786, or 6.8 percent. The increase in the federal income taxes is a result of the increase in total income before taxes of $97,188. The effective tax rates were comparable for the three-month periods ended June 30, 2000 and June 30, 1999, at 26.2% and 26.0% respectively Page 20 21 First Citizens Banc Corp Management's Discussion and Analysis of Financial Condition and Results of Operations Form 10-Q -------------------------------------------------------------------------------- CAPITAL RESOURCES Shareholders' equity totaled $46,636,139 at June 30, 2000 compared to $48,194,788 at December 31, 1999. All of the capital ratios exceed the regulatory minimum guidelines as identified in the following table:
Corporation Ratios Regulatory 6/30/00 12/31/99 Minimums ------- -------- -------- Tier I Risk Based Capital 15.3% 17.3% 4.0% Total Risk Based Capital 17.0% 18.7% 8.0% Leverage Ratio 9.7% 9.6% 4.0%
The Corporation paid a cash dividend of $.17 per common share each on February 1, 2000, and May 1, 2000 compared to $.16 per common share each on February 1, 1999 and May 1, 1999. Capital expenditures totaled $179,858 for the first six months of 2000 compared to $512,254 for the same period of 1999. LIQUIDITY Liquidity as it relates to the banking entities of the Corporation is the ability to meet the cash demand and credit needs of its customers. The Banks, through their respective correspondent banks, maintain federal funds borrowing lines totaling $37,360,000 and the Banks have additional borrowing availability at the Federal Home Loan Bank of Cincinnati of $57,641,227 at June 30, 2000. Finally, 99.7% of the Corporation's security portfolio has been classified as available for sale, which provides additional liquidity. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. The Banks do not maintain a trading account for any class of financial instrument and the Corporation is not affected by foreign currency exchange rate risk or commodity price risk. Due to the basis in equities held by Farmers being so much less than the current fair value at this time, the Corporation is not subject to significant equity price risk. Interest rate risk is the risk that the Corporation's financial condition will be adversely affected due to movements in interest rates. The Corporation, like other financial institutions, is subject to Page 21 22 First Citizens Banc Corp Management's Disucssion and Analysis of Financial Condition and Results of Operations Form 10-Q ------------------------------------------------------------------------------- interest rate risk to the extent that its interest-earning assets reprice differently than interest-bearing liabilities. The income of financial institutions is primarily derived from the excess of interest earned on interest-earning assets over interest paid on interest-bearing liabilities. One of the Corporation's principal financial objectives is to achieve long-term profitability while reducing its exposure to fluctuations in interest rates. Accordingly, the Corporation places great importance on monitoring and controlling interest rate risk. There are several methods employed by the Corporation to monitor and control interest rate risk. One such method is using gap analysis. The gap is defined as the repricing variance between rate sensitive assets and rate sensitive liabilities within certain periods. The repricing can occur due to changes in rates on variable products as well as maturities of interest-earning assets and interest-bearing liabilities. A high ratio of interest sensitive liabilities, generally referred to as a negative gap, tends to benefit net interest income during periods of falling rates as the average rate on interest-bearing liabilities falls faster than the average rate earned on interest-earning assets. The opposite holds true in during periods of rising rates. The Corporation attempts to minimize the interest rate risk through management of the gap in order to achieve consistent shareholder return. The Corporation's Assets and Liability Management Policy is to maintain a laddered gap position. One strategy is to originate variable rate loans tied to market indices. Such loans reprice as the underlying market index changes. Currently, approximately 42.2 percent of the Corporation's loan portfolio reprices on at least an annual basis. The Corporation also invests excess funds in federal funds that mature and reprice daily. The Corporation's 1999 annual report details a table, which provides information about the Banks financial instruments that are sensitive to changes in interest rates as of December 31, 1999. The table is based on information and assumptions set forth in the notes. The Corporation believes the assumptions are reasonable. For loans, securities and liabilities with contractual maturities, the table represents principal cash flows and weighted average interest rate. For variable rate loans the contractual maturity and weighted average interest rate were used with an explanatory footnote as to repricing periods. For liabilities without contractual maturities such as demand and savings deposits, a decay rate was utilized to match their most likely withdrawal behavior. Management believes that no events have occurred since December 31, 1999 which would significantly change the ratio of rate sensitive assets and liabilities for the given time horizon. Page 22 23 First Citizens Banc Corp Other Information Form 10-Q ------------------------------------------------------------------------------- Part II - Other Information ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS First Citizens Banc Corp held its annual meeting on April 18, 2000, for the purpose of considering and voting on the following: 1.) To elect four Class III directors to serve terms of three years or until their successors are elected and qualified. 2.) To adopt the 2000 First Citizens Banc Corp's Stock Option and Stock Appreciation Rights Plan. 3.) To ratify appointment of Crowe, Chizek and Company LLP (Crowe, Chizek) as independent auditors for the calendar year 1999. Four directors, Blythe A. Friedley, Dean S. Lucal, W. Patrick Murray and Paul H. Pheiffer were nominated for reelection and were subsequently reelected as directors. The Stock Option and Stock Appreciation Rights Plan was adopted. The appointment of Crowe, Chizek as independent auditors was ratified. No other issues were brought before the meeting. Page 23 24 First Citizens Banc Corp Other Information Form 10-Q ------------------------------------------------------------------------------- The summary of the voting of common shares outstanding was as follows: Director Candidate ------------------- For Withheld Blythe A. Friedley 3,629,373 50,655 Dean S. Lucal 3,658,522 21,506 W. Patrick Murray 3,640,218 39,810 Paul H. Phieffer 3,647,953 32,075 The following directors' terms of office continued after the meeting: John L. Bacon, Robert L. Bordner, Mary Lee G. Close, Richard B. Fuller H. Lowell Hoffman, M.D., Lowell W. Leech, George L. Mylander, David A. Voight, and Richard O. Wagner
Stock Option and Stock For Against Abstain Appreciation Rights Plan 3,325,250 94,670 4,924 Accounting Firm For Against Abstain Crowe, Chizek 3,646,503 28,596 4,929
ITEM 5. OTHER INFORMATION None ITEM 6. (A) EXHIBIT NO. 27 Financial Data Schedule................ 27 (B) EXHIBIT NO. 99 Safe Harbor under the Private Securities Litigation Reform Act of 1995......... (C) REPORTS ON FORM 8-K - None. Page 24 25 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, The registrant has caused this report to be signed on its behalf the undersigned thereunto duly authorized. First Citizens Banc Corp /s/ David A. Voight August 14, 2000 ------------------------------------ --------------- David A. Voight Date President /s/ James O. Miller August 14, 2000 ------------------------------------ --------------- James O. Miller Date Executive Vice President Page 25 26 First Citizens Banc Corp Index to Exhibits Form 10-Q -------------------------------------------------------------------------------
Exhibit Number Description Page Number -------- ------------ ----------- 27 Financial Data Schedule 27 99 Safe Harbor Under the Private Securities Incorporated by reference to Exhibit 99 to Litigation Reform Act of 1995 Annual Report on Form 10-K for the Year Ended December 31, 1999 filed by the registrant on March 24, 2000
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